Continental Airlines Summarizes Special Charges for the Fourth Quarter and Full Year 2008
January 21 2009 - 4:30PM
PR Newswire (US)
HOUSTON, Jan. 21 /PRNewswire-FirstCall/ -- Continental Airlines
(NYSE: CAL) expects to record several special items during the
fourth quarter of 2008 totaling $170 million of expense ($234
million of expense for the full year 2008). Special gains (charges)
for the three months ending Dec. 31, 2008, and for full year 2008,
are as follows (in millions): Three Months Year Ended Ended Dec.
31, 2008 Dec. 31, 2008 ------------- ------------- Pension plan
settlement charges $(44) $(52) Aircraft related charges, net of
gains on sales 5 (40) Severance (1) (34) Route impairment and other
- (55) ---- ---- Subtotal operating special charges $(40) $(181)
Loss on fuel contract with bankrupt counterparty $(125) $(125) Gain
on sale of COPA Holdings - 78 Write-down in value of auction rate
securities, net (5) (34) ---- ---- Subtotal non-operating special
items $(130) $(81) Income tax credit - 28 ---- ---- Total $(170)
$(234) ===== ===== Pension plan settlement charges. The pension
plan settlement charges relate to lump-sum distributions from
Continental's pilot-only frozen defined benefit plan as a result of
a number of retirements from the capacity reductions in 2008.
Statement of Financial Accounting Standards No. 88, "Employer's
Accounting for Settlements and Curtailments of Defined Benefit
Pension Plans and for Termination Benefits," requires the use of
settlement accounting if, for a given year, lump sum distributions
exceed the total of the service cost and interest cost components
of current year's pension expense for the plan. Under settlement
accounting, unrecognized plan gains or losses must be recognized in
the current period in proportion to the percentage reduction of the
plan's projected benefit obligation from these lump sum
distributions. Continental recognized $44 million and $52 million
of unrecognized plan losses for the fourth quarter and full year
2008, respectively. Aircraft related charges, net of gains on
sales. Continental announced a decision in June 2008 to retire all
of its Boeing 737-300 aircraft and a significant portion of its
Boeing 737-500 aircraft by the end of 2009. During the fourth
quarter, the company sold two owned 737-500 aircraft and arranged
for the sale of three other 737-500 leased aircraft for a net gain
of $7 million. This gain was partially offset by a $2 million
charge for future lease costs associated with one 737-300 leased
aircraft that was permanently grounded in the fourth quarter, as
well as other settlements on grounded aircraft, which resulted in a
net special gain of $5 million for the quarter. For the full year
2008, the net special charge consists of $37 million of impairment
of owned 737-300 and 737-500 aircraft and related assets, a
non-cash charge of $14 million to write down spare parts and
supplies for the related fleets to the lower of cost or net
realizable value, and $14 million of charges for future lease costs
on permanently grounded 737-300 aircraft, partially offset by $25
million of gains on the sale of ten 737-500 aircraft. Severance. In
conjunction with the company's capacity reductions announced in
June 2008, Continental incurred $34 million in costs for severance
and continuing medical coverage benefits for employees accepting
early retirement packages or company-offered leaves of absence
during 2008 ($1 million of which was recorded during the fourth
quarter of 2008). Approximately 3,000 positions were eliminated as
a result of the capacity reductions, the majority of which were
implemented in September 2008. Impairment and other. During the
full year 2008, the company also recorded $55 million of special
charges, which included an $18 million non-cash charge to write off
an intangible route asset as a result of its decision to move its
London-Newark Liberty flights from London Gatwick Airport to London
Heathrow Airport, $14 million of charges related to future rents
for leased space at locations that are no longer expected to be
used or subleased, a $9 million charge for reimbursements to
ExpressJet of certain costs related to capacity reductions, and $14
million of other one-time costs. Loss on fuel contracts with
bankrupt counterparty. The parent company of one of the
counterparties to several of the company's fuel derivative
contracts declared bankruptcy on Sept. 15, 2008 (and the
counterparty subsequently declared bankruptcy on Oct. 3, 2008). The
derivative contracts with this counterparty largely consisted of
crude oil collars (comprised of option contracts with both call and
put options) that extended through March 2009. The company
determined that its fuel derivative contracts with this
counterparty were no longer considered highly-effective hedges and
has recorded subsequent changes in the fair value of the contracts
since that determination date (of Sept. 15, 2008) as part of
nonoperating income (expense). The total amount of the loss
recorded during the fourth quarter as a result of changes to the
fair value of the contracts was $125 million. In January of 2009,
Continental terminated all the derivative contracts with this
bankrupt counterparty. Gain on sale of COPA Holdings. Continental
sold all of its remaining interest in Copa Holdings, S.A. in May
2008 for net proceeds of $149 million and recognized a gain of $78
million. Write-down in value of auction rate securities, net.
Continental recorded a loss of $60 million during 2008 ($31 million
during the fourth quarter) to reflect an other-than-temporary
decline in the value of company-held student loan related auction
rate securities. Separately, during the fourth quarter, one
institution granted Continental a put right permitting the company
to sell its auction rate securities with a par value of $125
million in 2010 at their full par value. The company recorded a
gain of $26 million during the fourth quarter for this put right.
The write-down, net of the gain on the put right, was $5 million
during the fourth quarter and $34 million for the full year 2008.
Income tax credit. During the three months ended June 30, 2008,
Continental recorded a non-cash income tax credit of $28 million
resulting from the higher utilization of net operating loss
carryforwards than had previously been anticipated. Continental
will conduct a quarterly telephone briefing to discuss the fourth
quarter and full year 2008 results and the company's financial and
operating outlook with the financial community and news media on
Jan. 29, 2008, at 9:30 a.m. CT/ 10:30 a.m. ET. Corporate Background
Continental Airlines is the world's fifth largest airline.
Continental, together with Continental Express and Continental
Connection, has more than 2,800 daily departures throughout the
Americas, Europe and Asia, serving 135 domestic and 132
international destinations. More than 675 additional points are
served via alliance partners. With more than 42,000 employees,
Continental has hubs serving New York, Houston, Cleveland and Guam,
and together with Continental Express, carries approximately 67
million passengers per year. Continental consistently earns awards
and critical acclaim for both its operation and its corporate
culture. For more company information, visit continental.com.
DATASOURCE: Continental Airlines CONTACT: Corporate Communications,
+1-713-324-5080, , continental.com/company/news/ Web Site:
http://www.continental.com/
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