Continental Announces ExpressJet Sale

29th Jul 2003

HOUSTON, July 29 /PRNewswire-FirstCall/—Continental Airlines, Inc. (NYSE: CAL) today announced that it expects to sell an aggregate of approximately $200 million of shares of common stock of ExpressJet Holdings, Inc. (NYSE: XJT), thereby reducing its ownership of ExpressJet from 53.1% to approximately 37.5% (assuming a purchase price of $15.54 per share, the closing price of ExpressJet stock on July 28, less a negotiated discount). This sale is expected to consist of two transactions: a sale by Continental directly to ExpressJet of approximately $122 million of ExpressJet stock, and a sale by Continental to the public of 5 million shares of ExpressJet stock in a registered public offering.
As it recently announced, ExpressJet is offering, through a 144A private placement, $125 million aggregate principal amount of its convertible notes (plus up to an additional $18.75 million of convertible notes if the initial purchasers exercise their option to purchase additional notes). ExpressJet will use the net proceeds of this offering to purchase the ExpressJet shares described above from Continental at a discount to the market price. Assuming the purchase price reflected above, the transaction would result in the purchase by ExpressJet of approximately 8 million of its shares from Continental with the net proceeds from this offering (plus up to an additional 1.2 million shares of common stock if the initial purchasers of ExpressJet`s convertible notes exercise their option to purchase additional notes).
Also as previously announced by ExpressJet, Continental expects to sell 5 million shares of ExpressJet common stock in a registered public offering as selling stockholder pursuant to an effective shelf registration statement of ExpressJet. In addition, Continental expects to grant the underwriters a 30-day over-allotment option to purchase an additional 750,000 shares of ExpressJet common stock.
The initial closings of these sales of ExpressJet common stock by Continental are expected to occur on or about August 4, 2003. Continental intends to use the entire amount of its net proceeds from these transactions to fund a portion of its defined benefit pension obligations.
If the over-allotment options are exercised in full, then following these sales Continental`s ownership of ExpressJet is expected to fall to approximately 34.7%. Continental currently consolidates ExpressJet for accounting purposes due to its majority ownership interest, but will cease to consolidate ExpressJet following the consummation of these sales, subject to a determination as to the applicability of the Financial Accounting Standards Board`s Interpretation 46, Consolidation of Variable Interest Entities. A discussion of this Interpretation and its application is contained in Note 4 to the financial statements in Continental`s quarterly report on Form 10-Q for the quarter ended June 30, 2003. The primary effects of deconsolidation on Continental`s financial statements would be a decrease in current assets, primarily due to the elimination of ExpressJet`s cash ($118 million at June 30, 2003), an increase in assets resulting from the inclusion of Continental`s note receivable from ExpressJet as an asset of Continental, and a decrease in operating income as a result of the exclusion of ExpressJet`s operating income from Continental`s statement of operations. This decrease in operating income would be offset in part by increases in nonoperating income from Continental`s equity in ExpressJet`s earnings. Also, upon deconsolidation, Continental would no longer record minority interest on either its balance sheet or income statement. Under the companies` capacity purchase agreement, Continental purchases all of ExpressJet`s capacity and is responsible for selling all the seat inventory. As a result, after deconsolidation, Continental will continue to record the related passenger revenue and related expenses, with payments under the capacity purchase agreement reflected as a separate operating expense.
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 these 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 only by means of a prospectus.
This communication is being distributed only to and is directed only at persons who are outside the United Kingdom (such persons being referred to as “relevant persons”). The securities are available only to, and any invitation, offer or agreement to subscribe, purchase or otherwise acquire such securities will be engaged in only with, relevant persons. Any person who is not a relevant person should not act or rely on this communication or any of its contents.
The terms “expected to” and “intends to” identify forward-looking statements as defined by federal securities laws. The proposed sales are subject to a number of conditions and approvals and there can be no assurance that the sales will be completed as described.
Continental Airlines is the world`s seventh-largest airline with 2,300 daily departures to 134 domestic and 92 international destinations. Continental has the broadest global route network of any U.S. airline, including extensive service throughout the Americas, Europe and Asia. Continental has hubs serving New York, Houston, Cleveland and Guam, and carries approximately 41 million passengers per year on the newest jet fleet among major U.S. airlines.


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