Continental Airlines Announces Special Items for Fourth Quarter and Full Year 2009
January 18 2010 - 4:11PM
PR Newswire (US)
HOUSTON, Jan. 18 /PRNewswire-FirstCall/ -- Continental Airlines
(NYSE: CAL) expects to record $77 million of special charges during
the fourth quarter of 2009 ($145 million for the full year 2009).
Continental also expects to record a non-cash income tax benefit
during the fourth quarter of 2009 and for the year ended Dec. 31,
2009. Special items for the three months ending Dec. 31, 2009 and
for full year 2009 are as follows in millions: Three Months Year
Ended Ended Dec. 31, Dec. 31, 2009 2009 --------- ---------
Aircraft-related charges $36 $89 Pension plan settlement charges 29
29 Severance - 5 Route impairment and other 12 22 --- --- Total
special charges $77 $145 === ==== Income tax benefit * * * - amount
to be announced as part of our fourth quarter results.
Aircraft-related charges. The aircraft-related charges in the
fourth quarter of 2009 consist of a $23 million non-cash charge to
write down to fair value certain 737-300 and 737-500 aircraft and
spare parts and a $13 million loss on the sublease of eight EMB-145
aircraft. In June 2008, Continental announced its decision to
retire all of its Boeing 737-300 aircraft and a significant portion
of its Boeing 737-500 aircraft by the end of 2009. As of Dec. 31,
2009, the company had removed a majority of its 737-300 fleet from
service. The 737-300 and 737-500 aircraft fleets and spare parts, a
portion of which was being sold on consignment, experienced further
declines in fair values during the fourth quarter of 2009 primarily
as a result of additional 737s being grounded by other airlines.
The $13 million loss on the sublease of eight EMB-145 aircraft was
based on the difference between the sublease rental income and the
contracted rental payments on those aircraft during the two and
one-half year average initial term of the related sublease
agreement. For the full year 2009, the $89 million in
aircraft-related special charges consists of $31 million of
non-cash impairments of owned 737-300 and 737-500 aircraft and
related assets, $39 million of other charges related to the
grounding and sale of 737-300 and 737-500 aircraft and the
write-off of certain obsolete spare parts, and $19 million of
losses related to subleasing regional jets. Pension plan settlement
charges. The pension plan settlement charges relate to lump-sum
distributions from Continental's pilot-only frozen defined benefit
plan. Accounting rules require 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 the 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 will recognize $29 million of unrecognized plan losses
for the fourth quarter and full year 2009. Severance. Continental
incurred $5 million in costs for severance and continuing medical
coverage benefits for employees accepting company-offered leaves of
absence during 2009. Route impairment and other. During the fourth
quarter of 2009, the company recorded a $12 million non-cash charge
to write off several intangible route assets. In September 2006,
the Financial Accounting Standards Board issued guidance that
defines fair value and establishes a framework for measuring fair
value. This guidance was effective Jan. 1, 2009 for all
non-financial assets. Application of the new rules affected
Continental's annual impairment testing of international routes,
which the company performs as of Oct. 1 of each year. International
routes, which are indefinite-lived intangible assets, represent the
right to fly between cities in the United States and foreign
countries. In prior years, Continental determined the fair value of
each route by modeling the expected future discounted cash flows
associated with such routes. With the adoption of new accounting
rules, fair value is now determined based on the price that would
be received by a seller of the route in an orderly transaction
between market participants based on the highest and best use of
the asset. The special charge of $12 million in the fourth quarter
of 2009 represents the write-off of the net book value associated
with certain routes to countries that are subject to "open skies"
agreements and where there were no significant barriers to the
ability of new entrants to serve the international destination,
such as airport slot restrictions or gate availability. Prior to
the fourth quarter of 2009, Continental recorded an additional $10
million of other special charges that related primarily to an
adjustment to the company's reserve for unused facilities due to
reductions in expected sublease income for a maintenance hangar in
Denver. Income taxes. The company will record a non-cash income tax
benefit from continuing operations during the fourth quarter of
2009. Under current accounting rules, the company is required to
consider all items (including items recorded in other comprehensive
income) in determining the amount of tax benefit that results from
a loss from continuing operations and that should be allocated to
continuing operations. As a result, the company will record a tax
benefit on the loss from continuing operations for the year, which
will be exactly offset by income tax expense on other comprehensive
income. However, while the income tax benefit from continuing
operations is reported on the income statement, the income tax
expense on other comprehensive income is recorded directly to other
comprehensive income, which is a component of stockholders' equity.
Because the income tax expense on other comprehensive income is
equal to the income tax benefit from continuing operations, the
company's year-end net deferred tax position is not impacted by
this tax allocation. Corporate Background Continental Airlines is
the world's fifth largest airline. Continental, together with
Continental Express and Continental Connection, has more than 2,400
daily departures throughout the Americas, Europe and Asia, serving
130 domestic and 132 international destinations. Continental is a
member of Star Alliance, which overall offers 19,700 daily flights
to 1,077 airports in 175 countries through its 26 member airlines.
With more than 41,000 employees, Continental has hubs serving New
York, Houston, Cleveland and Guam, and together with Continental
Express, carries approximately 63 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 of Continental Airlines,
+1-713-324-5080, Web Site: http://www.continental.com/
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