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

Assets (Liabilities) Measured at Fair Value on a Recurring Basis^(1)^

|                                     |                                     |                                     |                   |                   |                   |        |        |        |  |  |  |                          |                          |                          |
|:----------------------------------- |:----------------------------------- |:----------------------------------- | -----------------:| -----------------:| -----------------:|:------:|:------:|:------:|:- |:- |:- |:------------------------:|:------------------------:|:------------------------:|
|                                     |                                     |                                     | December 31, 2019 | December 31, 2019 | December 31, 2019 |        |        |        |  |  |  | Valuation
Technique | Valuation
Technique | Valuation
Technique |
| (in millions)                       | (in millions)                       | (in millions)                       |             Total |           Level 1 |           Level 2 |        |        |        |
| Cash equivalents                    | Cash equivalents                    | Cash equivalents                    |             $ 586 |             $ 586 |               $ — |  (a)   |  (a)   |  (a)   |
| Restricted cash equivalents         | Restricted cash equivalents         | Restricted cash equivalents         |               847 |               847 |                 — |  (a)   |  (a)   |  (a)   |
| Long\-term investments              | Long\-term investments              | Long\-term investments              |             1,099 |               881 |               218 |  (a)   |  (a)   |  (a)   |
| Hedge derivatives, net              | Hedge derivatives, net              | Hedge derivatives, net              |                   |                   |                   |        |        |        |
| Fuel hedge contracts                | Fuel hedge contracts                | Fuel hedge contracts                |                 1 |               (1) |                 2 | (a)(b) | (a)(b) | (a)(b) |
| Interest rate contracts             | Interest rate contracts             | Interest rate contracts             |                61 |                 — |                61 |  (a)   |  (a)   |  (a)   |
| Foreign currency exchange contracts | Foreign currency exchange contracts | Foreign currency exchange contracts |                 6 |                 — |                 6 |  (a)   |  (a)   |  (a)   |

|                                         |                                         |                                         |                   |                   |                   |        |        |        |  |  |  |                          |                          |                          |
|:--------------------------------------- |:--------------------------------------- |:--------------------------------------- | -----------------:| -----------------:| -----------------:|:------:|:------:|:------:|:- |:- |:- |:------------------------:|:------------------------:|:------------------------:|
|                                         |                                         |                                         | December 31, 2018 | December 31, 2018 | December 31, 2018 |        |        |        |  |  |  | Valuation
Technique | Valuation
Technique | Valuation
Technique |
| (in millions)                           | (in millions)                           | (in millions)                           |             Total |           Level 1 |           Level 2 |        |        |        |
| Cash equivalents                        | Cash equivalents                        | Cash equivalents                        |           $ 1,222 |           $ 1,222 |               $ — |  (a)   |  (a)   |  (a)   |
| Restricted cash equivalents             | Restricted cash equivalents             | Restricted cash equivalents             |             1,183 |             1,183 |                 — |  (a)   |  (a)   |  (a)   |
| Short\-term investments                 | Short\-term investments                 | Short\-term investments                 |                   |                   |                   |        |        |        |
| U\.S\. government securities            | U\.S\. government securities            | U\.S\. government securities            |                50 |                45 |                 5 |  (a)   |  (a)   |  (a)   |
| Asset\- and mortgage\-backed securities | Asset\- and mortgage\-backed securities | Asset\- and mortgage\-backed securities |                36 |                 — |                36 |  (a)   |  (a)   |  (a)   |
| Corporate obligations                   | Corporate obligations                   | Corporate obligations                   |                90 |                 — |                90 |  (a)   |  (a)   |  (a)   |
| Other fixed income securities           | Other fixed income securities           | Other fixed income securities           |                27 |                 — |                27 |  (a)   |  (a)   |  (a)   |
| Long\-term investments                  | Long\-term investments                  | Long\-term investments                  |             1,090 |               880 |               210 |  (a)   |  (a)   |  (a)   |
| Hedge derivatives, net                  | Hedge derivatives, net                  | Hedge derivatives, net                  |                   |                   |                   |        |        |        |
| Fuel hedge contracts                    | Fuel hedge contracts                    | Fuel hedge contracts                    |                15 |                20 |               (5) | (a)(b) | (a)(b) | (a)(b) |
| Interest rate contracts                 | Interest rate contracts                 | Interest rate contracts                 |                 1 |                 — |                 1 |  (a)   |  (a)   |  (a)   |
| Foreign currency exchange contracts     | Foreign currency exchange contracts     | Foreign currency exchange contracts     |               (3) |                 — |               (3) |  (a)   |  (a)   |  (a)   |

^(1)^ See Note 10, "Employee Benefit Plans," for fair value of benefit plan assets\.

Cash Equivalents and Restricted Cash Equivalents\.  Cash equivalents generally consist of money market funds\. Restricted cash equivalents generally consist of money market funds, time deposits, commercial paper and negotiable certificates of deposit, which primarily relate to proceeds from debt issued to finance a portion of the construction costs for the new terminal facilities at New York's LaGuardia Airport\. The fair value of these cash equivalents is based on a market approach using prices generated by market transactions involving identical or comparable assets\.

Short\-Term Investments\.  The fair values of our short\-term investments were based on a market approach using industry standard valuation techniques that incorporated observable inputs such as quoted market prices, interest rates, benchmark curves, credit ratings of the security or other observable information and were recorded in prepaid expenses and other on the balance sheet\.

Long\-Term Investments\.  Our long\-term investments that are measured at fair value primarily consist of equity investments which are valued based on market prices or other observable transactions and are recorded in other noncurrent assets on our balance sheet\. See Note 4, "Investments," for further information on our equity investments\.

Hedge Derivatives\.  A portion of our derivative contracts are negotiated over\-the\-counter with counterparties without going through a public exchange\. Accordingly, our fair value assessments give consideration to the risk of counterparty default (as well as our own credit risk)\. Such contracts are classified as Level 2 within the fair value hierarchy\. The remainder of our hedge contracts are comprised of futures contracts, which are traded on a public exchange\. These contracts are classified within Level 1 of the fair value hierarchy\.

• Fuel Contracts\.  Our fuel hedge portfolio consists of options, swaps and futures\. Option and swap contracts are valued under income approaches using option pricing models and discounted cash flow models, respectively, based on data either readily observable in public markets, derived from public markets or provided by counterparties who regularly trade in public markets\. Futures contracts and options on futures contracts are traded on a public exchange and valued based on quoted market prices\.

67


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

**AMERICAN AIRLINES, 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**                                              | $1,922                      | $2,781                      | $8,120                      |
| **Other comprehensive income (loss), net of tax:**          |                             |                             |                             |
| Pension, retiree medical and other postretirement benefits: |                             |                             |                             |
| Amortization of actuarial loss and prior service cost       | (55)                        | (65)                        | (109)                       |
| Current year change                                         | (13)                        | (292)                       | (51)                        |
| Investments and derivative financial instruments            | (1)                         | 6                           | (15)                        |
| **Total other comprehensive loss, net of tax**              | (69)                        | (351)                       | (175)                       |
| **Total comprehensive income**                              | $1,853                      | $2,430                      | $7,945                      |

See accompanying notes to consolidated financial statements\.

127


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

I n July 2018, the FASB issued ASU No\. 2018\-11, "Targeted Improvements \- Leases (Topic 842)\." This update provides an optional transition method that allows entities to elect to apply the standard using the modified retrospective approach at its effective date, versus recasting the prior years presented\. If elected, an entity would recognize a cumulative\-effect adjustment to the opening balance of retained earnings in the year of adoption\. We adopted the new standard as of January 1, 2018 during the December quarter using the transition method that provides for a cumulative\-effect adjustment to retained earnings upon adoption and have recast our 2018 quarterly results\.  The Consolidated Financial Statements for the fiscal year ended December 31, 2018 are presented under the new standard, while comparative years presented are not adjusted and continue to be reported in accordance with our historical accounting policy\.

See  Note 8 , "Leases," for more information\.

Revenue from Contracts with Customers\.  In 2014, the FASB issued ASU No\. 2014\-09, "Revenue from Contracts with Customers (Topic 606)\." Under this ASU and subsequently issued amendments, revenue is recognized at the time a good or service is transferred to a customer for the amount of consideration received\. Entities may use a full retrospective approach or report the cumulative effect as of the date of adoption\. We adopted this standard using the full retrospective transition method effective January 1, 2018 and recast prior year results as shown below\.

While the adoption of the new standard did not have a significant effect on earnings, approximately   $2 billion  of certain annual revenues that were previously classified in other revenue have been reclassified to passenger revenue\. These revenues include baggage fees, administrative charges and other travel\-related fees, which are deemed part of the single performance obligation of providing passenger transportation\.

In addition, the adoption of the new standard increased the rate we use to account for loyalty program miles\. We previously analyzed our standalone sales of mileage credits to other airlines and customers to establish the accounting value for loyalty program miles\. Considering the guidance in the new standard, we changed our valuation of a mileage credit to an analysis of the award redemption value\. The new valuation considers the quantitative value a passenger receives by redeeming miles for a ticket rather than paying cash\. This change increased our loyalty program liability at December 31, 2017 by   $2\.2 billion \. The mileage deferral and redemption rates are approximately the same; therefore, assuming stable volume, there would not be a significant change in revenue recognized from the program in a given period\.

The adoption of the new standard also reduced our air traffic liability at December 31, 2017 by   $524 million \. This change primarily results from estimating the tickets that will expire unused and recognizing revenue at the scheduled flight date rather than when the unused tickets expire\.

See  Note 2 , "Revenue Recognition," for more information\.

Statement of Cash Flows\.  In 2016, the FASB issued ASU Nos\. 2016\-15 and 2016\-18 related to the classification of certain cash receipts and cash payments, and the presentation of restricted cash within an entity's statement of cash flows, respectively\. We adopted these standards effective January 1, 2018\.

Financial Instruments\.  In 2016, the FASB issued ASU No\. 2016\-01, "Financial Instruments—Overall (Subtopic 825\-10)\." This standard makes several changes, including the elimination of the available\-for\-sale classification of equity investments, and requires  equity investments with readily determinable fair values to be measured at fair value with changes in fair value recognized in net income \. In February 2018, the FASB issued ASU No\. 2018\-03, "Technical Corrections and Improvements to Financial Instruments—Overall (Subtopic 825\-10)," to clarify certain aspects of ASU No\. 2016\-01\. We adopted these standards effective January 1, 2018\.

Prior to the adoption of these standards, our investments in GOL Linhas Aéreas Inteligentes, the parent company of VRG Linhas Aéreas (operating as GOL), and China Eastern were accounted for as available\-for\-sale with changes in fair value recognized in other comprehensive income\. At the time of adoption, we reclassified an unrealized gain of   $162 million  related to these investments from AOCI to retained earnings\.

Our investment in Air France\-KLM was previously accounted for at cost as our investment agreement restricts the sale or transfer of these shares until 2022\. Upon adopting ASU Nos\. 2016\-01 and 2018\-03, we recorded a   $148 million  gain in unrealized gain/(loss) on investments in our income statement related to the value of Air France\-KLM's stock at December 31, 2017 compared to our investment basis\. Consistent with our investments in GOL and China Eastern, this investment is now accounted for at fair value with changes in fair value recognized in net income\.

 59


Annual Report of United Continental Holdings, Inc\. and United Airlines, Inc\. for year 2018

[Table of Contents](https://www.example.com#sCFFD9DA26B5659A3A528A4B51B718F87)

|                                                            |          |          |
| ---------------------------------------------------------- | -------- | -------- |
|                                                            | **2018** | **2017** |
| Impairment of assets                                       | $377     | $25      |
| Termination of an engine maintenance service agreement     | 64       | —        |
| Severance and benefit costs                                | 41       | 116      |
| (Gains) losses on sale of assets and other special charges | 5        | 35       |
| Total special charges                                      | $487     | $176     |

See Note 14 to the financial statements included in Part II, Item 8 of this report for additional information\.

Other operating expenses increased $251 million, or 4\.5%, in 2018 as compared to 2017, primarily due to an increase in purchased services related to our airport operations resulting from capacity growth, technology initiatives, facility projects, crew\-related lodging and trucking and handling of cargo shipments\.

***Nonoperating Income (Expense)***

The following table illustrates the year\-over\-year dollar and percentage changes in the Company's nonoperating income (expense) for the years ended December 31 (in millions, except percentage changes):

|                                 |          |          |                         |              |
| ------------------------------- | -------- | -------- | ----------------------- | ------------ |
|                                 | **2018** | **2017** | **Increase (Decrease)** | **% Change** |
| Interest expense                | $(729)   | $(671)   | $58                     | 8\.6         |
| Interest capitalized            | 70       | 84       | (14)                    | (16\.7)      |
| Interest income                 | 101      | 57       | 44                      | 77\.2        |
| Miscellaneous, net              | (76)     | (101)    | (25)                    | (24\.8)      |
| Total nonoperating expense, net | $(634)   | $(631)   | $3                      | 0\.5         |

Interest expense increased $58 million, or 8\.6%, in 2018 as compared to 2017, primarily due to debt issued for the acquisition of new aircraft and the conversion of certain operating leases to capital leases\.

Interest income increased $44 million, or 77\.2%, in 2018 as compared to 2017, primarily due to increased interest rates\.

Miscellaneous, net decreased $25 million, or 24\.8%, in 2018 as compared to 2017, primarily due to a decrease in pension benefit costs that was partially offset by an increase in foreign exchange losses and an increase in equity earnings from affiliates\.

*2017* *Compared to* *2016*

***Operating Revenue***

The table below illustrates the year\-over\-year percentage change in the Company's operating revenues for the years ended December 31 (in millions, except percentage changes):

|                         |          |          |                         |              |
| ----------------------- | -------- | -------- | ----------------------- | ------------ |
|                         | **2017** | **2016** | **Increase (Decrease)** | **% Change** |
| Passenger revenue       | $34,460  | $33,429  | $1,031                  | 3\.1         |
| Cargo                   | 1,114    | 934      | 180                     | 19\.3        |
| Other operating revenue | 2,210    | 2,195    | 15                      | 0\.7         |
| Total operating revenue | $37,784  | $36,558  | $1,226                  | 3\.4         |

The table below presents selected passenger revenue and operating data of the Company, broken out by geographic region, expressed as year\-over\-year changes:

27


Annual Report of United Continental Holdings, Inc\. and United Airlines, Inc\. for year 2019

[Table of Contents](https://www.example.com#s1B306C2BC5705F95B83EC9EC687675EF)

domestically and internationally, have been proposed from time to time that could significantly increase the cost of airline operations or reduce airline revenue\. The airline industry is heavily taxed and additional taxation could negatively impact our business\.

United provides air transportation under certificates of public convenience and necessity issued by the DOT\. If the DOT altered, amended, modified, suspended or revoked these certificates, it could have a material adverse effect on the Company's business\. The DOT also regulates consumer protection and, through its investigations or rulemaking authority, could impose restrictions that materially impact the Company's business\. The FAA regulates the safety of United's operations\. United operates pursuant to an air carrier operating certificate issued by the FAA\. The FAA's regulations include stringent pilot flight and duty time requirements under Part 117 of the Federal Aviation Regulations, as well as minimum qualifications for air carrier first officers\. These regulations have caused mainline airlines to hire regional pilots, while simultaneously significantly reducing the pool of new pilots from which regional carriers themselves can hire\. Although this is an industry issue, it directly affects the Company and has required it to reduce regional partner flying, as several regional partners have experienced difficulty flying their schedules due to reduced pilot availability\. From time to time, the FAA also issues orders, airworthiness directives and other regulations relating to the maintenance and operation of aircraft that require material expenditures or operational restrictions by the Company\. These FAA orders and directives have resulted in the temporary grounding of an entire aircraft type if the FAA identifies design, manufacturing, maintenance or other issues requiring immediate corrective action (including the FAA Order grounding Boeing 737 MAX aircraft)\. These FAA directives or requirements could have a material adverse effect on the Company\.

In 2018, the U\.S\. Congress approved a five\-year reauthorization for the FAA, which encompasses significant aviation tax and policy\-related issues\. The law includes a range of policy changes related to airline customer service and aviation safety which are ongoing and, depending on how they are implemented, could impact our operations and costs\. Additionally, the U\.S\. Congress may consider legislation related to aviation safety as well as environmental issues which could impact the Company and the airline industry\.

The Company's operations may also be adversely impacted due to the existing antiquated ATC system utilized by the U\.S\. government and regulated by the FAA\. During peak travel periods in certain markets, the current ATC system's inability to handle demand has led to short\-term capacity constraints imposed by government agencies and resulted in delays and disruptions of air traffic\. In addition, the current system will not be able to effectively handle projected future air traffic growth\. The outdated technologies also cause the ATC to be less resilient in the event of a failure, causing flight cancellations and delays\. Imposition of these ATC constraints on a long\-term basis may have a material adverse effect on the Company's operations\. Failure to update the ATC system in a timely manner and the substantial funding requirements of a modernized ATC system that may be imposed on air carriers may have an adverse impact on the Company's financial condition or operating results\.

Access to landing and take\-off rights, or "slots," at several major U\.S\. airports and many foreign airports served by the Company are, or recently have been, subject to government regulation\. Certain of the Company's major hubs are among the most congested airports in the United States and have been or could be the subject of regulatory action that might limit the number of flights and/or increase costs of operations at certain times or throughout the day\. The FAA may limit the Company's airport access by limiting the number of departure and arrival slots at high density traffic airports, which could affect the Company's ownership and transfer rights, and local airport authorities may have the ability to control access to certain facilities or the cost of access to their facilities, which could have an adverse effect on the Company's business\. The FAA historically has taken actions with respect to airlines' slot holdings that airlines have challenged; if the FAA were to take actions that adversely affect the Company's slot holdings, the Company could incur substantial costs to preserve its slots or may lose slots\. If slots are eliminated at an airport, or if the number of hours of operation governed by slots is reduced at an airport, the lack of controls on take\-offs and landings could result in greater congestion both at the affected airport or in the regional airspace (e\.g\., the New York City metropolitan region airspace) and could significantly impact the Company's operations\. Further, the Company's operating costs at airports, including the Company's major hubs, may increase significantly because of capital improvements at such airports that the Company may be required to fund, directly or indirectly\. Such costs could be imposed by the relevant airport authority without the Company's approval and may have a material adverse effect on the Company's financial condition\.

The ability of carriers to operate flights on international routes between the United States and other countries is highly regulated\. Applicable arrangements between the United States and foreign governments may be amended from time to time, government policies with respect to airport operations may be revised, and the availability of appropriate slots or facilities may change\. The Company currently operates a number of flights on international routes under government arrangements, regulations or policies that designate the number of carriers permitted to operate on such routes, the capacity of the carriers providing services on such routes, the airports at which carriers may operate international flights, or the number of carriers allowed access to particular airports\. Any limitations, additions or modifications to such arrangements, regulations or policies could have a material adverse effect on the Company's financial condition and operating results\. Additionally, a change in law,

19


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

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

Stock\-settled RSU award activity for all plans for the years ended December 31, 2018, 2017 and 2016 is as follows:

|                                  |                      |                                            |
| -------------------------------- | -------------------- | ------------------------------------------ |
|                                  | **Number of Shares** | **Weighted Average Grant Date Fair Value** |
|                                  | **(In thousands)**   |                                            |
| Outstanding at December 31, 2015 | 5,607                | $38\.08                                    |
| Granted                          | 2,655                | 41\.34                                     |
| Vested and released              | (2,754)              | 34\.83                                     |
| Forfeited                        | (321)                | 40\.15                                     |
| Outstanding at December 31, 2016 | 5,187                | $41\.48                                    |
| Granted                          | 2,309                | 48\.58                                     |
| Vested and released              | (2,708)              | 39\.63                                     |
| Forfeited                        | (464)                | 44\.48                                     |
| Outstanding at December 31, 2017 | 4,324                | $46\.94                                    |
| Granted                          | 2,194                | 47\.65                                     |
| Vested and released              | (1,999)              | 44\.99                                     |
| Forfeited                        | (199)                | 45\.72                                     |
| Outstanding at December 31, 2018 | 4,320                | $44\.29                                    |

As of December 31, 2018, there was $111 million of unrecognized compensation cost related to stock\-settled RSUs\. These costs are expected to be recognized over a weighted average period of one year\. The total fair value of stock\-settled RSUs vested during the years ended December 31, 2018, 2017 and 2016 was $91 million, $123 million and $107 million, respectively\.

**16\. Valuation and Qualifying Accounts (in millions)**

|                                               |                                  |                                                           |                |                            |
| --------------------------------------------- | -------------------------------- | --------------------------------------------------------- | -------------- | -------------------------- |
|                                               | **Balance at Beginning of Year** | **Additions Charged to Statement of Operations Accounts** | **Deductions** | **Balance at End of Year** |
| **Allowance for obsolescence of spare parts** |                                  |                                                           |                |                            |
| Year ended December 31, 2018                  | $769                             | $70                                                       | $(25)          | $814                       |
| Year ended December 31, 2017                  | 765                              | 29                                                        | (25)           | 769                        |
| Year ended December 31, 2016                  | 728                              | 37                                                        | —              | 765                        |
| **Allowance for uncollectible accounts**      |                                  |                                                           |                |                            |
| Year ended December 31, 2018                  | $24                              | $42                                                       | $(37)          | $29                        |
| Year ended December 31, 2017                  | 36                               | 43                                                        | (55)           | 24                         |
| Year ended December 31, 2016                  | 41                               | 47                                                        | (52)           | 36                         |

126


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

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

reclassified at adoption of the new standard from other operating revenue into passenger revenue under Topic 606 is approximately $2\.0 billion and $2\.1 billion, respectively\. These ancillary fees are directly related to passenger travel, such as ticket change fees and baggage fees, and will no longer be considered distinct performance obligations separate from the passenger travel component\. In addition, the ticket change fees, which were previously recognized when received, will be recognized when transportation is provided\. On January 1, 2018, we adopted Topic 606 using the full\-retrospective approach\. See Note 1 to the financial statements included in Part II, Item 8 of this report for additional information on recently issued accounting standards\.

***Frequent Flyer Accounting\.*** United’s MileagePlus program is designed to increase customer loyalty\. Program participants earn miles by flying on United and certain other participating airlines\. Program participants can also earn miles through purchases from other non\-airline partners that participate in United’s loyalty program\. We sell miles to these partners, which include domestic and international credit card issuers, retail merchants, hotels, car rental companies and our participating airline partners\. Miles can be redeemed for free (other than taxes and government imposed fees), discounted or upgraded air travel and non\-travel awards\. The Company records its obligation for future award redemptions using a deferred revenue model\.

When frequent flyers earn miles for flights, the Company recognizes a portion of the ticket sales as revenue when the air transportation occurs and defers a portion of the ticket sale representing the value of the related miles as a multiple\-deliverable revenue arrangement\. The Company determines the estimated selling price of air transportation and miles as if each element is sold on a separate basis\. The total consideration from each ticket sale is then allocated to each of these elements, individually, on a pro rata basis\. The miles are recorded in Frequent flyer deferred revenue on the Company’s consolidated balance sheet and recognized into revenue when the transportation is provided\.

The Company’s estimated selling price of miles is based on an equivalent ticket value less fulfillment discount, which incorporates the expected redemption of miles, as the best estimate of selling price for these miles\. The equivalent ticket value is based on the prior 12 months’ weighted average equivalent ticket value of similar fares as those used to settle award redemptions while taking into consideration such factors as redemption pattern, cabin class, loyalty status and geographic region\. The estimated selling price of miles is adjusted by a fulfillment discount that considers a number of factors, including redemption patterns of various customer groups\.

United has a significant contract to sell MileagePlus miles to its co\-branded credit card partner, Chase\. United identified the following significant revenue elements in its Second Amended and Restated Co\-Branded Card Marketing Services Agreement (the “Co\-Brand Agreement”): the air transportation element represented by the value of the mile (generally resulting from its redemption for future air transportation and whose fair value is described above); use of the United brand and access to MileagePlus member lists; advertising; and other travel related benefits\.

The fair value of the elements is determined using management’s estimated selling price of each element\. The objective of using the estimated selling price based methodology is to determine the price at which we would transact a sale if the product or service were sold on a stand\-alone basis\. Accordingly, we determine our best estimate of selling price by considering multiple inputs and methods including, but not limited to, discounted cash flows, brand value, volume discounts, published selling prices, number of miles awarded and number of miles redeemed\. The Company estimated the selling prices and volumes over the term of the Co\-Brand Agreement in order to determine the allocation of proceeds to each of the multiple elements to be delivered\. We also evaluate volumes on an annual basis, which may result in a change in the allocation of estimated selling price on a prospective basis\.

The Company records passenger revenue related to the air transportation element when the transportation is delivered\. The other elements are generally recognized as Other operating revenue when earned\.

The Company accounts for miles sold and awarded that will never be redeemed by program members, which we refer to as breakage\. The Company reviews its breakage estimates annually based upon the latest available information regarding redemption and expiration patterns\. Miles expire after 18 months of member account

41


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

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

***(a) 2013, 2014, April 2016 and December 2016 Credit Facilities***

*2013 Credit Facilities*

In March 2017, American and AAG entered into the Second Amendment to the Amended and Restated Credit and Guaranty Agreement, amending the Amended and Restated Credit and Guaranty Agreement dated as of May 21, 2015 (which amended and restated the Credit and Guaranty Agreement dated as of June 27, 2013), as previously amended by the First Amendment to Amended and Restated Credit and Guaranty Agreement dated as of October 26, 2015, pursuant to which AAG refinanced the $1\.8 billion term loan facility due June 2020 established thereunder (the 2013 Term Loan Facility and, together with the $1\.4 billion revolving credit facility established under such agreement (the 2013 Revolving Facility), the 2013 Credit Facilities) to reduce the LIBOR margin from 2\.50% to 2\.00% and the base rate margin from 1\.50% to 1\.00%\.

In August 2017, American and AAG entered into the Third Amendment to the Amended and Restated Credit and Guaranty Agreement pursuant to which the maturity date of the 2013 Revolving Facility was extended to October 2022, the LIBOR margin thereon was reduced from 3\.00% to 2\.25%, and the maximum principal amount of such facility was reduced to $1\.2 billion\.

*2014 Credit Facilities*

In June 2017, American and AAG entered into the Third Amendment to the Amended and Restated Credit and Guaranty Agreement, amending the Amended and Restated Credit and Guaranty Agreement dated as of April 20, 2015 (which amended and restated the Credit and Guaranty Agreement dated as of October 10, 2014), as previously amended by the First Amendment to Amended and Restated Credit and Guaranty Agreement dated as of October 26, 2015 and the Second Amendment to Amended and Restated Credit and Guaranty Agreement dated as of September 22, 2016, pursuant to which AAG refinanced the $735 million term loan facility due October 2021 established thereunder (the 2014 Term Loan Facility and, together with the $1\.025 billion revolving credit facility established under such agreement (the 2014 Revolving Facility), the 2014 Credit Facilities) to reduce the LIBOR margin from 2\.50% to 2\.00% and the base rate margin from 1\.50% to 1\.00%\.

In August 2017, American and AAG entered into the Fourth Amendment to the Amended and Restated Credit and Guaranty Agreement pursuant to which the maturity date of the 2014 Revolving Facility was extended to October 2022, the LIBOR margin thereon was reduced from 3\.00% to 2\.25%, and the maximum principal amount of such facility was reduced to $1\.0 billion\.

*April 2016 Credit Facilities*

In August 2017, American and AAG entered into the Second Amendment to the Credit and Guaranty Agreement, amending the Credit and Guaranty Agreement dated as of April 29, 2016 (the April 2016 Credit Facilities), as previously amended by the First Amendment to the Credit and Guaranty Agreement, dated as of October 31, 2016, pursuant to which a new $300 million revolving credit facility (the April 2016 Revolving Facility) was established with a maturity date of October 2022 and a LIBOR margin of 2\.25%\.

In November 2017, American and AAG entered into the Third Amendment to the Credit and Guaranty Agreement, amending the April 2016 Credit Facilities, pursuant to which AAG refinanced the $990 million term loan facility due April 2023 established thereunder (the April 2016 Term Loan Facility), to reduce the LIBOR margin from 2\.50% to 2\.00% and the base rate margin from 1\.50% to 1\.00%\.

*December 2016 Credit Facilities*

In November 2017, American and AAG entered into the First Amendment to the Amended and Restated Credit and Guaranty Agreement, amending the Amended and Restated Credit and Guaranty Agreement, dated as of December 15, 2016, pursuant to which AAG refinanced the $1\.25 billion term loan facility due December 2023 established thereunder (the December 2016 Term Loan Facility), to reduce the LIBOR margin from 2\.50% to 2\.00% and the base rate margin from 1\.50% to 1\.00%\.

141


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

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

**Number** | **Description**                                                                                |
| 10\.33                        | [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\.34                        | [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\.35                        | [Supplemental Agreement No\. 12, dated as of May 29, 2019, 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, 2019 (Commission File No\. 1\-8400))\.\*\*](http://www.sec.gov/Archives/edgar/data/4515/000000620119000053/ex101q21910q.htm)                                                                                |
| 10\.36                        | [Supplemental Agreement No\. 13, dated as of August 20, 2019, 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 September 30, 2019 (Commission File No\. 1\-8400))\.\*\*](http://www.sec.gov/Archives/edgar/data/4515/000000620119000067/ex101q31910q.htm)                                                                                |
| 10\.37                        | [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\.38                        | [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\.39                        | [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\.40                        | [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\.41                        | [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\.42                        | [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\.43                        | [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\.44                        | [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\.45                        | [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) \*                       |
| 10\.46                        | [Amendment No\. 9, dated as of September 23, 2015, to the 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\.3 to AAG’s Quarterly Report on Form 10\-Q for the quarter ended September 30, 2015 (Commission File No\. 1\-8400))\.](http://www.sec.gov/Archives/edgar/data/4515/000119312515351246/d14219dex103.htm) \*                                                                                |
| 10\.47                        | [Amendment No\. 10, dated as of July 16, 2018, to the 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\.2 to AAG’s Quarterly Report on Form 10\-Q for the quarter ended September 30, 2018 (Commission File No\. 1\-8400))\.](http://www.sec.gov/Archives/edgar/data/4515/000000620118000039/ex10210qq318.htm) \*                                                                                |
| 10\.48                        | [Amendment No\. 11, dated as of June 19, 2019, to the 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\.2 to AAG’s Quarterly Report on Form 10\-Q for the quarter ended June 30, 2019 (Commission File No\. 1\-8400))\.\*\*](http://www.sec.gov/Archives/edgar/data/4515/000000620119000053/ex102q21910q.htm)                                                                                |
| 10\.49                        | [Purchase Agreement No\. 03735, dated as of February 1, 2013, between American Airlines, Inc\., and The Boeing Company (incorporated by reference to Exhibit 10\.7 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/d516424dex107.htm) \*                                                                                |

180


Annual Report of Southwest Airlines Co\. for year 2018

Plan (ProfitSharing Plan) is a defined contribution plan to which the Company may contribute a percentage of its eligible pre\-tax profits, as defined, on an annual basis\. No Employee contributions to the ProfitSharing Plan are allowed\.

Amounts associated with the Company's defined contribution plans expensed in 2018, 2017, and 2016, reflected as a component of Salaries, wages, and benefits, were $1\.0 billion, $1\.0 billion, and $937 million, respectively\.

***Postretirement Benefit Plans***

The Company provides postretirement benefits to qualified retirees in the form of medical and dental coverage\. Employees must meet minimum levels of service and age requirements as set forth by the Company, or as specified in collective\-bargaining agreements with specific workgroups\. Employees meeting these requirements, as defined, may use accrued unused sick time to pay for medical and dental premiums from the age of retirement until age 65\.

The following table shows the change in the accumulated postretirement benefit obligation ("APBO") for the years ended December 31, 2018 and 2017:

|                             |          |          |
| --------------------------- | -------- | -------- |
| **(in millions)**           | **2018** | **2017** |
| APBO at beginning of period | $275     | $256     |
| Service cost                | 18       | 18       |
| Interest cost               | 9        | 11       |
| Benefits paid               | (5)      | (8)      |
| Actuarial gain              | (69)     | (2)      |
|  Plan amendments            | 4        | —        |
| APBO at end of period       | $232     | $275     |

During 2018, the Company recorded a $69 million actuarial gain as a decrease to the APBO with an offset to AOCI\. This actuarial gain is reflected above and resulted from changes in certain key assumptions used to determine the Company’s year\-end obligation\. The assumption change that resulted in the largest portion of the actuarial gain was the expected per capita costs for future qualifying retirees, which reflects lower expectations based on recent history\.

All plans are unfunded, and benefits are paid as they become due\. Estimated future benefit payments expected to be paid are $8 million in 2019, $9 million in 2020, $10 million in 2021, $11 million in 2022, $13 million in 2023, and $93 million for the next five years thereafter\.

The funded status (the difference between the fair value of plan assets and the projected benefit obligations) of the Company’s consolidated benefit plans are recognized in the Consolidated Balance Sheet, with a corresponding adjustment to AOCI\. The following table reconciles the funded status of the plans to the accrued postretirement benefit cost recognized in Other non\-current liabilities on the Company’s Consolidated Balance Sheet at December 31, 2018 and 2017\.

|                                               |          |          |
| --------------------------------------------- | -------- | -------- |
| **(in millions)**                             | **2018** | **2017** |
| Funded status                                 | $(232)   | $(275)   |
| Unrecognized net actuarial (gain) loss        | (64)     | 5        |
| Unrecognized prior service cost               | 5        | 4        |
| Accumulated other comprehensive income (loss) | 59       | (9)      |
| Cost recognized on Consolidated Balance Sheet | $(232)   | $(275)   |

111


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

**AMERICAN AIRLINES GROUP INC\.**

**CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY**

**(In millions, except share amounts)**

|                                                                                |                             |                                                       |                                                                                |                                                       |           |
| ------------------------------------------------------------------------------------------------------------------- | --------------------------- | ----------------------------------------------------- | ---------------------------------------------------------------------------------- | ----------------------------------------------------- | --------- |
|                                                                                | **Common**

**Stock** | **Additional**

**Paid\-in**

**Capital** | **Accumulated**

**Other**

**Comprehensive**

**Income (Loss)** | **Retained**

**Earnings**

**(Deficit)** | **Total** |
| **Balance at December 31, 2014**                                                                                | $7                          | $15,135                                               | $(4,559)                                                                           | $(8,562)                                              | $2,021    |
| Net income                                                                                | —                           | —                                                     | —                                                                                | 7,610                                                 | 7,610     |
| Changes in pension, retiree medical and other postretirement benefits liability                                     | —                           | —                                                     | (159)                                                                              | —                                                     | (159)     |
| Net changes in fair value of derivative financial instruments                                                       | —                           | —                                                     | (9)                                                                                | —                                                     | (9)       |
| Cash tax withholding on shares issued                                                                               | —                           | (306)                                                 | —                                                                                | —                                                     | (306)     |
| Purchase and retirement of 85,141,691 shares of AAG common stock                                                    | (1)                         | (3,585)                                               | —                                                                                | —                                                     | (3,586)   |
| Dividends declared on common stock ($0\.40 per share)                                                               | —                           | —                                                     | —                                                                                | (278)                                                 | (278)     |
| Issuance of 12,289,537 shares of common stock pursuant to employee stock plans                                      | —                           | —                                                     | —                                                                                | —                                                     | —         |
| Settlement of single\-dip unsecured claims held in distributed claims reserve                                       | —                           | 63                                                    | —                                                                                | —                                                     | 63        |
| Share\-based compensation expense                                                                                | —                           | 284                                                   | —                                                                                | —                                                     | 284       |
| Change in unrealized loss on investments                                                                            | —                           | —                                                     | (5)                                                                                | —                                                     | (5)       |
| **Balance at December 31, 2015**                                                                                | 6                           | 11,591                                                | (4,732)                                                                            | (1,230)                                               | 5,635     |
| Net income                                                                                | —                           | —                                                     | —                                                                                | 2,676                                                 | 2,676     |
| Changes in pension, retiree medical and other postretirement benefits liability                                     | —                           | —                                                     | (564)                                                                              | —                                                     | (564)     |
| Non\-cash tax benefit                                                                                | —                           | —                                                     | 203                                                                                | —                                                     | 203       |
| Cash tax withholding on shares issued                                                                               | —                           | (56)                                                  | —                                                                                | —                                                     | (56)      |
| Purchase and retirement of 119,823,621 shares of AAG common stock                                                   | (1)                         | (4,415)                                               | —                                                                                | —                                                     | (4,416)   |
| Dividends declared on common stock ($0\.40 per share)                                                               | —                           | —                                                     | —                                                                                | (224)                                                 | (224)     |
| Issuance of 2,506,067 shares of common stock pursuant to employee stock plans                                       | —                           | —                                                     | —                                                                                | —                                                     | —         |
| Settlement of single\-dip unsecured claims held in distributed claims reserve                                       | —                           | 3                                                     | —                                                                                | —                                                     | 3         |
| Share\-based compensation expense                                                                                | —                           | 100                                                   | —                                                                                | —                                                     | 100       |
| Impact of adoption of Accounting Standards Update (ASU) 2016\-09 related to share\-based compensation (See Note 14) | —                           | —                                                     | —                                                                                | 418                                                   | 418       |
| Change in unrealized loss on investments                                                                            | —                           | —                                                     | 10                                                                                | —                                                     | 10        |
| **Balance at December 31, 2016**                                                                                | 5                           | 7,223                                                 | (5,083)                                                                            | 1,640                                                 | 3,785     |
| Net income                                                                                | —                           | —                                                     | —                                                                                | 1,919                                                 | 1,919     |
| Changes in pension, retiree medical and other postretirement benefits liability                                     | —                           | —                                                     | (117)                                                                              | —                                                     | (117)     |
| Non\-cash tax benefit                                                                                | —                           | —                                                     | 47                                                                                | —                                                     | 47        |
| Cash tax withholding on shares issued                                                                               | —                           | (51)                                                  | —                                                                                | —                                                     | (51)      |
| Purchase and retirement of 33,953,127 shares of AAG common stock                                                    | —                           | (1,563)                                               | —                                                                                | —                                                     | (1,563)   |
| Dividends declared on common stock ($0\.40 per share)                                                               | —                           | —                                                     | —                                                                                | (198)                                                 | (198)     |
| Issuance of 2,166,861 shares of common stock pursuant to employee stock plans                                       | —                           | —                                                     | —                                                                                | —                                                     | —         |
| Settlement of single\-dip unsecured claims held in distributed claims reserve                                       | —                           | 15                                                    | —                                                                                | —                                                     | 15        |
| Share\-based compensation expense                                                                                | —                           | 90                                                    | —                                                                                | —                                                     | 90        |
| Change in unrealized loss on investments                                                                            | —                           | —                                                     | (1)                                                                                | —                                                     | (1)       |
| **Balance at December 31, 2017**                                                                                | $5                          | $5,714                                                | $(5,154)                                                                           | $3,361                                                | $3,926    |

See accompanying notes to consolidated financial statements\.

85


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

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Delta Air Lines, Inc\.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Delta Air Lines, Inc\. (the Company) as of December 31, 2019 and 2018, and the related consolidated statements of operations, comprehensive income, cash flows, and stockholders' equity for each of the three years in the period ended December 31, 2019, and the related notes (collectively referred to as the “consolidated financial statements”)\. In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with U\.S\. generally accepted accounting principles\.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control\-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 12, 2020 expressed an unqualified opinion thereon\.

Adoption of New Accounting Standards

As discussed in Note 8 to the consolidated financial statements, the Company changed its method of accounting for leases in 2018\.

Basis for Opinion

These financial statements are the responsibility of the Company's management\. Our responsibility is to express an opinion on the Company’s financial statements based on our audits\. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U\.S\. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB\.

We conducted our audits in accordance with the standards of the PCAOB\. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud\. Our audits included performing procedures to assess the risks of material misstatements of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks\. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements\. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements\. We believe that our audits provide a reasonable basis for our opinion\.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved especially challenging, subjective, or complex judgments\. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate\.

50


Annual Report of United Continental Holdings, Inc\. and United Airlines, Inc\. for year 2019

[Table of Contents](https://www.example.com#s1B306C2BC5705F95B83EC9EC687675EF)

significant data breach or the Company's failure to meet its obligations may adversely affect the Company's reputation, relationships with our business partners, business, operating results and financial condition\.

The mandatory grounding of our Boeing 737 MAX 9 aircraft may have a material adverse effect on our business, operating results and financial condition\.

On March 13, 2019, the Federal Aviation Administration issued an emergency order prohibiting the operation of Boeing 737 MAX series aircraft by U\.S\. certificated operators (the "FAA Order")\. As a result, the Company grounded all 14 Boeing 737 MAX 9 aircraft in its fleet and Boeing also suspended deliveries of new Boeing 737 MAX series aircraft\. The Company does not know whether, on what conditions or when the MAX grounding will end\. The long\-term operational and financial impact of this grounding is uncertain and could negatively affect the Company based on a number of factors, including, among others, the period of time the aircraft are unavailable, the availability of replacement aircraft, to the extent needed, and the circumstances of any reintroduction of the grounded aircraft to service\.

In 2019, the grounding affected the delivery of 16 Boeing 737 MAX aircraft that were scheduled for delivery and were not delivered, and it is also expected to affect the timing of future Boeing 737 MAX aircraft deliveries, including the 28 Boeing 737 MAX aircraft that the Company planned to take delivery in 2020\. The extent of the delay of future deliveries is expected to be impacted by the length of time the FAA Order remains in place, Boeing's production rate and the pace at which Boeing can deliver aircraft following the lifting of the FAA Order, among other factors\.

The Company continues to make adjustments to its flight schedule and operations, including substituting replacement aircraft on routes originally intended to be flown by Boeing 737 MAX aircraft\. The grounding has impacted the Company's ability to implement its strategic growth strategy, reducing the Company's scheduled capacity from its planned capacity, and has resulted in increased costs as well as lower operating revenue\. The Company has had discussions with Boeing regarding compensation from Boeing for the Company's financial damages related to the grounding of the airline's Boeing 737 MAX aircraft; however, the parties have not agreed to any settlement, and the amount, nature and timing of any settlement with Boeing remains uncertain\.

Disruptions to our regional network and United Express flights provided by third\-party regional carriers could adversely affect our business, operating results and financial condition\.

The Company has contractual relationships with various regional carriers to provide regional aircraft service branded as United Express\. These regional operations are an extension of the Company's mainline network and complement the Company's operations by carrying traffic that connects to mainline service and allows flights to smaller cities that cannot be provided economically with mainline aircraft\. The Company's business and operations are dependent on its regional flight network, with regional capacity accounting for approximately  11%  of the Company's total capacity for the year ended  December 31, 2019 \.

Although the Company has agreements with its regional carriers that include contractually agreed performance metrics, each regional carrier is a separately certificated commercial air carrier and the Company does not control the operations of these carriers\. A number of factors may impact the Company's regional network, including weather\-related effects and seasonality\. In addition, the decrease in qualified pilots driven by changes to federal regulations has adversely impacted and could continue to affect the Company's regional flying\. For example, the FAA's expansion of minimum pilot qualification standards, including a requirement that a pilot have at least 1,500 total flight hours, as well as the FAA's revised pilot flight and duty time requirements under Part 117 of the Federal Aviation Regulations, have contributed to a smaller supply of pilots available to regional carriers\. The decrease in qualified pilots resulting from the regulations as well as factors including a decreased student pilot population and a shrinking U\.S\. military from which to hire qualified pilots, could adversely impact the Company's operations and financial condition, and could also require the Company to reduce regional carrier flying\.

If a significant disruption occurs to the Company's regional network or flights or if one or more of the regional carriers with which the Company has relationships is unable to perform their obligations over an extended period of time, there could be a material adverse effect on the Company's business, operating results and financial condition\.

Current or future litigation and regulatory actions, or failure to comply with the terms of any settlement, order or arrangement relating to these actions, could have a material adverse impact on the Company\.

From time to time, we are subject to litigation and other legal and regulatory proceedings relating to our business or investigations or other actions by governmental agencies, including as described in Part I, Item 3, Legal Proceedings, of this report\. No assurances can be given that the results of these or new matters will be favorable to us\. An adverse resolution of lawsuits, arbitrations, investigations or other proceedings or actions could have a material adverse effect on our financial condition and operating results, including as a result of non\-monetary remedies, and could also result in adverse publicity\. Defending ourselves in these matters may be time\-consuming, expensive and disruptive to normal business operations and may

14


Annual Report of DELTA AIR LINES, INC\.  for year 2017

[Table of Contents](http://ir.delta.com/.#s38B278257A885660AB93394F5F0EFBED)

Aircraft Purchase Commitments

Our purchase commitments for additional aircraft at  December 31, 2017  are detailed in the following table:

|                                   |                                       |                                       |                                       |                                       |                                       |
| --------------------------------- | ------------------------------------- | ------------------------------------- | ------------------------------------- | ------------------------------------- | ------------------------------------- |
|                                   | **Delivery in Calendar Years Ending** | **Delivery in Calendar Years Ending** | **Delivery in Calendar Years Ending** | **Delivery in Calendar Years Ending** | **Delivery in Calendar Years Ending** |
| **Aircraft Purchase Commitments** | **2018**                              | **2019**                              | **2020**                              | **After 2020**                        | **Total**                             |
| A321\-200                         | 31                                    | 32                                    | 27                                    | 3                                     | 93                                    |
| A321\-200neo                      | —                                     | —                                     | 16                                    | 84                                    | 100                                   |
| A330\-900neo                      | —                                     | —                                     | 4                                     | 21                                    | 25                                    |
| A350\-900                         | 5                                     | 2                                     | 2                                     | 10                                    | 19                                    |
| B\-737\-900ER                     | 23                                    | 18                                    | —                                     | —                                     | 41                                    |
| CS100                             | 15                                    | 25                                    | 16                                    | 19                                    | 75                                    |
| Total                             | 74                                    | 77                                    | 65                                    | 137                                   | 353                                   |

Ground Facilities

Airline Operations

We lease most of the land and buildings that we occupy\. Our largest aircraft maintenance base, various computer, cargo, flight kitchen and training facilities and most of our principal offices are located at or near the Atlanta airport on land leased from the City of Atlanta\. We lease ticket counters, passenger holdrooms, operating areas and other terminal space in most of the airports that we serve\. At most airports, we have entered into use agreements which provide for the non\-exclusive use of runways, taxiways and other improvements and facilities; landing fees under these agreements normally are based on the number of landings and weight of aircraft\. These leases and use agreements generally run for periods of less than one year to 30 years or more, and often contain provisions for periodic adjustments of lease rates, landing fees and other charges applicable under that type of agreement\. We also lease aircraft maintenance and air cargo facilities at several airports\. Our facility leases generally require us to pay the cost of providing, operating and maintaining such facilities, including, in some cases, amounts necessary to pay debt service on special facility bonds issued to finance their construction\. We also lease marketing offices, reservations offices and other off\-airport facilities in certain locations for varying terms\.

We own our Atlanta reservations center, other real property in Atlanta, and reservations centers in Minot, North Dakota and Chisholm, Minnesota\.

Refinery Operations

Our wholly owned subsidiaries, Monroe and MIPC, own and operate the Trainer refinery and related assets in Pennsylvania\. The facility includes pipelines and terminal assets that allow the refinery to supply jet fuel to our airline operations throughout the Northeastern U\.S\., including our New York hubs at LaGuardia and JFK\.

 21


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

AMERICAN AIRLINES GROUP INC\.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

|                                                                                |                              |                              |                              |
| -------------------------------------------------------------------------------- | ---------------------------- | ---------------------------- | ---------------------------- |
|                                                                                |  **Year Ended December 31,** |  **Year Ended December 31,** |  **Year Ended December 31,** |
|                                                                                | **2019**                     | **2018**                     | **2017**                     |
| **Cash flows from operating activities:**                                        |                              |                              |                              |
| Net income                                                                       | $1,686                       | $1,412                       | $1,282                       |
| Adjustments to reconcile net income to net cash provided by operating activities |                              |                              |                              |
| Depreciation and amortization                                                    | 2,318                        | 2,159                        | 2,017                        |
| Net gains from sale of property and equipment and sale\-leaseback transactions   | (112

)                | (59

)                 | (11

)                 |
| Special items, net non\-cash                                                     | 376                          | 458                          | 272                          |
| Pension and postretirement                                                       | (178

)                | (300

)                | (132

)                |
| Deferred income tax provision                                                    | 560                          | 440                          | 2,089                        |
| Share\-based compensation                                                        | 94                           | 86                           | 90                           |
| Other, net                                                                       | (62

)                 | (97

)                 | (142

)                |
| **Changes in operating assets and liabilities:**                                 |                              |                              |                              |
| Decrease (increase) in accounts receivable                                       | 73                           | 222                          | (190

)                |
| Increase in other assets                                                         | (373

)                | (390

)                | (433

)                |
| Increase (decrease) in accounts payable and accrued liabilities                  | 327                          | (147

)                | 299                          |
| Increase in air traffic liability                                                | 469                          | 297                          | 65                           |
| Increase (decrease) in loyalty program liability                                 | 76                           | (283

)                | (308

)                |
| Contributions to pension plans                                                   | (1,230

)              | (475

)                | (286

)                |
| Increase (decrease) in other liabilities                                         | (209

)                | 210                          | 132                          |
| Net cash provided by operating activities                                        | 3,815                        | 3,533                        | 4,744                        |
| **Cash flows from investing activities:**                                        |                              |                              |                              |
| Capital expenditures and aircraft purchase deposits                              | (4,268

)              | (3,745

)              | (5,971

)              |
| Proceeds from sale\-leaseback transactions                                       | 850                          | 1,096                        | 853                          |
| Proceeds from sale of property and equipment                                     | 54                           | 111                          | 94                           |
| Purchases of short\-term investments                                             | (3,184

)              | (3,412

)              | (4,633

)              |
| Sales of short\-term investments                                                 | 4,144                        | 3,705                        | 5,915                        |
| Proceeds from vendor                                                             | 250                          | —                            | —                            |
| Decrease (increase) in restricted short\-term investments                        | (3

)                  | 72                           | 309                          |
| Proceeds from sale of investments                                                | —                            | 207                          | —                            |
| Purchase of equity investment                                                    | —                            | —                            | (203

)                |
| Other investing activities                                                       | (86

)                 | (7

)                  | —                            |
| Net cash used in investing activities                                            | (2,243

)              | (1,973

)              | (3,636

)              |
| **Cash flows from financing activities:**                                        |                              |                              |                              |
| Proceeds from issuance of long\-term debt                                        | 3,960                        | 2,354                        | 3,058                        |
| Payments on long\-term debt and finance leases                                   | (4,190

)              | (2,941

)              | (2,332

)              |
| Deferred financing costs                                                         | (61

)                 | (59

)                 | (85

)                 |
| Treasury stock repurchases                                                       | (1,097

)              | (837

)                | (1,615

)              |
| Dividend payments                                                                | (178

)                | (186

)                | (198

)                |
| Other financing activities                                                       | (2

)                  | (3

)                  | 27                           |
| Net cash used in financing activities                                            | (1,568

)              | (1,672

)              | (1,145

)              |
| Net increase (decrease) in cash and restricted cash                              | 4                            | (112

)                | (37

)                 |
| Cash and restricted cash at beginning of year                                    | 286                          | 398                          | 435                          |
| Cash and restricted cash at end of year  ^(a)^                                   | $290                         | $286                         | $398                         |

^(a)^  The following table provides a reconciliation of cash and restricted cash to amounts reported within the consolidated balance sheets:

|                                                                         |      |      |      |
| ----------------------------------------------------------------------- | ---- | ---- | ---- |
| Cash                                                                    | $280 | $275 | $295 |
| Restricted cash included in restricted cash and short\-term investments | 10   | 11   | 103  |
| Total cash and restricted cash                                          | $290 | $286 | $398 |

See accompanying notes to consolidated financial statements\.

75


Annual Report of Southwest Airlines Co\. for year 2017

10\-K 1 luv\-12312017x10k\.htm FORM 10\-K

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D\.C\. 20549**

**FORM 10\-K**

(Mark One)

|   |                                                                                |
| - | ---------------------------------------------------------------------------------------- |
| þ | **ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |

|                                             |
| ------------------------------------------- |
| For the fiscal year ended December 31, 2017 |

|    |
| -- |
| or |

|   |                                                                                |
| - | -------------------------------------------------------------------------------------------- |
| ¨ | **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |

|                                                                     |
| ------------------------------------------------------------------- |
| For the transition period from \_\_\_\_\_\_\_\_ to \_\_\_\_\_\_\_\_ |

Commission File No\. 1\-7259

![southwestfinal\.jpg](https://www.example.com/southwestfinal.jpg)

**Southwest Airlines Co\.**

(Exact name of registrant as specified in its charter)

|                                          |                      |
| ---------------------------------------- | -------------------- |
| TEXAS                                    | 74\-1563240          |
| (State or other jurisdiction of          | (IRS Employer        |
| incorporation or organization)           | Identification No\.) |
| P\.O\. Box 36611                         |                      |
| Dallas, Texas                            | 75235\-1611          |
| (Address of principal executive offices) | (Zip Code)           |

Registrant's telephone number, including area code: **(214) 792\-4000**

**Securities registered pursuant to Section 12(b) of the Act:**

|                                 |                                               |
| ------------------------------- | --------------------------------------------- |
| **Title of Each Class**         | **Name of Each Exchange on Which Registered** |
| Common Stock ($1\.00 par value) | New York Stock Exchange                       |

**Securities registered pursuant to Section 12(g) of the Act:**

**None**

Indicate by check mark if the registrant is a well\-known seasoned issuer, as defined in Rule 405 of the Securities Act\. Yes þ No ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act\. Yes ¨ No þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days\. Yes þ No ¨


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

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

**NOTE 7 \- INCOME TAXES**

The income tax provision (benefit) differed from amounts computed at the statutory federal income tax rate and consisted of the following significant components, as follows (in millions):

|                                                       |          |          |           |
|:----------------------------------------------------- | --------:| --------:| ---------:|
| **UAL**                                               | **2017** | **2016** |  **2015** |
| Income tax provision at statutory rate                |  $1,050  |  $1,337  |   $1,477  |
| State income taxes, net of federal income tax benefit |      29  |      38  |       38  |
| Foreign tax rate differential                         |     (43) |       —  |        —  |
| Foreign income taxes                                  |       3  |       3  |        4  |
| Nondeductible employee meals                          |      17  |      16  |       15  |
| Impact of Tax Act                                     |    (192) |       —  |        —  |
| Income tax adjustment from AOCI                       |       —  |     180  |        —  |
| State rate change                                     |      12  |     (12) |        —  |
| Valuation allowance                                   |     (16) |      20  |   (4,662) |
| Other, net                                            |       8  |     (26) |        7  |
|                                                       |    $868  |  $1,556  |  $(3,121) |
| Current                                               |    $(77) |    $(92) |      $56  |
| Deferred                                              |     945  |   1,648  |   (3,177) |
|                                                       |    $868  |  $1,556  |  $(3,121) |
| **United**                                            | **2017** | **2016** |  **2015** |
| Income tax provision at statutory rate                |  $1,051  |  $1,338  |   $1,477  |
| State income taxes, net of federal income tax         |      29  |      38  |       38  |
| Foreign tax rate differential                         |     (43) |       —  |        —  |
| Foreign income taxes                                  |       3  |       3  |        4  |
| Nondeductible employee meals                          |      17  |      16  |       15  |
| Impact of Tax Act                                     |    (209) |       —  |        —  |
| Income tax adjustment from AOCI                       |       —  |     180  |        —  |
| State rate change                                     |      12  |     (12) |        —  |
| Valuation allowance                                   |     (16) |      20  |   (4,621) |
| Other, net                                            |       8  |     (25) |        7  |
|                                                       |    $852  |  $1,558  |  $(3,080) |
| Current                                               |    $(77) |    $(92) |      $56  |
| Deferred                                              |     929  |   1,650  |   (3,136) |
|                                                       |    $852  |  $1,558  |  $(3,080) |

The Company’s effective tax rate for the year ended December 31, 2017 differed from the federal statutory rate of 35% primarily because of the provisional one\-time income tax benefit of $192 million as a result of the enactment of the Tax Act\. This provisional benefit is the result of the remeasurement of deferred tax assets and liabilities, partially offset by a write\-down of the employee benefit deferred tax asset for future non\-deductible compensation, and a one\-time transition tax on foreign earnings and profits\. The Company’s effective tax rate for the year ended December 31, 2016 differed from the federal statutory rate of

75