1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): July 10, 2001 CONTINENTAL AIRLINES, INC. (Exact name of registrant as specified in its charter) Delaware 0-09781 74-2099724 (State or other jurisdiction (Commission File Number) (IRS Employer of incorporation) Identification No.) 1600 Smith Street, Dept. HQSEO, Houston, Texas 77002 (Address of principal executive offices) (Zip Code) (713) 324-2950 (Registrant's telephone number, including area code)
2 Item 5. Other Events. On July 10, 2001, we issued a press release, a copy of which is attached hereto as Exhibit 99.1 and incorporated herein by reference. The press release discusses the filing today by our wholly owned subsidiary, ExpressJet Holdings, Inc., of a registration statement with the Securities and Exchange Commission to effect an initial public offering of shares of its Class A common stock. The sole assets of ExpressJet Holdings are all the shares of the capital stock of ExpressJet Airlines, Inc. (formerly known as Continental Express, Inc.), the regional airline that operates as Continental Express. As discussed in the registration statement, we have announced our intention to distribute all of our shares of stock of ExpressJet Holdings pro rata to our stockholders soon after the six-month anniversary of the initial public offering. The press release includes pro forma financial information to reflect the effects of some of the matters discussed in the press release. In light of the foregoing matters and as announced in the press release, we have suspended our previously announced stock repurchase program until a date to be announced in the future. Item 7. Financial Statements and Exhibits. (c) Exhibits 99.1 Press release 2
3 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, Continental Airlines, Inc. has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. CONTINENTAL AIRLINES, INC. By /s/ Jennifer L. Vogel ------------------------------------- Jennifer L. Vogel Vice President and General Counsel July 10, 2001 3
4 EXHIBIT INDEX 99.1 Press Release
1 EXHIBIT 99.1 NEWS RELEASE CONTACT: Corporate Communications [CONTINENTAL AIRLINES LOGO] HOUSTON: 713.324.5080 EMAIL: corpcomm@coair.com NEWS ARCHIVE: www.continental.com/news ADDRESS: P.O. Box 4607, Houston, TX 77210-4607 CONTINENTAL AIRLINES ANNOUNCES INITIAL PUBLIC OFFERING OF REGIONAL AIRLINE SUBSIDIARY HOUSTON, July 10, 2001 -- Continental Airlines (NYSE: CAL) today announced that its wholly owned subsidiary, ExpressJet Holdings, Inc. (ExpressJet), filed a registration statement with the Securities and Exchange Commission for a proposed initial public offering of its Class A common stock. ExpressJet wholly owns ExpressJet Airlines, Inc., the regional airline that operates as Continental Express. Soon after the six-month anniversary of the planned offering, subject to receipt of a favorable ruling from the Internal Revenue Service, Continental Airlines intends to spin off to its stockholders the remaining shares of ExpressJet in a tax-free distribution. In connection with the planned offering and spin-off, Continental Airlines plans to prepay a portion of its outstanding indebtedness and has suspended its previously announced stock repurchase program until a date to be announced in the future. Unaudited pro forma consolidated condensed financial statements of Continental Airlines giving effect to the prepayment of debt and to the spin-off and related matters are included in this press release. A registration statement relating to the ExpessJet securities has been filed with the Securities and Exchange Commission but has not yet become effective. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This press release shall not constitute an offer to sell or a solicitation of an offer to buy nor shall there be any sale of the ExpressJet securities in any State in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such State. The offering will be made
2 only by means of a prospectus. The terms "expected to," "plans to" and "intended to" identify forward-looking statements as defined by federal securities laws. The proposed offering and related spin-off of ExpressJet are subject to a number of conditions and approvals and there can be no assurance that an offering or spin-off will be completed as described or within the time periods outlined above. Important factors that could cause actual results to be materially different than those described in the forward-looking statements include the failure to receive an Internal Revenue Service ruling that the spin-off will be tax-free to Continental Airlines and its stockholders for U.S. federal income tax purposes.
3 UNAUDITED PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS The following unaudited pro forma consolidated condensed financial statements of Continental Airlines, Inc. are derived from the application of pro forma adjustments to our historical financial statements: o The unaudited pro forma consolidated condensed statement of operations for the three months ended March 31, 2001 gives effect to (1) the retirement of $150 million in debt in connection with the planned initial public offering of Class A common stock of our wholly owned subsidiary, ExpressJet Holdings, Inc. (which we refer to as "Holdings"), the holder of all the capital stock of ExpressJet Airlines, Inc. (formerly known as Continental Express, Inc., which we refer to as "Express"), and (2) the subsequent 100% spin-off of Holdings, as if each of these transactions had been effective as of January 1, 2001. o The unaudited pro forma consolidated condensed statement of operations for the year ended December 31, 2000 gives effect to (1) the retirement of $150 million in debt in connection with the planned initial public offering of Class A common stock of Holdings, (2) the subsequent 100% spin-off of Holdings and (3) the capacity purchase arrangement which replaced our previous revenue sharing arrangement with Express and went into effect on January 1, 2001, as if each of these transactions had been effective as of January 1, 2000. o The unaudited pro forma consolidated condensed balance sheet at March 31, 2001 has been prepared as if (1) the retirement of $150 million in debt in connection with the planned initial public offering of Class A common stock of Holdings and (2) the subsequent 100% spin-off of Holdings had occurred on March 31, 2001. The total net proceeds from the planned initial public offering are not currently known. Consequently, that portion of the total net proceeds in excess of the amount to be used to retire at least $150 million of debt described above is not reflected in any of the following pro forma information. The pro forma information is presented for illustrative purposes only and is not necessarily indicative of the operating results or financial position that would have occurred if the transactions had been consummated at the assumed dates, nor is it necessarily indicative of future results of operations. These unaudited pro forma consolidated condensed financial statements should be read in conjunction with our audited historical financial statements and the related notes thereto, and the other information about our company filed with the Securities and Exchange Commission.
4 Three Months Ended March 31, 2001 (in millions, except per share data) ---------------------------------------------------------------------- Capacity Purchase As and Other Actual Adjusted (A) Adjustments Pro Forma ------ ------------ ----------- --------- PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS: Operating revenue..................... $2,451 $2,206 $ (45) (B) $2,161 Operating expenses: Wages, salaries and related (3) (C) costs............................. 758 709 (18) (B) 688 Aircraft fuel...................... 345 317 (2) (B) 315 Aircraft rent...................... 214 175 175 Maintenance, materials and repairs........................... 160 128 128 Other rentals and landing fees..... 141 122 122 Commissions........................ 115 115 (10) (B) 105 Reservations and sales............. 128 128 (13) (B) 115 Depreciation and amortization...... 105 100 100 Passenger servicing................ 91 87 (2) (B) 85 Other.............................. 318 276 276 ------ ------ ------ ------ 2,375 2,157 (48) 2,109 ------ ------ ------ ------ Operating income...................... 76 49 3 52 ------ ------ ------ ------ Interest income (expense), net........ (42) (37) 4 (D) (33) Other non-operating income (expense).......................... (15) (15) - (15) ------ ------ ------ ------ Income (loss) before income taxes..... 19 (3) 7 4 Income tax (expense) benefit.......... (8) 1 (3) (E) (2) Distribution on preferred securities.. (2) (2) - (2) ------ ------ ------ ------ Net income (loss)..................... $ 9 $ (4) $ 4 $ 0 ====== ====== ====== ====== Basic earnings per share.............. 0.17 0.00 ====== ====== Diluted earnings per share............ 0.16 0.00 ====== ====== Shares used in computing basic earnings per share................. 54.9 54.9 ====== ====== Shares used in computing diluted earnings per share................. 56.4 56.4 ====== ======
5 Year Ended December 31, 2000 (in millions, except per share data) ---------------------------------------------------------------------- Capacity Purchase As and Other Actual Adjusted (A) Adjustments Pro Forma ------ ------------ ----------- --------- PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS: Operating revenue..................... $9,899 $9,055 $(119) (B) $8,936 Operating expenses: Wages, salaries and related costs............................. 2,875 2,719 (4) (C) 2,715 Aircraft fuel...................... 1,393 1,287 1,287 Aircraft rent...................... 844 697 697 Maintenance, materials and repairs........................... 646 530 530 Other rentals and landing fees..... 532 474 474 Commissions........................ 526 489 489 Reservations and sales............. 455 392 392 Depreciation and amortization...... 402 379 379 Passenger servicing................ 362 339 339 Other.............................. 1,135 985 985 ------ ------ ----- ------ 9,170 8,291 (4) 8,287 ------ ------ ----- ------ Operating income (loss)............... 729 764 (115) 649 ------ ------ ----- ------ Interest income (expense), net........ (107) (83) 16 (D) (67) Other non-operating income (expense).......................... (51) (51) - (51) ------ ------ ----- ------ Income (loss) before income taxes..... 571 630 (99) 531 Income tax (expense) benefit.......... (222) (242) 36 (E) (206) Distribution on preferred securities.. (1) (1) - (1) ------ ------ ----- ------ Income (loss) before extraordinary charges............................ 348 387 (63) 324 Extraordinary charge.................. (6) (6) - (6) ------ ------ ----- ------ Net income (loss)..................... $ 342 $ 381 $ (63) $ 318 ====== ====== ===== ====== Basic earnings per share.............. 5.62 5.24 ====== ======= Diluted earnings per share............ 5.45 5.08 ====== ======= Shares used in computing basic earnings per share................. 60.7 60.7 ====== ======= Shares used in computing diluted earnings per share................. 62.8 62.8 ====== =======
6 NOTES TO PRO FORMA CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS: (A) As adjusted amounts, reflect the removal of the historical consolidated financial results of Holdings and its wholly owned subsidiary, Express, as a result of the planned initial public offering and spin-off. (B) Reflects the restatement of revenues from the historical revenue sharing arrangement between Continental Airlines and Express, which was based on a proration formula, to a fixed-fee capacity purchase arrangement whereby Continental Airlines pays fixed rates for each scheduled block hour of flight by aircraft operated by Express. These rates vary depending on the average length of Express's scheduled flights, Express's aggregate number of flights and the type of aircraft provided, and are otherwise subject to certain adjustments. The fixed rates used to determine the 2000 pro forma revenue were based on historical and expected operating costs, which had been set to provide Express with the capacity purchase arrangement's targeted margin on earnings before interest and taxes. Adjustments to expenses reflect the reclassification of certain items associated with Express's operations to revenue where the capacity purchase expenses are recorded. All amounts associated with the capacity purchase arrangement including the fixed fee payments, the revenue associated with passengers traveling a portion of their trip on Express and the expenses associated with these passengers are reflected together in revenue. (C) Reflects the adjustment to profit sharing expense based on the pro forma, as adjusted income. (D) Reflects the reduction in interest expense associated with the $150 million reduction in debt and additional interest income associated with the receivable from Express. (E) Reflects the income tax effects of the pro forma adjustments.
7 March 31, 2001 (in millions of dollars) ----------------------------------------------------- As Other Actual Adjusted (A) Adjustments Pro Forma ------ ------------ ----------- --------- PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET: ASSETS: Cash and cash equivalents ............ $ 1,007 $ 936 $ -- $ 936 Accounts receivable, net ............. 572 572 572 Spare parts and supplies, net ........ 276 240 240 Deferred income taxes ................ 139 73 73 Prepayments and other ................ 187 187 187 ------- ------- ------- ------- Total current assets ................ 2,181 2,008 -- 2,008 Total property and equipment, net .... 5,504 5,315 5,315 Routes, gates and slots .............. 1,068 1,054 1,054 Receivable from Express .............. 535 535 Other assets ........................ 515 515 515 ------- ------- ------- ------- Total assets ........................ $ 9,268 $ 9,427 $ -- $ 9,427 ======= ======= ======= ======= LIABILITIES: Current maturities of long-term debt and capital leases ............. $ 361 $ 359 $ -- $ 359 Accounts payable ..................... 912 901 901 Air traffic liability ................ 1,357 1,357 1,357 Accrued other liabilities ............ 544 478 478 ------- ------- ------- ------- Total current liabilities ........... 3,174 3,095 3,095 Long-term debt and capital leases .... 3,639 3,631 (150)(B) 3,481 Deferred income taxes ................ 835 835 53 (B) 888 Other long-term liabilities .......... 208 205 205 Continental-Obligated Mandatorily Redeemable Preferred Securities of Subsidiary Trust Holding Solely Convertible Subordinated Debentures ........................ 243 243 243 STOCKHOLDERS' EQUITY: Common stock ......................... 1 1 1 Additional paid-in capital ........... 831 831 831 Retained earnings (accumulated deficit) ............................ 1,465 1,714 97 (B) 1,811 Other ................................ (1,128) (1,128) (1,128) ------- ------- ------- ------- Total stockholders' equity .......... 1,169 1,418 97 1,515 ------- ------- ------- ------- Total liabilities and stockholders' equity ............ $ 9,268 $ 9,427 $ -- $ 9,427 ======= ======= ======= ======= NOTES TO PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET: (A) As adjusted amounts reflect the removal of the financial results of Holdings and its wholly owned subsidiary, Express, as a result of the planned initial public offering and spin-off. (B) Reflects the reduction of debt associated with the proceeds from the planned initial public offering of Holdings and the related income tax effect. Continental Airlines is the fifth largest airline in the U.S., offering more than 2,200 daily departures to 133 domestic and 92 international destinations. Operating hubs in Newark, Houston, Cleveland and Guam, Continental (www.continental.com) serves more international cities than any other U.S. carrier, including extensive service throughout the Americas, Europe and Asia.