NOTE 10—SPECIAL ITEMS

Special Revenue. During the second quarter of 2011, the Company modified the previously existing United and Continental co-branded credit card agreements with Chase Bank USA, N.A. This modification resulted in the following one-time adjustment to decrease frequent flyer deferred revenue and increase special revenue in accordance with ASU 2009-13 for the nine months ended September 30, 2011 as follows (in millions):


	UAL		United		Continental
Special revenue item	$	107	$	88	$	19

Special Charges. For the three and nine months ended September 30, special charges consisted of the following (in millions):


	Three Months Ended September 30,								Nine Months Ended September 30,
2012	UAL			United		Continental			UAL			United			Continental
Labor agreement costs	$	454		$	296	$	158		$	454		$	296		$	158
Integration-related costs		60			36		24			331			205			126
Voluntary severance and benefits		—			—		—			125			125			—
Gains on sale of assets and other special charges, net		—			—		—			(26	)		(22	)		(4	)

Subtotal special charges		514			332		182			884			604			280
Income tax benefit		—			—		—			(2	)		—			(2	)

Total special charges, net of income taxes	$	514		$	332	$	182		$	882		$	604		$	278


2011	UAL			United		Continental			UAL			United			Continental
Integration-related costs	$	123		$	72	$	51		$	347		$	236		$	111
Gains on aircraft sales		(3	)		—		(3	)		(4	)		—			(4	)

Total	$	120		$	72	$	48		$	343		$	236		$	107

On August 3, 2012, the Company announced it had reached an agreement in principle with respect to a new joint collective bargaining agreement with ALPA representing pilots at United and Continental. The Company recorded $454 million of expense in the third quarter 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 costs associated with changes to existing pilot disability plans negotiated in connection with the agreement in principle. The lump sum payments are not in lieu of future pay increases and were accrued in the third quarter as a result of the payments becoming probable, primarily due to reaching the agreement in principle. The agreement in principle is subject to definitive documentation, and any such definitive documentation is subject to approvals by each of the United and Continental ALPA master executive councils and ratification by the Company’s pilots. The Company currently expects to make cash payments of approximately $250 million in late 2012 or early 2013 relating to these charges and the balance in subsequent periods.

Integration-related costs include 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 no longer used or planned to be used for significantly shorter periods, relocation costs for employees and severance primarily associated with administrative headcount reductions.

In addition, financial triggering events under the 8% Notes indenture occurred at both June 30, 2012 and 2011 and as a result, UAL became obligated to issue one tranche of $62.5 million in aggregate principal amount of the 8% Notes with respect to each of these financial triggering events. The obligation to issue these tranches was recorded at their fair values of $48 million and $49 million as of June 30, 2012 and 2011, respectively. Both obligations described above were recorded as integration-related costs because the financial results of UAL, excluding Continental’s results, would not have resulted in triggering events under the 8% Notes indenture.

During the nine months ended September 30, 2012, the Company recorded $125 million of severance and benefits associated with three voluntary employee programs. During the first quarter of 2012, approximately 400 mechanics offered to retire early in exchange for a cash severance payment that was based on the number of years of service each employee had accumulated. The Company also offered a voluntary leave of absence program that approximately 1,800 flight attendants accepted, which allows for continued medical coverage during the leave of absence period. During the second quarter of 2012, as part of the recently amended collective bargaining agreement with the Association of Flight Attendants, the Company offered a voluntary program for flight attendants at United to retire early in exchange for a cash severance payment. The payments are dependent on the number of years of service each employee has accumulated. Approximately 1,300 flight attendants accepted this program and the expense for this voluntary program is approximately $76 million.

In addition, the Company sold nine aircraft during the first nine months of 2012. The Company also made adjustments to certain legal reserves.

The Company expects to consolidate its headquarters facilities by mid-2013. During the consolidation process, the Company expects to record special charges for accelerated depreciation and lease expense on unused facilities associated with the facility that it vacates. The Company estimates that future charges will be approximately $45 million to $65 million in total, which are expected to be recorded in late 2012 through 2013.

Accruals

The accrual for severance and medical costs was $59 million, $42 million and $17 million related to UAL, United and Continental, respectively, as of September 30, 2012. In addition, the accrual balance of future lease payments on permanently grounded aircraft was $6 million for both UAL and United as of September 30, 2012.

The severance-related accrual as of September 30, 2012, which primarily relates to the integration of United and Continental, is expected to be paid through 2014. Lease payments for grounded aircraft are expected to continue through 2013.

At September 30, 2011, the accrual balance for severance and medical costs was $73 million, $42 million and $31 million related to UAL, United and Continental, respectively. In addition, the accrual balance of future lease payments on permanently grounded aircraft was $31 million for both UAL and United as of September 30, 2011.