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Basis of Presentation and Summary of Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2015

Basis of Presentation and Summary of Significant Accounting Policies

The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Management believes that such estimates have been based on reasonable and supportable assumptions and the resulting estimates are reasonable for use in the preparation of the consolidated financial statements. Actual results could differ from these estimates. The Company’s significant estimates include the allocation of the purchase price to the fair value of assets acquired and liabilities assumed, impairment of goodwill and identifiable intangible assets, stock-based compensation, contingent liabilities and income tax valuation allowances.

Reclassifications

Certain prior year amounts have been reclassified to conform to the current year financial statement presentation.

Revenue Recognition

Revenue is recognized when there is evidence of an arrangement, the price is fixed and determinable, collection from the customer is probable and either an application service has been provided or, in certain arrangements, risk and title to product has been transferred to the customer, and usually occurs when the application occurs or at the time of shipment, respectively. The Company’s standard terms of delivery are included in its contracts of sale, order confirmation documents and invoices. Sales are recorded net of provisions for customer discounts and rebate programs.

In an effort to maintain a competitive position in the marketplace and to promote sales and customer loyalty, we maintain various rebate and customer loyalty programs with our customers. Depending on the program, the customer may elect to either receive a credit against their account or receive a cash payment. We recognize an estimated accrued provision for rebates and customer loyalty program payouts at the time services are provided. The primary factors we consider when estimating the provision for rebates and customer loyalty programs are the average historical experience of aggregate credits issued, the volume mix of services and the historical relationship of rebates as a percentage of total gross product sales, the contract terms and conditions of the various rebate programs in effect at the time services are performed. We also monitor aggregate actual rebates granted and customer loyalty agreements and compare them to the estimated aggregate provision for rebates to assess the reasonableness of the aggregate rebate reserve at each quarterly balance sheet date.

Cost of Sales

The Company currently offers SmartFresh and Harvista applications at customer sites through a direct service model primarily utilizing third-party service providers. Amounts recorded as cost of sales relate to direct costs incurred in connection with the purchase, delivery and application of the product. Such costs are recorded as the related revenue is recognized. Our cost of sales consists primarily of cost of materials, application costs and certain supply chain costs.

Cash and Cash Equivalents

The Company considers short-term, highly liquid investments with original maturities of three months or less when purchased to be cash equivalents.

Accounts Receivable, Net

Accounts receivable, net consist primarily of (i) outstanding amounts invoiced to end-users, re-sellers and third party contractors and (ii) unbilled revenue in arrangements where the earnings process has been completed but invoices have not been issued as of the reporting date.

The allowance for doubtful accounts is based on historical experience and a review on a specific identification basis of the collectability of existing receivables.

Inventories

Inventories, consisting primarily of chemical products, are valued at the lower of cost (under the first-in, first-out method) or market. In connection with the Business Combination, the Company recognized a step-up in fair value of inventory of $103.5 million, which is being amortized into cost of sales in the consolidated statements of (loss) income over a period approximating the Company’s estimated inventory turnover cycle and is expected to become fully amortized during fiscal year 2016. The amount of amortization of the inventory step-up was $73.1 million for the five months ended December 31, 2015.

Property and Equipment

Property and equipment includes leasehold improvements and equipment. Property and equipment acquired in business combinations are initially recorded at their estimated fair value. Property and equipment acquired or constructed in the normal course of business are initially recorded at cost. The Company provides for depreciation and amortization based on the estimated useful lives of assets using the straight-line method.

Estimated useful lives are as follows:

Leasehold improvements		Shorter of useful life or lease term
Equipment		3—15 years

Leasehold improvements are amortized on the straight-line basis over the shorter of the estimated useful lives of the assets or the related lease term, which generally includes reasonably assured option periods expected to be exercised by the Company when the Company would suffer an economic penalty if not exercised.

Gains and losses on the disposal of assets are recorded as the difference between the net proceeds received and net carrying values of the assets disposed.

Leases

Leases in which the risk of ownership is retained by the lessor are classified as operating leases. Leases which substantially transfer all of the benefits and risks inherent in ownership to the lessee are classified as capital leases. Assets, if any, acquired under capital leases are depreciated on the same basis as property, plant and equipment. Rental payments are expensed on a straight-line basis. The Company conducts a portion of its operations from leased facilities and leases certain equipment through agreements that are all treated as operating leases.

Selling, General and Administrative Expenses

The Company expenses selling, general and administrative costs to operations as incurred. Selling, general and administrative expense consists primarily of compensation, benefits and other employee-related expenses for personnel in the Company’s administrative, finance, legal, business development, commercial, sales, marketing and human resource functions. Other expenses include costs incurred in connection with services provided by Dow under a Transition Services Agreement entered into upon consummation of the Business Combination.

Debt Issuance Costs

The debt issuance costs associated with the Term Loan (defined in Note 10 below) were capitalized against the principal balance of the debt, and the Revolving Loan costs (defined in Note 10 below) were capitalized in Other Assets. All issuance costs will be accreted through interest expense for the duration of each respective debt facility.

Goodwill and Indefinite-lived Intangible Assets

The Company’s goodwill and trade names are not amortized, but tested annually for impairment and more frequently if events and circumstances indicate that the asset might be impaired. The Company conducts annual goodwill and trade names impairment tests on the last day of each fiscal year or whenever an indicator of impairment exists.

In assessing goodwill impairment, the Company has the option to first assess the qualitative factors to determine whether events or circumstances indicate that it is more likely than not that the fair value of the reporting unit is less than its carrying amount. If the qualitative factors indicate that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the Company performs a two-step impairment test of goodwill. In the first step, the Company estimates the fair value of the reporting unit and compares it to the carrying value of the reporting unit. If the carrying value exceeds the estimated fair value of the reporting unit, the second step is performed to measure the amount of the impairment loss, if any. In the second step, the amount of the impairment loss is the excess of the carrying amount of the goodwill over its estimated fair value.

The Company’s indefinite-lived intangible assets, which primarily relate to trade names, are not amortized, but are tested at least annually for impairment using a quantitative impairment analysis, and more frequently if events and circumstances indicate that the asset might be impaired. The quantitative impairment analysis compares the fair value of each indefinite-lived intangible asset, based on discounted future cash flows using a relief-from-royalties methodology with the carrying value of the asset. If the carrying amount of an indefinite-lived intangible asset exceeds its fair value, an impairment loss is measured as the difference between the implied fair value of the indefinite-lived intangible asset and its carrying amount.

Intangible Assets, Net

Intangible assets subject to amortization primarily comprise acquired technology and customer relationships and are amortized on the straight-line basis over their estimated useful lives.

Stock-Based Compensation

The Company grants various stock-based compensation awards to its officers, employees and Board of Directors with service (time) and/or performance vesting conditions and which in some cases include a requirement or an option of the holder for settlement in cash upon exercise, including phantom stock awards and stock appreciation rights.

Awards without cash settlement conditions are equity classified and the Company measures and recognizes compensation expense based on their estimated grant date fair values.

Awards with cash settlement conditions, including phantom awards and stock appreciation rights, are accounted for as liability-based (except where cash-settlement is exclusively at the option of the Company) and the Company measures and recognizes compensation expense based on their estimated fair values as of the most recent reporting date.

Fair values are estimated using an option pricing model for option grants and stock appreciation rights and the closing price of the Company’s common stock for restricted stock awards; fair values of phantom awards are estimated on the same basis as the stock-based award upon which their terms are derived.

Compensation expense for the Company’s stock-based compensation awards is generally recognized on a straight-line basis; for awards with performance conditions, compensation expense is recognized if satisfaction of the performance condition is considered probable.

Income Taxes

The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, the Company determines deferred tax assets and liabilities on the basis of the differences between the financial statement and tax bases of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

The Company recognizes deferred tax assets to the extent that we believe that these assets are more likely than not to be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If the Company determines that it would be able to realize our deferred tax assets in the future in excess of their net recorded amount, it would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.

During November 2015, the FASB issued ASU 2015-17, “Balance Sheet Classification of Deferred Taxes”, which simplifies the presentation of deferred income taxes. This ASU requires that deferred tax assets and liabilities be classified as non-current in a statement of financial position. The Company early adopted ASU 2015-17 effective December 31, 2015 on a prospective basis. Adoption of this ASU resulted in a reclassification of our net current deferred tax asset to a net non-current deferred tax asset in the Company’s Consolidated Balance Sheet as of December 31, 2015. No prior periods were retrospectively adjusted.

The Company records uncertain tax positions in accordance with ASC 740 on the basis of a two-step process in which (1) we determine whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, we recognize the largest amount of tax benefit that is more than 50% likely to be realized upon ultimate settlement with the related tax authority.

Contingencies

The Company recognizes liabilities for contingencies when it is probable that an asset has been impaired or that a liability has been incurred and the amount of impairment or loss can be reasonably estimated. The Company’s ultimate legal and financial liability with respect to such matters cannot be estimated with certainty and requires the use of estimates. When the reasonable estimate is a range, the recorded loss will be the best estimate within the range. The Company records legal settlement costs when those costs are probable and reasonably estimable.

Credit Concentration Risk

Financial instruments, which potentially subject the Company to a concentration of credit risk, consist principally of cash deposits. The Company maintains cash balances at financial institutions with strong credit ratings. Generally, amounts invested with financial institutions are in excess of FDIC insurance limits.

Fair Value of Financial Instruments

The Company measures fair value using the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company uses valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Based on the underlying inputs, each fair value measurement in its entirety is reported in one of the three tiers in the fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include:

Level 1, defined as observable inputs such as quoted prices in active markets;

Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and

Level 3, defined as unobservable inputs which reflect the Company’s own estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques may include the use of third-party pricing services, option pricing models, discounted cash flow models and similar techniques.

Foreign Currency Translation

An entity’s functional currency is the currency of the primary economic environment in which the entity operates; normally, that is the currency of the environment in which an entity primarily generates and expends cash. Assets and liabilities are translated at period-end rates; income statement amounts are translated at average rates during the course of the period. Translation gains and losses of those operations that use local currency as the functional currency, are included in accumulated other comprehensive income in the consolidated balance sheets.

Warrants

Public Warrants

On February 19, 2014, the Company sold 21,000,000 units at a price of $10.00 per unit (the “Units”) in its initial public offering (the “Public Offering”). Each Unit consisted of one share of the Company’s common stock and one-half of one warrant (“Warrant”). On March 13, 2014, the Company sold an additional 1,050,000 Units pursuant to the partial exercise by the underwriters for the Public Offering of their over-allotment option. Each such additional Unit consisted of one share of the Company’s common stock and one-half of one Warrant. Each whole Warrant entitles the holder thereof to purchase one share of the Company’s common stock at a price of $11.50 per share. These warrants are classified in equity.

Private Placement Warrants

Simultaneous with the Public Offering, the Company issued 5,950,000 warrants, and upon the underwriters’ partial exercise of their over-allotment option on March 13, 2014, the Company issued an additional 210,000 warrants (collectively, the “Private Placement Warrants”). On December 17, 2015, the Company amended the Warrant Purchase Agreement (see Note 3) resulting in a reclassification of the Private Placement Warrants into Equity as of December 31, 2015.

Recently Issued Accounting Standards and Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers.” Under the new standard, revenue is recognized at the time a good or service is transferred to a customer for the amount of consideration received for that specific good or service. Entities may use a full retrospective approach or report the cumulative effect as of the date of adoption when implementing this standard. On July 9, 2015, the FASB voted to defer the effective date of this ASU by one year to December 15, 2017, for interim and annual reporting periods beginning after that date and permitted early adoption of the standard, but not before the original effective date of December 15, 2016. The Company is currently evaluating the effects of this update.

In July 2015, the FASB issued ASU No. 2015-11, “Simplifying the Measurement of Inventory.” The update requires an entity to measure inventory at the lower of cost or net realizable value; subsequent measurement is unchanged for inventory measured using last-in, first-out (LIFO) or the retail inventory method. The amendments in this update are effective for annual and interim periods beginning after December 15, 2016 and should be applied retrospectively. Early adoption is permitted. The Company is currently evaluating the effects of this update.

In September 2015, the FASB issued ASU No. 2015-16, “Simplifying the Accounting for Measurement-Period Adjustments.” The update requires that an acquirer in a business combination recognize adjustments to provisional amounts, and related changes in depreciation, amortization or other income effects, that are identified during the measurement period in the reporting period in which the adjustment amount is determined. In addition, an entity is required to present separately the portion of the amount recorded in current-period earnings that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. The amendments in this update are effective for annual and interim periods beginning after December 15, 2015 and should be applied prospectively. Early adoption is permitted. We early adopted this standard in the year ended December 31, 2015 and this standard had no impact on our consolidated financial statements.

In November 2015, the FASB issued ASU No. 2015-17, “Balance Sheet Classification of Deferred Taxes.” This update eliminates the requirement to classify deferred tax assets and liabilities as current or long-term based on how the related assets or liabilities are classified. All deferred taxes are now required to be classified as long-term including any associated valuation allowances. This guidance is effective for public companies for fiscal years beginning after December 15, 2016 with early adoption permitted on either a prospective or retrospective basis. The Company early adopted ASU 2015-17 effective December 31, 2015 on a prospective basis. Adoption of this ASU resulted in a reclassification of the Company’s net current deferred tax asset to a net non-current deferred tax asset in the Company’s Consolidated Balance Sheet as of December 31, 2015. No prior periods were retrospectively adjusted.

In February 2015, the FASB issued ASU 2016-02, “Leases.” This update requires management to recognize lease assets and lease liabilities by lessees for all operating leases. The ASU is effective for periods beginning after December 15, 2018 and interim periods therein on a modified retrospective basis. We are currently evaluating the impact this guidance will have on our financial statements.