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NEW ACCOUNTING PRONOUNCEMENTS | 6 Months Ended
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Jun. 30, 2018
New Accounting Pronouncements and Changes in Accounting Principles [Abstract] |
NEW ACCOUNTING PRONOUNCEMENTS | NEW ACCOUNTING PRONOUNCEMENTS On August 28, 2017, the Financial Accounting Standards Board (the "FASB") issued ASU No. 2017-12, Targeted Improvements to Accounting for Hedging Activities (the "New Hedging Standard"). The New Hedging Standard amends the hedge accounting model to enable entities to better portray the economics of their risk management activities in the financial statements and enhance the transparency and understandability of hedge results. The New Hedging Standard also simplifies the application of hedge accounting in certain situations. The New Hedging Standard is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018, with early adoption permitted in any interim or annual period. The Company elected to early adopt the New Hedging Standard as of January 1, 2018. The adoption was done on a prospective basis, as required. The most significant impacts of the New Hedging Standard on the Company's accounting are the elimination of the requirement to separately measure and record ineffectiveness for all cash flow hedges in a hedging relationship, as well as a change in classification of premium expense associated with option contracts. Such premium expense for the Company's fuel hedges was previously reflected as a component of Other (gains) losses, net, in the unaudited Condensed Consolidated Statement of Comprehensive Income, but under the New Hedging Standard is reflected as a component of the line item to which the hedge relates, which is Fuel and oil expense. As such, the classification of premium expense for the three and six months ended June 30, 2017, has been reclassified in order to be comparative with current period results in the accompanying unaudited Condensed Consolidated Statement of Comprehensive Income. The impact of the cumulative effect of the adjustment to move the reporting of ineffectiveness as of January 1, 2018, to Accumulated other comprehensive income (loss) ("AOCI") from Retained earnings, was a $20 million loss, net of taxes. The adoption and resulting reclassification had no impact on the Company's Net income, earnings per share, or cash flows. On March 10, 2017, the FASB issued ASU No. 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (the "New Retirement Standard"). The New Retirement Standard requires employers to present the service cost component of the net periodic benefit cost in the same income statement line item as other Employee compensation costs arising from services rendered during the period. The other components of net benefit cost, including amortization of prior service cost/credit, and settlement and curtailment effects, are to be included in nonoperating expenses. As required by the New Retirement Standard, the Company adopted this guidance retrospectively as of January 1, 2018, using a practical expedient which permitted the Company to use the amounts disclosed in its pension and other postretirement benefit plan note for the prior comparative periods as the estimation basis for applying the retrospective presentation requirements. As such, the Company reclassified $4 million and $6 million of Salaries, wages, and benefits expense to Other (gains) and losses under the New Retirement Standard in the accompanying unaudited Condensed Consolidated Statement of Comprehensive Income for the three and six months ended June 30, 2017, respectively. The adoption and resulting reclassification had no impact on the Company's Net income, earnings per share, or cash flows. On February 25, 2016, the FASB issued ASU No. 2016-02, Leases (the "New Lease Standard"). The New Lease Standard is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018, with early adoption permitted. The New Lease Standard requires lessees to recognize a right-of-use asset and a lease liability on the balance sheet for all leases (with the exception of short-term leases) at the lease commencement date and recognize expenses on the income statement in a similar manner to the current guidance in Accounting Standards Codification 840, Leases ("ASC 840"). The lease liability will be measured at the present value of the unpaid lease payments and the right-of-use asset will be derived from the calculation of the lease liability. Lease payments will include fixed and in-substance fixed payments, variable payments based on an index or rate, reasonably certain purchase options, termination penalties, fees paid by the lessee to the owners of a special-purpose entity for restructuring the transaction, and probable amounts the lessee will owe under a residual value guarantee. Lease payments will not include variable lease payments other than those that depend on an index or rate, any guarantee by the lessee of the lessor’s debt, or any amount allocated to non-lease components. The Company has a project team to evaluate and implement the New Lease Standard, and currently believes the most significant impact of the New Lease Standard on its accounting will be the balance sheet impact of its aircraft operating leases, which will significantly increase assets and liabilities. As of June 30, 2018, the Company had 53 leased aircraft under operating leases in its active fleet and also had another 76 aircraft under operating leases that are being subleased to another airline. As of June 30, 2018, the net present value of future rents for those aircraft was approximately $850 million. This amount only includes contractual payments due to lessors, and does not consider certain items that the New Lease Standard requires to be assessed in determining the final asset and liability to be reflected on the Company's balance sheet, such as lease renewal options and potential impairments, nor does it consider the sublease income that is due from third parties. The Company also has operating leases related to terminal operations space and other real estate leases. Although the real estate leases will also have a substantial impact to the balance sheet, the Company does not expect the leases related to terminal operations space to have a significant impact since variable lease payments, other than those based on an index or rate, are excluded from the measurement of the lease liability. The Company also does not expect the adoption of the New Lease Standard to impact any of its existing debt covenants. In addition, the New Lease Standard eliminates the current build-to-suit lease accounting guidance and is expected to result in derecognition of build-to-suit assets and liabilities that remained on the balance sheet after the end of the construction period. The underlying leases for these facilities will be subject to evaluation under the New Lease Standard. See Note 7 for further information on the Company’s build-to-suit projects. The Company currently plans to utilize the recently affirmed proposal which provided an optional transition method for adoption of the New Lease Standard, which allows entities to continue to apply the legacy guidance in ASC 840, including its disclosure requirements, in the comparative periods presented in the year of adoption. The Company plans to adopt the New Lease Standard on January 1, 2019, and will continue to provide updates to its plans in future periods. On May 28, 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (the "New Revenue Standard"), also referred to as Accounting Standards Codification 606, Revenue From Contracts With Customers ("ASC 606"), which replaces numerous revenue recognition requirements in GAAP, including industry-specific requirements, and provides companies with a single revenue recognition model for recognizing revenue from contracts with Customers. The New Revenue Standard establishes a five-step model whereby revenue is recognized as performance obligations within a contract are satisfied in an amount that reflects the consideration the Company expects to receive in exchange for satisfaction of those performance obligations, or standalone selling price. The New Revenue Standard also requires new, expanded disclosures regarding revenue recognition. See Note 5 for further information. The Company adopted the provisions of the New Revenue Standard effective January 1, 2018, using the full retrospective method. As such, results for the three and six months ended June 30, 2017, have been recast under the New Revenue Standard in order to be comparative with current period results in the accompanying unaudited Condensed Consolidated Statements of Comprehensive Income and Cash Flows. The amounts in the accompanying unaudited Condensed Consolidated Balance Sheet as of December 31, 2017, have also been recast. The most significant impact of the New Revenue Standard relates to the accounting for the Company’s loyalty program. The New Revenue Standard eliminated the incremental cost method for loyalty program accounting, which was previously allowed in prior accounting guidance. The Company now accounts for the liability for frequent flyer points earned through flight activity using a relative fair value approach. The New Revenue Standard also resulted in different income statement classification for certain types of revenues (primarily ancillary revenues) which were previously classified as Other revenues, but under the New Revenue Standard are included in Passenger revenues, and certain expenses, which were previously classified as Other operating expenses, but under the New Revenue Standard are offset against Passenger revenues. The following table provides the impact of applying the New Revenue Standard to the Company’s previously reported balances as of December 31, 2017:
| Balance as of December 31, 2017
(in millions) | As Reported |  | New Revenue Standard |  | As Recast
Accrued liabilities | $ | 1,777 |  |  | $ | (77 | ) |  | $ | 1,700 |
Air traffic liability | 3,460 |  |  | 35 |  |  | 3,495 |
Air traffic liability - noncurrent | — |  |  | 1,070 |  |  | 1,070 |
Deferred income taxes | 2,358 |  |  | (239 | ) |  | 2,119 |
Retained earnings | 14,621 |  |  | (789 | ) |  | 13,832 |
The impacts of applying the New Revenue Standard, the New Retirement Standard, and the New Hedging Standard to the Company’s unaudited Condensed Consolidated Statement of Comprehensive Income for the three and six months ended June 30, 2017, are as follows:
| Three months ended June 30, 2017
(in millions), except per share amounts | As Reported |  | New Revenue Standard |  | New Retirement Standard |  | New Hedging Standard |  | As Recast
Passenger revenue | $ | 5,233 |  |  | $ | 146 |  |  | $ | — |  |  | $ | — |  |  | $ | 5,379 |
Other revenue | 467 |  |  | (159 | ) |  | — |  |  | — |  |  | 308 |
Salaries, wages, and benefits | 1,867 |  |  | — |  |  | (4 | ) |  | — |  |  | 1,863 |
Fuel and oil expense | 990 |  |  | — |  |  | — |  |  | 34 |  |  | 1,024 |
Other operating expenses | 735 |  |  | (8 | ) |  | — |  |  | — |  |  | 727 |
Other (gains) losses, net | 74 |  |  | — |  |  | 4 |  |  | (34 | ) |  | 44 |
Provision for income taxes | 424 |  |  | (2 | ) |  | — |  |  | — |  |  | 422 |
Net income | 746 |  |  | (3 | ) |  | — |  |  | — |  |  | 743 |
Net income per share, basic | 1.24 |  |  | (0.01 | ) |  | — |  |  | — |  |  | 1.23 |
Net income per share, diluted | 1.23 |  |  | — |  |  | — |  |  | — |  |  | 1.23 |
| Six months ended June 30, 2017
(in millions), except per share amounts | As Reported |  | New Revenue Standard |  | New Retirement Standard |  | New Hedging Standard |  | As Recast
Passenger revenue | $ | 9,658 |  |  | $ | 267 |  |  | $ | — |  |  | $ | — |  |  | $ | 9,925 |
Other revenue | 883 |  |  | (309 | ) |  | — |  |  | — |  |  | 574 |
Salaries, wages, and benefits | 3,600 |  |  | — |  |  | (6 | ) |  | — |  |  | 3,594 |
Fuel and oil expense | 1,912 |  |  | — |  |  | — |  |  | 67 |  |  | 1,979 |
Other operating expenses | 1,431 |  |  | (17 | ) |  | — |  |  | — |  |  | 1,414 |
Other (gains) losses, net | 167 |  |  | — |  |  | 6 |  |  | (67 | ) |  | 106 |
Provision for income taxes | 626 |  |  | (10 | ) |  | — |  |  | — |  |  | 616 |
Net income | 1,097 |  |  | (15 | ) |  | — |  |  | — |  |  | 1,082 |
Net income per share, basic | 1.80 |  |  | (0.02 | ) |  | — |  |  | — |  |  | 1.78 |
Net income per share, diluted | 1.80 |  |  | (0.03 | ) |  | — |  |  | — |  |  | 1.77 |
The impact of applying the New Revenue Standard to the Company’s unaudited Condensed Consolidated Statement of Cash Flows for the three and six months ended June 30, 2017, are as follows:
| Three months ended June 30, 2017
(in millions) | As Reported |  | New Revenue Standard |  | As Recast
Net income | $ | 746 |  |  | $ | (3 | ) |  | $ | 743 |
Deferred income taxes | 69 |  |  | (1 | ) |  | 68 |
Changes in certain assets and liabilities | (444 | ) |  | 4 |  |  | (440 | )
Net cash provided by operating activities | 746 |  |  | — |  |  | 746 |
| Six months ended June 30, 2017
(in millions) | As Reported |  | New Revenue Standard |  | As Recast
Net income | $ | 1,097 |  |  | $ | (15 | ) |  | $ | 1,082 |
Deferred income taxes | 131 |  |  | (10 | ) |  | 121 |
Changes in certain assets and liabilities | 429 |  |  | 25 |  |  | 454 |
Net cash provided by operating activities | 2,370 |  |  | — |  |  | 2,370 |

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- Definition The entire disclosure of changes in accounting principles, including adoption of new accounting pronouncements, that describes the new methods, amount and effects on financial statement line items. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 250 -URI http://asc.fasb.org/topic&trid=2122394 + Details
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