301B Report

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American Airlines (in millions) a. total leased assets over total assets; total leased assets include assets under both finance (capital) and operating leases. TD/TA= (Short-Term lease + Long-Term lease)/Total Assets TLA/TA = (Capt lease + Opt leases)/TA 2017: — could not find lease or ROU assets in either Balance Sheet 2018: 9,151(p83 2018)/60,580 = 0.5110 = 15.10% b. total minimum lease payments. 2017: 11,659 (p161 2017) 2018: 13,931 (p153 2018) c. total operating lease liability over total assets. [Operating lease (short + long) term]/TA 2017: [13,989 (p106 2018)]/51,936 = 0.2694 = 26.94% 2018: [11,699 (p106 2018)]/60,580 = 0.1931 = 19.31% d. debt-equity ratio, defined as total liabilities over total stockholders' equity. TL/TSE 2017: (14,274 + 31,144)/14,594 [p128] = 3.1121 2018: (17,121 + 41,987)/11,770 [p132] = 5.0219 e. rate of return on assets, defined as net income (loss) over total assets. NI/TA 2017: 1,919/51,936 (p84) = 0.0369 = 3.69% 2018: 1,412/60,580 (p84) = 0.0235 = 2.35%
B The New Lease Standard requires lessees to recognize a lease liability and a right-of-use asset on the balance sheet and aligns many of the underlying principles of the new lessor model with those in the New Revenue Standard. The New Lease Standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. We expect we will adopt the New Lease Standard effective January 1, 2019. Entities are required to adopt the New Lease Standard using a modified retrospective approach, which results in the recast of each prior reporting period presented, for all leases existing at or commencing after the date of initial application with an option to use certain practical expedients. We are currently evaluating how the adoption of the New Lease Standard will impact our consolidated financial statements. Interpretations are on-going and could have a material impact on our implementation. Currently, we expect that the adoption of the New Lease Standard will have a material impact on our consolidated balance sheet due to the recognition of right-of-use assets and lease liabilities principally for certain leases currently accounted for as operating leases. (AAL 2017) [Secured financings are collateralized by assets, primarily aircraft, engines, simulators, aircraft spare parts, airport gate leasehold rights, route authorities and airport slots. At December 31, 2017, we were operating 33 aircraft under capital leases. Leases can generally be renewed at rates based on fair market value at the end of the lease term for a number of additional years.] (AAL 2017)
ASU 2016-02: Leases (Topic 842) (the New Lease Standard) [The New Lease Standard requires lessees to recognize a lease liability and a right-of-use (ROU) asset on the balance sheet for operating leases. Accounting for finance leases is substantially unchanged. The New Lease Standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. In the fourth quarter of 2018, we elected to early adopt the New Lease Standard as of January 1, 2018 using a modified retrospective transition, with the cumulative-effect adjustment to the opening balance of retained earnings as of the effective date (the effective date method). Under the effective date method, financial results reported in periods prior to 2018 are unchanged. We also elected the package of practical expedients, which among other things, does not require reassessment of lease classification. The adoption of the New Lease Standard had a significant impact on our consolidated balance sheet due to the recognition of approximately $10 billion of lease liabilities with corresponding right-of-use assets for operating leases. Additionally, we recognized a $197 million cumulative effect adjustment credit, net of tax, to retained earnings. The adjustment to retained earnings was driven principally by sale-leaseback transactions including the recognition of unamortized deferred aircraft sale-leaseback gains. Prior to the adoption of the New Lease Standard, gains on sale-leaseback transactions were generally deferred and recognized in the income statement over the lease term. Under the New Lease Standard, gains on sale-leaseback transactions (subject to adjustment for off-market terms) are recognized immediately. Finally, our 2018 pre-tax income decreased by $16 million as a result of adoption of the New Lease Standard.] (AAL 2018)
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