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The Company recognizes landscape development contracts using the percentage-of-completion method, <br />measured by the percentage of cost incurred to date to the estimated total cost for each contract. The full <br />amount of anticipated losses on contracts is recorded as soon as such losses can be estimated. Changes in job <br />performance, job conditions, and estimated profitability, including final contract settlements, may result in <br />revisions to costs and revenue and are recognized in the period in which the revisions are determined. <br />Snow removal: <br />Snow removal services are generally provided under time and material or other activity-based contracts. In <br />certain markets, some snow removal services are provided on a fixed fee basis for the snow season, typically <br />November through March. Revenue for snow removal services is recognized in the period in which the services <br />are performed, or expected to be performed in the case of fixed fee arrangements. <br />Unbilled revenue and deferred revenue, classified respectively as current assets and current liabilities in the <br />Consolidated Balance Sheets, result from differences between the timing of billings and the recognition of service <br />revenues. <br />The Company regularly evaluates the collectability of its accounts receivable and accordingly maintains allowances <br />for doubtful accounts for estimated losses. <br />BrightView Acquisition Holdings, Inc. <br />Notes to the Consolidated Financial Statements <br />For the Years Ended December 31, 2016 and 2015 <br />(in thousands) <br />The carrying amounts shown for the Company’s cash and cash equivalents, restricted cash, accounts receivable and <br />accounts payable approximate fair value due to the short-term maturity of those instruments (See Notes 7 and 8). <br />The valuation is based on settlements of similar financial instruments all of which are short-term in nature and are <br />generally settled at or near cost. <br />Derivative Instruments and Hedging Activities <br />The Company’s objective in entering into derivative transactions is to manage its exposure to interest rate <br />movements associated with its variable rate debt and changes in fuel prices. The Company recognizes derivatives as <br />either assets or liabilities on the balance sheet and measures those instruments at fair value. Since all of the <br />Company’s derivatives are designated as cash flow hedges, the effective portion of the changes in the fair value of <br />the derivative is initially reported in other comprehensive loss and subsequently reclassified to interest expense <br />(interest rate contracts) and cost of services provided (fuel hedge contracts) in the accompanying Consolidated <br />Statements of Operations when the hedge transaction affects earnings. The ineffective portion of changes in the fair <br />value of the derivative is recognized directly to interest expense and cost of services provided immediately. The <br />fair value of the hedges is obtained through independent third-party valuation sources that use conventional <br />valuation techniques (See Note 8). <br />Net Service Revenues <br />The Company principally performs landscape maintenance and enhancements, landscape development, and snow <br />removal services. Revenue is recognized based upon the service provided and the contract terms and is reported net <br />of discounts and applicable sales taxes. <br />Landscape maintenance: <br />Landscape maintenance services are provided under annual contracts. Revenue is recognized in proportion to <br />the performance of related services during a given month compared to the estimate of activities to be performed. <br />Landscape enhancements: <br />Landscape enhancement services are generally provided under contracts of short duration. Revenue for these <br />services is generally recognized in the period in which the services are provided. <br />Landscape development: <br />10 <br />Confidential