United Airlines 2012 Annual Report Download - page 148

Table of Contents
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Merger costs:
Merger-related costs $ 144 $114 $ 30 $ 10
Salary and severance-related 249 111 138 —
Integration-related costs 171 138 33 19
564 363 201 29
Aircraft impairments 136 136 — 6
Goodwill impairment credit (64) (64) — —
Intangible asset impairment 29 29 — —
Other 4 4 — 12
Total $669 $468 $ 201 $ 47
Integration-related costs
Integration-related costs incurred during 2012 included compensation costs related to systems integration and training, costs to repaint aircraft and other
branding activities, costs to write-off or accelerate depreciation on systems and facilities that are either no longer used or planned to be used for significantly
shorter periods, as well as relocation costs for employees and severance primarily associated with administrative headcount reductions. In 2011, these costs
also included costs to terminate certain service contracts, costs to write-off system assets, payments to third-party consultants assisting with integration
planning and organization design and compensation costs related to the systems integration. In addition, UAL recorded a liability of $88 million related to the
fair value of UAL’s obligation to issue to the PBGC $125 million aggregate principal amount of 8% Contingent Senior Notes during 2011. This was
classified as an integration-related cost since the financial results of UAL, excluding Continental’s results, would not have resulted in a triggering event under
the 8% Contingent Senior Notes indenture.
On December 31, 2012, UAL and United entered into an agreement with the PBGC that reduced the aggregate amount of 8% Contingent Senior Notes to be
issued by UAL, and eliminated the contingent nature of such obligation by replacing the $188 million principal amount of 8% Contingent Senior Notes
incurred as of December 31, 2012 and the obligation to issue any additional 8% Contingent Senior Notes with $400 million principal amount of New 8%
Notes. In addition, UAL and United agreed to replace the $652 million principal amount outstanding of UAL’s 6% Senior Notes due 2031 with the New 6%
Notes. The Company did not receive any cash proceeds in connection with the issuance of the New PBGC Notes. The Company is accounting for this
agreement as a debt extinguishment, resulting in a charge of $309 million that represents the fair value of $212 million of New 8% Notes that it agreed to issue
and the change in the fair value of the New 6% Notes and the $188 million of New 8% Notes versus their previous carrying values. The Company classified
the expense as a component of special charges because the note restructuring would not have occurred if it were not for the Merger.
Labor agreement costs
In December 2012, the United and Continental pilots represented by the Air Line Pilots Association, International ratified a new joint collective bargaining
agreement with the Company. The Company recorded $475 million of expense associated with lump sum cash payments that would be made in conjunction
with the ratification of the contract and the completion of the integrated pilot seniority list. This charge also includes $80 million associated with changes to
existing pilot disability plans negotiated in connection with the agreement. The lump sum payments are not in lieu of future pay increases. The Company made
cash payments of approximately $55 million in late 2012 and expects to pay the remainder by the end of 2013 relating to these charges.
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