Note 1 – Summary of Significant Accounting Policies

Description of Operations

SM Energy Company is an independent energy company engaged in the acquisition, exploration, development, and production of oil, gas, and NGLs in onshore North America.

Basis of Presentation

The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries and have been prepared in accordance with GAAP and the instructions to Form 10-K and Regulation S-X. Intercompany accounts and transactions have been eliminated. In connection with the preparation of the consolidated financial statements, the Company evaluated subsequent events after the balance sheet date of December 31, 2017, through the filing of this report. Additionally, certain prior period amounts have been reclassified to conform to current period presentation in the consolidated financial statements.

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of proved oil and gas reserves, assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Estimates of proved oil and gas reserve quantities provide the basis for the calculation of depletion, depreciation, and amortization expense, impairment of proved properties, and asset retirement obligations, each of which represents a significant component of the accompanying consolidated financial statements.

Cash and Cash Equivalents and Restricted Cash

The Company considers all liquid investments purchased with an initial maturity of three months or less to be cash equivalents. The carrying value of cash and cash equivalents approximates fair value due to the short-term nature of these instruments. Restricted cash includes cash that is contractually restricted for its use through an agreement with a non-related party. The Company includes restricted cash in other noncurrent assets on the accompanying balance sheets.

Accounts Receivable

The Company’s accounts receivable consist mainly of receivables from oil, gas, and NGL purchasers and from joint interest owners on properties the Company operates. For receivables from joint interest owners, the Company typically has the ability to withhold future revenue disbursements to recover non-payment of joint interest billings. Generally, the Company’s oil, gas, and NGL receivables are collected within two months and the Company has had minimal bad debts.

Although diversified among many companies, collectability is dependent upon the financial wherewithal of each individual company and is influenced by the general economic conditions of the industry. Receivables are not collateralized. Please refer to Note 2 – Accounts Receivable and Accounts Payable and Accrued Expenses for additional disclosure.

Concentration of Credit Risk and Major Customers

The Company is exposed to credit risk in the event of nonpayment by counterparties, a significant portion of which are concentrated in energy related industries. The creditworthiness of customers and other counterparties is subject to regular review.

The Company does not believe the loss of any single purchaser of its production would materially impact its operating results, as oil, gas, and NGLs are products with well established markets and numerous purchasers in the Company’s operating regions. The Company had the following major customers and sales to entities under common ownership, which accounted for 10 percent or more of its total oil, gas, and NGL production revenue for at least one of the periods presented:



	For the Years Ended December 31,
	2017		2016		2015
Major customer #1⁽¹⁾	10	%	5	%	4	%
Major customer #2⁽²⁾	7	%	18	%	21	%
Group #1 of entities under common ownership⁽³⁾	17	%	15	%	10	%
Group #2 of entities under common ownership ⁽³⁾	8	%	8	%	11	%

____________________________________________


⁽¹⁾	This major customer is a purchaser of the Company’s production from its Permian region.

⁽²⁾

This major customer was the operator of the Company’s outside-operated Eagle Ford shale program, which was divested of during the first quarter of 2017. Prior to the divestiture, the Company was party to various marketing agreements, which included certain gathering, transportation, and processing throughput commitments. Because the Company shared with the operator the risk of non-performance by its counterparty purchasers, the Company included the operator as a major customer in the table above. Several of the operator’s counterparty purchasers under these contracts were also direct purchasers of the Company’s production from other areas.


⁽³⁾	In the aggregate these groups of entities under common ownership represent more than 10 percent of total oil, gas, and NGL production revenue for the period(s) shown, however, none of the individual entities comprising either group represented more than 10 percent of the Company’s total oil, gas, and NGL production revenue.

The Company’s policy is to use the commodity affiliates of the lenders under its Credit Agreement as its derivative counterparties, and each counterparty must have investment grade senior unsecured debt ratings. Each of the Company’s 10 derivative counterparties meet both of these requirements as of the filing of this report.

The Company maintains its primary bank accounts with a large, multinational bank that has branch locations in the Company’s areas of operations. The Company’s policy is to diversify its concentration of cash and cash equivalent investments among multiple institutions and investment products to limit the amount of credit exposure to any single institution or investment. The Company maintains investments in highly rated, highly liquid investment products with numerous banks that are party to its revolving credit facility.

Oil and Gas Producing Activities

Proved properties. The Company follows the successful efforts method of accounting for its oil and gas properties. Under this method, the costs of development wells are capitalized whether those wells are successful or unsuccessful. Capitalized drilling costs, including lease and well equipment and intangible development costs, are depleted as a group of assets (properties aggregated with a common geological structure) using the units-of-production method based on estimated proved developed oil and gas reserves. Similarly, proved leasehold costs are depleted on the same group asset basis; however, the units-of-production method is based on estimated total proved oil and gas reserves. The computation of DD&A takes into consideration restoration, dismantlement, and abandonment costs as well as the anticipated proceeds from salvaging equipment.

Proved oil and gas property costs are evaluated for impairment and reduced to fair value when there is an indication that the carrying costs may not be recoverable. Expected future discounted cash flows are calculated on all estimated proved reserves and risk-adjusted probable and possible reserves using discount rates and price forecasts that management believes are representative of current market conditions. The prices for oil and gas are forecasted based on NYMEX strip pricing, adjusted for basis differentials, for the first five years, after which a flat terminal price is used for each commodity stream. The prices for NGLs are forecasted using OPIS pricing, adjusted for basis differentials, for as long as the market is actively trading, after which a flat terminal price is used. Future operating costs are also adjusted as deemed appropriate for these estimates. Please refer to Note 11 – Fair Value Measurements for additional discussion.

The partial sale of a proved property within an existing field is accounted for as a normal retirement and no net gain or loss on divestiture activity is recognized as long as the treatment does not significantly affect the units-of-production depletion rate. The sale of a partial interest in an individual proved property is accounted for as a recovery of cost. A net gain or loss on divestiture activity is recognized in the accompanying statements of operations for all other sales of proved properties.

Unproved properties. The unproved oil and gas properties line item on the accompanying balance sheets consists of costs incurred to acquire unproved leases. When successful wells are drilled on unproved leases, unproved property costs allocated to those leases are reclassified to proved properties and depleted on a units-of-production basis. An impairment is recorded on unproved property when the Company determines that either the property will not be developed or the carrying value is not realizable. Please refer to Note 11 – Fair Value Measurements for additional discussion.

For the sale of unproved properties where the original cost has been partially or fully amortized by providing a valuation allowance on a group basis, neither a gain nor loss is recognized unless the sales price exceeds the original cost of the property, in which case a gain shall be recognized in the accompanying statements of operations in the amount of such excess.

Exploratory. Exploratory G&G, including exploratory seismic studies, and the costs of carrying and retaining unproved acreage are expensed as incurred. Under the successful efforts method, exploratory well costs are capitalized pending further evaluation of whether economically recoverable reserves have been found. If economically recoverable reserves are not found, exploratory well costs are expensed as dry holes. The application of the successful efforts method of accounting requires management’s judgment to determine the proper designation of wells as either development or exploratory, which will ultimately determine the proper accounting treatment of costs of dry holes. Once a well is drilled, the determination that economic proved reserves have been discovered may take considerable time and judgment. Exploratory dry hole costs are included in cash flows from investing activities as part of capital expenditures within the accompanying statements of cash flows.

Other Property and Equipment

Other property and equipment such as facilities, office furniture and equipment, buildings, and computer hardware and software are recorded at cost. The Company capitalizes certain software costs incurred during the application development stage. The application development stage generally includes software design, configuration, testing, and installation activities. Costs of renewals and improvements that substantially extend the useful lives of the assets are capitalized. Maintenance and repair costs are expensed when incurred. Depreciation is calculated using either the straight-line method over the estimated useful lives of the assets, which range from 3 to 30 years, or the unit of output method where appropriate. When other property and equipment is sold or retired, the capitalized costs and related accumulated depreciation are removed from the accounts.

A long-lived asset is evaluated for impairment and reduced to fair value when there is an indication that the carrying costs may not be recoverable. The Company uses an income valuation technique if there is not a market-observable price for the asset. Please refer to Note 11 – Fair Value Measurements for additional discussion.

Assets Held for Sale

Any properties held for sale as of the balance sheet date have been classified as assets held for sale and are separately presented on the accompanying balance sheets at the lower of carrying value or fair value less the estimated cost to sell. Please refer to Note 3 – Divestitures, Assets Held for Sale, and Acquisitions and Note 11 – Fair Value Measurements for additional discussion.

Asset Retirement Obligations

The Company recognizes an estimated liability for future costs associated with the abandonment of its oil and gas properties, including facilities requiring decommissioning. A liability for the fair value of an asset retirement obligation and corresponding increase to the carrying value of the related long-lived asset are recorded at the time a well is drilled or acquired and a facility is constructed. The increase in carrying value is included in proved oil and gas properties in the accompanying balance sheets. The Company depletes the amount added to proved oil and gas property costs and recognizes expense in connection with the accretion of the discounted liability over the remaining estimated economic lives of the respective oil and gas properties. Cash paid to settle asset retirement obligations is included in the operating section of the Company’s accompanying statements of cash flows.

The Company’s estimated asset retirement obligation liability is based on historical experience in plugging and abandoning wells, estimated economic lives, estimated plugging and abandonment cost, and federal and state regulatory requirements. The liability is discounted using the credit-adjusted risk-free rate estimated at the time the liability is incurred or revised. The credit-adjusted risk-free rates used to discount the Company’s plugging and abandonment liabilities range from 5.5 percent to 12 percent. In periods subsequent to initial measurement of the liability, the Company must recognize period-to-period changes in the liability resulting from the passage of time, revisions to either the amount of the original estimate of undiscounted cash flows or changes in inflation factors or the Company’s credit-adjusted risk-free rate as market conditions warrant. Please refer to Note 9 – Asset Retirement Obligations for a reconciliation of the Company’s total asset retirement obligation liability as of December 31, 2017, and 2016.

Derivative Financial Instruments

The Company seeks to manage or reduce commodity price risk on its production by entering into derivative contracts. The Company seeks to minimize its basis risk and indexes its oil derivative contracts to NYMEX prices, its NGL derivative contracts to OPIS prices, and its gas derivative contracts to various regional index prices associated with pipelines into which the Company’s gas production is sold. The Company does not designate its derivative instruments to qualify for hedge accounting. Accordingly, the Company reflects changes in the fair value of its derivative instruments in its accompanying statements of operations as they occur. For additional discussion on derivatives, please see Note 10 – Derivative Financial Instruments.

Revenue Recognition

The Company derives revenue primarily from the sale of produced oil, gas, and NGLs. Revenue is recognized when the Company’s production is delivered to the purchaser, but payment is generally received between 30 and 90 days after the date of production. No revenue is recognized unless it is determined that title to the product has transferred to the purchaser. At the end of each month, the Company estimates the amount of production delivered to the purchaser and the price the Company will receive. The Company uses knowledge of its properties and historical performance, contractual agreements, NYMEX, OPIS, and local spot market prices, quality and transportation differentials, and other factors as the basis for these estimates. The Company follows the sales method of accounting for gas production imbalances. If the Company’s sales volumes for a well exceed the Company’s proportionate share of production from the well, a liability is recognized to the extent that the Company’s share of estimated remaining recoverable reserves from the well is insufficient to satisfy this imbalance. Effective January 1, 2018, the Company’s revenue recognition policy changed due to the adoption of new accounting guidance. Please refer to Recently Issued Accounting Standards below for additional discussion.

Stock-Based Compensation

At December 31, 2017, the Company had stock-based employee compensation plans that included RSUs and PSUs issued to employees and RSUs and restricted stock issued to non-employee directors, as well as an employee stock purchase plan available to eligible employees. These are more fully described in Note 7 – Compensation Plans. The Company records expense associated with the fair value of stock-based compensation in accordance with authoritative accounting guidance, which is based on the estimated fair value of these awards determined at the time of grant, and included within general and administrative expense and exploration expense in the accompanying statements of operations. Further, the Company accounts for forfeitures of stock-based compensation awards as they occur.

Income Taxes

The Company accounts for deferred income taxes whereby deferred tax assets and liabilities are recognized based on the tax effects of temporary differences between the carrying amounts on the consolidated financial statements and the tax basis of assets and liabilities, as measured using current enacted tax rates. These differences will result in taxable income or deductions in future years when the reported amounts of the assets or liabilities are recorded or settled, respectively. The Company records deferred tax assets and associated valuation allowances, when appropriate, to reflect amounts more likely than not to be realized based upon Company analysis. Please refer to Note 4 – Income Taxes for additional disclosure.

Earnings per Share

Basic net income (loss) per common share is calculated by dividing net income or loss available to common stockholders by the basic weighted-average number of common shares outstanding for the respective period.

Diluted net income (loss) per common share is calculated by dividing adjusted net income or loss by the diluted weighted-average number of common shares outstanding, which includes the effect of potentially dilutive securities. Potentially dilutive securities for this calculation consist primarily of non-vested RSUs, contingent PSUs, and shares into which the Senior Convertible Notes are convertible, which are measured using the treasury stock method.

PSUs represent the right to receive, upon settlement of the PSUs after the completion of the three-year performance period, a number of shares of the Company’s common stock that may range from zero to two times the number of PSUs granted on the award date. The number of potentially dilutive shares related to PSUs is based on the number of shares, if any, which would be issuable at the end of the respective reporting period, assuming that date was the end of the contingency period applicable to such PSUs. For additional discussion on PSUs, please refer to Note 7 – Compensation Plans under the heading Performance Share Units.

On August 12, 2016, the Company issued $172.5 million in aggregate principal amount of Senior Convertible Notes due 2021. Upon conversion, the Senior Convertible Notes may be settled, at the Company’s election, in shares of the Company’s common stock, cash, or a combination of cash and common stock. The Company has initially elected a net-settlement method to satisfy its conversion obligation, which would result in the Company settling the principal amount of the Senior Convertible Notes in cash and the excess conversion value in shares. However, the Company has not made an irrevocable election and thereby reserves the right to settle the Senior Convertible Notes in any manner allowed under the indenture as business circumstances warrant. Shares of the Company’s common stock traded at an average closing price below the $40.50 conversion price for the year ended December 31, 2017 and for the portion of the year ended December 31, 2016, during which the Senior Convertible Notes were outstanding. Therefore, the Senior Convertible Notes had no dilutive impact. In connection with the offering of the Senior Convertible Notes, the Company entered into capped call transactions with affiliates of the underwriters that would effectively prevent dilution upon settlement up to the $60.00 cap price. The capped call transactions will always be anti-dilutive and therefore will never be reflected in diluted net income (loss) per share. Please refer to Note 5 – Long-Term Debt for additional discussion.

When the Company recognizes a net loss from continuing operations, as was the case for the years ended December 31, 2017, 2016, and 2015, all potentially dilutive shares are anti-dilutive and are consequently excluded from the calculation of diluted net loss per common share.

The following table details the weighted-average anti-dilutive securities for the years presented:



	For the Years Ended December 31,
	2017	2016	2015
	(in thousands)
Anti-dilutive	264	280	256

The following table sets forth the calculations of basic and diluted net loss per common share:



	For the Years Ended December 31,
	2017			2016			2015
	(in thousands, except per share data)
Net loss	$	(160,843	)	$	(757,744	)	$	(447,710	)
Basic weighted-average common shares outstanding	111,428			76,568			67,723
Add: dilutive effect of non-vested RSUs and contingent PSUs	—			—			—
Add: dilutive effect of Senior Convertible Notes	—			—			—
Diluted weighted-average common shares outstanding	111,428			76,568			67,723
Basic net loss per common share	$	(1.44	)	$	(9.90	)	$	(6.61	)
Diluted net loss per common share	$	(1.44	)	$	(9.90	)	$	(6.61	)

Comprehensive Income (Loss)

Comprehensive income (loss) is used to refer to net income (loss) plus other comprehensive income (loss). Other comprehensive income (loss) is comprised of revenues, expenses, gains, and losses that under GAAP are reported as separate components of stockholders’ equity instead of net income (loss). Comprehensive income (loss) is presented net of income taxes in the accompanying consolidated statements of comprehensive income (loss). Please refer to Note 8 – Pension Benefits for detail on the changes in the balances of components comprising other comprehensive income (loss).

Fair Value of Financial Instruments

The Company’s financial instruments including cash and cash equivalents, accounts receivable, and accounts payable are carried at cost, which approximates fair value due to the short-term maturity of these instruments. The recorded value of the Company’s credit facility approximates its fair value as it bears interest at a floating rate that approximates a current market rate. The Company had a zero balance under its credit facility as of December 31, 2017, and 2016. The Company’s Senior Notes and Senior Convertible Notes are recorded at cost, net of any unamortized discount and deferred financing costs, and the respective fair values are disclosed in Note 11 – Fair Value Measurements. The Company has derivative financial instruments that are recorded at fair value. Considerable judgment is required to develop estimates of fair value. The estimates provided are not necessarily indicative of the amounts the Company would realize upon the sale or refinancing of such instruments.

Industry Segment and Geographic Information

The Company operates in the exploration and production segment of the oil and gas industry in onshore United States. The Company reports as a single industry segment.

Off-Balance Sheet Arrangements

The Company has not participated in transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or SPEs, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

The Company evaluates its transactions to determine if any variable interest entities exist. If it is determined that the Company is the primary beneficiary of a variable interest entity, that entity is consolidated. The Company has not been involved in any unconsolidated SPE transactions in 2017 or 2016.

Recently Issued Accounting Standards

Effective January 1, 2017, the Company adopted, using various transition methods, Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) No. 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”). ASU 2016-09 is meant to simplify certain aspects of accounting for share-based arrangements, including income tax effects, accounting for forfeitures, and net share settlements. The Company adopted the various applicable amendments, which are summarized as follows:


•	On January 1, 2017, a $44.3 million cumulative-effect adjustment was made to retained earnings and a corresponding deferred tax asset was recorded for previously unrecognized excess tax benefits using a modified retrospective transition method. Going forward, excess tax benefits will be presented in operating activities on the accompanying statements of cash flows.

•

Also on January 1, 2017, the Company elected to change its policy to account for forfeitures of share-based payment awards as they occur, rather than applying an estimated forfeiture rate. This change was made using a modified retrospective transition method and resulted in an increase in additional paid-in capital of $1.1 million, a decrease in deferred tax assets of $0.4 million, and a net $0.7 million cumulative effect adjustment decrease to retained earnings.


•	Under this new guidance, excess tax benefits and deficiencies from share-based payments impact the Company’s effective tax rate between periods. Please refer to Note 4 – Income Taxes for additional discussion.

Effective December 31, 2017, the Company early adopted, on a retrospective basis, FASB ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”) and FASB ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (“ASU 2016-18”). ASU 2016-15 is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. The Company determined that of the eight issues addressed in ASU 2016-15, only the issue related to debt extinguishment costs impacted the Company’s consolidated financial statements and disclosures. In accordance with ASU 2016-15, the Company reclassified certain debt extinguishment costs from operating activities to financing activities. ASU 2016-18 is intended to clarify guidance on the classification and presentation of restricted cash and restricted cash equivalents in the statement of cash flows. In accordance with ASU 2016-18, the Company has reclassified restricted cash out of investing activities and combined it with cash and cash equivalents when reconciling the beginning and end of period balances on the statements of cash flows. The December 31, 2016, and 2015 accompanying statements of cash flows line items that were adjusted as a result of the adoption of ASU 2016-15 and ASU 2016-18 are summarized as follows:



	For the Years Ended December 31,
	2016						2015
	As Reported			As Adjusted			As Reported			As Adjusted
	(in thousands)
Non-cash (gain) loss on extinguishment of debt	$	(15,722	)	N/A			$	4,123		N/A
(Gain) loss on extinguishment of debt	N/A			$	(15,722	)	N/A			$	16,578
Net cash provided by operating activities	$	552,804		$	552,804		$	978,352		$	990,807

Other, net	$	(3,000	)	$	—		$	(985	)	$	(985	)
Net cash used in investing activities	$	(1,870,639	)	$	(1,867,639	)	$	(1,144,639	)	$	(1,144,639	)

Cash paid for extinguishment of debt	N/A			$	—		N/A			$	(12,455	)
Net cash provided by financing activities	$	1,327,189		$	1,327,189		$	166,185		$	153,730

Net change in cash and cash equivalents	$	9,354		N/A			$	(102	)	N/A
Net change in cash, cash equivalents, and restricted cash	N/A			$	12,354		N/A			$	(102	)
Cash and cash equivalents at beginning of period	$	18		N/A			$	120		N/A
Cash, cash equivalents, and restricted cash at beginning of period	N/A			$	18		N/A			$	120
Cash and cash equivalents at end of period	$	9,372		N/A			$	18		N/A
Cash, cash equivalents, and restricted cash at end of period	N/A			$	12,372		N/A			$	18

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the accompanying balance sheets to the amounts shown in the accompanying statements of cash flows:



	December 31,
	2017		2016		2015
	(in thousands)
Cash and cash equivalents	$	313,943	$	9,372	$	18
Restricted cash ⁽¹⁾	—		3,000		—
Total cash, cash equivalents, and restricted cash shown in the accompanying statements of cash flows	$	313,943	$	12,372	$	18

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⁽¹⁾	Restricted cash is included in other noncurrent assets on the accompanying balance sheets.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”). Under the new standard, revenue is recognized when a customer obtains control of promised goods or services in an amount that reflects the consideration the entity expects to receive in exchange for those goods or services. The standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The FASB issued several additional ASUs related to ASU 2014-09 that provide clarified implementation guidance and deferred the effective date of ASU 2014-09. The Company adopted ASU 2014-09 and all related ASUs using a modified retrospective transition method on the effective date of January 1, 2018 and will apply the new guidance to contracts for which all, or substantially all, of the revenue has not been recognized as of December 31, 2017 under legacy revenue guidance. This adoption will not result in a material change to current or prior period results, business processes, systems, or controls. However, upon adoption the Company will expand its current disclosures to comply with the disclosure requirements of the new guidance.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”), which requires lessees to recognize a right-of-use asset and a lease liability for virtually all leases currently classified as operating leases. The Company is currently analyzing the impact this standard will have on the Company’s contract portfolio, including non-cancelable leases, drilling rigs, pipeline gathering, transportation, gas processing, and other existing arrangements. Further, the Company is evaluating current accounting policies, applicable systems, controls, and processes to support the potential recognition and disclosure changes resulting from ASU 2016-02. Based upon the Company’s initial assessment, ASU 2016-02 is expected to result in an increase in assets and liabilities recorded. The Company will adopt ASU 2016-02 using a modified retrospective method on the effective date of January 1, 2019. In January 2018, the FASB issued ASU No. 2018-01, Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842 (“ASU 2018-01”). ASU 2018-01 provides an optional transitional practical expedient which allows entities to exclude from evaluation land easements that exist or expired before adoption of ASU 2016-02. The Company is currently evaluating this practical expedient and will adopt ASU 2018-01 at the same time as ASU 2016-02.

In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (“ASU 2017-01”). ASU 2017-01 clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The Company has determined that the adoption of ASU 2017-01 on the effective date of January 1, 2018, using a prospective method, does not impact the Company’s current consolidated financial statements or disclosures. However, the clarified definition of a business will be applied by the Company to future transactions.

In February 2017, the FASB issued ASU No. 2017-05, Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets (“ASU 2017-05”). ASU 2017-05 is meant to clarify the scope of Accounting Standards Codification (“ASC”) Subtopic 610-20, Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets and to add guidance for partial sales of nonfinancial assets. The Company has determined that the adoption of ASU 2017-05 on the effective date of January 1, 2018, using a modified retrospective method, does not impact the Company’s current consolidated financial statements or disclosures.

In March 2017, the FASB issued ASU No. 2017-07, Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (“ASU 2017-07”). ASU 2017-07 requires presentation of service cost in the same line item(s) as other compensation costs arising from services rendered by employees during the period and presentation of the remaining components of net benefit cost in a separate line item, outside operating items. In addition, only the service cost component of net benefit cost is eligible for capitalization. The Company adopted ASU 2017-07 on the effective date of January 1, 2018, with retrospective application of the service cost component and the other components of net benefit cost in the consolidated statements of operations and prospective application for the capitalization of the service cost component of net benefit costs in assets. While the adoption of ASU 2017-07 resulted in the Company reclassifying certain amounts from operating expenses to non-operating expenses, ASU 2017-07 did not result in a material impact to the Company’s consolidated financial statements or disclosures.

In February 2018, the FASB issued ASU No. 2018-02, Income Statement–Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (“ASU 2018-02”). ASU 2018-02 permits entities to reclassify tax effects stranded in accumulated other comprehensive income (loss) to retained earnings as a result of the 2017 Tax Act. ASU 2018-02, is to be applied either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the United States federal corporate income tax rate in the 2017 Tax Act is recognized. The guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018. Early adoption is permitted as outlined in ASU 2018-02. The Company is currently evaluating the provisions of this guidance and assessing the potential impact on the Company’s consolidated financial statements and disclosures.

There are no other ASUs applicable to the Company that would have a material effect on the Company’s consolidated financial statements and related disclosures that have been issued but not yet adopted by the Company as of December 31, 2017, and through the filing of this report.