BrightView EXEMPT Consolidated Financial Statements l

Home Browse Search

BrightView Acquisition Holdings, Inc. Notes to the Consolidated Financial Statements For the Years Ended December 31, 2016 and 2015 (in thousands) As of December 31, 2015 Carrying Value Level 1 Level 2 Level 3 Other assets: Investments held by Rabbi Trust $ 8,067 $ 8,067 $ - $ - Total Assets $ 8,067 $ 8,067 $ - $ - Accrued expenses/current liabilities: Interest rate swaps $ 4,144 $ - $ 4,144 $ - Fuel hedges 5,965 - 5,965 - Other liabilities Interest rate swaps 31,697 - 31,697 - Fuel hedges 1,091 - 1,091 - Obligation to Rabbi Trust 8,067 8,067 - - Total Liabilities $ 50,964 $ 8,067 $ 42,897 $ - Investments held by Rabbi Trust The Company has exposures to variability in interest rates associated with both its First Lien Credit Agreement and Second Lien Credit Agreement. As such, the Company has entered into interest rate swaps to help manage interest rate exposure by economically converting a portion of its variable-rate debt to fixed-rate debt effective for the The Company’s objective in entering into derivative transactions is to manage its exposure to interest rate movements associated with its variable rate debt and changes in fuel prices. The Company recognizes derivatives as either assets or liabilities on the balance sheet and measures those instruments at fair value. The fair values of the derivative financial instruments are determined using widely accepted valuation techniques including discounted cash flow analysis based on the expected cash flows of each derivative. Although the Company has determined that the significant inputs, such as interest yield curve and discount rate, used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with the Company's counterparties and its own credit risk utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. However, as of December 31, 2016, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments were not significant to the overall valuation of its derivatives. As a result, the Company has determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy. Hedging Activities As of December 31, 2016, the Company’s outstanding derivatives qualify as cash flow hedges in accordance with the Derivatives and Hedging topic of the Codification. The Company assesses whether derivatives used in hedging transactions are “highly effective” in offsetting changes in the cash flow of the hedged forecasted transactions. Regression analysis is used for the hedge relationships and high effectiveness is achieved when a statistically valid relationship reflects a high degree of offset and correlation between the fair values of the derivative and the hedged forecasted transaction. The effective portion of the changes in the fair value of the derivative is initially reported in other comprehensive loss and subsequently reclassified to Interest expense (interest rate contracts) and Cost of services provided (fuel hedge contracts) in the accompanying Consolidated Statements of Operations when the hedged item affects earnings. The ineffective portion of changes in the fair value of the derivative is recognized directly to interest expense and cost of services provided in the period incurred. If it is determined that a derivative is not highly effective as a hedge, or if the hedged forecasted transaction is no longer probable of occurring, then the amount recognized in accumulated other comprehensive loss is released to earnings. Cash flows from the derivatives are classified in the same category as the cash flows from the underlying hedged transaction. Interest-Rate Swaps The fair value of the investments held in the Rabbi Trust is based on the quoted market prices of the underlying mutual fund investments. These investments are based on the participants’ selected investments, which represent the underlying liabilities to the participants in the non-qualified deferred compensation plan. Derivatives 17 Confidential