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, which are outlined below.

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 $170 million. Below are the impacts of these newly adopted accounting standards to the financial statements.

Consolidated balance sheets 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^(a)	937		(131		)	806
Deferred revenue^(b)	518		117			635
Other liabilities and credits:
Deferred income taxes	454		(84		)	370
Deferred revenue^(b)	699		391			1,090
Other liabilities	451		(26		)	425
Shareholders' Equity:
Retained earnings	4,454		(261		)	4,193


(a)	Application of Topic 606 resulted in a decrease to our Air Traffic Liability as the standard requires earlier recognition of revenue for advance breakage.


(b)	Application of Topic 606 resulted in an increase to our Deferred Revenues as we are required to value flown miles at a relative fair value rather than at incremental cost.

Consolidated statements of operations for the twelve months ended December 31, 2017 and December 31, 2016 (in millions):



	Twelve Months Ended December 31, 2017												Twelve Months Ended December 31, 2016
				Adjustments												Adjustments
	As Reported			Revenue Recognition			Retirement Benefits			As Adjusted			As Reported			Revenue Recognition			Retirement Benefits			As Adjusted
Operating Revenues
Passenger revenue^(a)	$	6,818		$	483		$	—		$	7,301		$	5,006		$	386		$	—		$	5,392
Mileage Plan other revenue^(a)	482			(64		)	—			418			429			(59		)	—			370
Cargo and other^(a)	633			(458		)	—			175			496			(333		)	—			163
Total Operating Revenues	7,933			(39		)	—			7,894			5,931			(6		)	—			5,925

Operating Expenses
Wages and benefits	1,924			—			7			1,931			1,382			—			12			1,394
Selling expense^(b)	357			11			—			368			225			23			—			248
Special items—merger-related costs	118			(2		)	—			116			117			—			—			117
All other operating expenses	4,271			—			—			4,271			2,860			—			—			2,860
Total Operating Expenses	6,670			9			7			6,686			4,584			23			12			4,619

Operating Income	1,263			(48		)	(7		)	1,208			1,347			(29		)	(12		)	1,306

Nonoperating Income (Expense)
Other—net	(4		)	—			7			3			1			—			12			13
All other nonoperating income (expense)	(52		)	—			—			(52		)	(3		)	—			—			(3		)
	(56		)	—			7			(49		)	(2		)	—			12			10
Income (loss) before income tax	1,207			(48		)	—			1,159			1,345			(29		)	—			1,316
Income tax expense (benefit)	173			26			—			199			531			(12		)	—			519
Net Income (Loss)	$	1,034		$	(74	)	$	—		$	960		$	814		$	(17	)	$	—		$	797


(a)	Application of Topic 606 resulted in a shift in certain ancillary revenues to Passenger revenue from Other Revenues. Additionally, the standard shifted the timing of the recognition of certain ancillary revenues from the time of sale to the time of travel.


(b)	Application of Topic 606 resulted in an increase to Selling expense as our methodology changed the timing of recognition of certain of our booking fees.

Consolidated statements of cash flows for the twelve months ended December 31, 2017 and December 31, 2016 (in millions):



	Year Ended December 31, 2017									Year Ended December 31, 2016
	As Reported			Adjustments - Revenue Recognition^(a)			As Adjusted			As Reported			Adjustments - Revenue Recognition			As Adjusted
Cash flows from operating activities:
Net income	$	1,034		$	(74	)	$	960		$	814		$	(17	)	$	797

Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	372			—			372			363			—			363
Stock-based compensation and other	55			—			55			26			—			26
Changes in certain assets and liabilities:
Changes in deferred tax provision	19			26			45			94			(12		)	82
Increase in accounts receivable	(39		)	—			(39		)	(46		)	—			(46		)
Increase in air traffic liability	88			(43		)	45			9			(6		)	3
Increase in deferred revenue	63			128			191			83			70			153
Changes in pension and other postretirement benefits	17			—			17			23			—			23
Other—net	(19		)	(37		)	(56		)	20			(35		)	(15		)
Net cash provided by operating activities	1,590			—			1,590			1,386			—			1,386

Net cash used in investing activities	(1,132		)	3			(1,129		)	(2,622		)	—			(2,622		)

Net cash provided by (used in) financing activities	(592		)	—			(592		)	1,491			—			1,491

Net increase (decrease) in cash, cash equivalents and restricted cash	(134		)	3			(131		)	255			—			255
Cash, cash equivalents and restricted cash at beginning of year	328			—			328			73			—			73
Cash, cash equivalents and restricted cash at end of the period	$	194		$	3		$	197		$	328		$	—		$	328


(a)	Also includes approximately $3 million in adjustments for the adoption of ASU 2016-18, which are reflected in the Other - net line item, as discussed further below.

Other Standards Adopted

In November 2016, the FASB issued ASU 2016-18, "Statement of Cash Flows—Restricted Cash (Topic 230)" related to the presentation of restricted cash on the statement of cash flows, and within the accompanying footnotes. The Company adopted the standard effective January 1, 2018.

In February 2018, the FASB issued ASU 2018-02, "Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income." The standard allows a reclassification from accumulated other comprehensive income (AOCI) to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. The amount of the reclassification is the difference between the amount initially recorded directly to other comprehensive income at the previously enacted U.S. federal corporate income tax rate that remains in AOCI and the amount that would have been recorded directly to other comprehensive income using the newly enacted U.S. federal income tax rate. The standard is effective for interim and annual reporting periods beginning after December 15, 2018, and early adoption is permitted. The Company elected to early adopt the standard effective January 1, 2018. As a result, retained earnings increased approximately $62 million in 2018 due to the reclassification of tax effects in AOCI recorded in prior periods at previously enacted tax rates.