RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS

3 Months Ended

Mar. 31, 2018

Accounting Changes and Error Corrections [Abstract]

RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS

RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS

Revenue Recognition and Retirement Benefits Accounting Standards

In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)." The Company adopted the new standard as of January 1, 2018, utilizing a full retrospective transition method. Adoption of the new standard resulted in changes to accounting policies for revenue recognition related to frequent flyer activity, certain ancillary revenues such as change fees, air traffic liabilities, and sales and marketing expenses. As a result of adoption, the Company also changed certain financial statement line item disclosure captions. See Note 3 for a discussion of the impact of this standard.

Although less significant, in March 2017 the FASB issued ASU 2017-07, "Compensation - Retirement Benefits (Topic 715)," which requires the Company to present the service cost component of net periodic benefit cost as Wages and benefits in the statement of operations. The Company adopted the new standard as of January 1, 2018, utilizing a full retrospective transition method. Under this new standard, all components of net periodic benefit cost are presented in Nonoperating income (expense), except service cost, which remains in Wages and benefits.

Certain line item captions on the balance sheet and statement of operations changed as a result of the newly implemented standards. Accordingly, historical financial information presented below as reported has been presented using the new captions. The cumulative impact to retained earnings at January 1, 2016 as a result of the new revenue recognition standard was $171 million. Below are the impacts of these newly adopted accounting standards to the financial statements.

Consolidated balance sheet as of December 31, 2017 (in millions):

	December 31, 2017
	As Reported		Adjustments - Revenue Recognition			As Adjusted
Current Assets:
Prepaid expenses and other current assets	$	127	$	6		$	133
Current Liabilities:
Air traffic liability	937		(131		)	806
Deferred revenue	518		117			635
Other liabilities and credits:
Deferred income taxes	454		(84		)	370
Deferred revenue	699		391			1,090
Other liabilities	451		(26		)	425
Shareholders' Equity:
Retained earnings	4,454		(261		)	4,193

Condensed consolidated statement of operations for the three months ended March 31, 2017 (in millions):

	Three Months Ended March 31, 2017
	As Reported			Adjustments - Revenue Recognition			Adjustments - Retirement Benefits			As Adjusted
Operating Revenues
Passenger Revenue	$	1,484		$	118		$	—		$	1,602
Mileage plan other revenue	119			(19		)	—			100
Cargo and other revenue	146			(108		)	—			38
Total Operating Revenue	1,749			(9		)	—			1,740
Operating Expenses
Wages and benefits	448			—			2			450
Selling expenses	81			2			—			83
Special items—merger-related costs	40			(1		)	—			39
All other operating expenses	1,011			—			—			1,011
Total Operating Expenses	1,580			1			2			1,583
Operating Income	169			(10		)	(2		)	157
Nonoperating Income (Expense)
Other—net	(3		)	—			2			(1		)
All other nonoperating income (expense)	(14		)	—			—			(14		)
	(17		)	—			2			(15		)
Income (loss) before income tax	152			(10		)	—			142
Income tax expense (benefit)	53			(4		)	—			49
Net Income (Loss)	$	99		$	(6	)	$	—		$	93

Condensed consolidated statement of cash flows for the three months ended March 31, 2017 (in millions):

	Three Months Ended March 31, 2017
	As Reported			Adjustments - Revenue Recognition		As Adjusted
Cash flows from operating activities:
Net income	$	99		(6	)	$	93
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	90			—		90
Stock-based compensation and other	13			—		13
Changes in certain assets and liabilities:
Changes in deferred tax provision	48			(4	)	44
Increase in air traffic liability	369			(5	)	364
Increase in deferred revenue	1			30		31
Other—net	(150		)	(15	)	(165		)
Net cash provided by operating activities	470			—		470
Net cash used in investing activities	(488		)	—		(488		)
Net cash used in financing activities	(127		)	—		(127		)
Net increase (decrease) in cash and cash equivalents	(145		)	—		(145		)
Cash and cash equivalents at beginning of year	328			—		328
Cash and cash equivalents at end of the period	$	183		—		$	183