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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 />Cost of Services Provided <br />Cost of services provided represents the cost of labor, subcontractors, materials, vehicle and equipment costs <br />(including depreciation, fuel and maintenance) and other costs directly associated with revenue generating activities. <br />These costs are expensed as incurred. <br />Equity-based Compensation <br />The Company’s equity based compensation consists of awards of “Profits Interest Units” by the Parent to employees <br />of the Company (See Note 13). The Company expenses equity based compensation using the estimated fair value as <br />of the grant date, over the requisite service or performance period applicable to the grant. Estimates of future <br />forfeitures are made at the date of grant and revised, if necessary in subsequent periods if actual forfeitures differ <br />from those estimates. <br />Income Taxes <br />Deferred tax assets and liabilities are determined based on differences between financial reporting and tax basis of <br />assets and liabilities, and are measured by applying enacted tax rates and laws for the taxable years in which those <br />differences are expected to reverse. Deferred tax assets are evaluated for the estimated future tax effects of <br />deductible temporary differences and tax operating loss carryovers. A valuation allowance is recorded when it is <br />more-likely-than-not that a deferred tax asset will not be realized. <br />The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax <br />position will be sustained on examination by the taxing authorities, based on the technical merits of the position. <br />The tax benefits recognized in the financial statements from such a position should be measured based on the largest <br />benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. <br />Reclassifications <br />Certain amounts in the prior year consolidated financial statements have been reclassified in order to conform to the <br />current year’s presentation. <br />Subsequent to the issuance of the Company’s 2015 consolidated financial statements, management determined <br />certain operating costs were not properly classified in the accompanying Consolidated Statement of Operations for <br />the year ended December 31, 2015. These costs were comprised of certain personnel costs and bad debt <br />expenses. The Company changed the 2015 presentation of these costs by reclassifying $22,731 in net costs from <br />cost of services provided to selling, general and administrative expense in the accompanying Consolidated <br />Statement of Operations for the year ended December 31, 2015. <br />The reclassification of these costs had no effect on the Company’s previously reported 2015 income from operations <br />or net loss for the year ended December 31, 2015, or the accompanying Consolidated Balance Sheet, Consolidated <br />Statement of Changes in Shareholders’ Equity, or Consolidated Statement of Cash Flows as of and for the year <br />ended December 31, 2015 <br />3. Recent Accounting Pronouncements <br />Revenue Recognition <br />In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which was further <br />updated in March and April 2016. The updated accounting guidance clarifies the principles for recognizing revenue <br />and provides a single, contract-based revenue recognition model in order to create greater comparability for <br />financial statement users across industries and jurisdictions. The core principle of the revenue model is that an entity <br />recognizes revenue to depict the transfer of promised goods or services to clients in an amount that reflect the <br />consideration to which the entity expects to be entitled in exchange for those goods or services. The updated <br />accounting guidance is effective for the Company as of January 1, 2019 and may be adopted using either a full <br />retrospective or modified retrospective approach. The Company is currently evaluating the impact that this guidance <br />will have on its consolidated financial statements and related disclosures. <br />11 <br />Confidential