United Airlines 2012 Annual Report Download - page 41

Table of Contents
The table below presents integration-related costs and special items incurred by UAL during the years ended December 31 (in millions):
 
Integration-related costs $ 739 $517
Labor agreement costs 475 —
Voluntary severance and benefits 125 —
Intangible asset impairments 30 4
Termination of maintenance service contract — 58
Other (46) 13
Total special items 1,323 592
Tax benefit on intangible asset impairments (11) (2)
Total special items, net of tax $1,312 $590
Integration-related costs include compensation costs related to systems integration and training, costs to repaint aircraft in the new livery and other branding
activities, costs to write-off or accelerate depreciation on systems and facilities that are no longer used or planned to be used for significantly shorter periods
and relocation costs for employees and severance primarily associated with administrative headcount reductions.
On December 31, 2012, UAL and United entered into an agreement with the Pension Benefit Guaranty Corporation (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 due 2024 (the “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 $326 million principal amount of new 6% Notes due 2026 and $326 million principal
amount of 6% Notes due 2028 (collectively, the “New 6% Notes” and together with the New 8% Notes, the “New PBGC 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.
The Company also recorded impairment charges related to European take-off and landing slots primarily due to the weakening of the U.S. dollar against
certain foreign currencies and reductions in scheduled flights. In addition, the Company recorded additional costs associated with the ratification of the joint
collective bargaining agreement by the United and Continental pilots represented by ALPA. The Company also recorded charges associated with various
voluntary retirement and leave of absence programs for its various employee groups. See Note 21 to the financial statements included in Item 8 of this report
for additional information related to special items.
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