UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
FORM 10-K
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(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended:
December 31, 2010
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OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from
to
Commission file number:
001-35067
SWISHER HYGIENE INC.
(Exact Name of Registrant as
Specified in Its Charter)
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Delaware
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27-3819646
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(State or Other Jurisdiction
of
Incorporation or Organization)
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(I.R.S. Employer Identification
No.)
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4725 Piedmont Row Drive, Suite 400
Charlotte, North Carolina
(Address of Principal
Executive Offices)
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28210
(Zip Code)
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Registrants Telephone Number, Including Area Code
(704) 364-7707
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Each Class
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Name of Each Exchange On Which Registered
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Common Stock
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The NASDAQ Stock Market LLC
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$0.001 par value
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Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes o No þ
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(§ 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant
was required to submit and post such
files). Yes o No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
(§ 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrants
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this
Form 10-K
or any amendment to this
Form 10-K. þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer
or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. Check one:
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Large
accelerated
filer o
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Accelerated
filer o
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Non-accelerated
filer þ
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Smaller
reporting
company o
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(Do
not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the
Act). Yes o No þ
The aggregate market value of the voting common stock held by
non-affiliates of the registrant on June 30, 2010 is not
included in this report as the registrant was not a reporting
company under the Securities Exchange Act of 1934, as amended,
at such date.
Number of shares outstanding of each of the registrants
classes of Common Stock at March 31, 2011:
148,455,429 shares of Common Stock, $0.001 par value
per share.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the proxy statement for the registrants 2011
Annual Meeting of Stockholders are incorporated by reference
into Part III of this
Form 10-K.
SWISHER
HYGIENE INC.
ANNUAL REPORT ON
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2010
TABLE OF CONTENTS
1
PART I
Overview
Swisher Hygiene Inc., through its consolidated subsidiaries,
franchisees, and international licensees, provides essential
hygiene and sanitation solutions throughout North America and
internationally. Our solutions include cleaning and sanitizing
products and services designed to promote superior cleanliness
and sanitation in commercial and residential environments, while
enhancing the safety, satisfaction, and well-being of our
customers. Our solutions are typically delivered on a regularly
scheduled basis and involve providing our customers with:
(i) consumable products such as soap, paper, cleaning
chemicals, detergents, and supplies, together with the rental
and servicing of dish machines and other equipment for the
dispensing of those products; (ii) the rental of facility
service items requiring regular maintenance and cleaning, such
as floor mats, mops, and bar towels; (iii) manual cleaning
of their facilities; and (iv) solid waste collection
services. We serve customers in a wide range of end-markets,
with a particular emphasis on the foodservice, hospitality,
retail, industrial, and healthcare industries.
Going forward, we intend to increase sales of our products and
expand our services to customers in existing geographic markets
as well as expand our reach into additional markets through a
combination of organic growth and the acquisition of:
(i) Swisher franchises; (ii) independent chemical and
facility service providers; (iii) solid waste collection
companies; and (iv) other related businesses.
We are a Delaware corporation, originally organized in Canada in
1994. Our principal executive offices are located at 4725
Piedmont Row Drive, Suite 400, Charlotte, North Carolina,
28210. The financial information about our one operating segment
and geographical revenue information appearing in Notes 2
and 13, respectively, to the Notes to Consolidated Financial
Statements in this
Form 10-K,
which we refer to as the annual report, are incorporated herein
by this reference.
All references in this annual report to Swisher,
Swisher Hygiene, the Company,
we, us, and our refer to
Swisher Hygiene Inc. and its consolidated subsidiaries, except
where the discussion relates to times or matters occurring
before the Merger, as defined below, in which case these words,
as well as Swisher International, refer to Swisher
International, Inc. and its consolidated subsidiaries.
Our
Strategy
We believe we are well positioned to take advantage of the
markets we serve. Our ability to service customers throughout
the United States and parts of Canada, our broad customer base
and our strategy of combining a service-based platform with
opportunities to leverage internal and external distribution
capabilities, provide multiple avenues for organic revenue
growth. We believe our recently introduced service and product
offerings, including our ware wash, laundry, and cleaning
chemical service and product offerings along with our solid
waste collection services, will allow us to continue to increase
revenue through existing customers, who will be able to benefit
from the breadth and depth of our current product and service
offerings.
Organic
Growth
Government regulations focusing on hygiene, food safety, and
cleanliness have increased significantly locally, nationally and
worldwide. Climate change, water scarcity, and environmental
concerns have combined to create further demand for products,
services, and solutions designed to minimize waste and support
broader sustainability. In addition, many of our customers
require tailored cleaning solutions that can assist in reducing
labor, energy, and water use, and the costs related to cleaning,
sanitation and hygiene activities.
We intend to capitalize on these industry dynamics by offering
customers a one-stop shopping partner focused on
their essential commercial hygiene and sanitation needs. This
entails leveraging our route-based weekly cleaning service and
restroom product platform with additional complementary chemical
and facility service products and other services, including ware
washing and laundry detergents, cleaning chemicals,
disinfectants, sanitizers, and solid waste collection services.
We believe our suite of products and services is a
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customer-facing portfolio which none of our competitors offer in
full and, as a result, the customer need not shop for its
essential commercial hygiene and sanitation needs on a
piece-meal basis. In addition, our management believes that we
provide our customers with more frequent service, better
results, and lower pricing than our competitors. As a result, we
believe we can increase our total revenue per customer stop for
such items and that we are well positioned to secure new
accounts.
Our national footprint and existing route structure provides us
with a highly scalable service infrastructure, which we believe
gives us a lower relative cost of service compared to local and
regional competitors, and an attractive margin on incremental
revenue from existing customers as well as revenue from new
customers. We also believe the current density of our routes
coupled with our
go-to-market
strategy of utilizing both third-party distributors and company
personnel to deliver products and perform services, provides us
sufficient capacity in our current route structure to
efficiently service additional customer locations with minimal,
if any, incremental infrastructure or personnel costs.
Acquisition
Growth
We believe our markets for chemical service, facility service,
and solid waste collection providers are highly fragmented with
many small, private local and regional businesses in each of our
core marketplaces. These independent market participants
generally are not able to benefit from economies of scale in
purchasing, offering a full range of products or services, or
providing the necessary level of support and customer service to
larger regional and national accounts within their specific
markets.
We believe the range of our product and service offerings in the
commercial hygiene and sanitation industries, coupled with our
national service infrastructure makes us the acquiror of
choice in the industry. As such, we believe that targeted
strategic acquisitions provide us the opportunity to increase
revenue of the acquired business or assets by providing access
to corporate accounts, access to additional products and
services, and access to our broader marketing strategy. In
addition, we believe these strategic acquisitions will result in
improved gross margin and route margin of the acquired revenue
through greater purchasing efficiencies, route consolidation,
and consolidation of back office and administrative support.
Our essential hygiene and sanitation solutions typically involve
providing our customers with: (i) consumable products such
as soap, paper, cleaning chemicals, detergents, and supplies,
together with the rental and servicing of dish machines and
other equipment for the dispensing of those products;
(ii) the rental of facility service items requiring regular
maintenance and cleaning, such as floor mats, mops, and bar
towels; (iii) manual cleaning of their facilities; and
(iv) solid waste collection services. We serve customers in
a wide range of end-markets, with a particular emphasis on the
foodservice, hospitality, retail, industrial, and healthcare
industries. Many of our products are consumable and require the
use of a dispensing system installed by us. Our services on
those systems are typically preventative in nature and are
required on a regularly scheduled basis. We strive to position
ourselves to customers as the one-stop-shop for the
full breadth of products and services we offer. We believe this
comprehensive approach to providing complete hygiene and
sanitation solutions to our customers, coupled with the rental,
installation, and service of dish machines and dispensing
equipment that provide rental income and require the use of our
products helps provide stability in our business and discourages
customers from switching vendors.
We typically enter into service agreements with various terms
with customers that outline the scope and frequency of services
we will provide, as well as the pricing of the products and
services the customer requires. Given that we typically install,
at no charge, dispensers for many of the consumable products we
sell to customers, our service agreements usually provide for an
early termination fee.
Our
History
Swisher International, Inc. was originally founded in 1986 as a
Nevada corporation. From our founding through 2004, we operated
primarily as a franchisor and licensor of restroom hygiene
services offering: (i) weekly cleaning and sanitizing
services of our customers restroom fixtures, along with
the restocking of soap and air freshener dispensers and
(ii) the sale of restroom paper products, such as toilet
paper and hand towels. We provided these services to a customer
base largely comprised of small, locally owned bars,
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restaurants, and retail locations. Franchisees had rights to use
the Swisher name and business processes in designated United
States and Canadian geographic markets typically ranging in size
from 500,000 to 3,000,000 persons. International licensees
had substantially similar rights in the respective countries in
which they operated. Although franchisees licensed the same
business model, the manner in which they executed and adopted
Swisher programs varied greatly, resulting in inconsistent
levels of service and differing product offerings across
geographic markets.
In November 2004, H. Wayne Huizenga and Steve Berrard acquired a
majority interest in Swisher, which at the time was a publicly
traded company. Subsequently, in May 2006, Messrs. Huizenga
and Berrard acquired the remaining outstanding shares of Swisher
and began operating Swisher as a private company.
The primary goal of acquiring ownership of Swisher was to
transition the business to take greater advantage of the Swisher
brand and nationwide service and distribution network, and to
better leverage the under-utilized platform to expand both
product and service offerings. Specifically,
Messrs. Huizenga and Berrard planned to transition the
Companys focus from generating revenue almost exclusively
from restroom cleaning services to building a full-service
provider of essential hygiene and sanitation solutions offering
a broad complement of products and services, addressing the
complete hygiene, cleaning and sanitation needs of our customers
throughout their facilities. We believed that such a transition
would provide Swisher with a competitive advantage, allowing us
to retain existing customers over time and provide them with
additional products and services that were essential to the
operations of their businesses. Moreover, we sought to leverage
Swishers national infrastructure with product offerings
and service expertise in core lines of products, including
cleaning chemicals, required by larger corporate customers
nationwide. In addition, we expanded from nice to
have services to essential products and
services and eliminated customers that were unprofitable. An
important component of this business strategy was the
acquisition of a sufficient number of franchise locations or
other similar businesses, providing us direct control over the
implementation of changes to a consistent business model.
In summary, our transition from a restroom cleaning services
business to a full service hygiene and sanitation solutions
provider offering a complete chemical and facility service
program has required significant investments. These investments
include through the date of this annual report:
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Acquisitions of 102 businesses, including 72 franchises;
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Replacement of management information systems;
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Introduction of delivery service vehicles;
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Addition of substantial industry experience throughout the
organization;
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Upgrade of branch facilities;
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Significant expansion of essential product lines and services to
include dust control and a complete chemical program; and
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Development of a corporate account and distributor sales
organization.
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As of December 31, 2010, we have both company-owned
locations and franchises located throughout the U.S. and
Canada and ten master license agreements covering the United
Kingdom (U.K.), Ireland, Portugal, the Netherlands,
Singapore, the Philippines, Taiwan, Korea, Hong
Kong/Macau/China, and Mexico.
The number of company-owned locations, franchises, and
international master licenses for the last five years ended
December 31, 2010 is as follows:
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2010
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2009
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2008
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2007
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2006
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Company-owned locations
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69
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60
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44
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47
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43
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Franchises
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10
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15
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35
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39
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45
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International Master Licenses(1)
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10
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10
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11
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11
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13
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(1) |
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Number of countries in which Swisher licensees operate. |
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Going forward, we will continue to expand our reach into
additional U.S. and Canadian geographic markets through
organic growth as well as acquisitions of independent chemical
distributors and other providers of essential hygiene,
sanitation and facility services, franchise repurchases,
execution of agreements with distributor partners. Additionally,
we will be opportunistic as it relates to acquiring or
partnering with complementary businesses that (i) can
provide us a competitive advantage; (ii) leverage, expand,
or benefit from our distribution network; or (iii) provide
us economies of scale or cost advantages over our existing
supply chain. Collectively, these efforts are centered on making
us an attractive alternative for larger customers in
foodservice, hospitality, healthcare, retail, and industrial
markets. In addition, we will seek to aggressively license our
business model internationally. Our success largely depends on
our ability to execute on these strategies and increase the
sales of our products and services to corporate accounts and
distribution partners.
The
Merger
On November 1, 2010, Swisher Hygiene redomiciled to
Delaware from Canada, where it had been a publicly-traded
corporation, listed on the Toronto Stock Exchange (the
TSX) under the name CoolBrands International Inc.
(CoolBrands), and trading under the symbol
COB. We refer to this event as the Redomestication.
CoolBrands was a Canadian company that historically focused on
marketing and selling a broad range of ice creams and frozen
snacks. Since the end of the 2005 financial year, subsidiaries
of CoolBrands disposed of a majority of CoolBrands
business operations. Since that time, CoolBrands principal
operations consisted of the management of its cash resources,
reviewing and considering potential opportunities to invest such
cash resources. CoolBrands held $61,850,226 in cash and cash
equivalents at the effective time of the Merger, as defined
below.
On November 2, 2010, one day after completion of the
Redomestication, CoolBrands Nevada, Inc. (CoolBrands
Nevada), a wholly-owned subsidiary of Swisher Hygiene,
merged with and into Swisher International, with Swisher
International continuing as the surviving corporation. We refer
to this event as the Merger.
In the Merger, the former stockholders of Swisher International
received 57,789,630 shares of Swisher Hygiene common stock,
representing, on a fully diluted basis, a 48% ownership interest
in Swisher Hygiene at such time. The stockholders of CoolBrands
retained 56,225,433 shares of Swisher Hygiene common stock,
representing, on a fully diluted basis, a 52% ownership interest
in Swisher Hygiene at such time. 55,789,632 of the shares issued
to former shareholders of Swisher International are subject to
lock-up
agreements. Pursuant to the
lock-up
agreements, the
locked-up
shareholders may not offer, sell, contract to sell or enter into
any other agreement to transfer the economic consequences of any
Swisher Hygiene shares for a period ending the earlier of
(i) the public release of Swisher Hygienes earnings
for the year ending December 31, 2011 or
(ii) March 31, 2012. Under the
lock-up
agreements, transfers may be made to family members, trusts and
similar entities for estate planning purposes, and to affiliated
entities that are wholly-owned by the transferring shareholder.
In each of these situations, the recipient of the shares must
execute an agreement stating that the recipient is receiving and
holding the shares subject to the provisions of the
lock-up
agreement. Shareholders subject to the
lock-up
agreement may also pledge the subject shares as collateral for
debt.
As a result of the Merger, Swisher International became a
wholly-owned subsidiary of Swisher Hygiene. Upon completion of
the Merger and the Redomestication, Swisher Hygiene inherited
the reporting issuer status of CoolBrands. Swisher
Hygienes shares of common stock began trading on the TSX
under the symbol SWI on November 4, 2010. As
CoolBrands was a reporting issuer (or equivalent) in each of the
provinces of Canada, Swisher Hygiene became a reporting issuer
in each of the provinces in Canada. On November 9, 2010, we
filed a Registration Statement on Form 10 (the
Form 10) with the Securities Exchange
Commission (the SEC).The Form 10 was deemed
effective on January 10, 2011, and since that date, we have
been a U.S. reporting company, subject to the reporting
requirements of the Securities Exchange Act of 1934, as amended
(the Exchange Act), and the rules and regulations
thereunder. On February 2, 2011, we
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began trading on The NASDAQ Stock Market LLC
(NASDAQ) under the ticker symbol SWSH.
Our common stock is currently listed on both the NASDAQ and TSX
exchanges.
The following chart shows the corporate structure of Swisher
Hygiene Inc. at March 28, 2011 and includes our key
subsidiaries and percentage ownership, all of which are wholly
owned.
Recent
Developments
Choice
Acquisition
On February 13, 2011, we entered into an Agreement and Plan
of Merger (the Choice Agreement) by and among
Swisher Hygiene, Swsh Merger Sub, Inc., a Florida corporation
and wholly-owned subsidiary of Swisher Hygiene, Choice
Environmental Services, Inc., a Florida corporation
(Choice), and other parties, as set forth in the
Choice Agreement. The Choice Agreement provided for the
acquisition of Choice by Swisher Hygiene by way of merger.
In connection with the proposed merger with Choice, on
February 23, 2011, we entered into an agency agreement,
which the agents agreed to market, on a best efforts basis
12,262,500 subscription receipts (Subscription
Receipts) at a price of $4.80 per Subscription Receipt for
gross proceeds of up to $58,859,594. Each Subscription Receipt
entitled the holder to acquire one share of our common stock,
without payment of any additional consideration, upon completion
of our acquisition of Choice.
On March 1, 2011, we closed the acquisition of Choice and
issued approximately 8.3 million shares of our common stock
to the former shareholders of Choice and assumed approximately
$40.9 million in debt, which $39.2 million was paid
down with proceeds from the private placement of the
Subscription Receipts. In addition, certain shareholders of
Choice received $5.7 million in cash and warrants to
purchase an additional 0.9 million shares at an exercise
price of $6.21.
On March 1, 2011, in connection with the closing of the
acquisition of Choice, the 12,262,500 Subscription Receipts were
exchanged for 12,262,500 shares of our common stock. We
agreed to use commercially reasonable efforts to file a resale
registration statement with the SEC relating to the shares of
common stock underlying the Subscription Receipts. If the
registration statement is not filed or declared effective within
specified time periods, or if it ceases to be effective for
periods of time exceeding certain grace periods, the initial
subscribers of Subscription Receipts will be entitled to receive
an additional 0.1 share of common stock for each share of
common stock underlying Subscription Receipts held by any such
initial subscriber at that time.
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Choice has been in business since 2004 and serves more than
150,000 residential and 7,500 commercial customers in the
Southern and Central Florida regions through its
320 employees and over 150 collection vehicles by offering
a complete range of solid waste and recycling collection,
transportation, processing and disposal services. Choice
operates six hauling operations, three transfer and materials
recovery facilities. Refer to Note 16 to the Notes to
Consolidated Financial Statements for the preliminary purchase
price allocation and supplemental pro forma financial
information for 2010.
Private
Placement
On March 22, 2011, we entered into a series of arms
length securities purchase agreements to sell
12,000,000 shares of our common stock at a price of $5.00
per share, for aggregate proceeds of $60,000,000 to certain
funds of a global financial institution (the Private
Placement). We intend to use the proceeds from the Private
Placement to further our organic and acquisition growth
strategy, as well as for working capital purposes.
On March 23, 2011, we closed the Private Placement and
issued 12,000,000 shares of our common stock. Pursuant to
the securities purchase agreements, the shares of common stock
issued in the Private Placement may not be transferred on or
before June 24, 2011 without our consent. We agreed to use
our commercially reasonable efforts to file a resale
registration statement with the SEC relating to the shares of
common stock sold in the Private Placement. If the registration
statement is not filed or declared effective within specified
time periods, the investors will be entitled to receive
liquidated damages in cash equal to one percent of the original
offering price for each share that at such time remains subject
to resale restrictions.
Additional
Acquisitions and Promissory Note Conversion
During 2011, in addition to the Choice acquisition, we acquired
several smaller businesses. While the terms, price, and
conditions of each of these acquisitions were negotiated
individually, consideration to the sellers typically consists of
a combination of cash, convertible promissory notes having an
interest rate of 4% with maturities of up to 12 months, our
common stock, and earn-out provisions. Aggregate consideration
paid for the acquired businesses was approximately $15,700,000
consisting of $4,800,000 in cash and $7,125,000 in convertible
promissory notes, a $275,000 promissory note, and 380,727 shares
of our common stock, plus potential earn-outs of up to
$1,190,000. In addition, in March 2011, we entered into an asset
purchase agreement to purchase a solid waste services provider
based in Miami, Florida for a total purchase price of
approximately $10 million, consisting of $5,000,000 in cash
and 909,090 shares of our common stock. This transaction is
expected to close on April 1, 2011.
In addition during 2011, a $5,000,000, 6% convertible promissory
note issued in November 2010 as part of the consideration paid
for an acquisition was fully converted to 1,312,864 shares
of our common stock.
New
Credit Facility
On March 30, 2011, we entered into a $100 million senior
secured revolving credit facility with Wells Fargo. Under the
new credit facility, Swisher Hygiene has initial borrowing
availability of $32.5 million, which we expect will
increase to the fully committed $100 million upon delivery
of our unaudited quarterly financial statements for the quarter
ended March 31, 2011. Borrowings under the facility are
secured by a first priority lien on substantially all our
existing and hereafter acquired assets, including
$25 million of cash on borrowings in excess of
$75 million.
Interest on borrowings under the credit facility accrues at
London Interbank Offered Rate (LIBOR) plus 2.5% to
4.0%, depending on the ratio of senior debt to Consolidated
EBITDA (as such term is defined in the credit agreement), and
interest is payable no more frequently than monthly on all
outstanding borrowings. The credit facility matures on
July 31, 2013.
Borrowings and availability under the credit facility are
subject to compliance with financial covenants, including
achieving specified Consolidated EBITDA targets and maintaining
specified leverage and liquidity ratios. The credit facility
also places restrictions on our ability to incur additional
indebtedness, make certain
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acquisitions, create liens or other encumbrances, sell or
otherwise dispose of assets, and merge or consolidate with other
entities.
Our obligations under the credit facility are guaranteed by all
our domestic subsidiaries and secured by all the assets and
stock of our domestic subsidiaries and substantially all of the
stock of our foreign subsidiaries. The new credit facility
replaces our current aggregated $25 million credit
facilities, which are discussed in Note 6 to the Notes to
Consolidated Financial Statements.
Our
Market
We compete in many markets, including institutional and
industrial cleaning chemicals, foodservice chemicals, restroom
hygiene and supply services, paper, and other facility products
and services, including floor mats and other facility service
rental items, as well as solid waste collection. In each of
these markets, there are numerous participants ranging from
large multi-national companies to local and regional
competitors. The focus of our company-owned operations remains
the U.S. and Canada; however, we may pursue new
international opportunities in the future through additional
licensing, joint ventures, or other forms of company expansion.
Based on our analysis of publicly available industry research
and trade reports, as well as our competitors public
filings, we estimate that the combined addressable market in the
U.S. and Canada for the products and services we currently
offer exceeds $92.8 billion, in aggregate, as the pie chart
and corresponding table below highlights.
Current
Addressable U.S. and Canadian Market(1)
$92.8 billion
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(1) |
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We consider the addressable market as our estimate
of the aggregate market potential of the products and services
we currently offer and is not necessarily indicative of the
actual market size today. |
We believe our primary competitors in our legacy hygiene
services, paper, and facilities service rental market are large
facility service and uniform providers, as well as numerous
small local and regional providers, many of whom may focus on
one particular product offering, such as floor mat rentals. The
paper distribution market for the customers we target not only
has competition among the providers listed above, but also from
the foodservice, broad-line and janitorial-sanitation
distributors.
We believe the chemical, institutional, and industrial cleaning
chemical market is addressed both by large manufacturers as well
as a number of local and regional competitors. However, we
believe that we are one of the only competitors to maintain the
service employees necessary to effectively service national and
regional restaurant and other
multi-unit
facilities.
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We believe the solid waste industry is addressed by a few large,
national publicly owned companies, as well as several regional
publicly and privately owned solid waste companies, and a number
of small privately owned companies. In any given market,
competitors may have larger operations and greater resources
than we have. The competition for collection accounts is
primarily on the basis of price and the quality of services
offered. From time to time, competitors may reduce the price of
their services in an effort to expand market share or to win a
competitively bid contracts. Reducing the price of our service
to better compete in these markets may have an adverse impact on
our future revenue and profitability.
Our
Products and Services
We provide products and services to end-customers, through our
company-owned locations, and to our franchisees and licensees.
While we report sales to and royalty revenue from franchisees
and licensees separately, we utilize the same administrative and
management personnel to oversee the daily operations of our
company-owned operations, franchisees, and licensees.
Chemical sales, which include our laundry, ware washing, and
concentrated and
ready-to-use
chemical products and cleaners, and soap, accounted for 29.9%,
18.2% and 10.8% of consolidated revenue in 2010, 2009 and 2008,
respectively. The sale of paper items, including hand towels and
tissue paper accounted for 19.4%, 20.3% and 19.9%, of
consolidated net sales in 2010, 2009 and 2008, respectively. The
service component of our hygiene and facility service offering,
which includes both the manual cleaning services as well as
service delivery fees, represented 27.9%, 29.2% and 31.0% of
consolidated revenue in 2010, 2009 and 2008, respectively. The
rental and other component of our business consists of rental
fees and ancillary other product sales and represented 9.9%,
9.6% and 9.8% of consolidated net sales in the 2010, 2009 and
2008, respectively. We anticipate that over time, our revenue
from chemical sales will grow at a faster rate than any of our
other product lines.
Hygiene
and Facility Service
Our legacy business was restroom hygiene, offering a regularly
scheduled service that typically included cleaning the bowls,
urinals, and sinks in a restroom, the application of a germicide
to such surfaces to inhibit bacteria growth, and the restocking
of air-fresheners and soap dispensers, all for a fixed weekly
fee. Additionally, we managed the customers restroom paper
needs by providing and installing the tissue and hand towel
dispensers, and selling and re-stocking the paper in such
dispensers on an as-needed basis. This entire offering was
intended to supplement the daily janitorial or custodial
requirements of our customers and free customers from purchasing
and securing an inventory of paper products.
From 2004 through 2009, we greatly modified and expanded our
hygiene and facility service business by un-bundling, where
appropriate, the air-freshener and soap sales from the overall
service price in order to economically provide more hygienic and
sanitary single use products. We also introduced a more complete
line of specialized soaps as well as various grades of paper and
associated dispensing options, including hands-free soap
dispensers. Additionally, we introduced a number of new
complementary products and solutions required by our customers
both inside and outside of restrooms, including power washing of
restrooms and other areas, and the rental and cleaning of floor
mats, mops, and linens.
These products and services are delivered to customers by our
employees in company vehicles. We utilize GPS technology to
monitor various driving habits, mileage, and vehicle diagnostic
information. In several markets, we operate our own laundry
processing facilities to maintain and clean rental items such as
floor mats, mops, and linens, while, in other markets where we
offer dust control, we outsource the processing to third parties.
Chemicals
Since early 2009, we have placed particular emphasis on the
development of our chemical offering, particularly as it relates
to ware washing and laundry solutions. Ware washing products
consist of cleaners and sanitizers for washing glassware,
flatware, dishes, foodservice utensils, and kitchen equipment,
while laundry products include detergents, stain removers,
fabric conditioners, softeners, and bleaches in liquid, powder,
and
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concentrated forms to clean items such as bed linen, clothing,
and table linen. Our ware washing and laundry solutions are
designed to address the needs of small and large customers
alike, ranging from single store operators to
multi-unit
chains and large resorts. We often consult with customers that
may have specialized needs or require custom programs to address
different fabric or soil types. For ware washing customers, we
sell, rent, lease, or make available, as well as install and
service, dishwashing machines, pre-rinse units, chemical
dispensing units, dish tables and racks, food handling and
storage products, and parts. Customers using our laundry
services are offered various dispensing systems. We enter into
service agreements with customers using our chemical services to
which we rent or lease equipment pursuant to which we provide
24 hour, seven
days-a-week
customer service, and perform regularly scheduled preventative
maintenance. Typically, these agreements require customers to
purchase from us all of the products used in the rented
equipment. The chemicals themselves may be delivered to the
customer by a Swisher technician or one of our distributor
partners; however, the service and maintenance is provided by a
Swisher technician. We also provide a full line of concentrated
and
ready-to-use
chemicals and cleaning products. This product line includes
general purpose cleaners, disinfectants, detergents, oven and
grill cleaners, general surface degreasers, floor cleaners, and
specialty cleaning products, which when in concentrated form,
benefit from the use of a dilution system to ensure the proper
mix of chemicals for safe and effective use.
Waste
Collection
Our most recent strategic initiative is the entry into the
sanitation market place with our March 2011 acquisition of
Choice, a solid waste collection business, discussed in more
detail in the Recent Developments section of this annual report.
Solid waste collection involves picking up and transporting
waste and recyclable materials from where they were generated to
a transfer station, material recovery facility or disposal site.
We generally provide collection services under one of two types
of arrangements:
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For commercial and industrial collection services, typically we
operate under a fixed period service agreement. The fees under
the agreements are influenced by factors such as collection
frequency, type of collection equipment we furnish, type and
volume or weight of the waste collected, distance to the
disposal facility, labor costs, cost of disposal and general
market factors. As part of the service, we provide steel
containers to most customers to store their solid waste between
pick-up
dates. Containers vary in size and type according to the needs
of our customers and the restrictions of their communities. Many
are designed to be lifted mechanically and either emptied into a
trucks compaction hopper or directly into a disposal site.
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For residential collection services, we have a contract with, or
a franchise granted by, a municipality, homeowners
association or some other regional authority that gives us the
exclusive right to service all or a portion of the homes in an
area. These contracts or franchises are typically for periods of
3 years to 8 years and generally include an option to
renew. We also provide services under individual monthly
subscriptions directly to households. The fees for residential
collection are either paid by the municipality or authority from
their tax revenue or service charges, or are paid directly by
the residents receiving the service.
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The addition of this service expands our ability to offer our
customer the broadest portfolio of hygiene and sanitation
related company-owned operations products and services. On a pro
forma basis, as presented in Note 16 of the Notes to
Consolidated Financial Statements, solid waste collections
accounts for in excess of 40% of our 2010 pro forma revenue.
Franchise
Operations
As of March 28, 2011, we had 6 franchises located
throughout the U.S. and Canada as well as 10 master
licensees operating in the U.K., Ireland, Portugal, the
Netherlands, Singapore, the Philippines, Taiwan, Korea, Hong
Kong/Macau/China, and Mexico.
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We collect royalty, marketing,
and/or
business service fees from our franchisees and licensees in
exchange for maintaining and promoting the Swisher marks,
continuing to develop the Swisher offering, managing vendors and
sourcing new products, marketing and selling Swisher services to
prospective customers that may have locations in franchise
territories, and providing various ancillary services, including
billing and collections on their behalf. Franchisees are
obligated to buy most of the products used in their business
from us. Further discussion of revenue received from our
franchisees and licensees, including royalties, revenue from
product sales, and business service fees, is included in
Managements Discussion and Analysis of Financial Condition
and Results of Operations, included in this annual report.
Sales and
Distribution
We market and sell our products and services primarily through:
(i) our field sales group, including the service
technicians, which pursues new customers and offers existing
customers who typically operate single or several smaller
locations additional products and service; (ii) our
corporate account sales team, which focuses on larger regional
or national customers in the markets previously identified;
(iii) independent third-party distributor partners; and
(iv) our franchise agreements with municipalities.
Selling to a new corporate account is an involved and lengthy
process that includes either displacing an existing supplier of
the products and services or working with the customer to
centralize and consolidate disparate purchasing decisions. These
prospective customers often go through a vendor qualification
process that may involve multiple criteria, and we often work
with them in various test locations to validate both product
efficacy and our ability to deliver the services on a national
level. Additionally, large corporate accounts may operate via a
franchise network of their own; the selection process with such
corporate accounts may only result in a vendor qualification
allowing us the right to sell our products and services to their
franchisees. We believe that as we continue to grow, the time to
close such sales or qualify as a provider to franchisees of
corporate account prospects will shorten. To date, we have been
in vendor qualification processes with larger accounts that have
ranged from less than three months to over 12 months.
Contract terms on corporate account customers typically range
from three to five years and we generally provide all services
to these accounts, although our larger corporate accounts may
request that we deliver the consumable products through specific
distribution partners with whom they coordinate the delivery and
procurement of other products.
We believe expanding our distributor program provides additional
opportunities for organic growth. Sales to and through
distributors are targeted toward regional and local foodservice
and other distributors that are seeking not only to increase the
revenue and margin they can drive by increasing the number of
products they deliver to each customer, but also to provide such
distributors a hook into customers that reduces
their customer attrition. Foodservice distribution is a highly
competitive business operating on low margins and with minimal
switching costs for their customers, who generally only purchase
commodities and widely manufactured consumables. We work with
distributors as their chemical supplier, dispensing product, and
dish machine provider, including the service arm required for
such equipment. As such, the distributor can typically earn a
higher profit margin on the chemicals it sells to end customers
as compared to its food items. Moreover, a distributor partner
is then able to market to its end customers the
service required to maintain their dish machines and
chemical dispensing equipment. This service is provided by
Swisher and documented under a separate contract between Swisher
and the end customer. In effect, by Swisher partnering to be the
service arm for the distributor, we help to generate demand for
our rental equipment and our consumable products, while
providing the distributor a competitive advantage. We contract
with distributors on an exclusive or non-exclusive basis,
depending on the markets they serve and the size of their
customer base.
With the exception of product sales delivered via distributors,
and select remote markets in the northern plains states,
including North and South Dakota, and Montana, the majority of
our services and products in the U.S. are delivered through
delivery vehicles operated by company-owned branches and
franchisees. Our field-based sales force focuses its efforts on
increasing route density and lowering the average time and
distance traveled between stops, thereby reducing the average
cost per delivery and optimizing fixed cost absorption.
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Customer
Dependence
Our business is not materially dependent upon a single customer,
and no one customer accounts for 10% or more of our consolidated
revenue. Our customer base ranges from large multi-national
companies to entrepreneurs who operate a single location. We
believe more than 50% of our revenue is attributable to
customers we consider as foodservice and hospitality related
customers, including quick-service and full-service restaurants.
Sources
and Availability of Raw Materials
We currently conduct limited manufacturing operations and
primarily purchase the products we sell from third-party
manufacturers and suppliers with whom we believe we have good
relations. Most of the items we sell are readily available from
multiple suppliers in the quantities and quality acceptable to
both us and our customers. We do not have any minimum annual or
other periodic purchase requirements with any vendors for any of
the finished products we use or sell. We are not currently party
to any agreement, including with our chemical manufacturer,
where we bear the commodity risk of the raw materials used in
manufacturing; however, nothing prevents (i) the vendor
from attempting to pass through the incremental costs of raw
materials or (ii) us from considering alternative suppliers
or vendors. We believe the raw materials used by the
manufacturers of the products we currently sell, including
petroleum-based surfactants, detergents, solvents, chlorine,
caustic soda, and paper, are readily available; however, pricing
pressure or temporary shortages may from time to time arise,
resulting in increased costs and, we believe, under extreme
conditions only, a loss in revenue from our inability to sell
certain products.
We purchased 76.7% and 43.4% of the chemicals required for
company-owned operations in 2010 and 2009, respectively, from
one supplier that operates from a single manufacturing location.
We have contingency plans to outsource production to other
parties in the event that we need to, which we believe could
mitigate any disruptions in the supply of chemicals from this
supplier.
Patents
and Trademarks
We maintain a number of trademarks in the U.S., Canada and in
certain other countries. We believe that many of these
trademarks, including Swisher, the
Swisher design, the Swisher Hygiene
design, and the S design are important to our
business. Our trademark registrations in the U.S. are
renewable for ten-year successive terms and maintenance filings
must be made as follows:
(i) for Swisher by January 2014, (ii) for
the Swisher design by January 2013, (iii) for
the Swisher Hygiene design by April 2015, and
(iv) for the S design by February 2012. In
Canada, we have agreed not to: (i) use the word SWISHER in
association with any wares/services relating to or used in
association with residential maid services other than as
depicted in our trademark application and (ii) use the word
SWISHER with our S design mark or by itself as a
trade mark at any time in association with wares/services
relating to or used in association with cleaning and sanitation
of restrooms in commercial buildings. Thus, our franchisees
operate as
SaniService®
in Canada. We own, have registered, or have applied to register
the Swisher trademark in every other country in which our
franchisees or licensees operate.
While most of the chemical products we sell have Swisher-branded
labeling and product names, we do not currently own or have
exclusive rights to their formulae. We believe the chemical
manufacturing industry has a sufficient number of both contract
and tolling manufacturers, many of whom have their own formulas
or chemists on staff, to provide us sufficient access to
products to support our business.
Seasonality
In the aggregate, our business is typically not seasonal in
nature, with revenue occurring relatively evenly throughout the
year. However, our operating results may fluctuate from quarter
to quarter or year to year due to factors beyond our control,
including unusual weather patterns or other events that
negatively impact the foodservice and hospitality industries.
The majority of our customers are in the restaurant or
hospitality
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industries, and the revenue we earn from these customers is
directly related to the number of patrons they service. As such,
events adversely affecting the business of the customer may have
an adverse impact on our business.
Regulatory
and Environmental
We are subject to numerous U.S. federal, state, local, and
foreign laws that regulate the manufacture, storage,
distribution, transportation, and labeling of many of our
products, including all of our disinfecting, sanitizing, and
antimicrobial products. Operating and other permits, licenses
and other approvals generally are required for transfer
stations, certain solid waste collection vehicles, fuel storage
tanks and other facilities such as production and warehouse
facilities, and operations. In the event of a violation of these
laws, we may be liable for damages and the costs of remedial
actions, and may also be subject to revocation, non-renewal, or
modification of our operating and discharge permits and
revocation of product registrations. Federal, state and local
laws and regulations vary, but generally govern wastewater or
storm water discharges, air emissions, the handling,
transportation, treatment, storage and disposal of hazardous and
non-hazardous waste, and the remediation of contamination
associated with the release or threatened release of hazardous
substances. These laws and regulations provide governmental
authorities with strict powers of enforcement, which include the
ability to revoke or decline to renew any of our operating
permits, obtain injunctions, or impose fines or penalties in the
event of violations, including criminal penalties. The
U.S. Environmental Protection Agency (EPA) and
various other federal, state and local authorities administer
these regulations.
We strive to conduct our operations in compliance with
applicable laws, regulations and permits. However, we cannot
assure you that citations and notices will not be issued in the
future despite our regulatory compliance efforts.While we have
not yet been subject to any such action, any revocation,
non-renewal, or modification that may require us to cease or
limit the sale of products from one or more of our facilities
and may have a material adverse effect on our business,
financial condition, results of operations, and cash flows. The
environmental regulatory matters most significant to us are
discussed below.
Product
Registration and Compliance
Various U.S. federal, state, local, and foreign laws and
regulations govern some of our products and require us to
register our products and to comply with specified requirements.
In the U.S., we must register our sanitizing and disinfecting
products with the EPA. When we register these products, or our
registered supplier if we are subregistering, we must also
submit to the EPA information regarding the chemistry,
toxicology, and antimicrobial efficacy for the agencys
review. Data must be identical to the claims stated on the
product label. In addition, each state where these products are
sold requires registration and payment of a fee.
Numerous U.S. federal, state, local, and foreign laws and
regulations relate to the sale of products containing
ingredients such as phosphorous, volatile organic compounds, or
other ingredients that may impact human health and the
environment. Specifically, the State of California has enacted
Proposition 65, which requires us to disclose specified
ingredient chemicals on the labels of our products. To date,
compliance with these laws and regulations has not had a
material adverse effect on our business, financial condition,
results of operations, or cash flows.
Federal
Regulation
The following summarizes the primary federal environmental and
occupational health and safety-related statutes that affect our
facilities and operations:
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The Solid Waste Disposal Act, including the Resource
Conservation and Recovery Act (RCRA). RCRA
establishes a framework for regulating the handling,
transportation, treatment, storage and disposal of hazardous and
non-hazardous solid waste, and requires states to develop
programs to ensure the safe disposal of solid waste in sanitary
landfills.
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Subtitle D of RCRA establishes a framework for regulating the
disposal of municipal solid waste. Regulations under Subtitle D
currently include minimum comprehensive solid waste management
criteria and guidelines. Our failure to comply with the
implementation of federal environmental requirements by state
and local authorities at any of our locations may lead to
temporary or permanent loss of an operating permit, which would
result in costs in connection with securing new permits and
reduced revenue from lost operational time.
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The Comprehensive Environmental Response, Compensation and
Liability Act of 1980 (CERCLA). CERCLA, among
other things, provides for the cleanup of sites from which there
is a release or threatened release of a hazardous substance into
the environment. CERCLA may impose strict joint and several
liability for the costs of cleanup and for damages to natural
resources upon current owners and operators of a site, parties
who were owners or operators of a site at the time the hazardous
substances were disposed of, parties who transported the
hazardous substances to a site, and parties who arranged for the
disposal of the hazardous substances at a site. Under the
authority of CERCLA and its implementing regulations, detailed
requirements apply to the manner and degree of investigation and
remediation of facilities and sites where hazardous substances
have been or are threatened to be released into the environment.
Liability under CERCLA is not dependent on the existence or
disposal of only hazardous wastes, but also can be
based upon the existence of small quantities of more than 700
substances, characterized by the EPA as
hazardous many of which are found in common
household waste.
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Among other things, CERCLA authorizes the federal government to
investigate and remediate sites at which hazardous substances
have been or are threatened to be released into the environment
or to order persons potentially liable for the cleanup of the
hazardous substances to do so themselves. In addition, the EPA
has established a National Priorities List of sites at which
hazardous substances have been or are threatened to be released
and which require investigation or cleanup.
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CERCLA liability is strict liability. It can be founded upon the
release or threatened release, even as a result of
unintentional, non-negligent or lawful action, of hazardous
substances, including very small quantities of such substances.
Thus, even if we have never knowingly transported or received
hazardous waste, it is likely that hazardous substances have
been deposited or released at landfills or other
facilities owned by third parties to which we have transported
waste. Therefore, we could be liable under CERCLA for the cost
of cleaning up such hazardous substances at such sites and for
damages to natural resources. The costs of a CERCLA cleanup can
be very expensive and can include the costs of disposing
remediation wastes at appropriately-licensed facilities. Given
the difficulty of obtaining insurance for environmental
impairment liability, such liability could have a material
impact on our business, financial condition, results of
operations and cash flows.
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The Federal Water Pollution Control Act of 1972 (the
Clean Water Act). This act regulates the discharge
of pollutants from a variety of sources, including solid waste
disposal sites, into streams, rivers and other waters of the
United States. Runoff from our transfer stations that is
discharged into surface waters through discrete conveyances must
be covered by discharge permits that generally require us to
conduct sampling and monitoring, and, under certain
circumstances, to reduce the quantity of pollutants in those
discharges. Storm water discharge regulations under the Clean
Water Act require a permit for certain construction activities
and for runoff from industrial operations and facilities, which
may affect our operations. If a transfer station discharges
wastewater through a sewage system to a publicly owned treatment
works, the facility must comply with discharge limits imposed by
that treatment works.
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The Clean Air Act. The Clean Air Act imposes
limitations on emissions from various sources, including our
vehicle fleet.
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Occupational Safety and Health Act. The
Occupational Safety and Health Act of 1970, as amended
(OSHA), establishes certain employer
responsibilities, including maintenance of a workplace free of
recognized hazards likely to cause death or serious injury,
compliance with standards promulgated by
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OSHA, and various record keeping, disclosure, and procedural
requirements. Various OSHA standards may apply to our operations.
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State
and Local Regulation
Each state in which we operate has its own laws and regulations
governing solid waste disposal, water and air pollution, and, in
most cases, releases and cleanup of hazardous substances and
liabilities for such matters. States also have adopted
regulations governing the design, operation, maintenance and
closure of transfer stations. Some counties, municipalities and
other local governments have adopted similar laws and
regulations. Our facilities and operations are likely to be
subject to these types of requirements. In addition, our
operations may be affected by the trend toward requiring the
development of solid waste reduction and recycling programs. For
example, several states have enacted laws that require counties
or municipalities to adopt comprehensive plans to reduce,
through solid waste planning, composting, recycling or other
programs, the volume of solid waste deposited in landfills.
Additionally, laws and regulations restricting the disposal of
certain waste in solid waste landfills, including yard waste,
newspapers, beverage containers, unshredded tires, lead-acid
batteries, electronic wastes and household appliances, have been
promulgated in several states and are being considered in
others. Legislative and regulatory measures to mandate or
encourage waste reduction at the source and waste recycling also
have been or are under consideration by the U.S. Congress
and the EPA.
Other
Regulations
Many of our facilities own and operate aboveground storage tanks
that are generally used to store petroleum-based products. These
tanks are generally subject to federal, state and local laws and
regulations that mandate their permitting, containment, closure
and removal. In the event of leaks or releases from these tanks,
these regulations require that polluted groundwater and soils be
remediated. We believe that all of our storage tanks meet all
applicable regulations.
With regard to our solid waste transportation operations, we are
subject to the jurisdiction of the Surface Transportation Board
and are regulated by the Federal Highway Administration, Office
of Motor Carriers, and by regulatory agencies in states that
regulate such matters. Various state and local government
authorities have enacted or promulgated, or are considering
enacting or promulgating, laws and regulations that would
restrict the transportation of solid waste across state, county,
or other jurisdiction lines. In 1978, the U.S. Supreme
Court ruled that a law that restricts the importation of
out-of-state
solid waste is unconstitutional; however, states have attempted
to distinguish proposed laws from those involved in and
implicated by that ruling. In 1994, the Supreme Court ruled that
a flow control law, which attempted to restrict solid waste from
leaving its place of generation, imposes an impermissible burden
upon interstate commerce, and, therefore, is unconstitutional.
In 2007, the Supreme Court upheld the right of a local
government to direct the flow of solid waste to a publicly owned
and publicly operated waste facility. A number of county and
other local jurisdictions have enacted ordinances or other
regulations restricting the free movement of solid waste across
jurisdictional boundaries. Other governments may enact similar
regulations in the future. These regulations may, in some cases,
cause a decline in volumes of waste delivered to our transfer
stations and may increase our costs of disposal, thereby
adversely affecting our operations.
Employees
As of March 28, 2011, we had 1,077 employees, which
includes 311 employees associated with our acquisition of
Choice. We are not a party to any collective bargaining
agreement and have never experienced a work stoppage. We
consider our employee relations to be good.
15
Executive
Officers of the Registrant
Our executive officers and additional information concerning
them are as follows:
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Name
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Position
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Age
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Steven R. Berrard
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Director, President and Chief Executive Officer
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Thomas Aucamp
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Executive Vice President and Secretary
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Thomas Byrne
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Executive Vice President
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Hugh H. Cooper
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Chief Financial Officer and Treasurer
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Steven R.
Berrard
Director,
President and Chief Executive Officer
Mr. Berrard has served as Chief Executive Officer and a
director of Swisher International, which we acquired in the
Merger, since 2004. Mr. Berrard is currently a director and
Audit and Compensation Committee member of Walter Investment
Management Corp., and director of Pivotal Fitness.
Mr. Berrard served as the Managing Partner of private
equity fund New River Capital Partners, which he co-founded
in 1997, from 1997 to 2011. Throughout most of the 1980s,
Mr. Berrard served as President of Huizenga Holdings, Inc.
as well as in various positions with subsidiaries of Huizenga
Holdings. He has served as Chief Executive Officer of
Blockbuster Entertainment Group (a division of Viacom, Inc.),
Chief Executive Officer and Chairman of Jamba, Inc. (parent
company of Jamba Juice Company), and co-founded and served as
co-Chief Executive Officer of retail automotive industry leader
AutoNation, Inc. Mr. Berrard has served as a director of
numerous public and private companies including Viacom, Inc.,
AutoNation, Inc., Boca Resorts, Inc., Birmingham Steel Inc.,
Blockbuster Entertainment Group, Republic Industries Inc. and
HealthSouth Corp.
Mr. Berrard is an experienced executive officer and
director of public companies with relevant industry knowledge
and skills necessary to serve as a director. Mr. Berrard
developed the relevant industry experience and expertise while
serving as the Chief Executive Officer and director of the
company over the last six years. He combines this experience and
expertise with experience as a public company director through
his board memberships at Jamba, Inc., Walter Investment
Management Corp., HealthSouth Corp., Birmingham Steel Inc., Boca
Resorts, Inc. and Viacom, Inc. Mr. Berrard also has
experience and knowledge leading public companies from the early
stages of development to the position of an industry leader
based on his work with AutoNation, Inc., Republic Industries
Inc. and Blockbuster Entertainment Group.
Thomas
Aucamp
Executive
Vice President and Secretary
Mr. Aucamp has served as Executive Vice President of
Swisher International since 2006. He brings public equity,
business development and management experience to Swisher.
Mr. Aucamp is also a Partner of New River Capital Partners,
a private equity fund, which he co-founded in 1997.
Mr. Aucamp was a founder, Vice President, and on the board
of directors of Services Acquisition Corp. International from
its initial public offering in 2005 through its merger with
Jamba Juice, Inc. in 2006. Previously, Mr. Aucamp was Vice
President of Corporate Development and Strategic Planning for
Blockbuster Entertainment Group and prior to joining Blockbuster
in 1995, he was in the mergers and acquisitions department of
W.R. Grace & Co., Inc.
Thomas
Byrne
Executive
Vice President
Mr. Byrne has served as Executive Vice President of Swisher
International since 2004 and Director of Swisher International
from 2004 until the Merger. He has served as a director of
numerous public and private companies and brings experience in
public equity investment and accounting to Swisher.
Mr. Byrne is a director of Certilearn, Inc., ITC Learning,
Pivotal Fitness and the Private Equity Committee of the
University of Florida Foundation, and has also served as a
director of Jamba, Inc. Previously, Mr. Byrne was
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Administrative Partner of New River Capital Partners, a private
equity fund, which he co-founded in 1997, Vice Chairman of
Blockbuster Entertainment Group (a division of Viacom, Inc.) and
was also President of the Viacom Retail Group. Additionally,
from 1984 to 1988 Mr. Byrne was employed by KPMG Peat
Marwick.
Hugh H.
Cooper
Chief
Financial Officer and Treasurer
Mr. Cooper has served as Chief Financial Officer and
Treasurer of Swisher International since 2005. Prior to joining
Swisher, Mr. Cooper co-founded CoreVision Strategies, an
enterprise that works with companies to create and implement
successful financial and management strategies. Mr. Cooper
has over 33 years of diverse general management, operations
and accounting experience in a variety of industries. During the
saving and loan crisis, from 1983 to 1987, Mr. Cooper
provided nationwide management and consulting services to the
Resolution Trust Corporation, assisting regulators with the
management and disposition of several financial institutions.
Mr. Cooper was employed by Deloitte LLP, then Haskins and
Sells. Mr. Cooper has a B.S. in Accounting from Florida
Atlantic University.
Our business, financial condition, results of operations,
cash flows and prospects, and the prevailing market price and
performance of our common stock, may be adversely affected by a
number of factors, including the matters discussed below.
Certain statements and information set forth in this annual
report, as well as other written or oral statements made from
time to time by us or by our authorized officers on our behalf,
constitute forward-looking statements within the
meaning of the Federal Private Securities Litigation Reform Act
of 1995. We intend for our forward-looking statements to be
covered by the safe harbor provisions for forward-looking
statements contained in the Private Securities Litigation Reform
Act of 1995. You should note that forward-looking statements in
this document speak only as of the date of this annual report
and we undertake no duty or obligation to update or revise our
forward-looking statements, whether as a result of new
information, future events or otherwise. Although we believe
that the expectations, plans, intentions and projections
reflected in our forward-looking statements are reasonable, such
statements are subject to risks, uncertainties and other factors
that may cause our actual results, performance or achievements
to be materially different from any future results, performance
or achievements expressed or implied by the forward-looking
statements. The risks, uncertainties and other factors that our
stockholders and prospective investors should consider include
the following:
We
have a history of significant operating losses and as such our
future revenue and operating profitability are
uncertain.
Our future revenue and operating profitability are difficult to
predict and are uncertain. We recorded an operating loss of
$15.1 million for the year ended December 31, 2010 and
have accumulated operating losses of $64.6 million since
January 1, 2005. In addition, we recorded operating losses
of approximately $6.8 million and $10.4 million for
the years ended December 31, 2009 and 2008, respectively.
We may continue to incur operating losses for the foreseeable
future, and such losses may be substantial. We will need to
increase revenue in order to generate sustainable operating
profit. Given our history of operating losses, we cannot assure
you that we will be able to achieve or maintain operating
profitability on an annual or quarterly basis or at all.
We may
be harmed if we do not penetrate markets and grow our current
business operations.
If we fail to further penetrate our core and existing geographic
markets, or to successfully expand our business into new markets
or through the right sales channels, the growth in sales of our
products and services, along with our operating results, could
be materially adversely impacted. One of our key business
strategies is to grow our business through acquisitions.
Acquisitions involve many different risks, including
(1) the ability to finance acquisitions, either with cash,
debt, or equity issuances; (2) the ability to integrate
acquisitions; (3) the ability to realize anticipated
benefits of the acquisitions; (4) the potential to incur
17
unexpected costs, expenses, or liabilities; and (5) the
diversion of management attention and company resources. Many of
our competitors may also compete with us for acquisition
candidates, which can increase the price of acquisitions and
reduce the number of available acquisition candidates. We cannot
assure you that efforts to increase market penetration in our
core markets and existing geographic markets will be successful.
Further, we cannot ensure that we will be able to acquire
businesses at the same rate that we have in the past. Failure to
do so could have a material adverse effect on our business,
financial condition and results of operations.
We may
require additional capital in the future and no assurance can be
given that such capital will be available on terms acceptable to
us, or at all.
We will require substantial capital or available debt or equity
financing to execute on acquisition and expansion opportunities
that may come available. We cannot assure you that we will be
able to obtain additional financial resources on terms
acceptable to us, or at all. Failure to obtain such financial
resources could adversely affect our plans for growth, or result
in our being unable to satisfy financial or other obligations as
they come due, either of which could have a material adverse
effect on our business and financial condition.
Although the current credit environment has not had a
significant adverse impact on our liquidity or cost of
borrowing, the availability of funds has tightened and credit
spreads on corporate debt have increased. Therefore, obtaining
additional or replacement financing may be more difficult and
the cost of issuing new debt or replacing a credit facility will
likely be at a higher cost than under our current credit
facilities. In addition, the current credit and capital markets
could adversely impact the liquidity or financial conditions of
suppliers or customers, which could, in turn, impact our
business or financial results.
Until we completed the Merger, a significant amount of our cash
requirements were met through loans or advances from the former
Swisher International stockholders; however, none of these
former stockholders have agreed to provide the company
additional loans, advances, or guarantees in the future.
We have completed a new $100 million senior secured credit
facility. Borrowings under the new credit facility are capped at
$32.5 million until delivery of our unaudited
March 31, 2011 financial statements. Borrowings and
availability under the credit facility are subject to compliance
with financial covenants, including achieving specified
Consolidated EBITDA targets and maintaining specified leverage
and liquidity ratios. The credit facility also places
restrictions on our ability to incur additional indebtedness,
make certain acquisitions, create liens or other encumbrances,
sell or otherwise dispose of assets, and merge or consolidate
with other entities. Failure to achieve or maintain the
financial covenants in the new credit facility or failure to
comply with one or more of the operational covenants could
adversely affect our ability to borrow monies and could result
in a default under the new credit facility. We cannot assure you
that we will achieve or maintain compliance with the financial
and operational covenants in the credit facility. Further, we
cannot assure you that sufficient financing will be available in
the future on a timely basis, on terms that are acceptable to us
or at all. In the event that financing is not available or is
not available in the amounts or on terms acceptable to us, the
implementation of our acquisition strategy could be impeded,
which could have a material adverse effect on our business,
financial condition, results of operations and future prospects.
Failure
to attract, train, and retain personnel to manage our growth
could adversely impact our operating results.
Our strategy to grow our operations may place a greater strain
on our managerial, financial and human resources than that
experienced by our larger competitors, as they have a larger
employee base and administrative support group. As we grow we
will need to:
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build and train sales and marketing staff to create an expanding
presence in the evolving marketplace for our products and
services, and to keep staff informed regarding the features,
issues and key selling points of our products and services;
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attract and retain qualified personnel in order to continue to
develop reliable and saleable products and services that respond
to evolving customer needs; and
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focus personnel on expanding our internal management, financial
and product controls significantly, so that we can maintain
control over our operations and provide support to other
functional areas within our business as the number of personnel
and the size of our operations increases.
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Competition for such personnel can be intense, and we cannot
assure you that we will be able to attract or retain highly
qualified marketing, sales and managerial personnel in the
future. Our inability to attract and retain the necessary
management, technical, sales and marketing personnel may
adversely affect our future growth and profitability. It may be
necessary for us to increase the level of compensation paid to
existing or new employees to a degree that our operating
expenses could be materially increased, which could have a
material adverse effect on our business, financial condition and
results of operations.
We may
not be able to properly integrate the operations of acquired
businesses and achieve anticipated benefits of cost savings or
revenue enhancements.
Our business strategy includes growing our business through
acquisitions. The success of any business combination depends on
managements ability following the transaction to
consolidate operations and integrate departments, systems and
procedures, and thereby create business efficiencies, economies
of scale, and related cost savings. In addition, the acquired
customer base must be integrated into the existing service route
structure to improve absorption of fixed costs and create
operational efficiencies. The retention and integration of the
acquired customer base will be a key factor in realizing the
revenue enhancements that should accompany each acquired
business. We cannot assure you that future results will improve
as a result of cost savings and efficiencies or revenue
enhancements from any future acquisitions or proposed
acquisitions, and we cannot predict the timing or extent to
which cost savings and efficiencies or revenue enhancements will
be achieved, if at all. For these reasons, if we are not
successful in timely and cost-effectively integrating future
acquisitions and realizing the benefits of such acquisitions, it
could have a material adverse effect on our business, financial
condition, results of operations and prospects.
We may
incur unexpected costs, expenses, or liabilities relating to
undisclosed liabilities of our acquired
businesses.
In the course of performing due diligence investigations on the
companies or businesses we may seek to acquire, we may fail or
be unable to discover liabilities of the acquisition candidate
that have not otherwise been disclosed. These may include
liabilities arising from non-compliance with federal, state or
local environmental laws by prior owners, pending or threatened
litigation, and undisclosed contractual obligations, for each of
which we, as a successor owner, may be responsible. Although we
will generally seek to minimize exposure to such liabilities by
obtaining indemnification from the sellers of the acquired
companies, we cannot assure you that such indemnifications, even
if obtainable, will be enforceable, collectible, or sufficient
in amount, scope, or duration to fully offset the potential
liabilities arising from the acquisitions.
We may
recognize impairment charges which could adversely affect our
results of operations and financial condition.
We assess our goodwill and other intangible assets and
long-lived assets for impairment when required by generally
accepted accounting principles in the United States of America
(GAAP). These accounting principles require that we
record an impairment charge if circumstances indicate that the
asset carrying values exceed their fair values. Our assessment
of goodwill, other intangible assets, or long-lived assets could
indicate that an impairment of the carrying value of such assets
may have occurred that could result in a material, non-cash
write-down of such assets, which could have a material adverse
effect on our results of operations.
19
Goodwill
resulting from acquisitions may adversely affect our results of
operations.
Goodwill and other intangible assets are expected to increase
principally as a result of future acquisitions, and potential
impairment of goodwill and amortization of other intangible
assets could adversely affect our financial condition and
results of operations. We consider various factors in
determining the purchase prices of acquired businesses, and it
is not anticipated that any material portion of the goodwill
related to any of these acquisitions will become impaired or
that other intangible assets will be required to be amortized
over a period shorter than their expected useful lives. However,
future earnings could be materially adversely affected if
management later determines either that the remaining balance of
goodwill is impaired or that shorter amortization periods for
other intangible assets are required.
Future
issuances of shares of our common stock in connection with
acquisitions could have a dilutive effect on your
investment.
Subsequent to December 31, 2010 and through March 28,
2011, we have issued 34,440,366 shares of our common stock
and we will continue to issue additional shares of our common
stock in connection with future acquisitions or for other
business purposes, or under the Swisher Hygiene Inc. 2010 Stock
Incentive Plan (the Plan). Future acquisitions may
involve the issuance of our common stock as payment, in part or
in full, for the businesses or assets acquired. The benefits
derived by us from an acquisition might not exceed the dilutive
effect of the acquisition. Pursuant to the Plan, our board of
directors may grant stock options, restricted stock units, or
other equity awards to our directors and employees. When these
awards vest or are exercised, the issuance of shares of our
common stock underlying these awards may have a dilutive effect
on our common stock. The Plan and the grants thereunder are
subject to stockholder and TSX approval.
Future
sales of Swisher Hygiene shares by our stockholders could affect
the market price of our shares.
We issued an aggregate of 57,789,630 shares of Swisher
Hygiene common stock in the Merger and an additional
37,821,570 shares or shares underlying convertible notes
since the Merger in connection with acquisitions and in private
placement transactions. All of these shares are subject to
registration rights, and we intend to file registration
statements to register these shares for resale as soon as
practicable after we file this Annual Report on
Form 10-K.
Once the registration statements are effective, any sales of the
shares in the open market pursuant to the registration
statements could cause the price of our shares to decline.
Of the Swisher Hygiene shares issued in the Merger,
55,789,632 shares issued to the former Swisher
International shareholders, including shares held by H. Wayne
Huizenga and Steven R. Berrard, are subject to
lock-up
agreements. Pursuant to the
lock-up
agreements, the
locked-up
stockholders may not, subject to certain exceptions, offer,
sell, contract to sell or enter into any other agreement to
transfer the economic consequences of any Swisher Hygiene shares
for a period ending the earlier of (i) the date of the
public release of Swisher Hygienes earnings for the year
ended December 31, 2011 and (ii) March 31, 2012.
In addition, an aggregate of 32,908,424 shares issued in
connection with the acquisition of Choice and in the Private
Placement are subject to
lock-up
agreements that expire June 24, 2011. After these
lock-up
agreements terminate, the market price of Swisher Hygiene shares
could decline as a result of sales by these stockholders, or the
perception that such sales could occur. These sales, or the
perception that such sales could occur, might also make it more
difficult for Swisher Hygiene to sell equity securities at a
time and price that is deemed appropriate.
In addition, Swisher Hygiene may issue additional shares of
common stock as part of the purchase price of future
acquisitions or in connection with future financings. Any actual
sales, or any perception that sales of a substantial number of
shares may occur, could adversely affect the market price of
Swisher Hygiene common stock.
20
Our
business and growth strategy depends in large part on the
success of our franchisees and international licensees, and our
brand reputation may be harmed by actions out of our control
that are taken by franchisees and international
licensees.
A portion of our earnings are expected to come from royalties
and other amounts paid to us by our franchisees and
international licensees. Franchisees and licensees are
independent operators and have a significant amount of
flexibility in running their operations, and their employees are
not our employees. We provide training and support to, and
monitor the operations of, franchisees, but the quality of their
operations may be diminished by any number of factors beyond our
control. Despite the operating obligations the franchisees and
licensees are subject to pursuant to our operations manual or
the franchise or licensee agreements, franchisees may not
successfully operate their business in a manner consistent with
our standards and requirements and may not hire and train
qualified managers and other personnel. While we may ultimately
take action to terminate franchisees and licensees that do not
comply with the standards contained in the franchise or licensee
agreements and our operations manual, we may not be able to
identify problems and take action quickly enough and, as a
result, our image and reputation may suffer, potentially causing
revenue to decline. Any operational shortcoming of a franchisee
is likely to be attributed by the public to our entire system,
thus damaging our brand reputation and potentially affecting
revenue and operating results. Furthermore, if a significant
number of the franchisees were to become insolvent or otherwise
were unwilling or unable to pay for products and supplies
purchased from us or pay royalties, rent or other fees, we would
experience a decrease in our revenue, which could have a
material adverse effect on our business, financial condition and
results of operations.
Failure
to retain our current customers and renew existing customer
contracts could adversely affect our business.
Our success depends in part on our ability to retain current
customers and renew existing customer service agreements. Our
ability to retain current customers depends on a variety of
factors, including the quality, price, and responsiveness of the
services we offer, as well as our ability to market these
services effectively and differentiate our offerings from those
of our competitors. We cannot assure you that we will be able to
renew existing customer contracts at the same or higher rates or
that our current customers will not turn to competitors, cease
operations, elect to bring the services we provide in-house, or
terminate existing service agreements. The failure to renew
existing service agreements or the loss of a significant number
of existing service agreements would have a material adverse
effect on our business, financial condition, and results of
operations.
The
pricing, terms, and length of customer service agreements may
constrain our ability to recover costs and to make a profit on
our contracts.
The amount of risk we bear and our profit potential will vary
depending on the type of service agreements under which products
and services are provided. We may be unable to fully recover
costs on service agreements that limit our ability to increase
prices, particularly on multi-year service agreements. In
addition, we may provide services under multi-year service
agreements that guarantee maximum costs for the customer based
on a specific criteria, for example, cost per diner, or cost per
passenger day, putting us at risk if we do not effectively
manage customer consumption. Our ability to manage our business
under the constraints of these service agreements may have a
material adverse effect on our business, financial condition,
and results of operations.
Changes
in economic conditions that impact the industries in which our
end-users primarily operate in could adversely affect our
business.
During the last few years, conditions throughout the
U.S. and worldwide have been extremely weak and those
conditions may not improve in the foreseeable future. As a
result, our customers or vendors may have financial challenges,
unrelated to us that could impact their ability to continue
doing business with us. Economic downturns, and in particular
downturns in the foodservice, hospitality, travel, and food
processing industries, can adversely impact our end-users, who
are sensitive to changes in travel and dining activities. The
21
recent decline in economic activity is adversely affecting these
markets. During such downturns, these end-users typically reduce
their volume of purchases of cleaning and sanitizing products,
which may have an adverse impact on our business. We cannot
assure you that current or future economic conditions, and the
impact of those conditions on our customer base, will not have a
material adverse effect on our business, financial condition and
results of operations.
Our
solid waste collection operations are geographically
concentrated and are therefore subject to regional economic
downturns and other regional factors.
Our solid waste collection operations and customers are located
in Florida. Therefore, our business, financial condition and
results of operations are susceptible to regional economic
downturns and other regional factors, including state
regulations and budget constraints and severe weather
conditions. In addition, as we seek to expand in our existing
markets, opportunities for growth within this region will become
more limited and the geographic concentration of our business
will increase.
If we
are required to change the pricing models for our products or
services to compete successfully, our margins and operating
results may be adversely affected.
The cleaning and maintenance solutions and the solid waste
services industries are highly competitive. We compete with
national, regional, and local providers, many of whom have
greater financial and marketing resources than us, in the same
markets primarily on the basis of brand name recognition, price,
product quality, and customer service. To remain competitive in
these markets, we may be required to reduce our prices for
products and services. If our competitors offer discounts on
certain products or services in an effort to recapture or gain
market share, we may be required to lower prices or offer other
favorable terms to compete successfully. Any such change would
likely reduce margins and could adversely affect operating
results. Some of our competitors may bundle products and
services that compete with our products and services for
promotional purposes as a long-term pricing strategy or may
provide guarantees of prices and product implementations. Also,
competitors may develop new or enhanced products and services
more successfully and sell existing or new products and services
better than we do. In addition, new competitors may emerge.
These practices could, over time, limit the prices that we can
charge for our products and services. If we cannot offset price
reductions or other pricing strategies with a corresponding
increase in sales or decrease in spending, then the reduced
revenue resulting from lower prices would adversely affect our
margins, operating costs, and profitability.
Furthermore, as is generally the case in the solid waste
services industry; some municipal contracts are subject to
periodic competitive bidding. We may not be the successful
bidder to obtain or retain these contracts. If we are unable to
compete with larger and better capitalized companies, or to
replace municipal contracts lost through the competitive bidding
process with comparable contracts or other revenue sources
within a reasonable time period, our revenue would decrease and
our operating results would be harmed.
In our solid waste disposal markets we also compete with
operators of alternative disposal and recycling facilities and
with counties, municipalities and solid waste districts that
maintain their own waste collection, recycling and disposal
operations. We are also increasingly competing with companies
which seek to use parts of the waste stream as feedstock for
renewable energy supplies. These entities may have financial
advantages because of their ability to charge user fees or
similar charges, impose tax revenue, access tax-exempt financing
and in some cases utilize government subsidies.
Several
members of our senior management team are critical to our
business and if these individuals do not remain with us in the
future, it could have a material adverse impact on our business,
financial condition and results of operations.
Our future success depends, in part, on the continued efforts
and abilities of our senior management team. Their skills,
experience and industry contacts are expected to significantly
benefit our business. The loss of any member of our senior
management team would disrupt our operations and divert the time
and attention of the remaining members of the senior management
team, which could have a material adverse effect on our
22
business, financial condition and results of operations. Because
the market for qualified management is highly competitive, we
may not be able to retain our leadership team or fill new
management positions or vacancies created by expansion or
turnover at existing compensation levels. We do not carry
key-person insurance on the lives of our senior
management team or management personnel to mitigate the impact
that the loss of a key member of our management team would
cause. The loss of services of one or more of these individuals,
or if one or more of them decide to join a competitor or
otherwise compete directly with us, our business could have a
material adverse effect on our financial condition and results
of operations.
The
financial condition and operating ability of third parties may
adversely affect our business.
We will initially conduct limited manufacturing operations and
will primarily depend, and for the foreseeable future will
continue to depend, on third parties for the manufacture of the
products we sell. We will rely on third party suppliers to
provide us with components and services necessary for the
completion and delivery of our products and services. We expect
to significantly expand our customer base and product offerings,
but our expansion may be limited by the manufacturing capacity
of third party manufacturers. Such manufacturers may not be able
to meet our needs in a satisfactory and timely manner,
particularly if there are raw material shortages.
We purchase the majority of our chemicals from independent
manufacturers and our dispensing equipment and dish machines are
also primarily supplied by a limited number of suppliers. Should
any of these third party suppliers experience production delays,
we may need to identify additional suppliers, which may not be
possible on a timely basis or on favorable terms, if at all. A
delay in the supply of our chemicals or equipment could
adversely affect relationships with our customer base and could
cause potential customers to delay their decision to purchase
services or cause them not to purchase our services at all.
In the event that any of the third parties with whom we have
significant relationships files a petition in or is assigned
into bankruptcy or becomes insolvent, or makes an assignment for
the benefit of creditors or makes any arrangements or otherwise
becomes subject to any proceedings under bankruptcy or
insolvency laws with a trustee, or a receiver is appointed in
respect of a substantial portion of its property, or such third
party liquidates or winds up its daily operations for any reason
whatsoever, then our business, financial position and results of
operations may be materially and adversely affected.
Increases
in fuel and energy costs could adversely affect our results of
operations and financial condition.
The price of fuel is unpredictable and fluctuates based on
events outside our control, including geopolitical developments,
supply and demand for oil and gas, actions by the Organization
of the Petroleum Exporting Countries (OPEC) and
other oil and gas producers, war and unrest in oil producing
countries, regional production patterns, limits on refining
capacities, natural disasters and environmental concerns. In
recent years, fuel prices have fluctuated widely and have
generally increased. Fuel price increases raise the costs of
operating vehicles and equipment. We cannot predict the extent
to which we may experience future increases in fuel costs or
whether we will be able to pass these increased costs through to
our customers. If fuel costs rise, the operating costs of our
solid waste collection operations and distribution operations
would increase, resulting in a decrease in margins and
profitability. A fuel shortage, higher transportation costs or
the curtailment of scheduled service could adversely impact our
relationship with customers and franchisees and reduce our
profitability. If we experience delays in the delivery of
products to our customers, or if the services or products are
not provided to the customers at all, relationships with our
customers could be adversely impacted, which could have a
material adverse effect on our business and prospects. As a
result, future increases in fuel costs could have a material
adverse effect on our business, financial condition, results of
operations, and prospects.
Our
products contain hazardous materials and chemicals, which could
result in claims against us.
We use and sell a variety of products that contain hazardous
materials and chemicals. There are hazardous chemicals in some
of our products but in all cases these materials have short term
hazardous actions
23
that can easily be neutralized or disposed of with minimal
effect on the environment or situations that would require long
term remediation treatments due to environmental contamination.
Like all products of this nature, misuse of the hazardous
material based products can lead to injuries and damages but in
all cases if these products are used at the prescribed usage
levels with the proper PPEs (Personal Protection Equipment) and
procedures the chances of injuries and accidents are extremely
rare. Nevertheless, because of the nature of these substances or
related residues, we may be liable for certain costs, including,
among others, costs for health-related claims, or removal or
remediation of such substances. We may be involved in claims and
litigation filed on behalf of persons alleging injury as a
result of exposure to such substances or by governmental or
regulatory bodies related to our handling and disposing of these
substances. Because of the unpredictable nature of personal
injury and property damage litigation and governmental
enforcement, it is not possible to predict the ultimate outcome
of any such claims or lawsuits that may arise. Any such claims
and lawsuits, individually or in the aggregate, that are
resolved against us, could have a material adverse effect on our
business, financial condition and results of operations.
We are
subject to environmental, health and safety regulations, and may
be adversely affected by new and changing laws and regulations,
that generate ongoing environmental costs and could subject us
to liability.
We are subject to laws and regulations relating to the
protection of the environment and natural resources, and
workplace health and safety. These include, among other things,
reporting on chemical inventories and risk management plans, and
the management of hazardous substances. Violations of existing
laws and enactment of future legislation and regulations could
result in substantial penalties, temporary or permanent facility
closures, and legal consequences. Moreover, the nature of our
existing and historical operations exposes us to the risk of
liability to third parties. The potential costs relating to
environmental, solid waste, and product registration laws and
regulations are uncertain due to factors such as the unknown
magnitude and type of possible contamination and
clean-up
costs, the complexity and evolving nature of laws and
regulations, and the timing and expense of compliance. Changes
to current laws, regulations or policies could impose new
restrictions, costs, or prohibitions on our current practices
would have a material adverse effect on our business, results of
operations, and financial condition.
Future
changes in laws or renewed enforcement of laws regulating the
flow of solid waste in interstate commerce could adversely
affect our operating results.
Various states and local governments have enacted, or are
considering enacting, laws and regulations that restrict the
disposal within the jurisdiction of solid waste generated
outside the jurisdiction. In addition, some state and local
governments have promulgated, or are considering promulgating,
laws and regulations which govern the flow of waste generated
within their respective jurisdictions. Additionally, public
interest and pressure from competing industry segments has
caused some trade associations and environmental activists to
seek enforcement of laws regulating the flow of solid waste. If
successful, these groups may advocate for the enactment of
similar laws in neighboring jurisdictions through local ballot
initiatives or otherwise. All such waste disposal laws and
regulations are subject to judicial interpretation and review.
Court decisions, congressional legislation, and state and local
regulation in the waste disposal area could adversely affect our
business, results of operations, and financial condition.
If our
products are improperly manufactured, packaged, or labeled or
become adulterated, those items may need to be
recalled.
We may need to recall the products we sell if products are
improperly manufactured, packaged, or labeled or if they become
adulterated. Widespread product recalls could result in
significant losses due to the costs of a recall and lost sales
due to the unavailability of product for a period of time. A
significant product recall could also result in adverse
publicity, damage to our reputation, and loss of customer
confidence in our products, which could have a material adverse
effect on our business, financial condition, results of
operations, and prospects.
24
Changes
in the types or variety of our service offerings could affect
our financial performance.
Our financial performance is affected by changes in the types or
variety of products and services offered to our customers. For
example, as we begin to evolve our business to include a greater
combination of products with our services, the amount of money
required for the purchase of additional equipment and training
for associates may increase. Additionally, the gross margin on
product sales is often less than gross margin on service
revenue. These changes in variety or adjustment to product and
service offerings could have a material adverse effect on our
financial performance.
We may
not be able to adequately protect our intellectual property and
other proprietary rights that are material to our
business.
Our ability to compete effectively depends in part on our rights
to service marks, trademarks, trade names and other intellectual
property rights we own or license, particularly our registered
brand names, including Swisher and
Sani-Service. We may not seek to register every one
of our marks either in the U.S. or in every country in
which it is used. As a result, we may not be able to adequately
protect those unregistered marks. Furthermore, because of the
differences in foreign trademark, patent and other intellectual
property or proprietary rights laws, we may not receive the same
protection in other countries as we would in the U.S. and
Canada. Failure to protect such proprietary information and
brand names could impact our ability to compete effectively and
could adversely affect our business, financial condition, or
results of operations.
Litigation may be necessary to enforce our intellectual property
rights and protect our proprietary information, or to defend
against claims by third parties that our products or services
infringe on their intellectual property rights. Any litigation
or claims brought by or against us could result in substantial
costs and diversion of our resources. A successful claim of
trademark, patent or other intellectual property infringement
against us, or any other successful challenge to the use of our
intellectual property, could subject us to damages or prevent us
from providing certain services under our recognized brand
names, which could have a material adverse effect on our
business, financial condition, and results of operations.
If we
are unable to protect our information and telecommunication
systems against disruptions or failures, our operations could be
disrupted.
We are dependent on internal and third party information
technology networks and systems, including the Internet, to
process, transmit and store electronic information. In
particular, we depend on our information technology
infrastructure for fulfilling and invoicing customer orders,
applying cash receipts, determining reorder points and placing
purchase orders with suppliers, making cash disbursements, and
conducting digital marketing activities, data processing, and
electronic communications among business locations. We also
depend on telecommunication systems for communications between
company personnel and our customers and suppliers. Future system
disruptions, security breaches, or shutdowns could significantly
disrupt our operations or may result in financial damage or loss
due to lost or misappropriated information.
Insurance
policies may not cover all operating risks and a casualty loss
beyond the limits of our coverage could adversely impact our
business.
Our business is subject to all of the operating hazards and
risks normally incidental to the operations of a company in the
cleaning and maintenance solutions and the solid waste services
industries. We maintain insurance policies in such amounts and
with such coverage and deductibles that we believe are
reasonable and prudent. Nevertheless, our insurance coverage may
not be adequate to protect us from all liabilities and expenses
that may arise from claims for personal injury or death,
property damage, or environmental liabilities arising in the
ordinary course of business and our current levels of insurance
may not be able to be maintained or available at economical
prices. If a significant liability claim is brought against us
that is not covered by insurance, we may have to pay the claim
with our own funds, which could have a material adverse effect
on our business, financial condition, and results of operations.
25
Our
current size and growth strategy could cause our revenue and
operating results to fluctuate more than some of our larger,
more established competitors or other public
companies.
Our revenue is difficult to forecast and we believe it is likely
to fluctuate significantly from quarter to quarter as we
continue to grow. Some of the factors affecting our future
revenue and results, many of which will be outside of our
control and are discussed elsewhere in the Risk Factors, include:
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|
|
|
|
competitive conditions in our industries, including new products
and services, product announcements and incentive pricing
offered by our competitors;
|
|
|
|
the ability to hire, train and retain sufficient sales and
professional services staff;
|
|
|
|
the ability to develop and maintain relationships with partners,
franchisees, distributors, and service providers;
|
|
|
|
the discretionary nature of our customers purchase and
budget cycles and changes in their budgets for, and timing of,
chemical, equipment and services purchases;
|
|
|
|
the length and variability of the sales cycles for our products
and services;
|
|
|
|
strategic decisions by us or our competitors, such as
acquisitions, divestitures, spin-offs, joint ventures, strategic
investments or changes in business strategy;
|
|
|
|
our ability to complete our service obligations in a timely
manner; and
|
|
|
|
timing of product development and new product and service
initiatives.
|
Given our current amount of revenue, particularly as compared
with some of our competitors, even minor variations in the rate
and timing of conversion of our sales prospects into revenue
could cause us to plan or budget inaccurately, and have a
greater impact on our results than the same variations would
have on the results of our larger competitors.
In light of the foregoing,
quarter-to-quarter
comparisons of our operating results are not necessarily
representative of future results and should not be relied upon
as indications of likely future performance or annual operating
results. Any failure to achieve expected quarterly earnings per
share or other operating results could cause the market price of
our common shares to decline or have a material adverse effect
on our business, financial condition and results of operations.
Certain
stockholders may exert significant influence over corporate
actions requiring stockholder approval.
As of March 31, 2011, Messrs. Huizenga and Berrard own
30.8% of our common stock on a fully diluted basis. As a result,
these stockholders may be in a position to exert significant
influence over all matters requiring stockholder approval,
including the election of directors, determination of
significant corporate actions, amendments to Swishers
certificate of incorporation and by-laws, and the approval of
any business transaction, such as mergers or takeover attempts,
in a manner that could conflict with the interests of other
stockholders. Although there are no agreements or understandings
between the former Swisher International stockholders as to
voting, if they voted in concert, they would exert significant
influence over Swisher Hygiene.
Provisions
of Delaware law and our organizational documents may delay or
prevent an acquisition of our company, even if the acquisition
would be beneficial to our stockholders.
Provisions of Delaware law and our certificate of incorporation
and bylaws may discourage, delay or prevent a change of control
that our stockholders may consider favorable, including
transactions in which stockholders might otherwise receive a
premium for their shares. These provisions may also prevent or
delay
26
attempts by stockholders to replace or remove management or
members of our board of directors. These provisions include:
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|
|
|
|
the absence of cumulative voting in the election of directors,
which means that the holders of a majority of our common stock
may elect all of the directors standing for election;
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|
|
the inability of our stockholders to call special meetings;
|
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|
|
the requirement that our stockholders provide advance notice
when nominating director candidates or proposing business to be
considered by the stockholders at an annual meeting of
stockholders;
|
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|
|
the ability of the our board of directors to make, alter or
repeal our bylaws;
|
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|
|
the requirement that the authorized number of directors be
changed only by resolution of the board of directors; and
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|
the inability of stockholders to act by written consent.
|
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ITEM 1B.
|
Unresolved
Staff Comments.
|
None
We lease our current corporate headquarters facility in
Charlotte, North Carolina, pursuant to a lease expiring in
February 2017. As of March 28, 2011, we also lease numerous
facilities relating to our operations. These facilities are
located in the following 35 states: Alabama, Arizona,
California, Colorado, Connecticut, Florida, Georgia, Hawaii,
Idaho, Kansas, Kentucky, Massachusetts, Maryland, Michigan,
Minnesota, Missouri, Nebraska, North Carolina, New Jersey, New
Mexico, Nevada, New York, Ohio, Oklahoma, Oregon, Pennsylvania,
Puerto Rico, Rhode Island, South Carolina, Tennessee, Texas,
Utah, Virginia, Washington, and Wisconsin. We also lease
facilities related to our Canadian operations in Vancouver,
British Columbia, Edmonton and Calgary, Alberta, and Toronto,
Ontario. These facilities consist primarily of warehouses and
office buildings. We believe that our facilities are sufficient
for our current needs and are in good condition in all material
respects.
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|
Item 3.
|
Legal
Proceedings.
|
We may be involved in litigation from time to time in the
ordinary course of business. We do not believe that the ultimate
resolution of these matters will have a material adverse effect
on our business, financial condition or results of operations.
However, the results of these matters cannot be predicted with
certainty and we cannot assure you that the ultimate resolution
of any legal or administrative proceedings or disputes will not
have a material adverse effect on our business, financial
condition and results of operations.
27
PART II
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|
Item 5.
|
Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
|
Market
for Registrants Common Equity
Our common stock is listed and posted for trading on NASDAQ
under the trading symbol SWSH and on the TSX under
the trading symbol SWI. Our common stock commenced
trading on NASDAQ on February 2, 2011. The following table
sets out the reported high and low sale prices (in U.S. dollars)
on the TSX for the periods indicated as reported by the exchange:
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|
TSX
|
|
|
|
High
|
|
|
Low
|
|
|
Fiscal Year 2009
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
0.64
|
|
|
$
|
0.37
|
|
Second Quarter
|
|
$
|
0.69
|
|
|
$
|
0.48
|
|
Third Quarter
|
|
$
|
0.94
|
|
|
$
|
0.55
|
|
Fourth Quarter
|
|
$
|
1.26
|
|
|
$
|
0.76
|
|
Fiscal Year 2010
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
1.23
|
|
|
$
|
1.02
|
|
Second Quarter
|
|
$
|
1.54
|
|
|
$
|
1.04
|
|
Third Quarter
|
|
$
|
3.91
|
|
|
$
|
1.04
|
|
Fourth Quarter
|
|
$
|
5.97
|
|
|
$
|
3.39
|
|
As of March 31, 2011, there were 148,455,429 shares of
our common stock issued and outstanding. As of March 31,
2011, we had 1,114 registered stockholders of record.
We have not paid any cash dividends on our common stock and do
not plan to pay any cash dividends in the foreseeable future.
Our board of directors will determine our future dividend policy
on the basis of many factors, including results of operations,
capital requirements, and general business conditions, subject
to the covenant in our senior credit facility, which prohibits
us from declaring cash dividends on our common stock.
28
|
|
Item 6.
|
Selected
Financial Data.
|
The following selected consolidated financial data should be
read in conjunction with our audited Consolidated Financial
Statements and Notes to Consolidated Financial Statements
included in Item 8.
The selected consolidated balance sheet data set forth below as
of December 31, 2010 and December 31, 2009 and the
selected consolidated income statement data for the three years
in the period ended December 31, 2010 are derived from our
audited Consolidated Financial Statements included in this
Annual Report on
Form 10-K.
All other selected consolidated financial data set forth below
are derived from our financial statements not included in this
Form 10-K.
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For The Year Ended December 31,
|
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|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Selected Income Statement Data:
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|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
63,652,318
|
|
|
$
|
56,814,024
|
|
|
$
|
64,108,891
|
|
|
$
|
65,190,254
|
|
|
$
|
54,707,906
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
$
|
(15,113,172
|
)
|
|
$
|
(6,849,135
|
)
|
|
$
|
(10,427,572
|
)
|
|
$
|
(9,271,518
|
)
|
|
$
|
(13,317,705
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(17,570,004
|
)
|
|
$
|
(7,258,989
|
)
|
|
$
|
(11,987,871
|
)
|
|
$
|
(10,568,357
|
)
|
|
$
|
(14,775,179
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted EPS
|
|
$
|
(0.26
|
)
|
|
$
|
(0.13
|
)
|
|
$
|
(0.21
|
)
|
|
$
|
(0.18
|
)
|
|
$
|
(0.26
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
106,234,262
|
|
|
$
|
38,917,939
|
|
|
$
|
30,280,958
|
|
|
$
|
34,363,938
|
|
|
$
|
31,946,669
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swisher Hygiene Inc. stockholders equity
|
|
$
|
45,917,138
|
|
|
$
|
(19,455,206
|
)
|
|
$
|
(12,300,787
|
)
|
|
$
|
172,410
|
|
|
$
|
8,366,774
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long term obligations
|
|
$
|
31,028,992
|
|
|
$
|
48,874,841
|
|
|
$
|
6,343,346
|
|
|
$
|
20,927,665
|
|
|
$
|
12,809,934
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
29
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations.
|
You should read the following discussion and analysis in
conjunction with the Selected Financial Data
included in Item 6 and our audited Consolidated Financial
Statements and the related notes thereto included in Item 8
Financial Statements and Supplementary Data. In
addition to historical consolidated financial information, this
discussion contains forward-looking statements that reflect our
plans, estimates, and beliefs. Actual results could differ from
these expectations as a result of factors including those
described under Item 1A, Risk Factors,
Special Note Regarding Forward-Looking Statements
and elsewhere in this annual report.
Executive
Overview
Swisher Hygiene Inc., through its consolidated subsidiaries,
franchisees, and international licensees, provides essential
hygiene and sanitation solutions throughout North America and
internationally. Our solutions include cleaning and sanitizing
products and services designed to promote superior cleanliness
and sanitation in commercial and residential environments, while
enhancing the safety, satisfaction, and well-being of our
customers. Our solutions are typically delivered on a regularly
scheduled basis and involve providing our customers with
(i) consumable products such as soap, paper, cleaning
chemicals, detergents, and supplies, together with the rental
and servicing of dish machines and other equipment for the
dispensing of those products; (ii) the rental of facility
service items requiring regular maintenance and cleaning, such
as floor mats, mops, and bar towels; (iii) manual cleaning
of their facilities; and (iv) solid waste collection
services. We serve customers in a wide range of end-markets,
with a particular emphasis on the foodservice, hospitality,
retail, industrial, and healthcare industries.
Going forward, we intend to increase sales of our products and
expand our services to customers in existing geographic markets
as well as expand our reach into additional markets through a
combination of organic growth and the acquisition of:
(i) Swisher franchises; (ii) independent chemical and
facility service providers; (iii) solid waste collection;
and (iv) other related businesses. The financial
information about our one operating segment and geographical
revenue information appearing in Notes 2 and 13,
respectively, to the Notes to Consolidated Financial Statements
in this
Form 10-K
are incorporated herein by this reference.
Our
Strategy
We believe we are well positioned to take advantage of the
markets we serve. Our ability to service customers throughout
the U.S. and parts of Canada, our broad customer base and
our strategy of combining a service-based platform with
opportunities to leverage internal and external distribution
capabilities, provide multiple avenues for organic revenue
growth. We believe our recently introduced service and product
offerings, including our ware wash, laundry, and cleaning
chemical initiative along with our solid waste collection
services, will allow us to continue to increase revenue through
existing customers, who will be able to benefit from the breadth
and depth of our current product and service offerings.
Organic
Growth
Government regulations focusing on hygiene, food safety, and
cleanliness have increased significantly locally, nationally and
worldwide. Climate change, water scarcity, and environmental
concerns have combined to create further demand for products,
services, and solutions designed to minimize waste and support
broader sustainability. In addition, many of our customers
require tailored cleaning solutions that can assist in reducing
labor, energy, and water use, and the costs related to cleaning,
sanitation and hygiene activities.
We intend to capitalize on these industry dynamics by offering
customers a one-stop shopping partner focused on
their essential commercial hygiene and sanitation needs. This
entails leveraging our route-based weekly cleaning service and
restroom product platform with additional complementary chemical
and facility service products and other services, including ware
washing and laundry detergents, cleaning chemicals,
disinfectants, sanitizers, and solid waste collection services.
We believe our suite of products and services is a
customer-facing portfolio which none of our competitors offer in
full and, as a result, the customer need not shop for its
essential commercial hygiene and sanitation needs on a
piece-meal basis. In addition, our
30
management believes that we provide our customers with more
frequent service, better results, and lower pricing than our
competitors. As a result, we believe we can increase our total
revenue per customer stop for such items and that we are well
positioned to secure new accounts.
Our national footprint and existing route structure provides us
with a highly scalable service infrastructure, which we believe
gives us a lower relative cost of service compared to local and
regional competitors, and an attractive margin on incremental
revenue from existing customers as well as revenue from new
customers. We also believe the current density of our routes
coupled with our
go-to-market
strategy of utilizing both third-party distributors and company
personnel to deliver products and perform services, provides us
sufficient capacity in our current route structure to
efficiently service additional customer locations with minimal,
if any, incremental infrastructure or personnel costs.
Acquisition
Growth
We believe our markets for chemical service, facility service,
and solid waste collection providers are highly fragmented with
many small, private local and regional businesses in each of our
core marketplaces. These independent market participants
generally are not able to benefit from economies of scale in
purchasing, offer a full range of products or services, or
provide the necessary level of support and customer service to
larger regional and national accounts within their specific
markets.
We believe the range of our product and service offerings in the
commercial hygiene and sanitation industries, coupled with our
national service infrastructure makes us the acquiror of
choice in the industry. As such, we believe that targeted
strategic acquisitions provide us the opportunity to increase
revenue of the acquired business or assets by providing access
to corporate accounts, access to additional products and
services, and access to our broader marketing strategy. In
addition these strategic acquisitions will, we believe, result
in improved gross margin and route margin of the acquired
revenue through greater purchasing efficiencies, route
consolidation, and consolidation of back office and
administrative support.
Our essential hygiene and sanitation solutions typically involve
providing our customers with: (i) consumable products such
as soap, paper, cleaning chemicals, detergents, and supplies,
together with the rental and servicing of dish machines and
other equipment for the dispensing of those products;
(ii) the rental of facility service items requiring regular
maintenance and cleaning, such as floor mats, mops, and bar
towels; (iii) manual cleaning of their facilities; and
(iv) solid waste collection services. We serve customers in
a wide range of end-markets, with a particular emphasis on the
foodservice, hospitality, retail, industrial, and healthcare
industries. Many of our products are consumable and require the
use of a dispensing system installed by us. Our services on
those systems are typically preventative in nature and are
required on a regularly scheduled basis. We strive to position
ourselves to customers as the one-stop-shop for the
full breadth of products and services we offer. We believe this
comprehensive approach to providing complete hygiene and
sanitation solutions to our customers, coupled with the rental,
installation, and service of dish machines and dispensing
equipment that provide rental income and require the use of our
products helps provide stability in our business and discourages
customers from switching vendors.
We typically enter into service agreements with various terms
with customers which outline the scope and frequency of services
we will provide, as well as the pricing of the products and
services the customer requires. Given that we typically install,
at no charge, dispensers for many of the consumable products we
sell to customers, our service agreements usually provide for an
early termination fee.
Our
History
Swisher International, Inc. was originally founded in 1986 as a
Nevada corporation. From our founding through 2004, we operated
primarily as a franchisor and licensor of restroom hygiene
services offering: (i) weekly cleaning and sanitizing
services of our customers restroom fixtures, along with
the restocking of soap and air freshener dispensers and
(ii) the sale of restroom paper products, such as toilet
paper and hand towels. We provided these services to a customer
base largely comprised of small, locally owned bars,
restaurants, and retail locations. Franchisees had rights to use
the Swisher name and business processes in designated United
States and Canadian geographic markets typically ranging in size
from 500,000 to
31
3,000,000 persons. International licensees had
substantially similar rights in the respective countries in
which they operated. Although franchisees licensed the same
business model, the manner in which they executed and adopted
Swisher programs varied greatly, resulting in inconsistent
levels of service and differing product offerings across
geographic markets.
In November 2004, H. Wayne Huizenga and Steve Berrard acquired a
majority interest in Swisher, which at the time was a publicly
traded company. Subsequently, in May 2006, Messrs. Huizenga
and Berrard acquired the remaining outstanding shares of Swisher
and began operating Swisher as a private company.
The primary goal of acquiring ownership of Swisher was to
transition the business to take greater advantage of the Swisher
brand and nationwide service and distribution network, and to
better leverage the under-utilized platform to expand both
product and service offerings. Specifically,
Messrs. Huizenga and Berrard planned to transition the
Companys focus from generating revenue almost exclusively
from restroom cleaning services to building a full-service
provider of essential hygiene and sanitation solutions offering
a broad complement of products and services, addressing the
complete hygiene, cleaning and sanitation needs of our customers
throughout their facilities. We believed that such a transition
would provide Swisher with a competitive advantage, allowing us
to retain existing customers over time and provide them with
additional products and services that were essential to the
operations of their businesses. Moreover, we sought to leverage
Swishers national infrastructure with product offerings
and service expertise in core lines of products, including
cleaning chemicals, required by larger corporate customers
nationwide. In addition, we expanded from nice to
have services to essential products and
services and eliminated customers that were unprofitable. An
important component of this business strategy was the
acquisition of a sufficient number of franchise locations or
other similar businesses, providing us direct control over the
implementation of changes to a consistent business model.
In summary, our transition from a restroom cleaning services
business to a full service hygiene and sanitation solutions
provider offering a complete chemical and facility service
program has required significant investments. These investments
included through the date of this annual report:
|
|
|
|
|
Acquisitions of 102 businesses, including 72 franchises;
|
|
|
|
Replacement of management information systems;
|
|
|
|
Introduction of delivery service vehicles;
|
|
|
|
Addition of substantial industry experience throughout the
organization;
|
|
|
|
Upgrade of branch facilities;
|
|
|
|
Significant expansion of essential product lines and services to
include dust control and a complete chemical program; and
|
|
|
|
Development of a corporate account and distributor sales
organization.
|
As of December 31, 2010, we have both company-owned
locations and franchises located throughout the U.S. and
Canada and ten master license agreements covering the U.K.,
Ireland, Portugal, the Netherlands, Singapore, the Philippines,
Taiwan, Korea, Hong Kong/Macau/China, and Mexico.
The number of company-owned locations, franchises, and
international master licenses for the last five years ended
December 31, 2010 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Company-owned locations
|
|
|
69
|
|
|
|
60
|
|
|
|
44
|
|
|
|
47
|
|
|
|
43
|
|
Franchises
|
|
|
10
|
|
|
|
15
|
|
|
|
35
|
|
|
|
39
|
|
|
|
45
|
|
International Master Licenses(1)
|
|
|
10
|
|
|
|
10
|
|
|
|
11
|
|
|
|
11
|
|
|
|
13
|
|
|
|
|
(1) |
|
Number of countries in which Swisher licensees operate. |
Going forward, we will continue to expand our reach into
additional U.S. and Canadian geographic markets through
organic growth as well as acquisitions of independent chemical
distributors and other
32
providers of essential hygiene, sanitation and facility
services, franchise repurchases, execution of agreements with
distributor partners. Additionally, we will be opportunistic as
it relates to acquiring or partnering with complementary
businesses that (i) can provide us a competitive advantage;
(ii) leverage, expand, or benefit from our distribution
network; or (iii) provide us economies of scale or cost
advantages over our existing supply chain. Collectively, these
efforts are centered on making us an attractive alternative for
larger customers in foodservice, hospitality, healthcare,
retail, and industrial markets. In addition, we will seek to
aggressively license our business model internationally. Our
success largely depends on our ability to execute on these
strategies and increase the sales of our products and services
to corporate accounts and distribution partners.
Recent
Developments
Choice
Acquisition
On February 13, 2011, we entered into an Agreement and Plan
of Merger (the Choice Agreement) by and among
Swisher Hygiene, Swsh Merger Sub, Inc., a Florida corporation
and wholly-owned subsidiary of Swisher Hygiene, Choice
Environmental Services, Inc., a Florida corporation
(Choice), and other parties, as set forth in the
Choice Agreement. The Choice Agreement provided for the
acquisition of Choice by Swisher Hygiene by way of merger.
In connection with the proposed merger with Choice, on
February 23, 2011, we entered into an agency agreement,
which the agents agreed to market, on a best efforts basis
12,262,500 Subscription Receipts at a price of $4.80 per
Subscription Receipt for gross proceeds of up to $58,859,594.
Each Subscription Receipt entitled the holder to acquire one
share of our common stock, without payment of any additional
consideration, upon completion of our acquisition of Choice.
On March 1, 2011, we closed the acquisition of Choice and
issued approximately 8.3 million shares of our common stock
to the former shareholders of Choice and assumed approximately
$40.9 million in debt, of which $39.2 million was paid
down with proceeds from the private placement of the
Subscription Receipts. In addition, certain shareholders of
Choice received $5.7 million in cash and warrants to
purchase an additional 0.9 million shares at an exercise
price of $6.21.
On March 1, 2011, in connection with the closing of
acquisition of Choice, the 12,262,500 Subscription Receipts were
exchanged for 12,262,500 shares of our common stock. We
agreed to use commercially reasonable efforts to file a resale
registration statement with the SEC relating to the shares of
common stock underlying the Subscription Receipts. If the
registration statement is not filed or declared effective within
specified time periods, or if it ceases to be effective for
periods of time exceeding certain grace periods, the initial
subscribers of Subscription Receipts will be entitled to receive
an additional 0.1 share of common stock for each share of
common stock underlying Subscription Receipts held by any such
initial subscriber at that time.
Choice has been in business since 2004 and serves more than
150,000 residential and 7,500 commercial customers in the
Southern and Central Florida regions through its
320 employees and over 150 collection vehicles by offering
a complete range of solid waste and recycling collection,
transportation, processing and disposal services. Choice
operates six hauling operations, three transfer and materials
recovery facilities. Refer to Note 16 to the Notes to
Consolidated Financial Statements for the preliminary purchase
price allocation and supplemental pro forma financial
information for 2010.
Private
Placement
On March 22, 2011, we entered into a series of arms
length securities purchase agreements to sell
12,000,000 shares of our common stock at a price of $5.00
per share, for aggregate proceeds of $60,000,000 to certain
funds of a global financial institution (the Private
Placement). We intend to use the proceeds from the Private
Placement to further our organic and acquisition growth
strategy, as well as for working capital purposes.
33
On March 23, 2011, we closed the Private Placement and
issued 12,000,000 shares of our common stock. Pursuant to
the securities purchase agreements, the shares of common stock
issued in the Private Placement may not be transferred on or
before June 24, 2011 without our consent. We agreed to use
our commercially reasonable efforts to file a resale
registration statement with the SEC relating to the shares of
common stock sold in the Private Placement. If the registration
statement is not filed or declared effective within specified
time periods, the investors will be entitled to receive
liquidated damages in cash equal to one percent of the original
offering price for each share that at such time remains subject
to resale restrictions.
Additional
Acquisitions and Promissory Note Conversion
During 2011, in addition to the Choice acquisition, we acquired
several smaller businesses. While the terms, price, and
conditions of each of these acquisitions were negotiated
individually, consideration to the sellers typically consists of
a combination of cash, convertible promissory notes having an
interest rate of 4% with maturities of up to 12 months, our
common stock, and earn-out provisions. Aggregate consideration
paid for the acquired businesses was approximately $15,700,000
consisting of $4,800,000 in cash and $7,125,000 in convertible
promissory notes, a $275,000 promissory note, and 380,727 shares
of our common stock, plus potential earn-outs of up to
$1,190,000. In addition, in March 2011, we entered into an asset
purchase agreement to purchase a solid waste services provider
based in Miami, Florida for a total purchase price of
approximately $10 million, consisting of $5,000,000 in cash
and 909,090 shares of our common stock. This transaction is
expected to close on April 1, 2011.
In addition, a $5,000,000, 6% convertible promissory note issued
in November 2010 as part of the consideration paid for an
acquisition was fully converted to 1,312,864 common shares in
2011.
New
Credit Facility
On March 30, 2011, we entered into a $100 million senior
secured revolving credit facility with Wells Fargo. Under the
new credit facility, Swisher Hygiene has initial borrowing
availability of $32.5 million, which we expect will
increase to the fully committed $100 million upon delivery
of our unaudited quarterly financial statements for the quarter
ended March 31, 2011. Borrowings under the facility are
secured by a first priority lien on substantially all our
existing and hereafter acquired assets, including
$25 million of cash on borrowings in excess of
$75 million.
Interest on borrowings under the credit facility accrues at
LIBOR plus 2.5% to 4.0%, depending on the ratio of senior debt
to Consolidated EBITDA and interest is payable no more
frequently than monthly on all outstanding borrowings. The
credit facility matures on July 31, 2013.
Borrowings and availability under the credit facility are
subject to compliance with financial covenants, including
achieving specified Consolidated EBITDA targets and maintaining
specified leverage and liquidity ratios. The credit facility
also places restrictions on our ability to incur additional
indebtedness, make certain acquisitions, create liens or other
encumbrances, sell or otherwise dispose of assets, and merge or
consolidate with other entities.
Our obligations under the credit facility are guaranteed by all
our domestic subsidiaries and secured by all the assets and
stock of our domestic subsidiaries and substantially all of the
stock of our foreign subsidiaries. The new credit facility
replaces our current aggregated $25 million credit
facilities, which are discussed in Note 6 to the Notes to
Consolidated Financial Statements.
CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
The discussion of the financial condition and the results of
operations are based on the Consolidated Financial Statements,
which have been prepared in conformity with United States
generally accepted accounting principles. As such, management is
required to make certain estimates, judgments and assumptions
that are believed to be reasonable based on the information
available. These estimates and assumptions affect the reported
amount of assets and liabilities, revenue and expenses, and
disclosure of contingent assets and
34
liabilities at the date of the financial statements. Actual
results may differ from these estimates under different
assumptions or conditions.
Critical accounting policies are defined as those that are
reflective of significant judgments and uncertainties, the most
important and pervasive accounting policies used and areas most
sensitive to material changes from external factors. See
Note 2 to the Notes to Consolidated Financial Statements
for additional discussion of the application of these and other
accounting policies.
Revenue
Recognition
Revenue from product sales and services is recognized when
services are performed or the products are delivered to the
customer. Franchise and other revenue include product sales,
royalties and other fees charged to franchisees in accordance
with the terms of their franchise agreements. Royalties and fees
are recognized when earned.
We have entered into franchise and license agreements which
grant the exclusive rights to develop and operate within
specified geographic territories for a fee. The initial
franchise or license fee is deferred and recognized as revenue
when substantially all significant services to be provided by us
are performed. Direct incremental costs related to franchise or
license sales for which revenue has not been recognized is
deferred until the related revenue is recognized.
Valuation
Allowances for Doubtful Accounts
We estimate the allowance for doubtful accounts by considering a
number of factors, including overall credit quality, age of
outstanding balances, historical write-off experience and
specific account analysis that projects the ultimate
collectability of the outstanding balances. Actual results could
differ from these assumptions. Our allowance for doubtful
accounts for accounts receivable was $364,234 and $334,156 as of
December 31, 2010 and 2009, respectively.
Long-Lived
and Intangible Assets
We recognize losses related to the impairment of long-lived
assets when the carrying amount is not recoverable and exceeds
its fair value. When facts and circumstances indicate that the
carrying values of long-lived assets may be impaired, our
management evaluates recoverability by comparing the carrying
value of the assets to projected future cash flows, in addition
to other qualitative and quantitative analyses. We also perform
a periodic assessment of the useful lives assigned to our
long-lived assets. Changes to the useful lives of our long-lived
assets would impact the amount of depreciation expense recorded
in our statement of operations. We have not experienced any
significant changes to our carry amount or estimated useful
lives of our long-lived assets.
Goodwill represents the excess of cost of an acquired business
over the fair value of the identifiable tangible and intangible
assets and liabilities assumed in a business combination.
Identifiable intangible assets include customer relationships
and noncompete agreements. The fair value of these intangible
assets at the time of acquisition is estimated based upon
discounted future cash flow projections. The customer
relationships are amortized on a straight-line basis over the
expected average life of the acquired accounts, which is five
years based upon a number of factors, including longevity of
customers acquired and historical retention rates. The
non-compete agreements are amortized on a straight-line basis
over the term of the agreements which are between two to five
years.
We test goodwill and intangible assets for impairment annually
or more frequently if indicators for potential impairment exist.
Impairment testing is performed at the reporting unit level.
Under generally accepted accounting principles, a reporting unit
is either the equivalent to, or one level below, an operating
segment.
The test to evaluate for impairment is a two-step process. In
the first step, we compare the fair value of each reporting unit
to its carrying value. If the fair value of the reporting unit
is less than its carrying value, we perform a second step to
determine the implied fair value of goodwill associated with
that reporting unit.
35
If the carrying value of goodwill exceeds the implied fair value
of goodwill, such excess represents the amount of goodwill
impairment.
Determining the fair value of a reporting unit includes the use
of significant estimates and assumptions. Management utilizes a
discounted cash flow technique as a means for estimating fair
value. This discounted cash flow analysis requires various
judgmental assumptions including assumptions about future cash
flows, customer growth rates and discount rates. Expected cash
flows are based on historical customer growth, including
attrition, and continued long term growth of the business. The
discount rates used for the analysis reflect a weighted average
cost of capital based on industry and capital structure adjusted
for equity and size risk premiums. These estimates can be
affected by factors such as customer growth, pricing, and
economic conditions that can be difficult to predict.
As part of this impairment testing, management also assesses the
useful lives assigned to the customer relationships and
non-compete agreements. Changes to the useful lives of our other
intangible assets would impact the amount of amortization
expense recorded in our statements of operations. We have not
experienced any significant changes to our carry amount or
estimated useful lives of our other intangible assets.
There were no impairment losses on goodwill or other intangible
assets for the year ended December 31, 2010. For the years
ended December 31, 2009 and 2008, we recognized impairment
losses on goodwill and other intangible assets of $30,000 and
$223,000, respectively.
A hypothetical 10% decrease in the fair value of our reporting
units as of December 31, 2010 would have no impact on the
carrying value of our goodwill. We believe that the assessment
for such potential impairment losses is a critical accounting
estimate as it is dependent upon future events and requires
substantial judgment. Any resulting impairment loss could have a
material impact on our financial condition and the results of
operations.
Income
Taxes
Effective on January 1, 2007, Swisher Internationals
shareholders elected that the corporation be taxed under the
provisions of Subchapter S of the Internal Revenue Code of 1986,
as amended (the Code). Under this provision, the
shareholders were taxed on their proportionate share of Swisher
Internationals taxable income. As a Subchapter
S corporation, Swisher International bore no liability or
expense for income taxes.
As a result of the Merger in November 2010, Swisher
International converted from a corporation taxed under the
provisions of Subchapter S of the Internal Revenue Code (S
Corp) to a tax-paying entity and accounts for income taxes
under the asset and liability method. Deferred tax assets and
liabilities are recognized for the future tax consequences
attributable to the differences between the financial statement
carrying amounts of existing assets and liabilities and their
respective tax bases and net operating loss carryforwards.
Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered
or settled. The effect on deferred tax assets and liabilities of
a change in tax rates is recognized in income in the period that
includes the enactment date. Valuation allowances are
established when necessary to reduce deferred tax assets where
it is more likely than not that deferred tax assets will not be
realized. In addition, the undistributed earnings on the date
the Company terminated the S Corp election was recorded as
Additional paid-in capital on the Consolidated Financial
Statements since the termination of the S Corp election assumes
a constructive distribution to the owners followed by a
contribution of capital to the corporation.
As of the Merger date, the cumulative timing differences between
book income and taxable income were recorded. A full valuation
allowance has been provided against the deferred tax benefit
attributable to the net loss from operations. The opening
balance of our net deferred taxes was recorded as income tax
expense in the Consolidated Financial Statements. For the year
ended December 31, 2010, we recorded $1,700,000 of income
tax expense because the deferred tax liability related to
goodwill, an indefinite lived asset, cannot be offset against
our deferred tax assets related to finite lived assets. Future
additions of indefinite lived assets that are tax deductible
will continue to increase the amount recognized in the
Consolidated Statement of Operations as the difference between
the book basis and the tax basis increases.
36
As of January 1, 2009, we adopted the provisions related to
accounting for uncertainty in income taxes, which prescribes how
a Company should recognize, measure, present and disclose in its
financial statements uncertain tax positions that the Company
has taken or expects to take on a tax return. The adoption of
these provisions did not have a material impact on our
Consolidated Financial Statements.
We include interest and penalties accrued in the Consolidated
Financial Statements as a component of interest expenses. No
significant amounts were required to be recorded as of
December 31, 2010, 2009 and 2008. As of December 31,
2010, tax years of 2007 through 2010 remain open to inspection
by the Internal Revenue Service.
Financial
Instruments Convertible Promissory Notes
We determine the fair value of certain convertible debt
instruments issued as part of business combinations based on
assumptions that market participants would use in pricing the
liabilities. We have used a Black Scholes pricing model to
estimate fair value of our convertible promissory notes, which
requires the use of certain assumptions such as expected term
and volatility of our common stock. The expected volatility was
based on an analysis of industry peers historical stock
price over the term of the notes as we currently do not have our
own stock price history, which was estimated as approximately
25%. Changes in the fair value of certain convertible debt
instruments are recorded in Other income (expense) on the
Consolidated Statement of Operations. The following reflects the
sensitivity of the fair value of these instruments held at
December 31, 2010, by maturity date, to changes in our
stock price at December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
Increase in
|
|
|
Increase in
|
|
Maturity Date
|
|
Stock Price
|
|
|
Expense
|
|
|
June 30, 2011
|
|
$
|
2.00
|
|
|
$
|
2,002,000
|
|
September 30, 2011
|
|
|
2.00
|
|
|
|
378,000
|
|
In addition to the above instruments, we issued four convertible
promissory notes that have a total principal amount of
$4,375,000 and fixed interest rate of 4% as part of the purchase
price of certain acquisitions in 2011 that allow the holder to
convert the principal and any accrued interest into a variable
number of shares based on a fixed conversion price between
$4.82 $5.68. The maximum number of shares issuable
under these notes is 866,806. These promissory notes will be
fair valued as part of the purchase price of the acquisitions in
2011 and any subsequent changes in the fair value of the notes
will be recorded in Other income (expense) on the Consolidated
Statement of Operations. Increases or decreases in the market
value of our stock price could affect the fair value of these
instruments and our earnings.
Share
Based Compensation
We measure and recognize all share based compensation at fair
value at the date of grant and recognizes compensation expense
over the service period for awards expected to vest. Determining
the fair value of share based awards at the grant date requires
judgment, including estimating the share volatility, the
expected term the award will be outstanding, and the amount of
the awards that are expected to be forfeited. We utilize the
Black-Scholes option pricing model to determine the fair value.
See Note 10 to the Notes to Consolidated Financial
Statements for further information on these assumptions.
Actuarially
Determined Liabilities
We administer a defined benefit plan for certain retired
employees. The plan has not allowed for new participants since
October 2000. As of the date of the Merger, we recorded the net
underfunded pension obligation of $560,931 for this plan.
The measurement of our pension obligation is dependent on a
variety of assumptions determined by management and used by our
actuaries. Significant actuarial assumptions used in determining
the pension obligation include the discount rate and expected
long term rate of return on plan assets. The discount rate
assumption is calculated using a bond yield curve constructed
from a population of high-quality, non-callable corporate bonds.
The discount rate is calculated by matching the plans
projected cash flows to the yield curve. The expected return on
plan assets reflects asset allocations, investment strategies,
and actual historical
37
returns. Changes in benefit obligations associated with these
assumptions may not be recognized as costs on the statement of
income. Differences between actuarial assumptions and actual
plan results are deferred in Accumulated other comprehensive
(loss) income and are amortized into cost only when the
accumulated differences exceed 10% of the greater of the
projected benefit obligation or the market value of the related
plan assets. We recognize the funded status of the plan on the
Consolidated Balance Sheet with the offsetting entry to
Accumulated other comprehensive (loss) income.
The plan assets are invested in U.S. equities,
non-U.S. equities,
and fixed income securities. Investment securities are exposed
to various risks, including interest rate risk, credit risk, and
overall market volatility. As a result of these risks, it is
reasonably possible that the market values of investment
securities could increase or decrease in the near term.
Increases or decreases in market values could affect the current
value of the plan assets and, as a result, the future level of
net periodic benefit cost.
Expected rate of return on plan assets was developed by
determining projected returns and then applying these returns to
the target asset allocations of the plan assets, resulting in a
weighted average rate of return on plan assets. The assumed
return of 7.5% compares to an actual return of 7.4% since
inception.
A one percent decrease in the discount rate assumption of 5.37%
would result in an increase in the projected benefit obligation
at December 31, 2010 of approximately $297,000. Based on
the latest actuarial report as of December 31, 2010, we
expect to make a minimum regulatory funding contribution of
$78,880 during 2011.
Recently
Adopted Accounting Pronouncements
Accounting Standards
Codificationtm: Effective
July 1, 2009, we adopted the Financial Accounting Standards
Board (FASB) Accounting Standards
Codificationtm
(ASC or Codification) as the source of
authoritative GAAP recognized by the FASB to be applied by
nongovernmental entities. Rules and interpretive releases of the
U.S. SEC under authority of federal securities laws are
also sources of authoritative GAAP for SEC registrants. The
Codification superseded all then-existing non-SEC accounting and
reporting standards. The adoption of the Codification did not
have a material effect on our Consolidated Financial Statements.
Fair Value Measurements and
Disclosures: Effective January 1, 2009, we
adopted amended standards on two issues: 1) determining the
fair value of a liability when a quoted price in an active
market for an identical liability is not available and
2) measuring and disclosing the fair value of certain
investments on the basis of the investments net asset
value per share or its equivalent. This adoption did not have a
material effect on our Consolidated Financial Statements.
In December 2008, the FASB issued guidance on employers
disclosures about plan assets of a defined benefit plan or other
post retirement plan, which requires more detailed disclosures
regarding employers plan assets, including their
investment strategies, major categories of plan assets,
concentration of risk, and valuation methods used to measure the
fair value of plan assets. The guidance is effective for fiscal
years ending after December 15, 2009. We have included the
required disclosures in Note 11 of the Consolidated
Financial Statements.
In January 2010, the FASB issued new standards for new
disclosures regarding transfers in and out of Level 1 and
Level 2 fair value measurements, as well as requiring
presentation on a gross basis information about purchases,
sales, issuances and settlements in Level 3 fair value
measurements. The standards also clarified existing disclosures
regarding level of disaggregation, inputs and valuation
techniques. The standards are effective for interim and annual
reporting periods beginning after December 15, 2009 and
became effective for the Company on January 1, 2010.
Disclosures about purchases, sales, issuances and settlements in
the roll forward of activity in Level 3 fair value
measurements are effective for fiscal years beginning after
December 15, 2010 and will be effective for the Company on
January 1, 2011. We are currently evaluating the effect of
these standards on our Consolidated Financial Statements.
Business Combinations: In December 2007 the
FASB issued new guidance on business combinations. The revised
guidance establishes principles and requirements for how an
acquirer recognizes and measures in its financial statements the
identifiable assets and goodwill acquired, liabilities assumed
and any
38
noncontrolling interest in the acquiree in a business
combination. The guidance also provides disclosure requirements
to enable users of the financial statements to evaluate the
nature and financial effects of the business combination. We
adopted this guidance effective January 1, 2009. The
adoption did not have a material effect on our Consolidated
Financial Statements.
Consolidation: In December 2007 the FASB
issued new guidance on noncontrolling interests in Consolidated
Financial Statements. The guidance requires reporting entities
to present noncontrolling interests in any of their consolidated
entities as equity (as opposed to a liability or mezzanine
equity) and provide guidance on the accounting for transactions
between an entity and noncontrolling interests. We adopted this
guidance effective January 1, 2009. This adoption did not
have a material effect on our Consolidated Financial Statements.
Intangibles Goodwill and Other: On
January 1, 2009, we adopted two new standards affecting
intangible assets. One of the standards addressed factors that
should be considered in developing renewal or extension
assumptions used to determine the useful life of a recognized
intangible asset. The second standard affected accounting for
defensive intangible assets, which are acquired assets that an
entity does not intend to actively use, but will hold (lock up)
to prevent others from obtaining access to them. These standards
do not address intangible assets that are used in research and
development activities. Neither of these standards had a
material effect on our Consolidated Financial Statements.
Subsequent Events: In May 2009, the FASB
issued new standards that establish general guidance for
accounting and disclosures of events that occur after the
balance sheet date but before financial statements are issued or
are available to be issued. The adoption of these standards
require us to evaluate all subsequent events that occur after
the balance sheet date through the date and time our
Consolidated Financial Statements are issued. This adoption did
not have a material effect on our Consolidated Financial
Statements.
In February 2010, the FASB amended these standards to remove the
requirement for a SEC filer to disclose a date in both issued
and revised financial statements. The amended standards
clarified the definition of revised as being the
result of either correction of an error or retrospective
application of GAAP. We adopted these amended standards upon
their issuance; they did not have a material effect on our
Consolidated Financial Statements.
Newly
Issued Accounting Pronouncements
Revenue Recognition: In October 2009, the FASB
issued new standards for multiple-deliverable revenue
arrangements. These new standards affect the determination of
when individual deliverables included in a multiple-element
arrangement may be treated as separate units of accounting. In
addition, these new standards modify the manner in which the
transaction consideration is allocated across separately
identified deliverables, eliminate the use of the residual value
method of allocating arrangement consideration and require
expanded disclosure. These new standards will become effective
for multiple-element arrangements entered into or materially
modified on or after January 1, 2011. Earlier application
is permitted with required transition disclosures based on the
period of adoption. We will adopt these standards for
multiple-element arrangements entered into or materially
modified on or after January 1, 2011and are currently
evaluating the effect of these standards on our Consolidated
Financial Statements.
Compensation: In April 2010, the FASB issued
new standards to clarify that an employee share-based payment
award with an exercise price denominated in the currency of a
market in which a substantial portion of the entitys
equity securities trades should not be considered to contain a
condition that is not a market, performance, or service
condition. Therefore, an entity would not classify such an award
as a liability if it otherwise qualifies as equity. These new
standards are effective for fiscal years beginning on or after
December 15, 2010. Either application is permitted. We
applied these amended standards upon their issuance; they did
not have a material effect on our Consolidated Financial
Statements.
Goodwill: In December 2010, the FASB issued
new standards defining when step 2 of the goodwill impairment
test for reporting units with zero or negative carrying amounts
should be performed and modifies Step 1 of the goodwill
impairment test for reporting units with zero or negative
carrying amounts. For
39
reporting units with zero or negative carrying amounts an entity
is required to perform Step 2 of the goodwill impairment test if
it is more likely than not that a goodwill impairment exists. In
determining whether it is more likely than not that a goodwill
impairment exists, an entity should consider whether there are
any adverse qualitative factors indicating that an impairment
may exist. The standards are effective for fiscal years and
interim periods within those years, beginning December 15,
2010 and will be effective for us on January 1, 2011. We
are currently evaluating the effect of these standards on our
Consolidated Financial Statements.
40
SWISHER
HYGIENE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE
YEAR ENDED DECEMBER 31, 2010 AS COMPARED TO THE
YEAR ENDED DECEMBER 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
%(1)
|
|
|
2009
|
|
|
%(1)
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products
|
|
$
|
37,690,324
|
|
|
|
59.2
|
%
|
|
$
|
27,316,876
|
|
|
|
48.1
|
%
|
Services
|
|
|
17,737,440
|
|
|
|
27.9
|
|
|
|
16,573,821
|
|
|
|
29.2
|
|
Franchise and other
|
|
|
8,224,554
|
|
|
|
12.9
|
|
|
|
12,923,327
|
|
|
|
22.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
63,652,318
|
|
|
|
100.0
|
|
|
|
56,814,024
|
|
|
|
100.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
23,597,229
|
|
|
|
37.1
|
|
|
|
22,304,515
|
|
|
|
39.3
|
|
Route expenses
|
|
|
13,930,653
|
|
|
|
25.1
|
|
|
|
12,519,891
|
|
|
|
28.5
|
|
Selling, general and administrative
|
|
|
31,258,368
|
|
|
|
49.1
|
|
|
|
24,094,701
|
|
|
|
42.4
|
|
Merger expenses
|
|
|
5,122,067
|
|
|
|
8.0
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
4,857,173
|
|
|
|
7.6
|
|
|
|
4,744,052
|
|
|
|
8.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
78,765,490
|
|
|
|
123.7
|
|
|
|
63,663,159
|
|
|
|
112.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(15,113,172
|
)
|
|
|
(23.7
|
)
|
|
|
(6,849,135
|
)
|
|
|
(12.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expense, net
|
|
|
(756,832
|
)
|
|
|
(1.2
|
)
|
|
|
(409,854
|
)
|
|
|
(0.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss before income taxes
|
|
|
(15,870,004
|
)
|
|
|
(24.9
|
)
|
|
|
(7,258,989
|
)
|
|
|
(12.8
|
)
|
Income taxes
|
|
|
1,700,000
|
|
|
|
2.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(17,570,004
|
)
|
|
|
(27.6
|
)%
|
|
$
|
(7,258,989
|
)
|
|
|
(12.8
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share basic and diluted
|
|
$
|
(0.26
|
)
|
|
|
|
|
|
$
|
(0.13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company-owned locations
|
|
|
69
|
|
|
|
|
|
|
|
60
|
|
|
|
|
|
Franchises
|
|
|
8
|
|
|
|
|
|
|
|
15
|
|
|
|
|
|
International Master Licenses
|
|
|
10
|
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
|
(1) |
|
Calculated as a percentage of total revenue, except for Route
expenses which are calculated as a percentage of Products and
Services revenue. |
41
Revenue
We derive our revenue through the delivery of a wide-variety of
hygiene products and services. We deliver hygiene products and
services on a regularly scheduled basis which include providing
our customers with (i) the sale of consumable products such
as soap, paper, cleaning chemicals, detergents, and supplies,
together with the rental and servicing of dish machines and
other equipment for the dispensing of those products;
(ii) the rental of facility service items requiring regular
maintenance and cleaning, such as floor mats, mops, and bar
towels; and (iii) manual cleaning of their facilities. We
serve customers in a wide range of end-markets, with a
particular emphasis on the foodservice, hospitality, retail,
industrial, and healthcare industries.
Total revenue and the revenue derived from each revenue type for
the year ended December 31, 2010 and 2009 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
Total
|
|
|
|
2010
|
|
|
Revenue
|
|
|
2009
|
|
|
Revenue
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products and service:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hygiene services
|
|
$
|
17,737,440
|
|
|
|
27.9
|
%
|
|
$
|
16,573,821
|
|
|
|
29.2
|
%
|
Chemical
|
|
|
19,062,809
|
|
|
|
29.9
|
|
|
|
10,319,434
|
|
|
|
18.2
|
|
Paper
|
|
|
12,337,886
|
|
|
|
19.4
|
|
|
|
11,549,037
|
|
|
|
20.3
|
|
Rental and other
|
|
|
6,289,629
|
|
|
|
9.9
|
|
|
|
5,448,405
|
|
|
|
9.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total product and service
|
|
|
55,427,764
|
|
|
|
87.1
|
|
|
|
43,890,697
|
|
|
|
77.3
|
|
Franchise and other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product sales
|
|
|
5,395,614
|
|
|
|
8.5
|
|
|
|
8,732,038
|
|
|
|
15.4
|
|
Fees
|
|
|
2,828,940
|
|
|
|
4.4
|
|
|
|
4,191,289
|
|
|
|
7.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total franchise and other
|
|
|
8,224,554
|
|
|
|
12.9
|
|
|
|
12,923,327
|
|
|
|
22.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
63,652,318
|
|
|
|
100.0
|
%
|
|
$
|
56,814,024
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue increased $6,838,294 or 12.0% to $63,652,318 for
the year ended December 31, 2010 as compared to 2009. This
increase includes an increase of $11,246,330 from the
acquisition of the four franchises and five independent
companies acquired in 2010 and 18 franchises acquired and the
independent chemical company acquired in 2009. Excluding the
impact of acquisitions, product and service revenue increased by
$290,738 and was offset by a decline in product sales and fees
to franchisees of $4,698,774. Excluding the impact of these
acquisitions, total revenue decreased by $4,408,036 or 7.8% as
compared to 2009 primarily from decreases of:
(i) $3,321,529 or 20.0% in hygiene services;
(ii) $1,302,237 or 11.3% in paper; (iii) $120,664 or
2.2% in rental and other; and (iv) $4,698,773 or 36.4% in
product sales and fees earned from the Companys remaining
franchises, which were offset by an increase of $5,035,167 or
48.8% in chemical sales.
During 2010, our sales mix has continued to shift towards
chemical product sales from our legacy hygiene business. Three
principal factors have contributed to this trend: (i) since
2009, we have placed particular emphasis on the development of
our chemical offering, particularly as it relates to ware
washing and laundry solutions and a lesser focus on our legacy
hygiene service offerings; (ii) over this same period, we
have aggressively managed customer profitability terminating
less favorable arrangements and; (iii) we have been
impacted by the prolonged effects of challenging economic
conditions that has resulted in customer attrition, lower
consumption levels of products and services, and a reduction or
elimination in spending for hygiene-related products and
services by our customers.
Total franchise and other revenue decreased $4,698,773 or 36.4%
for the year ended December 31, 2010 as compared to 2009.
This decrease includes the impact of the acquisition of four
franchises in 2010 and 18 franchisees in 2009, which results in
less revenue from franchisees and increased revenue related to
acquisitions as discussed above. During the year ended
December 31, 2010, revenue from franchisee product
42
sales and fees from franchises that we acquired in 2010 were
$1,888,510 compared to $6,090,630 of revenue from franchisee
product sales and fees that we acquired in 2009 and 2010.
Excluding the effect of the acquisitions, product sales and fees
declined $496,654 or 7.3% during 2010 as compared to 2009. This
decline includes decreased product sales of $542,408 or 6.2%,
offset by increase in fees of $45,754 or 1.1%. This decline is
primarily attributed to the prolonged effect of the challenging
economic conditions being experienced by our franchisees. These
economic conditions resulted in customer attrition, lower
consumption levels of products and services and a reduction or
elimination in spending for hygiene related products and
services by franchise customers.
Cost of
Sales
Cost of sales for the year ended December 31, 2010 and 2009
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
%(1)
|
|
|
2009
|
|
|
%(1)
|
|
|
Company-owned operations
|
|
$
|
18,542,802
|
|
|
|
33.5
|
%
|
|
$
|
14,385,596
|
|
|
|
32.8
|
%
|
Franchisee product sales
|
|
|
5,054,427
|
|
|
|
93.7
|
%
|
|
|
7,918,919
|
|
|
|
90.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of sales
|
|
$
|
23,597,229
|
|
|
|
37.1
|
%
|
|
$
|
22,304,515
|
|
|
|
39.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents cost as a percentage of the respective product line
revenue. |
Cost of sales consists primarily of paper, air freshener,
chemical and other consumable products sold to our customers,
franchisees and international licensees. Total cost of sales for
2010 increased $1,292,714 or 5.8% to $23,597,229 as compared to
2009. This increase includes an increase of $248,616 related to
the acquisition of four franchises and five independent
companies in 2010 and 18 franchisees and an independent chemical
company in 2009. Excluding the effect of these acquisitions,
total cost of sales for 2010 as compared to 2009 increased
$1,044,098 or 4.7%.
The cost of sales for company-owned operations for the year
ended December 31, 2010 increased $4,157,206 or 28.9% to
$18,542,802 as compared to 2009. This increase included
$3,050,424 related to the acquisition of four franchises and
five independent chemical companies in 2010 and 18 franchises
and an independent chemical company in 2009. Cost of sales for
company-owned operations, excluding the impact of acquisitions,
increased to 36.6% of related revenue for the year ended
December 31, 2010 as compared to 33.5% for 2009, primarily
due to the change in sales mix from lower cost hygiene services
to higher cost chemical product sales. Excluding the impact of
the acquisitions, cost of sales for company-owned operations
increased $1,106,782 or 7.7% to $15,492,378 as compared to 2009.
This increase consisted primarily of $1,304,414 in sales mix
change from lower cost hygiene services to higher cost chemical
product sales, $130,927 due to the current periods higher
product sales volume, and partly offset by $328,559 improved
product cost.
The cost of sales to franchisees for the year ended
December 31, 2010 decreased $2,864,492 or 36.2% to
$5,054,427 as compared to 2009 in part due to the acquisition of
four franchises and five independent chemical companies in 2010
and 18 franchises and an independent chemical company in 2009.
We charge franchisees a percentage of our costs up to a set
base. Product sales above this base are at more favorable margin
for the franchisee. Cost of sales to franchisees was 93.7% of
franchisee product revenue for the year ended December 31,
2010 as compared to 90.7% for 2009, which was due to product
sales above the base at certain franchisees as compared to 2009.
Excluding the effect of acquisitions, cost of goods sold
decreased $390,812 or 4.9% in year ended December 31, 2010
compared to 2009. This decrease was primarily a result of lower
product sales to its remaining franchisees.
43
Route
Expenses
Route expenses consist primarily of the costs incurred by the
Company for the delivery of products and providing services to
customers. The details of route expenses for the year ended
December 31, 2010 and 2009 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
%(1)
|
|
|
2009
|
|
|
%(1)
|
|
|
Compensation
|
|
$
|
9,930,118
|
|
|
|
17.9
|
%
|
|
$
|
9,085,209
|
|
|
|
20.7
|
%
|
Vehicle expenses
|
|
|
3,660,105
|
|
|
|
6.6
|
%
|
|
|
3,144,603
|
|
|
|
7.2
|
|
Other
|
|
|
340,430
|
|
|
|
0.6
|
%
|
|
|
290,079
|
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total route expenses
|
|
$
|
13,930,653
|
|
|
|
25.1
|
%
|
|
$
|
12,519,891
|
|
|
|
28.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents cost as a percentage of Products and Services
revenue. |
Route expenses for the year ended December 31, 2010
increased $1,410,762 or 11.3% to $13,930,653 as compared to
2009. This increase includes an increase of $3,166,809 related
to the acquisition of four franchises and five independent
companies in 2010 and 18 franchises and an independent chemical
company in 2009. Excluding the impact of acquisitions, route
expenses for the year ended December 31, 2010 as compared
to 2009 decreased $1,756,047 or 14.0% to $10,763,844. The
decrease consisted primarily of $1,571,635 or 17.3% in
compensation, $162,486 or 5.2% in vehicle expenses and $21,925
or 7.6% in other route expenses. These decreases are a result of
route consolidation and optimization initiatives made in
response to the prolonged effect of the challenging economic
conditions we have experienced. These economic conditions
resulted in customer attrition, lower consumption levels of
products and services and a reduction or elimination in spending
for hygiene-related products and services by our customers.
During the year ended December 31, 2010 compared to 2009,
excluding the effect of acquisitions, the average number of
route technicians decreased 13.4%. Along with its staffing
initiatives, we have continued to focus on the improvement of
route efficiencies. Since 2009, we have implemented programs to
optimize our service frequency, minimize miles driven, and
balance the number of stops with the average revenue generated
per stop.
Selling,
General and Administrative Expenses
Selling, general and administrative expenses consist primarily
of the costs incurred by us for:
|
|
|
|
|
Branch office and field management support costs that are
related to field operations. These costs include compensation,
occupancy expense and other general and administrative expenses.
|
|
|
|
Sales expenses, which include marketing expenses and
compensation and commission for branch sales representatives and
corporate account executives.
|
|
|
|
Corporate office expenses that are related to general support
services, which include executive management compensation and
related costs, as well as department cost for information
technology, human resources, accounting, purchasing and other
support functions.
|
The details of selling, general and administrative expenses for
the year ended December 31, 2010 and 2009 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
Total
|
|
|
|
2010
|
|
|
Revenue
|
|
|
2009
|
|
|
Revenue
|
|
|
Compensation
|
|
$
|
21,422,692
|
|
|
|
33.7
|
%
|
|
$
|
16,975,556
|
|
|
|
29.9
|
%
|
Occupancy
|
|
|
3,487,994
|
|
|
|
5.5
|
|
|
|
3,124,466
|
|
|
|
5.5
|
|
Other
|
|
|
6,347,682
|
|
|
|
10.0
|
|
|
|
3,994,679
|
|
|
|
7.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total selling, general, and administrative
|
|
$
|
31,258,368
|
|
|
|
49.1
|
%
|
|
$
|
24,094,701
|
|
|
|
42.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44
Total selling, general, and administrative expenses for the year
ended December 31, 2010 increased $7,163,667 or 29.7% as
compared to 2009. This increase includes $3,099,557 related to
the acquisition of four franchises and five independent
companies in 2010 and 18 franchises and an independent chemical
company in 2009. Excluding the impact of acquisitions, selling,
general, and administrative expenses increased $4,064,110 or
16.9%.
Compensation for the year ended December 31, 2010 increased
$4,447,136 or 26.2%% to $21,422,692 as compared to the same
period of 2009. This increase includes an increase of $2,233,806
related to the acquisition of four franchises and five
independent chemical companies in 2010 and 18 franchises and an
independent chemical company in 2009. Excluding the impact of
acquisitions, compensation expense for the year ended
December 31, 2010 as compared to the same period of 2009
increased $2,213,330 or 13.0% to $19,188,886. This increase was
primarily the result of an increase of $1,024,700 in costs and
expenses related primarily our expansion of its corporate, field
and distribution sales organizations that began in 2009 and
continued into 2010 to accelerate the growth in the our chemical
program, an increase of $873,586 of salaries and other costs
largely associated with our transition from a private company to
a public company, and $315,044 of other increase associated with
our planned growth.
Occupancy expenses for the year ended December 31, 2010
increased $363,528 or 11.6% to $3,487,994 as compared to 2009.
This increase includes $382,648 related to the acquisition of
four franchises and five independent companies in 2010 and 18
franchises and an independent chemical company in 2009.
Excluding the impact of acquisitions, occupancy expenses for
year ended December 31, 2010, as compared to 2009,
decreased $19,120 or 0.6% to $3,105,346.
Other expenses for year ended December 31, 2010 increased
$2,353,003 or 58.9% to $6,347,682 as compared to 2009. This
increase includes $483,103 related to the acquisition of four
franchises and five independent companies in 2010 and 18
franchises and an independent chemical company in 2009.
Excluding the impact of acquisitions, other expenses for the
year ended December 31, 2010 as compared to 2009, increased
$1,869,900 or 46.8% to $5,864,579. This increase was primarily
due to increases in the following: marketing expenses of
$224,000, travel costs of $235,000, consulting and professional
services of $474,000 largely associated with our transition from
a private company to a public company, property taxes of
$121,000, and other office and administrative expenses of
$336,000 related to the expansion of our business.
Merger
and Acquisition Expenses
As discussed more fully in Note 1 to the Notes to
Consolidated Financial Statements, on November 2, 2010
Swisher International entered into a merger agreement under
which all of the outstanding common shares of Swisher
International were exchanged for 57,789,630 common shares of
Swisher Hygiene, formerly named CoolBrands International, Inc.,
such that Swisher International became a wholly-owned subsidiary
of Swisher Hygiene. In connection with this transaction, we
incurred certain directly-related legal, accounting and other
professional expenses. These expenses totaled $5,122,067 and
were incurred entirely in our third and fourth quarters in 2010.
Depreciation
and Amortization
Depreciation and amortization consists of depreciation of
property and equipment and the amortization of intangible
assets. Depreciation and amortization for the year ended
December 31, 2010 increased $113,121 or 2.4% to $4,857,173
as compared to $4,744,052 in 2009. This increase includes
$869,121 related to the acquisition of four franchises and five
independent companies in 2010 and 2009 and is primarily the
result of amortization for acquired other intangible assets
including customer relationships and non-compete agreements
obtained as part of these acquisitions. This increase is offset
by approximately $446,000 of amortization related to other
intangibles that were fully amortized in 2010, and approximately
$419,000 for items in services included in property and
equipment that were fully amortized in 2010, offset by
depreciation for additional capital expenditures.
45
Other
expense, net
Other expense, net for the years ended December 31, 2010
and 2009 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
Total
|
|
|
|
2010
|
|
|
Revenue
|
|
|
2009
|
|
|
Revenue
|
|
|
Interest Income
|
|
$
|
100,212
|
|
|
|
0.2
|
%
|
|
$
|
54,797
|
|
|
|
0.1
|
%
|
Interest expense
|
|
|
(1,677,076
|
)
|
|
|
(2.6
|
)
|
|
|
(1,063,411
|
)
|
|
|
(1.9
|
)
|
Gain on foreign currency
|
|
|
820,032
|
|
|
|
1.3
|
|
|
|
34,653
|
|
|
|
0.1
|
|
Forgiveness of debt
|
|
|
|
|
|
|
|
|
|
|
500,000
|
|
|
|
0.9
|
|
Gain on bargain purchase
|
|
|
|
|
|
|
|
|
|
|
94,107
|
|
|
|
0.2
|
|
Impairment losses
|
|
|
|
|
|
|
|
|
|
|
(30,000
|
)
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense, net
|
|
$
|
(756,832
|
)
|
|
|
(1.2
|
)%
|
|
$
|
(409,854
|
)
|
|
|
(0.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income primarily relates to a note receivable from our
master licensee in the U.K. and interest earned on cash and cash
equivalents balances. Interest income increased in 2010 by
$45,415 as compared to 2009 due primarily to increased interest
earned on the cash received from the Merger.
Interest expense represents interest on borrowings under our
credit facilities, notes incurred in connection with
acquisitions, advances from shareholders and the purchase of
equipment and software. Interest expenses for 2010 increased
$613,665 or 57.7% to $1,677,076 as compared to 2009. The
$613,665 increase is primarily the result of a
$15,882,571 year-to-year
increase in debt and shareholder advances, including the
$21,445,000 of shareholder advances that were converted to
equity on November 2, 2010 as a result of the Merger.
Gain on foreign currency represents the foreign currency
translation adjustments. During 2010,we converted $50,461,794 of
cash held in Canadian dollars at favorable U.S. exchange
rates, which resulted in a realized gain of $838,266 in 2010.
From 2006 until 2008, we agreed to pay a company owned by a
shareholder a fee for services provided, including product
development, marketing and branding strategy, and management
advisory assistance totaling $500,000. In 2009, the related
company waived it rights to these fees and accordingly, the
accrued balance of $500,000, which was outstanding as of
December 31, 2008, has been recorded as forgiveness of
debt. We considered the accounting alternatives for the
treatment of this transaction and concluded that since the
transaction represented the forgiveness of a previously expensed
liability, it was most appropriately reflected in other income.
The gain from bargain purchases recognized in 2009 was related
to our acquisition of franchisees where the fair value of the
assets acquired exceeded the purchase price. The impairment
losses recognized in 2009 were related to customer lists whose
carrying value was determined to be less than their fair value.
46
SWISHER
HYGIENE INC. AND SUBSIDIARIES
STATEMENTS OF OPERATIONS FOR THE
YEAR ENDED DECEMBER 31, 2009 AS COMPARED
TO THE YEAR ENDED DECEMBER 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
%(1)
|
|
|
2008
|
|
|
%(1)
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products
|
|
$
|
27,316,876
|
|
|
|
48.1
|
%
|
|
$
|
25,935,493
|
|
|
|
40.5
|
%
|
Service
|
|
|
16,573,821
|
|
|
|
29.2
|
|
|
|
19,895,990
|
|
|
|
31.0
|
|
Franchise and other
|
|
|
12,923,327
|
|
|
|
22.7
|
|
|
|
18,277,408
|
|
|
|
28.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
56,814,024
|
|
|
|
100.0
|
|
|
|
64,108,891
|
|
|
|
100.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
22,304,515
|
|
|
|
39.3
|
|
|
|
25,071,410
|
|
|
|
39.1
|
|
Route expenses
|
|
|
12,519,891
|
|
|
|
28.5
|
|
|
|
14,201,243
|
|
|
|
31.0
|
|
Selling, general and administrative
|
|
|
24,094,701
|
|
|
|
42.4
|
|
|
|
30,057,178
|
|
|
|
46.9
|
|
Depreciation and amortization
|
|
|
4,744,052
|
|
|
|
8.4
|
|
|
|
5,206,632
|
|
|
|
8.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
63,663,159
|
|
|
|
112.1
|
|
|
|
74,536,463
|
|
|
|
116.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from Operations
|
|
|
(6,849,135
|
)
|
|
|
(12.1
|
)
|
|
|
(10,427,572
|
)
|
|
|
(16.3
|
)
|
Other expense, net
|
|
|
(409,854
|
)
|
|
|
(0.7
|
)
|
|
|
(1,560,299
|
)
|
|
|
(2.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(7,258,989
|
)
|
|
|
(12.8
|
)%
|
|
$
|
(11,987,871
|
)
|
|
|
(18.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share basic and diluted
|
|
$
|
(0.13
|
)
|
|
|
|
|
|
$
|
(0.21
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company-owned locations
|
|
|
60
|
|
|
|
|
|
|
|
44
|
|
|
|
|
|
Franchises
|
|
|
15
|
|
|
|
|
|
|
|
35
|
|
|
|
|
|
International Master Licenses
|
|
|
10
|
|
|
|
|
|
|
|
11
|
|
|
|
|
|
|
|
|
(1) |
|
Calculated as a percentage of total revenue, except for Route
Expenses which is calculated as a percentage of revenue from
Products and Services, as route expenses relate solely to
revenue from operations for sales of Products and Services. |
47
Revenue
Total revenue and the revenue derived from each revenue type for
the years ended December 31, 2009 and 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
Total
|
|
|
|
2009
|
|
|
Revenue
|
|
|
2008
|
|
|
Revenue
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products and service:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hygiene services
|
|
$
|
16,573,821
|
|
|
|
29.2
|
%
|
|
$
|
19,895,990
|
|
|
|
31.0
|
%
|
Chemical
|
|
|
10,319,434
|
|
|
|
18.2
|
|
|
|
6,914,652
|
|
|
|
10.8
|
|
Paper
|
|
|
11,549,037
|
|
|
|
20.3
|
|
|
|
12,760,759
|
|
|
|
19.9
|
|
Rental and other
|
|
|
5,448,405
|
|
|
|
9.6
|
|
|
|
6,260,082
|
|
|
|
9.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total product and service
|
|
|
43,890,697
|
|
|
|
77.3
|
|
|
|
45,831,483
|
|
|
|
71.5
|
|
Franchise and other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product sales
|
|
|
8,732,038
|
|
|
|
15.4
|
|
|
|
11,904,308
|
|
|
|
18.6
|
|
Fees
|
|
|
4,191,289
|
|
|
|
7.3
|
|
|
|
6,373,100
|
|
|
|
9.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total franchise and other
|
|
|
12,923,327
|
|
|
|
22.7
|
|
|
|
18,277,408
|
|
|
|
28.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
56,814,024
|
|
|
|
100.0
|
%
|
|
$
|
64,108,891
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue for the year ended December 31, 2009
decreased $7,294,867 or 11.4% to $56,814,024 as compared to the
same period of 2008. This decrease includes an increase of
$4,321,596 in revenue from the acquisition of 18 franchises and
an independent chemical company in 2009 and two franchises in
2008, which was offset by a $2,294,328 loss in franchise
products sales and fees earned in 2008 from the acquired
franchises. Excluding the effect of these acquisitions, revenue
for the years ended December 31, 2009 as compared to the
same period of 2008 decreased $9,322,135 or 14.5% primarily from
decreases of: (i) $5,855,055 or 29.4% in hygiene services;
(ii) $2,168,996 or 17.0% in paper; (iii) $1,130,467 or
18.1% in rental; and (iv) $3,059,753 or 16.7% in product
sales and fees earned from our remaining franchises. These
decreases were partially offset by a $2,892,136 or 41.8%
increase in chemical revenue.
The increase in chemical revenue is attributable to the success
of our corporate account and distributor sales programs that
were launched during 2008, as well as sales by our field
employees. The decrease in hygiene, paper and rental and other
revenue was primarily a result of the prolonged effect of the
challenging economic conditions we have experienced. These
economic conditions resulted in customer attrition, lower
consumption levels of products and services and a reduction or
elimination in spending for hygiene-related products and
services by our customers.
The decrease in product sales and fees from our remaining
franchisees was a result of: (i) lower sales in our U.K.
operation of $1,708,738, due to the sale of that operation in
January 2009; (ii) the impact of the acquisition of certain
franchises of $2,294,328; and (iii) a $1,351,016 decline in
product sales and fees resulting from a 31.4% decrease in
customer revenue experienced by our franchises. This decline is
attributed to the prolonged effect of the challenging economic
conditions being experienced by our franchisees. These economic
conditions resulted in customer attrition, lower consumption
levels of products and services and a reduction or elimination
in spending for hygiene related products and services by
franchisee customers
48
Cost of
Sales
Cost of sales for the years ended December 31, 2009 and
2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
%(1)
|
|
|
2008
|
|
|
%(1)
|
|
|
Company-owned operations
|
|
$
|
14,385,596
|
|
|
|
32.8
|
%
|
|
$
|
14,329,153
|
|
|
|
31.3
|
%
|
Franchisee product sales
|
|
|
7,918,919
|
|
|
|
90.7
|
|
|
|
10,742,257
|
|
|
|
90.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of sales
|
|
$
|
22,304,515
|
|
|
|
39.3
|
%
|
|
$
|
25,071,410
|
|
|
|
39.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents cost as a percentage of the respective product line
revenue. |
Cost of sales consists primarily of paper, air freshener,
chemicals and other consumable products sold to our customers,
franchisees and international licensees. Total cost of sales for
the year ended December 31, 2009 decreased $2,766,895 or
11.0% to $22,304,515 as compared to the same period of 2008.
This decrease included an increase of $806,117 related to the
acquisition of 18 franchises and an independent chemical company
in 2009 and two franchises in 2008. Excluding the impact of
acquisitions, total cost of sales for the years ended
December 31, 2009 as compared to the same period of 2008
decreased $3,573,012 or 14.3%.
The cost of sales for company-owned operations for the year
ended December 31, 2009 increased $56,443 or 0.4% to
$14,385,596 as compared to the same period of 2008. This
included an increase of $806,117 in cost of sales related to the
acquisition of 18 franchises and an independent chemical company
in 2009 and two franchises in 2008. Cost of sales for
company-owned operations, excluding the impact of acquisitions,
was 34.2% of related revenue for the year ended
December 31, 2009 as compared to 31.3% for the same period
of 2008. Excluding the impact of the acquisitions, cost of sales
for company-owned operations decreased $749,674 or 5.2% to
$13,579,479 as compared to the same period of 2009. The $749,674
decrease consisted primarily of a $1,655,760 decrease due to
lower revenue volume in 2009 and $911,045 in cost reductions
resulting from purchasing and operational efficiencies in 2009.
These decreases were offset by an increase of $1,283,317 in
sales mix shift change from lower cost hygiene services to
higher cost chemical product sales and $533,814 higher freight
expenses.
Cost of sales to franchisees for the year ended
December 31, 2009 decreased $2,823,338 or 26.3% to
$7,918,919 as compared to the same period of 2008. This included
a decrease of $1,306,409 related to the acquisition of 18
franchises and an independent chemical company in 2009 and two
franchises in 2008. Cost of sales to franchisees, excluding the
impact of acquisitions, was 90.6% of franchisee product revenue
for the year ended December 31, 2009 as compared to 88.5%
for the same period of 2008. Excluding the impact of
acquisitions, cost of sales to franchisees for the year ended
December 31, 2009, decreased $1,516,929 or 14.1% as
compared to the same period of 2008. The $1,516,929 decrease was
primarily a result of (i) a decline in products purchased
by franchisees due to a 31.4% decrease in customer revenue
experienced by our franchisees; (ii) and the effect of a
50% reduction in the
mark-up on
certain products we sell to franchisees; and (iii) the
reduction in revenue related to our U.K. operation, which was
sold in January 2009.
Route
Expenses
Route expenses consist primarily of the costs incurred by us for
the delivery of products and providing services to customers.
The details of route expenses for the years ended
December 31, 2009 and 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
%(1)
|
|
|
2008
|
|
|
%(1)
|
|
|
Compensation
|
|
$
|
9,085,209
|
|
|
|
20.7
|
%
|
|
$
|
9,990,412
|
|
|
|
21.8
|
%
|
Vehicle expenses
|
|
|
3,144,603
|
|
|
|
7.2
|
|
|
|
3,810,394
|
|
|
|
8.3
|
|
Other
|
|
|
290,079
|
|
|
|
0.7
|
|
|
|
400,437
|
|
|
|
0.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total route expenses
|
|
$
|
12,519,891
|
|
|
|
28.5
|
%
|
|
$
|
14,201,243
|
|
|
|
31.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents cost as a percentage of Products and Services
revenue. |
49
Route expenses for the year ended December 31, 2009
decreased $1,681,352 or 11.8% to $12,519,891 as compared to the
same period of 2008. This decrease included an increase of
$1,064,676 related to the acquisition of 18 franchises and an
independent chemical company in 2009 and two franchises in 2008.
Excluding the impact of acquisitions, route expenses for the
years ended December 31, 2009 as compared to the same
period of 2008 decreased $2,746,028 or 19.3% to $11,455,215. The
decrease consisted primarily of $1,838,795 in compensation and
$784,045 in vehicle expenses. These cost reductions were a
result of route consolidation and optimization initiatives made
in response to the prolonged effect of the challenging economic
conditions we have experienced. These economic conditions
resulted in customer attrition, lower consumption levels of
products and services and a reduction or elimination in spending
for hygiene-related products and services by our customers.
Selling,
General and Administrative Expenses
The details of selling, general and administrative expenses for
the years ended December 31, 2009 and 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
Total
|
|
|
|
2009
|
|
|
Revenue
|
|
|
2008
|
|
|
Revenue
|
|
|
Compensation
|
|
$
|
16,975,556
|
|
|
|
29.9
|
%
|
|
$
|
20,356,810
|
|
|
|
31.8
|
%
|
Occupancy
|
|
|
3,124,466
|
|
|
|
5.5
|
|
|
|
2,934,305
|
|
|
|
4.6
|
|
Other
|
|
|
3,994,679
|
|
|
|
7.0
|
|
|
|
6,766,063
|
|
|
|
10.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total selling, general, and administrative
|
|
$
|
24,094,701
|
|
|
|
42.4
|
%
|
|
$
|
30,057,178
|
|
|
|
46.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses for the years ended
December 31, 2009 decreased $5,962,477, or 19.8%, to
$24,094,701 as compared to 2008. This decrease included an
increase of $1,069,087 in expenses related to the acquisition of
18 franchises and an independent chemical company in 2009 and
two franchises in 2008. Excluding the impact of acquisitions,
selling, general and administrative expenses for the years ended
December 31, 2009 as compared to the same period of 2008
decreased $7,031,564, or 23.4%.
Compensation for the year ended December 31, 2009 decreased
$3,381,254, or 16.6%, to $16,975,556, as compared to the same
period of 2008. This decrease included an increase of $911,335
related to the acquisition of 18 franchises and an independent
chemical company in 2009 and two franchises in 2008. Excluding
the impact of acquisitions, compensation expenses for the year
ended December 31, 2009 as compared to the same period of
2008 decreased $4,292,589, or 21.1% to $16,064,221. This
decrease was primarily a result of reductions in compensation
of: (i) $2,955,479 in field operating and sales personal in
response to changing economic conditions; (ii) $362,212 of
corporate staff resulting from the discontinuation of providing
certain business services to franchisees; and
(iii) $974,898 related to our U.K. operation, which was
sold in January 2009.
Occupancy expenses for the year ended December 31, 2009
increased $190,161, or 6.5%, to $3,124,466, as compared to the
same period of 2008. The increase of $190,161 included an
increase of $138,589 related to the acquisition of 18 franchises
and an independent chemical company in 2009 and two franchises
in 2008. Excluding the impact of acquisitions, occupancy
expenses for the year ended December 31, 2009 as compared
to the same period of 2008 increased $51,572, or 1.8% to
$2,985,877.
Other expenses for the year ended December 31, 2009
decreased $2,771,384, or 41.0%, to $3,994,679 as compared to
2008. This decrease included an increase of $19,163 related to
the acquisition of 18 franchises and an independent chemical
company in 2009 and two franchises in 2008. Excluding the impact
of the acquisitions, other expenses for the years ended
December 31, 2009 as compared to the same period of 2008
decreased $2,790,547, or 41.2% to $3,975,516. This decrease was
a result of: (i) $1,065,707 in marketing and office support
costs resulting from the elimination of field operating and
sales personnel; (ii) $167,803 in printing and other costs
associated with the discontinuation of providing certain
business services to franchisees; (iii) $537,490 of costs
related to our U.K. operation, which was sold in January 2009;
50
(iv) $392,609 in costs related to the implementation of our
technology platform; and (v) $626,938 in bad debt expense.
Depreciation
and Amortization
Depreciation and amortization consists of depreciation of
property and equipment and the amortization of intangible
assets. Depreciation and amortization for the year ended
December 31, 2009 decreased $462,580 or 8.9% to $4,744,052
as compared to $5,206,632 in 2008. This decrease is primarily a
result of: (i) lower depreciation of $876,580 as property
and equipment purchased in earlier years which has now fully
depreciated and was partly offset by (ii) increased
depreciation on ware washing and chemical dispensing equipment
as we continued expanding our chemical sales programs and
(iii) $61,065 of increased amortization of intangibles
related to certain new business acquisitions.
Other
expense, net
Other expense, net for the years ended December 31, 2009
and 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
Total
|
|
|
|
2009
|
|
|
Revenue
|
|
|
2008
|
|
|
Revenue
|
|
|
Interest income
|
|
$
|
54,797
|
|
|
|
0.1
|
|
|
$
|
10,337
|
|
|
|
|
|
Interest expense
|
|
|
(1,063,411
|
)
|
|
|
(1.9
|
)
|
|
|
(1,292,664
|
)
|
|
|
(2.0
|
)
|
Gain (loss) on foreign currency
|
|
|
34,653
|
|
|
|
0.1
|
|
|
|
(54,972
|
)
|
|
|
(0.1
|
)
|
Forgiveness of debt
|
|
|
500,000
|
|
|
|
0.9
|
|
|
|
|
|
|
|
|
|
Gain on bargain purchase
|
|
|
94,107
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
Impairment losses
|
|
|
(30,000
|
)
|
|
|
(0.1
|
)
|
|
|
(223,000
|
)
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense
|
|
$
|
(409,854
|
)
|
|
|
(0.7
|
)%
|
|
$
|
(1,560,299
|
)
|
|
|
(2.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense represents interest on borrowings under our
credit facility, notes incurred in connection with acquisitions
and for the purchases of equipment and software. Interest
expenses for the year ended December 31, 2009 decreased
$229,253 or 17.7% to $1,063,411 as compared to the same period
of 2008. The $229,253 decrease is primarily a result of lower
interest rates on bank lines of credit offset by increased
interest expense on notes incurred in connection with the 2009
acquisitions.
From 2006 until 2008, we agreed to pay a company owned by a
shareholder a fee for services provided, including product
development, marketing and branding strategy, and management
advisory assistance totaling $500,000. In 2009, the related
company waived it rights to these fees and accordingly, the
accrued balance of $500,000, which was outstanding as of
December 31, 2008, has been recorded as forgiveness of
debt. We considered the accounting alternatives for the
treatment of this transaction and concluded that since the
transaction represented the forgiveness of a previously expensed
liability, it was most appropriately reflected in other income.
The gain on bargain purchase recognized in 2009 was related to
the acquisition of franchisees where the fair value of the
assets acquired exceeded purchase price.
We test goodwill and other intangible assets for impairment on
an annual basis or when circumstances change that would more
likely than not reduce the fair value of the goodwill and
intangible assets to amounts that are less than their carrying
amounts. For the years ended December 31, 2009 and 2008,
impairment losses were recognized on goodwill and other
intangible assets totaling $30,000 and $223,000, respectively.
51
Cash
Flow Summary
The following table summarizes cash flows for the years ended
December 31, 2010, 2009, and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Net cash used in operating activities
|
|
$
|
(11,519,604
|
)
|
|
$
|
(5,700,320
|
)
|
|
$
|
(6,770,438
|
)
|
Net cash used in investing activities
|
|
|
(14,799,196
|
)
|
|
|
(4,385,655
|
)
|
|
|
(3,654,597
|
)
|
Net cash provided by financing activities
|
|
|
63,980,211
|
|
|
|
11,014,580
|
|
|
|
9,693,281
|
|
Effect of foreign exchange rates on cash
|
|
|
|
|
|
|
|
|
|
|
(160,611
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
$
|
37,661,411
|
|
|
$
|
928,605
|
|
|
$
|
(892,365
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Activities
For the year ended December 31, 2010, net cash used in
operating activities increased $5,819,284 or 102.1% to
$11,519,604, compared with net cash used in operating activities
of $5,700,320 for the same period of 2009. The increase includes
$10,311,015 higher loss, net of non-cash items, which as
described above includes $5,122,067 of merger expenses. This
higher year to year loss was partly offset by increased
depreciation and amortization of $133,121, and improved changes
in working capital of $4,378,611.
For the year ended December 31, 2009, net cash used in
operating activities decreased $1,070,118 or 15.8% to
$5,700,320, compared with net cash used in operating activities
of $6,770,438 for the same period of 2008. The $1,070,118
decrease consisted of a $4,728,882 decreased net loss, a lower
adjustment for depreciation and amortization of $462,580 and a
$3,196,184 change in working capital and other non-cash items.
Investing
Activities
For the year ended December 31, 2010, net cash used in
investing activities increased $10,413,541 to $14,799,196 or
237.5% compared with net cash used in investing activities of
$4,385,655 for the same period of 2009. For the year ended
December 31, 2009, net cash used in investing activities
increased $731,058 to $4,385,655 compared with net cash used in
investing activities of $3,654,597 for the same period of 2008.
The 2010 increase of $10,413,541 is the result an increase in
payments received on notes receivable of $454,507 offset by
increased capital expenditures of $1,612,738 including
$1,191,520 of dish machines, dispensers and other service items,
an increase of $4,061,977 for additional acquisitions and
$5,193,333 of restricted cash in support of a convertible
promissory note issued in connection with an acquisition in 2010.
The 2009 increase is due to higher capital expenditures in 2009
of $174,943, increased acquisitions of $548,023, and lower
collections on notes receivable of $8,092.
Financing
Activities
For the year ended December 31, 2010, cash provided by
financing activities increased $52,965,631 to $63,980,211 or
480.9%, compared with net cash provided by financing activities
of $11,014,580 during 2009. For the year ended December 31,
2009, cash provided by financing activities increased $1,321,299
to $11,014,580, compared with net cash provided by financing
activities of $9,693,281 during 2008. Net cash provided from
financing activities consists primarily of: (i) cash
received in the Merger; (ii) proceeds from advances and
distributions to shareholders; (iii) borrowing under credit
facilities; and (iv) payments made on long term obligations.
The proceeds from advances and distributions to shareholders
were $7,870,000 for the year ended December 31, 2010 as
compared to $12,645,000 during 2009 and $5,000,000 during 2008.
We made repayments to shareholders of $2,070,000, $115,000, and
$715,845 for the years ended December 31, 2010, 2009, and
2008, respectively. As part of the Merger in November 2010,
$22,198,194 of the advances from shareholders, including
interest, were converted into equity. As of December 31,
2010, there is $2,000,000 of
52
shareholder advances outstanding that are due in November 2011.
In addition, we received cash of $61,850,226 in the Merger on
November 2, 2010.
During the year ended December 31, 2008, we borrowed
$6,296,118 under the credit facilities. There were no borrowings
under the credit facilities for the year ended December 31,
2010 and 2009, since we had borrowed the maximum available under
the credit facilities in 2008. For the year ended December 2010,
2009 and 2008, the payments on long term debt were $3,670,015,
$1,515,420, and $886,995, respectively. The increasing payments
on long term obligations are primarily due to additional debt
assumed as part of acquisitions.
Liquidity
and Capital Resources
We have historically funded the development and growth of our
business with cash generated from operations, shareholder
advances, bank credit facilities and third party financing for
acquisitions and capital leases for equipment.
Revolving
credit facilities
In November 2005, we entered into a revolving line of credit for
a maximum borrowing of up to $5,000,000 which was to expire in
November 2008. In March 2008, this line was replaced with a new
line of credit for a maximum borrowing of up to $10,000,000,
which we refer to as the $10 million credit facility.
Borrowings under the $10 million credit facility are used
for general working capital purposes, capital expenditures and
acquisitions. Our obligations under the $10 million credit
facility are guaranteed by certain of our subsidiaries, and HB
Services and its subsidiaries. In addition, Mr. Huizenga
had guaranteed up to $5,000,000 of our obligations under the
$10 million credit facility; however, this guarantee was
released in 2011. Our obligations under the $10 million
credit facility are secured by a lien on our assets, including
the assets of our subsidiaries, HB Services, and its
subsidiaries. Outstanding principal, accrued and unpaid interest
and other amounts payable under the $10 million credit
facility may be accelerated upon an event of default. The line
of credit was modified in February 2011 to extend the maturity
date to January 2012. Currently, borrowings under the
$10 million credit facility bear interest at 3.11%.
In June 2008, we entered into a revolving credit facility for a
maximum borrowing of up to $15,000,000 with a maturity of June
2009, which we refer to as the $15 million credit facility
and together with the $10 million credit facility, our
credit facilities. The $15 million credit facility was
modified in 2009 to extend the maturity date to January 1,
2010, in 2010 to extend the maturity date further to
February 28, 2011, and in February 2011 to extend the
maturity date to January 2012. Borrowings under the
$15 million credit facility are used for general working
capital purposes, capital expenditures and acquisitions. HB
Services obligations under the $15 million credit
facility were fully guaranteed by Mr. Huizenga; however,
this guarantee was released in 2011. Outstanding principal,
accrued and unpaid interest and other amounts payable under the
$15 million credit facility may be accelerated upon an
event of default. Currently, borrowings under the
$15 million credit facility bear interest at 1.76%.
The credit facilities contain various restrictive covenants
which limit or prevent, without the express consent of the bank,
making loans, advances, or other extensions of credit, change in
control, consolidation, mergers or acquisitions, issuing
dividends, selling, assigning, leasing, transferring or
disposing of any part of the business and incurring indebtedness.
As of November 5, 2010, we amended our credit facilities to
eliminate all restrictive and financial covenants currently
included in the credit facilities, except the following:
(i) we must maintain, at all times, unencumbered cash and
cash equivalents in excess of $15,000,000 and (ii) we may
not without the consent incur or permit our subsidiaries to
incur new indebtedness or make new investments (except for
investments in
53
franchisees) in connection with the acquisition of franchisees
and other businesses within our same line of business in excess
of $25 million in the aggregate at any time.
In February 2011, we amended both credit facilities under
essentially the same terms and conditions as the original
agreements except for: (i) the maturity date was extended
to January 2012 and (ii) Mr. Huizenga was released
from his personnel guarantee under the credit facilities.
On March 30, 2011, we entered into a $100 million senior
secured revolving credit facility with Wells Fargo. Under the
new credit facility, Swisher Hygiene has initial borrowing
availability of $32.5 million, which we expect will
increase to the fully committed $100 million upon delivery
of our unaudited quarterly financial statements for the quarter
ended March 31, 2011. Borrowings under the facility are
secured by a first priority lien on substantially all our
existing and hereafter acquired assets, including
$25 million of cash on borrowings in excess of
$75 million.
Interest on borrowings under the credit facility accrues at
LIBOR plus 2.5% to 4.0%, depending on the ratio of senior debt
to Consolidated EBITDA and interest is payable no more
frequently than monthly on all outstanding borrowings. The
credit facility matures on July 31, 2013.
Borrowings and availability under the credit facility are
subject to compliance with financial covenants, including
achieving specified Consolidated EBITDA targets and maintaining
specified leverage and liquidity ratios. The credit facility
also places restrictions on our ability to incur additional
indebtedness, make certain acquisitions, create liens or other
encumbrances, sell or otherwise dispose of assets, and merge or
consolidate with other entities.
Our obligations under the credit facility are guaranteed by all
our domestic subsidiaries and secured by all the assets and
stock of our domestic subsidiaries and substantially all of the
stock of our foreign subsidiaries. The new credit facility
replaces our current aggregated $25 million credit
facilities, which are discussed in Note 6 to the Notes to
Consolidated Financial Statements.
Shareholder
advances
Beginning in May 2008 through June 2010, we borrowed an
aggregate of $21,445,000 from Royal Palm Mortgage Group LLC
(Royal Palm), an affiliate of Mr. Huizenga,
pursuant to an unsecured promissory note. The note matures in
June 2011. The note bears interest at the one-month LIBOR plus
2.0%. Interest was 2.23% at December 31, 2009. In July
2010, Mr. Berrard purchased $10,722,500 of the total debt,
plus accrued interest, represented by this note. In connection
with and immediately before the Merger, the note was cancelled
and the amounts owing there under, plus accrued interest, were
contributed as capital.
In the latter part of 2009, Mr. Berrard advanced us
$800,000 pursuant to an unsecured promissory note. The advance
was repaid in March 2010.
In August 2010, we borrowed $2,000,000 from Royal Palm pursuant
to an unsecured promissory note. The note matures on the earlier
of the one year anniversary of the effective time of the Merger
or January 1, 2012. The note bears interest at the
short-term Applicable Federal Rate and the interest rate will
adjust on a monthly basis as the short-term Applicable Federal
Rate adjusts. As of December 31, 2010 the outstanding
amount owed under the note was $2,004,444. No interest or
principal has been paid as of December 31, 2010.
In August 2010, we borrowed $950,000 from Royal Palm pursuant to
an unsecured promissory note. The note bears interest at the
short-term Applicable Federal Rate and the interest rate adjusts
on a monthly basis as the short-term Applicable Federal Rate
adjusts. The note matured at the effective time of the Merger
and was paid in connection with the closing.
Acquisition-related
note payables
During the year ended December 31, 2010 and 2009, we
incurred or assumed $12,883,089 and $7,954,305, respectively, of
debt to sellers in connection with certain acquisitions. Two
seller notes payable relating to this debt, totaling $3,050,000,
are secured by letters of credit, which are secured by certain
assets of Messrs. Huizenga and Berrard. The remaining notes
payable are secured by the assets of the acquired
54
businesses or our assets. At December 31, 2010, total
seller notes payable were due in monthly installments and bore
interest at rates ranging between 2.5% 11%. The
obligations mature at various times through 2019.
On March 1, 2011, we closed the acquisition of Choice and
issued approximately 8.3 million shares of its common stock
to the former shareholders of Choice and assumed approximately
$40.9 million in debt, of which $39.2 million was paid
down with proceeds from the private placement of the
Subscription Receipts. In addition, certain shareholders of
Choice received $5.7 million in cash and warrants to
purchase an additional 0.9 million shares at an exercise
price of $6.21.
Private
Placement
On March 22, 2011, we entered into a series of arms
length securities purchase agreements to sell
12,000,000 shares of our common stock at a price of $5.00
per share, for aggregate proceeds of $60,000,000 to certain
funds of a global financial institution (the Private
Placement). We intend to use the proceeds from the Private
Placement to further our organic and acquisition growth
strategy, as well as for working capital purposes.
On March 23, 2011, we closed the Private Placement and
issued 12,000,000 shares of our common stock. Pursuant to
the securities purchase agreements, the shares of common stock
issued in the Private Placement may not be transferred on or
before June 24, 2011 without our consent. We agreed to use
our commercially reasonable efforts to file a resale
registration statement with the SEC relating to the shares of
common stock sold in the Private Placement. If the registration
statement is not filed or declared effective within specified
time periods, the investors will be entitled to receive
liquidated damages in cash equal to one percent of the original
offering price for each share that at such time remains subject
to resale restrictions.
Cash
Requirements
Our cash requirements for the next twelve months consist
primarily of: (i) capital expenditures associated with
dispensing equipment, dish machines and other items in service
at customer locations and equipment and software;
(ii) financing for acquisitions; (iii) working
capital; and (iv) payment of principal and interest on
borrowings under our credit facility, debt obligations incurred
or assumed in connection with acquisitions, and other notes
payable for equipment and software.
As a result of the Merger, on November 2, 2010, our cash
and cash equivalents increased by $61,850,226. In addition, as a
result of the Private Placement, on March 23, 2011, our
cash and cash equivalents increased by $58,860,000. We expect
that our cash on hand and the cash flow provided by operating
activities will be sufficient to fund working capital, general
corporate needs and planned capital expenditure for the next
12 months. However, there is no assurance that these
sources of liquidity will be sufficient to fund our internal
growth initiatives or the investments and acquisition activities
that we may wish to pursue. If we pursue significant internal
growth initiatives or if we wish to acquire additional
businesses in transactions that include cash payments as part of
the purchase price, we may pursue additional debt or equity
sources to finance such transactions and activities, depending
on market conditions.
Contractual
Obligations
Long-term contractual obligations at December 31, 2010 are
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than
|
|
|
|
|
|
|
|
|
5 or More
|
|
|
|
Total
|
|
|
1 Year
|
|
|
1-2 Years
|
|
|
3-4 Years
|
|
|
Years
|
|
Long term obligations
|
|
$
|
43,382,702
|
|
|
$
|
12,352,850
|
|
|
$
|
27,318,652
|
|
|
$
|
1,758,350
|
|
|
$
|
1,952,850
|
|
Shareholder loans
|
|
$
|
2,000,000
|
|
|
|
2,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating leases
|
|
$
|
6,721,480
|
|
|
|
2,031,400
|
|
|
|
1,547,400
|
|
|
|
1,076,490
|
|
|
|
2,066,190
|
|
Interest payments
|
|
$
|
1,094,640
|
|
|
|
544,729
|
|
|
|
193,575
|
|
|
|
119,504
|
|
|
|
236,831
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term contractual cash obligations
|
|
$
|
53,198,822
|
|
|
$
|
16,928,979
|
|
|
$
|
29,059,627
|
|
|
$
|
2,954,344
|
|
|
$
|
4,255,871
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55
|
|
|
|
Note 1
|
Shareholder loans of $2,000,000 mature in November 2011. This
balance excludes the liability component related to the
conversion feature of the convertible promissory notes that is
included in short term obligations on the Consolidated Balance
Sheets. See Note 6 to the Notes to Consolidated Financial
Statements for a detailed discussion of long term obligations.
|
|
|
Note 2
|
Operating leases consist primarily of facility and vehicle
leases.
|
|
|
Note 3
|
Interest payments include interest on both fixed and variable
rate debt. Rates have been assumed to increase 75 basis
points in fiscal 2011, increase 75 basis points in fiscal
2012, increase 100 basis points in fiscal 2013, increase
100 basis points in both fiscal 2014 and 2015 and increase
additional 100 basis points in each year thereafter.
|
Inflation
and Changing Prices
Changes in wages, benefits and energy costs have the potential
to materially impact our financial results. We believe that we
are able to increase prices to counteract the majority of the
inflationary effects of increasing costs and to generate
sufficient cash flows to maintain our productive capability.
During the year ended December 31, 2010 and 2009, we do not
believe that inflation has had a material impact on our
financial position or results of operations. However, we cannot
predict what effect inflation may have on our operations in the
future.
Litigation
and Other Contingencies
We are subject to legal proceedings and claims which arise in
the ordinary course of our business. Although occasional adverse
decisions (or settlements) may occur, we believe that the final
disposition of such matters will not have a material adverse
effect on our financial position, results of operations or cash
flows.
Off-Balance
Sheet Arrangements
Other than operating leases, there are no off-balance sheet
financing arrangements or relationships with unconsolidated
entities or financial partnerships, which are often referred to
as special purpose entities. Therefore, there is no
exposure to any financing, liquidity, market or credit risk that
could arise, had we engaged in such relationships.
In connection with a distribution agreement entered into in
December 2010, we provided a guarantee that the
distributors operating cash flows associated with the
agreement would not fall below certain agreed-to minimums,
subject to certain pre-defined conditions, over the ten year
term of the distribution agreement. If the distributors
annual operating cash flow does fall below the agreed-to annual
minimums, we will reimburse the distributor for any such short
fall up to $1,447,000 per year. No value was assigned to the
fair value of the guarantee at December 31, 2010 based on a
probability assessment of the projected cash flows. Management
currently does not believe that it is probable that any amounts
will be paid under this agreement and thus there is no amount
accrued for the guarantee in the Consolidated Financial
Statements.
Interest
Rate Risk
At December 31, 2010, we had variable rate debt of
$24,946,932 under two lines of credit with an average periodic
interest rate on outstanding balances that fluctuates based on
LIBOR plus 1.5% 2.35%. At the above level of
borrowings, for every 50 basis point change in LIBOR,
interest expense associated with such borrowings would
correspondingly increase or decrease by approximately $43,000.
This analysis does not consider the effects of any other changes
to our capital structure. A 10% change in interest rates would
have an immaterial effect on the fair value of our final rate
debt.
Fuel
Fuel costs represent a significant operating expense. To date,
we have not entered into any contracts or employed any
strategies to mitigate our exposure to fuel costs. Historically,
we have made limited use of fuel surcharges or delivery fees to
help offset rises in fuel costs. Such charges have not been in
the past, and we
56
believe will not be going forward, applicable to all customers.
Consequently, an increase in fuel costs results in a decrease in
our operating margin percentage. At current consumption level, a
$0.50 change in the price of fuel changes our fuel costs by
approximately $266,000 on an annual basis.
FORWARD-LOOKING
STATEMENTS
Our business, financial condition, results of operations, cash
flows and prospects, and the prevailing market price and
performance of our common stock, may be adversely affected by a
number of factors, including the matters discussed below.
Certain statements and information set forth in this
Form 10-K,
as well as other written or oral statements made from time to
time by us or by our authorized executive officers on our
behalf, constitute forward-looking statements within
the meaning of the Federal Private Securities Litigation Reform
Act of 1995. We intend for our forward-looking statements to be
covered by the safe harbor provisions for forward-looking
statements contained in the Private Securities Litigation Reform
Act of 1995, and we set forth this statement and these risk
factors in order to comply with such safe harbor provisions. You
should note that our forward-looking statements speak only as of
the date of this
Form 10-K
or when made and we undertake no duty or obligation to update or
revise our forward-looking statements, whether as a result of
new information, future events or otherwise. Although we believe
that the expectations, plans, intentions and projections
reflected in our forward-looking statements are reasonable, such
statements are subject to risks, uncertainties and other factors
that may cause our actual results, performance or achievements
to be materially different from any future results, performance
or achievements expressed or implied by the forward-looking
statements. The risks, uncertainties and other factors that our
stockholders and prospective investors should consider include
the following:
|
|
|
|
|
We have a history of significant operating losses and as such
our future revenue and operating profitability are uncertain;
|
|
|
|
We may be harmed if we do not penetrate markets and grow our
current business operations;
|
|
|
|
We may require additional capital in the future and no assurance
can be given that such capital will be available on terms
acceptable to us, or at all;
|
|
|
|
Failure to attract, train, and retain personnel to manage our
growth could adversely impact our operating results;
|
|
|
|
We may not be able to properly integrate the operations of
acquired businesses and achieve anticipated benefits of cost
savings or revenue enhancements;
|
|
|
|
We may incur unexpected costs, expenses, or liabilities relating
to undisclosed liabilities of our acquired businesses;
|
|
|
|
We may recognize impairment charges which could adversely affect
our results of operations and financial condition;
|
|
|
|
Goodwill resulting from acquisitions may adversely affect our
results of operations;
|
|
|
|
Future issuances of our common stock in connection with
acquisitions could have a dilutive effect on your investment;
|
|
|
|
Future sales of Swisher Hygiene shares by our stockholders could
affect the market price of our shares;
|
|
|
|
Our business and growth strategy depends in large part on the
success of our franchisees and international licensees, and our
brand reputation may be harmed by actions out of our control
that are taken by franchisees and international licensees;
|
|
|
|
Failure to retain our current customers and renew existing
customer contracts could adversely affect our business;
|
|
|
|
The pricing, terms, and length of customer service agreements
may constrain our ability to recover costs and to make a profit
on our contracts;
|
57
|
|
|
|
|
Changes in economic conditions that impact the industries in
which our end-users primarily operate in could adversely affect
our business;
|
|
|
|
Our solid waste collection operations are geographically
concentrated and are therefore subject to regional economic
downturns and other regional factors;
|
|
|
|
If we are required to change the pricing models for our products
or services to compete successfully, our margins and operating
results may be adversely affected;
|
|
|
|
Several members of our senior management team are critical to
our business and if these individuals do not remain with us in
the future, it could have a material adverse impact on our
business, financial condition and results of operations;
|
|
|
|
The financial condition and operating ability of third parties
may adversely affect our business;
|
|
|
|
Increases in fuel and energy costs could adversely affect our
results of operations and financial condition;
|
|
|
|
Our products contain hazardous materials and chemicals, which
could result in claims against us;
|
|
|
|
We are subject to environmental, health and safety regulations,
and may be adversely affected by new and changing laws and
regulations, that generate ongoing environmental costs and could
subject us to liability;
|
|
|
|
Future changes in laws or renewal enforcement of laws regulating
the flow of solid waste in interstate commerce could adversely
affect our results of operations and financial condition;
|
|
|
|
If our products are improperly manufactured, packaged, or
labeled or become adulterated, those items may need to be
recalled;
|
|
|
|
Changes in the types or variety of our service offerings could
affect our financial performance;
|
|
|
|
We may not be able to adequately protect our intellectual
property and other proprietary rights that are material to our
business;
|
|
|
|
If we are unable to protect our information and
telecommunication systems against disruptions or failures, our
operations could be disrupted;
|
|
|
|
Insurance policies may not cover all operating risks and a
casualty loss beyond the limits of our coverage could adversely
impact our business;
|
|
|
|
Our current size and growth strategy could cause our revenue and
operating results to fluctuate more than some of our larger,
more established competitors or other public companies;
|
|
|
|
Certain stockholders may exert significant influence over
corporate action requiring stockholder approval; and
|
|
|
|
Provisions of Delaware law and our organizational documents may
delay or prevent an acquisition of our company, even if the
acquisition would be beneficial to our stockholders.
|
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures About Market Risk.
|
We are exposed to market risks, including changes in interest
rates and fuel prices. We do not use financial instruments for
speculative trading purposes and we do not hold derivative
financial instruments that could expose us to significant market
risk. We do not currently have any contract with vendors where
we have exposure to the underlying commodity prices. In such
event, we would consider implementing price increases and pursue
cost reduction initiatives; however, we may not be able to pass
on these increase in whole or in part to our customers or
realize costs savings needed to offset these increases. The
following discussion does not consider the effects that an
adverse change may have on the overall economy, and it also does
not consider actions we may take to mitigate our expose to these
changes. We cannot guarantee that the action we take to mitigate
these exposures will be successful.
58
|
|
Item 8.
|
Financial
Statements and Supplementary Data.
|
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
SWISHER HYGIENE INC. AND SUBSIDIARIES
Consolidated Financial Statements As of December 31,
2010 and 2009, and for the
Three Years Ended December 31, 2010
59
Board of Directors
Swisher Hygiene Inc. and Subsidiaries
Charlotte, North Carolina
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We have audited the accompanying consolidated balance sheet of
Swisher Hygiene Inc. and Subsidiaries (the Company)
as of December 31, 2010, and the related consolidated
statements of operations and comprehensive loss, equity, and
cash flows for the year then ended. In connection with our audit
of the consolidated financial statements, we have also audited
the financial statement schedule listed in the accompanying
index for the year ended December 31, 2010. These financial
statements and schedule are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements and schedule based on our
audit.
We conducted our audit in accordance with standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal
controls over financial reporting. Our audit included
consideration of internal controls over financial reporting as a
basis for designing audit procedures that are appropriate in the
circumstances, but not for the purposes of expressing an opinion
on the effectiveness of the Companys internal control over
financial reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Swisher Hygiene Inc. and Subsidiaries as of
December 31, 2010, and the results of its operations and
its cash flows the year then ended, in conformity with
accounting principles generally accepted in the United States of
America.
Also, in our opinion, the financial statement schedule for the
year ended December 31, 2010, when considered in relation
to the basic financial statements taken as a whole, present
fairly, in all material respects, to information set forth
therein.
/s/ BDO USA, LLP
Charlotte, North Carolina
March 31, 2011
60
Board of Directors
Swisher Hygiene Inc. and Subsidiaries
Charlotte, North Carolina
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We have audited the accompanying consolidated balance sheet of
Swisher Hygiene Inc. and Subsidiaries as of December 31,
2009 and the related consolidated statements of operations and
comprehensive loss, stockholders deficit and accumulated
other comprehensive loss, and cash flows for the years ended
December 31, 2009 and 2008. These financial statements are
the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. Swisher Hygiene Inc. and
Subsidiaries is not required to have, nor were we engaged to
perform, an audit of its internal controls over financial
reporting. Our audits included consideration of internal
controls over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not
for the purposes of expressing an opinion on the effectiveness
of the Companys internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Swisher Hygiene Inc. and Subsidiaries as of
December 31, 2009, and the results of its operations and
its cash flows for the years ended December 31, 2009 and
2008, in conformity with accounting principles generally
accepted in the United States of America.
/s/ Scharf Pera & Co., PLLC
Charlotte, North Carolina
November 2, 2010
61
SWISHER
HYGIENE INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
DECEMBER
31, 2010 and 2009
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
ASSETS
|
Current assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
38,931,738
|
|
|
$
|
1,270,327
|
|
Restricted cash
|
|
|
5,193,333
|
|
|
|
|
|
Accounts receivable, net
|
|
|
7,068,629
|
|
|
|
4,954,010
|
|
Inventory, net
|
|
|
2,968,076
|
|
|
|
1,295,784
|
|
Other assets
|
|
|
894,719
|
|
|
|
242,093
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
55,056,495
|
|
|
|
7,762,214
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
11,324,055
|
|
|
|
7,859,482
|
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
29,660,309
|
|
|
|
18,353,489
|
|
Other intangibles, net
|
|
|
7,668,805
|
|
|
|
3,580,458
|
|
Other noncurrent assets
|
|
|
2,524,598
|
|
|
|
1,362,296
|
|
|
|
|
|
|
|
|
|
|
Total other assets
|
|
|
39,853,712
|
|
|
|
23,296,243
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
106,234,262
|
|
|
$
|
38,917,939
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
5,615,467
|
|
|
$
|
3,604,266
|
|
Accrued expenses and other current liabilities
|
|
|
3,720,465
|
|
|
|
2,584,852
|
|
Short term obligations
|
|
|
13,378,710
|
|
|
|
2,295,290
|
|
Advances from shareholder
|
|
|
2,000,000
|
|
|
|
800,000
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
24,714,642
|
|
|
|
9,284,408
|
|
|
|
|
|
|
|
|
|
|
Long term obligations
|
|
|
31,028,992
|
|
|
|
32,029,841
|
|
Advances from shareholder
|
|
|
|
|
|
|
16,845,000
|
|
Deferred income tax liabilities
|
|
|
1,700,000
|
|
|
|
|
|
Other long term liabilities
|
|
|
2,763,051
|
|
|
|
112,000
|
|
|
|
|
|
|
|
|
|
|
Total noncurrent liabilities
|
|
|
35,492,043
|
|
|
|
48,986,841
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
Swisher Hygiene Inc. stockholders equity
|
|
|
|
|
|
|
|
|
Common stock, par value $0.001, authorized
400,000,000 shares; 114,015,063 and 57,789,630 shares
issued and outstanding at December 31, 2010 and 2009,
respectively
|
|
|
114,015
|
|
|
|
57,790
|
|
Additional paid-in capital
|
|
|
54,725,897
|
|
|
|
27,487,740
|
|
Accumulated deficit
|
|
|
(8,996,759
|
)
|
|
|
(47,000,736
|
)
|
Accumulated other comprehensive income
|
|
|
73,985
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Swisher Hygiene Inc. stockholders equity
|
|
|
45,917,138
|
|
|
|
(19,455,206
|
)
|
Non-controlling interest
|
|
|
110,439
|
|
|
|
101,896
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
46,027,577
|
|
|
|
(19,353,310
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
106,234,262
|
|
|
$
|
38,917,939
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements
62
SWISHER
HYGIENE INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
FOR THE
THREE YEARS ENDED DECEMBER 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
$
|
37,690,324
|
|
|
$
|
27,316,876
|
|
|
$
|
25,935,493
|
|
Service
|
|
|
17,737,440
|
|
|
|
16,573,821
|
|
|
|
19,895,990
|
|
Franchise and other
|
|
|
8,224,554
|
|
|
|
12,923,327
|
|
|
|
18,277,408
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
63,652,318
|
|
|
|
56,814,024
|
|
|
|
64,108,891
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
23,597,229
|
|
|
|
22,304,515
|
|
|
|
25,071,410
|
|
Route expenses
|
|
|
13,930,653
|
|
|
|
12,519,891
|
|
|
|
14,201,243
|
|
Selling, general, and administrative
|
|
|
31,258,368
|
|
|
|
24,094,701
|
|
|
|
30,057,178
|
|
Merger expenses
|
|
|
5,122,067
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
4,857,173
|
|
|
|
4,744,052
|
|
|
|
5,206,632
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
78,765,490
|
|
|
|
63,663,159
|
|
|
|
74,536,463
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(15,113,172
|
)
|
|
|
(6,849,135
|
)
|
|
|
(10,427,572
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
100,212
|
|
|
|
54,797
|
|
|
|
10,337
|
|
Interest expense
|
|
|
(1,677,076
|
)
|
|
|
(1,063,411
|
)
|
|
|
(1,292,664
|
)
|
Gain (loss) on foreign currency
|
|
|
820,032
|
|
|
|
34,653
|
|
|
|
(54,972
|
)
|
Forgiveness of debt
|
|
|
|
|
|
|
500,000
|
|
|
|
|
|
Gain from bargain purchases
|
|
|
|
|
|
|
94,107
|
|
|
|
|
|
Impairment loss
|
|
|
|
|
|
|
(30,000
|
)
|
|
|
(223,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense, net
|
|
|
(756,832
|
)
|
|
|
(409,854
|
)
|
|
|
(1,560,299
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss before income taxes
|
|
|
(15,870,004
|
)
|
|
|
(7,258,989
|
)
|
|
|
(11,987,871
|
)
|
Income tax expense
|
|
|
1,700,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(17,570,004
|
)
|
|
|
(7,258,989
|
)
|
|
|
(11,987,871
|
)
|
Net (income) loss attributable to noncontrolling interest
|
|
|
(8,543
|
)
|
|
|
(1,896
|
)
|
|
|
17,014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Swisher Hygiene Inc.
|
|
|
(17,578,547
|
)
|
|
|
(7,260,885
|
)
|
|
|
(11,970,857
|
)
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee benefit pension plan
|
|
|
73,985
|
|
|
|
|
|
|
|
|
|
Liquidation of a foreign subsidiary
|
|
|
|
|
|
|
221,466
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
(195,446
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
$
|
(17,504,562
|
)
|
|
$
|
(7,039,419
|
)
|
|
$
|
(12,166,303
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(0.26
|
)
|
|
$
|
(0.13
|
)
|
|
$
|
(0.21
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares used in the computation of
loss per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
66,956,371
|
|
|
|
57,789,630
|
|
|
|
57,789,630
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements
63
SWISHER
HYGIENE INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF EQUITY
FOR THE
THREE YEARS ENDED DECEMBER 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
Swisher
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
Hygiene Inc.
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
Accumulated
|
|
|
Comprehensive
|
|
|
Shareholders
|
|
|
Noncontrolling
|
|
|
Total
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
(Loss) / Income
|
|
|
Equity
|
|
|
Interest
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of January 1, 2008
|
|
|
57,789,630
|
|
|
$
|
57,790
|
|
|
$
|
27,880,778
|
|
|
$
|
(27,768,994
|
)
|
|
$
|
(26,020
|
)
|
|
$
|
143,554
|
|
|
$
|
28,856
|
|
|
$
|
172,410
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(195,446
|
)
|
|
|
(195,446
|
)
|
|
|
|
|
|
|
(195,446
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributions
|
|
|
|
|
|
|
|
|
|
|
461,962
|
|
|
|
|
|
|
|
|
|
|
|
461,962
|
|
|
|
|
|
|
|
461,962
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions
|
|
|
|
|
|
|
|
|
|
|
(740,000
|
)
|
|
|
|
|
|
|
|
|
|
|
(740,000
|
)
|
|
|
(11,842
|
)
|
|
|
(751,842
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,970,857
|
)
|
|
|
|
|
|
|
(11,970,857
|
)
|
|
|
(17,014
|
)
|
|
|
(11,987,871
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2008
|
|
|
57,789,630
|
|
|
|
57,790
|
|
|
|
27,602,740
|
|
|
|
(39,739,851
|
)
|
|
|
(221,466
|
)
|
|
|
(12,300,787
|
)
|
|
|
|
|
|
|
(12,300,787
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liquidation of foreign subsidiary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
221,466
|
|
|
|
221,466
|
|
|
|
|
|
|
|
221,466
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions
|
|
|
|
|
|
|
|
|
|
|
(115,000
|
)
|
|
|
|
|
|
|
|
|
|
|
(115,000
|
)
|
|
|
|
|
|
|
(115,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contribution of equity on acquisition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,000
|
|
|
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,260,885
|
)
|
|
|
|
|
|
|
(7,260,885
|
)
|
|
|
1,896
|
|
|
|
(7,258,989
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2009
|
|
|
57,789,630
|
|
|
$
|
57,790
|
|
|
$
|
27,487,740
|
|
|
$
|
(47,000,736
|
)
|
|
$
|
|
|
|
$
|
(19,455,206
|
)
|
|
$
|
101,896
|
|
|
$
|
(19,353,310
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss through November 1, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,581,788
|
)
|
|
|
|
|
|
|
(8,581,788
|
)
|
|
|
|
|
|
|
(8,581,788
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contribution of capital as a result of the termination of the S
Corp election
|
|
|
|
|
|
|
|
|
|
|
(55,582,524
|
)
|
|
|
55,582,524
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued in Merger with CoolBrands Inc.
|
|
|
56,225,433
|
|
|
|
56,225
|
|
|
|
58,977,112
|
|
|
|
|
|
|
|
|
|
|
|
59,033,337
|
|
|
|
|
|
|
|
59,033,337
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders advances converted to equity
|
|
|
|
|
|
|
|
|
|
|
22,198,194
|
|
|
|
|
|
|
|
|
|
|
|
22,198,194
|
|
|
|
|
|
|
|
22,198,194
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share based compensation
|
|
|
|
|
|
|
|
|
|
|
398,155
|
|
|
|
|
|
|
|
|
|
|
|
398,155
|
|
|
|
|
|
|
|
398,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion feature on promissory note payable
|
|
|
|
|
|
|
|
|
|
|
1,247,220
|
|
|
|
|
|
|
|
|
|
|
|
1,247,220
|
|
|
|
|
|
|
|
1,247,220
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee benefit plan adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
73,985
|
|
|
|
73,985
|
|
|
|
|
|
|
|
73,985
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,996,759
|
)
|
|
|
|
|
|
|
(8,996,759
|
)
|
|
|
8,543
|
|
|
|
(8,988,216
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2010
|
|
|
114,015,063
|
|
|
$
|
114,015
|
|
|
$
|
54,725,897
|
|
|
$
|
(8,996,759
|
)
|
|
$
|
73,985
|
|
|
$
|
45,917,138
|
|
|
$
|
110,439
|
|
|
$
|
46,027,577
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements
64
SWISHER
HYGIENE INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
FOR THE
THREE YEARS ENDED DECEMBER 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Cash used in operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(17,570,004
|
)
|
|
$
|
(7,258,989
|
)
|
|
$
|
(11,987,871
|
)
|
Adjustments to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
4,857,173
|
|
|
|
4,744,052
|
|
|
|
5,206,632
|
|
Impairment loss
|
|
|
|
|
|
|
30,000
|
|
|
|
223,000
|
|
Gain from bargain purchases
|
|
|
|
|
|
|
(94,107
|
)
|
|
|
|
|
Provision for doubtful accounts
|
|
|
282,593
|
|
|
|
284,385
|
|
|
|
605,186
|
|
Stock based compensation
|
|
|
398,155
|
|
|
|
|
|
|
|
|
|
Unrealized loss on fair value of convertible promissory notes
|
|
|
277,000
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities
|
|
|
1,700,000
|
|
|
|
|
|
|
|
|
|
Changes in working capital components:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(1,191,276
|
)
|
|
|
1,278,418
|
|
|
|
603,260
|
|
Inventory
|
|
|
(1,066,672
|
)
|
|
|
9,553
|
|
|
|
(52,590
|
)
|
Other assets and noncurrent assets
|
|
|
(702,727
|
)
|
|
|
(366,383
|
)
|
|
|
455,657
|
|
Accounts payable, accrued expenses, and other long term
liabilities
|
|
|
1,496,154
|
|
|
|
(4,327,249
|
)
|
|
|
(1,823,712
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash used in operating activities
|
|
|
(11,519,604
|
)
|
|
|
(5,700,320
|
)
|
|
|
(6,770,438
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash used in investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(5,178,717
|
)
|
|
|
(3,565,979
|
)
|
|
|
(3,391,036
|
)
|
Payments received on notes receivable
|
|
|
473,854
|
|
|
|
19,347
|
|
|
|
27,439
|
|
Acquisitions
|
|
|
(4,901,000
|
)
|
|
|
(839,023
|
)
|
|
|
(291,000
|
)
|
Restricted cash
|
|
|
(5,193,333
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash used in investing activities
|
|
|
(14,799,196
|
)
|
|
|
(4,385,655
|
)
|
|
|
(3,654,597
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash received in Merger
|
|
|
61,850,226
|
|
|
|
|
|
|
|
|
|
Distributions to shareholders
|
|
|
(2,070,000
|
)
|
|
|
(115,000
|
)
|
|
|
(704,000
|
)
|
Distributions to non-controlling shareholder
|
|
|
|
|
|
|
|
|
|
|
(11,842
|
)
|
Proceeds from advances from shareholder
|
|
|
7,870,000
|
|
|
|
12,645,000
|
|
|
|
5,000,000
|
|
Proceeds from line of credit
|
|
|
|
|
|
|
|
|
|
|
6,296,118
|
|
Principal payments on debt
|
|
|
(3,670,015
|
)
|
|
|
(1,515,420
|
)
|
|
|
(886,995
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by financing activities
|
|
|
63,980,211
|
|
|
|
11,014,580
|
|
|
|
9,693,281
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rates on cash
|
|
|
|
|
|
|
|
|
|
|
(160,611
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
37,661,411
|
|
|
|
928,605
|
|
|
|
(892,365
|
)
|
Cash and cash equivalents at beginning of year
|
|
|
1,270,327
|
|
|
|
341,722
|
|
|
|
1,234,087
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
38,931,738
|
|
|
$
|
1,270,327
|
|
|
$
|
341,722
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Cash Flow Information
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash received during the year for interest
|
|
$
|
89,804
|
|
|
$
|
54,797
|
|
|
$
|
10,337
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for interest
|
|
$
|
925,750
|
|
|
$
|
761,107
|
|
|
$
|
1,310,821
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes payable issued or assumed on acquisition
|
|
$
|
12,883,089
|
|
|
$
|
7,954,305
|
|
|
$
|
240,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholder advances converted to equity
|
|
$
|
22,198,194
|
|
|
$
|
|
|
|
$
|
461,962
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements
65
SWISHER
HYGIENE INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
|
NOTE 1
|
BUSINESS
DESCRIPTION
|
Principal
Operations
Swisher Hygiene Inc. and its wholly-owned subsidiaries, formerly
named CoolBrands International Inc., (the Company or
We or Our) provide hygiene solutions to
customers throughout much of North America and internationally
through its global network of company owned operations,
franchises and master licensees. These solutions include
essential products and services that are designed to promote
superior cleanliness and sanitation in commercial environments,
while enhancing the safety, satisfaction and well-being of
employees and patrons. These solutions are typically delivered
by employees on a regularly scheduled basis and may involve
1) the sale of certain consumable products such as
chemicals, soap, paper and cleaning supplies, 2) the sale
and/or
rental of equipment for the dispensing of such products as well
as items that require regular maintenance and cleaning such as
floor mats, mops, linens and dish machines, and 3) the
performance of certain manual cleaning processes. The Company
serves customers in a wide range of end-markets, with a
particular emphasis on the foodservice, hospitality, retail,
industrial and healthcare industries across North America.
The Company has 69 company owned operations and 10
franchise operations located throughout the United States and
Canada and has entered into 10 Master License Agreements
covering the United Kingdom, Ireland, Portugal, the Netherlands,
Singapore, the Philippines, Taiwan, Korea, Hong
Kong/Macau/China, and Mexico.
Merger
and Reorganization
On August 17, 2010, Swisher International, Inc.
(Swisher International) entered into a merger
agreement (the Merger Agreement) that was completed
on November 2, 2010, under which all of the outstanding
common shares of Swisher International were exchanged for
57,789,630 common shares of CoolBrands International Inc.
(CoolBrands), and Swisher International become a
wholly-owned subsidiary of CoolBrands (the Merger).
Immediately before the Merger, CoolBrands completed its
redomestication to Delaware from Ontario, Canada and became
Swisher Hygiene Inc. The former shareholders of Swisher
International received 57,789,630 shares of Swisher Hygiene
Inc. common stock, representing, on a fully diluted basis, a 48%
ownership interest in Swisher Hygiene. The shareholders of
CoolBrands retained a 52% ownership interest of the Company, on
a fully diluted basis.
The share exchange was accounted as a reverse acquisition and is
considered to be a capital transaction, in substance, rather
than a business combination. The transaction was effectively a
reverse recapitalization equivalent to the issuance of stock by
a private company for the net monetary assets of the
non-operating corporation accompanied by the recapitalization.
Accordingly, the accounting for the share exchange was similar
to that resulting from a reverse acquisition; except that the
transaction was consummated at book value and no goodwill or
intangible assets were recognized. The accompanying Consolidated
Financial Statements have been adjusted to give retroactive
effect for the change in reporting entity from Swisher
International, Inc. to Swisher Hygiene, Inc., and to reflect the
change in capital structure as a result of the Merger.
|
|
NOTE 2
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
Basis of
Presentation and Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of Swisher Hygiene Inc. and all its subsidiaries, which
are wholly-owned and include the historical financial statements
of HB Service, LLC. HB Service, LLC, a limited liability company
jointly owned by the shareholders of Swisher International, has
acquired and operated hygiene service businesses throughout the
United States since 2004. Effective July 13, 2010, Swisher
International entered into a merger agreement with HB Service,
LLC. This merger has been accounted for as a nonsubstantive
exchange as there was no significant economic effect to entering
into the
66
SWISHER
HYGIENE INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
transaction. Accordingly, we have accounted for the merger by
recognizing the assets and liabilities of the two entities based
upon their respective carrying amounts as if the merger had
occurred as of January 1, 2007.
All material intercompany balances and transactions have been
eliminated in consolidation. Certain adjustments have been made
to conform prior periods to the current year presentation.
Use of
Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America (GAAP) requires management to make estimates
and assumptions that affect the reported amounts of assets,
liabilities, revenue and expenses and disclosure of contingent
assets and liabilities at the date of the Consolidated Financial
Statements. Actual results could differ from those estimates and
such differences could affect the results of operations reported
in future periods.
Foreign
Currency Translation
Foreign currency denominated assets and liabilities are
translated into U.S. dollars using the exchange rates in
effect at the balance sheet date. The effect of exchange rate
fluctuations on translation of assets and liabilities at the
balance sheet date are recorded as a component of equity and
accumulated other comprehensive (loss) income. As of
December 31, 2008 $221,466 of foreign currency translation
loss was recorded. Amounts transferred from accumulated other
comprehensive (loss) income upon the sale or liquidation of an
investment in a foreign entity is reported as part of the gain
or loss on sale or liquidation, which occurred in 2009 with the
sale of the U.K. foreign subsidiary. Results of operations for
foreign operations are translated using the average exchange
rates throughout the period. During 2010, the Company recorded a
realized net gain of $820,032 in Other income (expense) on the
Consolidated Statement of Operations. This gain is primarily due
to the sale of cash held in Canadian dollars for
U.S. dollars at favorable conversion rates.
Financial
Instruments
The Companys financial instruments, which may expose the
Company to concentrations of credit risk, include cash and cash
equivalents, account receivables, accounts payable, and debt.
Cash and cash equivalents are maintained at financial
institutions and, at times, balances may exceed federally
insured limits. We have never experienced any losses related to
these balances. The Company has approximately $11,197,000 of
cash held in bank accounts above Federal Deposit Insurance
Corporation limits and approximately $30,388,000 of cash held in
Canadian bank accounts above Canada Deposit Insurance
Corporation limits. The carrying amounts of cash and the current
portion of accounts receivable and accounts payable approximate
fair value due to the short maturity of these instruments. The
fair value of the Companys debt is estimated based on the
current borrowing rates available to the Company for bank loans
with similar terms and maturities, approximates the carrying
value of these liabilities. Convertible notes that convert at a
fixed conversion price into a variable number of shares are
recorded at fair value at December 31, 2010. (See Note 6.)
Cash and
Cash Equivalents
The Company considers all cash accounts and all highly liquid
short term investments purchased with an original maturity of
three months or less to be cash or cash equivalents. As of
December 31, 2010 and 2009, the Company did not have any
investments with maturities greater than three months.
Accounts
Receivable, net
Accounts receivable, net consist of amounts due from customers
for product sales and services as well as from franchisees and
master licensees for product sales, royalties and fees for
marketing and administrative
67
SWISHER
HYGIENE INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
services. Accounts receivable are reported net of an allowance
for doubtful accounts. The allowance is managements best
estimate of uncollectible amounts and is based on a number of
factors, including overall credit quality, age of outstanding
balances, historical write-off experience and specific account
analysis that projects the ultimate collectability of the
outstanding balances. The allowance was $364,234 and $334,156 at
December 31, 2010 and 2009, respectively.
Inventory
Inventory consists of purchased items which are sold to
customers and are stated at the lower of cost or market
determined using the first in-first out cost method. The Company
routinely reviews inventory for excess and slow moving items as
well as for damaged or otherwise obsolete items and for items
selling at negative margins. When such items are identified, a
reserve is recorded to adjust their carrying value to their
estimated net realizable value. The reserve was $92,773 and
$50,000 at December 31, 2010 and 2009, respectively.
Property
and Equipment, net
Property and equipment, net is stated at cost, less accumulated
depreciation and amortization. Depreciation and amortization is
provided using the straight-line method over the estimated
useful lives of individual assets or classes of assets as
follows:
|
|
|
Items in service
|
|
2 to 5 years
|
Equipment and furniture
|
|
3 to 10 years
|
Vehicles
|
|
3 years
|
Computer equipment
|
|
3 years
|
Computer software
|
|
3 to 7 years
|
Leasehold improvements
|
|
3 to 10 years
|
Items in service consist of various systems that dispense the
Companys cleaning and sanitizing, dish machine and dust
control products. Included in the cost of items in service are
costs incurred to install the equipment of significant customers
with long-term contracts. These costs include labor, parts and
supplies. Costs of significant additions, renewals and
betterments, are capitalized and depreciated. Maintenance and
repairs are charged to expense when incurred.
The Company capitalizes certain costs incurred during the
application development stage associated with the development of
new software products for internal use. Research and development
costs in the preliminary project stage are expensed. Internal
and external training costs and maintenance costs in the
post-implementation operation stage are also expensed.
Capitalized software costs are amortized over the estimated
useful lives of the software, ranging from 3 to 7 years and
commencing upon operational use.
Goodwill
and Other Intangible Assets
Goodwill represents the excess of the cost of an acquired
business over the fair value of the identifiable tangible and
intangible assets and liabilities assumed in a business
combination. Identifiable intangible assets include customer
relationships and non-compete agreements. The fair value of
these intangible assets at the time of acquisition is estimated
based upon discounted future cash flow projections. The customer
relationships are amortized on a straight-line basis over the
expected average life of the acquired accounts, which is
typically five years based upon a number of factors, including
longevity of customers acquired and historical retention rates.
The non-compete agreements are amortized on a straight-line
basis over the term of the agreements, which are between two to
five years.
68
SWISHER
HYGIENE INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company tests goodwill and intangible assets for impairment
annually or more frequently if indicators for potential
impairment exist. Impairment testing is performed at the
reporting unit level. Under generally accepted accounting
principles, a reporting unit is either the equivalent to, or one
level below, an operating segment. The test to evaluate for
impairment is a two-step process. In the first step, we compare
the fair value of each reporting unit to its carrying value. If
the fair value of the reporting unit is less than its carrying
value, we perform a second step to determine the implied fair
value of goodwill associated with that reporting unit. If the
carrying value of goodwill exceeds the implied fair value of
goodwill, such excess represents the amount of goodwill
impairment.
Determining the fair value of a reporting unit includes the use
of significant estimates and assumptions. Management utilizes a
discounted cash flow technique as a means for estimating fair
value. This discounted cash flow analysis requires various
judgmental assumptions including those about future cash flows,
customer growth rates and discount rates. Expected cash flows
are based on historical customer growth, including attrition,
and continued long term growth of the business. The discount
rates used for the analysis reflect a weighted average cost of
capital based on industry and capital structure adjusted for
equity risk and size risk premiums. These estimates can be
affected by factors such as customer growth, pricing, and
economic conditions that can be difficult to predict. As part of
this impairment testing, management also assesses the useful
lives assigned to the customer relationships and non-compete
agreements. There were no impairment losses on goodwill or other
intangible assets for the year ended December 31, 2010. For
the years ended December 31, 2009 and 2008, we recognized
impairment losses on goodwill and other intangible assets of
$30,000 and $223,000, respectively.
Long-lived
Assets
The Company recognizes losses related to the impairment of
long-lived assets when the carrying amount is not recoverable
and exceeds its fair value. When facts and circumstances
indicate that the carrying values of long-lived assets may be
impaired, management of the Company evaluates recoverability by
comparing the carrying value of the assets to projected future
cash flows, in addition to other qualitative and quantitative
analyses. The Company also performs a periodic assessment of the
useful lives assigned to the intangible assets, as previously
discussed. There were no impairment losses related to long-lived
assets for the years ended December 31, 2010, 2009 and 2008.
Noncontrolling
Interest
In the majority of its acquisitions, the Company acquires 100%
of the business; however, in a few instances, the former owner
retained a noncontrolling interest. Profit and loss are
allocated to the noncontrolling interest based on its pro-rata
share.
Revenue
Recognition
Revenue from product sales and services is recognized when
services are performed or the products are delivered to the
customer. Franchise and other revenue include product sales,
royalties and other fees charged to franchisees in accordance
with the terms of their franchise agreements. Royalties and fees
are recognized when earned.
The Company has entered into franchise and license agreements
which grant the exclusive rights to develop and operate within
specified geographic territories for a fee. The initial
franchise or license fee is deferred and recognized as revenue
when substantially all significant services to be provided by
the Company are performed. Direct incremental costs related to
franchise or license sales for which revenue has not been
recognized is deferred until the related revenue is recognized.
69
SWISHER
HYGIENE INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Income
Taxes
Effective on January 1, 2007, Swisher Internationals
shareholders elected that the corporation be taxed under the
provisions of Subchapter S of the Internal Revenue Code of 1986,
as amended (the Code). Under this provision, the
shareholders were taxed on their proportionate share of Swisher
Internationals taxable income. As a Subchapter
S corporation, Swisher International bore no liability or
expense for income taxes.
As a result of the Merger in November 2010, Swisher
International converted from a corporation taxed under the
provisions of Subchapter S of the Internal Revenue Code (S
Corp) to a tax-paying entity and accounts for income taxes
under the asset and liability method. Deferred tax assets and
liabilities are recognized for the future tax consequences
attributable to the differences between the financial statement
carrying amounts of existing assets and liabilities and their
respective tax bases and net operating loss carryforwards.
Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered
or settled. The effect on deferred tax assets and liabilities of
a change in tax rates is recognized in income in the period that
includes the enactment date. Valuation allowances are
established when necessary to reduce deferred tax assets where
it is more likely than not that deferred tax assets will not be
realized. In addition, the undistributed earnings on the date
the Company terminated the S Corp election were recorded as
Additional paid-in capital on the Consolidated Financial
Statements since the termination of the S Corp election assumes
a constructive distribution to the owners followed by a
contribution of capital to the corporation.
As of the Merger date, the cumulative timing differences between
book income and taxable income were recorded. A full valuation
allowance has been provided against the deferred tax benefit
attributable to the net loss from operations. The opening
balance of the Companys net deferred taxes was recorded as
income tax expense in the Consolidated Financial Statements.
As of January 1, 2009, the Company adopted the provisions
related to accounting for uncertainty in income taxes, which
prescribes how a Company should recognize, measure, present and
disclose in its financial statements uncertain tax positions
that the Company has taken or expects to take on a tax return.
The adoption of these provisions did not have a material impact
on the Companys Consolidated Financial Statements.
Share
Based Compensation
In November 2010, our board of directors approved the Swisher
Hygiene Inc. 2010 Stock Incentive Plan (the Plan) to
attract, retain, motivate and reward key officers and employees.
The Plan allows for grant of stock options, restricted stock
units and other equity instruments up to a total of
6,000,000 shares of our common stock. All options are
exercisable at a price equal to the fair market value of the
Companys common stock on the date of grant.
Options vest in four equal annual installments beginning on the
first anniversary of the grant date and expire in 2020.
Restricted stock units vest in four equal annual installments
beginning on the first anniversary of the grant date. Recipients
of restricted stock units may not sell or transfer their shares
until the shares vest. The restrictions of the common stock
units lapse ratably as vesting occurs over four years.
The Company measures and recognizes all share based compensation
at fair value at the date of grant and recognizes compensation
expense over the service period for awards expected to vest.
Determining the fair value of share based awards at the grant
dates requires judgment, including estimating the share
volatility, the expected term the award will be outstanding, and
the amount of the awards that are expected to be forfeited. The
Company utilizes the Black-Scholes option pricing model to
determine the fair value for stock options on the date of grant.
70
SWISHER
HYGIENE INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Pension
Plan
The Company administers a defined benefit plan for certain
retired employees. The plan has not allowed for new participants
since October 2000. As of the date of the Merger, the Company
recorded the underfunded pension obligation of $560,931 for this
plan.
The Company recognizes in its statement of financial position
the overfunded or underfunded status of the defined benefit plan
measured as the difference between the fair value of plan assets
and the benefit obligation. The Company recognizes as a separate
component of comprehensive loss the actuarial gains and losses
that arise during the period that are not recognized as
components of net periodic benefit cost. The Company measures
the defined benefit plan assets and the defined benefit plan
obligations as of December 31 and discloses additional
information in the notes to the Consolidated Financial
Statements about certain effects on net periodic benefit cost in
the upcoming fiscal year that arise from delayed recognition of
the actuarial gains and losses.
The calculation of net periodic benefit cost and the
corresponding net liability requires the use of critical
assumptions, including the expected long term rate of return on
plan assets and the assumed discount rate. Changes in these
assumptions can result in different expense and liability
amounts. Net periodic benefit cost increases as the expected
rate of return on pension plan assets decreases. Future changes
in plan asset returns, assumed discount rates and other factors
related to the participants in the Companys pension plans
will impact the Companys future net periodic benefit cost
and liabilities. The Company cannot predict with certainty what
these factors will be in the future.
Loss per
Common Share
Basic net loss attributable to common stockholders per share is
computed by dividing net loss by the weighted average number of
common shares outstanding during the period. Diluted net loss
per share was the same as basic net loss attributable to common
stockholders per share for all periods presented, since the
effects of any potentially dilutive securities are excluded as
they are antidilutive due to our net losses.
Comprehensive
Loss
Comprehensive loss includes net loss, foreign currency
translation adjustments, liquidation of a foreign subsidiary,
and unrecognized pension actuarial gains and losses.
Fair
Value Measurements
The Company determines the fair value of certain assets and
liabilities based on assumptions that market participants would
use in pricing the assets or liabilities. Fair value is defined
as the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market
participants at the measurement date, or the exit
price. The Company utilizes a fair value hierarchy that
prioritizes the inputs to valuation techniques used to measure
fair value and gives precedence to observable inputs in
determining fair value. An instruments level within the
hierarchy is based on the lowest level of any significant input
to the fair value measurement. The hierarchy gives the highest
priority to unadjusted quoted prices in active markets for
identical assets or liabilities (Level 1 measurements) and
the lowest priority to unobservable inputs (Level 3
measurements). Assets and liabilities are classified based on
the lowest level of input that is significant to the fair value
measurement. The following levels were established for each
input:
Level 1: Inputs that are quoted
prices (unadjusted) in active markets for identical assets or
liabilities that the reporting entity has the ability to access
at the measurement date. Active markets are those in which
transactions for the asset or liability occur with sufficient
frequency and volume to provide pricing information on an
ongoing basis. Instruments classified as Level 1 consist of
financial instruments such listed equities and fixed income
securities. (See Note 11.)
71
SWISHER
HYGIENE INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Level 2: Inputs other than quoted
prices included in Level 1 that are observable for the
asset or liability, either directly or indirectly. The
Company does not have any Level 2 financial instruments as
of December 31, 2010 and 2009.
Level 3: Unobservable inputs for
the asset or liability. These are inputs for which there
is no market data available or observable inputs that are
adjusted using Level 3 assumptions. Instruments classified
as Level 3 at December 31, 2010 include certain
convertible promissory notes and a certain guarantee, which are
not publically traded and have unobservable inputs. (See
Note 6 and Note 14.)
There were no Level 3 financial instruments as of or during
the year ended December 31, 2009. In addition there have
been no significant transfers into or between Level 1 and
Level 2 financial instruments during the years ended
December 31, 2010 and 2009.
Segments
The Company primarily provides commercial hygiene services and
products throughout much of the United States, and additionally
operates a worldwide franchise and license system to provide the
same products and services in markets where Company owned
operations do not exist. The Company manages, allocates
resources, and reports in one business segment.
Recently
Adopted Accounting Pronouncements
Accounting Standards
Codificationtm: Effective
July 1, 2009, we adopted the Financial Accounting Standards
Board (FASB) Accounting Standards
Codificationtm
(ASC or Codification) as the source of
authoritative GAAP recognized by the FASB to be applied by
nongovernmental entities. Rules and interpretive releases of the
U.S. Securities Exchange Commission (SEC) under
authority of federal securities laws are also sources of
authoritative GAAP for SEC registrants. The Codification
superseded all then-existing non-SEC accounting and reporting
standards. The adoption of the Codification did not have a
material effect on our Consolidated Financial Statements.
Fair Value Measurements and
Disclosures: Effective January 1, 2009, we
adopted amended standards on two issues: 1) determining the
fair value of a liability when a quoted price in an active
market for an identical liability is not available and
2) measuring and disclosing the fair value of certain
investments on the basis of the investments net asset
value per share or its equivalent. This adoption did not have a
material effect on our Consolidated Financial Statements.
In December 2008, the FASB issued guidance on employers
disclosures about plan assets of a defined benefit plan or other
post retirement plan, which requires more detailed disclosures
regarding employers plan assets, including their
investment strategies, major categories of plan assets,
concentration of risk, and valuation methods used to measure the
fair value of plan assets. The guidance is effective for fiscal
years ending after December 15, 2009. The Company has
included the required disclosures in Note 11 of the
Consolidated Financial Statements.
In January 2010, the FASB issued new standards for new
disclosures regarding transfers in and out of Level 1 and
Level 2 fair value measurements, as well as requiring
presentation on a gross basis information about purchases,
sales, issuances and settlements in Level 3 fair value
measurements. The standards also clarified existing disclosures
regarding level of disaggregation, inputs and valuation
techniques. The standards are effective for interim and annual
reporting periods beginning after December 15, 2009 and
became effective for the Company on January 1, 2010.
Disclosures about purchases, sales, issuances and settlements in
the roll forward of activity in Level 3 fair value
measurements are effective for fiscal years beginning after
December 15, 2010 and will be effective for the Company on
January 1, 2011. We are currently evaluating the effect of
these standards on our Consolidated Financial Statements.
72
SWISHER
HYGIENE INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Business Combinations: In December 2007 the
FASB issued new guidance on business combinations. The revised
guidance establishes principles and requirements for how an
acquirer recognizes and measures in its financial statements the
identifiable assets and goodwill acquired, liabilities assumed
and any noncontrolling interest in the acquiree in a business
combination. The guidance also provides disclosure requirements
to enable users of the financial statements to evaluate the
nature and financial effects of the business combination. The
Company adopted this guidance effective January 1, 2009.
The adoption did not have a material effect on our Consolidated
Financial Statements.
Consolidation: In December 2007 the FASB
issued new guidance on noncontrolling interests in Consolidated
Financial Statements. The guidance requires reporting entities
to present noncontrolling interests in any of their consolidated
entities as equity (as opposed to a liability or mezzanine
equity) and provide guidance on the accounting for transactions
between an entity and noncontrolling interests. The Company
adopted this guidance effective January 1, 2009. This
adoption did not have a material effect on our Consolidated
Financial Statements.
Intangibles Goodwill and Other: On
January 1, 2009, we adopted two new standards affecting
intangible assets. One of the standards addressed factors that
should be considered in developing renewal or extension
assumptions used to determine the useful life of a recognized
intangible asset. The second standard affected accounting for
defensive intangible assets, which are acquired assets that an
entity does not intend to actively use, but will hold (lock up)
to prevent others from obtaining access to them. These standards
do not address intangible assets that are used in research and
development activities. Neither of these standards had a
material effect on our Consolidated Financial Statements.
Subsequent Events: In May 2009, the FASB
issued new standards that establish general guidance for
accounting and disclosures of events that occur after the
balance sheet date but before financial statements are issued or
are available to be issued. The adoption of these standards
require us to evaluate all subsequent events that occur after
the balance sheet date through the date and time our
Consolidated Financial Statements are issued. This adoption did
not have a material effect on our Consolidated Financial
Statements.
In February 2010, the FASB amended these standards to remove the
requirement for a Securities Exchange Commission filer to
disclose a date in both issued and revised financial statements.
The amended standards clarified the definition of
revised as being the result of either correction of
an error or retrospective application of GAAP. We adopted these
amended standards upon their issuance; they did not have a
material effect on our Consolidated Financial Statements.
Newly
Issued Accounting Pronouncements
Revenue Recognition: In October 2009, the FASB
issued new standards for multiple-deliverable revenue
arrangements. These new standards affect the determination of
when individual deliverables included in a multiple-element
arrangement may be treated as separate units of accounting. In
addition, these new standards modify the manner in which the
transaction consideration is allocated across separately
identified deliverables, eliminate the use of the residual value
method of allocating arrangement consideration and require
expanded disclosure. These new standards will become effective
for multiple-element arrangements entered into or materially
modified on or after January 1, 2011. Earlier application
is permitted with required transition disclosures based on the
period of adoption. We will adopt these standards for
multiple-element arrangements entered into or materially
modified on or after January 1, 2011 and are currently
evaluating the effect of these standards on our Consolidated
Financial Statements.
Compensation: In April 2010, the FASB issued
new standards to clarify that an employee share-based payment
award with an exercise price denominated in the currency of a
market in which a substantial portion of the entitys
equity securities trades should not be considered to contain a
condition that is not a market, performance, or service
condition. Therefore, an entity would not classify such an award
as a liability if it
73
SWISHER
HYGIENE INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
otherwise qualifies as equity. These new standards are effective
for fiscal years beginning on or after December 15, 2010.
Either application is permitted. The Company applied these
amended standards upon their issuance; they did not have a
material effect on our Consolidated Financial Statements.
Goodwill: In December 2010, the FASB issued
new standards defining when step 2 of the goodwill impairment
test for reporting units with zero or negative carrying amounts
should be performed and modifies Step 1 of the goodwill
impairment test for reporting units with zero or negative
carrying amounts. For reporting units with zero or negative
carrying amounts an entity is required to perform Step 2 of the
goodwill impairment test if it is more likely than not that a
goodwill impairment exists. In determining whether it is more
likely than not that a goodwill impairment exists, an entity
should consider whether there are any adverse qualitative
factors indicating that an impairment may exist. The standards
are effective for fiscal years and interim periods within those
years, beginning December 15, 2010 and will be effective
for the Company on January 1, 2011. We are currently
evaluating the effect of these standards on our Consolidated
Financial Statements.
During the three years ended December 31, 2010, the Company
acquired 22 of its franchisees and 7 independent businesses. The
results of operations of these acquisitions have been included
in the Companys Consolidated Financial Statements since
their respective acquisition dates. None of these acquisitions
were significant to the Companys consolidated financial
results and therefore, supplemental pro forma financial
information is not presented.
The following table summarizes the current estimated aggregate
fair values of the assets acquired and liabilities assumed at
the date of acquisition for the acquisitions made during each of
the three years ended December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Number of businesses acquired
|
|
|
9
|
|
|
|
19
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net tangible assets acquired
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable and other assets
|
|
$
|
1,275,694
|
|
|
$
|
935,943
|
|
|
$
|
61,000
|
|
Inventory
|
|
|
605,621
|
|
|
|
219,910
|
|
|
|
1,000
|
|
Property and equipment
|
|
|
883,837
|
|
|
|
676,548
|
|
|
|
18,879
|
|
Accounts payable and accrued expenses
|
|
|
(1,856,483
|
)
|
|
|
(808,111
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
908,669
|
|
|
|
1,024,290
|
|
|
|
80,879
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
|
4,121,300
|
|
|
|
2,210,000
|
|
|
|
128,000
|
|
Non-compete agreements
|
|
|
1,447,300
|
|
|
|
750,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
5,568,600
|
|
|
|
2,960,000
|
|
|
|
128,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
11,306,820
|
|
|
|
4,909,038
|
|
|
|
322,121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate purchase price
|
|
|
17,784,089
|
|
|
|
8,893,328
|
|
|
|
531,000
|
|
Less: Noncontrolling interest
|
|
|
|
|
|
|
100,000
|
|
|
|
|
|
Less: Notes issued or assumed on acquisition
|
|
|
12,883,089
|
|
|
|
7,954,305
|
|
|
|
240,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid on acquisitions
|
|
$
|
4,901,000
|
|
|
$
|
839,023
|
|
|
$
|
291,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
74
SWISHER
HYGIENE INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 4
|
GOODWILL
AND OTHER INTANGIBLE ASSETS
|
Goodwill and other intangible assets have been recognized in
connection with the acquisitions described in Note 3 and
substantially all of the balance is expected to be fully
deductible for income tax purposes.
Changes in the carrying amount of goodwill and other intangibles
for December 31, 2010 and 2009, are as follows:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Goodwill
|
|
|
|
|
|
|
|
|
Balance January 1
|
|
|
|
|
|
|
|
|
Gross goodwill
|
|
$
|
19,223,489
|
|
|
$
|
14,538,316
|
|
Accumulated impairment losses
|
|
|
(870,000
|
)
|
|
|
(870,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
18,353,489
|
|
|
|
13,668,316
|
|
Goodwill acquired
|
|
|
11,306,820
|
|
|
|
5,003,145
|
|
Sale of UK subsidiary
|
|
|
|
|
|
|
(317,972
|
)
|
|
|
|
|
|
|
|
|
|
Balance December 31
|
|
|
|
|
|
|
|
|
Gross goodwill
|
|
|
30,530,309
|
|
|
|
19,223,489
|
|
Accumulated impairment losses
|
|
|
(870,000
|
)
|
|
|
(870,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
29,660,309
|
|
|
$
|
18,353,489
|
|
|
|
|
|
|
|
|
|
|
Customer Relationships
|
|
|
|
|
|
|
|
|
Balance January 1
|
|
$
|
2,766,016
|
|
|
$
|
1,744,981
|
|
Customers acquired
|
|
|
4,121,300
|
|
|
|
2,210,000
|
|
Amortization
|
|
|
(1,107,336
|
)
|
|
|
(1,158,965
|
)
|
Impairment
|
|
|
|
|
|
|
(30,000
|
)
|
|
|
|
|
|
|
|
|
|
Balance December 31
|
|
$
|
5,779,980
|
|
|
$
|
2,766,016
|
|
|
|
|
|
|
|
|
|
|
Non-compete Agreements
|
|
|
|
|
|
|
|
|
Balance January 1
|
|
$
|
814,442
|
|
|
$
|
631,070
|
|
Agreements
|
|
|
1,447,300
|
|
|
|
750,000
|
|
Amortization
|
|
|
(372,917
|
)
|
|
|
(566,628
|
)
|
|
|
|
|
|
|
|
|
|
Balance December 31
|
|
$
|
1,888,825
|
|
|
$
|
814,442
|
|
|
|
|
|
|
|
|
|
|
Information regarding customer relationships and non-compete
agreements is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
|
|
|
|
Period (years)
|
|
|
Amount
|
|
|
Amortization
|
|
|
Net
|
|
|
As of December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
|
5
|
|
|
$
|
11,716,300
|
|
|
$
|
(5,936,320
|
)
|
|
$
|
5,779,980
|
|
Non-compete agreements
|
|
|
4
|
|
|
|
2,752,300
|
|
|
|
(863,475
|
)
|
|
|
1,888,825
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
14,468,600
|
|
|
$
|
(6,799,795
|
)
|
|
$
|
7,668,805
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75
SWISHER
HYGIENE INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
|
|
|
|
Period (years)
|
|
|
Amount
|
|
|
Amortization
|
|
|
Net
|
|
|
As of December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
|
5
|
|
|
$
|
7,595,000
|
|
|
$
|
(4,828,984
|
)
|
|
$
|
2,766,016
|
|
Non-compete agreements
|
|
|
4
|
|
|
|
1,640,000
|
|
|
|
(825,558
|
)
|
|
|
814,442
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
9,235,000
|
|
|
$
|
(5,654,542
|
)
|
|
$
|
3,580,458
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense was $1,480,253, $1,725,593, and $1,664,571
for the fiscal years ended December 31, 2010, 2009 and
2008, respectively. As of December 31, 2010, estimated
future amortization of customer relationships and non-compete
agreements for the next five years is as follows:
|
|
|
|
|
2011
|
|
$
|
2,038,700
|
|
2012
|
|
|
1,860,300
|
|
2013
|
|
|
1,728,200
|
|
2014
|
|
|
1,361,900
|
|
2015
|
|
|
680,705
|
|
|
|
|
|
|
|
|
$
|
7,668,805
|
|
|
|
|
|
|
|
|
NOTE 5
|
PROPERTY
AND EQUIPMENT, NET
|
Property and equipment, net as of December 31, 2010 and
2009 consist of the following:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Items in service
|
|
$
|
16,280,177
|
|
|
$
|
10,264,929
|
|
Equipment and furniture
|
|
|
2,244,289
|
|
|
|
2,084,957
|
|
Vehicles
|
|
|
517,987
|
|
|
|
466,986
|
|
Computer equipment
|
|
|
973,524
|
|
|
|
895,171
|
|
Computer software
|
|
|
6,407,547
|
|
|
|
5,891,775
|
|
Leasehold improvements
|
|
|
344,494
|
|
|
|
322,707
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,768,018
|
|
|
|
19,926,525
|
|
Less: accumulated depreciation and amortization
|
|
|
(15,443,963
|
)
|
|
|
(12,067,043
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
11,324,055
|
|
|
$
|
7,859,482
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense for the years ended
December 2010, 2009 and 2008 was $3,376,920, $3,018,459, and
$3,542,061, respectively.
As of December 31, 2010 and 2009, computer software
includes costs of $5,068,556 and $4,688,063, respectively, for
the development of our technology platform for field service
operations, accounting, billing and collections. The accumulated
depreciation as of December 31, 2010 and 2009 was
$2,029,657 and $1,100,568, respectively. The weighted average
amortization period for capitalized software costs is
7 years. Depreciation and amortization expense for
capitalized computer software costs during the years ended
December 31, 2010, 2009 and 2008 was $929,089, $623,872 and
$476,676, respectively. The estimated
76
SWISHER
HYGIENE INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
depreciation and amortization expense related to computer
software costs capitalized for the next five years is as follows:
|
|
|
|
|
2011
|
|
$
|
744,685
|
|
2012
|
|
|
740,616
|
|
2013
|
|
|
738,394
|
|
2014
|
|
|
690,726
|
|
2015
|
|
|
124,478
|
|
|
|
|
|
|
|
|
$
|
3,038,899
|
|
|
|
|
|
|
The major components of debt as of December 31, 2010 and
2009 consist of the following:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Line of credit agreement dated March 2008. Interest is payable
monthly at one month LIBOR plus 2.85% at December 31, 2010,
and one month LIBOR plus 2.35% at December 31, 2009,
maturing in January 2012. Interest rate of 3.11% and 2.58% at
December 31, 2010 and 2009, respectively
|
|
$
|
9,946,932
|
|
|
$
|
9,946,932
|
|
Line of credit agreement dated June 2008. Interest is payable
monthly at one month LIBOR plus 1.50% at December 31, 2010,
and one month LIBOR plus 1.50% at December 31, 2009,
maturing in January 2012. Interest rate of 1.76% and 1.73% at
December 31, 2010 and 2009, respectively
|
|
|
15,000,000
|
|
|
|
15,000,000
|
|
Notes payable under Master Loan and Security Agreement, due in
monthly installments at December 31, 2010 of $62,776,
maturing in 2012. Interest is payable monthly at a weighted
average interest rate of 8% and 6.64% at December 31, 2010
and 2009, respectively
|
|
|
248,577
|
|
|
|
899,977
|
|
Acquisitions notes payables
|
|
|
7,891,209
|
|
|
|
8,197,091
|
|
Convertible notes:
|
|
|
|
|
|
|
|
|
6% Note due June 30, 2011
|
|
|
5,000,000
|
|
|
|
|
|
4% Note due June 30, 2011
|
|
|
4,774,480
|
|
|
|
|
|
4% Note due September 30, 2011
|
|
|
997,000
|
|
|
|
|
|
Capitalized lease obligations
|
|
|
549,504
|
|
|
|
281,131
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44,407,702
|
|
|
|
34,325,131
|
|
Short term obligations
|
|
|
(13,378,710
|
)
|
|
|
(2,295,290
|
)
|
|
|
|
|
|
|
|
|
|
Long term obligations
|
|
$
|
31,028,992
|
|
|
$
|
32,029,841
|
|
|
|
|
|
|
|
|
|
|
77
SWISHER
HYGIENE INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
As of December 31, 2010, principal payments due on
long-term debt, including capital leases, is as follows:
|
|
|
|
|
2011
|
|
$
|
12,353,710
|
|
2012
|
|
|
27,289,104
|
|
2013
|
|
|
1,758,350
|
|
2014
|
|
|
726,790
|
|
2015
|
|
|
291,960
|
|
Thereafter
|
|
|
962,788
|
|
|
|
|
|
|
|
|
$
|
43,382,702
|
|
|
|
|
|
|
Convertible promissory notes conversion feature included in
short term obligations
|
|
|
1,025,000
|
|
|
|
|
|
|
|
|
$
|
44,407,702
|
|
|
|
|
|
|
Revolving
Credit Facilities
The Company has a revolving line of credit for a maximum
borrowing of up to $10,000,000 of which $5,000,000 is personally
guaranteed by a shareholder. This agreement had a maturity of
February 28, 2011 and was modified in February 2011 to
extend the maturity date to January 2012 and to release the
personal guarantee by a shareholder. Borrowings under the line
are used for general working capital purposes, capital
expenditures and acquisitions. The line is secured by
substantially all the assets of the Company not otherwise
encumbered. This credit facility contains various restrictive
covenants which limit or prevent, without the express consent of
the bank, making loans, advances, or other extensions of credit,
change in control, consolidation, mergers or acquisitions,
issuing dividends, selling, assigning, leasing, transferring, or
disposing of any part of the business and incurring indebtedness
(Loan and Security Agreement discussed below). The bank has
waived the Companys noncompliance with certain reporting
requirements and meeting minimum financial thresholds as of and
for the year ended December 31, 2010 and 2009.
In June 2008, the Company entered into a $15,000,000 revolving
credit facility, which had a maturity of June 2009. The credit
facility was modified in 2009 to extend the maturity date to
January 1, 2011 and modified in February 2011 to extend the
maturity date to January 2012. In addition in February 2011 the
personnel guarantee by a shareholder was released. The credit
facility contains various restrictive covenants which limit or
prevent, without the express consent of the bank, making loans,
advances, or other extensions of credit, change in control,
consolidation, mergers or acquisitions, issuing dividends,
selling, assigning, leasing, transferring or disposing of any
part of the business and incurring indebtedness. The bank has
waived the Companys noncompliance with certain reporting
requirements and meeting minimum financial thresholds as of and
for the year ended December 31, 2010 and 2009.
As of November 5, 2010, the Company amended its credit
facilities to eliminate all restrictive and financial covenants
currently included in the credit facilities, except the
following: (i) the Company must maintain, at all times,
unencumbered cash and cash equivalents in excess of $15,000,000
and (ii) the Company may not without the consent of the
lender, incur or permit its subsidiaries to incur new
indebtedness or make new investments (except for investments in
franchisees) in connection with the acquisition of franchisees
and other businesses within its same line of business in excess
of $25 million in the aggregate at any time.
See Note 16 for a discussion of our new $100 million
senior secured revolving credit facility, which we entered into
on March 31, 2011 and which replaces the credit facilities
described above.
Notes
Payable
In January 2006, the Company entered into an agreement for the
development of a new software platform for field service
operations, accounting, billings and collections. Substantially
all the software development
78
SWISHER
HYGIENE INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
cost was financed through a Master Loan and Security Agreement
(the Agreement). Borrowings under the Agreement are
secured by a first security interest in the software or hardware
acquired. The Agreement prevents a change in control in excess
of 20 percent unless the acquiring entity assumes all the
obligations of the Company under the Agreement and the net
tangible assets and net worth after consolidation, sale or
merger is at least equal to the net tangible assets and the net
worth of the Company immediately before the consolidation, sale
or merger.
Acquisition-Related
Note Payables
During the year ended December 31, 2010, 2009, and 2008,
the Company incurred or assumed (excluding convertible notes
discussed below) $1,866,500, $7,954,304, and $240,000,
respectively, of debt to sellers in connection with certain
acquisitions (See Note 3). Two of the seller notes payable
totaling $3,050,000 are secured by letters of credit, which are
guaranteed by shareholders, the remaining notes payable are
secured by the Company. At December 31, 2010 and 2009 these
obligations bore interest at rates ranging between
2.5 11%. The obligations mature at various times
through 2019.
Convertible
Notes
In November 2010, the Company issued a 6% convertible promissory
note of $5,000,000 due on June 30, 2011 as part of
consideration paid for an acquisition. The note may be converted
by the holder at the conversion rate of $3.81 and up to
1,312,864 of our common shares before June 30, 2011 any
time following (i) conditional approval by the Toronto
Stock Exchange (TSX) of the listing of the
Companys shares of common stock and (ii) the date
that the Companys Registration Statement on Form
S-1 for the
resale of common stock is declared effective by the SEC. Since
the convertible note was issued as part of a business
combination the note was recorded at fair value of $6,429,720 on
the date of issuance including $5,182,500 recorded as a current
liability and $1,247,220 recorded as Additional paid-in capital
reflecting the promissory notes beneficial conversion
feature. As of December 31, 2010, the net carrying amount
of this promissory note was $6,385,720 ($6,247,220 principal and
conversion feature and $138,500 unamortized premium). The
premium will be amortized to interest income over the remaining
term of the note or 6 months. The fair value of this
financial instrument is $6,371,400 at December 31, 2010. If
the entire note would be converted on December 31, 2010, we
would issue 1,312,864 common shares which occurred during 2011.
In December 2010, the Company issued a 4% convertible promissory
note of $3,896,480 due on June 30, 2011 as part of an
acquisition. The note, principal plus accrued interest, is
convertible into a variable number of shares of the
Companys common stock at the election of the holder at a
fixed conversion price $3.88 any time following
(i) conditional approval by the TSX of the listing of the
Companys shares of common stock and (ii) the date
that the Companys Registration Statement on
Form S-1
for the resale of common stock is declared effective by the SEC
but no later than June 30, 2011. The note, plus accrued
interest, will automatically convert into the number of shares
of the Companys common stock on April 6, 2011,
provided (i) the Companys Registration Statement on
Form S-1
providing for resale of the Companys common stock is
effective and (ii) the Companys common stock has
traded on a stock exchange for 10 consecutive trading days
(which the combined average volume is at least
250,000 shares) equal to or exceeding 105% of $3.88. If the
note has not converted as of June 30, 2011, the Company has
the option to repay the note in a combination of cash and the
Companys common stock. The maximum number of shares
issuable in repayment of the note is 1,027,122 shares. The
fair value of the note on the date of issuance was $4,497,480
and subsequently increased to $4,774,480 as of December 31,
2010 and is recorded as a current liability on the Consolidated
Financial Statements. If the entire note would be converted on
December 31, 2010, we would issue 1,006,925 common shares
that have a fair value of $4.73 per share.
In December 2010, the Company issued a 4% convertible promissory
note of $500,000 due on September 30, 2011 and a 4%
convertible promissory note of $350,000 due on
September 30, 2011. The notes, principal plus interest, are
convertible into a variable number of shares of the
Companys common stock
79
SWISHER
HYGIENE INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
at the election of the holder at a fixed conversion price of
$4.18 anytime following (i) conditional approval by the TSX
of the listing of the Companys shares of common stock and
(ii) the date that the Companys Registration
Statement on
Form S-1
for the resale of common stock is declared effective by the SEC.
The fair value of the notes on the date of issuance and at
December 31, 2010 was $997,000 and is recorded as Short
term obligations on the Consolidated Financial Statements. If
the entire notes would be converted on December 31, 2010,
we would issue 203,349 common shares that have a fair value of
$4.73 per share.
The fair value of the convertible promissory notes issued during
2010 that are convertible into a variable number of the
Companys shares at a fixed conversion price are based
primarily on a Black-Scholes pricing model. The significant
management assumptions and estimate used in determining the fair
value include the expected term and volatility of our common
stock. The expected volatility was based on an analysis of
industry peers historical stock price over the term of the
notes as we currently do not have sufficient history of our own
stock volatility, which was estimated as approximately 25%. In
addition an adjustment is made based on our market interest rate
for a similar instrument. Subsequent changes in the fair value
of these instruments, except for the 6% convertible promissory
note of $5,000,000, will be recorded in Other expense, net on
the Consolidated Financial Statements. Future movement in the
market price of our stock could significantly change the fair
value of these instruments and impact our earnings.
The 4% convertible promissory note of $3,896,480 due on
June 30, 2011 and the 4% convertible promissory notes of
$850,000 due on September 30, 2011 are Level 3
financial instruments since they are not traded on an active
market and there are unobservable inputs, such as expected
volatility used to determine the fair value of these
instruments. See Note 2 for further discussion of the fair
value hierarchy utilized. The following table is a
reconciliation of changes in fair value of these notes that have
been classified as Level 3 in the fair value hierarchy for
the year ended December 31, 2010:
|
|
|
|
|
Balance as of January 1, 2010
|
|
$
|
|
|
Issuance of 4% convertible promissory notes
|
|
|
5,494,480
|
|
Unrealized losses included in earnings
|
|
|
277,000
|
|
|
|
|
|
|
Balance as of December 31, 2010
|
|
$
|
5,771,480
|
|
|
|
|
|
|
Capital
lease obligations
The Company has entered into capitalized lease obligations with
third party finance companies to finance the cost of certain
ware washing equipment. At December 31, 2010 and 2009,
these obligations bear interest at rates ranging between
6.74% 14.06% and 6.74% 11.45%.
|
|
NOTE 7
|
ADVANCES
FROM SHAREHOLDERS
|
As of December 31, 2009, the Company had borrowed
$16,845,000 under an unsecured note payable to one of its
shareholders. The note matures in June 2011 and was reported in
noncurrent liabilities. During 2010, the Company borrowed an
additional $4,600,000 under this note. Thus, prior to the Merger
on November 2, 2010, the total balance outstanding was
$21,445,000. The note bore interest at the one month LIBOR plus
2%. Interest accrued on the note was included in accrued
expenses and was $753,194 prior to the merger on
November 2, 2010, and $348,586 as of December 31,
2009. These advances plus accrued interest were converted into
equity upon completion of the Merger.
The Company borrowed $1,270,000 from one of its shareholders
pursuant to an unsecured note that bore interest at the
short-term Applicable Federal Rate. These funds were used to
fund certain acquisitions made by the Company prior to the
Merger. The note matured at the effective time of the Merger and
was repaid to the shareholder in connection with the closing.
80
SWISHER
HYGIENE INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In August 2010, the Company borrowed $2,000,000 for working
capital purposes, pursuant to an unsecured note payable to one
of its shareholders that bears interest at the short-term
Applicable Federal Rate (0.26% as of December 31, 2010).
The note matures on November 2, 2011. Accrued interest as
of December 31, 2010 is $4,444 and is included in accrued
expenses.
In 2009, another shareholder made non-interest bearing advances
to the Company of $800,000. These advances were repaid in March
2010.
|
|
NOTE 8
|
RELATED
PARTY TRANSACTIONS
|
For the years ended December 31, 2009 and 2008, the Company
incurred $46,200 and $60,399, respectively, for training course
development and utilization of the delivery platform from a
company, the majority of which is owned by a partnership in
which a shareholder and another director have a controlling
interest. Included in accrued expenses at both December 31,
2010 and 2009 is $145,586 due to this company.
The Company had agreed to pay a company, related by common
ownership with one of the shareholders, a fee for services
provided, including product development, marketing and branding
strategy, and management advisory assistance. The total of these
fees were $100,000 for the year ended December 31, 2008. In
2009, the related company waived it rights to these fees and
accordingly, the accrued balance of $500,000, which was
outstanding as of December 31, 2008, was recorded as a
forgiveness of debt in the 2009 Consolidated Statement of
Operations.
|
|
|
|
|
Domestic
|
|
$
|
(15,845,516
|
)
|
Foreign
|
|
|
(24,488
|
)
|
|
|
|
|
|
Net loss before tax
|
|
$
|
(15,870,004
|
)
|
|
|
|
|
|
The components of the provision for income taxes in 2010 are as
follows:
|
|
|
|
|
Current Federal, State, and Foreign
|
|
$
|
|
|
Deferred
|
|
|
|
|
Federal and state
|
|
|
1,537,000
|
|
Foreign
|
|
|
163,000
|
|
|
|
|
|
|
Total provision for income taxes
|
|
$
|
1,700,000
|
|
|
|
|
|
|
A reconciliation of the statutory U.S. Federal income tax rate
to the Companys effective income tax rate for the year
ended December 31, 2010 is as follows:
|
|
|
|
|
U.S. Federal statutory rate
|
|
|
35
|
%
|
State and local taxes, net of Federal benefit
|
|
|
4
|
|
Period not subject to income taxes
|
|
|
(22
|
)
|
Non deductible merger expenses
|
|
|
(9
|
)
|
Establishment of deferred tax liabilities upon conversion to
taxable status
|
|
|
(10
|
)
|
Change in deferred tax asset valuation
|
|
|
(9
|
)
|
|
|
|
|
|
Effective income tax rate
|
|
|
(11
|
)%
|
|
|
|
|
|
81
SWISHER
HYGIENE INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Deferred income taxes reflect the net tax effect of temporary
differences between amounts recorded for financial reporting
purposes and amounts used for tax purposes. The major components
of deferred tax assets and liabilities as of December 31,
2010 are as follows:
|
|
|
|
|
Deferred tax assets
|
|
|
|
|
Net operating loss carryforward
|
|
$
|
1,109,000
|
|
Basis difference in other intangible assets
|
|
|
2,124,000
|
|
Stock based compensation
|
|
|
150,000
|
|
Allowance for uncollectible receivables
|
|
|
249,000
|
|
Other
|
|
|
320,000
|
|
|
|
|
|
|
Total deferred income tax assets
|
|
|
3,952,000
|
|
Valuation allowance
|
|
|
(2,368,000
|
)
|
|
|
|
|
|
Net deferred tax assets
|
|
|
1,584,000
|
|
Deferred tax liabilities
|
|
|
|
|
Basis difference in property and equipment
|
|
|
1,584,000
|
|
Basis difference in goodwill
|
|
|
1,700,000
|
|
Total deferred tax liabilities
|
|
|
3,284,000
|
|
|
|
|
|
|
Total net deferred income tax liabilities
|
|
$
|
1,700,000
|
|
|
|
|
|
|
As of the date of the Merger the net deferred tax balances were
recorded; however, the deferred tax liability related to
goodwill, an indefinite lived asset, cannot be offset against
the Companys deferred tax assets related to finite lived
assets and, therefore, the net deferred tax liability related to
goodwill is recorded as income tax expense on the Consolidated
Statement of Operations. Future additions of indefinite lived
assets that are tax deductible will continue to increase the
amount recognized in the Consolidated Statement of Operations as
the difference between the book basis and the tax basis
increases.
The Company has incurred significant net losses for financial
reporting purposes. Recognition of deferred tax assets will
require generation of future taxable income. A valuation
allowance is required to reduce the deferred tax assets reported
if, based on the weight of the evidence, it is more likely than
not that some portion or all of the deferred tax assets will not
be realized. After consideration of all the evidence, both
positive and negative, management has determined that a
valuation allowance estimated at $2,368,000 as of
December 31, 2010 is necessary to reduce the deferred tax
assets to the amount that will more likely than not be realized.
At December 31, 2010, net operating loss (NOL)
carryforwards for federal income tax purposes were approximately
$3,046,000, which will expire in 2030. For state income tax
purposes, the Company has net operating losses of approximately
$5,293,000, which begin to expire in 2017, some of which now may
be utilized since the Company has effectively revoked its
Subchapter S corporation status. The benefit from the NOL
carryforwards has been subject to a full valuation allowance on
the related deferred tax assets.
Prior to the Merger on November 2, 2010, Coolbrands and its
inactive U.S. subsidiaries had significant NOL
carryforwards for Canadian and U.S. income tax purposes for
which a full valuation allowance had been established due to the
uncertainty regarding future realization. As a result of the
Merger, the Company believes that the redomestication to the
U.S. of the Canadian companys operations as well as
the effect of an ownership change in the U.S. subsidiaries
have rendered those NOL carryforwards unusable in the future and
accordingly, no deferred tax assets have been provided.
As of January 1, 2009, the Company adopted the provisions
related to accounting for uncertainty in income taxes, which
prescribes how a company should recognize, measure, present and
disclose in its
82
SWISHER
HYGIENE INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
financial statements uncertain tax positions that a company has
taken or expects to take on a tax return. This standard requires
a more-likely-than-not threshold for financial statement
recognition and measurement of tax positions taken or expected
to be taken in a tax return. The Company records a liability for
the difference between the benefit recognized and measured and
the tax position taken or expected to be taken on the
Companys tax return. To the extent that the assessment of
such tax positions changes, the change in estimate is recorded
in the period in which the determination is made. The Company
establishes reserves for tax-related uncertainties based on
estimates of whether, and the extent to which, additional taxes
will be due. These reserves are established when the Company
believes that certain positions might be challenged despite the
Companys belief that the tax return positions are fully
supportable. The reserves are adjusted in light of changing
facts and circumstances, such as the outcome of an income tax
audit.
The Company includes interest and penalties accrued in the
Consolidated Financial Statements as a component of interest
expense. No significant amounts were required to be recorded as
of December 31, 2010, 2009 and 2008. As of
December 31, 2010, tax years of 2007 through 2010 remain
open to inspection by the Internal Revenue Service.
|
|
NOTE 10
|
SHARE
BASED COMPENSATION
|
Under the Companys stock incentive plans, restricted stock
units and stock options to purchase the Companys common
shares have been issued to its directors and employees at prices
equal to the fair value of the stock at the date of grant.
Stock
Options
In 2010, 972,011 options were granted at an exercise price of
$4.18, a contractual life of 10 years, and an aggregate
intrinsic value of $534,056. The options granted in 2010 are
subject to stockholder approval of the Swisher Hygiene Inc. 2010
Stock Incentive Plan. No options vested or were exercised during
2010. As of December 31, 2010, 773,531 options are expected
to vest over their contractual life at an average of $4.18 per
share with an aggregate intrinsic value of $425,808. Stock
options of 53,469 were forfeited during 2010.
Stock based compensation expense of $398,155 was recognized
during 2010 in the Consolidated Statement of Operations for both
stock options and restricted stock units, as discussed below.
Stock options were valued at a weighted average fair value of
$1.50 using the Black-Scholes option pricing model. At
December 31, 2010, stock based compensation expense of
$8,686,978 for stock options and restricted stock units will be
recognized ratably over the remaining weighted average of period
of approximately four years.
The value of each option granted during 2010 is estimated on the
date of the grant using the Black-Scholes option pricing model
with the following assumptions:
|
|
|
|
|
Expected dividend yield
|
|
|
|
|
Risk-free interest rate
|
|
|
2.63%
|
|
Expected volatility
|
|
|
30.70%
|
|
Expected life
|
|
|
6.25 years
|
|
The risk-free interest rate is determined based on a yield curve
of U.S. treasury rates based on the expected life of the
options granted. The expected volatility is based on an analysis
of industry peers historical stock price as we currently do not
have sufficient history of our own stock volatility. The
expected life is based on the simplified method as we do not
have sufficient historical exercise data to provide a reasonable
basis upon which to estimate the expected life of our stock
options. The Company estimates forfeitures based on historic
turnover by relevant employee categories.
In connection with the Merger, options previously issued by
CoolBrands that were outstanding at the date of the Merger were
fully vested and all related compensation expense was recognized
by CoolBrands prior to
83
SWISHER
HYGIENE INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
November 2, 2010, the Merger date. At December 31,
2010, 880,000 options remain outstanding and exercisable at a
weighted average price of $0.79, weighted average remaining
contractual life of 3.2 year and an aggregate intrinsic
value of $3,459,129.
Restricted
Stock Units
During 2010, the Company awarded 2,502,820 shares of
restricted common stock units at a weighted average grant date
fair value of $4.18. Recipients of restricted stock units may
not sell or transfer their shares until the shares vest. The
restrictions of the common stock units lapse ratably as vesting
occurs. As of December 31, 2010 there were
2,502,820 shares outstanding, with a weighted average
contractual life of 10 years, and an aggregate intrinsic
value of $11,838,338. There were 145,133 forfeitures of
restricted stock units during 2010. There were no restricted
common stock units vested or exercisable as of December 31,
2010. As of December 31, 2010, shares vested and expected
to vest are 2,008,903 with a weighted average contractual life
of 10 years, and an aggregate intrinsic value of $9,502,111.
Warrants
In November 2006, the board of directors of CoolBrands issued to
a director of the Company, and certain parties related to the
director, warrants to purchase up to 5,500,000 common shares of
CoolBrands. The warrants expire in November 2011 and the
exercise price is $0.50 per warrant. As part of the Merger the
holder of the warrants will receive common shares of Swisher
Hygiene Inc. in lieu of common shares of CoolBrands upon
exercise of the warrants.
|
|
NOTE 11
|
RETIREMENT
PLAN
|
An acquired subsidiary of CoolBrands maintained a defined
benefit pension plan covering substantially all salaried and
certain executive employees. Subsequent to the acquisition in
2000, all future participation and all benefits under the plan
were frozen. The plan provides retirement benefits based
primarily on employee compensation and years of service up to
the date of acquisition. As part of the Merger, on
November 2, 2010, Swisher recorded the net underfunded
pension obligation of $560,931.
The following table reconciles the changes in benefit
obligations and plan assets of the registered defined benefit
plan as of December 31, 2010 and reconciles the funded
status to accrued benefit cost at December 31, 2010:
|
|
|
|
|
Benefit obligation
|
|
|
|
|
Balance November 2, 2010
|
|
$
|
2,511,725
|
|
Interest cost
|
|
|
21,398
|
|
Actuarial loss
|
|
|
(7,745
|
)
|
Benefit payments
|
|
|
(16,254
|
)
|
|
|
|
|
|
Balance December 31, 2010
|
|
$
|
2,509,124
|
|
|
|
|
|
|
Plan assets
|
|
|
|
|
Balance November 2, 2010
|
|
$
|
1,950,794
|
|
Actual return on plan assets
|
|
|
89,290
|
|
Benefit payments
|
|
|
(16,254
|
)
|
|
|
|
|
|
Balance December 31, 2010
|
|
$
|
2,023,830
|
|
|
|
|
|
|
As of December 31, 2010, the net underfunded status of the
defined benefit plan is $485,294, which is recognized as accrued
benefit cost in Other long term liabilities on the Consolidated
Financial Statements. For
84
SWISHER
HYGIENE INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
the period November 2, 2010 through December 31, 2010
and as of December 31, 2010 there is an unrecognized gain
of $73,985 recorded in Accumulated other comprehensive income
(loss) in the Consolidated Financial Statements.
The following table provides the components of the net periodic
benefit cost for 2010:
|
|
|
|
|
Interest cost
|
|
$
|
21,398
|
|
Expected return on plan assets
|
|
|
(23,050
|
)
|
|
|
|
|
|
Net periodic benefit income
|
|
$
|
(1,625
|
)
|
|
|
|
|
|
The key assumptions used in the measurement of the benefit
obligation are the discount rate and the expected return on plan
assets. As of December 31, 2010, the discount rate was
5.37% and the expected return on plan assets was 7.5%.
The rate used to discount pension benefit plan liabilities was
based on a yield curve developed from market data of Aa-grade
non-callable bonds at December 31, 2010. This yield curve
has discount rates that vary based on the duration of the
obligations. The estimated future cash flows for the pension
obligation were matched to the corresponding rates on the yield
curve to derive a weighted average discount rate.
The expected return on plan assets was developed by determining
projected stock and bond returns and then applying these returns
to the target asset allocations of the employee benefit trusts,
resulting in a weighted average return on plan assets. The
actual historical returns of the plan assets were also
considered.
Based on the latest actuarial report as of December 31,
2010, the Company expects that there will be a minimum
regulatory funding requirements of $78,880 that will need to be
made during fiscal 2011.
Expected benefit payments under the defined benefit pension plan
over future years are as follows:
|
|
|
|
|
|
|
Pension
|
|
|
|
Benefits
|
|
|
Fiscal year
|
|
|
|
|
2011
|
|
$
|
101,209
|
|
2012
|
|
|
104,972
|
|
2013
|
|
|
117,472
|
|
2014
|
|
|
119,972
|
|
2015
|
|
|
117,004
|
|
2016 2020
|
|
|
691,862
|
|
85
SWISHER
HYGIENE INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Plan
Assets
The Companys investment strategy is to obtain the highest
possible return commensurate with the level of assumed risk.
Investments are well diversified within each of the major asset
categories. The Companys allocation of pension assets and
target allocations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value as of
|
|
|
Percentage
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
of Plan
|
|
|
|
Target Allocation
|
|
|
2010
|
|
|
Assets
|
|
|
|
2011
|
|
|
2010
|
|
|
Level 1
|
|
|
2010
|
|
|
Equities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
50
|
%
|
|
|
50
|
%
|
|
$
|
1,058,421
|
|
|
|
52
|
%
|
International
|
|
|
18
|
|
|
|
18
|
|
|
|
661,207
|
|
|
|
33
|
|
Fixed income
|
|
|
26
|
|
|
|
26
|
|
|
|
188,155
|
|
|
|
9
|
|
Cash, cash equivalents and other
|
|
|
6
|
|
|
|
6
|
|
|
|
116,047
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
$
|
2,023,830
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The U.S. and International equities are actively traded on a
public exchange. The fixed income securities are corporate and
government bonds that are valued based on prices in active
markets for identical transactions and are considered
Level 1 assets. There were no plan assets categorized as
Level 2 or Level 3 as of December 31, 2010. There
were no significant transfers between Level 1, 2, or
Level 3. See Note 2 for a description of the fair
value hierarchy.
Net loss attributable to common stockholders per share is
computed by dividing net loss attributable to common
stockholders by the weighted average number of common shares
outstanding during the period. The following were not included
in the computation of diluted net loss attributable to common
stockholders per share for 2010 as their inclusion would be
antidilutive:
|
|
|
|
|
Warrants to purchase 5,500,000 shares of common stock at
$0.50 per share were outstanding and expire in November 2011.
|
|
|
|
Stock options to purchase 880,000 shares of common stock.
|
|
|
|
Stock options and restricted units to purchase
3,376,168 shares of common stock.
|
|
|
|
Convertible promissory notes that if-converted would result in
2,520,460 shares of common stock.
|
For the years ended December 31, 2009 and 2008, there were
no securities that were not included in the computations of
diluted net loss attributable to common stockholders per share
because their inclusion would be antidilutive.
|
|
NOTE 13
|
GEOGRAPHIC
INFORMATION
|
The Company has entered into franchise and license agreements
which grant the exclusive rights to develop and operate within
specified geographic territories for a fee. The initial
franchise or license fee is deferred and recognized as revenue
when substantially all significant services to be provided by
the Company are performed. Direct incremental costs related to
franchise or license sales for which revenue has not been
recognized is deferred until the related revenue is recognized.
In 2008, through a wholly-owned subsidiary, Swisher Hygiene
Services U.K., Ltd. (SHS), the Company operated in
the UK in much the same fashion as in the US. As the franchisor,
SHS had both franchisees and company operations and serviced the
varied customer base on a weekly basis. In January 2009, the
Company sold its U.K. operations to a new Master Licensee.
During 2010, 2009 and 2008, SHS earned total revenue for
86
SWISHER
HYGIENE INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
fees and product sales of $88,954, $221,225, and $1,955,674,
respectively. In other international locations, the Company
earns royalty fees and product revenue from Master Licensees.
The following table includes our revenue from geographic
locations for the years ended December 31, 2010, 2009 and
2008 were:
Geographic
Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
61,327,128
|
|
|
$
|
55,008,262
|
|
|
$
|
60,702,053
|
|
Other foreign countries
|
|
|
2,325,190
|
|
|
|
1,805,762
|
|
|
|
3,406,838
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue
|
|
$
|
63,652,318
|
|
|
$
|
56,814,024
|
|
|
$
|
64,108,891
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During 2010 the Company acquired certain branches located in
Canada. We have no long lived assets in other foreign countries.
The following table summarizes our Canadian subsidiaries long
lived assets as of December 31, 2010:
|
|
|
|
|
Long Lived Assets
|
|
|
|
|
Property, plant, and equipment
|
|
$
|
115,561
|
|
Goodwill
|
|
$
|
2,422,729
|
|
Other intangibles, net
|
|
$
|
4,231,303
|
|
|
|
NOTE 14
|
COMMITMENTS
AND CONTINGENCIES
|
In connection with a distribution agreement entered into in
December 2010, the Company provided a guarantee that the
distributors operating cash flows associated with the
agreement would not fall below certain agreed-to minimums,
subject to certain pre-defined conditions, over the ten year
term of the distribution agreement. If the distributors
annual operating cash flow does fall below the agreed-to annual
minimums, the Company will reimburse the distributor for any
such short fall up to $1,447,000 per year. No value was assigned
to the fair value of the guarantee at December 31, 2010
based on a probability assessment of the projected cash flows.
Management currently does not believe that it is probable that
any amounts will be paid under this agreement and thus there is
no amount accrued for the guarantee in the Consolidated
Financial Statements. This liability would be considered a
Level 3 financial instruments given the unobservable inputs
used in the projected cash flow model. See Note 2 for the
fair value hierarchy.
The Company is subject to legal proceedings and claims which
arise in the ordinary course of its business. Although
occasional adverse decisions (or settlements) may occur, the
Company believes that the final disposition of such matters will
not have a material adverse effect on the Companys
financial position, results of operations or cash flows.
The Company leases its headquarters and other facilities,
equipment and vehicles under operating leases that expire at
varying times through 2017. Future minimum lease payments for
operating leases that had initial or remaining non-cancelable
lease terms in excess of one year as of December 31, 2010
are as follows:
|
|
|
|
|
2011
|
|
$
|
2,031,400
|
|
2012
|
|
|
1,547,400
|
|
2013
|
|
|
1,076,490
|
|
2014
|
|
|
785,280
|
|
2015 and Thereafter
|
|
|
1,280,910
|
|
|
|
|
|
|
|
|
$
|
6,721,480
|
|
|
|
|
|
|
87
SWISHER
HYGIENE INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Total rent expense for operating leases, including those with
terms of less than one year was $2,208,610, $2,352,469, and
$2,270,373 for the years ended December 31, 2010, 2009 and
2008, respectively.
|
|
NOTE 15
|
QUARTERLY
FINANCIAL DATA (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Year
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
14,728,933
|
|
|
$
|
15,163,556
|
|
|
$
|
16,061,079
|
|
|
$
|
17,698,750
|
|
|
$
|
63,652,318
|
|
Gross profit(1)
|
|
$
|
9,419,985
|
|
|
$
|
9,709,994
|
|
|
$
|
9,953,393
|
|
|
$
|
10,971,715
|
|
|
$
|
40,055,089
|
|
Loss from operations
|
|
$
|
(1,304,176
|
)
|
|
$
|
(1,415,164
|
)
|
|
$
|
(3,765,228
|
)
|
|
$
|
(8,628,604
|
)
|
|
$
|
(15,113,172
|
)
|
Net loss
|
|
$
|
(1,595,441
|
)
|
|
$
|
(1,769,638
|
)
|
|
$
|
(4,135,080
|
)
|
|
$
|
(10,069,845
|
)
|
|
$
|
(17,570,004
|
)
|
Basic and diluted EPS
|
|
$
|
(0.03
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.07
|
)
|
|
$
|
(0.11
|
)
|
|
$
|
(0.26
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Year
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
13,625,909
|
|
|
$
|
13,616,045
|
|
|
$
|
14,431,266
|
|
|
$
|
15,140,804
|
|
|
$
|
56,814,024
|
|
Gross profit(1)
|
|
$
|
8,491,366
|
|
|
$
|
8,267,063
|
|
|
$
|
8,620,990
|
|
|
$
|
9,130,090
|
|
|
$
|
34,509,509
|
|
Loss from operations
|
|
$
|
(870,182
|
)
|
|
$
|
(1,637,898
|
)
|
|
$
|
(2,138,787
|
)
|
|
$
|
(2,202,268
|
)
|
|
$
|
(6,849,135
|
)
|
Net loss
|
|
$
|
(1,202,493
|
)
|
|
$
|
(1,658,781
|
)
|
|
$
|
(2,262,612
|
)
|
|
$
|
(2,135,103
|
)
|
|
$
|
(7,258,989
|
)
|
Basic and diluted EPS
|
|
$
|
(0.02
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.04
|
)
|
|
$
|
(0.04
|
)
|
|
$
|
(0.13
|
)
|
|
|
|
(1) |
|
Total revenue less cost of sales |
|
|
NOTE 16
|
SUBSEQUENT
EVENTS
|
Choice
Acquisition
On February 13, 2011, we entered into an Agreement and Plan
of Merger (the Choice Agreement) by and among
Swisher Hygiene, Swsh Merger Sub, Inc., a Florida corporation
and wholly-owned subsidiary of Swisher Hygiene, Choice
Environmental Services, Inc., a Florida corporation
(Choice), and other parties, as set forth in the
Choice Agreement. The Choice Agreement provided for the
acquisition of Choice by Swisher Hygiene by way of merger.
In connection with the proposed merger with Choice, on
February 23, 2011, we entered into an agency agreement,
which the agents agreed to market, on a best efforts basis
12,262,500 subscription receipts (Subscription
Receipts) at a price of $4.80 per Subscription Receipt for
gross proceeds of up to $58,859,594. Each Subscription Receipt
entitled the holder to acquire one share of our common stock,
without payment of any additional consideration, upon completion
of our acquisition of Choice.
On March 1, 2011, we closed the acquisition of Choice and
issued approximately 8.3 million shares of our common stock
to the former shareholders of Choice and assumed approximately
$40.9 million in debt, of which $39.2 million was paid
down with proceeds from the private placement of the
Subscription Receipts. In addition, certain shareholders of
Choice received $5.7 million in cash and warrants to
purchase an additional 0.9 million shares at an exercise
price of $6.21.
On March 1, 2011, in connection with the closing of
acquisition of Choice, the 12,262,500 Subscription Receipts were
exchanged for 12,262,500 shares of our common stock. We
agreed to use commercially reasonable efforts to file a resale
registration statement with the SEC relating to the shares of
common stock underlying the Subscription Receipts. If the
registration statement is not filed or declared effective within
88
SWISHER
HYGIENE INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
specified time periods, or if it ceases to be effective for
periods of time exceeding certain grace periods, the initial
subscribers of Subscription Receipts will be entitled to receive
an additional 0.1 share of common stock for each share of
common stock underlying Subscription Receipts held by any such
initial subscriber at that time.
Choice has been in business since 2004 and serves more than
150,000 residential and 7,500 commercial customers in the
Southern and Central Florida regions through its
320 employees and over 150 collection vehicles by offering
a complete range of solid waste and recycling collection,
transportation, processing and disposal services. Choice
operates six hauling operations, three transfer and materials
recovery facilities.
The merger with Choice will be accounted for as a significant
business combination in the first quarter of 2011. The following
table presents the purchase price consideration as of
March 1, 2011 (in thousands):
|
|
|
|
|
Consideration:
|
|
|
|
|
Issuance of shares at stock price of $5.89
|
|
$
|
48,781
|
|
Debt assumed
|
|
|
42,798
|
|
Cash paid
|
|
|
5,700
|
|
|
|
|
|
|
|
|
$
|
97,279
|
|
|
|
|
|
|
The preliminary allocation of the purchase price is based on the
best information available to management. This allocation is
provisional, as the Company is required to recognize additional
assets or liabilities if new information is obtained about facts
and circumstances that existed as of March 1, 2011 that, if
known, would have resulted in the recognition of those assets or
liabilities as of that date. The Company may adjust the
preliminary purchase price allocation after obtaining additional
information regarding asset valuation, liabilities assumed and
revisions of previous estimates. The following table summarizes
the preliminary allocation of the purchase price based on the
estimated fair value of the acquired assets and assumed
liabilities of Choice as of March 1, 2011 as follows (in
thousands):
|
|
|
|
|
Net tangible assets acquired:
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
341
|
|
Receivables, net
|
|
|
6,096
|
|
Inventory
|
|
|
151
|
|
Property and equipment
|
|
|
29,743
|
|
Franchise agreements
|
|
|
27,840
|
|
Non compete agreements
|
|
|
2,880
|
|
Deferred income tax assets and other assets
|
|
|
1,536
|
|
Accounts payable and expenses
|
|
|
(6,221
|
)
|
Capital lease obligations
|
|
|
(3,995
|
)
|
Deferred income tax liabilities
|
|
|
(11,605
|
)
|
|
|
|
|
|
Total tangible assets acquired
|
|
|
46,766
|
|
Goodwill
|
|
|
50,513
|
|
|
|
|
|
|
Total purchase price
|
|
|
97,279
|
|
Less: Debt assumed
|
|
|
40,944
|
|
Less: Issuance of shares
|
|
|
48,781
|
|
|
|
|
|
|
Cash paid (including prepayment penalty)
|
|
$
|
7,554
|
|
|
|
|
|
|
89
SWISHER
HYGIENE INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table presents the unaudited supplemental pro
forma information as if the acquisition of Choice occurred on
January 1, 2010 (in thousands, except share and per
share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical 2010 Fiscal Year
|
|
|
|
|
|
|
|
|
|
|
|
Swisher
|
|
|
Choice
|
|
|
|
|
|
|
|
|
|
|
|
Hygiene
|
|
|
Environmental
|
|
|
Pro Forma
|
|
|
|
|
Combined
|
|
|
|
Inc.
|
|
|
Services, Inc.(1)
|
|
|
Adjustments
|
|
|
Notes
|
|
Pro Forma
|
|
|
Revenue
|
|
$
|
63,652
|
|
|
$
|
44,894
|
|
|
$
|
|
|
|
|
|
$
|
108,546
|
|
Costs and expenses
|
|
|
78,765
|
|
|
|
40,788
|
|
|
|
4,100
|
|
|
a, b, c
|
|
|
123,653
|
|
Income (loss) from operations
|
|
|
(15,113
|
)
|
|
|
4,106
|
|
|
|
(4,100
|
)
|
|
|
|
|
(15,107
|
)
|
Other income (expense)
|
|
|
(757
|
)
|
|
|
(3,164
|
)
|
|
|
1,466
|
|
|
d
|
|
|
(2,455
|
)
|
Net loss (income) before tax
|
|
|
(15, 870
|
)
|
|
|
942
|
|
|
|
(2,634
|
)
|
|
|
|
|
(17,562
|
)
|
Income tax
|
|
|
1,700
|
|
|
|
577
|
|
|
|
(577
|
)
|
|
e
|
|
|
1,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss (income)
|
|
$
|
(17,570
|
)
|
|
$
|
365
|
|
|
$
|
(2,057
|
)
|
|
|
|
$
|
(19,262
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(0.26
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(0.22
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average Common Shares Used in the Computation
of Loss per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
66,956,371
|
|
|
|
|
|
|
|
|
|
|
|
|
|
87,500,794
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Financial information for Choice is for the year ended
September 30, 2010. The difference between Choice fiscal
year end and our calendar year end would not be significant to
revenue or earnings presented. |
Pro forma adjustments include the following (in
thousands): (a) $4,250 related additional amortization
for the other intangibles acquired for franchise agreements and
non compete agreements; (b) $71 related to additional
amortization as a result of an adjustment to the fair value of
the property and equipment acquired; (c) a reduction of
$534 related to rent expense and an increase of $313 related to
depreciation for leased properties that became capital leases in
connection with the acquisition of Choice; (d) $1,696
related to interest expense and amortization of debt discounts
and financing costs for debt that was paid off as part of the
acquisition of Choice, offset by $230 for interest expense
related to capital lease obligations entered into in connection
with the acquisition of Choice; and (e) $577 related to
income tax expenses that would be offset by the combined
companys net operating loss.
Private
Placement
On March 22, 2011, we entered into a series of arms
length securities purchase agreements to sell
12,000,000 shares of our common stock at a price of $5.00
per share, for aggregate proceeds of $60,000,000 to certain
funds of a global financial institution (the Private
Placement). We intend to use the proceeds from the Private
Placement to further our organic and acquisition growth
strategy, as well as for working capital purposes.
On March 23, 2011, we closed the Private Placement and
issued 12,000,000 shares of our common stock. Pursuant to
the securities purchase agreements, the shares of common stock
issued in the Private Placement may not be transferred on or
before June 24, 2011 without our consent. We agreed to use
our commercially reasonable efforts to file a resale
registration statement with the SEC relating to the shares of
common stock sold in the Private Placement. If the registration
statement is not filed or declared effective within specified
90
SWISHER
HYGIENE INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
time periods, the investors will be entitled to receive
liquidated damages in cash equal to one percent of the original
offering price for each share that at such time remains subject
to resale restrictions.
Additional
Acquisitions and Promissory Note Conversion
During 2011, in addition to the Choice acquisition, we acquired
several smaller businesses. While the terms, price, and
conditions of each of these acquisitions were negotiated
individually, consideration to the sellers typically consists of
a combination of cash, convertible promissory notes having an
interest rate of 4% with maturities of up to 12 months, our
common stock, and earn-out provisions. Aggregate consideration
paid for the acquired businesses was approximately $15,700,000
consisting of $4,800,000 in cash and $7,125,000 in convertible
promissory notes, a $275,000 promissory note, and 380,727 shares
of our common stock, plus potential earn-outs of up to
$1,190,000. In addition, in March 2011, we entered into an asset
purchase agreement to purchase a solid waste services provider
based in Miami, Florida for a total purchase price of
approximately $10 million, consisting of $5,000,000 in cash
and 909,090 shares of our common stock. This transaction is
expected to close on April 1, 2011.
In addition, a $5,000,000, 6% convertible promissory note issued
in November 2010 issued as part of the consideration paid for an
acquisition was fully converted to 1,312,864 common shares in
2011.
New
Credit Facility
On March 30, 2011, we entered into a $100 million senior
secured revolving credit facility with Wells Fargo. Under the
new credit facility, Swisher Hygiene has initial borrowing
availability of $32.5 million, which we expect will
increase to the fully committed $100 million upon delivery
of our unaudited quarterly financial statements for the quarter
ended March 31, 2011. Borrowings under the facility are
secured by a first priority lien on substantially all our
existing and hereafter acquired assets, including
$25 million of cash on borrowings in excess of
$75 million.
Interest on borrowings under the credit facility accrues at
London Interbank Offered Rate (LIBOR) plus 2.5% to
4.0%, depending on the ratio of senior debt to Consolidated
EBITDA (as such term is defined in the credit agreement), and
interest is payable no more frequently than monthly on all
outstanding borrowings. The credit facility matures on
July 31, 2013.
Borrowings and availability under the credit facility are
subject to compliance with financial covenants, including
achieving specified Consolidated EBITDA targets and maintaining
specified leverage and liquidity ratios. The credit facility
also places restrictions on our ability to incur additional
indebtedness, make certain acquisitions, create liens or other
encumbrances, sell or otherwise dispose of assets, and merge or
consolidate with other entities.
Our obligations under the credit facility are guaranteed by all
our domestic subsidiaries and secured by all the assets and
stock of our domestic subsidiaries and substantially all of the
stock of our foreign subsidiaries. The new credit facility
replaces our current aggregated $25 million credit
facilities, which are discussed in Note 6 to the Notes to
Consolidated Financial Statements.
91
|
|
Item 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure.
|
None.
|
|
Item 9A.
|
Control
and Procedures.
|
Disclosure
Controls and Procedures
We carried out an evaluation, under the supervision and with the
participation of our management, including our principal
executive officer and principal financial officer, of the
effectiveness of our disclosure controls and procedures (as
defined in Exchange Act Rules
13a-15(e)
and
15d-15(e))
as of the end of the period covered by this annual report. Based
upon that evaluation, our Chief Executive Officer and Chief
Financial Officer concluded that our disclosure controls and
procedures were effective as of the end of the period covered by
this annual report.
Internal
Control over Financial Reporting
There has been no change in our internal control over financial
reporting during the quarter ended December 31, 2010, that
has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
This annual report does not include a report of
managements assessment regarding internal control over
financial reporting or an attestation report of the
companys registered public accounting firm due to a
transition period established by rules of the SEC for newly
listed public companies.
|
|
Item 9B.
|
Other
Information.
|
Pursuant to Item 3.02 of
Form 8-K,
we are disclosing the following:
We have issued the following shares in connection with
acquisitions during March 2011, which issuances have not been
previously reported:
(a) On March 7, 2011, in connection with the
acquisition of certain assets of ADCO Services, Inc., Swisher
Hygiene issued 25,594 shares of our common stock to ADCO
Services, Inc.; and
(b) On March 8, 2011, in connection with the
acquisition of the healthcare and hospitality division of
Solvents and Petroleum Service, Inc., Swisher Hygiene issued
67,712 shares of our common stock to Solvents and Petroleum
Service, Inc.; and
(c) On March 9, 2011, in connection with the
acquisition of certain assets of Logico Associates, Inc.,
Swisher Hygiene issued 149,502 shares of our common stock
to Logico Associates; and
(d) On March 14, 2011, in connection with the
acquisition of certain assets of Nebraska Hygiene, Inc., Swisher
Hygiene issued 38,136 shares of our common stock to
Nebraska Hygiene, Inc.; and
(e) On March 28, 2011, in connection with the
acquisition of certain assets of Golden Management Associates
Inc., Swisher Hygiene issued a promissory note to Golden
Management Associates Inc., which note is convertible for up to
900,000 shares of our common stock; and
(f) On March 28, 2011, in connection with the
acquisition of certain assets of En-Viro Solutions HI, Inc.,
Swisher Hygiene issued 17,138 shares of our common stock.
No underwriters were involved in any of the issuances of
securities described in above, all of which were exempt from the
registration requirements of the Securities Act. The issuances
of the securities described above were exempt from the
registration requirements of the Securities Act afforded by
Section 4(2) thereof and Regulation D promulgated
thereunder, which exception Swisher Hygiene believes is
available because the securities were not offered pursuant to a
general solicitation and such issuances were otherwise made in
compliance with the requirements of Regulation D and Rule 506.
The securities issued in these transactions are restricted and
may not be resold except pursuant to an effective registration
statement filed under the Securities Act or pursuant to a valid
exemption from the registration requirements of the Securities
Act.
92
PART III
|
|
Item 10.
|
Directors,
Executive Officer and Corporate Governance.
|
The information required by Item 10 is incorporated by
reference to our Proxy Statement for our 2011 Annual Meeting of
Stockholders, except for certain information concerning the
Executive Officers of the Company set forth in
Part I Item I hereof under the caption
Executive Officers of the Registrant. Our Proxy
Statement for our 2011 Annual Meeting of Stockholders will be
filed with the Securities and Exchange Commission no later than
120 days after the end of the fiscal year covered by this
Form 10-K.
|
|
Item 11.
|
Executive
Compensation.
|
The information required by Item 11 is incorporated by
reference to our Proxy Statement for our 2011 Annual Meeting of
Stockholders, which will be filed with the Securities and
Exchange Commission no later than 120 days after the end of
the fiscal year covered by this
Form 10-K.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters.
|
The information required by Item 12 is incorporated by
reference to our Proxy Statement for our 2011 Annual Meeting of
Stockholders, which will be filed with the Securities and
Exchange Commission no later than 120 days after the end of
the fiscal year covered by this
Form 10-K.
|
|
Item 13.
|
Certain
Relationships and Related Transactions, and Director
Independence.
|
The information required by Item 13 is incorporated by
reference to our Proxy Statement for our 2011 Annual Meeting of
Stockholders, which will be filed with the Securities and
Exchange Commission no later than 120 days after the end of
the fiscal year covered by this
Form 10-K.
|
|
Item 14.
|
Principal
Accounting Fees and Services.
|
The information required by Item 14 is incorporated by
reference to our Proxy Statement for our 2011 Annual Meeting of
Stockholders, which will be filed with the Securities and
Exchange Commission no later than 120 days after the end of
the fiscal year covered by this
Form 10-K.
PART IV
Item 15. Exhibits,
Financial Statement Schedules.
(a)(1) Financial Statements
Reference is made to the index set forth in this Annual Report
on Form 10-K.
(a)(2) Financial Statement Schedule
Schedule II Valuation and Qualifying Accounts
All other schedules not included have been omitted because of
the absence of conditions under which they are required or
because the required information, where material, is shown in
the consolidated financial statements or the notes to
consolidated financial statements.
93
(a)(3) Exhibits
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
2
|
.1
|
|
Agreement and Plan of Merger, among CoolBrands International
Inc., CoolBrands International (Nevada), Inc., Swisher
International, Inc. and Steven R. Berrard, dated as of
August 17, 2010.(1)
|
|
2
|
.2
|
|
Plan of Arrangement, dated November 1, 2010.(1)
|
|
3
|
.1
|
|
Certificate of Corporate Domestication of CoolBrands
International Inc., dated November 1, 2010.(1)
|
|
3
|
.2
|
|
Certificate of Incorporation of Swisher Hygiene Inc.(1)
|
|
3
|
.3
|
|
Bylaws of Swisher Hygiene Inc.(1)
|
|
10
|
.1
|
|
Credit Agreement by and between Swisher International, Inc. and
Wachovia Bank, National Association, dated November 14,
2005.(2)
|
|
10
|
.2
|
|
Security Agreement by and among Swisher International, Inc. and
certain subsidiaries of Swisher International, Inc., dated as of
November 14, 2005.(1)
|
|
10
|
.3
|
|
First Amendment to Credit Agreement by and between Swisher
International, Inc. and Wachovia Bank, National Association,
dated as of April 26, 2006.(1)
|
|
10
|
.4
|
|
Second Amendment and Waiver to Credit Agreement by and between
Swisher International, Inc. and Wachovia Bank, National
Association, dated as of September 8, 2006.(1)
|
|
10
|
.5
|
|
Third Amendment and Waiver to Credit Agreement by and between
Swisher International, Inc. and Wachovia Bank, National
Association, dated as of March 21, 2008.(1)
|
|
10
|
.6
|
|
Fourth Amendment and Waiver to Credit Agreement by and between
Swisher International, Inc. and Wachovia Bank, National
Association, dated June 25, 2008.(1)
|
|
10
|
.7
|
|
Fifth Amendment and Waiver to Credit Agreement by and between
Swisher International, Inc., Wachovia Bank, National
Association, and other persons party thereto, dated
June 30, 2009.(1)
|
|
10
|
.8
|
|
Sixth Amendment to Credit Agreement by and between Swisher
International, Inc., Wachovia Bank, National Association and
other persons party thereto, dated November 18, 2009.(1)
|
|
10
|
.9
|
|
Credit Agreement by and between HB Service, LLC and Wachovia
Bank, National Association, dated as of June 25, 2008.(1)
|
|
10
|
.10
|
|
First Amendment and Waiver to Credit Agreement by and between HB
Service, LLC, Wachovia Bank, National Association and other
persons party thereto, dated as of June 30, 2009.(1)
|
|
10
|
.11
|
|
Second Amendment to Credit Agreement by and between HB Service,
LLC, Wachovia Bank, National Association, and other persons
party thereto, dated November 18, 2009.(1)
|
|
10
|
.12
|
|
Omnibus Amendment Agreement, Limited Consent and Waiver by and
between Swisher International, Inc., HB Service, LLC, Wells
Fargo Bank, National Association and other persons party
thereto, dated August 13, 2010.(1)
|
|
10
|
.13
|
|
Omnibus Amendment Agreement, Limited Consent and Waiver by and
between Swisher International, Inc., HB Service, LLC, Wells
Fargo Bank, National Association and other persons party
thereto, dated October 28, 2010.(1)
|
|
10
|
.14
|
|
Unconditional Guaranty by and among Swisher International, Inc.,
H. Wayne Huizenga and Wachovia Bank, National Association, dated
June 25, 2008.(1)
|
|
10
|
.15
|
|
Unconditional Guaranty by and among HB Service, LLC, H. Wayne
Huizenga and Wachovia Bank, National Association, dated
June 25, 2008.(1)
|
|
10
|
.16
|
|
Promissory Note, dated May 26, 2010, as amended, in the
principal amount of $21,445,000 to Royal Palm Mortgage Group,
LLC.(1)
|
|
10
|
.17
|
|
Amended and Restated Security Agreement by and between H. Wayne
Huizenga and Wachovia Bank, National Association, dated January
2010.(1)
|
|
10
|
.18
|
|
Capital Contribution Agreement by and among H. Wayne Huizenga,
Steven R. Berrard and Swisher International, Inc., dated
July 13, 2010.(1)
|
|
10
|
.19
|
|
Form of
Lock-Up
Agreement.(1)
|
|
10
|
.20
|
|
Promissory Note, dated August 9, 2010, in the principal
amount of $2,000,000 to Royal Palm Mortgage Group, LLC.(1)
|
94
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
10
|
.21
|
|
Promissory Note, dated August 9, 2010, in the principal
amount of $1,500,000 to Royal Palm Mortgage Group, LLC.(1)
|
|
10
|
.22
|
|
Form of Swisher Hygiene Inc. 2010 Stock Incentive Plan.(1)
|
|
10
|
.23
|
|
Omnibus Amendment Agreement, Limited Consent and Waiver by and
between Swisher International, Inc., HB Service, LLC, Wells
Fargo Bank, National Association and other persons party
thereto, dated November 5, 2010.(1)
|
|
10
|
.24
|
|
Vendor Agreement, dated July 25, 2008, between Swisher
Hygiene Franchise Corp. and Intercon Chemical Company (Portions
of this exhibit have been omitted and filed separately with the
Securities and Exchange Commission pursuant to a request for
confidential treatment.)(3)
|
|
16
|
.1
|
|
Letter of Scharf Pera & Co., PLLC, dated
November 16, 2010.(2)
|
|
21
|
.1
|
|
Subsidiaries of Swisher Hygiene Inc.
|
|
23
|
.1
|
|
Consent of BDO USA LLP.
|
|
23
|
.2
|
|
Consent of Scharf Pera & Co., PLLC.
|
|
31
|
.1
|
|
Section 302 Certification of Chief Executive Officer.
|
|
31
|
.2
|
|
Section 302 Certification of Chief Financial Officer.
|
|
32
|
.1
|
|
Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
|
|
32
|
.2
|
|
Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
|
Previously filed. Documents incorporated by reference to the
indicated exhibit to the following filings by the Company under
the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended.
|
|
|
(1) |
|
Registration Statement on Form 10, filed with the
Securities and Exchange Commission on November 9, 2010. |
|
(2) |
|
Amendment No. 1 to Registration Statement on Form 10,
filed with the Securities and Exchange Commission on
December 15, 2010. |
|
(3) |
|
Amendment No. 3 to Registration Statement on Form 10,
filed with the Securities and Exchange Commission on
January 31, 2011. |
95
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
SWISHER HYGIENE INC.
(Registrant)
Dated: March 31, 2011
|
|
|
|
By:
|
/s/ Steven
R. Berrard
|
Steven R. Berrard
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
|
|
|
|
|
|
|
SIGNATURE
|
|
TITLE
|
|
DATE
|
|
|
|
|
|
|
/s/ Steven
R. Berrard
Steven
R. Berrard
|
|
President, Chief Executive Officer, and Director (Principal
Executive Officer)
|
|
March 31, 2011
|
|
|
|
|
|
/s/ Hugh
H. Cooper
Hugh
H. Cooper
|
|
Chief Financial Officer
(Principal Financial Officer)
|
|
March 31, 2011
|
|
|
|
|
|
/s/ Michael
Kipp
Michael
Kipp
|
|
Vice President and Chief Accounting Officer (Principal
Accounting Officer)
|
|
March 31, 2011
|
|
|
|
|
|
/s/ H.
Wayne Huizenga
H.
Wayne Huizenga
|
|
Chairman of the Board
|
|
March 31, 2011
|
|
|
|
|
|
/s/ David
Braley
David
Braley
|
|
Director
|
|
March 31, 2011
|
|
|
|
|
|
/s/ John
Ellis Bush
John
Ellis Bush
|
|
Director
|
|
March 31, 2011
|
|
|
|
|
|
/s/ Harris
W. Hudson
Harris
W. Hudson
|
|
Director
|
|
March 31, 2011
|
|
|
|
|
|
/s/ William
D. Pruitt
William
D. Pruitt
|
|
Director
|
|
March 31, 2011
|
|
|
|
|
|
/s/ David
Prussky
David
Prussky
|
|
Director
|
|
March 31, 2011
|
|
|
|
|
|
/s/ Michael
Serruya
Michael
Serruya
|
|
Director
|
|
March 31, 2011
|
96
SWISHER
HYGIENE INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENT SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED DECEMBER 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
Charged to
|
|
|
Deductions
|
|
|
Balance at
|
|
|
|
the Beginning
|
|
|
Costs and
|
|
|
from
|
|
|
the End
|
|
|
|
of the Year
|
|
|
Expenses
|
|
|
Allowance
|
|
|
of the Year
|
|
|
December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowances for doubtful accounts receivable
|
|
$
|
334,156
|
|
|
$
|
182,593
|
|
|
$
|
152,515
|
|
|
$
|
364,234
|
|
Other allowances
|
|
|
|
|
|
|
100,000
|
|
|
|
|
|
|
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
334,156
|
|
|
$
|
282,593
|
|
|
$
|
152,515
|
|
|
$
|
464,234
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowances for doubtful accounts receivable
|
|
$
|
564,635
|
|
|
$
|
284,385
|
|
|
$
|
514,864
|
|
|
$
|
334,156
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowances for doubtful accounts receivable
|
|
$
|
517,838
|
|
|
$
|
605,186
|
|
|
$
|
558,389
|
|
|
$
|
564,635
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
97
SWISHER
HYGIENE INC. AND SUBSIDIARIES
EXHIBIT INDEX
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
21
|
.1
|
|
Subsidiaries of Swisher Hygiene Inc.
|
|
23
|
.1
|
|
Consent of BDO USA LLP.
|
|
23
|
.2
|
|
Consent of Scharf Pera & Co., PLLC.
|
|
31
|
.1
|
|
Section 302 Certification of Chief Executive Officer.
|
|
31
|
.2
|
|
Section 302 Certification of Chief Financial Officer.
|
|
32
|
.1
|
|
Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
|
32
|
.2
|
|
Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|