Annual Report of United Continental Holdings, Inc\. and United Airlines, Inc\. for year 2017

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**UNITED AIRLINES, INC\.**

**STATEMENTS OF CONSOLIDATED STOCKHOLDER’S EQUITY**

**(In millions)**

|                                                   |                                                   |                                                                |                                                                              |                                                    |           |
|:------------------------------------------------- | -------------------------------------------------:| --------------------------------------------------------------:| ----------------------------------------------------------------------------:| --------------------------------------------------:| ---------:|
|                                                   | **Additional**
**Capital**
**Invested** | **Retained
Earnings
(Accumulated**
**Deficit)** | **Accumulated**
**Other**
**Comprehensive**
**Income (Loss)** | **Receivable
from Related
Parties, Net** | **Total** |
| Balance at December 31, 2014                      |                                           $7,347  |                                                       $(3,628) |                                                                     $(1,079) |                                               $(5) |   $2,635  |
| Net income                                        |                                                —  |                                                         7,301  |                                                                           —  |                                                 —  |    7,301  |
| Other comprehensive income                        |                                                —  |                                                             —  |                                                                         248  |                                                 —  |      248  |
| Dividend to UAL                                   |                                           (1,232) |                                                             —  |                                                                           —  |                                                 —  |   (1,232) |
| Share\-based compensation                         |                                                7  |                                                             —  |                                                                           —  |                                                 —  |        7  |
| UAL contribution related to stock plans           |                                               16  |                                                             —  |                                                                           —  |                                                 —  |       16  |
| Other                                             |                                                —  |                                                             —  |                                                                           —  |                                               (12) |      (12) |
| Balance at December 31, 2015                      |                                            6,138  |                                                         3,673  |                                                                        (831) |                                               (17) |    8,963  |
| Net income                                        |                                                —  |                                                         2,264  |                                                                           —  |                                                 —  |    2,264  |
| Other comprehensive income                        |                                                —  |                                                             —  |                                                                           2  |                                                 —  |        2  |
| Dividend to UAL                                   |                                           (2,603) |                                                             —  |                                                                           —  |                                                 —  |   (2,603) |
| Share\-based compensation                         |                                               32  |                                                             —  |                                                                           —  |                                                 —  |       32  |
| UAL contribution related to stock plans           |                                                6  |                                                             —  |                                                                           —  |                                                 —  |        6  |
| Other                                             |                                                —  |                                                             —  |                                                                           —  |                                               (58) |      (58) |
| Balance at December 31, 2016                      |                                            3,573  |                                                         5,937  |                                                                        (829) |                                               (75) |    8,606  |
| Net income                                        |                                                —  |                                                         2,149  |                                                                           —  |                                                 —  |    2,149  |
| Other comprehensive loss                          |                                                —  |                                                             —  |                                                                        (200) |                                                 —  |     (200) |
| Dividend to UAL                                   |                                           (1,844) |                                                             —  |                                                                           —  |                                                 —  |   (1,844) |
| Share\-based compensation                         |                                               56  |                                                             —  |                                                                           —  |                                                 —  |       56  |
| UAL contribution related to stock plans           |                                                2  |                                                             —  |                                                                           —  |                                                 —  |        2  |
| Excess tax benefits from share\-based awards      |                                                —  |                                                            14  |                                                                           —  |                                                 —  |       14  |
| Reclassification of stranded tax effects (Note 1) |                                                —  |                                                           118  |                                                                        (118) |                                                 —  |        —  |
| Other                                             |                                                —  |                                                             —  |                                                                           —  |                                               (15) |      (15) |
| Balance at December 31, 2017                      |                                           $1,787  |                                                        $8,218  |                                                                     $(1,147) |                                              $(90) |   $8,768  |

The accompanying Combined Notes to Consolidated Financial Statements are an integral part of these statements\.

60


Annual Report of American Airlines Group Inc\. for year 2017

**AMERICAN AIRLINES GROUP INC\.**

**CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME**

**(In millions)**

|                                                             |                             |                             |                             |
| ----------------------------------------------------------- | --------------------------- | --------------------------- | --------------------------- |
|                                                             | **Year Ended December 31,** | **Year Ended December 31,** | **Year Ended December 31,** |
|                                                             | **2017**                    | **2016**                    | **2015**                    |
| **Net income**                                              | $1,919                      | $2,676                      | $7,610                      |
| **Other comprehensive income (loss), net of tax:**          |                             |                             |                             |
| Pension, retiree medical and other postretirement benefits: |                             |                             |                             |
| Amortization of actuarial loss and prior service cost       | (55)                        | (65)                        | (108)                       |
| Current year change                                         | (15)                        | (293)                       | (51)                        |
| Investments and derivative financial instruments            | (1)                         | 7                           | (14)                        |
| **Total other comprehensive loss, net of tax**              | (71)                        | (351)                       | (173)                       |
| **Total comprehensive income**                              | $1,848                      | $2,325                      | $7,437                      |

See accompanying notes to consolidated financial statements\.

82


Annual Report of American Airlines Group Inc\. for year 2019

|                               |                                                                                |
| ----------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| **Exhibit**

**Number** | **Description**                                                                                |
| 4\.24                         | [Revolving Credit Agreement (2014\-1B), dated as of September 16, 2014, between Wilmington Trust Company, as Subordination Agent, as agent and trustee for the trustee of the American Airlines Pass Through Trust 2014\-1B, as Borrower, and Crédit Agricole Corporate and Investment Bank, acting through its New York Branch, as Liquidity Provider (incorporated by reference to Exhibit 4\.15 to American’s Current Report on Form 8\-K filed on September 17, 2014 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312514343482/d790263dex415.htm)                                                                               |
| 4\.25                         | [Indenture, dated as of March 5, 2015, among American Airlines Group Inc\., the Guarantors (as defined therein) and Wilmington Trust, National Association, as trustee (incorporated by reference to Exhibit 4\.1 to AAG’s Current Report on Form 8\-K filed on March 12, 2015 (Commission File No\. 1\-8400))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312515088934/d891899dex41.htm)                                                                                |
| 4\.26                         | [Form of 4\.625% Senior Notes due 2020 (incorporated by reference to Exhibit A to Exhibit 4\.1 to AAG’s Current Report on Form 8\-K filed on March 12, 2015 (Commission File No\. 1\-8400))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312515088934/d891899dex41.htm)                                                                                |
| 4\.27                         | [Form of 5\.000% Senior Notes due 2022 (incorporated by reference to Exhibit A to Exhibit 4\.1 to AAG’s Current Report on Form 8\-K filed on May 21, 2019 (Commission File No\. 1\-8400))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312519152852/d728811dex41.htm)                                                                                |
| 4\.28                         | [First Supplemental Indenture, dated as of December 30, 2015, among American Airlines Group Inc\., American Airlines, Inc\. and Wilmington Trust, National Association, as trustee, to the Indenture dated as of March 5, 2015 (incorporated by reference to Exhibit 4\.3 to AAG’s Current Report on Form 8\-K filed on December 31, 2015 (Commission File No\. 1\-8400))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312515418305/d110614dex43.htm)                                                                                |
| 4\.29                         | [Trust Supplement No\. 2015\-1A, dated as of March 16, 2015, between American Airlines, Inc\. and Wilmington Trust Company, as Trustee, to the Pass Through Trust Agreement, dated as of September 16, 2014 (incorporated by reference to Exhibit 4\.2 to American’s Current Report on Form 8\-K filed on March 16, 2015 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312515093938/d890456dex42.htm)                                                                                |
| 4\.30                         | [Trust Supplement No\. 2015\-1B, dated as of March 16, 2015, between American Airlines, Inc\. and Wilmington Trust Company, as Trustee, to the Pass Through Trust Agreement, dated as of September 16, 2014 (incorporated by reference to Exhibit 4\.3 to American’s Current Report on Form 8\-K filed on March 16, 2015 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312515093938/d890456dex43.htm)                                                                                |
| 4\.31                         | [Intercreditor Agreement (2015\-1), dated as of March 16, 2015, among Wilmington Trust Company, as Trustee of the American Airlines Pass Through Trust 2015\-1A and as Trustee of the American Airlines Pass Through Trust 2015\-1B, Crédit Agricole Corporate and Investment Bank, acting through its New York Branch, as Class A Liquidity Provider and Class B Liquidity Provider, and Wilmington Trust Company, as Subordination Agent (incorporated by reference to Exhibit 4\.4 to American’s Current Report on Form 8\-K filed on March 16, 2015 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312515093938/d890456dex44.htm) |
| 4\.32                         | [Note Purchase Agreement, dated as of March 16, 2015, among American Airlines, Inc\., Wilmington Trust Company, as Pass Through Trustee under each of the Pass Through Trust Agreements, Wilmington Trust Company, as Subordination Agent, Wilmington Trust, National Association, as Escrow Agent, and Wilmington Trust Company, as Paying Agent (incorporated by reference to Exhibit 4\.9 to American’s Current Report on Form 8\-K filed on March 16, 2015 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312515093938/d890456dex49.htm)                                                                                |
| 4\.33                         | [Form of Participation Agreement (Participation Agreement among American Airlines, Inc\., Wilmington Trust Company, as Pass Through Trustee under each of the Pass Through Trust Agreements, Wilmington Trust Company, as Subordination Agent, Wilmington Trust Company, as Loan Trustee, and Wilmington Trust Company, in its individual capacity as set forth therein) (incorporated by reference to Exhibit 4\.10 to American’s Current Report on Form 8\-K filed on March 16, 2015 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312515093938/d890456dex410.htm)                                                                 |
| 4\.34                         | [Form of Indenture and Security Agreement (Indenture and Security Agreement between American Airlines, Inc\., and Wilmington Trust Company, as Loan Trustee) (incorporated by reference to Exhibit 4\.11 to American’s Current Report on Form 8\-K filed on March 16, 2015 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312515093938/d890456dex411.htm)                                                                                |
| 4\.35                         | [Form of Pass Through Trust Certificate, Series 2015\-1A (incorporated by reference to Exhibit A to Exhibit 4\.2 to American’s Current Report on Form 8\-K filed on March 16, 2015 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312515093938/d890456dex42.htm)                                                                                |
| 4\.36                         | [Form of Pass Through Trust Certificate, Series 2015\-1B (incorporated by reference to Exhibit A to Exhibit 4\.3 to American’s Current Report on Form 8\-K filed on March 16, 2015 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312515093938/d890456dex43.htm)                                                                                |
| 4\.37                         | [Revolving Credit Agreement (2015\-1A), dated as of March 16, 2015, between Wilmington Trust Company, as Subordination Agent, as agent and trustee for the trustee of the American Airlines Pass Through Trust 2015\-1A, as Borrower, and Crédit Agricole Corporate and Investment Bank, acting through its New York Branch, as Liquidity Provider (incorporated by reference to Exhibit 4\.14 to American’s Current Report on Form 8\-K filed on March 16, 2015 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312515093938/d890456dex414.htm)                                                                                |
| 4\.38                         | [Revolving Credit Agreement (2015\-1B), dated as of March 16, 2015, between Wilmington Trust Company, as Subordination Agent, as agent and trustee for the trustee of the American Airlines Pass Through Trust 2015\-1B, as Borrower, and Crédit Agricole Corporate and Investment Bank, acting through its New York Branch, as Liquidity Provider (incorporated by reference to Exhibit 4\.15 to American’s Current Report on Form 8\-K filed on March 16, 2015 (Commission File No\. 1\-2691))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312515093938/d890456dex415.htm)                                                                                |

166


Annual Report of Southwest Airlines Co\. for year 2019

|                                            |                                            |                       |                       |                           |                           |
| ------------------------------------------ | ------------------------------------------ | --------------------- | --------------------- | ------------------------- | ------------------------- |
|                                            |                                            | **Asset derivatives** | **Asset derivatives** | **Liability derivatives** | **Liability derivatives** |
|                                            | **Balance Sheet**                          | **Fair value at**     | **Fair value at**     | **Fair value at**         | **Fair value at**         |
| **(in millions)**                          | **location**                               | **12/31/2019**        | **12/31/2018**        | **12/31/2019**            | **12/31/2018**            |
| **Derivatives designated as hedges (a)**   |                                            |                       |                       |                           |                           |
| Fuel derivative contracts (gross)          | Prepaid expenses and other current assets  | $48                   | $43                   | $—                        | $—                        |
| Fuel derivative contracts (gross)          | Other assets                               | 62                    | 95                    | —                         | —                         |
| Interest rate derivative contracts         | Other assets                               | 2                     | —                     | —                         | —                         |
| Interest rate derivative contracts         | Accrued liabilities                        | —                     | —                     | 5                         | 2                         |
| Interest rate derivative contracts         | Other noncurrent liabilities               | —                     | —                     | 1                         | 12                        |
| **Total derivatives designated as hedges** | **Total derivatives designated as hedges** | $112                  | $138                  | $6                        | $14                       |

(a) Represents the position of each trade before consideration of offsetting positions with each counterparty and does not include the impact of cash collateral deposits provided to or received from counterparties\. See discussion of credit risk and collateral following in this Note\.

The following table presents the amounts recorded on the Consolidated Balance Sheet related to fair value hedges:

|                                           |                                               |                                               |                                                                                |                                                                                |
| ----------------------------------------- | --------------------------------------------- | --------------------------------------------- | -------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------- |
| **Balance Sheet location of hedged item** | **Carrying amount of the hedged liabilities** | **Carrying amount of the hedged liabilities** | **Cumulative amount of fair value hedging adjustment included in the carrying amount of the hedged liabilities (a)** | **Cumulative amount of fair value hedging adjustment included in the carrying amount of the hedged liabilities (a)** |
|                                           | **December 31,**                              | **December 31,**                              | **December 31,**                                                                                | **December 31,**                                                                                |
| **(in millions)**                         | **2019**                                      | **2018**                                      | **2019**                                                                                | **2018**                                                                                |
| Current maturities of long\-term debt     | $500                                          | $—                                            | $—                                                                                | $—                                                                                |
| Long\-term debt less current maturities   | —                                             | 791                                           | 19                                                                                | 11                                                                                |
|                                           | $500                                          | $791                                          | $19                                                                                | $11                                                                                |

(a) At  December 31, 2019  and  2018 , these amounts include the cumulative amount of fair value hedging adjustments remaining for which hedge accounting has been discontinued of $  19  million and $  20  million, respectively\.

In addition, the Company had the following amounts associated with fuel derivative instruments and hedging activities in its Consolidated Balance Sheet:

|                                                                                |                                                          |                  |                  |
| ------------------------------------------------------------------------------------------------ | -------------------------------------------------------- | ---------------- | ---------------- |
|                                                                                | **Balance Sheet**                                        | **December 31,** | **December 31,** |
| **(in millions)**                                                                                | **location**                                             | **2019**         | **2018**         |
| Cash collateral deposits held from counterparties for fuel contracts \- current

    | Offset against Prepaid expenses and other current assets | $10              | $—               |
| Cash collateral deposits held from counterparties for fuel contracts \- noncurrent

 | Offset against Other assets                              | 15               | —                |

All of the Company's fuel derivative instruments and interest rate swaps are subject to agreements that follow the netting guidance in the applicable accounting standards for derivatives and hedging\. The types of derivative instruments the Company has determined are subject to netting requirements in the accompanying Consolidated Balance Sheet are those in which the Company pays or receives cash for transactions with the same counterparty and in the same currency via one net payment or receipt\. For cash collateral held by the Company or provided to counterparties, the Company nets such amounts against the fair value of the Company's derivative portfolio by each counterparty\. The Company has elected to utilize netting for both its fuel derivative instruments and interest rate swap agreements and also classifies such amounts as either current or noncurrent, based on the net fair value position with each of the Company's counterparties in the Consolidated Balance Sheet\. If its fuel derivative instruments are in a net asset position with a

94


Annual Report of DELTA AIR LINES, INC\.  for year 2019

Employees Under Collective Bargaining Agreements

As of December 31, 2019, we had approximately 91,000 full\-time equivalent employees, approximately 19%  of whom were represented by unions\. The following table shows our domestic airline employee groups that are represented by unions\.

|                                            |                                            |                                            |                                                    |                                                    |  |  |  |       |       |       |                                                                 |                                                                 |                                                                 |
|:------------------------------------------ |:------------------------------------------ |:------------------------------------------ | --------------------------------------------------:| --------------------------------------------------:|:- |:- |:- | -----:| -----:| -----:| ---------------------------------------------------------------:| ---------------------------------------------------------------:| ---------------------------------------------------------------:|
| Employee Group                             | Employee Group                             | Employee Group                             | Approximate Number of Active Employees Represented | Approximate Number of Active Employees Represented |  |  |  | Union | Union | Union | Date on which Collective Bargaining Agreement Becomes Amendable | Date on which Collective Bargaining Agreement Becomes Amendable | Date on which Collective Bargaining Agreement Becomes Amendable |
| Delta Pilots                               | Delta Pilots                               | Delta Pilots                               |                                             13,082 |                                             13,082 |  |  |  |  ALPA |  ALPA |  ALPA |                                               December 31, 2019 |                                               December 31, 2019 |                                               December 31, 2019 |
| Delta Flight Superintendents (Dispatchers) | Delta Flight Superintendents (Dispatchers) | Delta Flight Superintendents (Dispatchers) |                                                443 |                                                443 |  |  |  | PAFCA | PAFCA | PAFCA |                                                November 1, 2024 |                                                November 1, 2024 |                                                November 1, 2024 |
| Endeavor Air Pilots                        | Endeavor Air Pilots                        | Endeavor Air Pilots                        |                                              1,872 |                                              1,872 |  |  |  |  ALPA |  ALPA |  ALPA |                                                 January 1, 2024 |                                                 January 1, 2024 |                                                 January 1, 2024 |
| Endeavor Air Flight Attendants             | Endeavor Air Flight Attendants             | Endeavor Air Flight Attendants             |                                              1,492 |                                              1,492 |  |  |  |   AFA |   AFA |   AFA |                                               December 31, 2018 |                                               December 31, 2018 |                                               December 31, 2018 |

We are in discussions with representatives of our pilots and Endeavor Air flight attendants regarding terms of amendable collective bargaining agreements\.

In addition to the domestic airline employee groups discussed above, 199 refinery employees of Monroe are represented by the United Steel Workers under an agreement that expires on February 28, 2022\. This agreement is governed by the National Labor Relations Act, which generally allows either party to engage in self help upon the expiration of the agreement\.

Other

We have certain contracts for goods and services that require us to pay a penalty, acquire inventory specific to us or purchase contract\-specific equipment, as defined by each respective contract, if we terminate the contract without cause prior to its expiration date\. Because these obligations are contingent on our termination of the contract without cause prior to its expiration date, no obligation would exist unless such a termination occurs\.

NOTE 12\. INCOME TAXES

Income Tax Provision

Our income tax provision consisted of the following:

|                                  |                                  |                                  |                         |                         |                         |  |  |  |  |  |  |
|:-------------------------------- |:-------------------------------- |:-------------------------------- | -----------------------:| -----------------------:| -----------------------:|:- |:- |:- |:- |:- |:- |
|                                  |                                  |                                  | Year Ended December 31, | Year Ended December 31, | Year Ended December 31, |  |  |  |  |  |  |
| (in millions)                    | (in millions)                    | (in millions)                    |                    2019 |                    2018 |                    2017 |
| Current tax benefit (provision): | Current tax benefit (provision): | Current tax benefit (provision): |                         |                         |                         |
| Federal                          | Federal                          | Federal                          |                    $ 94 |                   $ 187 |                   $ (4) |
| State and local                  | State and local                  | State and local                  |                    (39) |                    (26) |                       5 |
| International                    | International                    | International                    |                    (13) |                    (13) |                    (54) |
| Deferred tax provision:          | Deferred tax provision:          | Deferred tax provision:          |                         |                         |                         |
| Federal                          | Federal                          | Federal                          |                 (1,343) |                 (1,226) |                 (2,093) |
| State and local                  | State and local                  | State and local                  |                   (130) |                   (138) |                   (149) |
| Income tax provision             | Income tax provision             | Income tax provision             |               $ (1,431) |               $ (1,216) |               $ (2,295) |

89


Annual Report of American Airlines Group Inc\. for year 2019

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES GROUP INC\.

In certain transactions, including certain aircraft financing leases and loans, the lessors, lenders and/or other parties have rights to terminate the transaction based on changes in foreign tax law, illegality or certain other events or circumstances\. In such a case, we may be required to make a lump sum payment to terminate the relevant transaction\.

We have general indemnity clauses in many of our airport and other real estate leases where we as lessee indemnify the lessor (and related parties) against liabilities related to our use of the leased property\. Generally, these indemnifications cover liabilities resulting from the negligence of the indemnified parties, but not liabilities resulting from the gross negligence or willful misconduct of the indemnified parties\. In addition, we provide environmental indemnities in many of these leases for contamination related to our use of the leased property\.

Under certain contracts with third parties, we indemnify the third\-party against legal liability arising out of an action by the third\-party, or certain other parties\. The terms of these contracts vary and the potential exposure under these indemnities cannot be determined\. We have liability insurance protecting us for some of the obligations we have undertaken under these indemnities\.

American is required to make principal and interest payments for certain special facility revenue bonds issued by municipalities primarily to build or improve airport facilities and purchase equipment, which are leased to American\. The payment of principal and interest of certain special facility revenue bonds is guaranteed by AAG\. As of  December 31, 2019 , the remaining lease payments through 2035 guaranteeing the principal and interest on these bonds are   $589 million  and the current carrying amount of the associated operating lease liability in the accompanying consolidated balance sheet is   $321 million \.

As of  December 31, 2019 , AAG had issued guarantees covering approximately   $725 million  of American’s special facility revenue bonds (and interest thereon) and   $8\.1 billion  of American’s secured debt (and interest thereon), including the Credit Facilities and certain EETC financings\.

(g) Credit Card Processing Agreements

We have agreements with companies that process customer credit card transactions for the sale of air travel and other services\. Our agreements allow these credit card processing companies, under certain conditions, to hold an amount of our cash (referred to as a holdback) equal to a portion of advance ticket sales that have been processed by that company, but for which we have not yet provided the air transportation\. Additional holdback requirements in the event of material adverse changes in our financial condition will reduce our liquidity in the form of unrestricted cash by the amount of the holdbacks\. These credit card processing companies are not currently entitled to maintain any holdbacks pursuant to these requirements\.

(h) Labor Negotiations

As of  December 31, 2019 , we employed approximately   133,700  active full\-time equivalent employees, of which   29,500  were employed by our regional operations\. Approximately   85%  of employees are covered by collective bargaining agreements (CBAs) with various labor unions and approximately   22%  of employees are covered by CBAs that will become amendable within one year\. Agreements in principle were reached on January 30, 2020 for joint collective bargaining agreements (JCBAs) covering our mainline maintenance, fleet service, stock clerks, maintenance control technicians and maintenance training instructors\. Those agreements are subject to membership ratification vote\. Additionally, the post\-Merger JCBAs covering our pilots and flight attendants became amendable in January 2020 and December 2019, respectively\. Negotiations continue for new agreements for these workgroups as well as for CBAs covering certain employee groups at our wholly\-owned regional subsidiaries\.

13\. Supplemental Cash Flow Information

Supplemental disclosure of cash flow information and non\-cash investing and financing activities are as follows (in millions):

|                                               |                             |                             |                             |
| --------------------------------------------- | --------------------------- | --------------------------- | --------------------------- |
|                                               | **Year Ended December 31,** | **Year Ended December 31,** | **Year Ended December 31,** |
|                                               | **2019**                    | **2018**                    | **2017**                    |
| Non\-cash investing and financing activities: |                             |                             |                             |
| Settlement of bankruptcy obligations          | $7                          | $—                          | $15                         |
| Equity Investment                             | —                           | —                           | 120                         |
| Supplemental information:                     |                             |                             |                             |
| Interest paid, net                            | 1,111                       | 1,091                       | 1,040                       |
| Income taxes paid                             | 8                           | 18                          | 20                          |

111


Annual Report of DELTA AIR LINES, INC\.  for year 2018

ITEM 2\. PROPERTIES

Flight Equipment

Our operating aircraft fleet, commitments and options at  December 31, 2018  are summarized in the following table:

|                   |                             |                             |                             |                             |                 |                 |                 |
| ----------------- | --------------------------- | --------------------------- | --------------------------- | --------------------------- | --------------- | --------------- | --------------- |
|                   | **Current Fleet** **^(1)^** | **Current Fleet** **^(1)^** | **Current Fleet** **^(1)^** | **Current Fleet** **^(1)^** |                 | **Commitments** | **Commitments** |
| **Aircraft Type** | **Owned**                   | **Finance Lease**           | **Operating Lease**         | **Total**                   | **Average Age** | **Purchase**    | **Options**     |
| B\-717\-200       | 3                           | 16                          | 72                          | 91                          | 17\.3           | —               | —               |
| B\-737\-700       | 10                          | —                           | —                           | 10                          | 9\.9            | —               | —               |
| B\-737\-800       | 73                          | 4                           | —                           | 77                          | 17\.3           | —               | —               |
| B\-737\-900ER     | 73                          | —                           | 39                          | 112                         | 2\.7            | 18              | —               |
| B\-757\-200       | 89                          | 9                           | 2                           | 100                         | 21\.4           | —               | —               |
| B\-757\-300       | 16                          | —                           | —                           | 16                          | 15\.9           | —               | —               |
| B\-767\-300       | 2                           | —                           | —                           | 2                           | 25\.5           | —               | —               |
| B\-767\-300ER     | 55                          | 1                           | —                           | 56                          | 22\.6           | —               | —               |
| B\-767\-400ER     | 21                          | —                           | —                           | 21                          | 18\.0           | —               | —               |
| B\-777\-200ER     | 8                           | —                           | —                           | 8                           | 19\.1           | —               | —               |
| B\-777\-200LR     | 10                          | —                           | —                           | 10                          | 9\.8            | —               | —               |
| A220\-100         | 4                           | —                           | —                           | 4                           | 0\.1            | 36              | 50              |
| A220\-300         | —                           | —                           | —                           | —                           | —               | 50              | —               |
| A319\-100         | 55                          | —                           | 2                           | 57                          | 16\.8           | —               | —               |
| A320\-200         | 55                          | 3                           | 4                           | 62                          | 23\.4           | —               | —               |
| A321\-200         | 37                          | —                           | 28                          | 65                          | 1\.2            | 62              | —               |
| A321\-200neo      | —                           | —                           | —                           | —                           | —               | 100             | 100             |
| A330\-200         | 11                          | —                           | —                           | 11                          | 13\.8           | —               | —               |
| A330\-300         | 28                          | —                           | 3                           | 31                          | 9\.9            | —               | —               |
| A330\-900neo      | —                           | —                           | —                           | —                           | —               | 35              | —               |
| A350\-900         | 11                          | —                           | —                           | 11                          | 1\.0            | 14              | —               |
| MD\-88            | 71                          | 13                          | —                           | 84                          | 28\.1           | —               | —               |
| MD\-90            | 43                          | —                           | —                           | 43                          | 21\.8           | —               | —               |
| Total             | 675                         | 46                          | 150                         | 871                         | 16\.0           | 315             | 150             |

|       |                                                                                |
| ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------ |
| ^(1)^ | Excludes certain aircraft we own, lease or have committed to purchase that are operated by regional carriers on our behalf shown in the table below\.  |

The following table summarizes the aircraft fleet operated by regional carriers on our behalf at  December 31, 2018 :

|                           |                |                |                |                 |                 |           |
| ------------------------- | -------------- | -------------- | -------------- | --------------- | --------------- | --------- |
|                           | **Fleet Type** | **Fleet Type** | **Fleet Type** | **Fleet Type**  | **Fleet Type**  |           |
| **Carrier**               | **CRJ\-200**   | **CRJ\-700**   | **CRJ\-900**   | **Embraer 170** | **Embraer 175** | **Total** |
| Endeavor Air, Inc\. ^(1)^ | 42             | 3              | 109            | —               | —               | 154       |
| SkyWest Airlines, Inc\.   | 77             | 22             | 41             | —               | 49              | 189       |
| Compass Airlines, LLC     | —              | —              | —              | —               | 36              | 36        |
| Republic Airline, Inc\.   | —              | —              | —              | 21              | 16              | 37        |
| GoJet Airlines, LLC       | —              | 22             | 7              | —               | —               | 29        |
| Total                     | 119            | 47             | 157            | 21              | 101             | 445       |

|       |                                                             |
| ----- | ----------------------------------------------------------- |
| ^(1)^ | Endeavor Air, Inc\. is a wholly owned subsidiary of Delta\. |

 20


Annual Report of American Airlines Group Inc\. for year 2018

|                               |                                                                                |
| ----------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| **Exhibit**

**Number** | **Description**                                                                                |
| 10\.25                        | [Supplemental Agreement No\. 5, dated as of January 20, 2015, to Purchase Agreement No\. 3219 between The Boeing Company and American Airlines, Inc\., dated as of October 15, 2008, Relating to Boeing Model 787 Aircraft, as amended, restated, amended and restated, supplemented or otherwise modified (incorporated by reference to Exhibit 10\.2 to AAG’s Quarterly Report on Form 10\-Q for the quarter ended March 31, 2015 (Commission File No\. 1\-8400))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312515145178/d900175dex102.htm) \* |
| 10\.26                        | [Supplemental Agreement No\. 6, dated as of April 21, 2015, to Purchase Agreement No\. 3219 between American Airlines, Inc\. and The Boeing Company, dated as of October 15, 2008, as amended, restated, amended and restated, supplemented or otherwise modified (incorporated by reference to Exhibit 10\.2 to AAG’s Quarterly Report on Form 10\-Q for the quarter ended June 30, 2015 (Commission File No\. 1\-8400))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312515261937/d945812dex102.htm) \*                                           |
| 10\.27                        | [Supplemental Agreement No\. 7, dated as of September 12, 2016, to Purchase Agreement No\. 3219 dated as of October 15, 2008, between American Airlines, Inc\. and The Boeing Company (incorporated by reference to Exhibit 10\.3 to AAG’s Quarterly Report on Form 10\-Q for the quarter ended September 30, 2016 (Commission File No\. 1\-8400))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312516742263/d247546dex103.htm) \*                                                                                |
| 10\.28                        | [Supplemental Agreement No\. 8, dated as of January 26, 2017, to Purchase Agreement No\. 3219 dated as of October 15, 2008, between American Airlines, Inc\. and The Boeing Company (incorporated by reference to Exhibit 10\.3 to AAG’s Quarterly Report on Form 10\-Q for the quarter ended March 31, 2017 (Commission File No\. 1\-8400))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312517140927/d358913dex103.htm) \*                                                                                |
| 10\.29                        | [Supplemental Agreement No\. 9, dated as of April 24, 2017, to Purchase Agreement No\. 3219 dated as of October 15, 2008, by and between American Airlines, Inc\. and The Boeing Company (incorporated by reference to Exhibit 10\.5 to AAG’s Quarterly Report on Form 10\-Q for the quarter ended June 30, 2017 (Commission File No\. 1\-8400))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312517239325/d416225dex105.htm) \*                                                                                |
| 10\.30                        | [Supplemental Agreement No\. 10, dated as of May 11, 2017, to Purchase Agreement No\. 3219 dated as of October 15, 2008, by and between American Airlines, Inc\. and The Boeing Company (incorporated by reference to Exhibit 10\.6 to AAG’s Quarterly Report on Form 10\-Q for the quarter ended June 30, 2017 (Commission File No\. 1\-8400))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312517239325/d416225dex106.htm) \*                                                                                |
| 10\.31                        | [Supplemental Agreement No\. 11, dated as of April 6, 2018, to Purchase Agreement No\. 3219 dated as of October 15, 2008, by and between American Airlines, Inc\. and The Boeing Company (incorporated by reference to Exhibit 10\.1 to AAG’s Quarterly Report on Form 10\-Q for the quarter ended June 30, 2018 (Commission File No\. 1\-8400))\.](http://www.sec.gov/Archives/edgar/data/4515/000000620118000027/ex10110qq218.htm) \*                                                                                |
| 10\.32                        | [A320 Family Aircraft Purchase Agreement, dated as of July 20, 2011, between American Airlines, Inc\. and Airbus S\.A\.S\. (incorporated by reference to Exhibit 10\.4 to AMR’s report on Form 10\-Q for the quarter ended September 30, 2011 (Commission File No\. 1\-8400))\.](http://www.sec.gov/Archives/edgar/data/6201/000119312511274936/d236673dex104.htm) \*                                                                                |
| 10\.33                        | [Amendment No\. 1, dated as of January 11, 2013, to A320 Family Aircraft Purchase Agreement between American Airlines, Inc\. and Airbus S\.A\.S\., dated as of July 20, 2011 (incorporated by reference to Exhibit 10\.8 to AMR’s Quarterly Report on Form 10\-Q for the quarter ended March 31, 2013 (Commission File No\. 1\-8400))\.](http://www.sec.gov/Archives/edgar/data/6201/000000620113000040/d516424dex108.htm) \*                                                                                |
| 10\.34                        | [Amendment No\. 2, dated as of May 30, 2013, to A320 Family Aircraft Purchase Agreement between American Airlines, Inc\. and Airbus S\.A\.S, dated as of July 20, 2011 (incorporated by reference to Exhibit 10\.2 to AMR’s Quarterly Report on Form 10\-Q for the quarter ended June 30, 2013 (Commission File No\. 1\-8400))\.](http://www.sec.gov/Archives/edgar/data/6201/000000620113000067/d567093dex102.htm) \*                                                                                |
| 10\.35                        | [Amendment No\. 3, dated as of November 20, 2013, to A320 Family Aircraft Purchase Agreement between American Airlines, Inc\. and Airbus S\.A\.S\., dated as of July 20, 2011 (incorporated by reference to Exhibit 10\.27 to AAG’s Annual Report on Form 10\-K for the year ended December 31, 2013 (Commission File No\. 1\-8400))\.](http://www.sec.gov/Archives/edgar/data/4515/000000620114000004/d682697dex1027.htm) \*                                                                                |
| 10\.36                        | [Amendment No\. 4, dated as of June 18, 2014, to the A320 Family Aircraft Purchase Agreement between Airbus S\.A\.S\., as seller, and American Airlines, Inc\., as buyer, dated as of July 20, 2011, as amended, restated, amended and restated, supplemented or otherwise modified (incorporated by reference to Exhibit 10\.1 to AAG’s Quarterly Report on Form 10\-Q for the quarter ended June 30, 2014 (Commission File No\. 1\-8400))\.](http://www.sec.gov/Archives/edgar/data/4515/000000620114000014/d759439dex101.htm) \*                         |
| 10\.37                        | [Amendment No\. 5, dated as of June 24, 2014, to the A320 Family Aircraft Purchase Agreement between Airbus S\.A\.S\., as seller, and American Airlines, Inc\., as buyer, dated as of July 20, 2011, as amended, restated, amended and restated, supplemented or otherwise modified (incorporated by reference to Exhibit 10\.2 to AAG’s Quarterly Report on Form 10\-Q for the quarter ended June 30, 2014 (Commission File No\. 1\-8400))\.](http://www.sec.gov/Archives/edgar/data/4515/000000620114000014/d759439dex102.htm) \*                         |
| 10\.38                        | [Amendment No\. 6, dated as of July 1, 2014, to the A320 Family Aircraft Purchase Agreement between Airbus S\.A\.S\., as seller, and American Airlines, Inc\., as buyer, dated as of July 20, 2011, as amended, restated, amended and restated, supplemented or otherwise modified (incorporated by reference to Exhibit 10\.3 to AAG’s Quarterly Report on Form 10\-Q for the quarter ended June 30, 2014 (Commission File No\. 1\-8400))\.](http://www.sec.gov/Archives/edgar/data/4515/000000620114000014/d759439dex103.htm) \*                          |
| 10\.39                        | [Amendment No\. 7, dated as of November 25, 2014, to the A320 Family Aircraft Purchase Agreement between Airbus S\.A\.S\., as seller, and American Airlines, Inc\., as buyer, dated as of July 20, 2011, as amended, restated, amended and restated, supplemented or otherwise (incorporated by reference to Exhibit 10\.51 to AAG’s Annual Report on Form 10\-K for the year ended December 31, 2014 (Commission File No\. 1\-8400))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312515061145/d829913dex1051.htm) \*                              |
| 10\.40                        | [Amendment No\. 8, dated as of June 11, 2015, to the A320 Family Aircraft Purchase Agreement between American Airlines, Inc\. and Airbus S\.A\.S\., dated as of July 20, 2011, as amended, restated, amended and restated, supplemented or otherwise modified (incorporated by reference to Exhibit 10\.1 to AAG’s Quarterly Report on Form 10\-Q for the quarter ended June 30, 2015 (Commission File No\. 1\-8400))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312515261937/d945812dex101.htm) \*                                               |

195


Annual Report of American Airlines Group Inc\. for year 2018

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC\.**

*Indefinite\-Lived Intangible Assets*

Indefinite\-lived intangible assets include certain domestic airport slots at American’s hubs and international slots and route authorities\. Indefinite\-lived intangible assets are not amortized but instead are assessed for impairment annually on October 1^st^ or more frequently if events or circumstances indicate that the asset may be impaired\. For both periods as of December 31, 2018 and 2017, American had $1\.9 billion of indefinite\-lived intangible assets on its consolidated balance sheets\.

In the second quarter of 2018, American recorded a $26 million impairment charge on a Brazil route authority as a result of the U\.S\.\-Brazil open skies agreement, which is included within special items, net on its consolidated statement of operations\.

Indefinite\-lived intangible assets are assessed for impairment by initially performing a qualitative assessment to determine whether American believes it is more likely than not that an asset has been impaired\. If American believes impairment has occurred, American then evaluates for impairment by comparing the estimated fair value of assets to the carrying value\. An impairment charge is recognized if the asset’s estimated fair value is less than its carrying value\. Based upon American’s annual assessment, there were no additional indefinite\-lived intangible asset impairments in 2018 other than the Brazil route authority described above\.

***(k) Revenue Recognition***

*Revenue*

Effective January 1, 2018, American adopted the New Revenue Standard using the full retrospective method, which resulted in the recast of prior reporting periods\. Refer to “*Recent Accounting Pronouncements”* in Note 1(b) for the effects of the adoption on American’s consolidated statements of operations for the years ended December 31, 2017 and 2016 and on American’s consolidated balance sheet as of December 31, 2017\.Under the New Revenue Standard, revenue is recognized upon the transfer of control of promised products or services to American’s customers in an amount that reflects the consideration it expects to receive in exchange for those products or services\.

The following are the significant categories comprising American’s reported operating revenues (in millions):

|                                       |          |          |          |
| ------------------------------------- | -------- | -------- | -------- |
|                                       | **2018** | **2017** | **2016** |
| Passenger revenue:                    |          |          |          |
| Passenger travel                      | $37,457  | $36,152  | $34,278  |
| Loyalty revenue \- travel  ^(1)^      | 3,219    | 2,979    | 2,767    |
| Total passenger revenue               | 40,676   | 39,131   | 37,045   |
| Cargo                                 | 1,013    | 890      | 785      |
| Other:                                |          |          |          |
| Loyalty revenue \- marketing services | 2,352    | 2,124    | 1,872    |
| Other revenue                         | 489      | 465      | 423      |
| Total other revenue                   | 2,841    | 2,589    | 2,295    |
| Total operating revenues              | $44,530  | $42,610  | $40,125  |

|       |                                                                                |
| ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| ^(1)^ | Loyalty revenue included in passenger revenue is principally comprised of mileage credit redemptions earned through travel and mileage credits sold to co\-branded credit card and other partners\. See “ *Loyalty Revenue”*  below for further discussion on these mileage credits\. |

The following is American’s total passenger revenue by geographic region (in millions):

|                         |          |          |          |
| ----------------------- | -------- | -------- | -------- |
|                         | **2018** | **2017** | **2016** |
| Domestic                | $29,573  | $28,749  | $27,202  |
| Latin America           | 5,125    | 4,840    | 4,676    |
| Atlantic                | 4,376    | 4,028    | 3,873    |
| Pacific                 | 1,602    | 1,514    | 1,294    |
| Total passenger revenue | $40,676  | $39,131  | $37,045  |

141


Annual Report of Southwest Airlines Co\. for year 2018

the event of nonperformance by the counterparties to the agreements\. However, the Company has not experienced any significant credit loss as a result of counterparty nonperformance in the past\. To manage credit risk, the Company selects and periodically reviews counterparties based on credit ratings, limits its exposure with respect to each counterparty, and monitors the market position of the fuel hedging program and its relative market position with each counterparty\. At December 31, 2018, the Company had agreements with all of its active counterparties containing early termination rights and/or bilateral collateral provisions whereby security is required if market risk exposure exceeds a specified threshold amount based on the counterparty credit rating\. The Company also had agreements with counterparties in which cash deposits, letters of credit, and/or pledged aircraft are required to be posted as collateral whenever the net fair value of derivatives associated with those counterparties exceeds specific thresholds\. In certain cases, the Company has the ability to substitute among these different forms of collateral at its discretion\. The following table provides the fair values of fuel derivatives, amounts posted as collateral, and applicable collateral posting threshold amounts as of December 31, 2018, at which such postings are triggered:

|                                                                                |                            |                       |                               |                                |                       |                       |                       |           |
| -------------------------------------------------------------------------------------------------------------------- | -------------------------- | --------------------- | ----------------------------- | ------------------------------ | --------------------- | --------------------- | --------------------- | --------- |
|                                                                                | **Counterparty (CP)**      | **Counterparty (CP)** | **Counterparty (CP)**         | **Counterparty (CP)**          | **Counterparty (CP)** | **Counterparty (CP)** | **Counterparty (CP)** |           |
| (in millions)                                                                                | **A**                      | **B**                 | **C**                         | **D**                          | **E**                 | **F**                 | **Other** (a)         | **Total** |
| Fair value of fuel derivatives                                                                                | $38                        | $23                   | $43                           | $12                            | $5                    | $10                   | $7                    | $138      |
| Cash collateral held from CP                                                                                | —                          | —                     | —                             | —                              | —                     | —                     | —                     | —         |
| Aircraft collateral pledged to CP                                                                                | —                          | —                     | —                             | —                              | —                     | —                     | —                     | —         |
| Letters of credit (LC)                                                                                | —                          | —                     | —                             | —                              | —                     | —                     | —                     | —         |
| Option to substitute LC for aircraft                                                                                | (200) to (600)(b)          | N/A                   | (150) to (550)(c)             | (150) to (550)(c)              | N/A                   | N/A                   |                       |           |
| Option to substitute LC for cash                                                                                | N/A                        | N/A                   | (75) to (150) or >(550)(c) | (125) to (150) or >(550)(d) | (d)                   | N/A                   |                       |           |
| **If credit rating is investment**

**grade, fair value of fuel**

**derivative level at which:**      |                            |                       |                               |                                |                       |                       |                       |           |
| Cash is provided to CP                                                                                | (50) to (200) or >(600) | >(50)              | (75) to (150) or >(550)(e) | (125) to (150) or >(550)(e) | >(125)             | >(70)(e)           |                       |           |
| Cash is received from CP                                                                                | >50(e)                  | >150(e)            | >250(e)                    | >125(e)                     | >100(e)            | >70(e)             |                       |           |
| Aircraft or cash can be pledged to

 CP as collateral                                                         | (200) to (600)(f)          | N/A                   | (150) to (550)(c)             | (150) to (550)(c)              | N/A                   | N/A                   |                       |           |
| **If credit rating is non\-investment**

**grade, fair value of fuel derivative**

**level at which:** |                            |                       |                               |                                |                       |                       |                       |           |
| Cash is provided to CP                                                                                | (0) to (200) or >(600)  | (g)                   | (0) to (150) or >(550)     | (0) to (150) or >(550)      | (g)                   | (g)                   |                       |           |
| Cash is received from CP                                                                                | (g)                        | (g)                   | (g)                           | (g)                            | (g)                   | (g)                   |                       |           |
| Aircraft or cash can be pledged to

 CP as collateral                                                         | (200) to (600)             | N/A                   | (150) to (550)                | (150) to (550)                 | N/A                   | N/A                   |                       |           |

(a) Individual counterparties with fair value of fuel derivatives <$5 million\.

(b) The Company has the option of providing letters of credit in addition to aircraft collateral if the appraised value of the aircraft does not meet the collateral requirements\.

(c) The Company has the option of providing cash, letters of credit, or pledging aircraft as collateral\.

(d) The Company has the option to substitute letters of credit for 100 percent of cash collateral requirement\.

(e) Thresholds may vary based on changes in credit ratings within investment grade\.

(f) The Company has the option of providing cash or pledging aircraft as collateral\.

(g) Cash collateral is provided at 100 percent of fair value of fuel derivative contracts\.

**11****\. FAIR VALUE MEASUREMENTS**

Accounting standards pertaining to fair value measurements establish a three\-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value\. These tiers include: Level 1, defined as observable inputs such as quoted prices

104


Annual Report of United Continental Holdings, Inc\. and United Airlines, Inc\. for year 2017

##### [Table of Contents](https://www.example.com#toc) #####

**UNITED AIRLINES, INC\.**

**STATEMENTS OF CONSOLIDATED CASH FLOWS**

**(In millions)**

|                                                                                |                             |                             |                             |
|:--------------------------------------------------------------------------------------------------- | ---------------------------:| ---------------------------:| ---------------------------:|
|                                                                                | **Year Ended December 31,** | **Year Ended December 31,** | **Year Ended December 31,** |
|                                                                                |                   **2017**  |                   **2016**  |                   **2015**  |
| Operating Activities:                                                                               |                             |                             |                             |
| Net income                                                                                |                     $2,149  |                     $2,264  |                     $7,301  |
| Adjustments to reconcile net income to net cash provided by operating activities \-                 |                             |                             |                             |
| Deferred income taxes                                                                               |                        929  |                      1,650  |                     (3,136) |
| Depreciation and amortization                                                                       |                      2,149  |                      1,977  |                      1,819  |
| Special charges,  non\-cash portion                                                                 |                         35  |                        391  |                        247  |
| Other operating activities                                                                          |                        142  |                        108  |                        115  |
| Changes in operating assets and liabilities \-                                                      |                             |                             |                             |
| Decrease in fuel hedge collateral                                                                   |                          —  |                         26  |                        551  |
| Decrease in fuel derivatives                                                                        |                          —  |                        (20) |                       (305) |
| Decrease in other liabilities                                                                       |                       (479) |                       (444) |                       (181) |
| Decrease in advanced purchase of miles                                                              |                       (865) |                       (249) |                       (224) |
| Increase (decrease) in frequent flyer deferred revenue                                              |                       (142) |                        (60) |                          6  |
| Increase in other assets                                                                            |                       (533) |                       (251) |                       (160) |
| Increase (decrease) in accounts payable                                                             |                         66  |                        239  |                        (77) |
| Increase (decrease) in advance ticket sales                                                         |                        146  |                        (22) |                         52  |
| Increase in receivables                                                                             |                       (183) |                        (16) |                        (15) |
| Increase in intercompany receivables                                                                |                        (15) |                        (58) |                        (12) |
| Net cash provided by operating activities                                                           |                      3,399  |                      5,535  |                      5,981  |
| Investing Activities:                                                                               |                             |                             |                             |
| Capital expenditures                                                                                |                     (3,998) |                     (3,223) |                     (2,747) |
| Purchases of short\-term and other investments                                                      |                     (3,241) |                     (2,768) |                     (2,517) |
| Proceeds from sale of short\-term and other investments                                             |                      3,177  |                      2,712  |                      2,707  |
| Proceeds from sale of property and equipment                                                        |                         12  |                         28  |                         86  |
| Other, net                                                                                |                        120  |                         13  |                       (136) |
| Net cash used in investing activities                                                               |                     (3,930) |                     (3,238) |                     (2,607) |
| Financing Activities:                                                                               |                             |                             |                             |
| Dividend to UAL                                                                                |                     (1,844) |                     (2,614) |                     (1,233) |
| Payments of long\-term debt                                                                         |                       (901) |                     (1,215) |                     (2,178) |
| Proceeds from issuance of long\-term debt                                                           |                      2,765  |                        808  |                      1,073  |
| Principal payments under capital leases                                                             |                       (124) |                       (136) |                       (123) |
| Capitalized financing costs                                                                         |                        (80) |                        (64) |                        (37) |
| UAL contributions related to stock plans                                                            |                          2  |                          6  |                         16  |
| Other, net                                                                                |                          1  |                          9  |                         (2) |
| Net cash used in financing activities                                                               |                       (181) |                     (3,206) |                     (2,484) |
| Net increase (decrease) in cash, cash equivalents and restricted cash                               |                       (712) |                       (909) |                        890  |
| Cash, cash equivalents and restricted cash at beginning of year                                     |                      2,297  |                      3,206  |                      2,316  |
| Cash, cash equivalents and restricted cash at end of year                                           |                     $1,585  |                     $2,297  |                     $3,206  |
| Investing and Financing Activities Not Affecting Cash:                                              |                             |                             |                             |
| Property and equipment acquired through the issuance of debt and capital leases                     |                       $935  |                       $386  |                       $866  |
| Equity interest in Republic Airways Holdings, Inc\. received in consideration for bankruptcy claims |                         92  |                          —  |                          —  |
| Airport construction financing                                                                      |                         42  |                         91  |                         17  |
| Operating lease conversions to capital lease                                                        |                          —  |                         12  |                        285  |
| Cash Paid During the Period for:                                                                    |                             |                             |                             |
| Interest                                                                                |                       $571  |                       $584  |                       $660  |
| Income taxes                                                                                |                         20  |                         14  |                         15  |

The accompanying Combined Notes to Consolidated Financial Statements are an integral part of these statements\.

59


Annual Report of Southwest Airlines Co\. for year 2018

The impacts on expense and earnings from the accelerated depreciation were as follows:

|                                             |                                  |                                  |
| ------------------------------------------- | -------------------------------- | -------------------------------- |
| **(in millions, except per share amounts)** | **Year ended December 31, 2017** | **Year ended December 31, 2016** |
| Depreciation and amortization expense       | $21                              | $123                             |
| Net income \*                               | $(19)                            | $(66)                            |
| Net income per basic share                  | $(0\.03)                         | $(0\.11)                         |
| Net income per diluted share                | $(0\.03)                         | $(0\.10)                         |

\* net of profitsharing benefit and income taxes

The Company evaluates its long\-lived assets used in operations for impairment when events and circumstances indicate that the undiscounted cash flows to be generated by that asset are less than the carrying amounts of the asset and may not be recoverable\. Factors that would indicate potential impairment include, but are not limited to, significant decreases in the market value of the long\-lived asset(s), a significant change in the long\-lived asset’s physical condition, and operating or cash flow losses associated with the use of the long\-lived asset\. If an asset is deemed to be impaired, an impairment loss is recorded for the excess of the asset book value in relation to its estimated fair value\.

***Aircraft and Engine Maintenance***

The cost of scheduled inspections and repairs and routine maintenance costs for all aircraft and engines are charged to Maintenance materials and repairs expense within the accompanying Consolidated Statement of Income as incurred\. The Company has maintenance agreements related to certain of its aircraft engines with external service providers, including a "power\-by\-the\-hour" agreement associated with its Boeing 737\-700 fleet\. Under these agreements, which the Company has determined effectively transfer the risk and create an obligation associated with the maintenance on such engines to the counterparty, expense is recorded commensurate with each hour flown on an engine\. In situations where the payments to the counterparty do not sufficiently match the level of services received during the period, expense is recorded on a straight\-line basis over the term of the agreement based on the Company's best estimate of expected future aircraft utilization\. For its engine maintenance contracts that do not transfer risk to the service provider, the Company records expense on a time and materials basis when an engine repair event takes place\. Modifications that significantly enhance the operating performance or extend the useful lives of aircraft or engines are capitalized and amortized over the remaining life of the asset\.

***Goodwill and Intangible Assets***

The Company applies a fair value based impairment test to the carrying value of goodwill and indefinite\-lived intangible assets annually on October 1st, or more frequently if certain events or circumstances indicate that an impairment loss may have been incurred\. The Company assesses the value of goodwill and indefinite\-lived assets under either a qualitative or quantitative approach\. Under a qualitative approach, the Company considers various market factors, including applicable key assumptions listed below\. These factors are analyzed to determine if events and circumstances could reasonably have affected the fair value of goodwill and indefinite\-lived intangible assets\. If the Company determines that it is more likely than not that an indefinite\-lived intangible asset is impaired, the quantitative approach is used to assess the asset’s implied fair value and the amount of the impairment\. Under a quantitative approach, the implied fair value of the Company's identifiable assets and liabilities is calculated based on key assumptions\. If the Company assets' carrying value exceeds the fair value calculated using the quantitative approach, an impairment charge is recorded for the difference in fair value and carrying value\. During 2016, the Company recorded a $21 million impairment charge associated with leased slots at Newark Liberty International Airport as a result of the FAA announcement, in April 2016, that this airport was being changed to a Level 2 schedule\-facilitated airport from its previous designation as Level 3\. This impairment loss was reflected in Other operating expenses within the accompanying Consolidated Statement of Income\. The Company does not believe this FAA decision is indicative of a similar decision being made at the Company's other slot\-controlled airports, Washington Reagan and New York LaGuardia\.

74