NOTE 5—EMPLOYEE BENEFIT PLANS

Defined Benefit Pension and Other Postretirement Benefit Plans. The Company’s net periodic benefit cost includes the following components (in millions):


	Pension Benefits						Other Postretirement Benefits
	Three Months Ended June 30,						Three Months Ended June 30,
	2013			2012			2013		2012
Service cost	$	32		$	25		$	14	$	13
Interest cost		47			46			28		32
Expected return on plan assets		(40	)		(35	)		—		(1	)
Amortization of unrecognized (gain) loss and prior service cost		15			6			2		(1	)
Curtailment loss		2			—			—		—
Settlement gain		(1	)		—			—		—

Total	$	55		$	42		$	44	$	43


	Pension Benefits						Other Postretirement Benefits
	Six Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
Service cost	$	65		$	50		$	28		$	26
Interest cost		94			92			56			63
Expected return on plan assets		(80	)		(70	)		(1	)		(2	)
Amortization of unrecognized (gain) loss and prior service cost		33			11			5			(2	)
Curtailment loss		2			—			—			—
Settlement gain		(1	)		—			—			—

Total	$	113		$	83		$	88		$	85

During the three and six months ended June 30, 2013, the Company contributed $38 million and $79 million, respectively, to its tax-qualified defined benefit pension plans.

Curtailments, Settlements and Plan Remeasurements. During June 2013, the Company announced it would freeze benefits for management and administrative employees under one of its defined benefit pension plans, effective December 31, 2013. As a result, the Company recognized a $2 million curtailment loss in earnings in the second quarter. The Company also recognized a settlement gain of $1 million in earnings resulting from certain lump-sum payments under a separate defined benefit pension plan. Application of curtailment and settlement accounting required the Company to remeasure the assets and liabilities of the two plans in the second quarter. The Company remeasured the pension plans’ liabilities using an average weighted discount rate of 4.74% compared to the year-end 2012 discount rate of 4.24%. As a result of the remeasurements, curtailment and settlement, the projected benefit obligation of the plans decreased by $434 million and Other comprehensive loss decreased by an actuarial gain of $442 million, of which approximately $84 million resulted from the curtailment. These items will also result in a decrease of approximately $30 million in the expected net periodic benefit cost for the remainder of 2013. The Company recognizes the earnings impacts of its pension plans in Salaries and related costs in the statements of consolidated operations.

Share-Based Compensation. In February 2013, UAL granted share-based compensation awards pursuant to the United Continental Holdings, Inc. 2008 Incentive Compensation Plan. These share-based compensation awards include approximately 0.5 million shares of restricted stock and 0.5 million restricted stock units (“RSUs”) that vest pro-rata over three years on the anniversary of the grant date. The time-vested RSUs are cash-settled based on the 20-day average closing price of UAL common stock immediately prior to the vesting date. In addition, the Company granted 1.3 million performance-based RSUs that will vest based on the Company’s return on invested capital for the three years ending December 31, 2015. If this performance condition is achieved, cash payments will be made after the end of the performance period based on the 20-day average closing price of UAL common stock immediately prior to the vesting date. The Company accounts for the RSUs as liability awards. The table below presents information related to share-based compensation (in millions):


	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
Share-based compensation expense (a)	$	13	$	11	$	40	$	26



	June 30, 2013	December 31, 2012
Unrecognized share-based compensation	$45	$33

(a)

Includes $3 million and $11 million of expense recognized in merger integration-related costs for the three and six months ended June 30, 2013, respectively. Includes $3 million and $7 million of expense recognized in merger integration-related costs for the three and six months ended June 30, 2012, respectively.

Profit Sharing Plans. In 2013 and 2012, a majority of all employees participate in profit sharing plans, which pay 15% of total pre-tax earnings, excluding special items and share-based compensation expense, to eligible employees when pre-tax profit, excluding special items, profit sharing expense and share-based compensation program expense, exceeds $10 million. Eligible U.S. co-workers in each participating work group receive a profit sharing payout using a formula based on the ratio of each qualified co-worker’s annual eligible earnings to the eligible earnings of all qualified co-workers in all domestic workgroups. The international profit sharing plan pays eligible non-U.S. co-workers the same percentage of eligible pay that is calculated under the U.S. profit sharing plan. Profit sharing expense is recorded as a component of salaries and related costs in the consolidated statements of operations. Our profit sharing plan will change in 2014. Beginning with 2014, pilots’ share of profit sharing payments will be limited to an amount that is their pro-rata share of 10% of the Company’s profit up to a pre-tax margin of 6.9% and 20% of the Company’s profit in excess of a pre-tax margin of 6.9%. The profit sharing plan for the other workgroups is unchanged.