NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN AIRLINES, INC. ASU 2016-02: Leases (Topic 842) (the New Lease Standard) ASU 2016-01: Financial Instruments - Overall (Subtopic 825-10) ASU 2016-18: Statement of Cash Flows (Topic 230): Restricted Cash 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, American 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. American 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 American’s consolidated balance sheet due to the recognition of approximately $10 billion of lease liabilities with corresponding right-of-use assets for operating leases. Additionally, American 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. This ASU made several modifications to Subtopic 825-10, including the elimination of the available-for-sale classification of equity investments, and it required equity investments with readily determinable fair values to be measured at fair value with changes in fair value recognized in net income. This standard was adopted prospectively as of January 1, 2018 and resulted in a $60 million cumulative effect adjustment credit to retained earnings, net of tax, related to American's investment in China Southern Airlines Company Limited (China Southern Airlines), which was previously accounted for under the cost method. This ASU required that the change in the total cash balance, cash at the beginning of the period and cash at the end of the period on the statement of cash flows include restricted cash, and also required companies that report cash and restricted cash separately on the balance sheet to reconcile those amounts to the statement of cash flows. This standard was applied retrospectively, which resulted in the recast of prior reporting periods in the statement of cash flows. For the years ended December 31, 2018, 2017 and 2016, $11 million, $103 million and $113 million, respectively, of restricted cash is included in the total cash and restricted cash balance at the end of the period. A reconciliation of cash and restricted cash reported on American's consolidated statements of cash flows to the amounts reported on its consolidated balance sheets is provided in a table below the Consolidated Statements of Cash Flows. 136