UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________
Commission File Number 0-9781
CONTINENTAL AIRLINES, INC.
(Exact name of registrant as specified in its charter)
Delaware 74-2099724
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) 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)
Indicate by check mark whether registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes X No _____
_______________
As of July 16, 1999, 11,406,580 shares of Class A common stock and
61,079,850 shares of Class B common stock were outstanding.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
CONTINENTAL AIRLINES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share data)
Three Months Six Months
Ended June 30, Ended June 30,
1999 1998 1999 1998
(Unaudited) (Unaudited)
Operating Revenue:
Passenger . . . . . . . $2,028 $1,888 $3,928 $3,602
Cargo and mail. . . . . 70 68 137 136
Other . . . . . . . . . 100 80 189 152
2,198 2,036 4,254 3,890
Operating Expenses:
Wages, salaries and
related costs. . . . . 622 521 1,238 1,018
Aircraft rentals. . . . 189 162 373 318
Maintenance, materials
and repairs. . . . . . 155 152 298 305
Aircraft fuel . . . . . 154 183 304 373
Commissions . . . . . . 142 152 285 293
Other rentals and
landing fees . . . . . 121 99 235 200
Depreciation and
amortization . . . . . 88 72 173 140
Other . . . . . . . . . 471 415 932 813
1,942 1,756 3,838 3,460
Operating Income . . . . 256 280 416 430
Nonoperating Income
(Expense):
Interest expense. . . . (57) (44) (110) (84)
Interest capitalized. . 16 15 29 28
Interest income . . . . 15 14 30 26
Other, net. . . . . . . (4) 10 9 12
(30) (5) (42) (18)
(continued on next page)
CONTINENTAL AIRLINES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions of dollars, except per share data)
Three Months Six Months
Ended June 30, Ended June 30,
1999 1998 1999 1998
(Unaudited) (Unaudited)
Income before Income
Taxes, Cumulative
Effect of a Change in
Accounting Principle
and Extraordinary
Charge. . . . . . . . . $ 226 $ 275 $ 374 $ 412
Income Tax Provision . . (89) (105) (147) (157)
Distributions on
Preferred Securities
of Trust, Net of
Applicable Income
Taxes of $2 and $4,
respectively. . . . . . - (3) - (7)
Income before Cumulative
Effect of a Change in
Accounting Principle
and Extraordinary
Charge. . . . . . . . . 137 167 227 248
Cumulative Effect of a
Change in Accounting
Principle, Net of
Applicable Income Taxes
of $3 . . . . . . . . . - - (6) -
Extraordinary Charge,
Net of Applicable
Income Taxes of $2. . . - (4) - (4)
Net Income . . . . . . . $ 137 $ 163 $ 221 $ 244
(continued on next page)
CONTINENTAL AIRLINES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions of dollars, except per share data)
Three Months Six Months
Ended June 30, Ended June 30,
1999 1998 1999 1998
(Unaudited) (Unaudited)
Earnings per Common Share:
Income Before Cumulative
Effect of Change in
Accounting Principle and
Extraordinary Charge. $ 1.93 $ 2.74 $ 3.25 $ 4.13
Cumulative Effect of a
Change in Accounting
Principle, net of tax - - (0.08) -
Extraordinary Charge,
net of tax. . . . . . - (0.06) - (0.05)
Net Income . . . . . . $ 1.93 $ 2.68 $ 3.17 $ 4.08
Earnings per Common Share
Assuming Dilution:
Income Before Cumulative
Effect of Change in
Accounting Principle and
Extraordinary Charge. $ 1.80 $ 2.11 $ 2.98 $ 3.16
Cumulative Effect of a
Change in Accounting. - - (0.07) -
Principle, net of tax
Extraordinary Charge,
net of tax. . . . . . - (0.05) - (0.04)
Net Income . . . . . . $ 1.80 $ 2.06 $ 2.91 $ 3.12
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
CONTINENTAL AIRLINES, INC.
CONSOLIDATED BALANCE SHEETS
(In millions, except for share data)
June 30, December 31,
ASSETS 1999 1998
(Unaudited)
Current Assets:
Cash and cash equivalents, including
restricted cash and cash equivalents
of $11 . . . . . . . . . . . . . . . . . $1,259 $1,399
Accounts receivable, net. . . . . . . . . 496 449
Spare parts and supplies, net . . . . . . 207 166
Deferred income taxes . . . . . . . . . . 234 234
Prepayments and other . . . . . . . . . . 175 106
Total current assets . . . . . . . . . . 2,371 2,354
Property and Equipment:
Owned property and equipment:
Flight equipment . . . . . . . . . . . . 3,181 2,459
Other. . . . . . . . . . . . . . . . . . 765 632
3,946 3,091
Less: Accumulated depreciation. . . . . 727 625
3,219 2,466
Purchase deposits for flight equipment 538 410
Capital leases:
Flight equipment. . . . . . . . . . . . . 372 361
Other . . . . . . . . . . . . . . . . . . 57 56
429 417
Less: Accumulated amortization . . . . . 192 178
237 239
Total property and equipment . . . . . . 3,994 3,115
Other Assets:
Routes, gates and slots, net. . . . . . . 1,156 1,181
Investments . . . . . . . . . . . . . . . 152 151
Other assets, net . . . . . . . . . . . . 270 285
Total other assets . . . . . . . . . . . 1,578 1,617
Total Assets. . . . . . . . . . . . . . $7,943 $7,086
(continued on next page)
CONTINENTAL AIRLINES, INC.
CONSOLIDATED BALANCE SHEETS
(In millions, except for share data)
June 30, December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1999 1998
(Unaudited)
Current Liabilities:
Current maturities of long-term debt. . . $ 189 $ 184
Current maturities of capital leases. . . 46 47
Accounts payable. . . . . . . . . . . . . 827 843
Air traffic liability . . . . . . . . . . 1,037 854
Accrued payroll and pensions. . . . . . . 221 265
Accrued other liabilities . . . . . . . . 244 249
Total current liabilities. . . . . . . . 2,564 2,442
Long-Term Debt . . . . . . . . . . . . . . 2,630 2,267
Capital Leases . . . . . . . . . . . . . . 208 213
Deferred Credits and Other Long-Term
Liabilities:
Deferred income taxes . . . . . . . . . . 521 372
Accruals for aircraft retirements and
excess facilities. . . . . . . . . . . . 77 95
Other . . . . . . . . . . . . . . . . . . 328 393
Total deferred credits and other
long-term liabilities . . . . . . . . . 926 860
Commitments and Contingencies
Continental-Obligated Mandatorily
Redeemable Preferred Securities of
Subsidiary Trust Holding Solely
Convertible Subordinated
Debentures. . . . . . . . . . . . . . . . - 111
(continued on next page)
CONTINENTAL AIRLINES, INC.
CONSOLIDATED BALANCE SHEETS
(In millions, except for share data)
June 30, December 31,
1999 1998
(Unaudited)
Common Stockholders' Equity:
Class A common stock - $.01 par,
50,000,000 shares authorized;
11,406,580 and 11,406,732 shares
issued and outstanding in 1999
and 1998, respectively . . . . . . . . . $ - $ -
Class B common stock - $.01 par,
200,000,000 shares authorized;
63,923,431 and 53,370,741 shares
issued, respectively . . . . . . . . . . 1 1
Additional paid-in capital . . . . . . . 872 634
Retained earnings . . . . . . . . . . . . 880 659
Accumulated other comprehensive income. . (69) (88)
Treasury stock - 1,783,413 and 399,524
Class B shares, respectively, at cost. . (69) (13)
Total common stockholders' equity. . . . 1,615 1,193
Total Liabilities and Stockholders'
Equity . . . . . . . . . . . . . . . . $7,943 $7,086
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
CONTINENTAL AIRLINES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
Six Months
Ended June 30,
1999 1998
(Unaudited)
Net cash provided by operating
activities. . . . . . . . . . . . . . .$ 398 $ 549
Cash Flows from Investing Activities:
Purchase deposits paid in connection
with future aircraft deliveries. . . . (685) (361)
Purchase deposits refunded in
connection with aircraft delivered . . 522 287
Capital expenditures. . . . . . . . . . (313) (311)
Proceeds from sale of investments . . . 20 9
Purchase of short-term investments. . . - (117)
Investment in Partner Airlines. . . . . - (53)
Other . . . . . . . . . . . . . . . . . (9) (6)
Net cash used by investing
activities. . . . . . . . . . . . . . (465) (552)
Cash Flows from Financing Activities:
Proceeds from issuance of long-term
debt, net. . . . . . . . . . . . . . . 230 395
Payments on long-term debt and
capital lease obligations. . . . . . . (159) (301)
Purchase of Class B common stock. . . . (171) (120)
Proceeds from issuance of common stock. 19 44
Dividends paid on preferred securities
of trust . . . . . . . . . . . . . . . - (11)
Other . . . . . . . . . . . . . . . . . 8 39
Net cash (used) provided by
financing activities. . . . . . . . . (73) 46
Net (Decrease) Increase in Cash and
Cash Equivalents. . . . . . . . . . . . (140) 43
Cash and Cash Equivalents - Beginning
of Period (A) . . . . . . . . . . . . . 1,388 1,010
Cash and Cash Equivalents - End of
Period (A). . . . . . . . . . . . . . . $1,248 $1,053
(continued on next page)
CONTINENTAL AIRLINES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
Six Months
Ended June 30,
1999 1998
(Unaudited)
Supplemental Cash Flow Information:
Interest paid . . . . . . . . . . . . . $ 101 $ 72
Income taxes paid . . . . . . . . . . . $ 8 $ 4
Investing and Financing Activities
Not Affecting Cash:
Property and equipment acquired
through the issuance of debt . . . . . $ 501 $ 263
Capital lease obligations incurred. . . $ 21 $ 109
Conversion of trust originated
preferred securities . . . . . . . . . $ 111 $ -
Conversion of 6-3/4% Convertible
Subordinated Notes . . . . . . . . . . $ 230 $ -
(A) Excludes restricted cash of $11 million and $15 million at
January 1, 1999 and 1998, respectively, and $11 million and $14
million at June 30, 1999 and 1998, respectively.
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
CONTINENTAL AIRLINES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
In the opinion of management, the unaudited consolidated financial
statements included herein contain all adjustments necessary to
present fairly the financial position, results of operations and
cash flows for the periods indicated. Such adjustments are of a
normal, recurring nature. The accompanying consolidated financial
statements should be read in conjunction with the consolidated
financial statements and the notes thereto contained in the Annual
Report of Continental Airlines, Inc. (the "Company" or
"Continental") on Form 10-K for the year ended December 31, 1998
(the "1998 10-K").
Certain reclassifications have been made in the prior year's
financial statements to conform to the current year presentation.
NOTE 1 - EARNINGS PER SHARE
The following table sets forth the computations of basic and
diluted earnings per share (in millions):
Three Months Six Months
Ended June 30, Ended June 30,
1999 1998 1999 1998
Numerator:
Income before cumulative effect
of change in accounting
principle and extraordinary
charge . . . . . . . . . . . . $137 $167 $227 $248
Cumulative effect of change in
accounting principle, net of
applicable income taxes. . . . - - (6) -
Extraordinary charge, net of
applicable income taxes. . . . - (4) - (4)
Numerator for basic earnings
per share - net income . . . . 137 163 221 244
Effect of dilutive securities:
Preferred Securities of Trust . - 3 - 7
6-3/4% convertible subordinated
notes. . . . . . . . . . . . . 1 2 3 4
1 5 3 11
Numerator for diluted earnings
per share - net income after
assumed conversions. . . . . . $138 $168 $224 $254
Denominator:
Denominator for basic earnings
per share - weighted-average
shares . . . . . . . . . . . . 70.9 60.7 69.7 59.9
Effect of dilutive securities:
Employee stock options . . . . 1.7 2.0 1.5 2.0
Warrants . . . . . . . . . . . - 0.7 - 1.7
Preferred Securities of Trust. - 10.3 0.1 10.3
6-3/4% convertible subordinated
notes . . . . . . . . . . . . 4.2 7.6 5.9 7.6
Dilutive potential common
shares. . . . . . . . . . . . 5.9 20.6 7.5 21.6
Denominator for diluted
earnings per share - adjusted
weighted-average and assumed
conversions. . . . . . . . . . 76.8 81.3 77.2 81.5
NOTE 2 - INCOME TAXES
Income taxes for the three and six months ended June 30, 1999 and
1998 were provided at the estimated annual effective tax rate.
Such rate differs from the federal statutory rate of 35%, primarily
due to state income taxes and the effect of certain expenses that
are not deductible for income tax purposes.
At December 31, 1998, the Company had estimated net operating
losses ("NOLs") of $1.1 billion for federal income tax purposes
that will expire through 2009 and federal investment tax credit
carryforwards of $45 million that will expire through 2001. As a
result of a change in ownership of the Company on April 27, 1993,
the ultimate utilization of the Company's NOLs and investment tax
credits may be limited. Reflecting this limitation, the Company
recorded a valuation allowance of $263 million as of December 31,
1998.
To the extent the Company were to determine in the future that
additional NOLs of the Company's predecessor could be recognized in
the accompanying consolidated financial statements, such benefit
would reduce routes, gates and slots.
NOTE 3 - COMPREHENSIVE INCOME
The Company includes unrealized gains and losses on available-for-
sale securities, changes in minimum pension liabilities and changes
in the fair value of derivative financial instruments which qualify
for hedge accounting in other comprehensive income. During the
second quarter of 1999 and 1998, total comprehensive income
amounted to $128 and $158 million, respectively. For the six
months ended 1999 and 1998, total comprehensive income amounted to
$240 million and $243 million, respectively. The significant
difference between net income and total comprehensive income during
the first half of 1999 was attributable to the $17 million net
increase in fair value (net of applicable income taxes and hedge
ineffectiveness) related to petroleum swap contracts and call
options held by the Company as of June 30, 1999 to hedge a portion
of anticipated jet fuel purchases through October 1999.
NOTE 4 - CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE
Continental adopted Statement of Position 98-5, "Reporting on the
Costs of Start-Up Activities ("SOP 98-5)") in the first quarter of
1999. SOP 98-5 amended Statement of Position 88-1, "Accounting for
Developmental and Preoperating Costs, Purchases and Exchanges of
Take-Off and Landing Slots, and Airframe Modifications" by
requiring preoperating costs related to the integration of new
types of aircraft to be expensed as incurred and requiring all
unamortized start-up costs (e.g., pilot training costs related to
induction of new aircraft) to be expensed upon adoption. This
resulted in the Company recording a $6 million cumulative effect of
a change in accounting principle, net of tax, in the first quarter
of 1999.
NOTE 5 - PREFERRED SECURITIES OF TRUST
In December 1998, the Company called for redemption its remaining
8-1/2% Convertible Trust Originated Preferred Securities ("TOPrS")
then outstanding. As a result, the remaining 2,298,327 TOPrS were
converted into 4,752,522 shares of Class B common stock during
January 1999.
NOTE 6 - 6-3/4% CONVERTIBLE SUBORDINATED NOTES DUE 2006
On April 15, 1999, the Company exercised its right and called for
redemption on May 25, 1999, all $230 million of its 6-3/4%
Convertible Subordinated Notes due 2006. The notes were converted
into 7,617,120 shares of Class B common stock during May 1999.
NOTE 7 - REGULATORY MATTERS
The Company recently received approval from the Port Authority of
New York and New Jersey for a major facility expansion at Newark
International Airport ("Newark"). Major construction is scheduled
to begin in August 1999 and to be completed in 2002.
As more fully described in the Risk Factors section of the
Company's 1998 10-K, airlines are subject to extensive regulatory
and legal compliance requirements that engender significant costs
and in some cases reduce revenue. For instance, "passenger bill of
rights" legislation has been introduced in Congress that would,
among other things, require the payment of compensation to
passengers as a result of certain delays, and limit the ability of
carriers to prohibit or restrict usage of certain tickets in
manners currently prohibited or restricted. The Department of
Transportation (the "DOT") has proposed rules that would
significantly limit major carriers' ability to compete with new
entrant carriers. If adopted, these measures could have the effect
of raising ticket prices, reducing revenue and increasing costs.
The Federal Aviation Administration has designated John F. Kennedy
International Airport ("John F. Kennedy"), New York LaGuardia
Airport ("LaGuardia"), Chicago O'Hare International Airport
("O'Hare") and Ronald Reagan Washington National Airport in
Washington, D.C. ("Reagan National") as "high density traffic
airports" and has limited the number of departure and arrival slots
at those airports. Currently, such slots may be voluntarily sold
or transferred between carriers. The DOT has in the past
reallocated slots to other carriers and reserves the right to
withdraw slots. Various amendments to the slot system proposed
from time to time could, if adopted, significantly affect
operations at high density traffic airports, significantly change
the value of the slots, grant slots to other carriers or for route
or aircraft specific usage, expand slots to other airports or
eliminate slots entirely. The DOT has proposed the elimination of
slot restrictions at high density airports other than Reagan
National. Legislation containing a similar proposal which could
eliminate slots as early as 2002 at O'Hare and 2007 at LaGuardia
and John F. Kennedy, and which doubles the maximum passenger
facilities charges permitted to be charged by airport authorities,
has passed the full House of Representatives. The Company cannot
predict whether any of these proposals will be adopted. However,
if legislation or regulation eliminating slots is adopted, the
value of such slots could be deemed to be permanently impaired,
resulting in a loss being charged to earnings for the relevant
period. Moreover, the elimination of slots could have an adverse
effect upon future results of operations of the Company.
NOTE 8 - OTHER
On January 5, 1999, the Company's mechanics ratified an initial
three-year collective bargaining agreement between the Company and
the International Brotherhood of Teamsters ("IBT"). The contract
becomes amendable in January 2002.
In February 1999, the Company completed an offering of $806 million
of pass-through certificates to be used to finance (either through
leveraged leases or secured debt financings) the debt portion of
the acquisition cost of 22 aircraft scheduled to be delivered from
March 1999 through September 1999.
The Company holds a membership interest in The SITA Foundation
("SITA"), an organization providing data communication services to
the airline industry. SITA's primary asset is an ownership
interest in Equant N.V. ("Equant"). In February 1999, SITA sold a
portion of its Equant interest in a secondary public offering and
distributed the pro rata proceeds to certain of its members
(including Continental) that elected to participate in the
offering. Continental recorded a gain of $20 million ($12 million
after tax) related to this transaction. The gain is included in
other nonoperating income (expense) in the accompanying
consolidated statement of operations.
In March 1999, the Company obtained a $160 million Credit Facility,
with a maturity date of March 2001, to finance pre-delivery
deposits for certain new Boeing aircraft to be delivered between
March 1999 and March 2002.
On April 15, 1999, the Company announced a $500 million increase in
the size of its common stock repurchase program, bringing the total
size of the program to $800 million. As of July 16, 1999, the
Company had repurchased 9,812,200 shares of Class B common stock
for $437 million.
In May 1999, the Company completed an offering of $742 million of
pass-through certificates to be used to finance (through either
leveraged leases or secured debt financings) the debt portion of
the acquisition cost of 21 new Boeing aircraft scheduled for
delivery from July 1999 to December 1999.
In July 1999, a tentative initial agreement was reached between
Continental Express, Inc. ("Express"), a wholly owned subsidiary of
the Company, and the IBT, which represents Express's mechanics.
The IBT will now present the tentative agreement to the covered
employees for ratification, a process that is expected to be
completed by mid-August 1999. If ratified, the agreement will
become amendable in January 2003.
During the three months ended June 30, 1999, the Company recognized
approximately a $36 million gain on its fuel hedging program. The
gain is included in fuel expense in the accompanying consolidated
statement of operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
The following discussion may contain forward-looking statements.
In connection therewith, please see the risk factors set forth in
the Company's 1998 10-K which identify important factors such as
the Company's leverage and its liquidity, its history of operating
losses, the cost of aircraft fuel, labor matters, certain tax
matters, regional and global economic downturns, the significant
ownership interest of Northwest Airlines in the Company and risks
relating to the Company's strategic alliance with Northwest
Airlines, year 2000 computer risk, competition and industry
conditions, regulatory matters and the seasonal nature of the
airline business, that could cause actual results to differ
materially from those in the forward-looking statements.
Continental's results of operations are impacted by seasonality
(the second and third quarters are generally stronger than the
first and fourth quarters) as well as numerous other factors that
are not necessarily seasonal, including the extent and nature of
competition from other airlines, employee job actions (including at
other airlines), fare sale activities, excise and similar taxes,
changing levels of operations, fuel prices, foreign currency
exchange rates, changes in regulations and aviation treaties and
general economic conditions. Although the results in Asia of
Continental Micronesia, Inc. ("CMI"), a wholly owned subsidiary of
the Company, have declined in recent years, the Company
successfully redeployed CMI capacity into the stronger U.S.
domestic markets and CMI's recent results have improved. In
addition, management believes the Company is well positioned to
respond to market conditions in the event of a sustained economic
downturn for the following reasons: underdeveloped hubs with strong
local traffic; a flexible fleet plan; a strong cash balance, a $225
million unused revolving credit facility and a well developed
alliance network.
RESULTS OF OPERATIONS
The following discussion provides an analysis of the Company's
results of operations and reasons for material changes therein for
the three and six months ended June 30, 1999 as compared to the
corresponding periods ended June 30, 1998.
Comparison of Three Months Ended June 30, 1999 to Three Months
Ended June 30, 1998
The Company recorded consolidated net income of $137 million for
the three months ended June 30, 1999 as compared to consolidated
net income of $163 million for the three months ended June 30,
1998.
Passenger revenue increased 7.4%, $140 million, during the quarter
ended June 30, 1999 as compared to the same period in 1998, which
was principally due to a 9.1% increase in revenue passenger miles,
partially offset by a 2.4% decrease in yield. The decrease in
yield was due to lower industry-wide fare levels and a 6.4%
increase in average stage length.
Other operating revenue increased 25.0%, $20 million, in the three
months ended June 30, 1999 as compared to the same period in the
prior year, primarily due to an increase in revenue related to the
Company's frequent flyer program ("OnePass").
Wages, salaries and related costs increased 19.4%, $101 million,
during the quarter ended June 30, 1999 as compared to the same
period in 1998, primarily due to a 7.2% increase in average full-
time equivalent employees to support increased flying and higher
wage rates resulting from the Company's decision to increase
employee wages to industry standards by the year 2000.
Aircraft rentals increased 16.7%, $27 million, in the second
quarter of 1999 compared to the second quarter of 1998, due to the
delivery of new aircraft.
Aircraft fuel expense decreased 15.8%, $29 million, in the three
months ended June 30, 1999 as compared to the same period in the
prior year. The average price per gallon decreased 18.8% from
46.96 cents in the second quarter of 1998 to 38.13 cents in the
second quarter of 1999. This reduction was partially offset by a
2.4% increase in the quantity of jet fuel used, principally
reflecting increased capacity. In addition, during the second
quarter of 1999, the Company recognized approximately a $36 million
gain related to its fuel hedging program. See "Fuel Hedging"
below.
Commissions expense decreased 6.6%, $10 million, in the second
quarter of 1999 compared to the second quarter of 1998 due to a
lower volume of commissionable sales and lower rates as a result of
the international commission cap, partially offset by increased
passenger revenue.
Other rentals and landing fees increased 22.2%, $22 million, in the
three months ended June 30, 1999 as compared to the same period in
the prior year primarily due to higher facilities rent due to
increased rates and space, and higher landing fees resulting from
increased operations.
Depreciation and amortization expense increased 22.2%, $16 million,
in the second quarter of 1999 compared to the second quarter of
1998 due principally to the addition of new aircraft and related
spare parts. These increases were partially offset by
approximately a $2 million reduction in the amortization of routes,
gates and slots resulting from the recognition of previously
unbenefitted NOLs during 1998.
Other operating expense increased 13.5%, $56 million, in the three
months ended June 30, 1999 as compared to the same period in the
prior year, as a result of increases in reservations and sales
expense, passenger services expense, aircraft servicing expense and
other miscellaneous expense, resulting primarily from an increase
in enplanements and revenue passenger miles.
Interest expense increased 29.5%, $13 million, due to an increase
in long-term debt resulting from the purchase of new aircraft and
$200 million of 8% unsecured senior notes issued in December 1998,
offset by interest savings of $1.7 million due to the conversion of
the Company's 6-3/4% Convertible Subordinated Notes.
The Company's other nonoperating income (expense) in the three
months ended June 1999 includes foreign currency losses of $4.1
million. Other nonoperating income (expense) in the three months
ended June 30, 1998 included a $6 million gain on the sale of
certain stock of America West Holdings Corporation ("America
West").
Comparison of Six Months Ended June 30, 1999 to Six Months Ended
June 30, 1998
The Company recorded consolidated net income of $221 million and
$244 million for the six months ended June 30, 1999 and 1998,
respectively. Net income for the first quarter of 1999 included
the cumulative effect of a change in accounting principle charge
($6 million, net of taxes) related to the write-off of pilot
training costs.
Passenger revenue increased 9.1%, $326 million, during the six
months ended June 30, 1999 as compared to the same period in 1998.
The increase was due to a 11.3% increase in revenue passenger
miles, partially offset by a 2.9% decrease in yield. The Company
estimates that passenger revenue in the first quarter of 1999
increased by $19 million due to a significant number of flight
cancellations at one of its competitors. The decrease in yield was
due to lower industry-wide fare levels and a 6.5% increase in
average stage length.
Other operating revenue increased 24.3%, $37 million, in the six
months ended June 30, 1999 compared to the same period in the prior
year primarily due to an increase in OnePass revenue.
Wages, salaries and related costs increased 21.6%, $220 million,
during the six months ended June 30, 1999 as compared to the same
period in 1998, primarily due to an 8.7% increase in average full-
time equivalent employees to support increased flying, increased
on-time bonus payments and higher wage rates resulting from the
Company's decision to increase employee wages to industry standards
by the year 2000.
Aircraft rentals increased 17.3%, $55 million, during the six
months ended June 30, 1999 as compared to the same period in 1998,
due primarily to the delivery of new aircraft.
Maintenance, materials and repairs decreased 2.3%, $7 million,
during the six months ended June 30, 1999 as compared to the same
period in the prior year due to newer aircraft and the volume and
timing of engine overhauls as part of the Company's ongoing
maintenance program.
Aircraft fuel expense decreased 18.5%, $69 million, in the six
months ended June 30, 1999 as compared to the same period in the
prior year. The average price per gallon decreased 22.2% from
49.30 cents in the first six months of 1998 to 38.37 cents in the
first six months of 1999. This reduction was partially offset by
a 3.9% increase in the quantity of jet fuel used principally
reflecting increased capacity. In addition, during the first six
months of 1999, the Company recognized approximately a $37 million
gain related to its fuel hedging program. See "Fuel Hedging"
below.
Commissions expense decreased 2.7%, $8 million, during the six
months ended June 30, 1999 as compared to the same period in 1998
due to a lower volume of commissionable sales and lower rates as
the result of the international commission cap, partially offset by
increased passenger revenue.
Other rentals and landing fees increased 17.5%, $35 million,
primarily due to higher facilities rent due to increased rates and
volume, and higher landing fees resulting from increased
operations.
Depreciation and amortization expense increased 23.6%, $33 million,
in the first six months of 1999 compared to the same period in 1998
primarily due to the addition of new aircraft and related spare
parts. These increases were partially offset by approximately a $4
million reduction in the amortization of routes, gates and slots
resulting from the recognition of previously unbenefitted NOLs
during 1998.
Other operating expense increased 14.6%, $119 million, in the six
months ended June 30, 1999 as compared to the same period in the
prior year, primarily as a result of increases in passenger
services expense, aircraft servicing expense, reservations and
sales expense and other miscellaneous expense, primarily due to an
increase in enplanements and revenue passenger miles.
Interest expense increased 31.0%, $26 million, due to an increase
in long-term debt resulting from the purchase of new aircraft and
$200 million of 8% unsecured senior notes issued in December 1998,
offset by interest savings of $1.7 million due to the conversion of
the Company's 6-3/4% Convertible Subordinated Notes.
The Company's other nonoperating income (expense) in the six months
ended June 30, 1999 includes a $20 million gain on the sale of a
portion of the Company's indirect interest in Equant partially
offset by foreign currency losses of $10.5 million. Other
nonoperating income (expense) in the first six months of 1998
included a $6 million gain on the sale of certain America West
stock.
Certain Statistical Information
An analysis of statistical information for Continental's jet
operations, excluding regional jet operations, for the periods
indicated is as follows:
Three Months Ended Net
June 30, Increase/
1999 1998 (Decrease)
Revenue passenger miles
(millions) (1). . . . . . . . . . 14,919 13,675 9.1 %
Available seat miles
(millions) (2). . . . . . . . . . 20,163 18,574 8.6 %
Passenger load factor (3). . . . . 74.0% 73.6% 0.4 pts.
Breakeven passenger load
factor (4). . . . . . . . . . . . 61.9% 59.0% 2.9 pts.
Passenger revenue per available
seat mile (cents). . . . . . . . 9.20 9.39 (2.0)%
Total revenue per available
seat mile (cents) . . . . . . . . 10.15 10.27 (1.2)%
Operating cost per available
seat mile (cents) . . . . . . . . 8.97 8.85 1.4 %
Average yield per revenue
passenger mile (cents) (5) . . . 12.44 12.75 (2.4)%
Average fare per revenue
passenger . . . . . . . . . . . .$161.47 $154.80 4.3 %
Revenue passengers (thousands) . .11,493 11,261 2.1 %
Average length of aircraft
flight (miles) . . . . . . . . . 1,104 1,038 6.4 %
Average daily utilization of
each aircraft (hours) (6). . . . 10:35 10:19 2.6 %
Actual aircraft in fleet at
end of period (7) . . . . . . . . 360 353 2.0 %
Six Months Ended Net
June 30, Increase/
1999 1998 (Decrease)
Revenue passenger miles
(millions) (1). . . . . . . . . .28,656 25,747 11.3 %
Available seat miles
(millions) (2). . . . . . . . . .39,388 36,097 9.1 %
Passenger load factor (3). . . . . 72.8% 71.3% 1.5 pts.
Breakeven passenger load
factor (4). . . . . . . . . . . . 62.7% 59.8% 2.9 pts.
Passenger revenue per available
seat mile (cents). . . . . . . . 9.17 9.25 (0.9)%
Total revenue per available
seat mile (cents) . . . . . . . . 10.10 10.15 (0.5)%
Operating cost per available
seat mile (cents) . . . . . . . . 9.09 8.99 1.1 %
Average yield per revenue
passenger mile (cents) (5) . . . 12.60 12.98 (2.9)%
Average fare per revenue
passenger . . . . . . . . . . . .$162.16 $156.60 3.6 %
Revenue passengers (thousands) . .22,271 21,333 4.4 %
Average length of aircraft
flight (miles) . . . . . . . . . 1,093 1,026 6.5 %
Average daily utilization of
each aircraft (hours) (6). . . . 10:23 10:16 1.1 %
Actual aircraft in fleet at
end of period (7) . . . . . . . . 360 353 2.0 %
Continental has entered into block-space arrangements with certain
other carriers whereby one or both of the carriers is obligated to
purchase capacity on the other. For the three months ended June
30, 1999 and June 30, 1998, the table above excludes 633 million
and 346 million available seat miles, and related revenue passenger
miles and enplanements, operated by Continental but purchased and
marketed by the other carrier, and includes 258 million and 43
million available seat miles, and related revenue passenger miles
and enplanements, operated by other carriers but purchased and
marketed by Continental. For the six months ended June 30, 1999
and June 30, 1998, the table above excludes 1.3 billion and 676
million available seat miles, and related revenue passenger miles
and enplanements, operated by Continental but purchased and
marketed by the other carrier, and includes 490 million and 65
million available seat miles, and related revenue passenger miles
and enplanements, operated by other carriers but purchased and
marketed by Continental.
__________________
(1) The number of scheduled miles flown by revenue passengers.
(2) The number of seats available for passengers multiplied by
the number of scheduled miles those seats are flown.
(3) Revenue passenger miles divided by available seat miles.
(4) The percentage of seats that must be occupied by revenue
passengers in order for the airline to break even on an
income before income taxes basis, excluding nonrecurring
charges, nonoperating items and other special items.
(5) The average revenue received for each mile a revenue
passenger is carried.
(6) The average number of hours per day that an aircraft flown in
revenue service is operated (from gate departure to gate
arrival).
(7) Excludes six all-cargo 727 aircraft at CMI in 1999 and 1998.
During the first six months of 1999, the Company took
delivery of 24 aircraft and removed 27 aircraft from service.
LIQUIDITY AND CAPITAL COMMITMENTS
In the first six months of 1999, the Company completed several
transactions intended to strengthen its long-term financial
position and enhance earnings.
In February 1999, the Company completed an offering of $806 million
of pass-through certificates to be used to finance (either through
leveraged leases or secured debt financings) the debt portion of
the acquisition cost of 22 aircraft scheduled to be delivered from
March 1999 through September 1999.
In March of 1999, the Company completed a $160 million Credit
Facility, with a maturity date of March 2001, to finance pre-
delivery deposits for certain new Boeing aircraft to be delivered
between March 1999 and March 2002.
On April 15, 1999, the Company announced a $500 million increase in
the size of its common stock repurchase program, bringing the total
size of the program to $800 million. As of July 16, 1999, the
Company had repurchased 9,812,200 shares of Class B common stock
for $437 million.
Also on April 15, 1999, the Company exercised its right and called
for redemption on May 25, 1999, all $230 million of its 6-3/4%
Convertible Subordinated Notes due 2006. The notes were converted
into 7,617,120 shares of Class B common stock during May 1999.
In May 1999, the Company completed an offering of $742 million of
pass-through certificates to be used to finance (either through
leveraged leases or secured debt financings) the debt portion of
the acquisition cost of 21 new Boeing aircraft scheduled for
delivery from July 1999 to December 1999.
As of June 30, 1999, the Company had $1.2 billion in cash and cash
equivalents (excluding restricted cash of $11 million). Net cash
provided by operating activities decreased $151 million during the
six months ended June 30, 1999 compared to the same period in the
prior year primarily due to a decrease in net income and changes in
working capital. Net cash used by investing activities decreased
$87 million for the six months ended June 30, 1999 compared to the
same period in the prior year, primarily as a result of the
purchase of short-term investments in the second quarter of 1998.
Net cash used by financing activities for the six months ended June
30, 1999 compared to the same period in the prior year increased
$119 million primarily due to a decrease in proceeds from the
issuance of long-term debt and an increase in the purchase of the
Company's Class B common stock, partially offset by a decrease in
payments on long-term debt and capital lease obligations.
Deferred Tax Assets. The Company had, as of December 31, 1998,
deferred tax assets aggregating $803 million, including
$372 million of NOLs and a valuation allowance of $263 million. To
the extent the Company were to determine in the future that
additional NOLs of the Company's predecessor could be recognized in
the accompanying consolidated financial statements, such benefit
would further reduce routes, gates and slots.
As a result of NOLs, the Company will not pay United States federal
income taxes (other than alternative minimum tax) until it has
recorded approximately an additional $1.1 billion of taxable income
following December 31, 1998. Section 382 of the Internal Revenue
Code ("Section 382") imposes limitations on a corporation's ability
to utilize NOLs if it experiences an "ownership change." In
general terms, an ownership change may result from transactions
increasing the ownership of certain stockholders in the stock of a
corporation by more than 50 percentage points over a three-year
period.
On November 20, 1998, an affiliate of Northwest Airlines, Inc.
completed its acquisition of certain equity of the Company
previously held by Air Partners, L.P. and its affiliates, together
with certain Class A common stock of the Company held by certain
other investors, totaling 8,661,224 shares of Class A common stock
(the "Air Partners Transaction"). Based on information currently
available, the Company does not believe that the Air Partners
Transaction resulted in an ownership change for purposes of Section
382.
Purchase Commitments. Continental has substantial commitments for
capital expenditures, including for the acquisition of new
aircraft. As of July 16, 1999, Continental had agreed to acquire
a total of 101 Boeing jet aircraft through 2005. The Company
anticipates taking delivery of 61 Boeing jet aircraft in 1999 (24
of which were delivered during the first six months of 1999 and
financed through enhanced equipment trust certificates, with the
Company purchasing 14 of those aircraft and leasing the other ten).
Continental also has options for an additional 121 Boeing aircraft
(exercisable subject to certain conditions). The estimated
aggregate cost of the Company's firm commitments for Boeing
aircraft is approximately $4.8 billion. Continental currently
plans to finance its new Boeing aircraft with a combination of
enhanced pass through trust certificates, lease equity and other
third-party financing, subject to availability and market
conditions. As of July 16, 1999, Continental had approximately
$948 million in financing arranged for such future Boeing
deliveries. In addition, Continental has commitments or letters of
intent for backstop financing for approximately one-third of the
anticipated remaining acquisition cost of such Boeing deliveries.
In addition, at July 16, 1999, Continental had firm commitments to
purchase 28 spare engines related to the new Boeing aircraft for
approximately $200 million which will be deliverable through
December 2004.
As of July 16, 1999, Express had firm commitments to acquire 27
Embraer ERJ-145 ("ERJ-145") 50-seat regional jets and 25 Embraer
ERJ-135 ("ERJ-135") 37-seat regional jets, with options for an
additional 125 ERJ-145 and 50 ERJ-135 aircraft exercisable through
2008. Express anticipates taking delivery of 19 ERJ-145 (ten of
which were delivered in the first six months of 1999) and six ERJ-
135 regional jets in 1999 and the remainder of its firm orders
through the third quarter of 2001. Neither Express nor Continental
will have any obligation to take any of the firm ERJ-145 or ERJ-135
aircraft that are not financed by a third-party and leased to
Continental.
Additional financing will be needed to satisfy the Company's
capital commitments for other aircraft and aircraft-related
expenditures such as engines, spare parts, simulators and related
items. There can be no assurance that sufficient financing will be
available for all aircraft and other capital expenditures not
covered by firm financing commitments. Deliveries of new Boeing
aircraft are expected to continue to increase aircraft rental,
depreciation and interest costs while generating cost savings in
the areas of maintenance, fuel and pilot training.
Continental expects its cash outlays for 1999 capital expenditures,
exclusive of fleet plan requirements, to aggregate $254 million,
primarily relating to mainframe, software application and
automation infrastructure projects, aircraft modifications and
mandatory maintenance projects, passenger terminal facility
improvements and office, maintenance, telecommunications and ground
equipment. Continental's capital expenditures during the six
months ended June 30, 1999 aggregated $105 million, exclusive of
fleet plan expenditures.
The Company expects to fund its future capital commitments through
internally generated funds together with general Company financings
and aircraft financing transactions. However, there can be no
assurance that sufficient financing will be available for all
aircraft and other capital expenditures not covered by firm
financing commitments.
Year 2000. The Year 2000 issue arises as a result of computer
programs having been written using two digits (rather than four) to
define the applicable year, among other problems. Any information
technology ("IT") systems that have time-sensitive software might
recognize a date using "00" as the year 1900 rather than the year
2000, which could result in miscalculations and system failures.
The problem also extends to many "non-IT" systems; that is,
operating and control systems that rely on embedded chip systems.
In addition, the Company is at risk from Year 2000 failures on the
part of third-party suppliers and governmental agencies with which
the Company interacts.
The Company uses a significant number of computer software programs
and embedded operating systems that are essential to its
operations. For this reason, the Company implemented a Year 2000
project in late 1996 so that the Company's computer systems would
function properly in the year 2000 and thereafter. The Company's
Year 2000 project involves the review of a number of internal and
third-party systems. Each system is subjected to the project's
five phases which consist of systems inventory, evaluation and
analysis, modification implementation, user testing and integration
compliance. The Company anticipates completing its review or
modification implementation of systems in July 1999 and believes
that, with modifications to its existing software and systems
and/or conversions to new software, the Year 2000 issue will not
pose significant operational problems for its computer systems.
The Company also is conducting extensive communications and on-site
visits with its significant suppliers, vendors and governmental
agencies with which its systems interface and exchange data or upon
which its business depends. The Company is coordinating efforts
with these parties to minimize the extent to which its business may
be vulnerable to their failure to remediate their own Year 2000
problems. The Company's business is dependent upon certain
domestic and foreign governmental organizations or entities such as
the Federal Aviation Administration ("FAA") that provide essential
aviation industry infrastructure. There can be no assurance that
the systems of such third parties on which the Company's business
relies will be modified on a timely basis. The Company's business,
financial condition or results of operations could be materially
adversely affected by the failure of its equipment or systems or
those operated by other parties to operate properly beyond 1999.
Although the Company currently has day-to-day operational
contingency plans, management is in the process of updating these
plans for possible Year 2000-specific operational requirements. To
facilitate the completion of these plans, the Company has hired an
outside consultant. Based on current progress, the Company
anticipates completing the revision of current contingency plans
and the creation of additional contingency plans by September 1999.
In addition, the Company will continue to monitor third-party
(including governmental) readiness and will modify its contingency
plans accordingly. While the Company does not currently expect any
significant modification of its operations in response to the Year
2000 issue, in a worst-case scenario the Company could be required
to suspend flights to certain locations or otherwise alter its
operations significantly.
The total cost of the Company's Year 2000 project (excluding
internal payroll) is currently estimated at $18-20 million and has
been and will be funded through cash from operations. As of June
30, 1999, the Company had incurred and expensed approximately $18
million relating to its Year 2000 project. The cost of the Year
2000 project is limited by the substantial outsourcing of the
Company's systems and the significant implementation of new systems
following the Company's emergence from bankruptcy in 1993. The
costs of the Company's Year 2000 project and the date on which the
Company believes it will be completed are based on management's
best estimates and include assumptions regarding third-party
modification plans. However, in particular due to the potential
impact of third-party modification plans, there can be no assurance
that these estimates will be achieved, and actual results could
differ materially from those anticipated.
Bond Financings. In July 1996, the Company announced plans to
expand its gates and related facilities into Terminal B at Bush
Intercontinental Airport, as well as planned improvements at
Terminal C and the construction of a new automated people mover
system linking Terminal B and Terminal C which was completed in May
1999. In April 1997 and January 1999, the City of Houston
completed the offering of $190 million and $46 million,
respectively, aggregate principal amount of tax-exempt special
facilities revenue bonds (the "IAH Bonds"). The IAH Bonds are
unconditionally guaranteed by Continental. In connection
therewith, the Company has entered into long-term leases (or
amendments to existing leases) with the City of Houston providing
for the Company to make rental payments sufficient to service the
related tax-exempt bonds, which have a term no longer than 30
years. The majority of the Company's expansion project is expected
to be completed during the summer of 1999.
Employees. In September 1997, the Company announced a plan to
bring all employees to industry standard wages no later than the
end of the year 2000. Wage increases began in 1997, and will
continue to be phased in through 2000 as revenue, interest rates
and rental rates also reach industry standards.
On January 5, 1999, the Company's mechanics ratified an initial
three-year collective bargaining agreement between the Company and
the IBT. The contract becomes amendable in January 2002.
On June 4, 1999, following a mail ballot election, the National
Mediation Board ("NMB") determined that fewer than 29% of the
Company and Express's 8,000 fleet service employees desired to be
represented by the International Association of Machinists ("IAM"),
and dismissed the IAM's representation petition. Pursuant to the
NMB's rules there is a one-year bar from the date of the dismissal
on union organizing.
In July 1999, a tentative initial agreement was reached between
Express and the IBT, which represents Express's mechanics. The IBT
will now present the tentative agreement to the covered employees
for ratification, a process that is expected to be completed by
mid-August 1999. If ratified, the agreement will become amendable
in January 2003.
In addition, the Company's and Express's flight attendants, pilots
and dispatchers are represented by unions as are CMI's flight
attendants, mechanics and related employees and agents. The other
employees of Continental, Express and CMI are not represented and
are not covered by collective bargaining agreements.
Fuel Hedging. The Company uses a combination of petroleum swap
contracts, petroleum call options, and jet fuel purchase
commitments to provide some short-term protection against a sharp
increase in jet fuel prices. During the second quarter, the
Company entered into petroleum swap contracts and call options to
hedge jet fuel prices for approximately 95% of its anticipated fuel
requirements through October 1999. The fair value was
approximately $22 million at June 30, 1999 and has been recorded in
other assets with the offset to other comprehensive income, net of
applicable income taxes and hedge ineffectiveness. As of July 16,
1999, the fair value of the petroleum swap contracts and call
options was approximately $36 million.
Other. Management believes that the Company's costs are likely to
be affected in the future by (i) higher aircraft ownership costs as
new aircraft are delivered, (ii) higher wages, salaries and related
costs as the Company compensates its employees comparable to
industry average, (iii) changes in the costs of materials and
services (in particular, the cost of fuel, which can fluctuate
significantly in response to global market conditions),
(iv) changes in governmental regulations and taxes affecting air
transportation and the costs charged for airport access, including
new security requirements, (v) changes in the Company's fleet and
related capacity and (vi) the Company's continuing efforts to
reduce costs throughout its operations, including reduced
maintenance costs for new aircraft, reduced distribution expense
from using Continental's electronic ticket product and the internet
for bookings, and reduced interest expense.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.
The information called for by this item is provided under the
caption "Fuel Hedging" under Item 2 - Management's Discussion and
Analysis of Financial Condition and Results of Operations. Also
see Item 7A. Quantitative and Qualitative Disclosures About Market
Risk in Continental's 1998 10-K.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Following the announcement of the long-term global alliance with
Northwest, the Air Partners Transaction and the related governance
agreement between the Company and certain affiliates of Northwest
(collectively, the "Northwest Transaction"), six separate lawsuits
were filed against the Company and its Directors and certain other
parties (the "Stockholder Litigation"). The complaints in the
Stockholder Litigation generally alleged that the Company's
Directors improperly accepted the Northwest Transaction in
violation of their fiduciary duties owed to the stockholders of the
Company. They further allege that Delta Air Lines, Inc. submitted
a proposal to purchase the Company which, in the plaintiffs'
opinion, was superior to the Northwest Transaction. On April 1,
1999, the plaintiffs voluntarily dismissed their lawsuit. On April
12, 1999, the judge approved the dismissal. Although the dismissal
is without prejudice, so the plaintiffs could again file their
claim, the Company does not expect them to do so.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company's Annual Meeting of Stockholders was held on May 18,
1999. The following individuals were elected to the Company's
Board of Directors to hold office for the ensuing year:
NOMINEE VOTES FOR VOTES WITHHELD
Thomas J. Barrack, Jr. 152,431,654 2,273,512
Gordon M. Bethune 152,429,309 2,275,857
David Bonderman 152,240,815 2,464,351
Gregory D. Brenneman 152,431,517 2,273,649
Kirbyjon H. Caldwell 154,705,166 -
Patrick Foley 152,430,705 2,274,461
Douglas H. McCorkindale 152,431,975 2,273,191
George G.C. Parker 152,430,957 2,274,209
Richard W. Pogue 152,431,222 2,273,944
William S. Price III 152,431,653 2,273,513
Donald L. Sturm 152,431,124 2,274,042
Charles A. Yamarone 152,431,716 2,273,450
Karen Hastie Williams 152,245,789 2,459,377
A proposal to ratify the appointment of Ernst & Young LLP as the
Company's independent auditors for the fiscal year ending December
31, 1999 was voted on by the stockholders as follows:
Votes Votes Broker
Votes For Against Abstaining Non-Votes
154,567,557 60,862 76,747 -
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
10.1 First Amendment to Continental Airlines, Inc.
Deferred Compensation Plan, effective January 1,
1999.
10.2 Amendment to Employment Agreement between the
Company and Gordon M. Bethune, dated as of May
19, 1999.
10.3 Amendment to Employment Agreement between the
Company and Gregory D. Brenneman, dated as of May
19, 1999.
10.4 Amendment to Employment Agreement between the
Company and Lawrence W. Kellner, dated as of May
19, 1999.
10.5 Amendment to Employment Agreement between the
Company and C.D. McLean, dated as of May 19,
1999.
10.6 Amendment to Employment Agreement between the
Company and Jeffery A. Smisek, dated as of May
19, 1999.
10.7 Supplemental Agreement No. 11, including side
letters, to Boeing Purchase Agreement No. 1951,
dated May 14, 1999.
10.8 Supplemental Agreement No. 2, including side
letter, to Boeing Purchase Agreement No. 2060,
dated June 8, 1999.
10.9 Supplemental Agreement No. 6, including side
letter, to Boeing Purchase Agreement No. 2061,
dated May 14, 1999.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K:
(i) Report dated May 18, 1999 reporting Item 5.
"Other Events". No financial statements were
filed with the report, which included a Press
Release related to the election of Kirbyjon H.
Caldwell to the Board of Directors.
(ii) Report dated June 25, 1999 reporting Item 7.
"Financial Statements and Exhibits". No
financial statements were filed with the report,
which included an Exhibit Index related to the
Continental 1999-2 offering of pass through
certificates.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CONTINENTAL AIRLINES, INC.
(Registrant)
Date: July 23, 1999 by: /s/ Lawrence W. Kellner
Lawrence W. Kellner
Executive Vice President and
Chief Financial Officer
(On behalf of Registrant)
Date: July 23, 1999 /s/ Michael P. Bonds
Michael P. Bonds
(Principle Accounting Officer)
INDEX TO EXHIBITS
OF
CONTINENTAL AIRLINES, INC.
10.1 First Amendment to Continental Airlines, Inc. Deferred
Compensation Plan, effective January 1, 1999.
10.2 Amendment to Employment Agreement between the Company and
Gordon M. Bethune, dated as of May 19, 1999.
10.3 Amendment to Employment Agreement between the Company and
Gregory D. Brenneman, dated as of May 19, 1999.
10.4 Amendment to Employment Agreement between the Company and
Lawrence W. Kellner, dated as of May 19, 1999.
10.5 Amendment to Employment Agreement between the Company and
C.D. McLean, dated as of May 19, 1999.
10.6 Amendment to Employment Agreement between the Company and
Jeffery A. Smisek, dated as of May 19, 1999.
10.7 Supplemental Agreement No. 11, including side letters, to
Boeing Purchase Agreement No. 1951, dated May 14, 1999.
(1)
10.8 Supplemental Agreement No. 2, including side letter, to
Boeing Purchase Agreement No. 2060, dated June 8, 1999.
(1)
10.9 Supplemental Agreement No. 6, including side letter, to
Boeing Purchase Agreement No. 2061, dated May 14, 1999.
(1)
27.1 Financial Data Schedule.
__________________________
(1) The Company has applied to the Commission for confidential
treatment for a portion of this exhibit.