HOUSTON, July 30 /PRNewswire-FirstCall/—Continental Airlines, Inc. (NYSE: CAL) today announced that it has agreed to sell a portion of its shares of common stock of ExpressJet Holdings, Inc. (NYSE: XJT) to ExpressJet, thereby reducing its ownership of ExpressJet by approximately 8 percent. Continental also announced that, due to current market conditions, it has terminated its recently announced offer to sell 5 million shares of ExpressJet`s common stock as selling stockholder in a registered public offering.
ExpressJet separately announced that it has priced its 144A private offering of $125 million aggregate principal amount of convertible notes (plus up to an additional $18.75 million of convertible notes if the initial purchasers of ExpressJet`s convertible notes exercise in full their option to purchase additional notes). ExpressJet will use the net proceeds of this offering to repurchase approximately $122 million of ExpressJet common stock from Continental Airlines at a discount to the market price.
With the repurchase of shares by ExpressJet, Continental`s ownership of ExpressJet is expected to fall to approximately 45% (or 44% if the initial purchasers of ExpressJet`s convertible notes exercise in full their option to purchase additional notes).
Commenting on Continental`s termination of its 5 million share public offering of ExpressJet stock, Jeff Misner, Continental Airlines` chief financial officer, said, “With our cash balance at an all-time high, we will wait for a more appropriate opportunity to reduce our stake beyond the shares that we are selling to ExpressJet. As we`ve said before, we do not intend to remain a stockholder of ExpressJet over the long term.”
Continental continues to review Financial Accounting Standards Board`s Interpretation 46, Consolidation of Variable Interest Entities, to determine whether the decrease in its ownership interest of ExpressJet, as a result of its sale of stock to ExpressJet, will result in Continental`s ceasing to consolidate ExpressJet for accounting purposes. 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.
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.