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.

Condensed consolidated statement of operations for the three and nine months ended September 30, 2017 (in millions):



	Three Months Ended September 30, 2017												Nine Months Ended September 30, 2017
				Adjustments												Adjustments
	As Reported			Revenue Recognition			Retirement Benefits			As Adjusted			As Reported			Revenue Recognition			Retirement Benefits			As Adjusted
Operating Revenues
Passenger Revenue	$	1,824		$	134		$	—		$	1,958		$	5,115		$	390		$	—		$	5,505
Mileage plan other revenue	122			(17		)	—			105			369			(55		)	—			314
Cargo and other revenue	174			(127		)	—			47			487			(354		)	—			133
Total Operating Revenue	2,120			(10		)	—			2,110			5,971			(19		)	—			5,952

Operating Expenses
Wages and benefits	475			—			2			477			1,392			—			5			1,397
Selling expenses	91			1			—			92			269			8			—			277
Special items—merger-related costs	24			(1		)	—			23			88			(2		)	—			86
All other operating expenses	1,091			—			—			1,091			3,121			—			—			3,121
Total Operating Expenses	1,681			—			2			1,683			4,870			6			5			4,881

Operating Income	439			(10		)	(2		)	427			1,101			(25		)	(5		)	1,071

Nonoperating Income (Expense)
Other—net	—			—			2			2			(4		)	—			5			1
All other nonoperating income (expense)	(12		)	—			—			(12		)	(39		)	—			—			(39		)
	(12		)	—			2			(10		)	(43		)	—			5			(38		)
Income (loss) before income tax	427			(10		)	—			417			1,058			(25		)	—			1,033
Income tax expense (benefit)	161			(3		)	—			158			397			(9		)	—			388
Net Income (Loss)	$	266		$	(7	)	$	—		$	259		$	661		$	(16	)	$	—		$	645

Condensed consolidated statement of cash flows for the nine months ended September 30, 2017 (in millions):



	Nine Months Ended September 30, 2017
	As Reported			Adjustments - Revenue Recognition			As Adjusted
Cash flows from operating activities:
Net income	$	661		$	(16	)	$	645

Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	275			—			275
Stock-based compensation and other	43			—			43
Changes in certain assets and liabilities:
Changes in deferred tax provision	217			(9		)	208
Increase in air traffic liability	254			(31		)	223
Increase in deferred revenue	46			84			130
Other—net	(139		)	(28		)	(167		)
Net cash provided by operating activities	1,357			—			1,357

Net cash used in investing activities	(1,142		)	—			(1,142		)

Net cash used in financing activities	(399		)	—			(399		)

Net increase (decrease) in cash and cash equivalents	(184		)	—			(184		)
Cash and cash equivalents at beginning of year	328			—			328
Cash and cash equivalents at end of the period	$	144		$	—		$	144