EXHIBIT 99.3

 

SWISHER HYGIENE INC. AND
SUBSIDIARIES

 

Unaudited Pro Forma Condensed Combined Financial Statements

 

December 31, 2010

SWISHER HYGIENE INC. AND SUBSIDIARIES
INDEX TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

 

 

On February 13, 2011, Swisher Hygiene Inc. (“Swisher” or the “Company”) entered into an agreement and plan of merger (the “Agreement”) by and among Swisher, Swsh Merger Sub, Inc., Choice Environmental Services, Inc., a Florida corporation (“Choice”), and other parties set forth in the Agreement. The Agreement provided for the acquisition of Choice by Swisher by way of merger. On March 1, 2011, the parties completed the transaction and Choice became a wholly-owned subsidiary of Swisher.

 

In connection with this transaction, Swisher issued 8,281,923 shares of its common stock to the former shareholders of Choice and assumed approximately $40.9 million in debt, and paid down $39.2 million of this debt with proceeds from the February 11, 2011 Subscription Receipts Offering (the “Offering”).

 

Under the terms of the Offering, on February 11, 2011 Swisher issued 12,262,500 subscription receipts at a price of $4.80 per subscription receipt, for aggregate gross proceeds of $58,859,594. Each subscription receipt entitled the holder to acquire one share of the common stock of Swisher, without payment of any additional consideration, upon completion of the Company’s acquisition of Choice. On March 1, 2011 and after the completion of the merger, the Company issued 12,262,500 shares of its common stock in exchange for the outstanding subscription receipts.

 

The following unaudited pro forma condensed combined financial statements are based on the historical consolidated financial statements of Swisher and Choice after giving effect to (i) the Company’s acquisition of Choice on March 1, 2011 as well as (ii) the issuance of common stock under the terms of the Offering and the assumptions, reclassifications, and adjustments described in the notes to unaudited pro forma condensed combined financial statements.

 

These unaudited pro forma condensed combined financial statements have been compiled from and include:

 

 

 

The historical consolidated financial statements of Choice included in Exhibit 99.1 and Exhibit 99.2, include Choice Realty Holdings, LLC (“Choice Realty”), a related party through common ownership, which is required to be consolidated since Choice supports Choice Realty, who does not have sufficient financial resources to support its own activities. The Company did not purchase the assets of Choice Realty in the acquisition of Choice; and, therefore, we have not included Choice Realty in the historical amounts of Choice for the following unaudited pro forma condensed combined financial statements.

 

The unaudited pro forma condensed combined financial statements are based on preliminary valuations of assets and liabilities acquired and consideration paid in the acquisition of Choice. These preliminary amounts could change as additional information becomes available. These changes could result in material variances between the Company’s future financial results and the amounts presented in these unaudited pro forma condensed combined financial statements, including fair values recorded, as well as expenses and cash flows associated with these items.

The unaudited pro forma condensed combined financial statements are presented for illustrative purposes only and is not necessarily indicative of the operating results that would have occurred if the Company had operated Choice, or if the acquisition had occurred as of the date or during the period presented, nor is it necessarily indicative of future operating results or financial position. The unaudited pro forma condensed combined financial statements do not reflect any operating efficiencies and/or cost savings that the Company may achieve with respect to the combined companies.

 

The unaudited pro forma condensed combined financial statements should be read in conjunction with the historical audited consolidated financial statements and notes to consolidated financial statements of the Company, the historical audited consolidated financial statements and notes to consolidated financial statements of Choice, and the historical unaudited consolidated financial statements and notes to consolidated financial statements of Choice, which financial statements are included in this report.

 

 

See notes to unaudited pro forma condensed combined financial statements

 

 

See notes to unaudited pro forma condensed combined financial statements

 

 

The following unaudited pro forma condensed combined financial statements are based on the historical consolidated financial statements of Swisher and Choice after giving effect to (i) the Company’s acquisition of Choice on March 1, 2011 as well as (ii) the issuance of common stock under the terms of the Offering and the assumptions, reclassifications, and adjustments described in the notes to unaudited pro forma condensed combined financial statements.

 

These unaudited pro forma condensed combined financial statements have been compiled from and include:

 

 

 

The historical consolidated financial statements of Choice include Choice Realty Holdings, LLC (Choice Realty), a related party through common ownership, which is required to be consolidated since Choice supports Choice Realty, who does not have sufficient financial resources to support its own activities. The Company did not purchase the assets of Choice Realty in the acquisition of Choice; and, therefore, we have not included Choice Realty in the historical amounts of Choice for the following unaudited pro forma condensed combined financial statements.

 

The unaudited pro forma condensed combined financial statements are based on preliminary valuations of assets and liabilities acquired and consideration paid in the acquisition of Choice. These preliminary amounts could change as additional information becomes available. These changes could result in material variances between the Company’s future financial results and the amounts presented in these unaudited pro forma condensed combined financial statements, including fair values recorded, as well as expenses and cash flows associated with these items.

 

The unaudited pro forma condensed combined financial statements are presented for illustrative purposes only and is not necessarily indicative of the operating results that would have occurred if the Company had operated Choice, or if the acquisition had occurred as of the date or during the period presented, nor is it necessarily indicative of future operating results or financial position. The unaudited pro forma condensed combined financial statements do not reflect any operating efficiencies and/or cost savings that the Company may achieve with respect to the combined companies.

 

The unaudited pro forma condensed combined financial statements should be read in conjunction with the historical audited consolidated financial statements and notes to consolidated financial statements of the Company contained in its 2010 Annual Report on Form 10-K for the year ended December 31, 2010, filed with Securities and Exchange Commission on March 31, 2011; the historical audited consolidated financial statements and notes to consolidated financial statements of Choice, which are included as Exhibit 99.1 to this

 

SWISHER HYGIENE INC. AND SUBSIDIARIES

NOTES TO THE UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS — (Continued)
(expressed in thousands, except share and per share amounts)

 

Current Report on Form 8-K/A; and the historical unaudited consolidated financial statements and notes to consolidated financial statements of Choice, which are included as Exhibit 99.2 to this Current Report on Form 8-K/A.

 

 

The following table represents the preliminary estimated purchase price allocation as of March 1, 2011 (in thousands):

 

 

The debt assumed includes a prepayment penalty of $1,854 as a result of the Company paying down $39,216 of the assumed debt as part of the acquisition of Choice as of March 1, 2011.

 

The preliminary allocation of the purchase price is based on the best information available to management at the time that these unaudited pro forma condensed combined financial statements were filed. 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 addition 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):

 

 

SWISHER HYGIENE INC. AND SUBSIDIARIES

NOTES TO THE UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS — (Continued)
(expressed in thousands, except share and per share amounts)

 

Employment agreements were entered into with four individuals as part of the acquisition of Choice. These employment agreements provided a salary, bonus, stock option and restricted stock awards, and included a covenant to not compete for a 2.5 year period. The bonus available is equal to 50% of the employee’s salary and is contingent on the performance of Choice for the calendar year 2010. The salary, stock awards, and bonus will all be recorded as compensation over the periods in which it is earned and we have not made any adjustments for these items in the unaudited pro forma condensed combined financial statements.

 

 

The adjustments included in the unaudited pro forma condensed combined financial statements are those that are considered to be directly attributable to the acquisition of Choice and the issuance of common stock under the terms of the Offering and that provide information as to how the condensed combined historical financial statements may have been affected had those events occurred as of December 31, 2010, and at the beginning of the year ended December 31, 2010, respectively. These adjustments are as follows:

 

 

In connection with the announced acquisition of Choice, on February 11, 2011, we issued 12,262,500 subscription receipts at a price of $4.80 for aggregate gross proceeds of $58,860. Each subscription receipt entitled the holder to acquire one share of the Company’s common stock upon completion of the Company’s acquisition of Choice. After completion of the acquisition of Choice on March 1, 2011, the Company issued 12,262,500 shares of its common stock in exchange for the outstanding subscription receipts. The adjustment does not include a reduction in the actual cash received by the Company for fees of approximately $3,178.

 

 

In connection with the consummation of the acquisition of Choice, on March 1, 2011 we paid $5,700 of cash to certain shareholders of Choice who received warrants to purchase 918,076 additional shares of the Company’s common stock at an exercise price of $6.21. Additionally, the pro forma adjustments reflect the pay off of $40,278 of the Choice debt present at December 31, 2010 and an additional $1,854 prepayment penalty. See pro forma adjustment (f).

 

 

We made the following adjustments to deferred taxes as a result of the acquisition of Choice (in thousands):

 

 

Deferred taxes are primary due to temporary differences related to intangibles and property and equipment and have been calculated based on a statutory rate. In addition, we made an adjustment for $577

 

SWISHER HYGIENE INC. AND SUBSIDIARIES

NOTES TO THE UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS — (Continued)
(expressed in thousands, except share and per share amounts)

 

for income tax expense as the Choice 2010 taxable income would have been able to be offset against the combined companies net operating losses if Swisher had operated Choice during 2010.

 

 

Upon completion of the acquisition of Choice, the Company estimated the fair value of property and equipment acquired and property leased under capital leases. We made the following adjustments between the historical net value and the estimated fair value of the property and equipment, including capital leased property, acquired at December 31, 2010 as well as changes to depreciation expense for the year ended December 31, 2010 (in thousands):

 

 

See pro forma adjustment (f) for capital lease obligations related to the leased property that were executed in connection with the Choice acquisition with shareholders of Choice. We also made an adjustment of $534 for rent expense related to the capital leases.

 

 

Goodwill

 

We recorded a pro forma adjustment related to goodwill of $35,902 as a result of the purchase price allocation of the acquired assets and liabilities of Choice assuming the transaction occurred on December 31, 2010. This adjustment also includes the removal of the historical Choice goodwill as of December 31, 2010 of $13,958.

 

Other intangibles

 

We recorded a pro forma adjustment related to other intangibles of $27,469 to record the fair value of the following identifiable other intangible assets (in thousands):

 

 

The pro forma adjustment includes the removal of other intangibles of $3,251 on the historical Choice balance sheet at December 31, 2010.

 

SWISHER HYGIENE INC. AND SUBSIDIARIES

NOTES TO THE UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS — (Continued)
(expressed in thousands, except share and per share amounts)

 

We adjusted amortization expense to remove the $879 of amortization expense from the historical Choice statement of operations for the year ended September 30, 2010 and recorded the amount of $5,129 for amortization expense for the year ended December 31, 2010, related to the acquired intangibles as if the acquisition of Choice occurred on January 1, 2010. See pro forma adjustment (h).

 

 

Pro forma adjustments include (i) the payoff of $40,278 of the assumed Choice debt present at December 31, 2010, (ii) the capital leases entered into in connection with the acquisition of Choice, (iii) the revaluation of the remaining assumed debt to fair value, and (iv) the removal of unamortized debt financing costs of $1,491 included in other noncurrent assets on the unaudited condensed balance sheet of Choice at December 31, 2010.

 

 

In connection with the payoff of $40,278 of the assumed Choice debt present at December 31, 2010, the Company would have paid a prepayment penalty of $1,854. Total cash paid in connection with the retirement of the debt is:

 

 

See pro forma adjustment (h) below for interest expense and amortization related to debt discounts and debt financing costs.

 

 

We recorded the following adjustments to the equity accounts (in thousands):

 

 

SWISHER HYGIENE INC. AND SUBSIDIARIES

NOTES TO THE UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS — (Continued)
(expressed in thousands, except share and per share amounts)

 

 

We recorded the following adjustments to depreciation and amortization (in thousands):

 

 

 

We recorded the following adjustments to interest expense (in thousands):

 

 

 

The pro forma basic and diluted earnings per share amounts presented in the unaudited pro forma condensed combined statements of operations are based on the weighted average number of the Company’s common shares outstanding at December 31, 2010 as adjusted for the following: