ANNUAL REPORT 2014
800.360.SWSH ■ SWSH.COM
It’s our mIssIon
to deliver industry leading service to
our customers by providing operational
solutions complemented by quality
products with excellent value.
HEADQUARTERS
BOARD OF DIRECTORS
4725 Piedmont Row Drive
Suite 400
Charlotte, North Carolina 28210
Telephone (800) 444-4138
INVESTOR CONTACT AND INFORMATION REQUESTS
Stockholders, securities analysts, portfolio managers and representatives of
financial institutions requesting copies of our Annual Report, Form 10-K, quarterly
reports and other corporate literature should call (704) 602-7116 or write Swisher
Hygiene Inc., Investor Relations, at the above address.
NOTICE OF ANNUAL MEETING
Joseph Burke
Management Consultant - Finance and
Operations, Hudson Capital Group
Richard L. Handley
Chairman of the Board,
Senior Vice President, Secretary and General
Counsel, Huizenga Holdings, Inc.
Harris W. Hudson
Chairman and Owner,
Hudson Capital Group
The Annual Meeting of Stockholders of Swisher Hygiene Inc. will be held at
10:00 a.m. Eastern Time, Thursday, October 15, 2015 at the Charlotte Marriott
SouthPark – Morrison Ballroom B, 2200 Rexford Road, Charlotte, NC 28211-3431.
Telephone: (704) 364-8220.
William M. Pierce
President and Chief Executive Officer,
Swisher Hygiene Inc. and Senior Vice
President, Huizenga Holdings, Inc.
COMMON STOCK INFORMATION
The Company’s common stock trades on the NASDAQ Capital Market under the
symbol “SWSH.”
William D. Pruitt
President, Pruitt Ventures, Inc.
and General Manager, Pruitt Enterprises, LP
COMMON STOCK TRANSFER AGENT AND REGISTRAR
David Prussky
Director,
Swisher Hygiene Inc.
For inquiries regarding address changes, stock transfers, lost shares or other
account matters, please contact: TMX Equity Transfer Services, 200 University
Avenue, Suite 300, Toronto, Ontario M5H 4H1.
BOARD COMMITTEES
Registered owners of Swisher Hygiene common stock may also call Investor
Services at 1 (866) 393-4891 ext. 205 to inquire about address changes, stock
transfers, lost shares or other account matters.
Audit Committee
Joseph Burke
William D. Pruitt
David Prussky
Internet users can access information at www.tmxequitytransferservices.com.
Compensation Committee
Richard L. Handley
William D. Pruitt
Nominating & Corporate
Governance Committee
Richard L. Handley
David Prussky
FORM 10-K
A copy of Swisher Hygiene’s Annual Report on Form 10-K for the year ended
December 31, 2014 as filed with the Securities and Exchange Commission
is available without charge under the “Investors” section of our website at
www.swsh.com, or by writing to: Swisher Hygiene Inc., Attn: Investor Relations
4725 Piedmont Row Drive, Suite 400, Charlotte, North Carolina 28210.
FORWARD-LOOKING STATEMENTS
Some of the statements and information contained throughout this Annual
Report constitute “forward-looking statements” within the meaning of the
Federal Private Securities Litigation Reform Act of 1995. The forward- looking
statements describe our expectations, plans and intentions about our business,
financial condition and prospects. Known and unknown risks, uncertainties and
other factors (including those described in our Annual Report on Form 10-K)
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. We undertake no duty to update or
revise our forward-looking statements, whether as a result of new information,
future events or otherwise, except as required by law.
SWISHER HYGIENE INC.
MATERIALS INCLUDED IN THIS ANNUAL REPORT
Annual Report on Form 10-K for the year ended December 31, 2014
Amendment to Annual Report on Form 10-K for the year ended December 31, 2014
Quarterly Report on Form 10-Q for the quarter ended March 31, 2015
Quarterly Report on Form 10-Q for the quarter ended June 30, 2015
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 2014
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission file number: 001-35067
SWISHER HYGIENE INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware
(State or Other Jurisdiction of Incorporation or Organization)
27-3819646
(I.R.S. Employer Identification No.)
4725 Piedmont Row Drive, Suite 400, Charlotte, North Carolina
(Address of Principal Executive Offices)
28210
(Zip Code)
Registrant’s Telephone Number, Including Area Code (704) 364-7707
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock
$0.001 par value
Name of Each Exchange On Which Registered
The NASDAQ Stock Market LLC
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 No
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 No
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 No
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 No
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 registrant’s 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.
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:
Large accelerated filer
Non-accelerated filer
(Do not check if a smaller reporting company)
Accelerated filer
Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No
The aggregate market value of the shares of common stock held by non-affiliates of the registrant as of June 30, 2014 (based on the last reported sales
price of such stock on the NASDAQ Global Select Market on such date of $4.30 per share) was approximately $53,344,243.
Number of shares outstanding of each of the registrant’s classes of Common Stock at March 25, 2015: 17,617,379 shares of Common Stock, $0.001 par
value per share.
Portions of the registrant’s Proxy Statement relating to its 2015 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end
of the fiscal year ended December 31, 2014 are incorporated herein by reference in Part III.
DOCUMENTS INCORPORATED BY REFERENCE
SWISHER HYGIENE INC.
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2014
TABLE OF CONTENTS
PART I
ITEM 1. BUSINESS.
ITEM 1A. RISK FACTORS.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
ITEM 2.
ITEM 3.
ITEM 4. MINE SAFETY DISCLOSURES.
PROPERTIES.
LEGAL PROCEEDINGS.
PART II
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ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
19
AND ISSUER PURCHASES OF EQUITY SECURITIES.
SELECTED FINANCIAL DATA.
ITEM 6.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
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OF OPERATIONS.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
ITEM 8.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
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FINANCIAL DISCLOSURE.
ITEM 9A. CONTROLS AND PROCEDURES.
ITEM 9B. OTHER INFORMATION.
PART III
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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
ITEM 11. EXECUTIVE COMPENSATION.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
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RELATED STOCKHOLDER MATTERS.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
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INDEPENDENCE.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
SIGNATURES
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1
ITEM 1.
BUSINESS.
PART I
This business description should be read in conjunction with our audited consolidated financial statements and
accompanying notes thereto appearing elsewhere in this annual report, which 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 (described in Note 1 to the Notes to the Consolidated Financial Statements), in which case these words, as well as
“Swisher International,” refer to Swisher International, Inc. and its consolidated subsidiaries.
General
We provide essential hygiene and sanitizing solutions that include cleaning and sanitizing chemicals, restroom hygiene
programs and a full range of related products and services throughout North America and internationally through nine Master
License Agreements, with an emphasis on the foodservice, hospitality, retail, and healthcare industries. During 2013, we made
the decision to focus our growth efforts on our core hygiene and sanitizing solutions and certain strategic linen assets and
therefore we began an active program to sell non-core linen and route operations as described further in Note 2 “Discontinued
Operations and Assets Held for Sale” to the Notes to the Consolidated Financial Statements. We may continue to provide linen
offerings, other than those serviced by our remaining linen assets, as well as other ancillary services to certain customers
through strategic third party partnerships.
During 2011 and most of 2012 we operated in two segments: (i) Hygiene and (ii) Waste. As a result of the sale of our
Waste segment in November 2012, we currently operate in one business segment, Hygiene, and our financial statements and
other information for the three years ended December 31, 2014, which are included in this Annual Report on Form 10-K, which
we refer to as the 2014 Form 10-K, are presented to show the operation of this single segment. The financial information about
our geographical areas is included in Note 18, “Geographic Information,” to the Notes to the Consolidated Financial Statements
in this 2014 Form 10-K, and is incorporated herein by this reference.
Our Market
We compete in many markets including institutional, retail and industrial cleaning chemicals (which include
foodservice chemicals), restroom hygiene, other facility service products, and paper and plastics. In each of these markets there
are numerous participants ranging from large multi-national companies to local and regional competitors. We believe our
primary competitors in our legacy hygiene and facilities service 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 uniform
rentals. The paper distribution market for the customers we target not only has competition among the providers listed above,
but also from the foodservice and janitorial-sanitation distributors. The competitive landscape is made more challenging as
consolidation activity increases within many of our customers’ industries, potentially leading to the loss of business. We believe
our primary competitors in our chemical services market include numerous small local and region providers which may only
compete in one or more of our chemical services categories and a few larger providers that would compete within most of our
chemical service offerings footprint.
Our Strategy
We have developed a strong geographic footprint in the United States and Canada. We plan to leverage this footprint
to generate growth in our core chemical and hygiene operations while offering ancillary services to certain customers through
third party partnerships. We believe that customers with national or regional chains are increasingly seeking consistent service
providers that can offer multiple products and that our ability to provide a complete chemical offering, complementary kitchen
products, restroom hygiene services, hygiene products (such as paper, soap and air fresheners) and facility service items provide
the Company with a valuable point of competitive differentiation.
We are focused on revenue growth in our key markets via a number of channels including our distribution partnership
efforts, ongoing tests with multi-unit national and regional chains and direct selling focused on large independents. We
continue to focus on a number of operating and overhead cost efficiencies that seek to further leverage the integration of our
acquisitions and simplify our operations. These efficiencies include: improved purchasing processes and tools, SKU
rationalization, freight optimization, reduction and or downsizing of branch locations, route optimization, centralizing office
administration functions, standardizing our operating model and aligning field compensation to grow our revenue.
2
Products and Services
We sell consumable products such as detergents, cleaning chemicals, soap, paper, water filters and supplies, together
with the rental and servicing of dish machines and other equipment for the dispensing of those products; as well as additional
services such as the cleaning of facilities.
Consolidated revenues by product type and service line are as follows:
Chemical service and wholesale revenue, which include our laundry, ware washing, disinfectants, sanitizers and
other concentrated and ready-to-use cleaning products and soap, accounted for 63.9%, 60.1%, and 62.7% of
consolidated revenue in 2014, 2013 and 2012, respectively.
Hygiene service revenue, which includes restroom cleaning services, hand hygiene, air fresheners and service
delivery fees, accounted for 9.9%, 10.8%, and 11.4% of consolidated revenues in 2014, 2013 and 2012, respectively.
Paper sales accounted for 8.7%, 8.7%, and 8.2% of consolidated revenues in 2014, 2013 and 2012, respectively.
Rental fees, linen processing, equipment sales, other ancillary product sales and franchise fees comprise the remaining
17.5%, 20.4%, and 17.7% of consolidated revenues in 2014, 2013 and 2012 and none of these individual product lines
represented greater than 10.0% of consolidated revenues for each of the three years. We anticipate that over time our chemical
revenue will continue to grow at a faster rate than any of our other product lines. Certain of our products are registered with
the Environmental Protection Agency and follow the Center for Disease Control guidelines for disinfection of surface areas
such as children’s playgrounds, hospitals, and assisted living environments.
We have placed particular emphasis on the development of our chemical offerings, 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. Laundry products include detergents, stain removers, fabric conditioners,
softeners and bleaches in liquid, powder and concentrate forms to clean items such as bed linen, terry cloth, clothing and table
linen. For ware washing customers, we sell or rent, as well as install and service, dishwashing machines and dish tables. We
also provide and install chemical dispensing units and dish racks. Customers using our laundry services are also offered various
dispensing systems. The use of a dispensing system ensures the proper mix of chemicals for safe and effective use. We enter
into service agreements with customers under which we provide 24 hour, seven day-a-week emergency service, and perform
regularly scheduled preventative maintenance. Typically, these agreements require customers to purchase from us all of the
products used in the equipment and dispensing systems that we install. The chemicals themselves may be delivered to the
customer by the Company, a common carrier or one of our third-party distributor partners; however, the service and
maintenance is provided directly by a Company employee. Our ware washing and laundry solutions are designed to address
the needs of customers ranging from single store restaurant and lodging operators to multi-unit chains, large resorts, cruise
ships, casinos and assisted living facilities in the health care market. We often consult with customers that may have specialized
needs or require custom programs to address different fabric or soil types.
Our restroom hygiene and facility service business offers a regularly scheduled service that includes cleaning the toilet
bowls, urinals and sinks, the application of a germicide to such surfaces to inhibit bacteria growth, and the restocking of air
fresheners for a weekly fee. Additionally, we offer other restroom needs by providing and installing soap, tissue and hand towel
dispensers, and selling and restocking the soap and paper on an as-needed basis. This entire offering supplements the daily
janitorial or custodial requirements of our customers and frees customers from purchasing and securing an inventory of soap
and paper products.
Sales and Distribution
We are committed to our philosophy of Service, People and Profitably and to Selling Through Service. We market
and sell our products and services primarily through: (i) our field sales group, including the service technicians, which pursue
new customers and offer existing customers additional products and services; (ii) our corporate account sales team which
focuses on broad national and regional level customers; and (iii) independent third-party distributor partners.
The field selling organization is comprised of Business Development Representatives, Account Managers and
Hygiene Specialists. The Business Development Representatives identify new customer opportunities in which to sell products
that leverage current route service and delivery efficiencies as well as focusing on accounts with our distributor partner
representatives. Account Managers are primarily focused on servicing and expanding sales to current customers; however,
starting in 2014 they are also responsible for obtaining new customer sales. Hygiene Specialists focus on current customers
with the purpose of expanding the number of products and services provided by leveraging solid business relationships
including superior service.
3
Selling to new corporate accounts is led by a team that manages a longer sales 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
broader national or regional level. Additionally, large corporate accounts may operate via a franchise network or group
purchasing organization; 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 or group members. To date, vendor qualification processes
with larger accounts have ranged from less than three months to over 12 months. Contract terms on corporate account customers
typically range from three to five years.
In recent years we have expanded our distributor program which provides us with additional opportunities for organic
growth. Our distributor program is targeted toward regional and local foodservice and janitorial sanitation distributors that are
seeking to increase the revenue and margin they can drive by increasing the number of products they deliver to each customer,
which also helps our distributor partner reduce their customer attrition. Foodservice distribution is a highly competitive business
operating on low margins. As such, the distributor can typically earn a higher profit margin on the chemicals it sells to customers
compared to its food items. Moreover, a distributor partner is then able to market to its 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 customer. In effect, by Swisher partnering to be the chemical sales and service
arm for the distributor, we help to generate demand for our equipment and 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 common carriers in select markets, our services and
products in the United States are delivered through Company vehicles. We use our hand held computer software to assist in
monitoring the sales performance and fleet utilization efficiencies of our sales and service field operations.
Manufacturing
Although we produce a majority of our chemical products at our plants, we continue to purchase products 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 entered
into a Manufacturing and Supply Agreement (the "Cavalier Agreement") with a chemical manufacturing plant in conjunction
with our acquisition of Sanolite in July 2011. The Cavalier Agreement terminated in September 2014 pursuant to terms of the
agreement. The Cavalier Agreement provided for pricing adjustments, up or down, on the first of each month based on the
vendor's actual average product costs incurred during the prior month. Additional product payments made by the Company due
to pricing adjustments under the Cavalier Agreement were not significant and did not represent costs materially above the
market price for such products.
We are not currently a party to any agreement, including with our chemical manufacturers, 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 purchased 11.0%, 10.9%, and 14.3% of the chemicals required for our operations in 2014, 2013 and 2012,
respectively, and expect this percentage to decline as we manage and expand our own manufacturing capability.
Sources and Availability of Raw Materials
The key raw materials we use in our chemical products are caustic soda, solvents, waxes, phosphates, surfactants,
polymers and resins, chelates and fragrances, and packaging materials. Many of these raw materials are petroleum-based and,
therefore, subject to the availability and price of oil or its derivatives. We purchase most chemical raw materials on the open
market. We believe the raw materials used in products we currently sell 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.
Customer Dependence
Our customer base ranges from large multi-national companies and distributor partners to entrepreneurs who operate
a single location. No one customer accounts for 10% or more of our consolidated revenue for 2014, 2013 and 2012.
4
Trademarks and Trade Names
We maintain a number of trademark registrations in the United States, Canada and in certain other countries. We
believe that many of these trademarks, including “Swisher,” “SaniService,” the “Swisher” design, the “Swisher Hygiene”
design, and the “S” design are important to our business. Our trademark registrations in the United States are renewable for ten
year successive terms and maintenance filings must be made as follows: (i) for the “Swisher” word mark by January 2024, (ii)
for the “Swisher” design by January 2023, (iii) for “the Swisher Hygiene” design by April 2015, and (iv) for the “S” design by
February 2016.
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 company-owned operations 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.
We market the majority of our chemical products under various brands, labeling and product names including, but not
limited to, Swisher, Mt. Hood, ProClean, Daley and Cavalier. The majority of our chemical products formulas are owned by
us. The remaining chemical products are manufactured by third parties who manufacture our products based on our
specifications.
Seasonality
In the aggregate our business continues to be somewhat seasonal in nature, with the Company’s second and third
calendar quarters generating more revenue than the first and fourth calendar quarters. 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 industries, and the revenue we earn from these customers is related to the number of patrons they service. As events
adversely impact the business of our customers, our business could be adversely impacted.
Regulatory and Environmental
We are subject to numerous federal, state and local laws that regulate the manufacture, storage, distribution,
transportation and labeling of many of our products, including all of our disinfecting, sanitizing and antimicrobial products.
Some of these laws require us to have operating permits for our production and warehouse facilities, and operations. In the
event of a violation of these laws and permits, 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 and the handling, transportation, treatment, storage and disposal of hazardous and non-hazardous waste. 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 and impose fines or penalties in the event of violations
including criminal penalties. The United States 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. Furthermore,
any material regulatory action such as revocation, non-renewal or modification that may require us to cease or limit the sale of
products for any extended period of time from one or more of our facilities 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 federal, state and local laws and regulations govern some of our products and require us to register our
products and to comply with specified requirements. In the United States we must register our sanitizing and disinfecting
products with the EPA. When we register these products, or our supplier registers them in cases where we are sub-registering,
we must also submit to the EPA information regarding the chemistry, toxicology and antimicrobial efficacy for the Agency’s
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.
5
Numerous United States 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. Under the State of California's Proposition 65 for example, label disclosures are required for certain products
containing chemicals listed by California. In addition, California, Maine, Maryland, Massachusetts, Minnesota, Oregon and
South Carolina have chemical management initiatives that promote pollution prevention through the research and development
of safer chemicals and safer chemical processes. Nine states have enacted environmentally-preferable purchasing programs for
cleaning products and in recent years have been considered by several other state legislatures. On October 1, 2013, the
California Safer Consumer Products Act went into effect. Applicable to consumer products that enter the stream of commerce
in California, the Act's regulations require manufacturers, retailers and importers to seek safer alternatives to harmful chemicals
widely used in products. Through a variety of initiatives such as the "Design for the Environment" program, the U.S.
Government is tracking "green chemistry" initiatives. Some of our cleaning products are subject to these types of regulations
and programs and, as such, we may incur additional stay-in-market expenses associated with conducting analyses of alternatives
for chemicals of concern. To date, we have been able to comply with such legislative requirements and compliance with these
laws and regulations has not had a material adverse effect on our business, financial condition, results of operations and cash
flows.
Toxic Substances Control Act
The U.S. Congress has been discussing the re-authorization of the Toxic Substances Control Act ("TSCA") and an
update of chemicals on the TSCA Inventory (commonly referred to as the "reset" of the TSCA inventory). The EPA is also
more aggressively using TSCA and the TSCA inventory to manage chemicals of concern. Potential costs are not yet
quantifiable, but are not expected to have a material adverse effect on our consolidated results of operations or cash flows in
any one reporting period or on our financial position.
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 OSHA, and various record keeping, disclosure and procedural requirements. Various OSHA
standards may apply to our operations including the Hazardous Communications Standards ("HCS" or "Right to Know" and
"Community Right to Know") regulations that govern the procedures and information that must be disclosed to the individuals
that work in the manufacture of the products and materials Swisher manufactures or distributes and with the hazards that
communities may face in the event our facilities were to be hit with disasters such as fires and floods. As part of the HCS
requirements, we are required to provide Material Safety Data Sheets (“MSDS”) to our customers and distributors.
The National Fire Protection Association has aided various state and local governments in the development of a set of
safety standards that generally fall under the OSHA Community Right to Know regulations that allow local fire departments
to regulate the safety measures needed in a facility in order to prevent the possibilities of fires (i.e., Storage of Flammables)
and to protect the safety of the fire fighters in the event they are called in to work at such a facility. In many communities this
involves reports and maps that detail where and how various products of different hazards are located and stored within a
facility. These reports are generated and then given to local fire authorities to maintain in the event the fire department, local
emergency response or hazmat teams are ever needed at the facility.
Globally Harmonized System
In 2003, the United Nations issued a standard on hazard communication and labeling of chemical products known as
the Globally Harmonized System of Classification and Labeling of Chemicals (“GHS”). GHS is designed to facilitate
international trade and increase safe handling and use of hazardous chemicals through a worldwide system that classifies
chemicals based on their hazards and communicates information about those hazards through standardized product labels and
safety data sheets (“SDSs”). The HCSs were modified in 2012 to adopt the GHS standard and replace MSDSs with SDSs. We
have been working on a phased-in approach to mitigate the costs of GHS implementation and do not expect the implementation
cost to have a material adverse effect on our consolidated results of operations or cash flows. We expect to be compliant by the
GHS mandated deadline of December 31, 2015.
Pesticide and Biocide Laws
We manufacture and sell certain disinfecting and sanitizing products that kill or reduce microorganisms (bacteria,
viruses, fungi) on hard environmental surfaces. Such products are regulated as "pesticides" or "antimicrobial pesticides" under
current definitions in the Federal Insecticide, Fungicide, and Rodenticide Act ("FIFRA"), as amended by the Food Quality
6
Protection Act of 1996. We are required to maintain product registrations with the EPA to meet certain efficacy, toxicity and
labeling requirements, and to pay associated registration fees. Each state in which these types of our products are sold requires
registration and payment of a fee, and California and certain other states have adopted regulatory programs. California also
imposes a tax on pesticide sales in their state. To date the cost of complying with pesticide rules has not had a material adverse
effect on our consolidated results of operations, financial condition or cash flows to date; however, the costs and approvals
associated with these products continue to increase.
Antimicrobal Product Requirements
U.S. Federal, state, local and foreign jurisdictions have enacted various laws and regulations regulating certain
products sold by us for controlling microbial growth on humans. Generally the U.S. Food and Drug Administration administers
requirements for these products. The FDA has proposed regulations for over-the-counter antiseptic drug products which may
impose additional requirements for our antimicrobial hand care products and associated costs when finalized by the FDA. To
date such requirements have not had a material adverse effect on our consolidated results of operations, financial position or
cash flows.
Other Environmental Regulation
Our manufacturing facilities are subject to various federal, state and local laws and regulations regarding the discharge,
transportation, use, handling, storage and disposal of hazardous substances. These statutes include the Clean Air Act, the Clean
Water Act, the Resource Conservation and Recovery Act, and the Comprehensive Environmental Response, Compensation
and Liability Act, as well as their analogous state, local and foreign laws. Because we may potentially be a generator of
hazardous wastes in the future, we, along with any other person who disposes or arranges for the disposal of our wastes, may
be subject to financial exposure for costs associated with the investigation and remediation of contaminated sites. Specifically,
we would likely have exposure if we have disposed or arranged for the disposal of hazardous wastes at sites that become
contaminated even if we fully complied with applicable environmental laws at the time of disposal. We currently are unaware
of any past action which may lead to any liability, but, in the event we do ultimately have liability at some point in the future
for past or future actions, the costs of compliance and remediation could likely have a material adverse effect on our business,
financial condition, results of operations and cash flows.
Various laws and regulations pertaining to climate change have been implemented or are being considered for
implementation at the national, regional and state levels, particularly as they relate to the reduction of greenhouse gas emissions.
None of these laws directly apply to Swisher at the present time; however, we believe that it is possible that new or additional
restrictions may in the future be imposed on our manufacturing, processing and distribution activities, which may result in
possible violations, fines, penalties, damages or other significant costs.
Employees
As of December 31, 2014, we had approximately 1,200 employees. We are not a party to any collective bargaining
agreement and have not experienced a work stoppage. We consider our employee relations to be good.
Available Information
This Form 10-K and our quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those
reports filed or furnished pursuant to section 13(a) or 15(d) of the Securities Exchange Act of 1934 are available free of charge
through the Investors section of our Internet website (http://www.swsh.com) under the heading “Investors,” “Financial
Information,” and “SEC Filings” as soon as reasonably practicable after these reports are electronically filed with, or furnished
to, the Securities and Exchange Commission (SEC). Our SEC filings are also available for reading and copying at the SEC’s
Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. Information on the operation of the Public Reference
Room may be obtained by calling the SEC at 1-800-SEC-0330. In addition the SEC maintains an Internet site
(http://www.sec.gov). Information on our website does not constitute part of this annual report on Form 10-K or any other
report we file or furnish with the SEC.
7
Executive Officers of the Registrant
Our current executive officers and additional information concerning them are as follows:
Name
Position
William M. Pierce
William T. Nanovsky
Blake Thompson
William M. Pierce
Director, President and Chief Executive Officer
Senior Vice President and Chief Financial Officer
Senior Vice President and Chief Operating Officer
Age
63
66
60
Director, President and Chief Executive Officer
Mr. Pierce has served as President and Chief Executive Officer of Swisher Hygiene since September 10, 2013. He
has also served as a director of Swisher since June 2013. Mr. Pierce has held the position of Senior Vice President of Huizenga
Holdings, Inc. since 1990, where he has also served as chief operating officer, chief financial officer and as an officer and
director of numerous private and public portfolio companies. Mr. Pierce’s positions have included President of Frederica
Hospitality Group, LLC, five years as Chief Financial Officer and Executive Vice President of Dolphins Enterprises where he
was responsible for all non-football business operations of the Miami Dolphins and Sun Life Stadium, and Chief Operating
Officer of two route-based businesses, Sparkle, Inc. and Blue Ribbon Water Company. Previously, Mr. Pierce spent five years
as the Senior Vice President and Chief Financial Officer of Boca Resorts Inc., a NYSE-traded company until its sale in 2004,
where he was primarily responsible for the day-to-day oversight and the growth of the company as well as raising equity and
debt in the public markets. Prior to Huizenga Holdings, Mr. Pierce spent 11 years as a senior operating executive of Sky Chefs,
a wholly owned subsidiary of American Airlines, and seven years in senior management positions in the food and beverage
industry. All of Mr. Pierce’s day to day professional efforts and focus are concentrated on Swisher; however, he remains a
Senior Vice President of Huizenga Holdings.
Mr. Pierce is an experienced officer and director of public and private companies with the skills necessary to serve as
a director. As an executive officer and director, Mr. Pierce has developed knowledge and experience of financial, operational
and managerial matters. He has helped guide numerous public and private companies from early stage development to
significant operating entities.
William T. Nanovsky
Senior Vice President and Chief Financial Officer
Mr. Nanovsky has served as Senior Vice President and Chief Financial Officer of Swisher Hygiene since February
18, 2013 and previously served as Interim Senior Vice President and Chief Financial Officer of Swisher Hygiene from
September 24, 2012 to February 18, 2013. Mr. Nanovsky has over 30 years of experience as a financial executive in
environments ranging from emerging growth entities to public companies with annual revenue of more than $20 billion. Since
September 2011, he has been a founding Partner of The SCA Group, LLC ("SCA"), which provides C-level services including
regulatory solutions, restructuring and interim management to their clients. Before SCA, from May 1998 to September 2011,
Mr. Nanovsky was a Partner of Tatum, LLC and served on Tatum's Board of Managers from 2003 through 2007. At Tatum he
served as Chief Financial Officer of Specialty Foods Group, Inc., an international manufacturer and marketer of premium-
branded, private-label and food service processed meat products. While at Tatum Mr. Nanovsky also served as Chief
Accounting Officer of a $3 billion publicly-traded provider of wireless telephone service to 5.5 million customers through 189
majority-owned subsidiaries. Additionally while at Tatum, Mr. Nanovsky served at AutoNation, Inc., a $20 billion automotive
retailer, developing the integration and reporting processes for more than 370 franchises preparing for SOX compliance. Prior
to Tatum, Mr. Nanovsky served as Chief Financial Officer, Senior Vice President and member of the Board of Directors of
Seneca Foods Corporation, a Fortune 500 international food processor and distributor. All of Mr. Nanovsky's professional
effort and focus are concentrated on Swisher; however, he remains a Partner of SCA.
Blake W. Thompson
Senior Vice President and Chief Operating Officer
Mr. Thompson has served as Senior Vice President and Chief Operating Officer of Swisher Hygiene since August
2013 and previously served as Senior Vice President – Supply Chain and Manufacturing from June 2012 until August
8
2013. Mr. Thompson has over 30 years of supply chain and operations leadership experience. Before joining Swisher he
served as Senior Vice President of Supply Chain from 2006 to 2011 for Snyder’s-Lance, Inc., a manufacturer and distributor
of branded and private brand snack products throughout North America, where he restructured the company’s supply chain and
grew the contract manufacturing business while improving contribution margins. Prior to Snyder’s-Lance, Mr. Thompson was
Senior Vice President of Supply Chain from 2004 to 2005 at Tasty Baking Co., a regional snack cake company, where he
helped rebuild the entire supply chain and optimized the company’s systems and operations. Previously, Mr. Thompson spent
23 years at Frito-Lay, Inc., where he held a variety of management positions.
ITEM 1A. RISK FACTORS.
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 2014 Form 10-K, 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 2014 Form 10-K 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, except as required by law. 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 have recorded significant
losses from continuing operations for the years ended December 31, 2014, 2013, and 2012, 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 and continue to make improvements on our expense controls. 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.
Our independent registered public accounting firm’s report contains an explanatory paragraph that expresses substantial
doubt as to our ability to continue as a going concern.
Although our consolidated financial statements have been prepared assuming we will continue as a going concern,
our independent registered public accounting firm, in its report accompanying our consolidated financial statements as of and
for the year ended December 31, 2014, expressed substantial doubt as to our ability to continue as a going concern as of
December 31, 2014. The inclusion of a going concern explanatory paragraph may make it more difficult for us to execute our
current operating plan, maintain and or secure additional financing or enter into strategic relationships on terms acceptable to
us, if at all, and may materially and adversely affect the terms of any current or future financing that we may obtain.
The Company may need to raise additional equity or capital in the future and such capital may not be available when needed
or at all.
The Company's liquidity and capital resources remain limited. There can be no assurance that the Company's liquidity
or capital resource position would allow it to continue to pursue its current business strategy. As a result, the Company may
need to raise additional capital in the future to provide it with sufficient capital resources and liquidity to meet its commitments
and business needs. The Company’s ability to raise additional equity or capital, if needed, will depend on, among other things,
conditions in the equity or capital markets at that time, which are outside of its control, and its financial performance. Any
occurrence that may limit the Company's access to the equity or capital markets may adversely affect the Company’s capital
costs and its ability to raise capital and, in turn, its liquidity. An inability to raise additional equity or capital on acceptable
terms when needed could have a material adverse effect on the Company’s business, financial condition and results of
operations. Additionally, future equity transactions could be dilutive to the Company's shareholders.
9
Our failure or inability to meet certain terms of our Credit Facility could have a material adverse effect on our business,
financial condition and results of operations.
On August 29, 2014, we entered into a $20.0 million credit facility (the “Credit Facility). Borrowings under the Credit
Facility are secured by a first priority lien on certain of the Company’s and its subsidiaries’ assets. The Credit Facility contains
certain customary representations and warranties, and certain customary covenants on the Company’s ability to, among other
things, incur additional indebtedness, create liens or other encumbrances, sell or otherwise dispose of assets, and merge or
consolidate with other entities or enter into a change of control transaction. We may not be able to satisfy all of these conditions
or may default on some of these covenants for various reasons, including matters which are beyond our control. Additionally,
the Credit Facility contains various events of default. If we are unable to borrow under the Credit Facility, we may be unable
to meet our business obligations, which could have a material adverse effect on our business, financial condition and results of
operations.
We have identified material weaknesses in our internal control over financial reporting and we may be unable to develop,
implement and maintain appropriate controls in future periods. If the material weaknesses are not remediated, then they
could result in material misstatements to the financial statements.
We have identified material weaknesses in our internal control over financial reporting and, as a result of such
weaknesses, our management, with the participation of our principal executive officer and principal financial officer, concluded
that our disclosure controls and procedures and internal control over financial reporting were not effective as of December 31,
2014 and December 31, 2013. These material weaknesses were originally identified in connection with our assessment of the
effectiveness of internal control over financial reporting as of December 31, 2013, and were determined not to have been
remediated as of December 31, 2014. Until remediated, these material weaknesses could result in material misstatements to
our interim or annual consolidated financial statements and disclosures that may not be prevented or detected on a timely basis.
In addition, we may be unable to meet our reporting obligations or comply with SEC rules and regulations, which could result
in delisting actions by The Nasdaq Stock Market ("Nasdaq") and investigation and sanctions by regulatory authorities. Any of
these results could adversely affect our business and the trading price of our common stock.
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 could have a material adverse effect on our business, financial condition, results of operations, and cash
flows.
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 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 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, results of
operations, and cash flows.
The financial condition and operating ability of third parties may adversely affect our business.
We purchase the majority of our dispensing equipment and dish machines from 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.
10
We market and sell our products and services through independent third-party distributor partners. In recent years,
we have expanded our distributor program, which provides us with additional opportunities for organic growth. Our distributor
program is targeted toward regional and local foodservice 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. In effect, by us partnering to be the
chemical sales and service arm for the distributor, we help to generate demand for our rental equipment and our consumable
products. The loss of one or more of our distributors, or the decision by one or more of them to reduce the number of our
products they offer or to carry the product lines of our competitors, could have an adverse effect on our business, financial
condition and results of operations. The termination of a significant distributor, whether at our or the distributor's initiative, or
a disruption in the operations of one or more of our distributors, may adversely affect our business.
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, results of operations, and cash flows may be materially and adversely
affected.
We have recognized significant impairment charges in 2014 and prior years, and may recognize additional impairment
charges in the future which could adversely affect our results of operations and financial condition.
We assess our 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 intangible assets and long-
lived assets could indicate that an impairment of the carrying value of such assets may have occurred that could result in a
significant, non-cash write-down of such assets, which could have a material adverse effect on our results of operations.
The availability of our raw materials and the volatility of their costs may adversely affect our operations.
We use a number of key raw materials in our business. An inability to obtain such key raw materials could have a
material adverse effect on our business, financial condition, results of operations, and cash flows. Also the prices of many of
these raw materials are cyclical. If we are unable to minimize the effects of increased raw material costs through sourcing or
pricing actions, future increases in costs of raw materials could have a material adverse effect on our business, financial
condition, results of operations, and cash flows.
We are and may in the future be subject to legal proceedings; the outcome of which are uncertain, and resolutions adverse
to us could negatively affect our earnings, financial condition and cash flows.
We are and may in the future be subject to legal proceedings. Litigation is subject to many uncertainties, and we
cannot predict the outcome of individual matters with assurance. It is reasonably possible that the final resolution of these
matters could require additional expenditures, in excess of established reserves, over an extended period of time and in a range
of amounts that could have a material effect on our earnings, financial condition and cash flows.
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 specific criteria, for example, cost per diner, cost per
occupied room, 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, results of operations, and cash flows.
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 markets in which we operate in are highly competitive. We compete with national, regional, and local providers,
some of whom have greater financial and marketing resources than us, and may be perceived to have better brand name
recognition, price, product quality, and customer service. Some of our competitors may bundle products and services that
11
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.
The consolidation of customers may adversely affect our business, consolidated financial condition or results of operations.
Customers in the foodservice, hospitality, retail and healthcare industries have been consolidating in recent years, and
we believe this trend may continue. Such consolidation could have an adverse impact on the pricing of our products and services
and our ability to retain customers, which could in turn adversely affect our business, consolidated financial condition or results
of operations.
We may fail to maintain our listing on The Nasdaq Stock Market.
Our common stock is listed for trading on The Nasdaq Stock Market (“Nasdaq”) under the trading symbol
“SWSH.” For our common stock to continue to be listed on Nasdaq, we must meet Nasdaq’s continued listing standards. A
failure to meet these standards could result in our common stock being delisted, which could adversely affect the market
liquidity of our common stock, impair the value of your investment, and harm our business. We can provide no assurance that
we will continue to satisfy Nasdaq’s continued listing standards and maintain our listing on Nasdaq.
The loss of one or more key members of our senior management, or our inability to attract and retain qualified personnel
could adversely impact our business, financial condition and results of operations.
Our success depends, in part, on the continued efforts and abilities of our senior management team. The loss of one
or more key members of our senior management team could 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 business, financial
condition and results of operations. Our success also depends on our ability to attract, retain and motivate our
personnel. Competition for personnel can be intense, and we cannot assure you that we will be able to attract or retain highly
qualified personnel needed to support our business. Our inability to attract and retain the necessary personnel may adversely
affect our business, financial condition and results of operations. 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, results of operations, and cash flows.
Increases in fuel and energy costs and fuel shortages 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. An increase in fuel
prices raises 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. A fuel shortage, higher
transportation costs or the curtailment of scheduled service could adversely impact 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 or fuel shortages could have a material adverse effect on our business, financial condition,
results of operations, and cash flows.
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. 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
12
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, results of operations, and cash
flows.
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 which could have a material adverse effect on our business, results of operations,
financial condition, and cash flows.
If our products are improperly manufactured, packaged, or labeled or become adulterated or expire, those items may need
to be recalled or withdrawn from sale.
We may need to recall, voluntarily or otherwise, the products we sell if products are improperly manufactured,
packaged, or labeled or if they become adulterated or expire. 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 cash flows.
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 continue 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.
Prior acquisitions involve a number of risks and could have an adverse effect on our results of operations.
The success of any acquisition depends on management’s 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. As a result, prior acquisitions involve various risks, such as uncertainties in assessing the value, strengths,
weaknesses, liabilities, including undisclosed liabilities, and potential profitability of acquired companies. There is a risk of
potential losses of key employees and customers of an acquired business and of an inability to achieve identified operating and
financial synergies anticipated to result from an acquisition. Any one or more of these factors could cause us not to realize the
benefits anticipated to result from the acquisitions or have a negative impact on the fair value of the acquired
companies. Accordingly, intangible assets recorded as a result of acquisitions could become impaired. Additionally, previously
undisclosed liabilities could be identified and have a material adverse impact on our results of operations and cash flows.
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, formulas 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, results of operations, and cash
flows.
13
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, results of operations, and cash flows.
Interruptions in our information and telecommunication systems, or a failure to maintain the security, confidentiality or
privacy of sensitive data residing on such systems, could adversely affect our business.
We rely extensively on computer systems to process transactions, maintain information and manage our business.
Disruptions in the availability of our computer systems could impact our ability to service our customers and adversely affect
our sales and results of operations. We are dependent on internal and third party information technology networks and systems,
including the Internet and wireless communications, 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. Our computer
systems are subject to damage or interruption due to system conversions, power outages, computer or telecommunication
failures, computer viruses, security breaches, catastrophic events such as fires, tornadoes and hurricanes and usage errors by
our employees. Also, our computer systems could be subject to physical or electronic break-ins, unauthorized tampering or
other security breaches, resulting in a failure to maintain the security, confidentiality or privacy of sensitive data, including
personal information relating to customers, or in the misappropriation of our proprietary information. Interruptions in
information and telecommunication systems, or a failure to maintain the security, confidentiality or privacy of sensitive data
residing on such systems, whether due to actions by us or others, could delay or disrupt our ability to do business and service
our customers, require us to incur significant investments to fix or replace them, harm our reputation, subject us to regulatory
sanctions and other claims, lead to a loss of customers and revenues and otherwise adversely affect our business.
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 industry. 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,
results of operations, and cash flows.
Our stock price has been and may in the future be volatile, which could cause purchasers of our common stock to incur
substantial losses.
The trading price of our common stock has been and may in the future be subject to substantial price volatility. The
market price of our common stock may fluctuate significantly in response to numerous factors, many of which are beyond our
control, including the factors listed below and other factors described in this “Risk Factors” section:
low trading volume, which could cause even a small number of purchases or sales of our stock to have an impact on
the trading price of our common stock;
price and volume fluctuations in the overall stock market from time to time;
significant volatility in the market price and trading volume of comparable companies;
short sales, hedging and other derivative transactions involving our common stock; and
sales of shares in the open market or the perception that such shares could occur.
14
Certain stockholders may exert significant influence over any corporate action requiring stockholder approval.
As of March 25, 2015, Messrs. Huizenga and Berrard own approximately 28% of our common stock. As a result,
these stockholders may be in a position to exert significant influence over any corporate action requiring stockholder approval,
including the election of directors, determination of significant corporate actions, amendments to Swisher’s 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 could 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 attempts by stockholders to replace or remove
management or members of our board of directors. These provisions include:
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;
the inability of our stockholders to call special meetings;
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;
the ability of the our board of directors to make, alter or repeal our bylaws;
the requirement that the authorized number of directors be changed only by resolution of the board of directors; and
the inability of stockholders to act by written consent.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
None
ITEM 2.
PROPERTIES.
We operate five chemical manufacturing plants in leased facilities in Oregon, Arizona, Illinois, Florida and New
York. We lease our current corporate headquarters facility in Charlotte, North Carolina, pursuant to a lease expiring in February
2017. As of December 31, 2014, we also lease numerous other facilities located in the United States and Canada where we
operate our business. We believe that our facilities are sufficient for our current needs and are in good condition in all material
respects.
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.
Securities Litigation
Between March 30, 2012 and May 24, 2012, six stockholder lawsuits were filed in federal courts in North Carolina
and New York asserting claims relating to the Company's March 28, 2012 announcement regarding the Company's Board’s
conclusion that the Company's previously issued interim financial statements for the quarterly periods ended March 31, 2011,
June 30, 2011 and September 30, 2011, and the other financial information in the Company's quarterly reports on Form 10-Q
for the periods then ended, should no longer be relied upon and that an internal review by the Company's Audit Committee
primarily relating to possible adjustments to the Company's financial statements was ongoing.
15
On March 30, 2012, a purported Company stockholder commenced a putative securities class action on behalf of
purchasers of the Company's common stock in the U.S. District Court for the Southern District of New York against the
Company, the former President and Chief Executive Officer ("former CEO"), and the former Vice President and Chief Financial
Officer ("former CFO"). The plaintiff asserted claims alleging violations of Sections 10(b) and 20(a) of the Securities Exchange
Act of 1934 (the "Exchange Act") based on alleged false and misleading disclosures in the Company's public filings. In April
and May 2012, four more putative securities class actions were filed by purported Company stockholders in the U.S. District
Court for the Western District of North Carolina against the same set of defendants. The plaintiffs in these cases asserted claims
alleging violations of Sections 10(b) and 20(a) of the Exchange Act based on alleged false and misleading disclosures in the
Company's public filings. In each of the putative securities class actions, the plaintiffs sought damages for losses suffered by
the putative class of investors who purchased the Company’s common stock.
On May 21, 2012, a stockholder derivative action was brought against the Company's former CEO and former CFO
and the Company's then directors for alleged breaches of fiduciary duty by another purported Company stockholder in the
Southern District of New York. In this derivative action, captioned Arsenault v. Berrard, et al., 1:12-cv-4028, the plaintiff seeks
to recover for the Company damages arising out of the then possible restatement of the Company's financial statements.
On May 30, 2012, the Company, its former CEO and former CFO filed a motion with the United States Judicial Panel
on Multidistrict Litigation ("MDL Panel") to centralize all of the cases in the Western District of North Carolina by requesting
that the actions filed in the Southern District of New York be transferred to the Western District of North Carolina. In light of
the motion to centralize the cases in the Western District of North Carolina, the Company, its former CEO and former CFO
requested from both courts a stay of all proceedings pending the MDL Panel's ruling. On June 4, 2012, the Southern District
of New York adjourned all pending dates in the cases in light of the motion to transfer filed before the MDL Panel. On June
13, 2012, the Western District of North Carolina issued a stay of proceedings pending a ruling by the MDL Panel.
On August 13, 2012, the MDL Panel granted the motion to centralize, transferring the actions filed in the Southern
District of New York to the Western District of North Carolina as part of MDL No. 2384, captioned In re Swisher Hygiene,
Inc. Securities and Derivative Litigation. In response, on August 21, 2012, the Western District of North Carolina issued an
order governing the practice and procedure in the actions transferred to the Western District of North Carolina as well as the
actions originally filed there. On October 18, 2012, the Western District of North Carolina held an Initial Pretrial Conference
at which it appointed lead counsel and lead plaintiffs for the securities class actions, and set a schedule for the filing of a
consolidated class action complaint and defendants' time to answer or otherwise respond to the consolidated class action
complaint. The Western District of North Carolina stayed the Arsenault derivative action, pending the outcome of the securities
class actions.
On April 24, 2013, lead plaintiffs filed their first amended consolidated class action complaint (the "Class Action
Complaint") asserting similar claims as those previously alleged as well as additional allegations stemming from the Company's
restated financial statements. The Class Action Complaint also named the Company's former Senior Vice President and
Treasurer as an additional defendant who was later dismissed from the case. On June 24, 2013, defendants moved to dismiss
the Class Action Complaint. Briefing on the motions to dismiss was completed on August 9, 2013.
Although the Company believed it had meritorious defenses to the asserted claims in the securities class actions in the
United States, the defendants and plaintiffs agreed to the terms of a settlement and on February 5, 2014 executed a settlement
agreement that, following approval by the Western District of North Carolina, would resolve all claims in the securities class
actions pending there (the "Settlement"). The Settlement provided that the defendants would make a set cash payment totaling
$5,500,000, all from insurance proceeds, to settle all of the securities class actions, and full and complete releases would be
provided to defendants. On March 11, 2014, the Western District of North Carolina issued a preliminary order approving the
Settlement, and scheduled a hearing for August 6, 2014. That same day, the Western District of North Carolina also issued an
order terminating defendants’ pending motions to dismiss the Class Action Complaint as moot in light of the Settlement. On
August 6, 2014, following a hearing, the Western District of North Carolina approved the Settlement, and issued an Order and
Final Judgment that, among other things, dismissed the securities class actions pending in the United States with prejudice and
provided for full and complete releases to defendants. The Arsenault derivative action is still pending.
On June 11, 2013, an individual action was filed in the U.S. District Court for the Southern District of Florida captioned
Miller, et al. v. Swisher Hygiene, Inc., et al., No. 0:13-CV-61292-JAL, against the Company, its former CEO and former CFO,
and a former Company director, bringing state and federal claims founded on the allegations that in deciding to sell their
company to the Company, plaintiffs relied on defendants' statements about such things as the Company's accounting and
internal controls, which, in light of the Company’s restatement of its financial statements, were false. On July 17, 2013, the
Company notified the MDL Panel of this action, and requested that it be transferred and centralized in the Western District of
North Carolina with the other actions pending there. On July 23, 2013, the MDL Panel issued a Conditional Transfer Order
16
(the "Miller CTO"), conditionally transferring the case to the Western District of North Carolina. On July 29, 2013, plaintiffs
notified the MDL Panel that they would seek to vacate the Miller CTO. In light of the proceedings in the MDL Panel, defendants
requested that the Southern District of Florida stay all proceedings pending the MDL Panel's ruling. On August 6, 2013, the
Southern District of Florida issued a stay of all proceedings pending a ruling by the MDL Panel. On October 2, 2013, following
a briefing on the issue of whether the Miller CTO should be vacated, the MDL Panel issued an order transferring the action to
the Western District of North Carolina. The Company and the individual defendants filed motions to dismiss the complaint
on March 20, 2014. Briefing on the motions to dismiss was completed on May 12, 2014. On June 2, 2014, plaintiffs filed a
motion with the Western District of North Carolina seeking a suggestion for remand from that Court to the MDL Panel. Briefing
on that motion was completed on June 26, 2014. Oral argument on the motions to dismiss and motion for suggestion for remand
were heard on July 22, 2014. On August 5, 2014, the Western District of North Carolina denied plaintiffs' motion for
suggestion for remand. On October 22, 2014, the Company filed a notice of supplemental authority in support of its motion to
dismiss the complaint in this action. On November 4, 2014, plaintiffs filed a response to the notice of supplemental authority.
On July 11, 2013, a purported stockholder filed a derivative action on behalf of the Company in the General Court of
Justice, Superior Court Division in the State of North Carolina, Mecklenburg County, captioned Borthwick v. Berrard, et. al.,
No. 13-CVS-12397. The action asserted claims against the Company as a nominal defendant, its former CEO and former CFO,
and certain former and current Company directors for breaches of fiduciary duties, gross mismanagement, abuse of control,
waste of corporate assets, and aiding and abetting thereof in connection with the Company's restatement of its financial
statements. Among other things, the action sought damages on behalf of the Company and an order directing the Company to
implement corporate governance reforms. On August 7, 2013, the Company filed a notice to remove the action from the General
Court of Justice, Superior Court Division in the State of North Carolina, Mecklenburg County to the Western District of North
Carolina. On August 30, 2013, the Company moved to consolidate this action with the actions previously consolidated before
the Western District of North Carolina, and to stay the action. On September 25, 2013, the Western District of North Carolina
granted the Company's motion to consolidate and stay the action. On October 23, 2014, following its approval of the settlement
of the securities class actions, the Western District of North Carolina set a briefing schedule whereby the Company, as nominal
defendant, filed a motion to dismiss the derivative action on November 4, 2014. Pursuant to the schedule, the remaining
defendants did not need to file any motions to dismiss until after the Court ruled on the Company's motion. On December 10,
2014, the parties filed a Stipulation and Proposed Order for the dismissal of the complaint filed in this action with prejudice. On
December 11, 2014, the Western District of North Carolina issued an order dismissing the Borthwick action with prejudice.
On December 17, 2013, a purported stockholder commenced a putative securities class action on behalf of purchasers
of the Company's common stock on the Toronto Stock Exchange or any other Canadian trading platforms in the Ontario
Superior Court of Justice, captioned Edwards v. Swisher Hygiene, Inc., et al., CV 13-20282 CP, against the Company, the
former CEO and former CFO. The action alleges claims under Canadian law for alleged misrepresentations of the Company's
financial position relating to its business acquisitions. On February 13, 2014, a Fresh Statement of Claim and Fresh Notice of
Action were filed, adding an additional named plaintiff. On March 28, 2014, another purported stockholder commenced a
putative securities class action on behalf of purchasers of the Company's common stock on the Toronto Stock Exchange or any
other Canadian trading platforms in the Ontario Superior Court of Justice, captioned Phillips v. Swisher Hygiene, Inc., et al.,
CV 14-00501096-0000, against the Company, the former CEO, the former CFO and the Company's former Senior Vice
President and Treasurer. The action alleges claims under Canadian law stemming from the Company's restatement.
Although the Company believed it had meritorious defenses to the asserted claims in the two securities class actions
pending in Canada, the defendants agreed to terms of settlement and executed a settlement agreement resolving all claims in
both securities class actions pending there, which was approved by the Ontario Superior Court of Justice by Order dated
February 13, 2015 (the "Canadian Settlement"). The Canadian Settlement provides that defendants will make a set cash
payment totaling $0.7 million, including legal fees, all from insurance proceeds, to settle all of the Canadian securities class
actions, with full and complete releases provided to the defendants. Notice has been given of the Canadian Settlement.
17
Other Matters
The Company has been contacted by the staff of the Atlanta Regional Office of the SEC and by the United States
Attorney's Office for the Western District of North Carolina (the "U.S. Attorney's Office") after publicly announcing the Audit
Committee's internal review and the delays in filing our periodic reports. The Company has been asked to make certain
individuals available and to provide certain information about these matters to the SEC and the U.S. Attorney's Office. The
Company is fully cooperating with the SEC and the U.S. Attorney's Office. Any action by the SEC, the U.S. Attorney's Office
or other government agency could result in criminal or civil sanctions against the Company and/or certain of its current or
former officers, directors or employees.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
18
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES.
Market for Registrant’s Common Equity
Our common stock is listed for trading on NASDAQ under the trading symbol “SWSH.” Our common stock
commenced trading on NASDAQ on February 2, 2011. Our common stock was previously listed on the Toronto Stock
Exchange (“TSX”) until April 30, 2014 when we voluntarily delisted our common stock. On June 3, 2014, a one-for-ten
reverse split of the Company's issued and outstanding common stock, $0.001 par value per share, became effective ("Reverse
Stock Split"). Trading of the common stock on a post-Reverse Stock Split adjusted basis began at the open of business on the
morning of June 3, 2014. All historic share and per share information, including earnings per share, in this 2014 Form 10-K
have been retroactively adjusted to reflect the Reverse Stock Split. The following table sets out the reported low and high sale
prices on NASDAQ for the periods indicated as reported by the exchange:
Fiscal Quarter
First
Second
Third
Fourth
Stock Performance Chart
NASDAQ
Low/High Prices
2014
2013
$
$
$
$
4.50 – 6.70 $
2.98 – 5.10 $
2.77 – 4.73 $
1.58 – 4.20 $
11.40 – 18.80
7.50 – 14.60
5.80 – 11.40
3.80 – 7.60
The chart and table below compare the cumulative total stockholder return on our common stock from January 10,
2011, the date we became a U.S. reporting company, through December 31, 2014 with the performance of: (i) the Standard and
Poor's ("S&P") SmallCap 600 Index and (ii) a self-constructed peer group consisting of other public companies in similar lines
of business as of December 31, 2014. The peer group consists of Cintas Corp, Ecolab, Inc., G&K Services Inc., Unifirst Corp.,
and ZEP Inc.
The comparisons reflected in the graph and tables are not intended to forecast the future performance of our common
stock and may not be indicative of future performance. The graph and table assume that $100 was invested on January 10, 2011
in each of our common stock, the S&P SmallCap 600 Index, the peer group and that dividends were reinvested.
19
INDEXED RETURNS
Quarter Ending
Base
Period
01/10/11 2/02/11 3/31/11
Company / Index
12/31/12
Swisher Hygiene, Inc. 100 114.55 109.13 99.98 71.92 66.42 43.69 44.66 24.68 31.08
S&P SmallCap 600
Index
Peer Group
100 101.46 107.41 107.24 85.97 100.73 112.81 108.77 114.64 117.18
100 101.47 104.15 114.43 98.18 117.72 127.58 138.07 135.10 147.00
3/31/12 6/30/12 9/30/12
12/31/11
9/30/11
6/30/11
Company / Index
Swisher Hygiene, Inc.
S&P SmallCap 600
Index
Peer Group
3/31/13
6/30/13
22.55 15.27 10.77
9/30/13
12/31/13
3/31/14 6/30/14 9/30/14
9.13
7.99 7.64 5.40
12/31/14
3.32
131.02 136.15 150.76 165.59 167.46 170.92 159.42 175.12
164.65 173.99 201.25 216.60 222.93 230.45 239.98 234.09
The return from January 10, 2011 to February 1, 2011 reflects trades on the TSX in Canadian dollars, converted to
U.S. Dollars. The return from February 2, 2011 to December 31, 2014 reflects trades on NASDAQ, which became our primary
trading market on February 2, 2011, in U.S. dollars.
As of March 25, 2015, there were 17,617,379 shares of our common stock issued and outstanding. As of March 25,
2015, we had 883 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, general business conditions, and restrictions in our Credit Facility. Our Credit Facility restricts
the payment of dividends on our Common Stock.
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 beginning on page F-1.
Selected Income Statement Data:
Revenue
Loss from continuing operations
Net loss from continuing operations
Loss per share, continuing operations:
2014 (2)
For the Year Ended December 31,
2011 (1)
2013 (2)
2012 (1)
2010
$
$
$
193,757
$
213,688
$
230,521 $
160,617
$
63,652
(45,234) $ (152,472) $
(58,929) $
(34,574) $
(15,113)
(46,808) $ (150,532) $
(80,775) $
(24,723) $
(17,570)
Basic and diluted
$
(2.64) $
(8.55) $
(4.62) $
(1.55) $
(2.62)
Selected Balance Sheet Data:
Total Assets
Swisher Hygiene Inc. Stockholders' equity
Long-term debt and obligations
_____________________
$
$
$
113,198
$
161,717
$
327,685 $
478,404
$
106,234
81,290
$
127,186
$
277,121 $
343,834
$
45,917
1,185
$
2,003
$
5,284 $
47,267
$
44,408
20
(1) During 2011, we completed acquisitions of nine franchises and 54 acquisitions of independent businesses, including 4
solid waste collection service businesses (Waste segment). In 2012 we disposed of the Waste segment. 2012 and 2011 selected
financial data has been restated to reflect discontinued operations treatment of this segment. Refer to Note 2, “Discontinued
Operations and Assets Held for Sale” and Note 3, “Acquisitions” in the Notes to the Consolidated Financial Statements for
additional information regarding these transactions.
(2) During 2014 and 2013, the Company recorded a non-cash goodwill impairment charge of $5.8 million and $93.2 million,
respectively. Refer to Note 5, “Goodwill and Other Intangible Assets,” for additional information related to this impairment
charge. Additionally, during 2014 and 2013, the Company recorded $3.0 million and $6.4 million, respectively, in impairment
related to its assets held for sale and the adjustment of these assets balances to the lower of net book value or estimated fair
value.
ITEM 7. MANAGEMENT’S 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,” “Forward-Looking Statements” and elsewhere in
this annual report.
Business Overview and Outlook
We currently operate in one business segment, Hygiene, which encompasses providing essential hygiene and
sanitizing solutions to customers in a wide range of end-markets including foodservice, hospitality, retail and the healthcare
industries. Certain of our products are registered with the Environmental Protection Agency and follow the Center for Disease
Control guidelines for disinfection of surface areas such as children’s playgrounds, hospitals, and assisted living
environments. We sell consumable products such as detergents, cleaning chemicals, soap, paper, water filters and supplies,
together with the rental and servicing of dish machines and other equipment for the dispensing of those products as well as
additional services such as the cleaning of restrooms and other facilities. We continue to see the positive impact of cost
efficiencies, integration, capital resource management and planning, plant consolidations and route optimization efforts;
however, we believe we still need to increase revenue in order to maximize our profitability. We are committed to our
philosophy of Service, People and Profitability and to Selling Through Service. To that end, we have commenced a realignment
of our field service and sales teams to better serve our customers since we believe this will ultimately drive increased revenues
through improved customer retention and the ability to leverage our current customer base. See “Prior Period Reclassification”
below for a description of our realignment.
Assets Held For Sale
During 2013, the Company commenced an active program to sell certain non-core assets and routes related to its linen
and dust operations. Additionally, in 2014 the Company ceased operations at a linen processing plant and in 2013 a chemical
manufacturing plant was closed in connection with the Company’s plant consolidation efforts. In accordance with ASC 360,
Property, Plant and Equipment, these assets were classified as assets held for sale in the Consolidated Balance Sheet and the
asset balances were adjusted to the lower of historical carrying amounts or fair values.
During 2014, the Company updated its estimates of the fair value of certain linen routes and operations to reflect
various events that occurred during the year. The cumulative impairment loss for the twelve months ended December 31, 2014
was $3.0 million, of which $1.9 million was attributable to a reduction in the estimate of net sales proceeds for a linen processing
operation. The factors driving the $1.9 million reduction were the cancellation notifications received during April and May
2014 from three major customers resulting in a significant loss of forecasted revenue; and the operation’s 2014 year-to-date
loss which was in excess of the Company’s estimates. The asset fair value of this linen processing operation was written down
to zero in the second quarter of 2014 and was closed during the fourth quarter of 2014.
The Company recorded impairment charges for the twelve months ended December 31, 2013 of $6.4 million. Included
in this charge is $3.1 million that was recorded during the fourth quarter of 2013 as follows: $2.0 million related to the Board
of Director’s approval, on November 8, 2013, of additional assets to be disposed of and the resultant adjustment of these assets
from net carrying value to fair; $1.1 million impairment adjustments to existing assets held for sale to reflect reductions in the
estimated fair value as a result of events that occurred during the fourth quarter which indicated that the estimated net selling
prices will be less than anticipated at the end of the third quarter.
21
The Company completed several sales transactions during the twelve months ended December 31, 2014, which
resulted in the net receipt of $1.6 million in cash and the remainder in receivables. A loss on these sales of $0.9 million was
incurred and included a write-off of $0.6 million of the receivable balances. The receivable balances were primarily for
contingent sales proceeds that were based on post-closing revenues of previously sold routes which were lower than
estimated. The total loss of $0.8 million for the twelve months ended December 31, 2014, is included in “Other expense, net”
in the condensed consolidated statements of operations and comprehensive loss.
The Company completed several sales transactions during the last half of 2013 totaling $6.3 million in net sales
proceeds including $0.6 million in receivable balances that were contingent primarily upon 2014 revenues generated by certain
of the sold assets during defined post-close periods. The resulting $0.2 million gain is included in “Other expense, net” in the
consolidated statement of operations.
During March 2015, the Board of Directors of the Company approved a board resolution to sell its remaining non-
core linen operation. During the first quarter of 2015, in accordance with ASC 360, Property, Plant and Equipment, these assets
will be classified as assets held for sale and will be adjusted to the lower historical carrying amount or fair value. See Note 20,
“Subsequent Event” in the Notes to Consolidated Financial Statements.
Prior Period Reclassification
In the first quarter of 2014, the Company began implementing a realignment of its field service and sales organization
and as a result the primary function of certain job titles has shifted from primarily a sales, to a service focus. The additional
service activities involve more frequent field visits to perform preventative maintenance, repairs, evaluation of product and
service solutions and required inventory levels. This realignment of the field service and sales organization was implemented
in stages during 2014. Payroll expense related to these job titles was historically classified within “Selling, general and
administrative expenses” in the Condensed Consolidated Statement of Operations and Comprehensive Loss, based on the
primary job focuses of sales and administration. Based on the changes in the job functions, the related payroll expense is
classified within “Route expense”, which the Company defines as the employee costs incurred to provide service and deliver
products to customers. To facilitate comparability between the periods presented in the Condensed Consolidated Statements
of Operations and Comprehensive Loss for the twelve months ended December 31, 2013 certain selling, general and
administrative expenses have been reclassified to route expense to conform to the current period’s presentation which resulted
in an $11.9 million increase in route expense and a $11.9 million decrease in selling, general and administrative expense. The
reclassification for the twelve months ended December 31, 2012 resulted in a $12.5 million increase in route expense and a
$12.5 million decrease in selling, general and administrative expense. There was no impact to loss from continuing operations,
net loss or loss per share as a result of the 2013 and 2012 reclassifications.
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 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
1, “Operations and Summary of Significant Accounting Policies” in the Notes to Consolidated Financial Statements for
additional discussion of the application of these and other accounting policies.
Assets Held for Sale
We record assets held for sale, in accordance with Accounting Standards Codification ("ASC") 360 "Property, Plant,
and Equipment," at the lower of carrying value or fair value less cost to sell. Fair value is based on the estimated net proceeds
from the sale of the assets which are derived based on a number of factors including standard industry multiples of revenues or
operating metrics and the status of ongoing sales negotiations and asset purchase agreements, where available. Our estimates
of fair value are regularly reviewed and subject to changes based on market conditions, changes in the customer base of the
operations or routes and our continuing evaluation as to the assets acceptable sale price. As described in Note 9, “Fair Value
Measurements,” in the Notes to the Consolidated Financial Statements, assets held for sale are measured using Level 3 inputs.
22
Purchase Accounting for Business Combinations
The Company accounts for acquisitions by allocating the fair value of the consideration transferred to the fair value
of the assets acquired and liabilities assumed on the date of the acquisition and any remaining difference is recorded as goodwill.
Adjustments may be made to the preliminary purchase price allocation when facts and circumstances that existed on the date
of the acquisition surface during the allocation period subsequent to the preliminary purchase price allocation, not to exceed
one year from the date of acquisition. Contingent consideration is recorded at fair value based on the facts and circumstances
on the date of the acquisition and any subsequent changes in the fair value are recorded through earnings each reporting period.
Transactions that occur in conjunction with or subsequent to the closing date of the acquisition are evaluated and accounted for
based on the facts and substance of the transactions.
Goodwill
Goodwill is not amortized but rather tested for impairment at least annually. The Company tests goodwill for
impairment annually during the fourth quarter of each year. Goodwill is also tested for impairment between annual tests if an
event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit below its
carrying amount. Impairment testing for goodwill is done at the reporting unit level. A reporting unit is an operating segment
or one level below an operating segment (also known as a component). A component of an operating segment is a reporting
unit if the component constitutes a business for which discrete financial information is available, and segment management
regularly reviews the operating results of that component. The Company has concluded that it has one reporting unit.
Determining fair value includes the use of significant estimates and assumptions. Management utilizes an income
approach, specifically the discounted cash flow technique as a means for estimating fair value. This discounted cash flow
analysis requires various assumptions including those about future cash flows, customer growth rates and discount rates.
Expected cash flows are based on historical customer growth, including attrition, future strategic initiatives and continued long-
term growth of the business. The discount rates used for the analysis reflects 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. During the second quarter of 2014 and
the fourth quarter of 2013, in conjunction with its impairment test, the Company recorded a goodwill impairment charge of
$5.8 million and $93.2 million, respectively, as further discussed in Note 5, “Goodwill and Other Intangible Assets," in the
notes to the Consolidated Financial Statements.
Other Intangible Assets
Identifiable intangible assets include customer relationships, non-compete agreements, trade names and trademarks,
and formulas. The fair value of these intangible assets at the time of acquisition is estimated based upon various valuation
techniques including replacement cost and discounted future cash flow projections. Customer relationships are amortized on
a straight-line basis over the expected average life of the acquired accounts, which is typically five to ten years based upon a
number of factors, including historical longevity of customers and contracts acquired and historical retention rates. The non-
compete agreements are amortized on a straight-line basis over the term of the agreements, typically not exceeding five years.
Formulas are amortized on a straight-line basis over their estimated useful life of twenty years. The Company reviews the
recoverability of these assets if events or circumstances indicate that the assets may be impaired and periodically reevaluates
the estimated remaining lives of these assets.
Trademarks are considered to be indefinite lived intangible assets unless specific evidence exists that a shorter life is
more appropriate. Indefinite lived intangible assets are tested, at a minimum, on an annual basis using an income approach or
sooner whenever events or changes in circumstances indicate that an asset may be impaired.
Long-Lived Assets
Fixed assets are reviewed for impairment when events or changes in circumstances indicate that the carrying amount
of an asset or asset group may not be recoverable. Recoverability of assets to be held and used is measured by a comparison
of the carrying amount of an asset to the future net cash flows expected to be generated by the asset. If such assets or asset
groups are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount
of the assets or asset groups exceeds the related fair values. The Company also performs a periodic assessment of the useful
lives assigned to the long-lived assets, as previously discussed.
23
Revenue Recognition
Revenue from product sales and service is recognized when the product is delivered to the customer or when services
are performed, including product and service sales made under multiple deliverable agreements, which outline the pricing of
products and the preferred frequency of delivery. Deliverables under these pricing arrangements are considered to be separate
units of accounting, as defined by ASC 605-25, Revenue Recognition – Multiple-Element Arrangement, and due to the nature
of the Company’s business, the timing of the delivery of products and performance of service is concurrent and ongoing and
there are no contingent deliverables. 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 and
product sales are recognized as the product is delivered.
The Company’s sales policies provide for limited rights of return and, during the fiscal years 2014, 2013, and 2012,
product returns were insignificant. The Company records estimated reductions to revenue for sales returns and for customer
programs and incentive offerings, including pricing arrangements, rebates, promotions and other volume-based incentives at
the time the sale is recorded.
Valuation Allowance for Accounts Receivable
We estimate the allowance for doubtful accounts for accounts receivable by considering a number of factors, including
overall credit quality of customers, the age of outstanding customer balances, historical write-off experience and specific
customer account analysis that projects the ultimate collectability of the outstanding balances. Actual results could differ from
these assumptions and the Company periodically evaluates these factors affecting the allowance estimate. Our allowance for
doubtful accounts was $1.0 million and $2.0 million as of December 31, 2014 and 2013, respectively.
Income Taxes
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.
The Company's policy is to evaluate uncertain tax positions under ASC 740-10, Income Taxes. As of December 31,
2014, 2013 and 2012, the Company has not identified any uncertain tax positions requiring recognition in the consolidated
financial statements. 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 for the three year period ended December
31, 2014.
Stock Based Compensation
We measure and recognize all stock based compensation at fair value at the date of grant and recognize compensation
expense over the service period for awards expected to vest. Determining the fair value of stock 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 13, “Equity Matters” in the Notes to Consolidated Financial Statements for further information on these assumptions.
Newly Issued Accounting Pronouncements
On April 10, 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-08, Reporting Discontinued
Operations and Disclosures of Disposals of Components of an Entity. The amendments in this accounting standard raise the
threshold for a disposal to qualify as a discontinued operation and require new disclosures of both discontinued operations and
certain other disposals that do not meet the definition of a discontinued operation. This accounting standard update is effective
for annual periods beginning on or after December 15, 2014, and related interim periods with early adoption allowed. The
Company is currently evaluating the impact of this standard and plans to adopt this standard on the stated effective date in
fiscal year 2015.
24
On May 28, 2014, the FASB issued ASU Update No. 2014-09, Revenue from Contracts with Customers. This
accounting standard creates common revenue recognition guidance for U.S. GAAP and IFRS. The guidance also requires
improved disclosures to help users of the financial statements better understand the nature, amount, timing and uncertainty of
revenue that is recognized. This accounting standard update is effective for annual reporting periods beginning after December
15, 2016, and related interim periods. Early adoption is not permitted. The Company is currently evaluating the impact of this
standard.
In August 2014, the FASB issued ASU Update No. 2014-15, Presentation of Financial Statements – Going Concern
(Subtopic 205-40)(Topic 718), Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. ASU
Update No. 2014-15 provides guidance related to management’s responsibility to evaluate whether there is substantial doubt
about the entity’s ability to continue as a going concern and to provide related footnote disclosures. The new requirements are
effective for the annual periods ending after December 15, 2016, and for interim periods and annual periods thereafter. Early
adoption is permitted. The Company is currently evaluating the impact of this standard and has elected to not adopt the standard
early.
RESULTS OF OPERATIONS
The following table provides our results of operations for each of the years ended December 31, 2014, 2013, and 2012,
including key financial information relating to our business and operations. This financial information should be read in
conjunction with our audited Consolidated Financial Statements and Notes to Consolidated Financial Statements included in
Item 8.
Revenue
Products
Services
Franchise and other
Total revenue
Costs and expenses
Cost of sales (exclusive of route expenses and related depreciation and
amortization)
Route expenses
Selling, general, and administrative
Acquisition and merger expenses
Depreciation and amortization
Impairment related to assets held for sale
Impairment related to goodwill
Total costs and expenses
Loss from continuing operations
Other expense, net
Net loss from continuing operations before income taxes
Income tax benefit (expense)
Net loss from continuing operations
Discontinued operations, net of tax (Note 2)
Net loss from operations through disposal
Gain on disposal
Net (loss) income from discontinued operations
Year ended December 31,
2013
2012
2014
$
$
173,505 $
18,877
1,375
193,757
189,480
22,895
1,313
213,688
202,968
26,186
1,367
230,521
89,101
50,595
69,269
-
21,216
2,989
5,821
238,991
(45,234)
95,585
54,227
94,620
-
22,113
6,422
93,194
366,160
(152,472)
(1,663)
(46,897)
89
(46,808)
(654)
(153,126)
2,594
(150,532)
101,914
54,988
110,975
582
20,991
-
-
289,450
(58,929)
(3,093)
(62,022)
(18,753)
(80,775)
-
-
-
(2,516)
-
(2,516)
(6,245)
13,844
7,599
Net loss
$
(46,808) $
(153,048) $
(73,176)
25
Comparison of the years ended December 31, 2014 to December 31, 2013
Revenue
Revenue from products is primarily comprised of the sales and delivery of consumable products such as detergents
and cleaning chemicals, the rental, sales and servicing of dish machines and other equipment used to dispense those products,
the sale of paper items, rental fees, linen processing and other ancillary product sales. Revenues from services are primarily
comprised of manual cleaning and delivery service fees. Franchise and other consists of fees charged to franchisees.
Total revenue and the revenue derived from each revenue type for the years ended December 31, 2014 and 2013 are
as follows:
Revenue
Products
Services
Franchise and other
Total revenue
2014
$
$
173,505
18,877
1,375
193,757
%
(In thousands)
2013
89.5% $
9.8%
0.7%
100.0% $
189,480
22,895
1,313
213,688
%
88.7%
10.7%
0.6%
100.0%
Consolidated revenue decreased $19.9 million or 9.3% to $193.8 million for the year ended December 31, 2014 as
compared to 2013. Excluding revenue generated from linen assets sold or closed for the years ended December 31, 2014 and
2013, consolidated revenue decreased 4.4%. Product revenue decreased $16.0 million primarily due to an $8.6 million decrease
related to linen routes and businesses sold. Product revenue also decreased due to a $2.7 million decrease from the loss of
customers at existing and closed linen operations, partially offset by the addition of $1.7 million in revenue previously classified
as service revenue. The remaining product revenue decrease is due to lower product purchases by existing customers and
customer attrition. Service revenue declined $4.0 million due to the reclass with product revenue of $1.7 million and the loss
of hygiene customers. Franchise and other revenue remained consistent period over period.
Cost of Sales
Cost of sales consists primarily of the cost of chemical, paper, air freshener and other consumable products sold to, or
used in the servicing of, our customers. These costs are exclusive of route expense and related depreciation and amortization.
Cost of sales for the year ended December 31, 2014 and 2013 are as follows:
Cost of Sales
Products
Services
Franchise and other
Total cost of sales
_____________________
(1)
2014
% (1)
2013
% (1)
$
$
88,287
361
453
89,101
(In thousands)
50.9% $
1.9%
32.9%
46.0% $
93,280
1,594
711
95,585
49.2%
7.0%
54.2%
44.7%
Represents cost as a percentage of the respective revenue line.
Cost of sales decreased $6.5 million, or 6.8%, to $89.1 million for the year ended December 31, 2014 compared with
2013 primarily due to a decline in sales volume. During 2014, management undertook an inventory of dish machines located
at customer locations, which resulted in an adjustment totaling $0.8 million in product cost of sales. Reported in the 2014 cost
of sales is a $1.8 million realignment of freight costs that were classified in selling, general and administrative expenses in
2013. The Company has elected not to reclassify this amount in its prior period Condensed Consolidated Statement of
Operations and Comprehensive Loss for comparability purposes since it is considered immaterial. As a percentage of sales,
cost of sales increased from 44.7% to 46.0%. Excluding the $0.8 million adjustment for dish machines, 2014 total cost of sales
as a percentage of sales would have been 45.6% and 2013 total costs of sales as a percentage of revenue would have also been
45.6% including the $1.8 million realignment.
26
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, 2014 and 2013 are as follows:
Route Expenses
Compensation
Vehicle and other expenses
Total route expenses
_____________________
(1)
2014
% (1)
2013
% (1)
$
$
39,147
11,448
50,595
(In thousands)
20.3% $
6.0%
26.3% $
41,220
13,007
54,227
19.4%
6.1%
25.5%
Represents cost as a percentage of total non-franchise revenue.
Route expenses decreased $3.6 million, or 6.7%, to $50.6 million for the year ended December 31, 2014 compared to
2013. The primary components of this change were decreases in compensation of $2.1 million and decreases in vehicle and
other expenses of $1.6 million. Route expenses as a percentage of total revenue was 26.3% and 25.5% for the years ended
December 31, 2014 and 2013, respectively.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist primarily of the costs incurred for:
Local office and field management support costs that are related to field operations. These costs include
compensation, occupancy expense and other general and administrative expenses.
Selling expenses, which include compensation and commissions for local sales representatives and corporate
account representatives.
Corporate office expenses which include executive management, information technology, marketing, human
resources, accounting, purchasing and other support costs.
The details of selling, general and administrative expenses for the years ended December 31, 2014 and 2013 are as
follows:
Selling, General & Administrative Expenses
Compensation
Occupancy
Other
Total selling, general & administrative expenses
_____________________
(1) Represents cost as a percentage of total revenue.
2014
% (1)
2013
% (1)
$
$
38,984
7,658
22,627
69,269
(In thousands)
20.1% $
4.0%
11.7%
35.8% $
48,823
9,935
35,862
94,620
22.8%
4.6%
16.8%
44.3%
Selling, general, and administrative expenses decreased $25.4 million or 26.8% to $69.3 million for the year ended
December 31, 2014 as compared to 2013. The components of this change were decreases in compensation of $9.8 million,
occupancy of $2.3 million and other expenses of $13.2 million. Compensation expenses decreased $5.0 million due to on-
going cost efficiencies, a reduction in stock based compensation of $1.2 million and a $3.6 million reduction resulting from
linen businesses which were sold or closed. Occupancy decreased $1.2 million due to the sale of linen businesses and due to
ongoing efforts to reduce facility infrastructure needs. Other expenses decreased primarily due to a decrease in professional
fees of $9.1 million, which includes investigation and review related fees of $4.8 million in the year ended December 31, 2013,
a decrease in office equipment of $0.7 million, a decrease in travel expenses of $0.4 million, a decrease related to realigning
freight costs in cost of sales of $1.8 million, a reduction in bad debt expenses of $0.7 million, plus additional expense reduction
initiatives.
Impairment related to Assets Held for Sale
During 2013, the Company made a decision to sell certain assets including linen operations, routes and customers that
were not considered to be core to the Company’s overall hygiene and sanitizing business. The decrease of $3.4 million in
impairment expense to $3.0 million in 2014 from $6.4 million in 2013 relates to adjustments that were required to write-down
these asset balances to the lower of net carrying value or fair value.
27
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, 2014 decreased $0.9 million, or 4.1%, to $21.2 million
as compared to 2013.
Impairment related to Goodwill
In conjunction with its goodwill impairment test, the Company incurred a non-cash goodwill impairment charge of
$5.8 million during 2014 compared to $93.2 million during 2013, See Note 5, “Goodwill and Other Intangible Assets” for
further discussion of the impairment.
Other Expense, Net
Other expense, net for the years ended December 31, 2014 and 2013 is as follows:
Interest income
Interest expense
Foreign currency
Other expense
Total other (expense) income, net
2014
2013
(In thousands)
$
$
$
9
(387)
(167)
(1,118)
(1,663) $
41
(485)
(5)
(205)
(654)
The change in other expense is due primarily to a $0.8 million loss on the sale of certain assets held for sale during
the year ended December 31, 2014 and a $0.2 million gain during the year ended December 31, 2013.
Income tax benefit (expense)
For the year ended December 31, 2013, there was a deferred tax liability associated with excess book over tax goodwill
as it relates to the Company’s Canadian subsidiary. As goodwill is considered to be an indefinite lived intangible, this
associated deferred tax liability is not allowed to be netted with other deferred tax assets in determining the need for a valuation
allowance. Due to the impairment of goodwill for book purposes during 2014, a deferred tax asset now exists related to
goodwill for the Canadian subsidiary. The change from a net deferred tax liability position to a net deferred tax asset position
resulted in a tax benefit of approximately $0.1 million.
Comparison of the years ended December 31, 2013 to December 31, 2012
Impact of Acquisitions and Discontinued Operations
During the year ended December 31, 2012, we acquired four independent businesses and the non-controlling interest
in one of our subsidiaries and sold the Waste segment. As discussed in Note 2, “Discontinued Operations and Assets Held for
Sale,” in the Notes to the Consolidated Financial Statements, the Company has applied discontinued operations accounting
treatment and disclosures for the sale of our Waste segment. The term "Acquisitions" refers to the four independent businesses
and the remaining non-controlling interest of one of our subsidiaries acquired during the year ended December 31, 2012,
including the subsequent growth in existing customer revenue existing at the time of acquisition as well as revenue from new
customer relationships created by the acquired business.
Revenue
Total revenue and the revenue derived from each revenue type for the years ended December 31, 2013 and 2012 are
as follows:
Revenue
Products
Services
Franchise and other
Total revenue
2013
$
$
189,480
22,895
1,313
213,688
%
(In thousands)
2012
88.7% $
10.7%
0.6%
100.0% $
202,968
26,186
1,367
230,521
%
88.0%
11.4%
0.6%
100.0%
28
Consolidated revenue decreased $16.8 million to $213.7 million for the year ended December 31, 2013 as compared
to 2012. The components of the revenue decrease were a $13.5 million decrease in products revenue, and a $3.3 million decrease
in services revenue. These amounts represented revenue decreases of 7.3% for total revenue, 6.6% for products and 12.6% for
services. Franchise and other revenue remained consistent period over period.
Within products, the $13.5 million in revenue decline from 2012 to 2013 was comprised primarily of a decline in
chemical products of $12.6 million or 6.2%.
Throughout the revenue product lines, decreases in revenue were primarily attributable to 1) the loss of customers,
including those resulting from the integration of some of our smaller acquisitions, 2) the loss of three significant accounts,
totaling $6.0 million of revenue, including a chemical wholesale customer, 3) the loss of a large distributor customer
representing $1.2 million of revenue and 4) the sale in the fourth quarter of 2012 of non-core businesses that resulted in a
revenue decrease of approximately $2.2 million.
Cost of Sales
Cost of sales for the year ended December 31, 2013 and 2012 are as follows:
Cost of Sales
Products
Services
Franchise and other
Total cost of sales
_____________________
(1)
2013
% (1)
2012
% (1)
$
$
93,280
1,594
711
95,585
(In thousands)
49.2% $
7.0%
54.2%
44.7% $
100,089
1,496
329
101,914
49.3%
5.7%
24.1%
44.2%
Represents cost as a percentage of the respective revenue line.
Consolidated cost of sales decreased $6.3 million, or 6.2%, to $95.6 million for the year ended December 31, 2013
compared with 2012. As a percentage of sales, consolidated cost of sales increased from 44.2% to 44.7%. Due to the increase
in product revenue to 88.7% from 88.0% of total sales, and due to product cost of sales having a cost of sales percentage of
4.5% higher than the overall percentage, consolidated cost of sales increased 0.3% or $0.6 million. In addition, the percentage
increase in cost of sales is a result of $0.7 million of one-time costs associated with the consolidation of two of the Company’s
chemical manufacturing plants into a new Southwest regional manufacturing facility which occurred during the third quarter
of 2013. These costs included 1) $0.4 million incurred to reposition inventory as well as de-install and re-install equipment
and provide for severance payments, and 2) payment of a one-time lease termination fee of $0.5 million, of which $0.3 million
is reflected in products costs of sales and the remaining $0.2 million is reflected in Selling, General and Administrative
Occupancy expenses. Cost of sales also includes underutilized fixed costs as a result of the drop in volume as well as the
Company’s efforts to reduce inventory on hand which affected production levels. The dollar decrease primarily reflects the
decline in volume, while the change in the cost of sales as a percent of revenue is attributable to the revenue mix change
including increased chemical sales as a percentage of total revenue and the decrease in hygiene sales.
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, 2013 and 2012 are as follows:
Route Expenses
Compensation
Vehicle and other expenses
Total route expenses
_____________________
(1)
2013
% (1)
2012
% (1)
$
$
41,220
13,007
54,227
(In thousands)
19.4% $
6.1%
25.5% $
42,988
12,000
54,988
18.8%
5.2%
24.0%
Represents cost as a percentage of total non-franchise revenue.
Consolidated route expenses decreased $0.8 million, or 1.4%, to $54.2 million and 25.5% of related product and
service revenue for the year ended December 31, 2013, as compared to 2012. The components of this change were a decrease
in compensation of $1.8 million and an increase in vehicle and other expenses of $1.0 million. The decrease in compensation
expenses is due primarily to route consolidation efficiencies offset by an increase in workers’ compensation insurance. The
increase in vehicle and other expenses of $1.0 million is due to increases in company leased vehicle expenses, vehicle insurance,
fuel expenses and repairs, and maintenance.
29
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist primarily of the costs incurred for:
Local office and field management support costs that are related to field operations. These costs include
compensation, occupancy expense and other general and administrative expenses.
Selling expenses, which include compensation and commissions for local sales representatives and corporate
account representatives.
Corporate office expenses which include executive management, information technology, marketing, human
resources, accounting, purchasing and other support costs.
Investigation and professional fees related to the Audit Committee review, restatement process, and other non-
recurring fees related to completing our 2011 and 2012 audits.
The details of selling, general and administrative expenses for the years ended December 31, 2013 and 2012 are as
follows:
Selling, General & Administrative Expenses
Compensation
Occupancy
Other
Total selling, general & administrative expenses
_____________________
(1) Represents cost as a percentage of total revenue.
2013
%(1)
2012
%(1)
$
$
48,823
9,935
35,862
94,620
(In thousands)
22.8% $
4.6%
16.8%
44.3% $
50,182
10,068
50,725
110,975
21.8%
4.4%
22.0%
48.2%
Consolidated selling, general, and administrative expenses decreased $16.4 million or 14.7% to $94.6 million for the
year ended December 31, 2013 as compared to 2012. The components of this change were decreases in compensation of $1.4
million, occupancy of $0.1 million and other expenses of $14.9 million.
The compensation expense decreased primarily due to ongoing cost efficiencies and reduction in stock based
compensation.
The Company incurred a one-time expense of $0.5 million related to the relocation of our Southwest chemical plant,
of which $0.3 million is reflected in product costs of sales and the remaining $0.2 million is reflected in occupancy
expenses. This was partially offset by as a result of consolidating plants and eliminating facility expenses.
Other selling, general and administrative expenses decreased $14.9 million, or 29.3%, to $35.9 million as compared
to 2012. The decrease is primarily comprised of the decrease in professional fees of $7.6 million, the decrease of $1.5 million
for the provision for doubtful accounts, plus additional expense reductions. The decrease in professional fees primarily relates
to a decrease in fees related to investigation, review and other non-routine professional fees.
Impairment related to Assets Held for Sale
During 2013, the Company made a decision to sell certain assets including linen operations, routes and customers that
were not considered to be core to the Company’s overall hygiene and sanitizing business. The increase of $6.4 million in
impairment expense relates to adjustments that were required to recognize these asset balances at the lower of net carrying
value or fair value.
Depreciation and Amortization
Depreciation and amortization for the year ended December 31, 2013 increased $1.1 million, or 5.3%, to $22.1 million
as compared to 2012 primarily due to depreciation on capital expenditures.
30
Impairment related to Goodwill
In conjunction with its annual goodwill impairment test, the Company incurred a non-cash goodwill impairment
charge of $93.2 million during 2013, See Note 5, “Goodwill and Other Intangible Assets” for further discussion of the
impairment.
Other Expense, Net
Other expense, net for the years ended December 31, 2013 and 2012 is as follows:
Other Expense, Net
Interest income
Interest expense
Realized and unrealized gain (loss) on fair value of convertible notes
Earn-out
Loss from impairment
Foreign currency
Other (expense) income
Total other (expense) income, net
2013
2012
(In thousands)
41
$
(485)
-
-
-
(5)
(205)
(654) $
75
(3,406)
66
170
(507)
(15)
524
(3,093)
$
$
The reduction in interest expense reflects the lower borrowings outstanding in 2013 compared to 2012. Other expense,
net includes the gain on the sale of certain assets held for sale during 2013 and a gain on the involuntary conversion of assets
of approximately $0.6 million during 2012.
Income tax benefit (expense)
For the year ended December 31, 2012, there was a deferred tax liability associated with excess book over tax goodwill. As
goodwill is considered to be an indefinite lived intangible, this associated deferred tax liability is not allowed to be netted with
other deferred tax assets in determining the need for a valuation allowance. This resulted in an overall net deferred tax liability
after applying the valuation allowance. Due to the impairment of goodwill for book purposes as of December 31, 2013, a
deferred tax asset now exists related to goodwill. The change from a net deferred tax liability position to a net deferred tax
asset position resulted in a tax benefit of approximately $2.6 million.
Net (Loss) Income from Discontinued Operations
Net (loss) income from discontinued operations for the year ended December 31, 2013 decreased $10.1 million to a
loss of $2.5 million as compared to $7.6 million income during 2012. The decrease is primarily due to the recognition of a
gain on the disposal of the operations in 2012 of $13.8 million. Loss from discontinued operations during fiscal year 2013 is
due to the following: $0.5 million increase to retained worker’s compensation liabilities and $2.0 million, in legal fees and a
settlement payment, related to a contractual dispute involving one of the businesses sold that the Company accepted
responsibility to resolve as a term of the sales agreement.
CASH FLOWS SUMMARY
Cash flows from continuing operations for the years ended December 31, 2014, 2013, and 2012 were:
Net cash used in operating activities
Net cash (used in) provided by investing activities
Net cash used in financing activities
Net decrease in cash and cash equivalents from continuing operations
2014
2013
(In thousands)
2012
$
$
(6,322) $
(1,544)
(4,235)
(12,101) $
(29,873) $
2,016
(7,450)
(35,307) $
(39,244)
86,382
(49,417)
(2,279)
31
Cash flows from discontinued operations for the years ended December 31, 2014, 2013, and 2012 were:
2014
2013
(In thousands)
2012
Net cash used in operating activities of discontinued operations
Net cash used in investing activities of discontinued operations
Net cash used in financing activities of discontinued operations
Net decrease in cash and cash equivalents from discontinued operations
$
$
(2,131) $
-
-
(2,131) $
(4,647) $
-
-
(4,647) $
(3,519)
(2,861)
(430)
(6,810)
Cash flows used in operating activities from discontinued operations in 2014 consisted of payments made related to
legal fees and a settlement payment related to a contractual dispute that the Company accepted responsibility to resolve as a
part of the sale of the Waste segment.
Cash flows used in operating activities from discontinued operations in 2013 consisted of payments made related to
legal and professional fees, worker’s compensation insurance and accrued expenses the Company accepted responsibility to
pay as a part of the sale of the Waste segment.
Cash flows used in operating activities from discontinued operations in 2012 is primarily due to the change in
discontinued operations working capital of $4.8 million. Cash flows used in investing activities of discontinued operations in
2012 consisted of $2.9 million in purchases of property and equipment. Cash flows used in financing activities of discontinued
operations in 2012 consisted of principal payments on debt of $0.4 million.
Operating Activities
Net cash used in operating activities from continuing operations decreased $23.6 million or 78.8% to $6.3 million for
the year ended December 31, 2014 compared with 2013. The decrease in net cash used is primarily due to a change in working
capital of $9.8 million, a $2.9 million decrease in route expenses and a $26.1 million decrease in selling, general administrative
expenses, offset by a $13.4 million decrease in gross margin. Working capital was impacted by the $0.8 million adjustment for
dish machines sold.
Net cash used in operating activities from continuing operations decreased $9.4 million or 23.9% to $29.9 million for
the year ended December 31, 2013 compared with 2012. The decrease in the net cash used is primarily due to a $1.3 million
change in working capital and a decrease in selling general and administrative costs, primarily professional fees related to
investigation, review, and other non-routine professional fees.
Investing Activities
Net cash used in investing activities changed by $3.6 million to a $1.5 million use of cash in 2014 compared to a $2.0
million source of cash in 2013. This change primarily consists of a decrease of $12.6 million in cash proceeds from the sale of
discontinued operations and a $4.8 million decrease in cash received from the sale of assets held for sale, offset by a $8.1
million decrease in purchases of property and equipment and a $5.7 million increase from restricted cash.
Net cash provided by investing activities decreased $84.4 million to $2.0 million or 97.7% for the year ended
December 31, 2013, compared with net cash used in investing activities of $86.4 million for 2012. This decrease primarily
consists of additional cash and receivables related to assets held for sale of $6.3 million, a $2.9 million decrease in cash used
in discontinued operations, a decrease in purchases of equipment of $2.0 million, a $4.2 million decrease in cash paid for
acquisitions, a change in restricted cash of $5.1 million, offset by a decrease in cash received from the sale of property of $2.7
million and a $99.3 million decrease in cash received on the sale of Choice Environmental Services, Inc. ("Choice").
Financing Activities
Net cash used in financing activities decreased $3.2 million to $4.2 million or 43.2% for the year ended December 31,
2014, compared with net cash used in financing activities of $7.5 million during 2013. This decrease is primarily due to a
decrease in principal payments on debt and capital leases of $1.9 million and an increase in proceeds from notes payable of
$1.1 million.
Net cash used in financing activities decreased $42.0 million to $7.5 million or 84.9% for the year ended December
31, 2013, compared with net cash provided by financing activities of $49.4 million during 2012. This decrease is primarily due
to a decrease in principal payments on debt and capital leases of $15.5 million, a decrease of $25.0 million in payments of lines
of credit and a decrease of $2.0 million for payment of a shareholder advance.
32
LIQUIDITY AND CAPITAL RESOURCES
Going Concern
Our consolidated financial statements were prepared on a going concern basis in accordance with U.S. GAAP. The
going concern basis of presentation assumes that we will continue in operation for the next twelve months and will be able to
realize our assets and discharge our liabilities and commitments in the normal course of business and does not include any
adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and
classification of liabilities that may result from our inability to continue as a going concern. The Company has suffered recurring
losses from operations and has not generated positive cash flows from operations. These factors raise substantial doubt about
the Company's ability to continue as a going concern. In order for us to continue operations beyond the next twelve months
and be able to discharge our liabilities and commitments in the normal course of business, we must do some or all of the
following: (i) improve operating results through improved customer retention, profitable organic revenue growth, and continued
improvements in cost efficiencies; (ii) sell additional non-core or non-essential assets; (iii) raise additional equity; or (iv) obtain
additional financing through debt. There can be no assurance that we will be able to improve operating results or obtain
additional funds by selling additional non-core or non-essential assets, raising additional equity or obtaining additional
financing when needed or that such funds, if available, will be obtainable on terms satisfactory to us.
If we are not able to improve operating results or obtain additional funds by selling additional non-core or non-essential
assets, raising additional equity or obtaining additional financing, material adverse events may occur including, but not limited
to: 1) a reduction in the nature and scope of our operations, 2) our inability to fully implement our current business plan and 3)
defaults under the Credit Facility. There can be no assurances that we will be able to successfully improve our liquidity position.
Our consolidated financial statements do not reflect any adjustments that might result from the adverse outcome relating to this
uncertainty.
Cash Requirements
As a result of the activities discussed above, our cash and cash equivalents decreased by $14.2 million to $7.2 million
at December 31, 2014 compared to $21.5 million at December 31, 2013. 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, equipment, vehicles, software; (ii) working capital; and (iii) payment of principal and interest on
borrowings under our convertible promissory notes, acquisition notes payable and capital lease obligations and other
financing. We expect that through capital resource management and the use of additional customer equipment programs, our
annual capital expenditures in 2015 will be less than 2014 capital expenditures of $7.8 million.
We expect that our cash on hand, the cash flow provided by operating activities along with availability under the
Credit Facility, and the cash flow from investing activities, including the sale of assets held for sale, will be sufficient to execute
our business plan for the next twelve months, however we believe it is contingent upon improved customer retention, profitable
organic revenue growth and continued improvement in cost efficiencies in 2015 (see Note 20, "Subsequent Event" in the Notes
to the consolidated financial statements for information on assets held for sale). Failure to execute our plan successfully or
unforecasted shortfalls in available cash may require us to alter our plan, sell other non-core or non-essential assets, or raise
additional equity which could be dilutive to existing shareholders or obtain additional financing through debt. There can be no
assurance that such equity and debt may be available and would be likely subject to prevailing market conditions and the
company's performance.
Long term contractual obligations at December 31, 2014 are as follows:
Total
Less Than 1
Year
1-2 Years
( In thousands )
3-4 Years
5 or More
Years
Long-term debt and obligations
Operating and capital leases (1)
Employment contracts
Interest payments
Total long-term contractual cash obligations
$
$
2,887
21,424
1,375
156
25,842
$
$
1,809
5,877
875
83
8,644
$
$
695 $
8,329
500
62
9,586 $
383
4,895
-
11
5,289
$
$
-
2,323
-
-
2,323
(1)
Operating and capital leases consist primarily of facility and vehicle leases.
33
Credit Facility
On August 29, 2014, we entered into a $20.0 million revolving credit facility, through the execution of a Loan and
Security Agreement, by and among the Company, as Guarantor, and certain subsidiaries of the Company and collectively, as
Borrower, and Siena Lending Group LLC, as Lender (the “Credit Facility”). The Credit Facility matures on August 29, 2017.
Interest on borrowings under the Credit Facility will accrue at the Base Rate plus 2.00% and will be payable monthly.
The Base Rate is defined as the greater of (1) the Prime Rate, (2) the Federal Funds Rate plus 0.50%, or (3) 3.25%.
Borrowings and availability under the Credit Facility are subject to a borrowing base and limitations, and compliance
with other terms specified in the agreement. Borrowings under the Credit Facility are secured by a first priority lien on certain
of the Company’s assets. The calculated borrowing base as of December 31, 2014 was $13.3 million, of which $4.4 million
was outstanding under letters of credit and $8.9 million was unused.
The Credit Facility contains certain customary representations and warranties, and certain customary covenants on the
Company’s ability to, among other things, incur additional indebtedness, create liens or other encumbrances, sell or otherwise
dispose of assets, and merge or consolidate with other entities or enter into a change of control transaction. The Credit Facility
contains various events of default. The Company was not in default with covenants under the Credit Facility as of December
31, 2014.
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 production capability. During the years ended December 31, 2014, 2013 and 2012, we do
not believe that inflation has had a material impact on our financial position, results of operations, or cash flows. However, we
cannot predict what effect inflation may have on our operations in the future.
Off-Balance Sheet Arrangements
Other than operating leases, there are no significant 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
distributor’s 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 distributor’s annual operating cash
flow does fall below the agreed-to annual minimums, we will reimburse the distributor for any such short fall up to $1.5 million.
No value was assigned to the fair value of the guarantee at December 31, 2014, 2013 and 2012 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.
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 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 $0.7 million 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 2014 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
34
note that our forward-looking statements speak only as of the date of this 2014 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, except as required by law. 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 independent registered public accounting firms's report contains an explanatory paragraph that expresses
substantial doubt as to our ability to continue as a going concern.
The Company may need to raise additional equity or capital in the future and such capital may not be available when
needed or at all.
Our failure or inability to meet certain terms of our Credit Facility could have a material adverse effect on our
business, financial condition and results of operations.
We have identified material weaknesses in our internal control over financial reporting and we may be unable to
develop, implement and maintain appropriate controls in future periods. If the material weaknesses are not
remediated, then they could result in material misstatements to the financial statements.
Failure to retain our current customers and renew existing customer contracts could adversely affect our business.
Changes in economic conditions that impact the industries in which our end-users primarily operate in could
adversely affect our business.
The financial condition and operating ability of third parties may adversely affect our business.
We have recognized significant impairment charges in 2014 and prior years,and may recognize additional
impairment charges in the future which could adversely affect our results of operations and financial conditions.
The availability of our raw materials and the volatility of their costs may adversely affect our operations.
We are and may in the future be subject to legal proceedings, the outcome of which are uncertain, and resolutions
adverse to us could negatively affect our earnings, financial condition and cash flows.
The pricing, terms, and length of customer service agreements may constrain our ability to recover costs and to
make a profit on our contracts.
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 consolidation of customers may adversely affect our business, consolidated financial condition or results of
operations.
We may fail to maintain our listing on The Nasdaq Stock Market.
The loss of one or more key members of our senior management, or our inability to attract and retain qualified
personnel could adversely impact our business, financial condition and results of operations.
Increases in fuel and energy costs and fuel shortages 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.
If our products are improperly manufactured, packaged, or labeled or become adulterated or expire, those items may
need to be recalled or withdrawn from sale.
Changes in the types or variety of our service offerings could affect our financial performance.
Prior acquisitions involve a number of risks and could have an adverse effect on our results of operations.
We may not be able to adequately protect our intellectual property and other proprietary rights that are material to
our business.
35
Interruptions in our information and telecommunication systems, or a failure to maintain the security, confidentiality
or privacy of sensitive data residing on such systems, could adversely affect our business.
Insurance policies may not cover all operating risks and a casualty loss beyond the limits of our coverage could
adversely impact our business.
Our stock price has been and may in the future be volatile, which could cause purchasers of our common stock to
incur substantial losses.
Certain stockholders may exert significant influence over any corporate action requiring stockholder approval.
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. Borrowings under the Credit
Facility are indexed to a variable interest rate. As of December 31, 2014, there have been no drawings on the Credit Facility. As
of December 31, 2014, we have $4.4 million of letters of credit outstanding at a fixed fee under our Credit Facility. 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 and commodity 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 increases in whole or in part to our customers or realize costs savings
needed to offset these increases. This discussion does not consider the effects that may have an adverse change on the overall
economy, and it also does not consider actions we may take to mitigate our exposure to these changes. We cannot guarantee
that the action we take to mitigate these exposures will be successful.
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 potential charges have not been in the past, and we believe will not be going forward,
applicable to all customers. Consequently, an increase in fuel costs normally results in a decrease in our operating margin
percentage. At our current consumption level, a $0.50 change in the price of fuel changes our fuel costs by approximately $0.7
million on an annual basis.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Swisher Hygiene's Consolidated Financial Statements and the Notes thereto, together with the reports of BDO USA,
LLP regarding the Company's financial statements and internal control over financial reporting, each dated March 31, 2015,
are filed as part of this report, beginning on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
ITEM 9A.
CONTROLS AND PROCEDURES.
Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15(d) – 15(e) under the Exchange
Act), that are designed to ensure that information required to be disclosed in the reports that we file or submit under the
Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and,
include controls and procedures designed to ensure that such information is accumulated and communicated to our
management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.
We carried out an evaluation, under the supervision and with the participation of our management, including our CEO
and CFO, of the effectiveness of our disclosure controls and procedures as of December 31, 2014. Based upon that evaluation,
our management, including our CEO and CFO, concluded that our disclosure controls and procedures were not effective as of
December 31, 2014 because of the deficiencies in our internal control over financial reporting discussed in Management's
Report on Internal Control over Financial Reporting, presented below.
36
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as
such term is defined in Rules 13a-15(f) and 15(d)-15(f) under the Exchange Act. Our internal control system was designed to
provide reasonable assurance to our management and board of directors regarding the preparation and fair presentation of
published financial statements. All internal control systems, no matter how well designed, have inherent limitations. Therefore,
even those systems determined to be effective can provide only reasonable assurance with respect to financial statement
preparation and presentation.
Our management, under the supervision of and with the participation of the Company’s Chief Executive Officer and
the Chief Financial Officer, evaluated the effectiveness of the Company’s internal control over financial reporting based on
the framework set forth in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on deficiencies identified during this evaluation and set forth below,
management concluded that we did not maintain effective internal control over financial reporting as of December 31, 2014
for the following reasons:
We did not maintain an effective control environment as we lacked sufficient oversight of activities related to our
internal control over financial reporting. In addition, we did not have a sufficient structure in place to identify and
evaluate gaps in the knowledge and technical experience of the accounting personnel responsible for the
implementation and execution of our control environment.
We did not maintain effective controls over certain control activities. Specifically, the following individual material
weaknesses were identified in connection with our control activities:
We did not implement effective controls to properly account for the sale, disposal and movement of dish
machines at customer locations and our own facilities, which resulted in substantial post-closing journal
entries that our review process failed to identify.
We did not implement effective controls to accurately and completely evaluate and calculate our allowance
for doubtful accounts. Additionally, our review process was not sufficient to detect material errors in the
methodology and calculation of the allowance resulting in material post-closing adjustments.
We did not implement effective controls to properly identify, analyze, and account for non-routine
transactions reflected in the financial statements.
We did not develop and implement an overall financial reporting review process that encompassed all
significant financial statement accounts or contained an appropriate level of precision. This review
process did not identify the issues surrounding the accounting and recording for our dish machines,
allowance for doubtful accounts, and non-routine transactions.
We did not design, implement and maintain effective controls over the corporate review of significant
journal entries processed at our field-level locations, which represent a significant portion of our business,
to ensure that these entries were appropriate in nature and correct.
We did not maintain effective controls over user security and program change management for the information
technology systems and accounting software at the field-level locations.
We did not maintain effective controls to ensure the timely preparation of financial records sufficient to allow
management adequate time to prevent or detect and correct material misstatements and to fulfill its other control
activity responsibilities.
We did not maintain effective information and communication controls to generate relevant and quality information
for use in the financial reporting close process. These control failures contributed to the transactions involving our
dish machines and to information generated relating to the allowance for doubtful accounts.
We did not maintain effective information and communication controls with external parties due to delays in our
financial statement close process as evidenced by the untimely filing of our Annual Report on Form 10-K for the
year ended December 31, 2014, and our failure to identify and timely disclose existing control deficiencies in
previous filings.
We did not maintain effective monitoring controls sufficient to ascertain whether key components of internal control
were present and functioning, as evidenced by our incorrect initial assessment of the effectiveness of our internal
controls over financial reporting.
We did not maintain effective monitoring controls to communicate the deficiencies in our internal control over
financial reporting to our board of directors in sufficient time to allow them to take corrective action.
37
A deficiency in internal control over financial reporting exists when the design or operation of a control does not allow
management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on
a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting,
such that there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements
will not be prevented or detected on a timely basis. Based on its evaluation of internal control over financial reporting
management has determined that the control deficiencies identified above should be considered material weaknesses in our
internal control over financial reporting.
As set forth below, management has taken or will take steps to remediate the control deficiencies identified above.
Notwithstanding the control deficiencies described above, we have performed additional analyses and other procedures to
enable management to conclude that our consolidated financial statements included in this Annual Report on Form 10-K fairly
present, in all material respects, our financial condition and results of operations as of and for the year ended December 31,
2014.
BDO USA, LLP, the Company's independent registered public accounting firm, audited the Company’s consolidated
financial statements included in this Annual Report on Form 10-K for the year ended December 31, 2014. Also, BDO USA,
LLP has issued their attestation report on management’s internal control over financial reporting. A copy of BDO's reports are
included in this 2014 Form 10-K at pages F-2 and F-3.
Management's Remediation Plan
In response to the deficiencies discussed above, we plan to continue efforts already underway to improve internal
control over financial reporting:
Management will continue to enhance its training programs for our accounting personnel both at the corporate and
field-level, emphasizing financial reporting responsibilities and accountability for implementing and maintaining
effective internal control over financial reporting.
Dish machines will be serialized in the fixed asset system to track the movement of the dish machines and periodic
field observations will be performed to ensure the existence and accuracy of these fixed assets.
Management will continue to track collection trends across the business and evaluate the accuracy of the
assumptions used in the estimates for the allowance for doubtful accounts on an annual basis, at a minimum.
Management will put in place controls to properly identify, analyze and account for non-routine transactions and
will use the appropriate level of oversight to ensure the transactions are reflected accurately and timely in the
financial statements.
Management continues to implement controls over user access and change management related to the field-level
information technology systems.
Management will perform a comprehensive review to re-evaluate our activities related to internal control over
financial reporting, including monitoring controls related to the operating effectiveness, timeliness and
communication of certain control activities.
While management and our audit committee will closely monitor the implementation of these remediation plans, there
is no assurance that the aforementioned plans will be sufficient to fully remediate the deficiencies identified above and that
additional remediation steps will not be necessary.
Changes in Internal Control over Financial Reporting
Material weaknesses previously identified and remediated during the year ended December 31, 2014
Management identified material weaknesses which were reported in our annual report on Form 10-K for the year
ended December 31, 2013. Management has made changes to certain internal controls over financial reporting, which
remediated some of the previously disclosed material weaknesses, as follows (a recitation of the noted material weakness is set
forth followed by steps taken to remediate the material weakness):
The effectiveness of controls over proper purchase and maintenance of inventory and fixed assets. Additionally,
proper application of customer payments and review and approval of vendor invoices and related payments.
38
During 2014 significant enhancements have been made to the accounts payable and inventory control
processes. These changes include enhancements to existing accounting and operational processes, development and roll out of
new policies, and improvements to the level of retained documentation. Specifically:
Accounts Payable: An approval matrix has been established and communicated throughout the Company. Staff was
trained on the vendor invoice approval process and policy requirements. No operating deficiencies were found in
this area in 2014.
Inventory: We have established an inventory policy and have improved training to better define and emphasize
accountability for control process requirements.
The effectiveness of certain information technology controls regarding system generated reports at the field level and
key spreadsheets utilized across the Company. This is comprised of controls over data input, calculations, user access, and
management review.
Management has remediated deficiencies relating to data input, access to, and changes to key spreadsheets through
the implementation of an End User Computing Tools policy. Management migrated computers running ERP systems outside
of corporate to be inside the firewall and under the domain to strengthen security.
The effectiveness of the documentation, review, and approval of significant account reconciliations and key underlying
reports. Furthermore, the Company has not defined parameters for its review of key reconciliations and financial analysis.
Management has established, communicated, and implemented policies around preparing and properly supporting
account reconciliations as well as setting parameters for the review and approval of significant account reconciliations.
The effectiveness of the preparation, documentation, review, and approval of journal entries, and a lack of formal
written accounting policies.
Management has established, communicated, and formally documented, distributed and implemented critical
corporate accounting policies in line with company objectives.
ITEM 9B. OTHER INFORMATION
On March 26, 2015, the Company entered into a letter agreement, dated as of March 25, 2015 ("Letter Agreement"),
with its lender, Siena Lending Group LLC, in respect of the occurrence of a Springing DACA Event, as such term is defined
in the Loan and Security Agreement, dated as of August 29, 2014, among the Company, certain of the Company's subsidiaries,
and Siena Lending Group LLC. The Letter Agreement temporarily waives, until April 10, 2015, certain cash management
requirements and certain enhanced reporting requirements that would otherwise go into effect upon the occurrence of a
Springing DACA Event. The foregoing description is qualified in its entirety by reference to the Letter Agreement which is
attached hereto as Exhibit 10.39, and incorporated herein by reference.
39
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
The information required by Item 10 is incorporated by reference to our Proxy Statement for our 2015 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 2015 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 2015 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 2015 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 2015 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 2015 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.
40
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
PART IV
(a)(1) Financial Statements
The consolidated financial statements begin on page F-1.
(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 the
consolidated financial statements.
(a)(3) Exhibits
Exhibit
Number
Description
2.1
2.2
2.3
3.1
3.2
3.3
3.4
10.1
10.2
10.3
10.4
10.5
10.6
Agreement and Plan of Merger, dated February 13, 2011. (incorporated by reference to Exhibit 2.1 to the
Company’s Current Report on Form 8-K, filed on February 17, 2011).
Amendment to Agreement and Plan of Merger, dated as of February 28, 2011, by and among Swisher Hygiene
Inc., SWSH Merger Sub, Inc., Choice Environmental Services, Inc., and the other parties set forth therein.
(incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K, filed on March 4,
2011).
Stock Purchase Agreement, dated November 15, 2012, by and between Swisher Hygiene Inc. and Waste
Services of Florida, Inc. (incorporated by reference to Exhibit 2.1 of the Company's Current Report on Form 8-
K filed with the Securities and Exchange Commission on November 16, 2012 and schedules and similar
attachments of this exhibit have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company
undertakes to furnish on a supplemental basis a copy of any omitted schedules and similar attachments to the
Securities and Exchange Commission upon request).
Certificate of Corporate Domestication of CoolBrands International Inc., dated November 1, 2010. (1)
Amended and Restated Certificate of Incorporation of Swisher Hygiene Inc. (2)
Certificate of Amendment to the Amended and Restated Certificate of Incorporation of Swisher Hygiene Inc.
(incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K, filed with the
Securities and Exchange Commission on June 2, 2014).
Bylaws of Swisher Hygiene Inc. (1)
Promissory Note, dated May 26, 2010, as amended, in the principal amount of $21,445,000 to Royal Palm
Mortgage Group, LLC. (1)
Promissory Note, dated August 9, 2010, in the principal amount of $2,000,000 to Royal Palm Mortgage Group,
LLC. (1)
Promissory Note, dated August 9, 2010, in the principal amount of $1,500,000 to Royal Palm Mortgage Group,
LLC. (1)
Credit Agreement among Swisher Hygiene, Inc., the lenders named therein and Wells Fargo Bank, National
Association, dated March 30, 2011 (incorporated by reference to Exhibit 10.1 of the Company's Current Report
on Form 8-K filed with the Securities and Exchange Commission on April 5, 2011).
Pledge and Security Agreement by Swisher Hygiene Inc., certain subsidiaries of Swisher Hygiene, Inc. named
therein, and Wells Fargo Bank, National Association, dated March 30, 2011 (incorporated by reference to
Exhibit 10.2 of the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission
on April 5, 2011 and portions of this exhibit have been omitted and filed separately with the Securities and
Exchange Commission pursuant to a request for confidential treatment).
Guaranty Agreement by certain subsidiaries of Swisher Hygiene Inc. and Guaranteed Parties named therein,
dated March 30, 2011 (incorporated by reference to Exhibit 10.3 of the Company's Current Report on Form 8-
K filed with the Securities and Exchange Commission on April 5, 2011).
10.7
CoolBrands International Inc. 2002 Stock Option Plan. (incorporated by reference to Exhibit 10.1 to the
Company’s Registration Statement on Form S-8, filed on February 14, 2011). †
41
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
Omnibus Amendment Agreement, effective as of February 28, 2011, by and between Swisher International, Inc.
HB Service, LLC and Wells Fargo Bank, National Association. (incorporated by reference to Exhibit 10.1 to
the Company’s Current Report on Form 8-K, filed on March 4, 2011).
Amended and Restated Swisher Hygiene Inc. 2010 Stock Incentive Plan (incorporated by reference to Exhibit
10.1 of the Company’s Registration Statement on Form S-8 filed with the Securities and Exchange Commission
on May 9, 2011).* †
Swisher Hygiene Inc. Senior Executive Officers Performance Incentive Bonus Plan (incorporated by reference
to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed with the Securities and Exchange
Commission on May 10, 2011).* †
Employment and Non-Compete Agreement of Michael Kipp (incorporated by reference to Exhibit 10.3 of the
Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 10,
2011).* †
First Amendment to Credit Agreement and Pledge and Security Agreement, dated August 12, 2011, by and
between Swisher Hygiene Inc. and Wells Fargo Bank, National Association (incorporated by reference to
Exhibit 10.1 of the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission
on August 18, 2011).
General Electric Capital Corporation Loan Commitment Letter, dated August 12, 2011 (incorporated by
reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed with the Securities and Exchange
Commission on August 18, 2011).
Master Loan and Security Agreement, dated August 12, 2011, by and between General Electric Capital
Corporation and Choice Environmental Services, Inc. (incorporated by reference to Exhibit 10.3 of the
Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on August 18,
2011).
Amendment to Master Loan and Security Agreement, dated August 12, 2011, by and between General Electric
Capital Corporation and Choice Environmental Services, Inc. (incorporated by reference to Exhibit 10.4 of the
Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on August 18,
2011).
Wells Fargo Equipment Finance, Inc. Loan Commitment Letter dated August 12, 2011 (incorporated by
reference to Exhibit 10.5 of the Company’s Current Report on Form 8-K filed with the Securities and Exchange
Commission on August 18, 2011).
Master Loan and Security Agreement dated August 12, 2011, by and between Wells Fargo Equipment Finance,
Inc. and Choice Environmental Services, Inc. (incorporated by reference to Exhibit 10.6 of the Company’s
Current Report on Form 8-K filed with the Securities and Exchange Commission on August 18, 2011).
Automotive Rentals, Inc. Vehicle Lease Financing Proposal, dated August 12, 2011 (incorporated by reference
to Exhibit 10.7 of the Company’s Current Report on Form 8-K filed with the Securities and Exchange
Commission on August 18, 2011).
Second Amendment to Credit Agreement by and among Swisher Hygiene, Inc., the Subsidiary Guarantors party
thereto, the Required Lenders, and Wells Fargo Bank, National Association, dated April 12, 2012 (incorporated
by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K filed with the Securities and
Exchange Commission on April 12, 2012).
Third Amendment to Credit Agreement by and among Swisher Hygiene, Inc., the Subsidiary Guarantors party
thereto, the Required Lenders, and Wells Fargo Bank, National Association, dated May 15, 2012 (incorporated
by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K filed with the Securities and
Exchange Commission on May 17, 2012).
Fourth Amendment to Credit Agreement by and among Swisher Hygiene, Inc., the Subsidiary Guarantors party
thereto, the Required Lenders, and Wells Fargo Bank, National Association, dated May 30, 2012 (incorporated
by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K filed with the Securities and
Exchange Commission on June 5, 2012).
Fifth Amendment to Credit Agreement by and among Swisher Hygiene, Inc., the Subsidiary Guarantors party
thereto, the Required Lenders, and Wells Fargo Bank, National Association, dated June 28, 2012 (incorporated
by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K filed with the Securities and
Exchange Commission on June 29, 2012).
Sixth Amendment to Credit Agreement by and among Swisher Hygiene, Inc., the Subsidiary Guarantors party
thereto, the Required Lenders, and Wells Fargo Bank, National Association, dated July 30, 2012 (incorporated
by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K filed with the Securities and
Exchange Commission on July 31, 2012).
10.24
Seventh Amendment to Credit Agreement and Pledge and Security Agreement by and among Swisher Hygiene,
Inc., the Subsidiary Guarantors party thereto, the Required Lenders, and Wells Fargo Bank, National
42
10.25
10.26
10.27
10.28
10.29
10.30
10.31
10.32
10.33
10.34
10.35
10.36
10.37
Association, dated August 31, 2012 (incorporated by reference to Exhibit 10.1 of the Company's Current Report
on Form 8-K filed with the Securities and Exchange Commission on September 4, 2012 and portions of this
exhibit have been omitted and filed separately with the Securities and Exchange Commission pursuant to a
request for confidential treatment).
Eighth Amendment to Credit Agreement by and among Swisher Hygiene, Inc., the Subsidiary Guarantors party
thereto, the Required Lenders, and Wells Fargo Bank, National Association, dated September 27, 2012
(incorporated by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K filed with the
Securities and Exchange Commission on September 27, 2012).
Ninth Amendment to Credit Agreement by and among Swisher Hygiene, Inc., the Subsidiary Guarantors party
thereto, the Required Lenders, and Wells Fargo Bank, National Association, dated October 31, 2012
(incorporated by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K filed with the
Securities and Exchange Commission on November 1, 2012).
Employment Letter, dated June 1, 2012, by and between Swisher Hygiene, Inc. and Brian Krass (incorporated
by reference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the period ended June 30,
2012, filed with the Securities and Exchange Commission on March 15, 2013). †
Interim Services Agreement, effective September 24, 2012, between Swisher Hygiene Inc. and SCA Group,
LLC (incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the period
ended September 30, 2012, filed with the Securities and Exchange Commission on March 18, 2013). †
Consulting Agreement and Release between Steven R. Berrard and Swisher International, Inc., effective
October 26, 2012 (incorporated by reference to Exhibit 10.56 to the Company's Annual Report on Form 10-K
for the year ended December 31, 2012, filed with the Securities and Exchange Commission on May 1, 2013). †
Separation Agreement and Release between Hugh Cooper and Swisher International Inc., dated November 15,
2012 (incorporated by reference to Exhibit 10.57 to the Company's Annual Report on Form 10-K for the year
ended December 31, 2012, filed with the Securities and Exchange Commission on May 1, 2013). †
Executive Services Agreement, effective June 9, 2013, between Swisher Hygiene Inc. and The SCA Group,
LLC (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the period
ended June 30, 2013, filed with the Securities and Exchange Commission on August 9, 2013). †
Employment Agreement, dated October 16, 2013, between Swisher Hygiene Inc. and William M. Pierce. †
Employment Agreement, dated October 16, 2013, between Swisher Hygiene Inc. and Thomas C. Byrne. †
Separation Agreement and Release between Swisher Hygiene Inc. and Thomas E. Aucamp, dated March 7,
2014 (incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q for the
quarter ended March 31, 2014, filed with the Securities and Exchange Commission on May 12, 2014). †
Amendment No. 1 to the Employment Agreement between Swisher Hygiene Inc. and Thomas C. Byrne, dated
July 14, 2014 (incorporated by reference to Exhibit 10.2 of the Company’s Quarterly Report on Form 10-Q for
the quarter ended September 30, 2014, filed with the Securities and Exchange Commission on November 10,
2014). †
Amendment to Employment Agreement by and between Swisher Hygiene Inc. and William M. Pierce, dated
August 8, 2014 (incorporated by reference to Exhibit 10.3 of the Company’s Quarterly Report on Form 10-Q
for the quarter ended September 30, 2014, filed with the Securities and Exchange Commission on November
10, 2014). †
Loan and Security Agreement by and among Swisher Hygiene Inc., as Guarantor, the Borrowers listed thereto
and Siena Lending Group LLC, as Lender, dated August 29, 2014 (incorporated by reference to Exhibit 10.1 of
the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on September
3, 2014). (Portions of this exhibit have been omitted and filed separately with the Securities and Exchange
Commission pursuant to a request for confidential treatment).
10.38
Second Amendment to Employment Agreement by and between Swisher Hygiene Inc. and William M. Pierce,
10.39
21.1
23.1
31.1
31.2
32.1
32.2
dated January 31, 2015. †
Letter Agreement, dated as of March 25, 2015, by and among Siena Lending Group LLC and the Borrowers
listed thereto.
Subsidiaries of Swisher Hygiene Inc.
Consent of BDO USA, LLP.
Section 302 Certification of Chief Executive Officer.
Section 302 Certification of Chief Financial Officer.
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.*
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.*
101.INS
101.SCH
XBRL Instance Document.
XBRL Taxonomy Extension Schema.
43
101.CAL
101.LAB
101.PRE
________________________
XBRL Taxonomy Extension Calculation Linkbase.
XBRL Taxonomy Extension Label Linkbase.
XBRL Taxonomy Extension Presentation Linkbase.
The following documents are 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) Registration Statement on Form S-8, filed with the Security and Exchange Commission on May 9, 2011.
* Furnished herewith.
† Management contracts or compensatory plans, contracts, or arrangements.
44
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.
SIGNATURES
Dated: March 31, 2015
SWISHER HYGIENE INC.
(Registrant)
By: /s/ William M. Pierce
William M. Pierce
President and Chief Executive Officer
(Principal 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
/s/ William M. Pierce
William M. Pierce
President, Chief Executive Officer, and Director
(Principal Executive Officer)
/s/ William T. Nanovsky Senior Vice President and Chief Financial Officer
William T. Nanovsky
(Principal Financial Officer)
/s/ Linda C. Wilson-
Ingram
Linda C. Wilson-Ingram Chief Accounting Officer (Principal Accounting Officer)
Vice President, Corporate Controller and
/s/ Richard L. Handley
Richard L. Handley
Chairman of the Board
/s/ Joseph Burke
Joseph Burke
Harris W. Hudson
Director
Director
/s/ William D. Pruitt
William D. Pruitt
Director
/s/ David Prussky
David Prussky
Director
Date
March 31, 2015
March 31, 2015
March 31, 2015
March 31, 2015
March 31, 2015
March 31, 2015
March 31, 2015
March 31, 2015
45
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
SWISHER HYGIENE INC. AND SUBSIDIARIES
Consolidated Financial Statements as of December 31, 2014 and 2013, and for the Three Years Ended December 31, 2014
Reports of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations and Comprehensive Loss
Consolidated Statements of Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
F-2
F-4
F-5
F-6
F-7
F-8
F-1
Report of Independent Registered Public Accounting Firm
Board of Directors
Swisher Hygiene Inc. and Subsidiaries
Charlotte, North Carolina
We have audited the accompanying consolidated balance sheets of Swisher Hygiene Inc. and Subsidiaries (the
"Company") as of December 31, 2014 and 2013 and the related consolidated statements of operations and comprehensive loss,
equity, and cash flows for each of the three years in the period ended December 31, 2014. These consolidated financial
statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. 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, 2014 and 2013, and the results of its operations
and its cash flows for each of the three years in the period ended December 31, 2014, in conformity with accounting principles
generally accepted in the United States of America.
Also, in our opinion, the financial statement schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as
a going concern. As described in Note 1 to the consolidated financial statements, the Company has suffered recurring losses
from operations and has not generated positive cash flows from operations. These factors raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1.
The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
We also audited, in accordance with the Standards of the Public Company Accounting Oversight Board (United
States), Swisher Hygiene Inc.’s internal control over financial reporting as of December 31, 2014, based on criteria established
in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) and our report dated March 31, 2015 expressed an adverse opinion thereon.
/s/ BDO USA, LLP
Charlotte, North Carolina
March 31, 2015
F-2
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
Swisher Hygiene Inc.
Charlotte, NC
We have audited Swisher Hygiene Inc.’s internal control over financial reporting as of December 31, 2014, based on
criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations
of the Treadway Commission (the COSO criteria). Swisher Hygiene Inc.’s management is responsible for maintaining effective
internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting,
included in the accompanying Item 9A, "Management's Report on Internal Control Over Financial Reporting". Our
responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the 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 effective
internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding
of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the
design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other
procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our
opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions
and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such
that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will
not be prevented or detected on a timely basis. Material weaknesses have been identified and described in management’s
assessment. These material weaknesses were considered in determining the nature, timing, and extent of audit tests applied in
our audit of the 2014 consolidated financial statements, and this report does not affect our report dated March 31, 2015 on those
financial statements.
In our opinion, Swisher Hygiene Inc. did not maintain, in all material respects, effective internal control over financial
reporting as of December 31, 2014, based on the COSO criteria.
We do not express an opinion or any other form of assurance on management’s statements referring to any corrective
actions taken by the Company after the date of management’s assessment.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the consolidated balance sheets of Swisher Hygiene Inc. and subsidiaries as of December 31, 2014 and 2013, and the
related consolidated statements of operations and comprehensive loss, equity, and cash flows for each of the three years in the
period ended December 31, 2014 and our report dated March 31, 2015 expressed an unqualified opinion thereon.
/s/ BDO USA, LLP
Charlotte, NC
March 31, 2015
F-3
SWISHER HYGIENE INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2014 and 2013
(In thousands)
ASSETS
Current assets
Cash and cash equivalents
Restricted cash
Accounts receivable, net
Inventory, net
Deferred income taxes
Assets held for sale
Other assets
Total current assets
Restricted cash
Property and equipment, net
Goodwill
Other intangibles, net
Customer relationships and contracts, net
Other noncurrent assets
Total assets
LIABILITIES AND EQUITY
Current liabilities
Accounts payable
Accrued payroll and benefits
Accrued expense
Long-term debt and obligations due within one year
Liabilities of discontinued operations
Total current liabilities
Long-term debt and obligations
Deferred income taxes
Other long-term liabilities
Total noncurrent liabilities
$
$
$
2014
2013
$
$
$
7,233
231
18,751
15,426
534
-
2,525
44,700
-
37,037
-
6,654
22,792
2,015
113,198
13,627
3,467
7,122
1,884
-
26,100
1,185
558
4,065
5,808
21,465
3,558
21,010
14,032
935
4,520
5,782
71,302
2,117
43,842
5,821
8,436
28,575
1,624
161,717
8,794
3,819
8,132
5,251
2,131
28,127
2,003
1,053
3,348
6,404
Commitments and contingencies (Notes 2, 3, 6, 7, 10, 13, 15)
Equity (1)
Preferred stock, par value $0.001, authorized 10,000,000 shares; no shares issued and
outstanding at December 31, 2014 and 2013
Common stock, par value $0.001, authorized 600,000,000 shares; 17,612,278 shares and
17,576,741 shares issued and outstanding at December 31, 2014 and 2013
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive loss
Total equity
Total liabilities and equity
-
-
18
389,942
(307,363)
(1,307)
81,290
113,198
$
18
388,252
(260,555)
(529)
127,186
161,717
$
(1) All outstanding share amounts and computations using such amounts have been retroactively adjusted to reflect the June
3, 2014 one-for-ten reverse stock split.
See Notes to Consolidated Financial Statements
F-4
SWISHER HYGIENE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
For the Three Years Ended December 31, 2014
(In thousands except share and per share data)
Revenue
Products
Franchise and other
Total revenue
Costs and expenses
Cost of sales (exclusive of route expenses and related depreciation and
amortization)
Route expenses
Selling, general, and administrative expenses
Acquisition and merger expenses
Depreciation and amortization
Impairment loss on assets held for sale
Impairment loss on goodwill
Total costs and expenses
Loss from continuing operations
Other expense, net
Net loss from continuing operations before income taxes
Income tax benefit (expense)
Net loss from continuing operations
Discontinued operations, net of tax (Note 2)
Net loss from operations through disposal
Gain on disposal
(Loss) income from discontinued operations, net of tax
Net loss
Comprehensive loss
Employee benefit plan adjustment, net of tax
Foreign currency translation adjustment
Comprehensive loss
Loss per share (1)
Basic and diluted (continuing operations)
Basic and diluted (discontinued operations)
2014
2013
2012
$
$
173,505 $
18,877
1,375
193,757
189,480
22,895
1,313
213,688
202,968
26,186
1,367
230,521
89,101
50,595
69,269
-
21,216
2,989
5,821
238,991
(45,234)
95,585
54,227
94,620
-
22,113
6,422
93,194
366,160
(152,472)
(1,663)
(46,897)
89
(46,808)
(654)
(153,126)
2,594
(150,532)
101,914
54,988
110,975
582
20,991
-
-
289,450
(58,929)
(3,093)
(62,022)
(18,753)
(80,775)
-
-
-
(46,808)
(2,516)
-
(2,516)
(153,048)
(6,245)
13,844
7,599
(73,176)
(747)
(31)
(47,586) $
503
(33)
(152,578) $
(161)
(3)
(73,340)
(2.64) $
- $
(8.55) $
(0.14) $
(4.62)
0.43
$
$
Weighted-average common shares used in the computation of loss per share (1)
Basic and diluted
17,723,866 17,599,535
17,500,956
(1) All outstanding share amounts and computations using such amounts have been retroactively adjusted to reflect the June
3, 2014 one-for-ten reverse stock split.
See Notes to Consolidated Financial Statements
F-5
SWISHER HYGIENE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
FOR THE THREE YEARS ENDED DECEMBER 31, 2014
(In thousands except share data)
STOCKHOLDERS' EQUITY
Common
Stock (1)
Amount
Additional
Paid-in
Capital (1)
Accumulated
Deficit
Shares
Accumulated
Other
Comprehensive
(Loss)
Swisher
Hygiene Inc.
Stockholders'
Equity
Non -
Controlling
Interest
Total
Equity
17,480,419 $
17 $
378,982
$
(34,331) $
(835) $
343,833 $
22 $
343,855
of
promissory
compensation
discontinued
Balance at December 31,
2011
Issuance of common stock on
contingent earn-out
Conversion
notes payable
Stock based
(including
operations of $2,863)
Issuance of common stock
under stock based payment
plans
Shares
controlling interest
Employee
benefit
adjustment, net of tax
Foreign currency
adjustment
Net loss
translation
issued
plan
non-
for
to
plan
related
translation
Balance at December 31,
2012
Stock based compensation
Issuance of common stock
under stock based payment
plans
Shares withheld
income taxes on RSUs
Liquidation of minority interest
Employee
benefit
adjustment, net of tax
Foreign currency
adjustment
Net loss
Balance at December 31,
2013
Stock based compensation
related
Shares withheld
income taxes on RSUs
Shares issued in connection
with RSU delivery
Employee
benefit
adjustment, net of tax
Foreign currency
adjustment
Net loss
Balance at December 31,
2014
translation
plan
to
9,091
1,004
-
23,637
1,000
-
-
-
17,515,151
-
88,996
(27,406)
-
-
-
-
(10,857)
46,394
-
-
-
17,576,741
-
-
-
-
-
-
-
-
-
170
37
6,384
-
37
-
-
-
17
-
385,610
2,916
1
-
-
-
-
-
-
(274)
-
-
-
-
18
-
388,252
1,740
-
-
-
-
-
(47)
(3)
-
-
-
-
-
-
-
-
-
-
(73,176)
(107,507)
-
-
-
-
-
-
(153,048)
(260,555)
-
-
-
-
-
(46,808)
-
-
-
-
-
-
-
-
503
170
37
-
-
170
37
6,384
-
6,384
-
37
(161)
(161)
(3)
-
(3)
(73,176)
-
-
-
-
-
-
37
(161)
(3)
(73,176)
(999)
-
277,121
2,916
22
-
277,143
2,916
1
-
1
(274)
-
503
(33)
-
(33)
(153,048)
(529)
-
127,186
1,740
-
-
(47)
(3)
(747)
(747)
(31)
-
(31)
(46,808)
-
(22)
-
-
-
-
-
-
-
-
-
-
(274)
(22)
503
(33)
(153,048)
127,186
1,740
(47)
(3)
(747)
(31)
(46,808)
17,612,278
18
389,942
(307,363)
(1,307)
81,290
-
81,290
(1) All outstanding share amounts and computations using such amounts have been retroactively adjusted to reflect the June 3, 2014 one-for-ten reverse
stock split.
See Notes to Consolidated Financial Statements
F-6
SWISHER HYGIENE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE YEARS ENDED DECEMBER 31, 2014
(In thousands)
Operating activities
Net loss
Adjustments to reconcile net loss to cash used in operating activities:
Net loss (income) from discontinued operations, net of tax
Depreciation and amortization
Provision for doubtful accounts
Stock based compensation
Realized and unrealized gain on fair value of convertible notes
Deferred income taxes
Impairment loss on assets held for sale
Impairment loss on goodwill
Loss on disposal of property and equipment
Loss (gain) on sale of assets held for sale
Changes in operating assets and liabilities:
Accounts receivable
Inventory
Accounts payable, accrued expense and other current liabilities
Other assets and non-current assets
Net cash used in operating activities of continuing operations
Net cash used in operating activities of discontinued operations
Cash used in operating activities
Investing activities
Cash received for sale of discontinued operations
Purchases of property and equipment
Cash received on sale of property and equipment
Cash received on sale of assets held for sale
Acquisitions, net of cash acquired
Restricted cash
Net cash (used in) provided by investing activities of continuing operations
Net cash used in investing activities of discontinued operations
Cash (used in) provided by investing activities
Financing activities
Payments on lines of credit
Proceeds from notes payable
Proceeds from equipment financing
Principal payments on debt and capital leases
Payment of shareholder advances
Proceeds from exercise of stock options
Taxes paid related to income tax withheld on settlement of equity awards
Net cash used in financing activities of continuing operations
Net cash provided by financing activities of discontinued operations
Cash used in financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at the beginning of the period
Cash and cash equivalents at the end of the period
Supplemental Cash Flow Information
Cash paid for interest (including discontinued operations)
Cash received for interest (including discontinued operations)
Cash paid for income taxes
Notes payable issued or assumed on acquisitions (continuing operations)
Note payable related to insurance financing
Stock issued to purchase property and to settle liabilities (continuing operations)
Property received as payment on accounts receivable
2014
2013
2012
$
(46,808) $
(153,048) $
(73,176)
-
21,216
196
1,740
-
(94)
2,989
5,821
195
754
2,325
(247)
3,403
2,187
(6,322)
(2,131)
(8,453)
-
(8,645)
92
1,565
-
5,444
(1,544)
-
(1,544)
-
1,097
-
(5,282)
-
-
(50)
(4,235)
-
(4,235)
(14,232)
21,465
7,233 $
150 $
9 $
51 $
- $
1,097 $
- $
- $
2,516
22,113
936
2,916
-
(2,553)
6,422
93,194
33
(223)
(279)
1,295
(3,084)
(111)
(29,873)
(4,647)
(34,520)
12,571
(16,794)
329
6,346
(151)
(285)
2,016
-
2,016
-
-
-
(7,177)
-
1
(274)
(7,450)
-
(7,450)
(39,954)
61,419
21,465
$
370
41
316
-
2,634
-
-
$
$
$
$
$
$
$
(7,599)
20,991
2,396
3,521
(241)
18,370
-
-
-
-
3,739
448
(6,598)
(1,095)
(39,244)
(3,519)
(42,763)
111,841
(18,820)
3,061
-
(4,310)
(5,390)
86,382
(2,861)
83,521
(25,000)
-
209
(22,626)
(2,000)
-
-
(49,417)
(430)
(49,847)
(9,089)
70,508
61,419
4,253
75
88
1,121
2,732
37
650
$
$
$
$
$
$
$
$
See Notes to Consolidated Financial Statements
F-7
SWISHER HYGIENE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 — OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principal Operations
Swisher Hygiene Inc. and its wholly-owned subsidiaries (the “Company” or “we” or “our”) provide essential hygiene
and sanitizing solutions that include cleaning and sanitizing chemicals, restroom hygiene programs and a full range of related
products and services. We sell consumable products such as detergents, cleaning chemicals, soap, paper, water filters and
supplies, together with the rental and servicing of dish machines and other equipment for the dispensing of those products as
well as additional services such as the cleaning of facilities. We serve customers in a wide range of end-markets, with a
particular emphasis on the foodservice, hospitality, retail, and healthcare industries.
During 2011 and most of 2012, we operated in two segments: (i) Hygiene and (ii) Waste. As a result of the sale of
the Waste segment in November 2012, we currently operate in one business segment, Hygiene, and the Company has applied
discontinued operations accounting treatment and disclosures for this transaction. See Note 2 "Discontinued Operations and
Assets Held for Sale" for further information.
Our principal executive offices are located at 4725 Piedmont Row Drive, Suite 400, Charlotte, North Carolina,
28210. As of December 31, 2014, we have company owned operations and one remaining franchise operation located
throughout North America and we have entered into nine Master License Agreements covering the United Kingdom, Portugal,
the Netherlands, Singapore, the Philippines, Taiwan, Korea, Hong Kong/Macau/China, and Mexico. The financial information
about our geographical areas is included in Note 18, “Geographic Information” to the Notes to the Consolidated Financial
Statements.
Merger
On August 17, 2010, Swisher International, Inc. (“Swisher International”) entered into a merger agreement under
which all of the outstanding common shares of Swisher International were exchanged for common shares of CoolBrands
International Inc. (“CoolBrands”), and Swisher International became 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 Merger was completed on November 2, 2010. After the Merger, the shareholders of
CoolBrands held shares of Swisher Hygiene Inc. common stock.
Going Concern
Our consolidated financial statements were prepared on a going concern basis in accordance with U.S. GAAP. The
going concern basis of presentation assumes that we will continue in operation for the next twelve months and will be able to
realize our assets and discharge our liabilities and commitments in the normal course of business and does not include any
adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and
classification of liabilities that may result from our inability to continue as a going concern. The Company has suffered recurring
losses from operations and has not generated positive cash flows from operations. These factors raise substantial doubt about
the Company's ability to continue as a going concern. In order for us to continue operations beyond the next twelve months
and be able to discharge our liabilities and commitments in the normal course of business, we must do some or all of the
following: (i) improve operating results through improved customer retention, profitable organic revenue growth, and continued
improvements in cost efficiencies; (ii) sell additional non-core or non-essential assets; (iii) raise additional equity; or (iv) obtain
additional financing through debt. There can be no assurance that we will be able to improve operating results or obtain
additional funds by selling additional non-core or non-essential assets, raising additional equity or obtaining additional
financing when needed or that such funds, if available, will be obtainable on terms satisfactory to us.
If we are not able to improve operating results or obtain additional funds by selling additional non-core or non-essential
assets, raising additional equity or obtaining additional financing, material adverse events may occur including, but not limited
to: 1) a reduction in the nature and scope of our operations, 2) our inability to fully implement our current business plan and 3)
defaults under the Credit Facility. There can be no assurances that we will be able to successfully improve our liquidity position.
Our consolidated financial statements do not reflect any adjustments that might result from the adverse outcome relating to this
uncertainty.
F-8
Basis of Presentation and Principles of Consolidation
Intercompany balances and transactions have been eliminated in consolidation. Certain reclassifications, including
those described further in Note 4, “Prior Period Reclassification,” have been made to prior year amounts for consistency with
the current period presentation. Financial information, other than share and per share data, is presented in thousands of dollars.
On June 3, 2014, a one-for-ten reverse split of the Company's issued and outstanding common stock, $0.001 par value
per share, became effective ("Reverse Stock Split"). Trading of the common stock on a post-Reverse Stock Split adjusted basis
began at the open of business on the morning of June 3, 2014. All historic share and per share information, including loss per
share, in this Form 10-K have been retroactively adjusted to reflect the Reverse Stock Split.
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.
Segments
We operate in one business segment, the manufacturing, distribution and delivery of hygiene and sanitizing services,
products and solutions. We define business segments as components of an organization for which discrete financial information
is available and operating results are evaluated on a regular basis by the chief operating decision maker (“CODM”) in order to
assess performance and allocate resources. Our CODM is the Company’s President and Chief Executive Officer.
Characteristics of our organization which were relied upon in making this determination include the similar nature of the
products and services we sell, the functional alignment of our organizational structure, and the reports that are regularly
reviewed by the CODM for the purpose of assessing performance and allocating resources. Previously we operated in two
segments. See Note 2, “Discontinued Operations and Assets Held for Sale.”
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 at date of purchase to be cash equivalents. As of December 31, 2014 and 2013, the Company
did not have any investments with maturities greater than three months.
Restricted Cash
Restricted cash at December 31, 2014 consists of amounts held in a collateral account to secure purchase card balances
and electronic cash transfers.
Accounts Receivable
Accounts receivable principally consist of amounts due from customers for product sales and services. Accounts
receivable are reported net of an allowance for doubtful accounts (“allowance”) and interest is generally not charged to
customers on delinquent balances. The allowance is management’s best estimate of uncollectible amounts and is based on a
number of factors, including overall credit quality of customers, the age of outstanding customer balances, historical write-off
experience and specific customer account analysis that projects the ultimate collectability of the outstanding balances. When
accounts receivable amounts are considered uncollectible, the amounts are written-off against the allowance for doubtful
accounts. The allowance was $1.0 million and $2.0 million at December 31, 2014 and 2013, respectively.
Inventory
Inventory consists of purchased items, materials, direct labor, and other manufacturing related overhead and is stated
at the lower of cost or market determined using the first in-first out costing 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 $0.8 million and $0.9 million at December 31, 2014 and 2013, respectively.
F-9
Assets Held for Sale
We record net assets held for sale in accordance with Accounting Standards Codification ("ASC") 360 "Property,
Plant, and Equipment" at the lower of carrying value or fair value. Fair value is based on the estimated sales price, less selling
costs, of the assets. Estimates of the net sales proceeds are based on a number of factors including standard industry multiples
of revenues or operating metrics, and the status of ongoing sales negotiations and asset purchase agreements where
available. Our estimates of fair value are regularly reviewed and subject to changes based on market conditions, changes in
the customer base of the operations or routes and our continuing evaluation as to the facility's acceptable sale price. No
depreciation or amortization expense is recorded related to the assets held for sale. As described further below and in Note 9,
“Fair Value Measurements,” assets held for sale are measured using Level 3 inputs.
Property and Equipment
Property and equipment 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
Equipment, laundry facility equipment and furniture
Vehicles
Computer equipment
Computer software
Building and leasehold improvements
Years
2 – 7
3 - 20
5
3
3 - 7
1 - 40
Items in service consist of various systems that dispense the Company’s cleaning and sanitizing products, linens, dish
machines and dust control products. Included in the capitalized cost of items in service are costs incurred to install certain
equipment for customer locations under 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 commencing upon
operational use.
Purchase Accounting for Business Combinations
The Company accounts for acquisitions by allocating the fair value of the consideration transferred to the fair value
of the assets acquired and liabilities assumed on the date of the acquisition and any remaining difference is recorded as goodwill.
Adjustments may be made to the preliminary purchase price allocation when facts and circumstances that existed on the date
of the acquisition surface during the allocation period subsequent to the preliminary purchase price allocation, not to exceed
one year from the date of acquisition. Contingent consideration is recorded at fair value based on the facts and circumstances
on the date of the acquisition and any subsequent changes in the fair value are recorded through earnings each reporting period.
Transactions that occur in conjunction with or subsequent to the closing date of the acquisition are evaluated and accounted for
based on the facts and substance of the transactions.
Goodwill
Goodwill is not amortized but rather tested for impairment at least annually. The Company tests goodwill for
impairment annually during the fourth quarter of each fiscal year. Goodwill is also tested for impairment between annual tests
if an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit below its
carrying amount. Impairment testing for goodwill is done at the reporting unit level. A reporting unit is an operating segment
or one level below an operating segment (also known as a component). A component of an operating segment is a reporting
unit if the component constitutes a business for which discrete financial information is available, and segment management
regularly reviews the operating results of that component. The Company has concluded that it has one reporting unit.
F-10
When testing goodwill for impairment, the Company may assess qualitative factors to determine whether it is more
likely than not (that is, a likelihood of more than 50 percent) that the Company’s fair value is less than its carrying amount,
including goodwill. Alternatively, the Company may bypass this qualitative assessment and perform step 1 of the two-step
goodwill impairment test. This step requires the determination of the fair value of the reporting unit. If we perform step 1 and
the carrying amount of the reporting unit exceeds its fair value, we would perform step 2 to measure such impairment.
Determining fair value includes the use of significant estimates and assumptions. Management utilizes an income
approach, specifically the discounted cash flow technique as a means for estimating fair value. This discounted cash flow
analysis requires various assumptions including those about future cash flows, customer growth rates and discount rates.
Expected cash flows are based on historical customer growth, including attrition, future strategic initiatives 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. During the second quarter of 2014 and the fourth
quarter of 2013, in conjunction with its impairment test, the Company recorded a goodwill impairment charge of $5.8 million
and $93.2 million, respectively, as further discussed in Note 5, “Goodwill and Other Intangible Assets”.
Other Intangible Assets
Identifiable intangible assets include customer relationships, non-compete agreements, trade names and trademarks,
and formulas. The fair value of these intangible assets at the time of acquisition is estimated based upon various valuation
techniques including replacement cost and discounted future cash flow projections. Customer relationships are amortized on
a straight-line basis over the expected average life of the acquired accounts, which is typically five to ten years based upon a
number of factors, including historical longevity of customers and contracts acquired and historical retention rates. The non-
compete agreements are amortized on a straight-line basis over the term of the agreements, typically not exceeding five years.
Formulas are amortized on a straight-line basis over their estimated useful life of twenty years. The Company reviews the
recoverability of these assets if events or circumstances indicate that the assets may be impaired and periodically reevaluates
the estimated remaining lives of these assets.
Trade names and trademarks are considered to be indefinite lived intangible assets unless specific evidence exists that
a shorter life is more appropriate. Indefinite lived intangible assets are tested, at a minimum, on an annual basis, using a
discounted cash flow approach, or sooner whenever events or changes in circumstances indicate that an asset may be impaired.
Long-Lived Assets
Fixed assets are reviewed for impairment when events or changes in circumstances indicate that the carrying amount
of an asset or asset group may not be recoverable. Recoverability of assets to be held and used is measured by a comparison
of the carrying amount of an asset to the future net cash flows expected to be generated by the asset. If such assets or asset
groups are considered to be impaired the impairment to be recognized is measured by the amount by which the carrying amount
of the assets or asset groups exceeds the related fair values. The Company also performs a periodic assessment of the useful
lives assigned to the long-lived assets, as previously discussed.
Foreign Currency Translation
All assets and liabilities of our Canadian operations are translated into U.S. dollars using the exchange rates in effect
at the balance sheet date and statement of operations items are translated using the average exchange rates throughout the
period. The translation adjustment is presented as a component of accumulated other comprehensive (loss) income. The loss
was primarily due to unfavorable conversion rates.
Financial Instruments
The Company’s financial instruments, which may expose the Company to concentrations of credit risk, include cash
and cash equivalents and accounts receivables. The Company maintains cash deposits with major banks, which from time to
time may exceed insured limits. The possibility of loss related to the financial condition of major banks is considered
minimal. The Company’s accounts receivable balance is composed of numerous customers of varying sizes in diverse
industries and geographies. This fact, as well as the practice of establishing reasonable credit limits mitigates credit risk. Based
on historical trends and experiences, the allowance for doubtful accounts is adequate to cover potential credit risk losses.
F-11
The carrying amounts of cash and cash equivalents, accounts receivable and accounts payable approximate fair value
due to the short maturity of these instruments. The fair value of the Company’s debt is estimated based on the current borrowing
rates available to the Company for bank loans with similar terms and maturities and approximates the carrying value of these
liabilities. Certain convertible promissory notes are recorded at fair value during 2014 and 2013 as further described in Note 8,
"Fair Value Measurements.”
Revenue Recognition
Revenue from product sales and service is recognized when the product is delivered to the customer or when services
are performed, including product and service sales made under multiple deliverable agreements, which outline the pricing of
products and the preferred frequency of delivery. Deliverables under these pricing arrangements are considered to be separate
units of accounting, as defined by ASC 605-25, Revenue Recognition – Multiple-Element Arrangement, and due to the nature
of the Company’s business, the timing of the delivery of products and performance of service is concurrent and ongoing and
there are no contingent deliverables. 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 and
product sales are recognized as the product is delivered.
The Company’s sales policies provide for limited rights of return and, during the fiscal years 2014, 2013, and 2012,
product returns were insignificant. The Company records estimated reductions to revenue for sales returns and for customer
programs and incentive offerings, including pricing arrangements, rebates, promotions and other volume-based incentives at
the time the sale is recorded.
Stock Based Compensation
The Company measures and recognizes all stock 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 stock 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.
Freight Costs
Shipping and handling costs for freight expense on goods shipped are included in cost of sales. Shipping and handling
costs for freight expense on goods received are capitalized to inventory where they are relieved to cost of sales when the product
is sold.
Income Taxes
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 basis 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.
The Company’s policy is to evaluate uncertain tax positions under ASC 740-10, Income Taxes. As of December 31,
2014 and 2013, and for the three years ended December 31, 2014, the Company has not identified any uncertain tax positions
requiring recognition in the accompanying consolidated financial statements. 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 for the three year period ended December 31, 2014.
Loss per Common Share
Basic net loss from continuing operations and basic net loss from discontinued operations attributable to common
stockholders per share is computed by dividing the applicable net loss by the weighted average number of common shares
outstanding during the period. Vested restricted stock units, of 0.1 million which have been deferred, are included in this
weighted average number of common shares calculation. Diluted net loss from continuing operations per share was the same
as basic net loss from continuing operations attributable to common stockholders per share for all periods presented, since the
F-12
effects of any potentially dilutive securities are excluded as they are antidilutive due to the Company’s net losses. Diluted net
earnings per share from discontinued operations was calculated in the same manner as diluted net loss from continuing
operations per share in accordance with ASC 260, Earnings per Share.
Comprehensive Loss
Comprehensive loss includes net loss, foreign currency translation adjustments and an employee benefit plan
adjustment consisting of changes to unrecognized pension actuarial gains and losses, net of tax.
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 instrument’s 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 is a discussion of the levels 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 as listed equities and fixed income securities.
Level 2: Inputs other than quoted prices, included in Level 1, that are observable for the asset or liability, either
directly or indirectly.
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.
Pension Plan
An acquired subsidiary of CoolBrands maintained a defined benefit pension plan ("the Plan") covering approximately
90 employees. Subsequent to the acquisition by Coolbrands 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. The Company recognizes in its consolidated balance sheet the overfunded or underfunded status of the
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 Plan assets and the Plan obligations as of December 31
and discloses additional information in the Notes to 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 Plan assets
decreases. Future changes in Plan asset returns, assumed discount rates and other factors related to the participants in the
Company’s Plan will impact the Company’s future net periodic benefit cost and liabilities. The Company cannot predict with
certainty what these factors will be in the future however they are not expected to have a material effect on the Company’s
operating results, financial position or cash flows.
Newly Issued Accounting Pronouncements
On April 10, 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-08, Reporting Discontinued
Operations and Disclosures of Disposals of Components of an Entity. The amendments in this accounting standard raise the
threshold for a disposal to qualify as a discontinued operation and requires new disclosures of both discontinued operations
and certain other disposals that do not meet the definition of a discontinued operation. This accounting standard update is
effective for annual periods beginning on or after December 15, 2014, and related interim periods with early adoption allowed.
F-13
The Company is currently evaluating the impact of this standard and plans to adopt this standard on the stated effective date in
fiscal year 2015.
On May 28, 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers. This accounting
standard creates common revenue recognition guidance for U.S. GAAP and IFRS. The guidance also requires improved
disclosures to help users of the financial statements better understand the nature, amount, timing and uncertainty of revenue
that is recognized. This accounting standard update is effective for annual reporting periods beginning after December 15,
2016, and related interim periods. Early adoption is not permitted. The Company is currently evaluating the impact of this
standard.
In August 2014, the FASB issued ASU Update No. 2014-15, Presentation of Financial Statements – Going Concern
(Subtopic 205-40) (Topic 718), Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. ASU
Update No. 2014-15 provides guidance related to management’s responsibility to evaluate whether there is substantial doubt
about the entity’s ability to continue as a going concern and to provide related footnote disclosures. The new requirements are
effective for the annual periods ending after December 15, 2016, and for interim periods and annual periods thereafter. Early
adoption is permitted. The Company is currently evaluating the impact of this standard and has elected to not adopt the standard
early.
NOTE 2 — DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE
Discontinued Operations – Waste Segment
On November 15, 2012, the Company completed a stock sale of Choice, and other acquired businesses, including
Lawson Sanitation LLC, Central Carting Disposal, Inc., FSR Transporting and Crane Services, Inc., that comprised the Waste
segment to Waste Services of Florida, Inc. for $123.3 million resulting in a gain of $13.8 million, net of tax. The Company
applied discontinued operations accounting treatment and disclosures related to this transaction. The stock purchase agreement
stipulated customary purchase price adjustments related to closing balance sheet working capital targets and in addition, that
$12.5 million of the purchase price consideration would be reserved and held back in escrow by the purchaser ("the holdback
amount") and paid subject to financial adjustments regarding defined long-term assets and 2012 third quarter EBITDA targets.
Management recorded the holdback amount in the calculation of the gain on sale of the Waste segment and the amount is
classified on the balance sheet as "Accounts receivable due from sale of discontinued operations" at December 31, 2012.
Proceeds from the holdback plus $0.1 million in working capital adjustments were received during the first half of 2013.
The following table presents summarized operating results for these discontinued operations for the fiscal years ended
2014, 2013 and 2012.
Revenue
Net (loss) income after taxes and 2012 gain on disposal of $13.8 million
$
- $
-
-
$
(2,516)
2014
2013
2012
60,874
7,599
Any corporate management overhead charged to the Waste segment in prior year filings has been included in
continuing operations in the periods subsequent to the discontinuance as the overhead amounts are not expected to change as a
result of the sale of the Waste segment. During fiscal year 2013, the Company incurred $2.5 million in expenses related to the
discontinued operation as follows: $0.5 million increase to retained worker’s compensation liabilities and $2.0 million in legal
fees and a settlement payment related to a contractual dispute involving one of the businesses sold that the Company accepted
responsibility to resolve as a term of the sales agreement.
Net cash of $2.1 million used in connection with discontinued operations for the twelve months ended December 31,
2014 principally represents payment for legal fees and the settlement of a contractual dispute that the Company accepted
responsibility to resolve as a part of the sale of the Waste segment. For the twelve months ended December 31, 2013, net cash
of $4.6 million used in connection with discontinued operations principally represents the payment of certain liabilities for
severance and professional fees, previously accrued as a part of the sale, as well as cash payments related to retained worker’s
compensation liabilities and litigation accruals. There were no cash inflows related to discontinued operations in 2014 or 2013.
F-14
Assets Held For Sale
During 2013, the Company commenced an active program to sell certain non-core assets and routes related to its linen
and dust operations. Additionally, in 2014 the Company ceased operations at a linen processing plant and in 2013 a chemical
manufacturing plant was closed in connection with the Company’s plant consolidation efforts. In accordance with ASC 360,
Property, Plant and Equipment, these assets were classified as assets held for sale in the Consolidated Balance Sheet and the
asset balances were adjusted to the lower of historical carrying amounts or fair values.
During 2014, the Company updated its estimates of the fair value of certain linen routes and operations to reflect
various events that occurred during the year. The cumulative impairment loss for the twelve months ended December 31, 2014
was $3.0 million, of which $1.9 million was attributable to a reduction in the estimate of net sales proceeds for a linen processing
operation. The factors driving the $1.9 million reduction were the cancellation notifications received during April and May
2014 from three major customers resulting in a significant loss of forecasted revenue; and the operation’s 2014 year-to-date
loss which was in excess of the Company’s estimates. The asset fair value of this linen processing operation was written down
to zero in the second quarter of 2014 and was closed during the fourth quarter of 2014.
The Company recorded impairment charges for the twelve months ended December 31, 2013 of $6.4 million. Included
in this charge is $3.1 million that was recorded during the fourth quarter of 2013 as follows: $2.0 million related to the Board
of Director’s approval, on November 8, 2013, of additional assets to be disposed of and the resultant adjustment of these assets
from net carrying value to fair value; $1.1 million impairment adjustments to existing assets held for sale to reflect reductions
in the estimated fair value as a result of events that occurred during the fourth quarter which indicated that the estimated net
selling prices will be less than anticipated at the end of the third quarter.
The Company completed several sales transactions during the twelve months ended December 31, 2014, which
resulted in the net receipt of $1.6 million in cash and the remainder in receivables. A loss on these sales of $0.9 million was
incurred and included a write-off of $0.6 million of the receivable balances. The receivable balances were primarily for
contingent sales proceeds that were based on post-closing revenues of previously sold routes which were lower than
estimated. The total loss of $0.8 million for the twelve months ended December 31, 2014, is included in “Other expense, net”
in the consolidated statement of operations and comprehensive loss.
The Company completed several sales transactions during the last half of 2013 totaling $6.3 million in net sales
proceeds including $0.6 million in receivable balances that were contingent primarily upon 2014 revenues generated by certain
of the sold assets during defined post-close periods. The resulting $0.2 million gain is included in “Other expense, net” in the
consolidated statement of operations and comprehensive loss.
There were no assets held for sale as of December 31, 2014. The major classes of assets held for sale as of December
31, 2013 are as follows:
Property and equipment, net
Goodwill
Customer relationships, net
Other, net
Total
December 31,
2013
$
$
2,410
1,272
833
5
4,520
None of the disposal groups that could be classified as discontinued operations were material, individually or in the
aggregate, to the Company’s consolidated financial statements and therefore these results were not separately classified in
discontinued operations. The remaining portfolio of assets held for sale did not meet the criteria for discontinued operations
as they did not represent operations and cash flows that are clearly distinguished, operationally and for financial reporting
purposes consistent with the Company’s strategy of integrating these acquired assets into its existing business
operations. Additionally, the Company anticipates maintaining continuing revenues with respect to a the majority of the sold
routes and/or customers through the sale of chemical, paper and its other core hygiene and sanitizing products and services.
F-15
NOTE 3 — ACQUISITIONS
2013 Acquisitions
During fiscal year 2013, the Company acquired a franchise located in Ottawa, Canada for $0.2 million primarily in
cash plus receivables, resulting in a $0.1 million addition to goodwill. This acquisition is immaterial to the Company’s
consolidated financial statements and therefore supplemental pro-forma information is not presented.
2012 Acquisitions
The following table summarizes the Company’s 2012 acquisitions and the estimated aggregate fair values of the assets
acquired and liabilities assumed at the date of acquisition:
Number of businesses acquired
Net assets acquired:
Accounts receivable and other assets
Inventory
Property and equipment
Other intangibles
Customer relationships
Non-compete agreements
Trademarks
Accounts payable and accrued expenses
Total net assets acquired
Goodwill
Total purchase price
Less: debt issued or assumed
Less: issuance of shares
Cash Paid
2012
4
263
86
2,085
1,276
120
130
(42)
3,918
1,550
5,468
(1,121)
(37)
4,310
$
$
During 2012, the Company acquired four independent businesses and purchased the remaining non-controlling interest
in one of its subsidiaries. The results of operations of these acquisitions have been included in the Company's consolidated
financial statements and include $3.1 million in revenue and the related loss was insignificant to the Company's overall net loss
from continuing operations. None of these acquisitions were significant individually or in the aggregate to the Company's
consolidated financial results and therefore, supplemental pro forma financial information is not presented.
NOTE 4 — PRIOR PERIOD RECLASSIFICATION
In the first quarter of 2014, the Company began implementing a realignment of its field service and sales organization
and as a result the primary function of certain job titles has shifted from primarily a sales, to a service focus. The additional
service activities involve more frequent field visits to perform preventative maintenance, repairs, evaluation of product and
service solutions and required inventory levels. This realignment of the field service and sales organization was implemented
in stages during 2014. Payroll expense related to these job titles was historically classified within “Selling, general and
administrative expenses” in the Consolidated Statement of Operations and Comprehensive Loss, based on the primary job
focuses of sales and administration. Based on the changes in the job functions, the related payroll expense is classified within
“Route expense”, which the Company defines as the employee costs incurred to provide service and deliver products to
customers. To facilitate comparability between the periods presented in the Condensed Consolidated Statements of Operations
and Comprehensive Loss for the twelve months ended December 31, 2013 certain selling, general and administrative expenses
have been reclassified to route expense to conform to the current period’s presentation which resulted in an $11.9 million
increase in route expense and a $11.9 million decrease in selling, general and administrative expense. The reclassification for
the twelve months ended December 31, 2012 resulted in a $12.5 million increase in route expense and a $12.5 million decrease
in selling, general and administrative expense. There was no impact to loss from continuing operations, net loss or loss per
share as a result of the 2013 and 2012 reclassifications.
F-16
NOTE 5 — GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other intangible assets have been recognized in connection with the Company’s acquisitions and
substantially all of the balance is expected to be fully deductible for income tax purposes over 15 years. Changes in the carrying
amount of goodwill during the years ended December 31, 2014 and 2013 were as follows:
Gross balance- beginning
Additions related to acquisitions (Note 3)
Adjustment to the lower of carrying or fair market value for Assets Held for Sale (Note 2)
Reclassification of goodwill to Assets Held for Sale (Note 2)
Dispositions (Note 2)
Gross balance – ending
Accumulated impairment loss
Net balance – ending
$
2014
$
5,821
-
-
-
-
2013
107,228
150
(4,703)
(2,790)
-
5,821
(5,821)
$
-
99,885
(94,064)
5,821
$
The Company’s accounting policy was to perform an annual goodwill impairment test in the fourth quarter or more frequently
whenever events or circumstances indicated that goodwill or the carrying value of intangible assets may not be recoverable. On
a quarterly basis, we monitor the key drivers of fair value to detect the existence of indicators or changes that would warrant
an interim impairment test for our goodwill and intangible assets. Due to a shortfall in sales compared to expectations in the
quarter ended June 30, 2014, the Company elected to bypass the qualitative analysis step and proceed directly to step 1 of the
goodwill impairment test. Step 1 of the goodwill impairment test was performed with the assistance of an independent valuation
specialist using the discounted cash flow method (“DCF”.) Based on this analysis, it was determined that the Company’s net
book value exceeded its fair value thereby necessitating the performance of step 2 of the goodwill impairment test. The decrease
in estimated fair value was driven by lower actual revenue compared to 2014 projections. The growth rates for the second half
of 2014 and the first half of 2015 were revised to reflect the lower revenue during the six months ended June 30, 2014. The
effect of these revisions resulted in a loss of estimated fair value resulting in a write-off of the remaining goodwill balance with
a non-cash impairment charge of $5.8 million during 2014.
In connection with its 2013 fourth quarter evaluation of goodwill, the Company elected to bypass the qualitative
analysis step and proceed directly to step 1 of the goodwill impairment test. This decision was based largely on the results of
the 2013 third quarter interim impairment test that indicated the Company’s goodwill was at high risk of impairment given the
narrow difference identified between fair value and book value. It was determined that the Company’s net book value exceeded
its fair value thereby necessitating the performance of step 2 of the goodwill impairment test. In performing Step 2 of the
impairment test, with the assistance of valuation specialists, we compared the implied fair value of the reporting unit’s goodwill
to its carrying value. This test resulted in a non-cash impairment charge of $93.2 million in 2013. The goodwill impairment
can be attributed to the Company’s history of operating losses and continued deterioration of its stock price.
We believe the cash flow projections and valuation assumptions used were reasonable and consistent with market
participants. The key variables that drive our cash flows are customer growth and attrition and operational efficiencies. The
terminal value growth rate assumption as well as the WACC rate both represent additional key variables in the DCF model. The
estimates and assumptions used are subject to uncertainty.
F-17
Other Intangible Assets
At December 31, 2014
Customer relationships
Non-compete agreements
Formulas
Trademarks/ Trade names
Total
At December 31, 2013
Customer relationships
Non-compete agreements
Formulas
Trademarks/ Trade names
Total
Weighted-
average
Amortization
Period (Years)
Carrying
Amount
Accumulated
Amortization
Net
$
8.9
4
20
(A)
$
$
8.9
4
20
(A)
$
50,635 $
9,098
4,544
2,151
66,428 $
(27,838) $
(8,032)
(767)
(340)
(36,982) $
50,635 $
9,098
4,544
2,059
66,336 $
(22,060) $
(6,380)
(545)
(340)
(29,325) $
22,792
1,066
3,777
1,811
29,446
28,575
2,718
3,999
1,719
37,011
(A) Consist of indefinite lived and finite lived intangible assets.
The fair value of the customer relationships acquired is based on future discounted cash flows expected to be generated
from those customers. These customer relationships will be amortized on a straight-line basis over five to ten years, which is
primarily based on historical customer attrition rates. The fair value of the non-compete agreements will be amortized on a
straight-line basis over the length of the agreements, typically with terms of five years or less. The fair value of formulas is
amortized on a straight-line basis over twenty years. As of December 31, 2012, all trademarks and trade names are considered
indefinite lived intangibles.
During 2013, approximately $2.5 million in customer relationships and non-compete assets were reclassified to assets
held for sale as further discussed in Note 3, “Discontinued Operations and Assets Held for Sale.” The Company recorded $0.6
million in impairment losses related to customer relationships and non-compete agreements that was recognized and included
in other expense, net.
Amortization expense was $7.7 million, $8.1 million, and $8.7 million for the years ended December 31, 2014, 2013
and 2012, respectively. At December 31, 2014, estimated future amortization of separately identifiable intangibles for each of
the next five years and thereafter is: 2015 -$6.3 million, 2016 - $4.2 million, 2017 - $3.5 million, 2018 - $3.5 million, 2019 -
$3.5 million and thereafter - $6.6 million.
NOTE 6 — INVENTORY
Inventory is comprised of the following components at December 31, 2014 and 2013:
Finished goods
Raw materials
Work in process
Total
December 31,
2014
2013
$
$
12,285
2,781
360
15,426
$
$
11,587
2,042
403
14,032
F-18
NOTE 7 — PROPERTY AND EQUIPMENT
Property and equipment, net as of December 31, 2014 and 2013 consist of the following:
Items in service
Equipment, laundry facility equipment and furniture
Vehicles
Computer equipment
Computer software
Building and leasehold improvements
Less accumulated depreciation and amortization
Property and equipment, net
December 31,
2014
2013
$
$
$
48,928
10,276
2,380
2,312
7,378
6,191
77,465
(40,428)
$
37,037
47,851
9,456
2,723
2,480
7,236
6,127
75,873
(32,031)
43,842
Depreciation and amortization expense on property and equipment for the years ended December 2014, 2013, and
2012 was $13.6 million, $14.0 million, and $12.3 million, respectively. The cost and accumulated depreciation of fully
depreciated assets are removed from the accounts when assets are disposed.
As of December 31, 2014 and 2013, computer software includes costs of $6.3 million and $6.1 million, respectively,
for upgrades to our enterprise reporting management system and the development of our technology platform for field service
operations, accounting, billing and collections. The accumulated depreciation was $5.0 million and $4.1 million as of December
31, 2014 and 2013, respectively. The weighted average amortization period for capitalized software costs is 7 years.
Depreciation and amortization expense for capitalized computer software costs was $0.9 million for each of the years ended
December 31, 2014, 2013, and 2012. At December 31, 2014, estimated amortization of computer software costs for each of the
next five years is: 2015 - $0.4 million, 2016 - $0.3 million, 2017 - $0.3 million, 2018 - $0.2 million, and $0.1 million thereafter.
As of December 31, 2014, property and equipment includes $0.4 million in recorded capital leases with $0.2 million
in accumulated depreciation. The gross amount of property and equipment recorded under capital leases consists of $0.2 million
in computers and $0.2 million in machinery and equipment. As of December 31, 2013, property and equipment includes $0.9
million recorded in capital leases with $0.4 million in accumulated depreciation. The gross amount of property and equipment
recorded under capital leases consists of $0.2 million in computers, $0.1 million in machinery and equipment and $0.6 million
in dish machines.
NOTE 8 — LONG-TERM DEBT AND OBLIGATIONS
The major components of debt as of December 31, 2014 and 2013 consist of the following:
Notes payable
Convertible promissory notes, 4.0%: maturing at various dates through 2016
Capitalized lease obligations and other financing
Total debt and obligations
Long-term debt and obligations due within one year
Long-term debt and obligations
December 31,
2014
2013
$
$
$
1,193
832
1,044
3,069
(1,884)
$
1,185
1,721
2,679
2,854
7,254
(5,251)
2,003
At December 31, 2014, principal debt payments due for each of the next five years and thereafter are: 2015 - $1.9 million, 2016
- $0.5 million, 2017 - $0.3 million, 2018 - $0.3 million, and thereafter – $0.1 million.
F-19
Acquisition Related Notes Payable
In connection with certain acquisitions, the Company incurred or assumed notes payable as part of the purchase price.
Two of the seller notes payable totaling $1.2 million as of December 31, 2014 are secured by letters of credit and the remaining
notes payable are secured by the Company. At December 31, 2014 and 2013, these obligations bore interest at rates ranging
between 3.7% and 4.0%.
Capital lease obligations and Other Financing
The Company has entered into capitalized lease obligations with third party finance companies to finance the cost of
certain dish machines. At December 31, 2014 and 2013, these obligations bore interest at rates ranging between 4.0% and
18.4%. The Company has also entered into notes payables with third party finance companies to pay various insurance
premiums. At December 31, 2014 and 2013, these obligations bore interest at rates ranging between 2.3% and 2.8%.
Convertible promissory notes
During 2012 and 2011, the Company issued eighteen convertible promissory notes with an aggregate principal value
of $10.9 million as part of total consideration paid for acquisitions that were recorded at fair value on the date of issuance. The
Company makes quarterly cash payments through each note’s maturity date. The ability to settle these notes with shares exist
at the Company’s election into a maximum of 2,823,853 shares of common stock. The Company may settle these notes at any
time prior to and including the maturity date any portion of the outstanding principal amount, plus accrued interest in a
combination of cash and shares of common stock. To the extent that the Company’s common stock is part of such settlement,
the settlement price is the most recent closing price of the Company’s common stock on the trading day prior to the date of
settlement. Although none of these notes have been settled to date with shares, if all notes outstanding at December 31, 2014
were to be settled with shares, the Company would issue approximately 444,886 shares of common stock. These notes do not
require remeasurement to fair value after the business combination dates.
During 2011, the Company issued two convertible promissory notes with an aggregate principal value of $3.4 million
as part of total consideration paid for acquisitions and were recorded at fair value on the date of issuance, maturing in 2012 and
2013. The holder was able to convert all or a portion of the principal and interest into shares of the Company’s common stock
at any time, but not later than the maturity date at a fixed conversion rate of $5.00 per share. In addition, the Company had the
option to deliver at any time prior to and including the maturity date any portion of the outstanding principal and accrued
interest in shares of common stock. The conversion price at which the principal and accrued interest subject to settlement would
be converted to common stock is the lesser of (i) the volume weighted average price for the five trading days on NASDAQ
immediately prior to the date of conversion, and (ii) the fixed conversion rate; provided, however, that the closing price per
share of common stock as reported on NASDAQ on the trading day immediately preceding the date of conversion was not less
than $5.00. The notes were convertible by the holder into a maximum 675,040 shares of the Company’s common stock although
conversion never occurred. The Company made the last required cash payment on these notes during the fourth quarter of
2012. These notes were carried at fair value and the Company adjusted their carrying value to fair value through operating
results as described further in Note 9, “Fair Value Measurements."
Equipment Financing
In August 2011, the Company entered into an agreement, which provided financing up to $16.4 million for new and
used trucks, carts, compactors, and containers for the Waste segment. The financing consisted of one or more fixed rate loans
that had a term of five years. The interest rate for borrowings under this facility was determined at the time of each such
borrowing and was based on a spread over the five year U.S. swap rate. The commitment letter had an expiration date of
February 2012, with a renewal option of six months, if approved. During 2011, the Company made borrowings of $8.9 million
at an average interest rate of 3.55%. Separately in August 2011, the Company entered into an agreement to finance new and
replacement vehicles for its fleet that allowed for one or more fixed rate loans totaling, in the aggregate, no more than $18.6
million. The commitment, which expired in June 2012, was secured by Waste segment’s vehicles and containers. The interest
rate for borrowings under this facility were determined at the time of the loan and were based on a spread above the U.S. swap
rate for the applicable term, either four or five years. Borrowings under this loan commitment were subject to the same financial
covenants as the $100.0 million credit facility discussed below and were $6.9 million during 2011. Borrowings under these
agreements were subsequently paid off using proceeds from the disposition of the Waste segment as discussed in Note 2,
“Discontinued Operations and Assets Held for Sale.”
F-20
2011 Revolving Credit Facilities
In March 2011, we entered into a $100.0 million senior secured revolving Credit Facility (the "Credit Facility"), which
replaced the Company’s former credit facilities. Under the Credit Facility, the Company had an initial borrowing availability
of $32.5 million, which increased to the fully committed $100.0 million upon delivery of our unaudited quarterly financial
statements for the quarter ended March 31, 2011 and satisfaction of certain financial covenants regarding leverage and coverage
ratios and a minimum liquidity requirement, which requirements we met as of March 31, 2011. Borrowings under the Credit
Facility were secured by a first priority lien on substantially all existing and subsequently acquired assets, including $25.0
million of cash on borrowings in excess of $75.0 million. Furthermore, borrowings under the facility were guaranteed by all
domestic subsidiaries and secured by substantially all assets and stock of domestic subsidiaries and substantially all stock of
foreign subsidiaries. Interest on borrowings under the Credit Facility typically accrued at London Interbank Offered Rate
(“LIBOR”) plus 2.5% to 4.0%, depending on the ratio of senior debt to “Adjusted EBITDA” (as such term is defined in the
credit facility, which included specified adjustments and allowances authorized by the lender). The Company also had the
option to request swingline loans and borrowings using a base rate. Interest was payable monthly or quarterly on all outstanding
borrowings.
Borrowings and availability under the Credit Facility were subject to compliance with financial covenants, including
achieving specified consolidated Adjusted EBITDA levels and maintaining leverage and coverage ratios and a minimum
liquidity requirement. The Credit Facility also placed restrictions on our ability to incur additional indebtedness, to make certain
acquisitions, to create liens or other encumbrances, to sell or otherwise dispose of assets, and to merge or consolidate with other
entities or enter into a change of control transaction. In August 2011, the Company entered into an amendment to the Credit
Facility that modified the covenants, including an increase in permitted new indebtedness to $40.0 million. The Credit
Facility was subject to other standard default provisions. During 2012, we amended our Credit Facility with Wells Fargo Bank,
National Association on each of April 12, 2012, May 15, 2012, June 28, 2012, July 30, 2012, August 31, 2012, September 27,
2012, and October 31, 2012, in each case, primarily to extend the dates by which we were required to file our 2011 Form 10-
K and Forms 10-Q for the quarters ended March 31, 2012, June 30, 2012 and September 30, 2012 and to avoid potential defaults
for not timely filing these reports. In addition, the August 31, 2012 amendment reduced the Company’s maximum borrowing
limit to $50.0 million, provided that the Company met certain borrowing base requirements. The September 27, 2012
amendment further reduced the Company’s maximum borrowing limit to $25.0 million, provided that the Company met certain
modified borrowing base requirements. The October 31, 2012 amendment required the Company to place certain amounts in a
collateral account under the sole control of the administrative agent to meet the Company’s unencumbered liquidity
requirements. In connection with the sale of our Waste segment on November 15, 2012, as discussed in Note 2 “Discontinued
Operations and Assets Held for Sale,” we paid off the Credit Facility which resulted in its termination.
2014 Revolving Credit Facility
On August 29, 2014, the Company entered into a $20.0 million revolving credit facility, through the execution of a
Loan and Security Agreement, by and among the Company, as Guarantor, and certain subsidiaries of the Company, collectively,
as Borrower, and Siena Lending Group LLC, as Lender (the “Credit Facility”). The Credit Facility matures on August 29,
2017. Interest on borrowings under the Credit Facility will accrue at the Base Rate plus 2.00% and will be payable
monthly. Base Rate is defined as the greater of (1) the Prime Rate, (2) the Federal Funds Rate plus 0.50%, or (3)
3.25%. Borrowings and availability under the Credit Facility are subject to a borrowing base and limitations, and compliance
with other terms specified in the agreement. Borrowings under the Credit Facility are secured by a first priority lien on certain
of the Company’s and its subsidiaries’ assets. The calculated borrowing base as of December 31, 2014 was $13.3 million, of
which $4.4 million was outstanding under letters of credit and $8.9 million was unused. The Credit Facility contains certain
customary representations and warranties, and certain customary covenants on the Company’s ability to, among other things,
incur additional indebtedness, create liens or other encumbrances, sell or otherwise dispose of assets, pay dividends, and merge
or consolidate with other entities or enter into a change of control transaction. The Credit Facility contains various events of
default. The Company was not in default with covenants under the Credit Facility as of December 31, 2014. As of March 30,
2015, the balance on the Credit Facility is $3.2 million.
NOTE 9 — FAIR VALUE MEASUREMENTS
The fair value of the above convertible promissory notes issued as part of acquisitions is based primarily on a Black-
Scholes pricing model. The significant management assumptions and estimates used in determining the fair value include the
expected term and volatility of the Company’s common stock. The expected volatility is based on an analysis of industry peer's
historical stock price over the term of the note, which is estimated at approximately 25.0%. The Company believes that using
a peer group stock volatility rate is appropriate given the Company’s relatively short history as a public company, which
involved a high growth phase and the audit committee investigation, discussed further in Note 16 “Commitments and
F-21
Contingencies,” which resulted in the delinquent filings of certain of the Company's financial statement filings with the SEC
related to 2011 and 2012. The convertible promissory notes 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.
In addition, during 2011, the Company issued an earn-out that was to be settled in up to 90,909 shares of common
stock held in escrow within one year from the date of acquisition or once the acquired business’s revenue achieves an agreed
upon level. In 2012, the Company released from escrow all 90,909 shares of common stock to the sellers. The following table
is a reconciliation of changes in fair value of the notes and contingent earn-outs that are required to be marked to market each
subsequent reporting period under generally acceptable accounting principles, and have been classified as Level 3 in the fair
value hierarchy for the years ended December 31, 2014 and 2013:
Balance at beginning of period
Settlement/conversion of convertible promissory notes
Balance at end of period
2014
2013
$
$
-
-
-
$
$
886
(886)
-
In connection with a distribution agreement entered into in December 2010, the Company provided a guarantee that
the distributor's 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 distributor's 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
a pre-designated amount. No value was assigned to the fair value of the guarantee at December 31, 2014 and December 31,
2013 based on a probability assessment of the projected cash flows. This liability would be considered a Level 3 financial
instrument given the unobservable inputs used in the projected cash flow model. There have been no transfers between Level
1, 2, and 3 financial instruments during the three years ended December 31, 2014.
Non-Recurring Fair Value Measurements
There were no assets held for sale at December 31, 2014. The asset held for sale balance at December 31, 2013 was
$4.5 million. Total impairment adjustments to the estimated fair value of the Company’s assets held for sale for the twelve
months ended December 31, 2014 and 2013 were $3.0 million and $6.4 million, respectively. Fair value is based on the
estimated net proceeds from the sale of the assets which are derived based on a number of factors; including standard industry
multiples of revenues or operating metrics and the status of ongoing sales negotiations and asset purchase agreements where
available. Our estimates of fair value are regularly reviewed and subject to changes based on market conditions, changes in
the customer base of the operations or routes and our continuing evaluation as to the facility's acceptable sale price. These
assets are measured using Level 3 inputs.
NOTE 10 — ADVANCES FROM SHAREHOLDERS
In August 2010, the Company borrowed $2.0 million for working capital purposes, pursuant to an unsecured note
payable to one of its shareholders that bore interest at the short-term Applicable Federal Rate. The note was paid in full
following the sale of the Waste segment which is discussed in Note 2 “Discontinued Operations and Assets Held for Sale”. As
of the date of the Merger, the Company had borrowed $21.4 million under an unsecured note payable to one of its shareholders.
The note bore interest at the one month LIBOR plus 2.0%. Interest accrued on the note was included in accrued expenses and
was $0.8 million as of the date of the Merger. These advances plus accrued interest were converted into equity upon completion
of the Merger.
NOTE 11 —OTHER RELATED PARTY TRANSACTIONS
The Company paid fees 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 former director and two former executives of the Company have a
controlling interest. Fees paid during fiscal years 2014, 2013 and 2012 were $0.1 million in each of the three years.
The Company purchased chemical products from an entity owned, in full or in part, by a Company
employee. Purchases were $5.4 million, $7.2 million and $7.4 million for the fiscal years ended 2014, 2013, and 2012,
respectively. At December 31, 2014 and 2013, the Company has $0.3 million and $0.6 million included in accounts payable
to these entities, respectively.
F-22
During the year ended December 31, 2014, the Company was obligated to make lease payments pursuant to certain
real property and equipment lease agreements with employees that were former owners of acquired companies. During 2014,
2013, and 2012, the Company paid $0.9 million, $1.2 million and $1.3 million, respectively, related to these leases.
In connection with the acquisition of Choice, we entered into capital leases that had initial terms of five or ten years
with companies owned by former shareholders of Choice, to finance the cost of leasing office buildings and properties,
including warehouses. The Company sold its Waste segment, which consisted principally of Choice, during the fourth quarter
of 2012, as more fully described in Note 2, “Discontinued Operations and Assets Held for Sale,” and in connection therewith
transferred all remaining capital lease obligations to the buyers.
NOTE 12 — INCOME TAXES
Net loss from continuing operations before income taxes for the years ended December 31, 2014, 2013 and
2012 includes:
Domestic
Foreign
$
2014
(42,457) $
(4,440)
2013
(152,061) $
(1,065)
2012
(61,400)
(622)
Net loss from continuing operations before income taxes
$
(46,897) $
(153,126) $
(62,022)
The components of the income tax (benefit) expense on continuing operations for the years ended December 31, 2014,
2013 and 2012 includes:
Current Federal, state and foreign
Deferred:
Federal and state
Foreign
Total income tax (benefit) expense
2014
2013
2012
2 $
(41) $
383
13
(104)
(89) $
(2,596)
43
(2,594) $
18,565
(195)
18,753
$
$
A reconciliation of the statutory U.S. Federal income tax rate to the Company’s effective income tax rate applicable
to continuing operations for the years ended December 31, 2014, 2013, and 2012 is as follows:
U.S. Federal statutory rate
State and local taxes, net of Federal benefit
Goodwill impairment
Other permanent expenses
Change in valuation allowance
Effective income tax rate
2014
2013
2012
35 %
3
(1)
(1)
(36)
- %
35 %
3
(3)
-
(33)
2 %
35 %
3
-
-
(68)
(30) %
F-23
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 from
continuing operations are as follows:
Deferred tax assets
Basis difference in goodwill
Net operating loss carryforward
Basis difference in other intangible assets
Stock based compensation
Allowance for uncollectible receivables
State basis difference in property and equipment
Inventory
Accrued liabilities
Other
Total deferred income tax assets
Valuation allowance
Net deferred tax assets
Deferred tax liabilities
Basis difference in property and equipment
Total deferred tax liabilities
$
2014
2013
$
26,449
55,862
3,462
3,498
1,184
890
550
1,827
127
93,849
(86,784)
7,065
29,040
39,772
2,838
3,382
908
916
1,559
2,205
127
80,747
(71,363)
9,384
7,089
7,089
9,502
9,502
Total net deferred income tax liabilities
$
24
$
118
The net deferred income tax liability of $0.1 million as of December 31, 2014 consists of the current asset of $0.5
million and non-current liability of $0.6 million. The net deferred income tax liability of $0.1 million as of December 31, 2013
consists of the current asset of $0.9 million and non-current liability of $1.0 million.
For the year ended December 31, 2013, there was a deferred tax liability associated with excess book over tax goodwill
as it relates to the Company’s Canadian subsidiary. As goodwill is considered to be an indefinite lived intangible, this
associated deferred tax liability is not allowed to be netted with other deferred tax assets in determining the need for a valuation
allowance. This resulted in an overall net deferred tax liability after applying the valuation allowance.
Due to the impairment of goodwill for book purposes as of June 30, 2014, a deferred tax asset exists related to goodwill
for the Canadian subsidiary. Given the change from 2013 to 2014, from a deferred tax liability to a deferred tax asset, a tax
benefit for 2014 of approximately $0.1 million was recognized.
On September 13, 2013 the U.S. Department of the Treasury issued final regulations that provide guidance on
capitalization of tangible property. These regulations will result in our adoption of certain accounting method changes with
respect to property and equipment, inventory and supplies. We are currently analyzing these accounting method changes,
which will be adopted during the 2015 tax year, but we do not believe they will have a material impact on the consolidated
financial statements.
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. During the twelve month period ended December 31, 2014, the Company concluded that the likelihood of realization
of the benefits associated with its U.S. deferred tax assets does not reach the level of more likely than not. As a result, the
Company continues to recognize a full valuation allowance on all U.S. deferred tax assets as of at December 31, 2014. As of
each reporting date, the Company will consider new evidence, both positive and negative, that could impact its view with
regard to future realization of deferred tax assets. The Company does not consider the deferred tax liabilities related to
indefinite lived intangible assets when determining the need for a valuation allowance.
At December 31, 2014 and 2013, net operating loss (“NOL”) carryforwards for federal income tax purposes were
$145.9 million and $104.4 million. The Federal NOL’s will begin to expire in 2030 and the various state NOL’s will begin to
expire between the years 2025 and 2030.
F-24
We have no recorded uncertain tax positions, therefore, there would be no impact to the effective tax rate. 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, 2014 and 2013 or during the three year period ended
December 31, 2014. The tax years ended December 31, 2011 through December 31, 2014 are considered to be open under
statute and therefore may be subject to examination by the Internal Revenue Service and various state jurisdictions. We do not
expect the unrecognized tax benefits to change significantly over the next 12 months.
NOTE 13 — EQUITY MATTERS
Comprehensive Loss
A summary of the changes in each component of accumulated other comprehensive loss for the year ended December
31, 2014 is provided below:
Balance at December 31, 2013
Current period other comprehensive loss
Balance at December 31, 2014
Stock Based Compensation
Foreign
Exchange
Defined
Benefit Plan
Total
$
$
(94) $
(31)
(125) $
(435) $
(747)
(1,182) $
(529)
(778)
(1,307)
In November 2010, our board of directors approved, subject to shareholder approval, the Swisher Hygiene Inc. 2010
Stock Incentive Plan (the “SIP Plan”) to attract, retain, motivate and reward key officers and employees. The SIP Plan, which
was approved by shareholders in May 2011 allows for the grant of stock options, restricted stock units and other equity
instruments up to a total of 1,140,000 shares of the Company’s common stock.
All options are exercisable at a price equal to the closing market value of the Company’s common stock on the date
immediately preceding the grant. Options generally vest in four equal annual installments beginning on the first anniversary
of the grant date and generally expire ten years from the date of grant. Restricted stock units are issued at the closing market
value of the Company’s common stock on the date immediately preceding the grant and generally vest over four years with the
first vesting occurring twelve months after the award and the remaining vesting occurring on the subsequent anniversary dates
of the award. Recipients of both options and restricted stock units may not sell or transfer their shares until the recipient
receives the shares underlying the award.
Stock Option Activity
A summary of the Company’s stock option activity and related information for 2014 and 2013 is as follows:
Balance at December 31, 2012
Options granted
Options cancelled
Options exercised
Balance at December 31, 2013
Options granted
Options cancelled
Options exercised
Balance at December 31, 2014
Outstanding Options
Number of
Options
Weighted
Average
Exercise Price
Weighted
Average
Remaining
Contractual
Term (in
years)
Aggregate
Intrinsic
Value (in
millions)
$
305,366
321,632
$
(101,118) $
-
$
525,880
378,000
$
(194,634) $
-
$
709,246
43.84
7.89
46.14
22.05
4.10
18.00
13.59
8.66
$
Expected to Vest after December 31, 2014
Exercisable at December 31, 2014
138,094
153,924
$
$
12.21
33.85
8.47
7.05
$
$
F-25
-
-
-
The aggregate intrinsic value represents the value of the Company’s closing stock price on the last trading day of the
fiscal period in excess of the weighted average exercise price multiplied by the number of options outstanding or
exercisable. Total intrinsic value of options at time of exercise was $0.0 million, $0.0 million and $0.2 million for 2014, 2013
and 2012, respectively. The weighted average grant-date fair value of options granted was $1.47, $2.80 and $7.20 for 2014,
2013 and 2012, respectively.
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 November 2, 2010, the
Merger date. At December 31, 2012, 17,500 options remain outstanding and exercisable at a weighted average price of $7.89,
weighted average remaining contractual life of 1.6 years and an aggregate intrinsic value of $0.2 million. At December 31,
2013, 17,500 options remain outstanding and exercisable at a weighted average price of $7.89, weighted average remaining
contractual life of 0.6 years and an aggregate intrinsic value of $0.0 million. At December 31, 2014, 6,000 options remain
outstanding and exercisable at a weighted average price of $11.50, weighted average remaining contractual life of 0.2 years
and an aggregate intrinsic value of $0.0 million.
The exercise prices for options granted during 2014 and 2013 ranged from $4.04 to $4.80 per share and $5.90 to $9.30
per share, respectively.
Restricted Stock Units
A summary of the Company’s restricted stock activity for 2014 and 2013 is as follows:
Balance at December 31, 2012
Granted
Vested
Forfeited
Balance at December 31, 2013
Granted
Vested
Forfeited
Balance at December 31, 2014
Stock Based Compensation
Number of
Restricted
Stock Units
Weighted -
Average
Grant Date
Fair Value
Aggregate
Intrinsic
Value (in
millions)
89,660 $
32,229 $
(66,921) $
(16,782) $
38,186 $
53,873 $
(73,786) $
(11,507) $
6,766 $
51.47
$
12.32
31.57
40.53
56.06
$
3.71
17.67
42.26
$
81.38
1.6
0.2
-
Stock based compensation cost for stock options as calculated by the Company using Black-Scholes option-pricing
model with the following assumptions:
2014
2013
2012
Expected dividend yield
Risk free interest rate
Expected volatility
Expected life (years)
-
-
1.9% - 2.0% 1.5% - 1.9 % 0.9% - 1.2%
30.70%
6.25
32.70%
6.25
30.70 %
6.25
-
The expected dividend yield was assumed to be zero as we have not paid, and do not anticipate paying, cash dividends
on our shares of common stock. 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 was based on an analysis of industry peers historical stock price
and the terms of the equity awards. The Company believes that using a peer group stock volatility rate is appropriate given the
Company’s relatively short history as a public company, which involved a high growth phase and the audit committee
investigation discussed further in Note 15 “Commitments and Contingencies,” both of which occurred in 2012. 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 estimated turnover by
relevant employee categories. The Company recognizes stock based compensation on a straight line basis over the requisite
service period.
F-26
For the years ended December 31, 2014, 2013 and 2012, the Company recognized stock based compensation expense
of $1.7 million, $2.9 million and $3.5 million, respectively, in the consolidated statements of operations for both stock options
and restricted stock units. At December 31, 2014, the total unrecognized compensation costs related to outstanding stock
options and restricted stock units is $1.0 million.
Subsequent to the Company’s notification from NASDAQ in June of 2013, that indicated the Company had completed
all outstanding filing requirements and had regained compliance with NASDAQ listing rules, the Company was in a position
to settle previously vested RSUs. During 2013, the Company issued the underlying 832,819 shares of common stock and
withheld 274,061 shares to cover the required statutory withholding tax totaling $0.2 million, which was determined based on
the closing price of our common stock on the date of issuance. These shares are considered retired under the provisions of the
Swisher Hygiene Inc. 2010 Stock Incentive Plan. See Note 16, "Commitments and Contingencies" - in the Other Related
Matters section.
NOTE 14 — RETIREMENT PLAN
An acquired subsidiary of CoolBrands maintained a defined benefit pension plan (the "Plan") covering substantially
all salaried and certain executive employees. Subsequent to the acquisition of this subsidiary in 2000 by CoolBrands, 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 $0.6 million.
The following table reconciles the changes in benefit obligations and Plan assets as of December 31, 2014 and 2013
and reconciles the funded status to accrued benefit cost at December 31, 2014 and 2013:
At December 31, 2012
Interest cost
Actuarial gain
Benefit payments
At December 31, 2013
Interest cost
Actuarial loss
Benefit payments
At December 31, 2014
At December 31, 2012
Actual return on plan assets
Employer contributions
Benefit payments
At December 31, 2013
Actual return on plan assets
Employer contributions
Benefit payments
At December 31, 2014
Benefit
Obligation (In
thousands)
$
$
3,421
125
(353)
(117)
3,076
139
697
(117)
3,795
Plan Assets
(In thousands)
$
$
2,045
272
21
(117)
2,221
108
98
(117)
2,310
As of December 31, 2014 and 2013, the net underfunded status of the defined benefit plan is $1.5 million and $0.8
million, respectively, which is recognized as accrued benefit cost in other long-term liabilities on the Consolidated Financial
Statements. Unrecognized (gains) losses recorded in accumulated other comprehensive loss in the consolidated financial
statements were ($1.2) million, ($0.5) million and $0.1 million for the periods ended December 31, 2014, 2013 and 2012,
respectively.
F-27
The following table provides the components of the net periodic benefit cost (income) for each of the respective fiscal years:
Interest cost
Expected return on Plan assets
Recognized net actuarial loss
Net periodic benefit cost (income)
2014
2013
2012
$
$
139 $
(166)
8
(19) $
125
$
(149)
27
3
$
131
(138)
21
14
The key assumptions used in the measurement of the benefit obligation are the discount rate and the expected return
on Plan assets for each of the respective years are:
Discount rate
Expected return on Plan assets
2014
2013
2012
3.8%
7.5%
4.6 %
7.5 %
3.7%
7.5%
The rate used to discount pension benefit plan liabilities was based on the Citigroup Pension Discount Curve at
December 31, 2014 and 2013. 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, 2014, the Company expects that there will be minimum
regulatory funding requirements of $0.1 million that will need to be made during fiscal 2015.
Expected benefit payments under the Plan over future years are: 2015 - $0.1 million, 2016 - $0.2 million, 2017 - $0.2
million, 2018 - $0.2 million, 2019 - $0.2 million and 2020 to 2024 – $1.0 million.
Plan Assets
The Company’s 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 Company’s allocation of Plan assets and
target allocations are as follows:
Equities:
U. S.
International
Fixed Income:
U. S.
International
Cash, cash equivalents and other
Total
Fair Value Measurements
Level 1 as of December 31,
2014
2013
$
$
$
1,116
337
560
82
215
2,310
$
1,205
340
554
81
51
2,231
The U.S. and International equities are actively traded on a public exchange and are considered Level 1 assets. 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,
2014 or 2013. There were no significant transfers between Level 1, 2, or Level 3 during the fiscal years 2014 or 2013. See
Note 1, “Operations and Summary of Significant Accounting Policies,” for a description of the fair value hierarchy.
F-28
NOTE 15 — LOSS PER SHARE
Basic net loss from continuing operations and discontinuing operations attributable to common stockholders per
share is computed by dividing the applicable net loss attributable to common stockholders by the weighted average number of
common shares outstanding during the period. Shares of common stock underlying outstanding stock options of which the
market price of the common stock is lower than the exercise price of the related options were not considered for any dilutive
earnings per share calculation. Shares of common stock underlying unvested restricted stock awards of 6,766, 38,234 and
395,180 were not included in the computation of diluted loss per share for 2014, 2013 and 2012, respectively, as their inclusion
would be anti-dilutive.
NOTE 16 — COMMITMENTS AND CONTINGENCIES
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.
Securities Litigation
Between March 30, 2012 and May 24, 2012, six stockholder lawsuits were filed in federal courts in North Carolina
and New York asserting claims relating to the Company's March 28, 2012 announcement regarding the Company's Board’s
conclusion that the Company's previously issued interim financial statements for the quarterly periods ended March 31, 2011,
June 30, 2011 and September 30, 2011, and the other financial information in the Company's quarterly reports on Form 10-Q
for the periods then ended, should no longer be relied upon and that an internal review by the Company's Audit Committee
primarily relating to possible adjustments to the Company's financial statements was ongoing.
On March 30, 2012, a purported Company stockholder commenced a putative securities class action on behalf of
purchasers of the Company's common stock in the U.S. District Court for the Southern District of New York against the
Company, the former President and Chief Executive Officer ("former CEO"), and the former Vice President and Chief Financial
Officer ("former CFO"). The plaintiff asserted claims alleging violations of Sections 10(b) and 20(a) of the Securities Exchange
Act of 1934 (the "Exchange Act") based on alleged false and misleading disclosures in the Company's public filings. In April
and May 2012, four more putative securities class actions were filed by purported Company stockholders in the U.S. District
Court for the Western District of North Carolina against the same set of defendants. The plaintiffs in these cases asserted claims
alleging violations of Sections 10(b) and 20(a) of the Exchange Act based on alleged false and misleading disclosures in the
Company's public filings. In each of the putative securities class actions, the plaintiffs sought damages for losses suffered by
the putative class of investors who purchased the Company’s common stock.
On May 21, 2012, a stockholder derivative action was brought against the Company's former CEO and former CFO
and the Company's then directors for alleged breaches of fiduciary duty by another purported Company stockholder in the
Southern District of New York. In this derivative action, captioned Arsenault v. Berrard, et al., 1:12-cv-4028, the plaintiff seeks
to recover for the Company damages arising out of the then possible restatement of the Company's financial statements.
On May 30, 2012, the Company, its former CEO and former CFO filed a motion with the United States Judicial Panel
on Multidistrict Litigation ("MDL Panel") to centralize all of the cases in the Western District of North Carolina by requesting
that the actions filed in the Southern District of New York be transferred to the Western District of North Carolina. In light of
the motion to centralize the cases in the Western District of North Carolina, the Company, its former CEO and former CFO
requested from both courts a stay of all proceedings pending the MDL Panel's ruling. On June 4, 2012, the Southern District
of New York adjourned all pending dates in the cases in light of the motion to transfer filed before the MDL Panel. On June
13, 2012, the Western District of North Carolina issued a stay of proceedings pending a ruling by the MDL Panel.
On August 13, 2012, the MDL Panel granted the motion to centralize, transferring the actions filed in the Southern
District of New York to the Western District of North Carolina as part of MDL No. 2384, captioned In re Swisher Hygiene,
Inc. Securities and Derivative Litigation. In response, on August 21, 2012, the Western District of North Carolina issued an
order governing the practice and procedure in the actions transferred to the Western District of North Carolina as well as the
actions originally filed there. On October 18, 2012, the Western District of North Carolina held an Initial Pretrial Conference
at which it appointed lead counsel and lead plaintiffs for the securities class actions, and set a schedule for the filing of a
consolidated class action complaint and defendants' time to answer or otherwise respond to the consolidated class action
complaint. The Western District of North Carolina stayed the Arsenault derivative action pending the outcome of the securities
class actions.
F-29
On April 24, 2013, lead plaintiffs filed their first amended consolidated class action complaint (the "Class Action
Complaint") asserting similar claims as those previously alleged as well as additional allegations stemming from the Company's
restated financial statements. The Class Action Complaint also named the Company's former Senior Vice President and
Treasurer as an additional defendant who was later dismissed from the case. On June 24, 2013, defendants moved to dismiss
the Class Action Complaint. Briefing on the motions to dismiss was completed on August 9, 2013.
Although the Company believed it had meritorious defenses to the asserted claims in the securities class actions in the
United States, the defendants and plaintiffs agreed to the terms of a settlement and on February 5, 2014 executed a settlement
agreement that, following approval by the Western District of North Carolina, would resolve all claims in the securities class
actions pending there (the "Settlement"). The Settlement provided that the defendants would make a set cash payment totaling
$5,500,000, all from insurance proceeds, to settle all of the securities class actions, and full and complete releases would be
provided to defendants. On March 11, 2014, the Western District of North Carolina issued a preliminary order approving the
Settlement, and scheduled a hearing for August 6, 2014. That same day, the Western District of North Carolina also issued an
order terminating defendants’ pending motions to dismiss the Class Action Complaint as moot in light of the Settlement. On
August 6, 2014, following a hearing, the Western District of North Carolina approved the Settlement, and issued an Order and
Final Judgment that, among other things, dismissed the securities class actions pending in the United States with prejudice and
provided for full and complete releases to defendants. The Arsenault derivative action is still pending.
On June 11, 2013, an individual action was filed in the U.S. District Court for the Southern District of Florida captioned
Miller, et al. v. Swisher Hygiene, Inc., et al., No. 0:13-CV-61292-JAL, against the Company, its former CEO and former CFO,
and a former Company director, bringing state and federal claims founded on the allegations that in deciding to sell their
company to the Company, plaintiffs relied on defendants' statements about such things as the Company's accounting and
internal controls, which, in light of the Company’s restatement of its financial statements, were false. On July 17, 2013, the
Company notified the MDL Panel of this action, and requested that it be transferred and centralized in the Western District of
North Carolina with the other actions pending there. On July 23, 2013, the MDL Panel issued a Conditional Transfer Order
(the "Miller CTO"), conditionally transferring the case to the Western District of North Carolina. On July 29, 2013, plaintiffs
notified the MDL Panel that they would seek to vacate the Miller CTO. In light of the proceedings in the MDL Panel, defendants
requested that the Southern District of Florida stay all proceedings pending the MDL Panel's ruling. On August 6, 2013, the
Southern District of Florida issued a stay of all proceedings pending a ruling by the MDL Panel. On October 2, 2013, following
briefing on the issue of whether the Miller CTO should be vacated, the MDL Panel issued an order transferring the action to
the Western District of North Carolina. The Company and the individual defendants filed motions to dismiss the complaint on
March 20, 2014. Briefing on the motions to dismiss was completed on May 12, 2014. On June 2, 2014, plaintiffs filed a
motion with the Western District of North Carolina seeking a suggestion for remand from that Court to the MDL Panel. Briefing
on that motion was completed on June 26, 2014. Oral argument on the motions to dismiss and motion for suggestion for remand
were heard on July 22, 2014. On August 5, 2014, the Western District of North Carolina denied plaintiffs' motion for
suggestion for remand. On October 22, 2014, the Company filed a notice of supplemental authority in support of its motion to
dismiss the complaint in this action. On November 4, 2014, plaintiffs filed a response to the notice of supplemental authority.
On July 11, 2013, a purported stockholder filed a derivative action on behalf of the Company in the General Court of
Justice, Superior Court Division in the State of North Carolina, Mecklenburg County, captioned Borthwick v. Berrard, et. al.,
No. 13-CVS-12397. The action asserted claims against the Company as a nominal defendant, its former CEO and former CFO,
and certain former and current Company directors for breaches of fiduciary duties, gross mismanagement, abuse of control,
waste of corporate assets, and aiding and abetting thereof in connection with the Company's restatement of its financial
statements. Among other things, the action sought damages on behalf of the Company and an order directing the Company to
implement corporate governance reforms. On August 7, 2013, the Company filed a notice to remove the action from the General
Court of Justice, Superior Court Division in the State of North Carolina, Mecklenburg County to the Western District of North
Carolina. On August 30, 2013, the Company moved to consolidate this action with the actions previously consolidated before
the Western District of North Carolina, and to stay the action. On September 25, 2013, the Western District of North Carolina
granted the Company's motion to consolidate and stay the action. On October 23, 2014, following its approval of the settlement
of the securities class actions, the Western District of North Carolina set a briefing schedule whereby the Company, as nominal
defendant, filed a motion to dismiss the derivative action on November 4, 2014. Pursuant to the schedule, the remaining
defendants did not need to file any motions to dismiss until after the Court ruled on the Company's motion. On December 10,
2014, the parties filed a Stipulation and Proposed Order for the dismissal of the complaint filed in this action with prejudice. On
December 11, 2014, the Western District of North Carolina issued an order dismissing the Borthwick action with prejudice.
F-30
On December 17, 2013, a purported stockholder commenced a putative securities class action on behalf of purchasers
of the Company's common stock on the Toronto Stock Exchange or any other Canadian trading platforms in the Ontario
Superior Court of Justice, captioned Edwards v. Swisher Hygiene, Inc., et al., CV 13-20282 CP, against the Company, the
former CEO and former CFO. The action alleges claims under Canadian law for alleged misrepresentations of the Company's
financial position relating to its business acquisitions. On February 13, 2014, a Fresh Statement of Claim and Fresh Notice of
Action were filed, adding an additional named plaintiff. On March 28, 2014, another purported stockholder commenced a
putative securities class action on behalf of purchasers of the Company's common stock on the Toronto Stock Exchange or any
other Canadian trading platforms in the Ontario Superior Court of Justice, captioned Phillips v. Swisher Hygiene, Inc., et al.,
CV 14-00501096-0000, against the Company, the former CEO, the former CFO and the Company's former Senior Vice
President and Treasurer. The action alleges claims under Canadian law stemming from the Company's restatement.
Although the Company believed it had meritorious defenses to the asserted claims in the two securities class actions
pending in Canada, the defendants agreed to terms of settlement and executed a settlement agreement resolving all claims in
both securities class actions pending there, which was approved by the Ontario Superior Court of Justice by Order dated
February 13, 2015 (the "Canadian Settlement"). The Canadian Settlement provides that defendants will make a set cash
payment totaling $0.7 million, including legal fees, all from insurance proceeds, to settle all of the Canadian securities class
actions, with full and complete releases provided to the defendants. Notice has been given of the Canadian Settlement.
Other Matters
The Company was contacted by the staff of the Atlanta Regional Office of the SEC and by the United States Attorney's
Office for the Western District of North Carolina (the "U.S. Attorney's Office") after publicly announcing the Audit
Committee's internal review and the delays in filing our periodic reports. The Company has been asked to make certain
individuals available and to provide certain information about these matters to the SEC and the U.S. Attorney's Office. The
Company is fully cooperating with the SEC and the U.S. Attorney's Office. Any action by the SEC, the U.S. Attorney's Office
or other government agency could result in criminal or civil sanctions against the Company and/or certain of its current or
former officers, directors or employees.
Purchase Obligations and Leases
In connection with a distribution agreement entered into in December 2010, the Company provided a guarantee that
the distributor's 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 distributor's 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
a pre-designated amount. As discussed in Note, 9 “Fair Value Measurements” no value was assigned to the fair value of the
guarantee at December 31, 2014 and December 31, 2013 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.
The Company entered into a Manufacturing and Supply Agreement (the "Cavalier Agreement") with another plant in
conjunction with its acquisition of Sanolite in July of 2011. The Cavalier Agreement, which was scheduled to expire on
December 31, 2012, was extended for an additional two year period with an automatic 18-month renewal term and a 6-month
termination option. The Cavalier Agreement provides for pricing adjustments, up or down, on the first of each month based
on the vendor's actual average product costs incurred during the prior month. Additional product payments made by the
Company due to pricing adjustments under the Cavalier Agreement have not been significant and have not represented costs
materially above the market price for such products. The Cavalier Agreement was terminated in September 2014 pursuant to
the terms of the agreement.
The Company leases its headquarters and other facilities, equipment and vehicles under operating leases that expire
at varying times through 2024. 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, 2014 are: 2015 - $5.8 million, 2016 - $4.8 million , 2017 - $3.5 million,
2018 - $2.5 million, 2019 - $2.3 million, and thereafter - $2.3 million.
Total rent expense for operating leases, including those with terms of less than one year was $6.5 million, $6.3 million
and $6.2 million for the years ended December 31, 2014, 2013 and 2012, respectively.
F-31
NOTE 17 — OTHER EXPENSE, NET
Other expense consists of the following for the years ended December 31, 2014, 2013 and 2012:
Interest Income
Interest Expense
Realized and unrealized gain/(loss) on fair value of convertible notes
Earn-out
Foreign Currency
Loss from impairment
Other
Total other expenses
2014
2013
2012
$
$
9 $
(387)
-
-
(167)
-
(1,118)
(1,663) $
41
$
(485)
-
-
(5)
-
(205)
(654) $
75
(3,406)
66
170
(15)
(507)
524
(3,093)
“Other” primarily consists of the loss related to the sale of assets held for sale for the years ended December 31, 2014
and 2013 as described further in Note 2, “Discontinued Operations and Assets Held for Sale”. During fiscal year 2012, a fire
occurred at a linen warehouse of one of the Company’s subsidiaries in Tampa, Florida. The fire heavily damaged the leased
building and its contents requiring the building to be demolished. After consideration of the insurance recoveries received, we
recorded a gain in other (expense), net on the involuntary conversion of assets of approximately $0.6 million in the fourth
quarter of 2012.
NOTE 18 — GEOGRAPHIC INFORMATION
The following table includes our revenue from geographic locations for the years ended December 31, 2014, 2013,
and 2012 were:
Geographic Information
Revenue
United States
Canada
Total revenue
2014
2013
2012
$
$
184,854 $
8,903
193,757 $
203,453
10,235
213,688
$
$
220,624
9,897
230,521
The following table summarizes our foreign long-lived assets, which relate to our Canadian subsidiaries, as of
December 31, 2014 and 2013:
Long-Lived Assets
Property and equipment, net
Goodwill
Other intangibles, net
2014
2013
$
$
$
739
-
528
$
$
$
589
3,291
1,478
F-32
NOTE 19 — QUARTERLY FINANCIAL DATA (UNAUDITED)
2014
Revenue
Gross profit (1)
Loss from continuing operations
Net loss from continuing operations
Basic and diluted loss per share
2013
Revenue
Gross profit (1)
Loss from operations
Net loss from continuing operations
Basic and diluted loss per share
First Quarter
$
48,295
$
26,483
$
$
(13,038) $
$
(13,792) $
$
(0.78) $
$
Second
Quarter
Third Quarter
Fourth
Quarter
$
49,955
26,982
$
(14,706) $
(15,147) $
(0.86) $
49,650 $
26,979 $
(7,613) $
(7,776) $
(0.44) $
$
45,857
24,212
$
(9,877) $
(10,093) $
(0.56) $
Year
193,757
104,656
(45,234)
(46,808)
(2.64)
$
$
$
$
$
$
52,022
29,457
$
(16,742) $
(17,240) $
(0.98) $
$
55,386
30,987
$
(14,456) $
(14,885) $
(0.88) $
55,916 $
30,682 $
(12,778) $
(13,192) $
(0.75) $
50,364
26,977
213,688
$
$
118,103
(108,496) $ (152,472)
(105,215) $ (150,532)
(8.55)
(5.94) $
(1) Revenue less cost of sales, which is exclusive of route expense and related depreciation and amortization.
The following non-recurring transactions occurred during the fourth quarter of fiscal year 2013: (i) a $93.2 million
non-cash goodwill impairment charge recorded in conjunction with the performance of the Company’s annual impairment test
that is further described in Note 5, “Goodwill and Other Intangibles” in the Notes to the Consolidated Financial Statements and
(ii) a $3.1 million impairment charge related to assets held for sale that is further described in Note 2, Discontinued Operations
and Assets Held for Sale,” in the Notes to the Consolidated Financial Statements.
NOTE 20 – SUBSEQUENT EVENT
During March 2015, the Board of Directors of the Company approved a board resolution to sell its remaining non-core linen
operation. During the first quarter of 2015, in accordance with ASC 360, Property, Plant and Equipment, these assets will be
classified as assets held for sale and will be adjusted to the lower of historical carrying amount or fair value. The estimated
fair value is derived based on the assessment of potential net selling prices. The carrying value of the assets will be compared
to the estimated fair value and if applicable, any write down will be recognized in the first quarter of 2015. The Company
expects the linen operation will be sold in the second quarter of 2015. The carrying value of the major classes of the assets are
as follows:
Accounts receivable, net
Property and equipment, net
Customer relationships, net
Other intangibles, net
Total
December 31,
2014
445
1,957
477
330
3,209
$
On March 26, 2015, the Company entered into a letter agreement, dated as of March 25, 2015 ("Letter Agreement"),
with its lender, Siena Lending Group LLC, in respect of the occurrence of a Springing DACA Event, as such term is defined
in the Credit Facility. The Letter Agreement temporarily waives, until April 10, 2015, certain cash management requirements
and certain enhanced reporting requirements that would otherwise go into effect upon the occurrence of a Springing DACA
Event.
F-33
CONSOLIDATED FINANCIAL STATEMENT SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED DECEMBER 31, 2014
In thousands
31-Dec-14
Allowances for receivables
Other allowances
31-Dec-13
Allowances for receivables
Other allowances
31-Dec-12
Allowances for receivables
Other allowances
Balance at the
Beginning of
the Year
Charged to
Costs and
Expenses
Deductions
from
Allowance
Balance at the
End of the
Year
$
$
$
$
$
$
1,999
892
2,891
2,335
437
2,772
2,185
471
2,656
$
$
$
$
$
$
196 $
-
196 $
936 $
455
1,391 $
2,396 $
-
2,396 $
1,219
76
1,295
1,272
-
1,272
2,246
34
2,280
$
$
$
$
$
$
976
816
1,792
1,999
892
2,891
2,335
437
2,772
F-34
EXHIBIT INDEX
Description
Second Amendment to Employment Agreement by and between Swisher Hygiene Inc. and William M. Pierce,
dated January 31, 2015.
Letter Agreement, dated as of March 25, 2015, by and among Siena Lending Group LLC and the Borrowers
listed thereto.
Subsidiaries of Swisher Hygiene Inc.
Consent of BDO USA, LLP.
Section 302 Certification of Chief Executive Officer.
Section 302 Certification of Chief Financial Officer.
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.*
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Exhibit
Number
10.38
10.39
21.1
23.1
31.1
31.2
32.1
32.2
Act of 2002.*
XBRL Instance Document.
XBRL Taxonomy Extension Schema.
XBRL Taxonomy Extension Calculation Linkbase.
XBRL Taxonomy Extension Label Linkbase.
XBRL Taxonomy Extension Presentation Linkbase.
101.INS
101.SCH
101.CAL
101.LAB
101.PRE
__________________
* Furnished herewith.
F-35
EXHIBIT 31.1
I, William M. Pierce, certify that:
CERTIFICATION
1. I have reviewed this Annual Report on Form 10-K of Swisher Hygiene Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state
a material fact necessary to make the statements made, in light of the circumstances under which such statements were made,
not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e), and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
b)
c)
d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting
to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
a)
b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize
and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant’s internal control over financial reporting.
Date: March 31, 2015
By: /s/William M. Pierce
William M. Pierce
President and Chief Executive Officer
(Principal Executive Officer)
EXHIBIT 31.2
I, William T. Nanovsky, certify that:
CERTIFICATION
1. I have reviewed this Annual Report on Form 10-K of Swisher Hygiene Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state
a material fact necessary to make the statements made, in light of the circumstances under which such statements were made,
not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)), and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
b)
c)
d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting
to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
a)
b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize
and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant’s internal control over financial reporting.
Date : March 31, 2015
By: /s/ William T. Nanovsky
William T. Nanovsky
Senior Vice President and Chief Financial Officer
(Principal Financial Officer)
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report on Form 10-K of Swisher Hygiene Inc. (the “Company”) for the year ended
December 31, 2014, as filed with the Securities and Exchange Commission (the “Report”), I, William M. Pierce, President and
Chief Executive Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of
1934, as amended; and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
Date: March 31, 2015
By: /s/ William M. Pierce
William M. Pierce
President and Chief Executive Officer
(Principal Executive Officer)
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 32.2
In connection with the Annual Report on Form 10-K of Swisher Hygiene Inc. (the “Company”) for the year ended
December 31, 2014, as filed with the Securities and Exchange Commission (the “Report”), I, William T. Nanovsky, Senior
Vice President and Chief Financial Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of
1934, as amended; and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
Date: March 31, 2015
By: /s/ William T. Nanovsky
William T. Nanovsky
Senior Vice President and Chief Financial
Officer
(Principal Financial Officer)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(Amendment No. 1)
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 2014
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission file number: 001-35067
SWISHER HYGIENE INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware
(State or Other Jurisdiction of Incorporation or Organization)
27-3819646
(I.R.S. Employer Identification No.)
4725 Piedmont Row Drive, Suite 400, Charlotte, North Carolina
(Address of Principal Executive Offices)
28210
(Zip Code)
Registrant’s Telephone Number, Including Area Code (704) 364-7707
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock
$0.001 par value
Name of Each Exchange On Which Registered
The NASDAQ Stock Market LLC
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 No
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 No
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 No
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 No
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 registrant’s 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.
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:
Large accelerated filer
Non-accelerated filer
(Do not check if a smaller reporting company)
Accelerated filer
Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No
The aggregate market value of the shares of common stock held by non-affiliates of the registrant as of June 30, 2014 (based on the last
reported sales price of such stock on the NASDAQ Global Select Market on such date of $4.30 per share) was approximately $53,344,243.
Number of shares outstanding of each of the registrant’s classes of Common Stock at April 17, 2015: 17,617,379 shares of Common Stock,
$0.001 par value per share.
EXPLANATORY NOTE
Swisher Hygiene Inc. (the “Company” or “Swisher”) is filing this Amendment No. 1 to the Annual Report on Form 10-
K/A (“Amendment”) to amend the Annual Report on Form 10-K for the year ended December 31, 2014.
This Amendment is being filed to: (i) include the information required by Items 10 through 14 of Part III of Form 10-K;
(ii) amend the cover page of the Form 10-K to (a) delete the reference in the Form 10-K to the incorporation by reference of
the definitive Proxy Statement for our 2015 Annual Meeting of Shareholders and (b) update the number of outstanding shares
of common stock; and (iii) amend Item 15 of the Form 10-K to include the certifications specified in Rule 13a-14(a) under the
Securities Exchange Act of 1934 that are required to be filed with this Amendment. Except as set forth in the immediately
preceding sentence, this Amendment does not amend, modify or update any disclosures contained in the Form 10-K. Nothing
contained in this Amendment updates any disclosure contained in the Form 10-K to reflect any events occurring after the filing
of the Form 10-K.
SWISHER HYGIENE INC.
ANNUAL REPORT ON FORM 10-K/A
FOR THE YEAR ENDED DECEMBER 31, 2014
TABLE OF CONTENTS
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
ITEM 11. EXECUTIVE COMPENSATION.
1
4
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
12
RELATED STOCKHOLDER MATTERS.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
14
INDEPENDENCE.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
SIGNATURES
16
17
22
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Directors
The following persons currently serve as members of the Board of Directors. Directors have been elected to serve until the
next annual meeting of shareholders, their earlier resignation or their successors are duly elected and qualified.
Nominee
Age
Current Position with Swisher Hygiene
Director Since
Joseph Burke
Richard L. Handley
Harris W. Hudson
William M. Pierce
William D. Pruitt
David Prussky
___________
(1) On November 2, 2010, Swisher International, Inc. completed a merger with Swisher Hygiene (formerly CoolBrands
International, Inc.) (the "Merger"). Mr. Prussky served an initial term as a director of CoolBrands from 1994 to 1998 and
rejoined the CoolBrands board of directors in February 2010.
Director
Chairman of the Board
Director
Director, President and Chief Executive Officer
Director
Director
2014
2012
2011
2013
2011
2010(1)
57
68
72
64
74
57
Joseph Burke
Mr. Burke has served as a director of Swisher Hygiene since May 2014. Mr. Burke has served as a Management
Consultant – Finance and Operations for Hudson Capital Group since March 2013. Mr. Burke served as a Management
Consultant – Finance and Operations for Boston Finance Group, LLC from February 2011 to May 2012. Mr. Burke served as
Chief Executive Officer of Lakeland Construction Finance, LLC from 2005 to 2007 and as Executive Vice President in
2008. Beginning in 1995, Mr. Burke spent ten years with Gateway, Inc. (NYSE: GTW), a worldwide technology pioneer,
serving in a number of executive capacities including Chief Executive Officer – Gateway Country (Retail Division), Senior
Vice President – Global Business Development, Chief Financial Officer and most recently as Senior Vice President - Business
Development. Mr. Burke has been a director of Flagship Community Bank since its founding in 2005 and is the Chairman of
the Asset and Liability and Technology Committees. Mr. Burke was a director of Sunair Services Corporation (AMEX: SNR)
from 2006 to 2008 and was a member of the Audit Committee. Mr. Burke earned a BA from the University of Florida.
Mr. Burke is an experienced officer and director of public and private companies with the skills necessary to serve as
a director. Mr. Burke also has extensive experience in financial matters as a currently licensed certified public accountant, in
good standing, and as a former Audit Supervisor of an international accounting firm.
Richard L. Handley
Mr. Handley has served as the Chairman of Swisher Hygiene since June 5, 2013 and as a director of Swisher Hygiene
since December 2012. Mr. Handley served as a director of Swisher International, Inc., the Company's predecessor, from 2005
to 2010. Mr. Handley has served as the Senior Vice President, Secretary and General Counsel of Huizenga Holdings, Inc. since
May 1997. From May 1997 to December 2004, Mr. Handley also served as Senior Vice President, Secretary, and General
Counsel of Boca Resorts, Inc. From October 1995 to May 1997, Mr. Handley served as Senior Vice President and General
Counsel of AutoNation Inc. and its predecessor, Republic Industries Inc. Mr. Handley served as a director of Services
Acquisition Corp. International from June 2006 to November 2006. Mr. Handley also serves on the board of certain privately
held companies and certain not for profit entities. Mr. Handley earned a BA from the University of California, Berkeley, a JD
from the University of Utah College of Law, and an LLM from Georgetown University.
Mr. Handley is an experienced officer and director of public and private companies with the skills necessary to serve
as a director. As an executive officer and director, Mr. Handley has developed knowledge and experience of financial,
operational, and managerial matters. He has helped guide numerous public and private companies from early stage development
to significant operating entities.
1
Harris W. Hudson
Mr. Hudson has served as a director of Swisher Hygiene since January 2011. Mr. Hudson is currently chairman and
owner of Hudson Capital Group, an investment company located in Fort Lauderdale, Florida founded by Mr. Hudson in 1997.
Mr. Hudson served as Vice Chairman and a director of Republic Services Inc. from 1998 to 2008. Prior to that period, he served
in various executive roles from 1995 to 1998 with Republic Service Inc.’s former parent company (then known as Republic
Waste Industries, Inc.), including as Chairman of its Solid Waste Group and its President. From 1983 to 1995, Mr. Hudson was
Chairman, CEO and President of Hudson Management Corporation, a solid waste collection company that he founded and later
merged with Republic Waste Industries. Mr. Hudson also served as Vice President of Waste Management of Florida, Inc. and
its predecessor from 1964 until 1982.
Mr. Hudson is an experienced public company officer and director. As a result of his experiences, Mr. Hudson has a
thorough knowledge and understanding of financial, operational, compensatory and other issues faced by a public company.
William M. Pierce
Mr. Pierce has served as President and Chief Executive Officer of Swisher Hygiene since September 2013. He has
also served as a director of Swisher Hygiene since June 2013. Mr. Pierce has served as Senior Vice President at Huizenga
Holdings, Inc. since 1990, where he has also served as chief operating officer, chief financial officer and as an officer and
director of numerous private companies. Mr. Pierce's positions include Director of VAC, a privately held company, President
of Frederica Hospitality Group, LLC, and previously five years as Chief Financial Officer and Executive Vice President of
Dolphins Enterprises where he was responsible for all non-football business operations of the Miami Dolphins and Sun Life
Stadium, and Chief Operating Officer of two route-based businesses, Sparkle, Inc. and Blue Ribbon Water Company. From
1997 to 2002, Mr. Pierce served as the Senior Vice President and Chief Financial Officer of Boca Resorts Inc., an NYSE-traded
company, where he was primarily responsible for the day-to-day oversight and the growth of the company, as well as raising
equity and debt in the public markets. Prior to Huizenga Holdings, Mr. Pierce spent 11 years as a senior operating executive of
Sky Chefs, a wholly owned subsidiary of American Airlines and seven years in senior management positions in the food and
beverage industry. He received his B.S. in Accounting from the University of Texas at El Paso. All of Mr. Pierce's day to day
professional efforts and focus are concentrated on Swisher; however, he remains a senior vice president of Huizenga Holdings,
Inc.
Mr. Pierce is an experienced officer and director of public and private companies with the skills necessary to serve as
a director. As an executive officer and director, Mr. Pierce has developed knowledge and experience of financial, operational,
and managerial matters. He has helped guide public and private companies from early stage development to significant
operating entities.
William D. Pruitt
Mr. Pruitt has served as a director of Swisher Hygiene since January 2011. Mr. Pruitt has served as general manager
of Pruitt Enterprises, LP. and president of Pruitt Ventures, Inc. since 2000. Mr. Pruitt served as an independent board member
of the MAKO Surgical Corp., a developer of robots for knee and hip surgery, from 2008 to 2013, when it was sold to Stryker
Corp., and served as a member of the MAKO audit committee. Mr. Pruitt has been an independent board member of NV5
Holdings, Inc., a professional services company, and is a member of the NV5 Audit Committee, since April 2013. Mr. Pruitt
served as an independent board member of The PBSJ Corporation, an international professional services firm, from 2005 to
2010. Mr. Pruitt served as chairman of the audit committee of KOS Pharmaceuticals, Inc., a fully integrated specialty
pharmaceutical company, from 2004 until its sale in 2006. He was also chairman of the audit committee for Adjoined
Consulting, Inc., a full-service management consulting firm, from 2000 until it was merged into Kanbay International, a global
consulting firm, in 2006. From 1980 to 1999, Mr. Pruitt served as the managing partner for the Florida, Caribbean and
Venezuela operations of the independent auditing firm of Arthur Andersen LLP. Mr. Pruitt holds a Bachelor of Business
Administration from the University of Miami and is a Certified Public Accountant, in good standing.
Mr. Pruitt is an experienced director of public companies with the skills necessary to serve as a director. Mr. Pruitt
also has extensive experience in financial matters as a certified public accountant and as a former managing partner of an
accounting firm.
2
David Prussky
Mr. Prussky was a director and chair of the Audit Committee of CoolBrands. He was an original director of the
predecessor to CoolBrands, Yogen Fruz World-Wide Inc. Mr. Prussky served as an investment banker for Patica Securities
Limited from August 2002 to January 2012. Mr. Prussky has served as director of numerous public and private companies over
the past 17 years, including Carfinco Income Fund, Canada's largest public specialty auto finance business, and Lonestar West
Inc., a hydro-vac service business based in Sylvan Lake, Alberta. Mr. Prussky is also a director and chairman of the audit
committee of Atrium Mortgage Investment Corporation and Chairman of Griffin Skype Corporation.
Mr. Prussky is an experienced director of public companies with the skills necessary to serve as director. He has helped
build numerous public and private entities from the early stages to significant operating entities.
Executive Officers
Our current executive officers and additional information concerning them are below. For a summary of Mr. Pierce’s
background and qualifications, see the Director section above.
Name
Position
William M. Pierce
William T. Nanovsky
Blake Thompson
Director, President and Chief Executive Officer
Senior Vice President and Chief Financial Officer
Senior Vice President and Chief Operating Officer
William T. Nanovsky
Senior Vice President and Chief Financial Officer
Age
64
66
60
Mr. Nanovsky has served as Senior Vice President and Chief Financial Officer of Swisher Hygiene since February
18, 2013 and previously served as Interim Senior Vice President and Chief Financial Officer of Swisher Hygiene from
September 24, 2012 to February 18, 2013. Mr. Nanovsky has over 30 years of experience as a financial executive in
environments ranging from emerging growth entities to public companies with annual revenue of more than $20 billion. Since
September 2011, he has been a founding Partner of The SCA Group, LLC ("SCA"), which provides C-level services including
regulatory solutions, restructuring and interim management to their clients. Before SCA, from May 1998 to September 2011,
Mr. Nanovsky was a Partner of Tatum, LLC and served on Tatum's Board of Managers from 2003 through 2007. At Tatum, he
served as Chief Financial Officer of Specialty Foods Group, Inc., an international manufacturer and marketer of premium-
branded, private-label and food service processed meat products. While at Tatum, Mr. Nanovsky also served as Chief
Accounting Officer of a $3 billion publicly-traded provider of wireless telephone service to 5.5 million customers through 189
majority-owned subsidiaries. Additionally while at Tatum, Mr. Nanovsky served at AutoNation, Inc., a $20 billion automotive
retailer, developing the integration and reporting processes for more than 370 franchises preparing for SOX compliance. Prior
to Tatum, Mr. Nanovsky served as Chief Financial Officer, Senior Vice President and member of the Board of Directors of
Seneca Foods Corporation, a Fortune 500 international food processor and distributor. All of Mr. Nanovsky's professional
effort and focus are concentrated on Swisher; however, he remains a Partner of SCA.
Blake W. Thompson
Senior Vice President and Chief Operating Officer
Mr. Thompson has served as Senior Vice President and Chief Operating Officer of Swisher Hygiene since August
2013 and previously served as Senior Vice President – Supply Chain and Manufacturing from June 2012 until August 2013.
Mr. Thompson has over 30 years of supply chain and operations leadership experience. Before joining Swisher he served as
Senior Vice President of Supply Chain from 2006 to 2011 for Snyder’s-Lance, Inc., a manufacturer and distributor of branded
and private brand snack products throughout North America, where he restructured the company’s supply chain and grew the
contract manufacturing business while improving contribution margins. Prior to Snyder’s-Lance, Mr. Thompson was Senior
Vice President of Supply Chain from 2004 to 2005 at Tasty Baking Co., a regional snack cake company, where he helped
rebuild the entire supply chain and optimized the company’s systems and operations. Previously, Mr. Thompson spent 23 years
at Frito-Lay, Inc., where he held a variety of management positions.
3
Corporate Governance Principles and Code of Ethics
The Board is committed to sound corporate governance principles and practices. The Board’s core principles of
corporate governance are set forth in the Swisher Hygiene Corporate Governance Principles (the “Principles”). In order to
clearly set forth our commitment to conduct our operations in accordance with our high standards of business ethics and
applicable laws and regulations, the Board adopted a Code of Business Conduct and Ethics (“Code of Ethics”) which is
applicable to all directors, officers, and employees. We intend to post amendments to or waivers from our Code of Ethics (to
the extent applicable to our Principal Executive Officer, Principal Financial Officer, Principal Accounting Officer or controller,
or persons performing similar functions) on our website at www.swsh.com. A copy of the Code of Ethics and the Principles
are available on our corporate website at www.swsh.com. You also may obtain a printed copy of the Code of Ethics and
Principles by sending a written request to: Investor Relations, Swisher Hygiene Inc., 4725 Piedmont Row Drive, Suite 400,
Charlotte, North Carolina 28210.
Audit Committee
The primary function of the Audit Committee is to assist the Board in fulfilling its responsibilities by overseeing our
accounting and financial processes and the audits of our financial statements. The independent auditor is ultimately accountable
to the Audit Committee, as representatives of the stockholders. The Audit Committee has the ultimate authority and direct
responsibility for the selection, appointment, compensation, retention and oversight of the work of the company’s independent
auditor that is engaged for the purpose of preparing or issuing an audit report or performing other audit, review or attest services
for the company (including the resolution of disagreements between management and the independent auditors regarding
financial reporting), and the independent auditor must report directly to the Audit Committee. The Audit Committee also is
responsible for the review of proposed transactions between the company and related parties. For a complete description of our
Audit Committee’s responsibilities, you should refer to the Audit Committee Charter which is available on our corporate
website at www.swsh.com.
The Audit Committee consists of three (3) directors, Mr. Pruitt, Chairman, Mr. Burke and Mr. Prussky. The Board
has determined that the Audit Committee members have the requisite independence and other qualifications for audit committee
membership under applicable rules under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and
NASDAQ rules. The Board also has determined that Mr. Pruitt is an “audit committee financial expert” within the meaning of
Item 407(d)(5) of Regulation S-K under the Exchange Act.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires that our directors, executive officers and persons who beneficially own
10% or more of our stock file with the Securities and Exchange Commission initial reports of ownership and reports of changes
in ownership of our stock and our other equity securities. To our knowledge, based solely on a review of the copies of such
reports furnished to us and written representations that no other reports were required, during the year ended December 31,
2014, our directors, executive officers and greater than 10% beneficial owners complied with all such applicable filing
requirements, except the untimely filing of five Form 4 reports with respect to one transaction for each of Joseph Burke, Richard
L. Handley, Harris W. Hudson, William D. Pruitt and David Prussky, and one Form 3 report with respect to one transaction
for Joseph Burke.
ITEM 11. EXECUTIVE COMPENSATION
COMPENSATION DISCUSSION AND ANALYSIS
Overview
This discussion and analysis describes the material elements of compensation paid to, awarded to, or earned by our
named executive officers during 2014. For 2014, our named executive officers, which include the individuals who served as
our Chief Executive Officer or Chief Financial Officer during 2014, as well as the other individuals listed in the Summary
Compensation Table as the “named executive officers,” are William M. Pierce, William T. Nanovsky and Blake W. Thompson.
4
The Compensation Committee (the "Committee") of our Board of Directors (the "Board") is responsible for the
oversight, implementation, and administration of all of the executive compensation plans and programs. During 2014, Harris
W. Hudson and William D. Pruitt served as members of the Committee. Mr. Hudson serves as Chairman of the Committee.
Our Board recognizes the fundamental interest our stockholders have in the compensation of our executive officers.
At the 2014 Annual Meeting, our stockholders approved, on an advisory basis, the compensation of our named executive
officers. We believe that our 2014 compensation policies and decisions remain consistent with the compensation philosophy
and objectives and properly align the interests of our named executive officers with the short and long-term goals of the
Company and the interests of our stockholders.
Compensation Policies
The core objectives of our compensation programs are to secure and retain the services of high quality executives and
to compensate our executives in a manner commensurate to and aligned with the Company's performance and the interests of
our stockholders. We seek to achieve these objectives through three principal compensation programs: (1) a base salary, (2)
cash incentive compensation, and (3) long-term equity incentive compensation. Base salaries are designed primarily to attract
and retain talented executives. Cash incentive compensation is designed to motivate and reward the achievement of selected
financial and individual performance goals generally tied to profitability and company growth. Grants of equity awards are
designed to provide an incentive for achieving long-term results by aligning the interests of our executives with those of our
stockholders, while at the same time encouraging our executives to remain with the Company.
The Committee believes the risks arising from the Company's compensation policies and practices for our employees
are not likely to have a material adverse effect on the Company.
Compensation Practices and Components for 2014
Base Salary
The annual base salaries for our named executive officers for 2014 were: Mr. Pierce - $150,000, Mr. Nanovsky -
$270,000 and Mr. Thompson - $275,000. Also, pursuant to the Services Agreement with The SCA Group, LLC (“SCA
Group”), SCA Group received an annual fee of $30,000 in connection with Mr. Nanovsky’s services as Senior Vice President
and Chief Financial Officer of the Company. For a discussion of the Services Agreement with the SCA Group, see the “Related
Party Transactions” section below. Other than the increase in Mr. Pierce’s annual base salary effective January 1, 2015,
described below, the compensation committee did not approve any changes to the Name Executive Officers’ compensation for
2014 or 2015.
Effective January 1, 2015, Mr Pierce’s annual base salary was increased from $150,000 to $400,000. The salary
increase was the result of the Compensation Committee’s belief that Mr. Pierce’s compensation was substantially below market
rate, due to the importance to the Company and its shareholders of the CEO’s continued employment with the Company, due
to the ongoing efforts by Mr. Pierce and senior management to stabilize the Company’s performance and cash flow, due to
substantial travel, and other significant factors.
Cash Incentive Compensation
No amounts were paid under the cash incentive program to the Company’s executive officers for service during 2014.
Long-Term Equity Incentive Compensation
In 2014, the Committee granted a total of 378,000 stock options to the Company’s executives and employees. Among
the awards made under the Stock Incentive Plan, the Committee granted equity awards to our named executive officers as
follows:
5
Restricted
Stock
Units
Stock
Options (1)
—
—
—
30,000
18,000(2)
20,000
Name
William M. Pierce
William T. Nanovsky
Blake W. Thompson
______________
(1)
Represents stock options granted under the Stock Incentive Plan at an exercise price of $4.04, which vest in four
annual installments beginning on the first anniversary of the grant date.
(2)
The table does not include the warrant to purchase 2,000 shares of common stock at an exercise price of $4.04 granted
to the SCA Group on August 8, 2014 with a grant date fair value of $2,949.
The Committee’s grant of equity awards to the named executive officers was entirely discretionary, subject to
limitations set by the Stock Incentive Plan. Decisions by the Committee regarding grants of equity awards to the named
executive officers were made based upon the consideration of the executive officer’s current position with us, and the executive
officer’s past and expected future performance. The Committee did not use any specific factors or particular criteria that were
to be met by each executive officer and did not assign any relative weight to any factors or criteria it considered when granting
equity awards. Rather, the Committee relied on its own business experience and judgment in determining the grants.
In 2014, Mr. Pierce and Mr. Nanovsky received additional compensation in the form of the use of a corporate
apartment and travel between North Carolina and Florida. Also, the named executive officers received additional compensation
in the form of vacation and cell phone services, and received other benefits generally available to all of our full time employees.
Internal Revenue Code Limits on Deductibility of Compensation
Section 162(m) of the Internal Revenue Code generally disallows a tax deduction to public corporations for
compensation over $1,000,000 paid for any fiscal year to the corporation’s chief executive officer and four other most highly
compensated executive officers as of the end of any fiscal year. However the statute exempts qualifying performance-based
compensation from the deduction limit if certain requirements are met.
The Committee believes that it is generally in our best interest to attempt to structure performance-based
compensation, including stock option grants and annual bonuses, to the named executive officers, each of whom are subject to
Section 162(m), in a manner that satisfies the statute’s requirements for full tax deductibility for the compensation. However,
the Committee also recognizes the need to retain flexibility to make compensation decisions that may not meet Section 162(m)
standards when necessary to enable us to meet our overall objectives, even if we may not deduct all of the compensation.
However, because of ambiguities and uncertainties as to the application and interpretation of Section 162(m) and the regulations
issued thereunder, no assurance can be given, notwithstanding our efforts, that compensation intended by us to satisfy the
requirements for deductibility under Section 162(m) will in fact do so.
COMPENSATION COMMITTEE REPORT
The following statement made by our Compensation Committee does not constitute soliciting material and should not
be deemed filed or incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, except to the extent that we specifically incorporate such statement by reference.
The Compensation Committee of the Company has reviewed and discussed with management the Compensation
Discussion and Analysis required by Item 402(b) of Regulation S-K and, based on such review and discussion, the
Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in the
Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2014.
Compensation Committee:
Harris W. Hudson, Chair
William D. Pruitt
6
Summary Compensation Table
The following table sets forth certain summary information concerning compensation earned by, and paid to, the
named executive officers for 2014, 2013, and 2012. All historical share amounts and computations using such amounts have
been retroactively adjusted to reflect the June 3, 2014 one-for-ten reverse stock split.
Year
Salary
Bonus
Stock
Awards (1)
Option
Awards (1)
Non-Equity
Incentive Plan
Compensation
Change in
Pension Value
and Non-
Qualified
Deferred
Compensation
Earnings
All Other
Compensation
Total
Name and
Principal
Position
William M.
Pierce
President
and Chief
Executive
Officer (7)
William T.
Nanovsky
Senior Vice
President
and Chief
Financial
Officer (8)
2014
$ 150,000
- $
- $ 44,235
2013
40,385
- 60,000
2012
-
-
-
-
-
2014
2013
2012
270,000
145,385
-
-
-
26,541
-
41,567
-
-
-
-
275,000
268,270
-
-
-
29,490
-
41,505
-
-
-
-
Blake W.
Thompson 2014
Senior Vice
President
and Chief
Operating
Officer (9)
2012
2013
-
-
-
-
-
-
-
-
-
- $
61,836 (2) $ 256,071
-
35,470 (3) 135,855
-
-
-
-
81,594 (4) 378,135
-
325,748 (5) 512,700
-
141,750 (6) 141,750
-
-
-
-
304,490
-
309,775
-
-
(1) Represents restricted stock units and stock options granted under the Stock Incentive Plan. Represents the aggregate grant
date fair value computed in accordance with FASB ASC Topic 718. In determining the grant date fair value for 2014 stock
options, we used the Black-Scholes option pricing model, and took into account the $4.04 closing price of our common
stock on the date previous to the grant, the $4.04 exercise price, the six year assumed period over which the stock options
will be outstanding, a 32.7% volatility rate, and a 1.9% – 2.0% risk free rate. In determining the grant date’s fair value for
the 2013 restricted stock units, we used $10.00 and $8.60, the closing price of our common stock on the date previous to
the grants. In determining the grant date fair value for 2013 stock options, we used the Black-Scholes option pricing model,
and took into account the $9.30 and $8.10 closing price of our common stock on the date previous to the grants, the $9.30
and $8.10 exercise prices, the six year assumed period over which the stock options will be outstanding, a 30.7% volatility
rate, and a 1.5% – 1.9% risk free rate.
(2)
Includes $36,388 for expenses related to use of a corporate apartment and $25,448 for expenses related to travel between
North Carolina and Florida.
(3)
Includes $25,121 for fees related to Mr. Pierce’s service on the Board as a non-employee director until September 10,
2013, $6,660 for expenses related to use of a corporate apartment and $3,689 for expenses related to travel between North
Carolina and Florida.
7
(4)
(5)
Includes (i) $30,000 of fees paid to the SCA Group pursuant to the Executive Services Agreement, (ii) the $2,949 grant
date fair value of a warrant to purchase 2,000 shares of common stock at an exercise price of $4.04 granted to the SCA
Group (iii) $28,600 for expenses related to use of a corporate apartment, (iv) $18,545 for expenses related to travel
between North Carolina and Florida and (iv) $1,500 in phone allowance. For a discussion of the Executive Services
Agreement, see the “Related Party Transactions” section.
Includes (i) $294,404 of fees paid to the SCA Group pursuant to the Executive Services Agreement, effective June 9,
2013, and the Interim Services Agreement, effective September 24, 2012, (ii) the $4,618 grant date fair value of a warrant
to purchase 1,500 shares of common stock at an exercise price of $9.30 granted to the SCA Group, (iii) $15,450 for
expenses related to use of a corporate apartment, (iv) $10,721 for expenses related to travel between North Carolina and
Florida and (iv) $555 in phone allowance. For a discussion of the Executive Services Agreement and the Interim Services
Agreement, see the “Related Party Transactions” section.
(6) Represents fees paid to the SCA Group pursuant to the Interim Services Agreement, effective September 24, 2012. For
a discussion of the Interim Service Agreement, see the "Related Party Transactions" section.
(7) Mr. Pierce was appointed as President and Chief Executive Officer of the Company on September 10, 2013.
(8) Mr. Nanovsky has served as Interim Senior Vice President and Chief Financial Officer or Senior Vice President and
Chief Financial Officer of the Company since September 24, 2012.
(9) Mr. Thompson was appointed Chief Operating Officer of the Company on August 9, 2013.
Grants of Plan-Based Awards - Fiscal 2014
The following table sets forth certain information concerning grants of awards to the named executive officers in the
fiscal year ended December 31, 2014.
Name
William M. Pierce
William T. Nanovsky
(3)
Blake W. Thompson
______________
Grant Date
8/8/2014
8/8/2014
8/8/2014
All Other Stock
Awards: Number
of Shares of Stock
or Units
All Other Option
Awards: Number
of Securities
Underlying
Options (1)
Exercise or Base
Price of Option
Awards ($) Per
Share
Grant Date Fair
Value of Stock
and Option
Awards (2)
-
-
-
30,000
4.04
$
44,235
18,000
20,000
$
$
4.04
4.04
$
$
26,541
29,490
(1) Represents stock options granted under the Stock Incentive Plan which vest in four annual installments beginning on
the first anniversary of the grant date.
(2) Represents the aggregate grant date fair value computed in accordance with FASB ASC Topic 718. In determining the
grant date fair value for stock options, we used the Black-Scholes option pricing model, and took into account the
$4.04 closing price of our common stock on the date previous to the grant date, the $4.04 exercise price, the six year
assumed period over which the stock options will be outstanding, a 32.7% volatility rate, and a 1.9% – 2.0% risk free
rate.
(3) The table does not include the warrant to purchase 2,000 shares of common stock at an exercise price of $4.04 granted
to the SCA Group on August 8, 2014 with a grant date fair value of $2,949.
Outstanding Equity Awards at Fiscal Year-End – 2014
The following table sets forth certain information regarding equity-based awards held by the named executive officers
as of December 31, 2014. All historical share amounts and computations using such amounts have been retroactively adjusted
to reflect the June 3, 2014 one-for-ten reverse stock split.
8
Name
William M. Pierce (1)
William T. Nanovsky
(2)
Blake W. Thompson
Option Awards (3)
Stock Awards
Number of
Securities
Underlying
Unexercised
Options
Exercisable
Number of
Securities
Underlying
Unexercised
Options
Unexercisable
Option
Grant Date
Option
Exercise Price
Option
Expiration Date
Number of
Shares or
Units of Stock
That Have
Not Vested
Market Value
of Shares or
Units of Stock
That Have
Not Vested
-
30,000
8/8/2014 $
4.04
8/7/2024
-
3,375
-
14,764
3,750
18,000
8/8/2014 $
10,125 6/11/2013 $
20,000
8/8/2014 $
14,763 6/26/2012 $
11,250 8/15/2013 $
4.04
9.30
4.04
25.40
8.10
8/7/2024
6/10/2023
8/7/2024
6/25/2022
8/14/2023
-
$
-
-
-
-
-
$
$
$
$
$
-
-
-
-
-
-
(1) Does not include 6,569 restricted stock units granted under the Stock Incentive Plan to Mr. Pierce in connection with
his service to the Board of Directors, which vested immediately at the time of grant, and represents the right to receive
one share of common stock following Mr. Pierce’s departure as a director.
(2) Does not include warrants to purchase 2,000 shares of common stock with an exercise price of $4.04 and 1,500 shares
of common stock with an exercise price of $9.30 granted to the SCA Group.
(3) Represents stock options granted under the Stock Incentive Plan, which vest in four annual installments starting on
the first anniversary of the grant date. Each stock option represents the right to receive one share of common stock
upon vesting.
Option Exercises and Stock Vested - Fiscal 2014
During 2014, our named executive officers did not exercise any stock options and no restricted stock units held by our
named executive officers vested.
Employment Agreements
We entered into an employment agreement with Mr. Pierce, and we entered into an Executive Services Agreement
with the SCA Group in connection with Mr. Nanovsky’s service as Senior Vice President and Chief Financial Officer. Below
is a summary of the employment agreement with Mr. Pierce. For a description of the Executive Services Agreement, see the
“Related Party Transactions” section.
Employment Agreement – William M. Pierce
On October 16, 2013, the Company entered into an employment agreement with William M. Pierce, effective as of
September 16, 2013 (the "Pierce Agreement"), relating to his service as Chief Executive Officer of the Company. The Pierce
Agreement has a term of one year and may be renewed annually upon the consent of both Mr. Pierce and the Company. Also,
the Pierce Agreement may be terminated at any time by the Company or Mr. Pierce, provided the terminating party gives the
other party written notice of such termination at least 30 days in advance. Pursuant to the Pierce Agreement, Mr. Pierce will
receive an annual base salary in the amount of $150,000 payable in regular installments in accordance with the Company’s
general payroll practices. Mr. Pierce is also eligible to earn an annual bonus in an amount determined by the Compensation
Committee of the Board, based upon achieving performance metrics and strategic goals established by the Board. In addition,
the Company will reimburse Mr. Pierce for any reasonable out-of-pocket business expenses incurred in connection with his
performance as Chief Executive Officer. The Company will also reimburse Mr. Pierce for the costs associated with the lease
of an apartment in Charlotte, North Carolina and for the cost of weekly, round-trip air travel between Charlotte, North Carolina
and Fort Lauderdale, Florida.
9
On August 8, 2014, the Company entered into an agreement for Renewal and Amendment to the Pierce Agreement
with William M. Pierce (the “Pierce Renewal Agreement”). The Pierce Renewal Agreement provided that the term of the
Pierce Agreement was renewed and continued to the second annual anniversary of the commencement date unless earlier
terminated. In addition to the weekly air travel of Mr. Pierce between Charlotte, North Carolina and Fort Lauderdale, Florida,
the Company shall reimburse Mr. Pierce for the cost of one trip monthly, round-trip air travel, for Executive’s spouse to and
from Fort Lauderdale, Florida and Charlotte, North Carolina. On November 3, 2014, the Board of Directors approved a salary
increase for Mr. Peirce bringing his annual salary to $400,000 effective January 1, 2015, thus bringing his salary in line with
market rates. All other terms and conditions of the Pierce Agreement remained unchanged.
If Mr. Pierce’s employment is terminated by (i) the Company without Cause (as defined in the Pierce Agreement) or
(ii) Mr. Pierce for Good Reason (as defined in the Pierce Agreement), then (A) the Pierce Agreement will be deemed to have
terminated as of the date Mr. Pierce ceases to be employed by the Company, (B) Mr. Pierce will be entitled to continue to
receive his then base salary from the Company for the remainder of the term (which, in the case of base salary, will be paid in
arrears in accordance with the Company’s general payroll practices, over the applicable period commencing on the date of such
termination and subject to withholding and other appropriate deductions), (C) Mr. Pierce shall be entitled to receive any bonus
that has been awarded to Mr. Pierce by the Board but has not yet been paid by the Company, subject to withholding and other
appropriate deductions, and (D) Mr. Pierce shall be entitled to reimbursement of any unreimbursed expenses. As a condition
to receiving such payments, Mr. Pierce will sign and deliver to the Company a release in the form mutually agreed by the
parties.
If Mr. Pierce’s employment is terminated by the Company for Cause (as defined in the Pierce Agreement) or by Mr.
Pierce without Good Reason (as defined in the Pierce Agreement), then (i) the Pierce Agreement will be deemed to have
terminated as of the date Mr. Pierce ceases to be employed by the Company, (ii) Mr. Pierce shall be entitled to receive his base
salary through the date of such termination, subject to withholding and other appropriate deductions, and (iii) Mr. Pierce shall
be entitled to reimbursement of any unreimbursed expenses.
If Mr. Pierce’s employment by the Company is terminated due to Mr. Pierce’s death or Disability (as defined in the
Pierce Agreement), then (A) the Pierce Agreement will be deemed to have terminated as of the date Mr. Pierce ceases to be
employed by the Company, (B) Mr. Pierce will be entitled to continue to receive his base salary through the remainder of the
term, subject to withholding and other appropriate deductions, (C) Mr. Pierce shall be entitled to receive any bonus that has
been awarded to Mr. Pierce by the Board but has not yet been paid by the Company, subject to withholding and other appropriate
deductions, and (D) Mr. Pierce shall be entitled to reimbursement of any unreimbursed expenses.
Potential Payments Upon Termination or Change-in-Control
The section below quantifies certain compensation and benefits that would be payable to Mr. Pierce under his
employment agreement if his employment had terminated on December 31, 2014. As of December 31, 2014, the Company
had no other agreements with Mr. Pierce which would trigger potential payments upon termination or change-in-control. For
a general description of Mr. Pierce’s agreement see “Employment Agreement” above. Also, in connection with a termination,
shares underlying vested restricted stock units would be delivered to Mr. Pierce, and stock options held by Mr. Pierce would
be forfeited 90 days from the date of termination in connection with a termination other than for death or disability, and stock
options held by Mr. Pierce would be forfeited one year from the date of termination in connection with a termination for death
or disability, subject to the original term of the stock option.
Without Cause or for Good Reason
The following table shows amounts that would be payable to Mr. Pierce if his employment was terminated by the
Company without Cause or by Mr. Pierce for Good Reason.
Name
William M. Pierce
______________
Cash (1)
Bonus (2)
Severance
$
106,027
-
Other (3)
-
-
$
Total
106,027
(1) Mr. Pierce will be entitled to continue to receive his then base salary through the term of his employment agreement.
(2) Mr. Pierce will be entitled to receive any bonus that has been awarded to executive by the Board but has not yet been
paid by the Company.
(3) Mr. Pierce will be entitled to reimbursement for any unreimbursed expenses.
10
Cause or Without Good Reason
The following table shows amounts that would be payable to Mr. Pierce if his employment was terminated by the
Company for Cause or by Mr. Pierce without Good Reason.
Name
William M. Pierce
____________
Cash (1)
Other (2)
-
-
Total
-
(1) Mr. Pierce will be entitled to receive his base salary through the date of termination.
(2) Mr. Pierce will be entitled to reimbursement for any unreimbursed expenses.
Death or Disability
The following table shows amounts that would be payable to Mr. Pierce if his employment was terminated due to
death or Disability.
Name
William M. Pierce
_______________
Cash (1)
Bonus (2)
Severance
$
106,027
-
Other (3)
-
-
$
Total
106,027
(1) Mr. Pierce will be entitled to continue to receive his then base salary through the term of his employment agreement.
(2) Mr. Pierce will be entitled to receive any bonus that has been awarded to executive by the Board but has not yet been
paid by the Company.
(3) Mr. Pierce will be entitled to reimbursement for any unreimbursed expenses.
Director Compensation
Director compensation for our non-employee directors is as follows:
●
an annual fee of $60,000, paid quarterly on a calendar year basis;
●
an annual committee chairman fee of $10,000, paid quarterly on a calendar year basis to the Chairman of each of our
Audit Committee, Compensation Committee, and Nominating and Corporate Governance Committee;
●
a per Board meeting fee of $1,500, paid quarterly in arrears on a calendar year basis;
●
a per committee meeting fee of $1,500, paid quarterly in arrears on a calendar year basis;
●
●
an annual grant of $35,000 in restricted stock units, paid on the first day of the month following our annual meeting of
stockholders; and
a one-time grant of $25,000 in restricted stock units, paid to each non-employee director upon their election or
appointment to the Board.
Fees not designated to be paid in restricted stock units may be accepted as cash or restricted stock units at the director’s
discretion. Also, non-employee directors are reimbursed for reasonable expenses in connection with their service on the Board
of Directors.
11
The following table sets forth certain information regarding the compensation paid to our non-employee directors for
their service during the fiscal year ended December 31, 2014:
N ame
Fees Earned
or
Paid in Cash
Stock Awards
(3)
Change in
Pension Value
and Non-
qualified
Deferred
Compensation
Earnings
Option
Awards
Non-Equity
Incentive Plan
Compensation
All Other
Compensation
Total
$
Steven R. Berrard
(1)
Joseph Burke (2)
Richard L. Handley
Harris W. Hudson
William D. Pruitt
David Prussky
______________
16,500 $
48,247
82,000
82,000
91,000
79,500
-
16,037
9,459
9,459
9,459
9,459
-
-
-
-
-
-
-
-
-
-
-
-
- $
-
-
-
-
-
$
-
-
-
-
-
-
16,500
64,284
91,459
91,459
100,459
88,959
(1) Mr. Berrard served as a director through the 2014 Annual Meeting of Stockholders held on May 15, 2014.
(2) Mr. Burke was elected as a director on May 15, 2014.
(3) The table below sets forth the aggregate number of restricted stock units and stock options of each non-employee director
outstanding as of December 31, 2014. All historical share amounts and computations using such amounts have been
retroactively adjusted to reflect the June 3, 2014 one-for-ten reverse stock split.
Name
Steven R. Berrard
Joseph Burke
Richard L. Handley
Harris W. Hudson
William D. Pruitt
David Prussky
Restricted
Stock Units
(4)
Stock Options
6,280
16,037
16,028
15,477
15,477
15,455
-
-
-
-
-
2,000(5)
(4) These restricted stock units vested immediately upon grant and receipt of shares of common stock has been deferred
in connection with the vesting of these restricted stock units.
(5) The options were previously granted pursuant to the CoolBrands International Inc. 2002 Stock Option Plan and
were fully exercisable until they expired on March 2, 2015.
Compensation Committee Interlocks and Insider Participation
During 2014, our Compensation Committee was comprised of the following members: Mr. Hudson, Chairman, and
Mr. Pruitt. Neither of these Committee members has ever been an officer or employee of Swisher Hygiene or any of our
subsidiaries and none of our executive officers have served on the compensation committee or board of directors of any
company of which any of our other directors is an executive officer.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of April 17, 2015, information regarding the beneficial ownership of our common
stock by each director, each named executive officer, all of the directors and executive officers as a group, and each other
person or entity known to us to be the beneficial owner of more than five percent of our common stock. Unless noted otherwise,
12
we believe that all persons named in the table below have sole voting and investment power with respect to all securities shown
as being owned by them. Unless noted otherwise, the corporate address of each person listed below is 4725 Piedmont Row
Drive, Suite 400, Charlotte, North Carolina, 28210.
Name and Address of Beneficial Owner
Directors, Nominees, and Executive Officers:
Joseph Burke
Richard L. Handley
Harris W. Hudson
William T. Nanovsky
William M. Pierce
William D. Pruitt
David Prussky
Blake W. Thompson
Directors and Executive Officers as a group (8 persons)
5% or Greater Stockholders
H. Wayne Huizenga
Steven R. Berrard
____________
Amount and
Nature of
Beneficial
Ownership
Percent of
Class (1)
16,037 (2)
73,818 (4)(3)
118,845 (5)
7,500 (6)
64,359 (7)(3)
16,920 (8)
39,755 (9)
34,014 (10)
370,498 (11)
*
*
*
*
*
*
*
*
2.1%
2,423,009 (12)
2,506,811 (13)
13.8%
14.2%
(1) Based on 17,617,379 shares of our common stock outstanding as of April 17, 2015.
(2) Consists of 16,037 vested restricted stock units held by Mr. Burke.
(3) The shares of common stock held by these executive officers and director have been pledged to H. Wayne Huizenga
as security for certain obligations owing pursuant to stock pledge and security agreements by each executive officer
and director for the benefit of Mr. Huizenga.
(4) Consists of 57,790 shares of common stock held by Mr. Handley and 16,028 vested restricted stock units held by Mr.
Handley.
(5) Consists of 30,368 shares of common stock held by Mr. Hudson, 73,000 shares of common stock held by Harris W.
Hudson, LP and 15,477 vested restricted stock units held by Mr. Hudson.
(6) Consists of 3,375 shares underlying vested stock options held by Mr. Nanovsky, 3,375 shares underlying stock options
which will vest within 60 days held by Mr. Nanovsky, 375 shares underlying vested warrants held by SCA Group and
375 shares underlying warrants held by SCA Group which will vest within 60 days. Mr. Nanovsky has shared voting
and investment power of the securities held by SCA Group.
(7) Consists of 57,790 shares of common stock held by Mr. Pierce and 6,569 vested restricted stock units held by Mr.
Pierce.
(8) Consists of 243 shares of common stock held by Mr. Pruitt, 1,000 shares of common stock held by Pruitt Enterprises,
LP, 200 shares of common stock held by Mr. Pruitt's spouse, 13,927 vested restricted stock units held by Mr. Pruitt,
and 1,550 vested restricted stock units held by Pruitt Enterprises, LP.
(9) Consists of 21,000 shares of common stock held by Mr. Prussky, 3,300 shares of common stock held by Mr. Prussky’s
spouse, Erica Prussky, and 15,455 vested restricted stock units held by Mr. Prussky.
(10) Consists of 15,500 shares of common stock held by Mr. Thompson and 18,514 shares underlying vested stock options
held by Mr. Thompson.
13
(11) Includes 260,191 shares of common stock, 85,043 vested restricted stock units and options to purchase 25,264 shares
of common stock.
(12) Consists of 2,420,779 shares of common stock held by Mr. Huizenga and 2,230 vested restricted stock units held by
Mr. Huizenga. Mr. Huizenga is the Chairman of the Board of Directors of Huizenga Holdings, Inc. The business
address of Huizenga Holdings, Inc. is 450 E. Las Olas Blvd., Suite 1500, Fort Lauderdale, Florida 33301.
(13) Consists of 2,500,531 shares of common stock held by Mr. Berrard and vested restricted stock units held by Mr.
Berrard to purchase 6,280 shares of common stock. Mr. Berrard’s address is 4521 Sharon Road, Suite 370, Charlotte,
North Carolina 28211.
Securities Authorized for Issuance under Equity Compensation Plans
The following table provides information as of December 31, 2015, with respect to all of our compensation plans
under which equity securities are authorized for issuance:
Plan Category
Equity compensation plans approved by stockholders
Equity compensation plans not approved by stockholders
Number of
securities
to be issued
upon exercise
of outstanding
options,
warrants and
rights
Weighted
average
exercise price
of
outstanding
options,
warrants and
rights
Number of
securities
remaining
available
for future
issuance
854,582(1) $
-
854,582 $
13.59
-
13.59
130,635
-
130,635
____________
(1)
Includes 709,246 options to purchase shares of our common stock at a weighted average price of 13.59 per share and
145,336 restricted stock units, which have no exercise price.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE.
Director Independence
The Board has determined that the following non-employee directors are “independent” in accordance with the
NASDAQ rules and have no material relationship with the Company, except as a director and a stockholder of the Company:
Mr. Burke, Mr. Handley, Mr. Hudson, Mr. Pruitt and Mr. Prussky. In determining the independence of each of the non-
employee directors, the Board considered the relationships described under “Related Party Transactions.”
In each case, the relationships did not violate NASDAQ listing standards or our Principles, and the Board concluded
that such relationships would not impair the independence of our non-employee directors.
Related Party Transactions
As set forth in the Audit Committee Charter, our Audit Committee must approve all transactions with related persons
as described in Item 404 of Regulation S-K under the Exchange Act. The following is a summary of agreements or transactions
with parties related to our directors, executive officers, or us since January 1, 2014.
The SCA Group, LLC
Interim Services Agreement
On September 27, 2012, we entered into a certain Interim Services Agreement (the “Interim Services Agreement”),
effective September 24, 2012, with The SCA Group, LLC (the “SCA Group”) pursuant to which the SCA Group agreed to
provide the Company with the services of William T. Nanovsky as the Company’s Interim Senior Vice President and Chief
14
Financial Officer for consideration of up to $50,000 per month, plus reimbursement of certain expenses. Mr. Nanovsky is a
founding partner of the SCA Group. During 2012, we paid the SCA Group $141,750 and a security deposit of $25,000. No
payments were made directly to Mr. Nanovsky during 2012. The Interim Services Agreement was replaced with the Executive
Services Agreement, described below.
Executive Services Agreement
On June 11, 2013, the Company entered into an Executive Services Agreement with the SCA Group, effective June
9, 2013, in connection with the services provided by William T. Nanovsky as Senior Vice President and Chief Financial Officer
of the Company (the “Executive Services Agreement”). Pursuant to the Executive Services Agreement, the Company will pay
the SCA Group a bi-weekly fee of $1,153.85 and Mr. Nanovsky a bi-weekly salary of $10,384.61, such amounts may increase
on an annual basis consistent with the Company’s policy as it applies to its senior management. Mr. Nanovsky will participate
in the Company’s bonus program, as it applies to senior management, with a bonus target of 50%. Any bonus will be paid
10% to SCA Group and 90% to Mr. Nanovsky. Mr. Nanovsky will remain a partner of SCA Group. We paid the SCA Group
an aggregate of $30,000 and $294,404 pursuant to the Interim Services Agreement and Executive Services Agreement during
2014 and 2013, respectively. From January 1, 2015 through April 27, 2015, we paid the SCA Group $9,231 pursuant to the
Executive Services Agreement.
Pursuant to the Executive Services Agreement, the Company will reimburse Mr. Nanovsky for all reasonable travel
and out-of-pocket expenses in connection with his services to the Company. The Company will provide Mr. Nanovsky up to
two round trip flights to Florida from North Carolina per month and a daily per diem equal to the then current U.S.A. General
Services Administration dinner allowance for Charlotte, North Carolina (currently $29.00). Also, pursuant to the Executive
Services Agreement, the Company will provide an apartment to Mr. Nanovsky in Charlotte, North Carolina, and Mr. Nanovsky
will participate in the Company's benefit plans as they apply to senior management.
The Executive Services Agreement may be terminated by either party by providing a minimum of 30 days' advance
notice. Also, the SCA Group may terminate the Agreement immediately upon written notice to the Company if (i) the Company
is engaged in or asks the SCA Group or any SCA Group professional to engage in or ignore any illegal or unethical activity,
(ii) Mr. Nanovsky ceases to be a SCA Group professional for any reason, (iii) Mr. Nanovsky becomes disabled, or (iv) the
Company fails to pay any amounts due to the SCA Group under the Executive Services Agreement when due. In lieu of
terminating the Executive Services Agreement under (ii) and (iii) above, upon mutual agreement of the parties, Mr. Nanovsky
may be replaced by another SCA Group professional.
In addition, pursuant to the Executive Services Agreement, Mr. Nanovsky will participate in the Company's Amended
and Restated 2010 Stock Incentive Plan (the "Stock Incentive Plan"). Any awards granted will be issued 10% as a warrant to
the SCA Group and 90% to Mr. Nanovsky under the Stock Incentive Plan.
On June 10, 2013, in connection with the Executive Services Agreement, the Company granted Mr. Nanovsky an
option to purchase 13,500 shares of common stock of the Company under the Stock Incentive Plan with an exercise price of
$9.30. The option vests annually in four equal installments commencing on the first anniversary of the grant date. The option
has a term of ten years. On August 8, 2014, in connection with the Executive Services Agreement, the Company granted Mr.
Nanovsky an option to purchase 18,000 shares of common stock of the Company under the Stock Incentive Plan with an
exercise price of $4.04. The option vests annually in four equal installments commencing on the first anniversary of the grant
date. The option has a term of ten years.
Also in connection with the Executive Services Agreement, on June 10, 2013, the Company granted the SCA Group
a warrant to purchase 1,500 shares of common stock of the Company with an exercise price of $9.30. The warrant vests
annually in four equal installments commencing on June 10, 2014. During 2014, the SCA Group was granted a warrant to
purchase 2,000 shares of common stock of the Company with an exercise price of $4.04, which vests in four equal installments
commencing on August 8 , 2015. The warrants have a term of ten years.
15
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
Auditor Fees and Services
The following table sets forth BDO's fees for the years ended December 31, 2014 and 2013.
Audit Fees
Audit-Related Fees
Tax Fees
All Other Fees (1)
Total
______________
(1) These amounts relate to costs incurred by BDO associated with certain government agencies' ongoing inquiries and requests
$ 1,288,000 $ 1,357,000
-
-
236,000
125,000
375,000
419,000
$ 1,832,000 $ 1,968,000
for information related to the Company.
2014
2013
Policy for Approval of Audit and Permitted Non-Audit Services
The Audit Committee has adopted a policy and related procedures requiring its pre-approval of all audit and non-audit
services to be rendered by its independent registered public accounting firm. These policies and procedures are intended to
ensure that the provision of such services do not impair the independent registered public accounting firm's independence.
These services may include audit services, audit related services, tax services and other services. The policy provides for the
annual establishment of fee limits for various types of audit services, audit related services, tax services and other services,
within which the services are deemed to be pre-approved by the Audit Committee. The independent registered public
accounting firm is required to provide to the Audit Committee back up information with respect to the performance of such
services.
All services provided by BDO during the fiscal years ended December 31, 2014 and 2013 were approved by the Audit
Committee. The Audit Committee has delegated to its Chair the authority to pre-approve services, up to a specified fee limit,
to be rendered by the independent registered public accounting firm and requires that the Chair report to the Audit Committee
any pre-approved decisions made by the Chair at the next scheduled meeting of the Audit Committee.
16
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
PART IV
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 the
consolidated financial statements.
Exhibit
Number Description
2.1
Agreement and Plan of Merger, dated February 13, 2011. (incorporated by reference to Exhibit 2.1 to the
Company’s Current Report on Form 8-K, filed on February 17, 2011).
2.2
2.3
3.1
3.2
3.3
3.4
10.1
10.2
10.3
10.4
10.5
10.6
Amendment to Agreement and Plan of Merger, dated as of February 28, 2011, by and among Swisher
Hygiene Inc., SWSH Merger Sub, Inc., Choice Environmental Services, Inc., and the other parties set forth
therein. (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K, filed on
March 4, 2011).
Stock Purchase Agreement, dated November 15, 2012, by and between Swisher Hygiene Inc. and Waste
Services of Florida, Inc. (incorporated by reference to Exhibit 2.1 of the Company's Current Report on Form
8-K filed with the Securities and Exchange Commission on November 16, 2012 and schedules and similar
attachments of this exhibit have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company
undertakes to furnish on a supplemental basis a copy of any omitted schedules and similar attachments to the
Securities and Exchange Commission upon request).
Certificate of Corporate Domestication of CoolBrands International Inc., dated November 1, 2010. (1)
Amended and Restated Certificate of Incorporation of Swisher Hygiene Inc. (2)
Certificate of Amendment to the Amended and Restated Certificate of Incorporation of Swisher Hygiene Inc.
(incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K, filed with the
Securities and Exchange Commission on June 2, 2014).
Bylaws of Swisher Hygiene Inc. (1)
Promissory Note, dated May 26, 2010, as amended, in the principal amount of $21,445,000 to Royal Palm
Mortgage Group, LLC. (1)
Promissory Note, dated August 9, 2010, in the principal amount of $2,000,000 to Royal Palm Mortgage
Group, LLC. (1)
Promissory Note, dated August 9, 2010, in the principal amount of $1,500,000 to Royal Palm Mortgage
Group, LLC. (1)
Credit Agreement among Swisher Hygiene, Inc., the lenders named therein and Wells Fargo Bank, National
Association, dated March 30, 2011 (incorporated by reference to Exhibit 10.1 of the Company's Current
Report on Form 8-K filed with the Securities and Exchange Commission on April 5, 2011).
Pledge and Security Agreement by Swisher Hygiene Inc., certain subsidiaries of Swisher Hygiene, Inc.
named therein, and Wells Fargo Bank, National Association, dated March 30, 2011 (incorporated by
reference to Exhibit 10.2 of the Company's Current Report on Form 8-K filed with the Securities and
Exchange Commission on April 5, 2011 and portions of this exhibit have been omitted and filed separately
with the Securities and Exchange Commission pursuant to a request for confidential treatment).
Guaranty Agreement by certain subsidiaries of Swisher Hygiene Inc. and Guaranteed Parties named therein,
dated March 30, 2011 (incorporated by reference to Exhibit 10.3 of the Company's Current Report on Form
8-K filed with the Securities and Exchange Commission on April 5, 2011).
17
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
CoolBrands International Inc. 2002 Stock Option Plan. (incorporated by reference to Exhibit 10.1 to the
Company’s Registration Statement on Form S-8, filed on February 14, 2011). †
Omnibus Amendment Agreement, effective as of February 28, 2011, by and between Swisher International,
Inc. HB Service, LLC and Wells Fargo Bank, National Association. (incorporated by reference to Exhibit
10.1 to the Company’s Current Report on Form 8-K, filed on March 4, 2011).
Amended and Restated Swisher Hygiene Inc. 2010 Stock Incentive Plan (incorporated by reference to Exhibit
10.1 of the Company’s Registration Statement on Form S-8 filed with the Securities and Exchange
Commission on May 9, 2011).* †
Swisher Hygiene Inc. Senior Executive Officers Performance Incentive Bonus Plan (incorporated by
reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed with the Securities and
Exchange Commission on May 10, 2011).* †
Employment and Non-Compete Agreement of Michael Kipp (incorporated by reference to Exhibit 10.3 of
the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 10,
2011).* †
First Amendment to Credit Agreement and Pledge and Security Agreement, dated August 12, 2011, by and
between Swisher Hygiene Inc. and Wells Fargo Bank, National Association (incorporated by reference to
Exhibit 10.1 of the Company’s Current Report on Form 8-K, filed with the Securities and Exchange
Commission on August 18, 2011).
General Electric Capital Corporation Loan Commitment Letter, dated August 12, 2011 (incorporated by
reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed with the Securities and
Exchange Commission on August 18, 2011).
Master Loan and Security Agreement, dated August 12, 2011, by and between General Electric Capital
Corporation and Choice Environmental Services, Inc. (incorporated by reference to Exhibit 10.3 of the
Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on August 18,
2011).
Amendment to Master Loan and Security Agreement, dated August 12, 2011, by and between General
Electric Capital Corporation and Choice Environmental Services, Inc. (incorporated by reference to Exhibit
10.4 of the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on
August 18, 2011).
Wells Fargo Equipment Finance, Inc. Loan Commitment Letter dated August 12, 2011 (incorporated by
reference to Exhibit 10.5 of the Company’s Current Report on Form 8-K filed with the Securities and
Exchange Commission on August 18, 2011).
Master Loan and Security Agreement dated August 12, 2011, by and between Wells Fargo Equipment
Finance, Inc. and Choice Environmental Services, Inc. (incorporated by reference to Exhibit 10.6 of the
Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on August 18,
2011).
Automotive Rentals, Inc. Vehicle Lease Financing Proposal, dated August 12, 2011 (incorporated by
reference to Exhibit 10.7 of the Company’s Current Report on Form 8-K filed with the Securities and
Exchange Commission on August 18, 2011).
Second Amendment to Credit Agreement by and among Swisher Hygiene, Inc., the Subsidiary Guarantors
party thereto, the Required Lenders, and Wells Fargo Bank, National Association, dated April 12, 2012
(incorporated by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K filed with the
Securities and Exchange Commission on April 12, 2012).
18
10.20
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
Third Amendment to Credit Agreement by and among Swisher Hygiene, Inc., the Subsidiary Guarantors
party thereto, the Required Lenders, and Wells Fargo Bank, National Association, dated May 15, 2012
(incorporated by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K filed with the
Securities and Exchange Commission on May 17, 2012).
Fourth Amendment to Credit Agreement by and among Swisher Hygiene, Inc., the Subsidiary Guarantors
party thereto, the Required Lenders, and Wells Fargo Bank, National Association, dated May 30, 2012
(incorporated by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K filed with the
Securities and Exchange Commission on June 5, 2012).
Fifth Amendment to Credit Agreement by and among Swisher Hygiene, Inc., the Subsidiary Guarantors party
thereto, the Required Lenders, and Wells Fargo Bank, National Association, dated June 28, 2012
(incorporated by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K filed with the
Securities and Exchange Commission on June 29, 2012).
Sixth Amendment to Credit Agreement by and among Swisher Hygiene, Inc., the Subsidiary Guarantors
party thereto, the Required Lenders, and Wells Fargo Bank, National Association, dated July 30, 2012
(incorporated by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K filed with the
Securities and Exchange Commission on July 31, 2012).
Seventh Amendment to Credit Agreement and Pledge and Security Agreement by and among Swisher
Hygiene, Inc., the Subsidiary Guarantors party thereto, the Required Lenders, and Wells Fargo Bank,
National Association, dated August 31, 2012 (incorporated by reference to Exhibit 10.1 of the Company's
Current Report on Form 8-K filed with the Securities and Exchange Commission on September 4, 2012 and
portions of this exhibit have been omitted and filed separately with the Securities and Exchange Commission
pursuant to a request for confidential treatment).
Eighth Amendment to Credit Agreement by and among Swisher Hygiene, Inc., the Subsidiary Guarantors
party thereto, the Required Lenders, and Wells Fargo Bank, National Association, dated September 27, 2012
(incorporated by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K filed with the
Securities and Exchange Commission on September 27, 2012).
Ninth Amendment to Credit Agreement by and among Swisher Hygiene, Inc., the Subsidiary Guarantors
party thereto, the Required Lenders, and Wells Fargo Bank, National Association, dated October 31, 2012
(incorporated by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K filed with the
Securities and Exchange Commission on November 1, 2012).
Employment Letter, dated June 1, 2012, by and between Swisher Hygiene, Inc. and Brian Krass (incorporated
by reference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the period ended June 30,
2012, filed with the Securities and Exchange Commission on March 15, 2013). †
Interim Services Agreement, effective September 24, 2012, between Swisher Hygiene Inc. and SCA Group,
LLC (incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the
period ended September 30, 2012, filed with the Securities and Exchange Commission on March 18, 2013).
†
Consulting Agreement and Release between Steven R. Berrard and Swisher International, Inc., effective
October 26, 2012 (incorporated by reference to Exhibit 10.56 to the Company's Annual Report on Form 10-
K for the year ended December 31, 2012, filed with the Securities and Exchange Commission on May 1,
2013). †
Separation Agreement and Release between Hugh Cooper and Swisher International Inc., dated November
15, 2012 (incorporated by reference to Exhibit 10.57 to the Company's Annual Report on Form 10-K for the
year ended December 31, 2012, filed with the Securities and Exchange Commission on May 1, 2013). †
19
10.31
10.32
10.33
10.34
10.35
10.36
10.37
10.38
10.39
21.1
23.1
31.1
31.2
32.1
32.2
Executive Services Agreement, effective June 9, 2013, between Swisher Hygiene Inc. and The SCA Group,
LLC (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the
period ended June 30, 2013, filed with the Securities and Exchange Commission on August 9, 2013). †
Employment Agreement, dated October 16, 2013, between Swisher Hygiene Inc. and William M. Pierce. †
Employment Agreement, dated October 16, 2013, between Swisher Hygiene Inc. and Thomas C. Byrne. †
Separation Agreement and Release between Swisher Hygiene Inc. and Thomas E. Aucamp, dated March 7,
2014 (incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q for the
quarter ended March 31, 2014, filed with the Securities and Exchange Commission on May 12, 2014). †
Amendment No. 1 to the Employment Agreement between Swisher Hygiene Inc. and Thomas C. Byrne,
dated July 14, 2014 (incorporated by reference to Exhibit 10.2 of the Company’s Quarterly Report on Form
10-Q for the quarter ended September 30, 2014, filed with the Securities and Exchange Commission on
November 10, 2014). †
Amendment to Employment Agreement by and between Swisher Hygiene Inc. and William M. Pierce, dated
August 8, 2014 (incorporated by reference to Exhibit 10.3 of the Company’s Quarterly Report on Form 10-
Q for the quarter ended September 30, 2014, filed with the Securities and Exchange Commission on
November 10, 2014). †
Loan and Security Agreement by and among Swisher Hygiene Inc., as Guarantor, the Borrowers listed thereto
and Siena Lending Group LLC, as Lender, dated August 29, 2014 (incorporated by reference to Exhibit 10.1
of the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on
September 3, 2014). (Portions of this exhibit have been omitted and filed separately with the Securities and
Exchange Commission pursuant to a request for confidential treatment).
Second Amendment to Employment Agreement by and between Swisher Hygiene Inc. and William M.
Pierce, dated January 31, 2015 (incorporated by reference to Exhibit 10.38 to the Company's Annual Report
on Form 10-K for the year ended December 31, 2014, filed with the Securities and Exchange Commission
on April 1, 2015). †
Letter Agreement, dated as of March 25, 2015, by and among Siena Lending Group LLC and the Borrowers
listed thereto (incorporated by reference to Exhibit 10.39 to the Company's Annual Report on Form 10-K for
the year ended December 31, 2014, filed with the Securities and Exchange Commission on April 1, 2015).
Subsidiaries of Swisher Hygiene Inc (incorporated by reference to Exhibit 21.1 to the Company's Annual
Report on Form 10-K for the year ended December 31, 2014, filed with the Securities and Exchange
Commission on April 1, 2015).
Consent of BDO USA, LLP (incorporated by reference to Exhibit 23.1 to the Company's Annual Report on
Form 10-K for the year ended December 31, 2014, filed with the Securities and Exchange Commission on
April 1, 2015).
Section 302 Certification of Chief Executive Officer.
Section 302 Certification of Chief Financial Officer.
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.*
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.*
20
101.INS
101.SCH
101.CAL
101.LAB
101.PRE
XBRL Instance Document (incorporated by reference to Exhibit 101.INS to the Company's Annual Report
on Form 10-K for the year ended December 31, 2014, filed with the Securities and Exchange Commission
on April 1, 2015).
XBRL Taxonomy Extension Schema (incorporated by reference to Exhibit 101.SCH to the Company's
Annual Report on Form 10-K for the year ended December 31, 2014, filed with the Securities and Exchange
Commission on April 1, 2015).
XBRL Taxonomy Extension Calculation Linkbase (incorporated by reference to Exhibit 101.CAL to the
Company's Annual Report on Form 10-K for the year ended December 31, 2014, filed with the Securities
and Exchange Commission on April 1, 2015).
XBRL Taxonomy Extension Label Linkbase (incorporated by reference to Exhibit 101.LAB to the
Company's Annual Report on Form 10-K for the year ended December 31, 2014, filed with the Securities
and Exchange Commission on April 1, 2015).
XBRL Taxonomy Extension Presentation Linkbase (incorporated by reference to Exhibit 101.PRE to the
Company's Annual Report on Form 10-K for the year ended December 31, 2014, filed with the Securities
and Exchange Commission on April 1, 2015).
________________________
The following documents are 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) Registration Statement on Form S-8, filed with the Security and Exchange Commission on May 9, 2011.
* Furnished herewith.
† Management contracts or compensatory plans, contracts, or arrangements.
21
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.
SIGNATURES
SWISHER HYGIENE INC.
(Registrant)
Dated: April 30, 2015
SWISHER HYGIENE INC.
(Registrant)
By: /s/William T. Nanovsky
Nanovsky
e President and Chief Financial Officer
Financial and Accounting Officer)
22
EXHIBIT 31.1
I, William M. Pierce, certify that:
CERTIFICATION
1. I have reviewed this Annual Report on Form 10-K/A of Swisher Hygiene Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state
a material fact necessary to make the statements made, in light of the circumstances under which such statements were made,
not misleading with respect to the period covered by this report; and
3. Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report.
Date: April 30, 2015
By: /s/William M. Pierce
William M. Pierce
President and Chief Executive Officer
(Principal Executive Officer)
EXHIBIT 31.2
I, William T. Nanovsky, certify that:
CERTIFICATION
1. I have reviewed this Annual Report on Form 10-K/A of Swisher Hygiene Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state
a material fact necessary to make the statements made, in light of the circumstances under which such statements were made,
not misleading with respect to the period covered by this report; and
3. Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report.
Date : April 30, 2015
By: /s/William T. Nanovsky
William T. Nanovsky
Senior Vice President and Chief Financial
Officer
(Principal Financial Officer)
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report on Form 10-K/A of Swisher Hygiene Inc. (the “Company”) for the year ended
December 31, 2014, as filed with the Securities and Exchange Commission (the “Report”), I, William M. Pierce, President and
Chief Executive Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of
1934, as amended; and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
Date: April 30, 2015
By: /sWilliam M. Pierce
William M. Pierce
President and Chief Executive Officer
(Principal Executive Officer)
EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report on Form 10-K/A of Swisher Hygiene Inc. (the “Company”) for the year ended
December 31, 2014, as filed with the Securities and Exchange Commission (the “Report”), I, William T. Nanovsky, Senior
Vice President and Chief Financial Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of
1934, as amended; and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
Date: April 30, 2015
By: /s/William T. Nanovsky
William T. Nanovsky
Senior Vice President and Chief Financial
Officer
(Principal Financial Officer)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2015
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to _____________.
Commission File Number: 001-35067
SWISHER HYGIENE INC.
(Exact Name of Registrant as Specified in Its Charter)
(State or Other Jurisdiction of Incorporation or Organization)
Delaware
27-3819646
(I.R.S. Employer Identification No.)
4725 Piedmont Row Drive, Suite 400, Charlotte, North Carolina
(Address of Principal Executive Offices)
28210
(Zip Code)
(704) 364-7707
(Registrant's Telephone Number, Including Area Code)
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 No
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 No
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:
Larger Accelerated filer
Non-accelerated filer
(Do not check if a smaller reporting company)
Accelerated filer
Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
Number of shares outstanding of each of the registrant's classes of Common Stock at May 6, 2015: 17,617,379 shares of Common Stock,
$0.001 par value per share.
SWISHER HYGIENE INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2015
TABLE OF CONTENTS
ITEM 1.
FINANCIAL STATEMENTS
PART I. FINANCIAL INFORMATION
Condensed Consolidated Balance Sheets at March 31, 2015 (Unaudited) and December 31, 2014
Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited) for the
Three Months Ended March 31, 2015 and 2014
Condensed Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31,
2015 and 2014
Notes to Condensed Consolidated Financial Statements (Unaudited)
Page
1
1
2
3
4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
12
OF OPERATIONS
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 4.
CONTROLS AND PROCEDURES
PART II. OTHER INFORMATION
ITEM 1.
LEGAL PROCEEDINGS
ITEM 1A. RISK FACTORS
ITEM 5.
OTHER INFORMATION
ITEM 6.
EXHIBITS
19
20
23
24
24
25
ITEM 1. FINANCIAL STATEMENTS
PART I. FINANCIAL INFORMATION
SWISHER HYGIENE INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
Current assets
Cash and cash equivalents
Restricted cash
Accounts receivable (net of allowance for doubtful accounts of approximately $0.9
million at March 31, 2015 and $1.0 million at December 31, 2014)
Inventory, net
Deferred income taxes
Assets held for sale
Other assets
Total current assets
Property and equipment, net
Other intangibles, net
Customer relationships and contracts, net
Other noncurrent assets
Total assets
Current liabilities
Accounts payable
Accrued payroll and benefits
Accrued expense
Long-term debt and obligations due within one year
Line of credit
Total current liabilities
Long-term debt and obligations
Deferred income taxes
Other long-term liabilities
Total noncurrent liabilities
Commitments and contingencies
Equity
Preferred stock, par value $0.001, authorized 10,000,000 shares; no shares issued and
outstanding at March 31, 2015 and December 31, 2014
Common stock, par value $0.001, authorized 600,000,000 shares; 17,617,379 shares and
17,612,278 shares issued and outstanding at March 31, 2015 and December 31, 2014 (1)
Additional paid-in capital (1)
Accumulated deficit
Accumulated other comprehensive loss
Total equity
Total liabilities and equity
March 31,
2015
(Unaudited)
December 31,
2014
$
3,796
231
$
7,233
231
17,403
13,116
520
3,076
3,714
41,856
33,891
5,978
20,949
1,910
$ 104,584
18,751
15,426
534
-
2,525
44,700
37,037
6,654
22,792
2,015
$ 113,198
$
8,795
4,179
7,498
2,623
3,245
26,340
1,071
563
4,068
5,702
$
13,627
3,467
7,122
1,884
-
26,100
1,185
558
4,065
5,808
18
390,051
(316,194)
(1,333)
72,542
$ 104,584
18
389,942
(307,363)
(1,307)
81,290
$ 113,198
(1) All outstanding share amounts and computations using such amounts have been retroactively adjusted to reflect the
June 3, 2014 one-for-ten reverse stock split.
See Notes to Condensed Consolidated Financial Statements
1
SWISHER HYGIENE INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
(In thousands, except share and per share data)
Revenue
Products
Services
Franchise and other
Total revenue
Costs and expenses
Cost of sales (exclusive of route expenses and related depreciation and amortization)
Route expenses
Selling, general, and administrative expenses
Depreciation and amortization
Impairment loss on assets held for sale
Total costs and expenses
Loss from operations
Other income (expense), net
Net loss before income taxes
Income tax expense
Net loss
Comprehensive loss
Foreign currency translation adjustment
Comprehensive loss
Loss per share (1)
Basic and diluted
Three Months Ended March 31,
2015
2014
$
$
39,263
4,328
250
43,841
43,241
4,694
360
48,295
19,962
11,692
16,514
4,590
-
52,758
(8,917)
114
(8,803)
(28)
(8,831)
21,812
12,364
19,770
5,359
2,028
61,333
(13,038)
(717)
(13,755)
(37)
(13,792)
(26)
(8,857) $
(15)
(13,807)
$
$
(0.50) $
(0.78)
Weighted-average common shares used in the computation of loss per share (1)
Basic and diluted
17,750,214
17,688,471
(1) All outstanding share amounts and computations using such amounts have been retroactively adjusted to reflect the
June 3, 2014 one-for-ten reverse stock split.
See Notes to Condensed Consolidated Financial Statements
2
SWISHER HYGIENE INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Operating activities
Net loss
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation and amortization
Provision for doubtful accounts
Stock based compensation
Deferred income taxes
Impairment loss on assets held for sale
Loss on sale of assets held for sale
(Gain) loss on sale of assets
Changes in operating assets and liabilities:
Accounts receivable
Inventory
Accounts payable, accrued expense and other current liabilities
Other assets and non-current assets
Net cash (used in) provided by operating activities of continuing operations
Net cash used in operating activities of discontinued operations
Cash used in operating activities
Investing activities
Purchases of property and equipment
Cash received on sale of property and equipment
Cash received on sale of assets held for sale
Cash used in investing activities
Financing activities
Principal payments on debt
Proceeds from debt issuances
Proceeds from line of credit, net of issuance costs
Proceeds from capital lease
Cash provided by (used in) financing activities
Three Months Ended
March 31,
2015
2014
$
(8,831) $
(13,792)
4,590
247
109
19
-
-
(287)
751
2,310
(3,767)
(1,079)
(5,938)
-
(5,938)
(1,716)
347
-
(1,369)
(1,007)
1,622
3,245
10
3,870
5,359
241
496
5
2,028
605
24
1,253
(123)
3,588
1,040
724
(1,987)
(1,263)
(1,949)
-
462
(1,487)
(1,182)
-
-
-
(1,182)
Net decrease in cash and cash equivalents
Cash and cash equivalents at the beginning of the period
Cash and cash equivalents at the end of the period
(3,437)
7,233
3,796
$
(3,932)
21,465
17,533
$
See Notes to Condensed Consolidated Financial Statements
3
SWISHER HYGIENE INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
NOTE 1 — BASIS OF PRESENTATION
The accompanying Condensed Consolidated Financial Statements have been prepared in accordance with United
States generally accepted accounting principles (“GAAP”) for interim financial information and in accordance with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X promulgated by the Securities and Exchange Commission
(“SEC”) and therefore do not contain all of the information and footnotes required by GAAP and the SEC for annual financial
statements. The Company's Condensed Consolidated Financial Statements reflect all adjustments that management believes
are necessary for the fair presentation of their financial position, results of operations, comprehensive loss and cash flows for
the periods presented. The information at December 31, 2014 in the Company's Condensed Consolidated Balance Sheet
included in this quarterly report was derived from the audited Consolidated Balance Sheet included in the Company's Annual
Report on Form 10-K for the year ended December 31, 2014, filed with the SEC on April 1, 2015. The Company's 2014 Annual
Report on Form 10-K is referred to in this quarterly report as the “2014 Annual Report.” This quarterly report should be read
in conjunction with the 2014 Annual Report.
Intercompany balances and transactions have been eliminated in consolidation. Tabular information, other than share
and per share data, is presented in thousands of dollars. Certain reclassifications have been made to prior year amounts for
consistency with the current period presentation.
The preparation of financial statements in conformity with 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 Condensed Consolidated Financial Statements. Actual results could differ from those estimates and
such differences could affect the results of operations reported in future periods.
The Company's significant accounting policies are discussed in Note 1 of the Notes to Consolidated Financial
Statements in our 2014 Annual Report. There have been no significant changes to those policies.
On June 3, 2014, a one-for-ten reverse split of the Company's issued and outstanding common stock, $0.001 par value
per share, became effective ("Reverse Stock Split"). Trading of the common stock on a post-Reverse Stock Split adjusted basis
began at the open of business on the morning of June 3, 2014. All historic share and per share information, including loss per
share, in this Form 10-Q have been retroactively adjusted to reflect the Reverse Stock Split.
Going Concern
Our Condensed Consolidated Financial Statements were prepared on a going concern basis in accordance with U.S.
GAAP. The going concern basis of presentation assumes that we will continue in operation for the next twelve months and will
be able to realize our assets and discharge our liabilities and commitments in the normal course of business and does not include
any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and
classification of liabilities that may result from our inability to continue as a going concern. The Company has suffered recurring
losses from operations and has not generated positive cash flows from operations. These factors raise substantial doubt about
the Company’s ability to continue as a going concern. In order for us to continue operations beyond the next twelve months
and be able to discharge our liabilities and commitments in the normal course of business, we must do, but not limited to, some
or all of the following: (i) improve operating results through improved customer retention, profitable organic revenue growth,
and continued improvements in cost efficiencies; (ii) sell additional non-core or non-essential assets; (iii) raise additional
equity; and/or (iv) obtain additional financing through debt. There can be no assurance that we will be able to improve operating
results or obtain additional funds by selling additional non-core or non-essential assets, raising additional equity or obtaining
additional financing when needed or that such funds, if available, will be obtainable on terms satisfactory to us.
If we are not able to improve operating results or obtain additional funds by selling additional non-core or non-essential
assets, raising additional equity or obtaining additional financing, material adverse events may occur including, but not limited
to: 1) a reduction in the nature and scope of our operations, 2) our inability to fully implement our current business plan, and
3) defaults under the Credit Facility (as defined below). There can be no assurances that we will be able to successfully improve
our liquidity position. Our consolidated financial statements do not reflect any adjustments that might result from the adverse
outcome relating to this uncertainty.
4
Newly Issued Accounting Pronouncements
In April, 2014, the Financial Accounting Standards Board issued Accounting Standards Update ASU No. 2014-08,
Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. The amendments in this
accounting standard raise the threshold for a disposal to qualify as a discontinued operation and require new disclosures of both
discontinued operations and certain other disposals that do not meet the definition of a discontinued operation. This accounting
standard update is effective for annual periods beginning on or after December 15, 2014 and related interim periods, with early
adoption allowed. The adoption of this standard did not have a material impact on the Company’s consolidated financial results.
In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update ASU No. 2014-09,
Revenue from Contracts with Customers. This ASU is intended to clarify the principles for recognizing revenue by providing
a more robust framework for addressing revenue issues; improving comparability of revenue recognition practices; and
providing more useful information to users of financial statements through improved revenue disclosure requirements. The
provisions of this ASU are effective for interim and annual periods beginning after December 15, 2016. The Company is
currently evaluating the impact of this standard and has elected to not adopt the standard early.
In August 2014, the Financial Accounting Standards Board issued ASU Update No. 2014-15, Disclosure of
Uncertainties about an Entity’s Ability to Continue as a Going Concern. This ASU provides guidance related to management’s
responsibility to evaluate whether there is substantial doubt about the entity’s ability to continue as a going concern and to
provide related footnote disclosures. The new requirements are effective for the annual periods ending after December 15,
2016, and for interim periods and annual periods thereafter. Early adoption is permitted. The Company is currently evaluating
the impact of this standard and has elected to not adopt the standard early.
NOTE 2 — DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE
Discontinued Operations
For the three months ended March 31, 2015, there were no discontinued operations. For the three months ended March
31, 2014, net cash used in operating activities of discontinued operations was $2.0 million and consisted of payments primarily
related to legal fees and the settlement of a contractual dispute that the Company accepted responsibility to resolve as a part of
the sale of the Waste segment. The Company completed the sale of its Waste segment on November 15, 2012.
Assets Held For Sale
In accordance with ASC 360, Property, Plant and Equipment, certain non-core linen assets have been classified as
assets held for sale in the Condensed Consolidated Balance Sheet and the assets were adjusted to the lower of historical carrying
amount or fair value. Fair value is based on the estimated sales price, less selling costs, of the assets. Estimates of the net sales
proceeds are derived using Level 3 inputs, including the Company’s estimates related to industry multiples of revenues or
operating metrics, the status of ongoing sales negotiations and asset purchase agreements where available. The Company’s
estimates of fair value require significant judgment and are regularly reviewed and subject to change based on market
conditions, changes in the customer base of the operations or routes, and our continuing evaluation as to the facility's acceptable
sale price.
During 2014 the Company updated its estimates of the fair value of certain linen routes and operations to reflect
various events that occurred during the year. The cumulative impairment loss for the twelve months ended December 31, 2014
was $3.0 million, of which $1.9 million was attributable to a reduction in the estimate of net sale proceeds for a linen processing
operation. The factors driving the $1.9 million reduction were the cancellation notifications, received from three major
customers, resulting in a significant loss of forecasted revenue; and the operation’s 2014 year-to-date loss which was in excess
of the Company’s estimates. The Company made the decision to close this linen processing operation and the fair value was
written down to zero. During the three months ended March 31, 2015, the Company completed the sale of equipment of this
closed operation which resulted in the net receipt of $0.3 million in cash, and a $0.3 million gain. The gain is included in “Other
income (expense), net” in the Condensed Consolidated Statements of Operations and Comprehensive Loss.
5
During March 2015, the Board of Directors of the Company approved a resolution to sell the Company’s remaining
linen operation. In accordance with ASC 360, Property, Plant and Equipment, these assets were classified as assets held for
sale at March 31, 2015 and were adjusted to the lower of historical carrying amount or fair value, which was $3.1 million at
March 31, 2015. The estimated fair value was derived based on the assessment of the potential net selling price. The Company
expects that this linen operation will be sold in the second quarter of 2015.
For the three months ended March 31, 2015 and 2014, linen related revenue attributable to the assets held for sale and
sold linen assets was $1.6 million and $2.7 million, respectively. The 2014 annual revenue was $9.6 million.
There were no assets held for sale as of December 31, 2014. The major classes of the assets held for sale as of March
31, 2015 are as follows:
Property and equipment, net
Customer relationships, net
Accounts receivable
Other, net
Total
March 31,
2015
$
$
1,937
459
350
330
3,076
NOTE 3 — GOODWILL AND OTHER INTANGIBLE ASSETS
The Company’s accounting policy is to perform an annual impairment test in the fourth quarter or more frequently
whenever events or circumstances indicated that the carrying value of intangible assets may not be recoverable. On a quarterly
basis, we monitor the key drivers of fair value to detect the existence of indicators or changes that would warrant an interim
impairment test for our intangible assets. Goodwill was fully written-off in the second quarter of 2014 with a non-cash
impairment charge of $5.8 million. There was no impairment of intangible assets as of March 31, 2015.
Amortization expense on finite lived intangible assets for the three months ended March 31, 2015 and 2014 was $1.7
million and $2.0 million, respectively.
NOTE 4 — INVENTORY
Inventory, net of reserves, as of March 31, 2015 and December 31, 2014 consisted of the following:
Finished goods
Raw materials
Work in process
Total
NOTE 5 — EQUITY
March 31,
December 31,
2015
2014
$
$
10,460
2,286
370
13,116
$
$
12,286
2,780
360
15,426
On May 15, 2014, the Reverse Stock Split of the Company’s issued and outstanding common stock at a ratio of one-
for-ten was approved by the Company’s stockholders. The Reverse Stock Split became effective June 3, 2014, pursuant to a
Certificate of Amendment to the Company’s Amended and Restated Certificate of Incorporation filed with the State of
Delaware. The Company is authorized in its Amended and Restated Certificate of Incorporation to issue up to a total of
600,000,000 shares of common stock at a par value of $.001 per share and 10,000,000 shares of preferred stock at a par value
of $.001 per share. The Company’s common stock continues to trade on the Nasdaq Capital Market under the symbol SWSH
under a new CUSIP number. In the Condensed Consolidated Balance Sheets, the Equity section has been retroactively adjusted
to reflect the Reverse Stock Split for all periods presented by reducing the line item Common stock and increasing the line item
Additional paid-in capital, with no change to Equity in the aggregate.
6
Changes in equity for the three months ended March 31, 2015 consisted of the following:
Balance at December 31, 2014
Stock based compensation
Foreign currency translation adjustment
Net loss
Balance at March 31, 2015
Comprehensive Loss
$
$
81,290
109
(26)
(8,831)
72,542
A summary of the changes in the components of accumulated other comprehensive loss for the three months ended
March 31, 2015 is provided below:
Balance at December 31, 2014
Current period other comprehensive loss
Balance at March 31, 2015
NOTE 6 — LONG-TERM DEBT AND OBLIGATIONS
Notes payable
Convertible promissory notes, 4.0%: maturing at various dates through 2016
Capitalized lease obligations and other financing
Total debt and obligations
Long-term debt and obligations due within one year
Long-term debt and obligations
Foreign
Currency
Translation
Adjustment
Employee
Benefit Plan
Adjustment,
Net of Tax
Accumulated
Other
Comprehensive
Loss
$
$
(125) $
(26)
(151) $
(1,182) $
-
(1,182) $
(1,307)
(26)
(1,333)
March 31,
December 31,
2015
2014
$
$
$
1,125
624
1,945
3,694
(2,623)
$
1,071
1,193
832
1,044
3,069
(1,884)
1,185
Interest on notes payable range between 3.6% and 4.0% and mature at various dates through 2019. At the Company’s
election, the Company may settle, at any time prior to and including the maturity date, any portion of the outstanding convertible
promissory notes’ principal balance of $0.6 million, plus accrued interest, in a combination of cash and shares of common
stock. To the extent that the Company’s common stock is part of such settlement, the settlement price is the most recent closing
price of the Company’s common stock on the trading day prior to the date of settlement. Although none of these notes have
been settled to date with shares, if all notes outstanding at March 31, 2015 were to be settled with shares the Company would
issue 337,278 shares of common stock based on the per share value at March 31, 2015.
On August 29, 2014, the Company entered into a $20.0 million revolving credit facility, through the execution of a
Loan and Security Agreement, by and among the Company, as Guarantor, and certain subsidiaries of the Company and
collectively, as Borrower, and Siena Lending Group LLC, as Lender (the “Credit Facility”). The Credit Facility matures on
August 29, 2017.
Interest on borrowings under the Credit Facility will accrue at the Base Rate plus 2.00% and will be payable
monthly. Base Rate is defined as the greater of (1) the Prime Rate, (2) the Federal Funds Rate plus 0.50%, or (3) 3.25%.
Borrowings and availability under the Credit Facility are subject to a borrowing base and limitations, and compliance
with other terms specified in the agreement. Borrowings under the Credit Facility are secured by a first priority lien on certain
of the Company’s and its subsidiaries’ assets. The calculated borrowing base as of March 31, 2015 was $12.3 million, of which
$4.1 million was outstanding under letters of credit, $3.2 million was outstanding under borrowings and $5.0 million was
unused.
7
The Credit Facility contains certain customary representations and warranties, and certain customary covenants on
the Company’s ability to, among other things, incur additional indebtedness, create liens or other encumbrances, sell or
otherwise dispose of assets, and merge or consolidate with other entities or enter into a change of control transaction. The
Credit Facility contains various events of default. The Company has met all required covenants under the Credit Facility as of
March 31, 2015.
The Company entered into a letter agreement, dated as of March 25, 2015, as amended (“Letter Agreement”), with
its Lender in respect of the occurrence of a Springing DACA Event, as such term is defined in the Loan and Security Agreement
dated as of August 29, 2014, among the Company, certain of the Company’s subsidiaries, and its Lender. The Lender
temporarily waived certain cash management requirements and certain expanded reporting requirements that would otherwise
go into effect upon occurrence of a Springing DACA Event until May 12, 2015.
The Company has entered into capitalized lease obligations with third party finance companies to finance the cost of
certain equipment. At March 31, 2015, these obligations bore interest at rates ranging between 4.0% and 18.4% and at
December 31, 2014, interest ranged between 4.0% and 18.4%.
The fair value of the Company's debt is estimated based on the current borrowing rates available to the Company for
bank loans with similar terms and maturities, and approximates the carrying value of these liabilities.
NOTE 7 — OTHER INCOME (EXPENSE), NET
Interest income
Interest expense
Foreign currency
Other
Total other income (expense), net
Three Months Ended
March 31,
2015
2014
$
$
-
(95)
(71)
280
114
$
$
4
(78)
(15)
(628)
(717)
As described in Note 2, “Discontinued Operations and Assets Held for Sale”, “Other” for the three months ended
March 31, 2015, primarily consists of a $0.3 million gain related to the sale of equipment of a closed operation, and for the
three months ended March 31, 2014, primarily represents a $0.6 million loss related to the sale of assets held for sale.
NOTE 8 — SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for income taxes
Cash paid for interest
Cash received from interest
NOTE 9 — LOSS PER SHARE
Three Months Ended March 31,
2015
2014
$
$
$
-
95
-
$
$
$
20
78
5
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. Shares of common stock underlying outstanding stock options of
which the market price of the common stock is higher than the exercise price of the related stock awards and unvested restricted
stock units of 6,603 were not included in the computation of diluted loss per share for the three months ended March 31,
2015, since their inclusion would be anti-dilutive.
Shares of common stock underlying outstanding stock options of which the market price of the common stock is
higher than the exercise price of the related stock awards and unvested restricted stock units of 32,480 were not included in the
computation of diluted loss per share for the three months ended March 31, 2014 since their inclusion would be anti-dilutive.
8
NOTE 10 — INCOME TAXES
In projecting the Company’s income tax expense for 2015, management has concluded that it is not more likely than
not that the Company will realize the benefit of its deferred tax assets and as a result a full valuation allowance will be required
as of December 31, 2015. Therefore, the Company has not recognized a tax benefit as it relates to the current loss for the period
ended March 31, 2015.
For the three months ended March 31, 2015, the Company has recorded an estimate for income taxes based on the
Company’s projected income tax expense for the twelve month period ending December 31, 2015. The Company’s tax
provision has an unusual relationship to pretax loss mainly because of the existence of a full deferred tax asset valuation
allowance. This circumstance generally results in a zero net tax provision since the income tax expense or benefit that would
otherwise be recognized is offset by the change to the valuation allowance. However, tax expense recorded in the first quarter
of 2015 included the accrual of income tax expense related to an additional valuation allowance in connection with the tax
amortization of the Company’s indefinite-lived intangible assets that was not available to offset existing deferred tax assets
(termed a “naked credit”). Specifically, the Company does not consider the deferred tax liabilities related to indefinite lived
intangible assets when determining the need for a valuation allowance.
NOTE 11— RELATED PARTY TRANSACTIONS
The Company paid fees 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 significant shareholder, former director and three former executives of
the Company have a controlling interest. Fees paid during the three months ended March 31, 2015 and 2014 were less than
$0.1 million, respectively.
As discussed further below in Note 12, “Commitments and Contingencies,” the Company entered into a
Manufacturing and Supply Agreement (the “Cavalier Agreement”) with a plant in connection with its acquisition of Sanolite
in July 2011. The Cavalier Agreement was terminated in September 2014, pursuant to the terms of the agreement. In connection
with the acquisition in 2011, two of the owners of both Sanolite and the manufacturing plant became Company
employees. There were no purchases, pursuant to the Cavalier Agreement, for the three months ended March 31, 2015 and
$1.5 million at March 31, 2014. At March 31, 2015 and December 31, 2014, the Company had less than $0.1 million and $0.3
million included in accounts payable due to this entity, respectively. As described below, the transactions pursuant to the
Cavalier Agreement were considered to be conducted at the going market prices for such products.
The Company is obligated to make lease payments pursuant to certain real property and equipment lease agreements
with employees that were former owners of acquired companies. Such lease payments during the three months ended March
31, 2015 and 2014 were $0.2 million.
NOTE 12 — COMMITMENTS AND CONTINGENCIES
Guarantees
In connection with a distribution agreement entered into in December 2010, the Company provided a guarantee that
the distributor's 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 distributor's 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
a pre-designated amount. No value was assigned to the fair value of the guarantee at March 31, 2015 and December 31, 2014,
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 Condensed
Consolidated Financial Statements. This liability would be considered a Level 3 financial instrument given the unobservable
inputs used in the projected cash flow model.
As discussed above in Note 11, “Related Party Transactions,” the Company entered into the Cavalier Agreement. The
agreement, which was scheduled to expire on December 31, 2012, was extended for an additional two year period with an
automatic 18-month renewal term and a six month termination provision. The agreement provides for pricing adjustments, up
or down, on the first of each month based on the vendor's actual average product costs incurred during the prior month.
Additional product payments made by the Company due to the vendors pricing adjustment as a result of this agreement have
not been significant and have not represented costs materially above the going market price for such product. The Cavalier
Agreement was terminated in September 2014 pursuant to the terms of the agreement.
9
LEGAL MATTERS
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 no assurance can be given 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.
Securities Litigation
On May 21, 2012, a stockholder derivative action was brought against the Company's former CEO and former CFO
and the Company's then directors for alleged breaches of fiduciary duty by a purported Company stockholder in the United
States District Court for the Southern District of New York. In this derivative action, captioned Arsenault v. Berrard, et al.,
1:12-cv-4028, the plaintiff seeks to recover for the Company damages arising out of the Company's March 28, 2012
announcement regarding the Board of Director’s conclusion that the Company's previously issued interim financial statements
for the quarterly periods ended March 31, 2011, June 30, 2011 and September 30, 2011, and the other financial information in
the Company's quarterly reports on Form 10-Q for the periods then ended, should no longer be relied upon and that an internal
review by the Company's Audit Committee primarily relating to possible adjustments to the Company's financial statements
was ongoing.
On August 13, 2012, the Arsenault derivative action, along with other related putative class actions in the Southern
District of New York, was transferred to the United States District Court for the Western District of North Carolina where other
related putative securities class actions. All action were consolidated under the caption In re Swisher Hygiene, Inc. Securities
and Derivative Litigation, MDL No. 2384. On August 21, 2012, the Western District of North Carolina issued an order
governing the practice and procedure in the actions transferred to the Western District of North Carolina as well as the actions
originally filed there. On October 18, 2012, the Western District of North Carolina held an Initial Pretrial Conference at which
it appointed lead counsel and lead plaintiffs for the securities class actions, and set a schedule for the filing of a consolidated
class action complaint and defendants' time to answer or otherwise respond to the consolidated class action complaint. The
Western District of North Carolina stayed the Arsenault derivative action, pending the outcome of the securities class actions.
On August 6, 2014, following a hearing, the Western District of North Carolina approved a settlement of the securities
class actions, and issued an Order and Final Judgment that, among other things, dismissed the securities class actions pending
in the United States with prejudice and provided for full and complete releases to defendants. The Arsenault derivative action
is still pending.
On June 11, 2013, an individual action was filed in the United States. District Court for the Southern District of Florida
captioned Miller, et al. v. Swisher Hygiene, Inc., et al., No. 0:13-CV-61292-JAL, against the Company, its former CEO and
former CFO, and a former Company director, bringing state and federal claims founded on the allegations that in deciding to
sell their company to the Company, plaintiffs relied on defendants' statements about such things as the Company's accounting
and internal controls, which, in light of the Company’s restatement of its financial statements, were false. On July 17, 2013,
the Company notified the United States Judicial Panel on Multidistrict Litigation ("MDL Panel") of this action, and requested
that it be transferred and centralized in the Western District of North Carolina with the other actions pending there. On July 23,
2013, the MDL Panel issued a Conditional Transfer Order (the "Miller CTO"), conditionally transferring the case to the Western
District of North Carolina. On July 29, 2013, plaintiffs notified the MDL Panel that they would seek to vacate the Miller CTO.
In light of the proceedings in the MDL Panel, defendants requested that the Southern District of Florida stay all proceedings
pending the MDL Panel's ruling. On August 6, 2013, the Southern District of Florida issued a stay of all proceedings pending
a ruling by the MDL Panel. On October 2, 2013, following briefing on the issue of whether the Miller CTO should be vacated,
the MDL Panel issued an order transferring the action to the Western District of North Carolina. The Company and the
individual defendants filed motions to dismiss the complaint on March 20, 2014. Briefing on the motions to dismiss was
completed on May 12, 2014. On June 2, 2014, plaintiffs filed a motion with the Western District of North Carolina seeking a
suggestion for remand from that Court to the MDL Panel. Briefing on that motion was completed on June 26, 2014. Oral
argument on the motions to dismiss and motion for suggestion for remand were heard on July 22, 2014. On August 5, 2014,
the Western District of North Carolina denied plaintiffs' motion for suggestion for remand. On October 22, 2014, the Company
filed a notice of supplemental authority in support of its motion to dismiss the complaint in this action. On November 4, 2014,
plaintiffs filed a response to the notice of supplemental authority.
10
On December 17, 2013, a purported stockholder commenced a putative securities class action on behalf of purchasers
of the Company's common stock on the Toronto Stock Exchange or any other Canadian trading platforms in the Ontario
Superior Court of Justice, captioned Edwards v. Swisher Hygiene, Inc., et al., CV 13-20282 CP, against the Company, the
former CEO and former CFO. The action alleges claims under Canadian law for alleged misrepresentations of the Company's
financial position relating to its business acquisitions. On February 13, 2014, a Fresh Statement of Claim and Fresh Notice of
Action were filed, adding an additional named plaintiff. On March 28, 2014, another purported stockholder commenced a
putative securities class action on behalf of purchasers of the Company's common stock on the Toronto Stock Exchange or any
other Canadian trading platforms in the Ontario Superior Court of Justice, captioned Phillips v. Swisher Hygiene, Inc., et al.,
CV 14-00501096-0000, against the Company, the former CEO, the former CFO and the Company's former Senior Vice
President and Treasurer. The action alleges claims under Canadian law stemming from the Company's restatement.
Although the Company believed it had meritorious defenses to the asserted claims in the two securities class actions
pending in Canada, the defendants agreed to terms of settlement and executed a settlement agreement resolving all claims in
both securities class actions pending there, which was approved by the Ontario Superior Court of Justice by Order dated
February 13, 2015 (the "Canadian Settlement"). The Canadian Settlement provides that defendants will make a set cash
payment totaling $0.7 million, including legal fees, all from insurance proceeds, to settle all of the Canadian securities class
actions, with full and complete releases provided to the defendants. Notice has been given of the Canadian Settlement.
Other Matters
The Company has been contacted by the staff of the Atlanta Regional Office of the SEC and by the United States
Attorney's Office for the Western District of North Carolina (the "U.S. Attorney's Office") after the Company's March 28, 2012
public announcement of the Audit Committee's internal review and the delays in filing its periodic reports. The Company has
been asked to make certain individuals available and to provide certain information about these matters to the SEC and the U.S.
Attorney's Office. The Company is fully cooperating with the SEC and the U.S. Attorney's Office. Any action by the SEC, the
U.S. Attorney's Office or other government agency could result in criminal or civil sanctions against the Company and/or
certain of its current or former officers, directors or employees.
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
You should read the following discussion and analysis in conjunction with our unaudited Condensed Consolidated
Financial Statements and the related notes thereto included in Item 1 of this Quarterly Report on Form 10-Q as well as our
“Selected Financial Data” and our audited Consolidated Financial Statements and the related notes thereto included in Item
6 and Item 8, respectively, of our Annual Report on Form 10-K for the year ended December 31, 2014 (the “2014 Form 10-
K”). In addition to historical consolidated financial information, this discussion and analysis contains forward-looking
statements that reflect our plans, estimates, and beliefs. Actual results could differ from these expectations as a result of certain
risk factors, including those described under Item 1A, “Risk Factors,” of our 2014 Form 10-K and this Quarterly Report on
Form 10-Q.
Business Overview
We currently operate in one business segment, Hygiene, which encompasses providing essential hygiene and
sanitizing service solutions to customers in a wide range of end-markets, including foodservice, hospitality, retail and healthcare
industries. Certain of our products are registered with the Environmental Protection Agency and follow the Center for Disease
Control guidelines for disinfection of surface areas such as children’s playgrounds, hospitals, and assisted living
environments. We sell consumable products such as detergents, cleaning chemicals, soap, paper, water filters and supplies,
together with the rental and servicing of dish machines and other equipment for the dispensing of those products as well as
additional services such as the deep cleaning and sanitizing of restrooms and other facilities. We continue to see the positive
impact of cost efficiencies, capital resource management and planning, plant consolidations and route optimization efforts;
however, we believe we still need to increase revenue in order to maximize our profitability. We are committed to our
philosophy of Service, People and Profitability and to Selling Through Service. To that end, we have commenced a realignment
of our field service and sales teams to better serve our customers since we believe this will ultimately drive increased revenues
through improved customer retention and the ability to leverage our current customer base.
Critical Accounting Policies and Estimates
The preparation of our financial statements requires management to make estimates and assumptions that affect the
reported amounts of assets, liabilities, sales and expenses. We believe the most complex and sensitive judgments, because of
their significance to the Consolidated Financial Statements, result primarily from the need to make estimates about the effects
of matters that are inherently uncertain. Management’s Discussion and Analysis of Financial Condition and Results of
Operations and Note 1 to the Consolidated Financial Statements in our 2014 Form 10-K, describe these significant accounting
estimates and policies used in preparation of the Consolidated Financial Statements. Actual results in these areas could differ
from management’s estimates. There have been no significant changes in our critical accounting policies since the filing of the
2014 Form 10-K.
Newly Issued Accounting Pronouncements
In April, 2014, the Financial Accounting Standards Board issued Accounting Standards Update ASU No. 2014-08,
Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. The amendments in this
accounting standard raise the threshold for a disposal to qualify as a discontinued operation and require new disclosures of both
discontinued operations and certain other disposals that do not meet the definition of a discontinued operation. This accounting
standard update is effective for annual periods beginning on or after December 15, 2014 and related interim periods, with early
adoption allowed. The adoption of this standard did not have a material impact on the Company’s consolidated financial results.
In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update ASU No. 2014-09,
Revenue from Contracts with Customers. This ASU is intended to clarify the principles for recognizing revenue by providing
a more robust framework for addressing revenue issues; improving comparability of revenue recognition practices; and
providing more useful information to users of financial statements through improved revenue disclosure requirements. The
provisions of this ASU are effective for interim and annual periods beginning after December 15, 2016. The Company is
currently evaluating the impact of this standard and has elected to not adopt the standard early.
12
In August 2014, the Financial Accounting Standards Board issued ASU Update No. 2014-15, Disclosure of
Uncertainties about an Entity’s Ability to Continue as a Going Concern. This ASU provides guidance related to management’s
responsibility to evaluate whether there is substantial doubt about the entity’s ability to continue as a going concern and to
provide related footnote disclosures. The new requirements are effective for the annual periods ending after December 15,
2016, and for interim periods and annual periods thereafter. Early adoption is permitted. The Company is currently evaluating
the impact of this standard and has elected to not adopt the standard early.
Assets Held for Sale
In accordance with ASC 360, Property, Plant and Equipment, these assets have been classified as assets held for sale
in the Condensed Consolidated Balance Sheet and the assets were adjusted to the lower of historical carrying amount or fair
value. Fair value is based on the estimated sales price, less selling costs, of the assets. Estimates of the net sales proceeds are
derived using Level 3 inputs, including the Company’s estimates related to industry multiples of revenues or operating metrics,
the status of ongoing sales negotiations and asset purchase agreements where available. The Company’s estimates of fair value
require significant judgment and are regularly reviewed and subject to change based on market conditions, changes in the
customer base of the operations or routes, and our continuing evaluation as to the facility's acceptable sale price.
During 2014 the Company updated its estimates of the fair value of certain linen routes and operations to reflect
various events that occurred during the year. The cumulative impairment loss for the twelve months ended December 31, 2014
was $3.0 million, of which $1.9 million was attributable to a reduction in the estimate of net sale proceeds for a linen processing
operation. The factors driving the $1.9 million reduction were the cancellation notifications, received from three major
customers, resulting in a significant loss of forecasted revenue; and the operation’s 2014 year-to-date loss which was in excess
of the Company’s estimates. The Company made the decision to close this linen processing operation and the fair value was
written down to zero. During the three months ended March 31, 2015, the Company completed the sale of equipment of this
closed operation which resulted in the net receipt of $0.3 million in cash, and a $0.3 million gain. The gain is included in “Other
income (expense), net” in the Condensed Consolidated Statements of Operations and Comprehensive Loss.
During March 2015, the Board of Directors of the Company approved a resolution to sell the Company’s remaining
linen operation. In accordance with ASC 360, Property, Plant and Equipment, these assets were classified as assets held for
sale at March 31, 2015 and were adjusted to the lower of historical carrying amount or fair value, which was $3.1 million at
March 31, 2015. The estimated fair value was derived based on the assessment of the potential net selling price. The Company
expects that this linen operation will be sold in the second quarter of 2015.
For the three months ended March 31, 2015 and 2014, linen related revenue attributable to the assets held for sale and
sold linen assets was $1.6 million and $2.7 million, respectively. The 2014 annual revenue was $9.6 million.
RESULTS OF CONTINUING OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2015
Revenue
Revenue from products is primarily comprised of the sales and delivery of consumable products such as detergents
and cleaning chemicals, the rental, sales and servicing of dish machines and other equipment used to dispense those products,
the sale of paper items, rental fees, linen processing and other ancillary product sales. Revenues from services are primarily
comprised of manual cleaning and delivery service fees. Franchise and other consists of fees charged to franchisees.
Total revenue and the revenue derived from each revenue type for the three months ended March 31, 2015 and 2014
are as follows:
Revenue
Products
Services
Franchise and other
Total revenue
$
Consolidated revenue decreased $4.5 million or 9.2% to $43.8 million for the three months ended March 31, 2015
compared to 2014. Excluding revenue generated from linen assets sold and held for sale for the three months ended March 31,
2015
$
2014
%
(In thousands)
$
39,263
4,328
250
43,841
89.5%
9.9%
0.6%
100.0% $
43,241
4,694
360
48,295
89.6%
9.7%
0.7%
100.0%
%
13
2015 and 2014, consolidated revenue decreased 7.2% on a comparable basis. Product revenue decreased $4.0 million partially
due to a $1.2 million decrease related to linen assets sold or held for sale. The remaining $2.8 million decrease is primarily due
to a $1.8 million reduction in purchasing from large wholesale and distribution customers, and the attrition of $0.3 million in
customers resulting from the termination of the Manufacturing and Supply Agreement (the “Cavalier Agreement”) which was
terminated in September 2014. Service revenues declined $0.4 million due to the loss of hygiene customers and customers sold
in connection with assets held for sale. Franchise and other revenue declined $0.1 million primarily due to the timing of
purchases with one of our international licensee.
Cost of Sales
Cost of sales consists primarily of the cost of chemical, paper, air freshener and other consumable products sold to, or
used in the servicing of, our customers. These costs are exclusive of route expense and related depreciation and amortization.
Cost of sales for the three months ended March 31, 2015 and 2014 are as follows:
Cost of Sales
Products
Services
Franchise and other
Total cost of sales
2015
%(1)
2014
(In
thousands)
$
$
19,852
1
109
19,962
50.6%
0.0%
43.9%
45.5%
$
$
21,580
134
98
21,812
%(1)
49.9%
2.9%
27.2%
45.2%
(1) Represents cost as a percentage of the respective product and service line revenue.
Cost of sales decreased $1.9 million or 8.5% to $20.0 million for the three months ended March 31, 2015, compared
to 2014 primarily due to a decline in sales volume. As a percentage of sales, consolidated cost of sales increased slightly from
45.2% to 45.5%.
Route Expenses
Route expenses consist of costs incurred by the Company for the delivery of products and providing services to
customers. The components of route expenses for the three months ended March 31, 2015 and 2014 are as follows:
Route Expenses
Compensation
Vehicle and other expenses
Total route expenses
2015
%(1)
2014
(In
thousands)
%(1)
$
$
9,127
2,565
11,692
20.9%
5.9%
26.8%
$
$
9,417
2,947
12,364
19.7%
6.1%
25.8%
(1) Represents route expenses as a percentage of total non-franchise revenue.
Route expenses decreased $0.7 million or 5.4% to $11.7 million for the three months ended March 31, 2015 compared
to 2014. The components of this change were decreases in compensation of $0.3 million and also decreases in vehicle and other
expenses of $0.4 million. Route expense as a percentage of total revenue was 26.8% and 25.8% for the three months ended
March 31, 2015 and 2014, respectively. The increase as a percentage of revenue was primarily due to the decline in revenue
from the prior period.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist primarily of the costs incurred for:
● Local office and field management support costs that are related to field operations. These costs include
compensation, occupancy expense and other general and administrative expenses.
● Selling expenses which include compensation and commissions for local sales representatives and corporate
account representatives.
14
● Marketing expenses.
● Corporate office expenses which include executive management, information technology, human resource,
accounting, purchasing and other support costs.
The details of selling, general and administrative expenses for the three months ended March 31, 2015 and 2014 are
as follows:
Selling, General & Administrative Expenses
Compensation
Occupancy
Other
Total selling, general & administrative expenses
(1) Represents expenses as a percentage of total revenue.
2015
%(1)
2014
(In
thousands)
$
$
8,646
1,664
6,204
16,514
19.7%
3.8%
14.2%
37.7%
$
$
10,916
2,081
6,773
19,770
%(1)
22.6%
4.3%
14.0%
40.9%
Selling, general and administrative expenses decreased $3.3 million to $16.5 million for the three months ended March
31, 2015 compared to 2014. The components of this change were decreases in compensation of $2.3 million, occupancy of
$0.4 million, and other expenses of $0.6 million. Compensation expense decreased primarily due to headcount reductions, a
reduction in stock based compensation and the sale of the linen businesses. Occupancy decreased due to the closure of a linen
plant and due to ongoing efforts to reduce facility infrastructure costs. Other expenses decreased primarily due to the decrease
in professional fees.
Depreciation and Amortization
Depreciation and amortization consists of depreciation of property and equipment and the amortization of intangible
assets. Depreciation and amortization decreased $0.8 million to $4.6 million or 14.4% for the three months ended March 31,
2015. The decrease is primarily due to the categorization of certain fixed assets as assets held for sale.
Other Income (Expense), Net
Details of other income (expense), net for three months ended March 31, 2015 and 2014 are as follows:
Interest income
Interest expense
Foreign currency loss
Other income (expense)
Total other income (expense), net
2015
2014
(In thousands)
$
$
-
$
(95)
(71)
280
114
$
4
(78)
(15)
(628)
(717)
The increase in other income is due primarily to the $0.3 million gain related to the sale of equipment of a closed
operation during the first quarter of 2015, compared to the loss on sales of certain assets held for sale during the first quarter of
2014.
Income Tax Expense
In projecting the Company’s income tax expense for 2015, management has concluded that it is not more likely than
not that the Company will realize the benefit of its deferred tax assets and as a result a full valuation allowance will be required
as of December 31, 2015. Therefore, the Company has not recognized a tax benefit as it relates to the current loss for the period
ended March 31, 2015.
15
For the three months ended March 31, 2015, the Company has recorded an estimate for income taxes based on the
Company’s projected income tax expense for the twelve month period ending December 31, 2015. The Company’s tax
provision has an unusual relationship to pretax loss mainly because of the existence of a full deferred tax asset valuation
allowance. This circumstance generally results in a zero tax provision since the income tax expense or benefit that would
otherwise be recognized is offset by the change to the valuation allowance. However, tax expense recorded in the first quarter
of 2015 included the accrual of income tax expense related to an additional valuation allowance in connection with the tax
amortization of the Company’s indefinite-lived intangible assets that was not available to offset existing deferred tax assets
(termed a “naked credit”). The Company does not consider the deferred tax liabilities related to indefinite lived intangible assets
when determining the need for a valuation allowance.
Cash Flows Summary
Cash flows from continuing operations for the three months ended March 31, 2015 and 2014 were:
Net cash (used in) provided by operating activities
Net cash used in investing activities
Net cash provided by (used in) financing activities
Net decrease in cash and cash equivalents from continuing operations
2015
2014
(In thousands)
(5,938) $
(1,369)
3,870
(3,437) $
724
(1,487)
(1,182)
(1,945)
$
$
Net cash used in operating activities of $5.9 million increased by $6.7 million primarily due to a $7.5 million change
in working capital. Net cash used in investing activities decreased $0.1 million. Cash provided by financing activities was $3.9
million compared with $1.2 million used during the same period in 2014. The increase of $5.1 million was primarily due to an
increase in proceeds from debt issuances related to insurance financing of $1.6 million and proceeds from line the of credit of
$3.2 million. Cash flows from discontinued operations for the three months ended March 31, 2015 and 2014 were:
Net cash used in operating activities of discontinued operations
Net decrease in cash and cash equivalents from discontinued operations
2015
2014
(In thousands)
$
$
-
-
$
$
(1,987)
(1,987)
Cash flows used in operating activities from discontinued operations in 2014 consisted of payments made related to
legal fees and a settlement payment related to a contractual dispute that the Company accepted responsibility to resolve as a
part of the sale of the Waste segment.
Liquidity and Capital Resources
Going Concern
Our Condensed Consolidated Financial Statements were prepared on a going concern basis in accordance with U.S.
GAAP. The going concern basis of presentation assumes that we will continue in operation for the next twelve months and will
be able to realize our assets and discharge our liabilities and commitments in the normal course of business and does not include
any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and
classification of liabilities that may result from our inability to continue as a going concern. The Company has suffered recurring
losses from operations and has not generated positive cash flows from operations. These factors raise substantial doubt about
the Company’s ability to continue as a going concern. In order for us to continue operations beyond the next twelve months
and be able to discharge our liabilities and commitments in the normal course of business, we must do, but not limited to, some
or all of the following: (i) improve operating results through improved customer retention, profitable organic revenue growth,
and continued improvements in cost efficiencies; (ii) sell additional non-core or non-essential assets; (iii) raise additional
equity; and/or (iv) obtain additional financing through debt. There can be no assurance that we will be able to improve operating
results or obtain additional funds by selling additional non-core or non-essential assets, raising additional equity or obtaining
additional financing when needed or that such funds, if available, will be obtainable on terms satisfactory to us.
16
If we are not able to improve operating results or obtain additional funds by selling additional non-core or non-essential
assets, raising additional equity or obtaining additional financing, material adverse events may occur including, but not limited
to: 1) a reduction in the nature and scope of our operations, 2) our inability to fully implement our current business plan, and
3) defaults under the Credit Facility. There can be no assurances that we will be able to successfully improve our liquidity
position. Our consolidated financial statements do not reflect any adjustments that might result from the adverse outcome
relating to this uncertainty.
Cash Requirements
As a result of the activities discussed above, our cash and cash equivalents decreased by $3.4 million to $3.8 million
at March 31, 2015 compared to $7.2 million at December 31, 2014. 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, equipment, vehicles and software; (ii) working capital; and (iii) payment of principal and interest on
borrowings under our convertible promissory notes, acquisition notes payable and capital lease obligations and other financing.
We expect that through capital resource management and the use of additional customer equipment programs, our annual
capital expenditures in 2015 will be less than 2014 capital expenditures of $8.6 million.
We expect that our cash on hand, the cash flow provided by operating activities along with availability under our
Credit Facility, and the cash flow from investing activities, including the sale of assets held for sale, will be sufficient to execute
our business plan for the next twelve months. However, we believe it is contingent upon improved customer retention, profitable
organic growth and continued improvement in cost efficiencies in 2015. Failure to execute our plan successfully or unforecasted
shortfalls in available cash may require us to alter our plan, sell other non-core or non-essential assets, or raise additional equity
which could be dilutive to existing shareholders or obtain additional financing through debt. There can be no assurances that
such equity and debt and be available and would be likely subject to prevailing market conditions and the company’s
performance.
Credit Facility
On August 29, 2014, we entered into a $20.0 million revolving credit facility, through the execution of a Loan and
Security Agreement, by and among the Company, as Guarantor, and certain subsidiaries of the Company and collectively, as
Borrower, and Siena Lending Group LLC, as Lender (the “Credit Facility”). The Credit Facility matures on August 29, 2017.
Interest on borrowings under the Credit Facility will accrue at the Base Rate plus 2.00% and will be payable
monthly. The Base Rate is defined as the greater of (1) the Prime Rate, (2) the Federal Funds Rate plus 0.50%, or (3) 3.25%.
Borrowings and availability under the Credit Facility are subject to a borrowing base and limitations, and compliance
with other terms specified in the agreement. Borrowings under the Credit Facility are secured by a first priority lien on certain
of the Company’s assets. The calculated borrowing base as of March 31, 2015 was $12.3 million, of which $4.1 million was
outstanding under letters of credit, $3.2 million was outstanding under borrowings and $5.0 million was unused.
The Credit Facility contains certain customary representations and warranties, and certain customary covenants on the
Company’s ability to, among other things, incur additional indebtedness, create liens or other encumbrances, sell or otherwise
dispose of assets, and merge or consolidate with other entities or enter into a change of control transaction. The Credit Facility
contains various events of default. The Company has met all required covenants under the Credit Facility as of March 31,
2015.
Off-Balance Sheet Arrangements
Other than operating leases, there are no significant off-balance sheet financing arrangements or relationships with
unconsolidated entities or financial partnerships which are often referred to as “variable interest entities.” Therefore, there is
no exposure to any financing, liquidity, market or credit risk that could arise had we engaged in such relationships.
17
In connection with a distribution agreement entered into in December 2010 between the Company and a distributor
of Company-owned products, we provided a guarantee that the distributor's 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 distributor's annual operating cash flow does fall below the agreed-to annual minimums, we
reimburse the distributor for any such short fall up to a pre-designated amount. No value was assigned to the fair value of this
guarantee at March 31, 2015 and December 31, 2014 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 provision in the agreement
and thus there is no amount accrued for the guarantee in the Condensed Consolidated Financial Statements.
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-Q, 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-Q 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, except as required by law. 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 independent registered public accounting firm’s report for our audited financial statements for the year
ended December 31, 2014 contains an explanatory paragraph that expresses substantial doubt as to our ability
to continue as a going concern.
● The Company may need to raise additional equity or capital in the future and such capital may not be available
when needed or at all.
● Our failure or inability to meet certain terms of our Credit Facility could have a material adverse effect on
our business, financial condition and results of operations.
● We have identified material weaknesses in our internal control over financial reporting and we may be unable
to develop, implement and maintain appropriate controls in future periods. If the material weaknesses are not
remediated, then they could result in material misstatements to the financial statements.
● Failure to retain our current customers and renew existing customer contracts could adversely affect our
business.
● Changes in economic conditions that impact the industries in which our end-users primarily operate in could
adversely affect our business.
● The financial condition and operating ability of third parties may adversely affect our business.
● We recognized significant impairment charges in 2014 and prior years, and may recognize additional
impairment charges in the future which could adversely affect our results of operations and financial
condition.
● The availability of our raw materials and the volatility of their costs may adversely affect our operations.
18
● We are and may in the future be subject to legal proceedings, the outcome of which are uncertain, and
resolutions adverse to us could negatively affect our earnings, financial condition and cash flows.
● The pricing, terms, and length of customer service agreements may constrain our ability to recover costs and
to make a profit on our contracts.
● 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 consolidation of customers may adversely affect our business, consolidated financial condition or results
of operations.
● We may fail to maintain our listing on The Nasdaq Stock Market.
● The loss of one or more key members of our senior management, or our inability to attract and retain qualified
personnel could adversely impact our business, financial condition and results of operations.
● Increases in fuel and energy costs and fuel shortages 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.
● If our products are improperly manufactured, packaged, or labeled or become adulterated or expire, those
items may need to be recalled or withdrawn from sale.
● Changes in the types or variety of our service offerings could affect our financial performance.
● Prior acquisitions involve a number of risks and could have an adverse effect on results of operations.
● We may not be able to adequately protect our intellectual property and other proprietary rights that are
material to our business.
● Interruptions in our information and telecommunication systems, or a failure to maintain the security,
confidentiality or privacy of sensitive data residing on such systems, could adversely affect our business.
● Insurance policies may not cover all operating risks and a casualty loss beyond the limits of our coverage
could adversely impact our business.
● Our stock price has been and may in the future be volatile, which could cause purchasers of our common
stock to incur substantial losses.
● Certain stockholders may exert significant influence over any corporate action requiring stockholder
approval.
● 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 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risks including changes in interest rates and fuel prices. Borrowings under the Credit Facility
are indexed to a variable interest rate. As of March 31, 2015, there was $3.2 million outstanding under borrowings from our
Credit Facility, and we have $4.1 million of letters of credit outstanding at a fixed fee under our Credit Facility. As of March
31, 2015, a hypothetical 10% change in our interest rate would change our results of operations by less than $0.1 million.
19
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 and commodity 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 increases in whole or in part to our customers
or realize the cost savings needed to offset these increases. This discussion does not consider the effects that may have an
adverse change on the overall economy, and it also does not consider actions we may take to mitigate our exposure to these
changes. We cannot guarantee that the action we take to mitigate these exposures will be successful.
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 potential charges have not been in the past, and we believe will not be going forward,
applicable to all customers. Consequently, an increase in fuel costs normally results in a decrease in our operating margin
percentage. At our current consumption level, a $0.50 per gallon change in the price of fuel changes our fuel costs by
approximately $0.6 million on an annual basis.
ITEM 4.
CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures, as defined in Rule 13a-15(e) under the Securities Exchange Act of
1934, as amended (the “Exchange Act”), that are designed to ensure that information required to be disclosed in the reports
that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods
specified in SEC rules and forms, and, include controls and procedures designed to ensure that such information is accumulated
and communicated to our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”),
as appropriate, to allow timely decisions regarding required disclosure.
In connection with the preparation of this quarterly report, we carried out an evaluation, under the supervision and
with the participation of our management, including our CEO and CFO, of the effectiveness of our disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of March 31, 2015. Based upon that evaluation,
management concluded that the deficiencies in our internal control over financial reporting identified in the 2014 Form 10-K
were under ongoing remediation and therefore continue to exist, and as such our disclosure controls and procedures were not
effective as of March 31, 2015 for the following reasons:
● We did not maintain an effective control environment as we lacked sufficient oversight of activities related to our
internal control over financial reporting. In addition, we did not have a sufficient structure in place to identify and
evaluate gaps in the knowledge and technical experience of the accounting personnel responsible for the
implementation and execution of our control environment.
● We did not maintain effective controls over certain control activities. Specifically, the following individual material
weaknesses were identified in connection with our control activities:
● We did not implement effective controls to properly account for the sale, disposal and movement of dish
machines at customer locations and our own facilities, which resulted in substantial post-closing journal entries
that our review process failed to identify.
● We did not implement effective controls to accurately and completely evaluate and calculate our allowance for
doubtful accounts. Additionally, our review process was not sufficient to detect material errors in the
methodology and calculations of the allowance resulting in material post-closing adjustments.
● We did not implement effective controls to properly identify, analyze and account for non-routine transactions
reflected in the financial statements.
● We did not develop and implement and overall financial reporting review process that encompassed all
significant financial statement accounts or contained an appropriate level of precision. This review process did
not identify the issues surrounding the accounting and recording for our dish machines, allowance for doubtful
accounts, and non-routine transactions.
20
● We did not design, implement and maintain effective controls over the corporate review of significant journal
entries processed at our field-level locations, which represents a significant portion of our business, to ensure
that these entries were appropriate in nature and correct.
●
We did not maintain effective controls over user security and program change management for the information
technology systems and accounting software at the field-level locations.
●
●
●
●
We did not maintain effective controls to ensure the timely preparation of financial records sufficient to allow
management adequate time to prevent or detect and correct material misstatements and to fulfill its other control
activity responsibilities.
We did not maintain effective information and communication controls to generate relevant and quality information
for use in the financial reporting close process. These control failures contributed to the transactions involving our
dish machines and to information generated relating to the allowance for doubtful accounts.
We did not maintain effective information and communication controls with external parties due to delays in our
financial statement close process as evidenced by the untimely filing of our Annual Report on form 10-K for the year
ended December 31, 2014, and our failure to identify and timely disclose control deficiencies in previous filings.
We did not maintain effective monitoring controls sufficient to ascertain whether key components of internal control
were present and functioning, as evidenced by our incorrect initial assessment of the effectiveness of our internal
controls over financial reporting.
●
We did not maintain effective monitoring controls to communicate the deficiencies in our internal control over
financial reporting to our board of directors in sufficient time to allow them to take corrective action.
Management has determined that the control deficiencies identified should be considered material weaknesses in our
internal control over financial reporting. A deficiency in internal control over financial reporting exists when the design or
operation of a control does not allow management or employees, in the normal course of performing their assigned functions,
to prevent or detect misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in
internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company's
annual or interim financial statements will not be prevented or detected on a timely basis. Based on its evaluation of internal
control over financial reporting, management has determined that the control deficiencies identified above should be considered
material weaknesses in our internal control over financial reporting.
As set forth below, management has taken and will continue to take steps to remediate the control deficiencies
identified above. Notwithstanding the control deficiencies identified above, management concludes that the financial
statements included in this report fairly represent, in all material aspects, our financial condition, results of operations and cash
flows for the periods presented.
Management's Remediation Plan
As reported in the Annual Report on Form 10-K for the year ended December 31, 2014, we are engaged in remedial
actions in response to the deficiencies discussed above, and we plan to continue efforts underway to improve internal control
over financial reporting:
●
Management will continue to enhance its training programs for our accounting personnel both at the corporate and
field-level, emphasizing financial reporting responsibilities and accountability for implementing and maintaining
effective internal control over financial reporting.
●
Dish machines will be serialized in the fixed asset system to track the movement of the dish machines and periodic
field observations will be performed to ensure the existence and accuracy of these fixed assets.
●
Management will continue to track collection trends across the business and evaluate the accuracy of the assumptions
used in the estimates for the allowance for doubtful accounts on an annual basis, at a minimum.
21
●
Management will put in place controls to properly identify, analyze and account for non-routine transactions and will
use the appropriate level of oversight to ensure the transactions are reflected accurately and timely in the financial
statements.
●
Management continues to implement controls over user access and change management related to the field-level
information technology systems.
●
Management will perform a comprehensive review to re-evaluate our activities related to internal control over
financial reporting, including monitoring controls related to the operating effectiveness, timeliness and
communication of certain control activities.
While management and our audit committee are closely monitoring the implementation of these remediation plans,
there is no assurance that the aforementioned plans will be sufficient to fully remediate the deficiencies identified above and
that additional remediation steps may be necessary.
Changes in Internal Control over Financial Reporting
Other than the changes noted above to remediate the previously reported material weaknesses, there have been no
adverse changes in our internal control over financial reporting during the quarter ended March 31, 2015 that have materially
affected, or are reasonably likely to materially affect, our internal control over financial reporting.
22
ITEM 1.
LEGAL PROCEEDINGS
PART II. OTHER INFORMATION
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 no assurance can be given 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.
Securities Litigation
On May 21, 2012, a stockholder derivative action was brought against the Company's former CEO and former CFO
and the Company's then directors for alleged breaches of fiduciary duty by a purported Company stockholder in the United
States District Court for the Southern District of New York. In this derivative action, captioned Arsenault v. Berrard, et al.,
1:12-cv-4028, the plaintiff seeks to recover for the Company damages arising out of the Company's March 28, 2012
announcement regarding the Board of Director’s conclusion that the Company's previously issued interim financial statements
for the quarterly periods ended March 31, 2011, June 30, 2011 and September 30, 2011, and the other financial information in
the Company's quarterly reports on Form 10-Q for the periods then ended, should no longer be relied upon and that an internal
review by the Company's Audit Committee primarily relating to possible adjustments to the Company's financial statements
was ongoing.
On August 13, 2012, the Arsenault derivative action, along with other related putative class actions in the Southern
District of New York, was transferred to the United States District Court for the Western District of North Carolina where other
related putative securities class actions. All action were consolidated under the caption In re Swisher Hygiene, Inc. Securities
and Derivative Litigation, MDL No. 2384. On August 21, 2012, the Western District of North Carolina issued an order
governing the practice and procedure in the actions transferred to the Western District of North Carolina as well as the actions
originally filed there. On October 18, 2012, the Western District of North Carolina held an Initial Pretrial Conference at which
it appointed lead counsel and lead plaintiffs for the securities class actions, and set a schedule for the filing of a consolidated
class action complaint and defendants' time to answer or otherwise respond to the consolidated class action complaint. The
Western District of North Carolina stayed the Arsenault derivative action, pending the outcome of the securities class actions.
On August 6, 2014, following a hearing, the Western District of North Carolina approved a settlement of the securities
class actions, and issued an Order and Final Judgment that, among other things, dismissed the securities class actions pending
in the United States with prejudice and provided for full and complete releases to defendants. The Arsenault derivative action
is still pending.
On June 11, 2013, an individual action was filed in the United States. District Court for the Southern District of Florida
captioned Miller, et al. v. Swisher Hygiene, Inc., et al., No. 0:13-CV-61292-JAL, against the Company, its former CEO and
former CFO, and a former Company director, bringing state and federal claims founded on the allegations that in deciding to
sell their company to the Company, plaintiffs relied on defendants' statements about such things as the Company's accounting
and internal controls, which, in light of the Company’s restatement of its financial statements, were false. On July 17, 2013,
the Company notified the United States Judicial Panel on Multidistrict Litigation ("MDL Panel") of this action, and requested
that it be transferred and centralized in the Western District of North Carolina with the other actions pending there. On July 23,
2013, the MDL Panel issued a Conditional Transfer Order (the "Miller CTO"), conditionally transferring the case to the Western
District of North Carolina. On July 29, 2013, plaintiffs notified the MDL Panel that they would seek to vacate the Miller CTO.
In light of the proceedings in the MDL Panel, defendants requested that the Southern District of Florida stay all proceedings
pending the MDL Panel's ruling. On August 6, 2013, the Southern District of Florida issued a stay of all proceedings pending
a ruling by the MDL Panel. On October 2, 2013, following briefing on the issue of whether the Miller CTO should be vacated,
the MDL Panel issued an order transferring the action to the Western District of North Carolina. The Company and the
individual defendants filed motions to dismiss the complaint on March 20, 2014. Briefing on the motions to dismiss was
completed on May 12, 2014. On June 2, 2014, plaintiffs filed a motion with the Western District of North Carolina seeking a
suggestion for remand from that Court to the MDL Panel. Briefing on that motion was completed on June 26, 2014. Oral
argument on the motions to dismiss and motion for suggestion for remand were heard on July 22, 2014. On August 5, 2014,
the Western District of North Carolina denied plaintiffs' motion for suggestion for remand. On October 22, 2014, the Company
filed a notice of supplemental authority in support of its motion to dismiss the complaint in this action. On November 4, 2014,
plaintiffs filed a response to the notice of supplemental authority.
23
On December 17, 2013, a purported stockholder commenced a putative securities class action on behalf of purchasers
of the Company's common stock on the Toronto Stock Exchange or any other Canadian trading platforms in the Ontario
Superior Court of Justice, captioned Edwards v. Swisher Hygiene, Inc., et al., CV 13-20282 CP, against the Company, the
former CEO and former CFO. The action alleges claims under Canadian law for alleged misrepresentations of the Company's
financial position relating to its business acquisitions. On February 13, 2014, a Fresh Statement of Claim and Fresh Notice of
Action were filed, adding an additional named plaintiff. On March 28, 2014, another purported stockholder commenced a
putative securities class action on behalf of purchasers of the Company's common stock on the Toronto Stock Exchange or any
other Canadian trading platforms in the Ontario Superior Court of Justice, captioned Phillips v. Swisher Hygiene, Inc., et al.,
CV 14-00501096-0000, against the Company, the former CEO, the former CFO and the Company's former Senior Vice
President and Treasurer. The action alleges claims under Canadian law stemming from the Company's restatement.
Although the Company believed it had meritorious defenses to the asserted claims in the two securities class actions
pending in Canada, the defendants agreed to terms of settlement and executed a settlement agreement resolving all claims in
both securities class actions pending there, which was approved by the Ontario Superior Court of Justice by Order dated
February 13, 2015 (the "Canadian Settlement"). The Canadian Settlement provides that defendants will make a set cash
payment totaling $0.7 million, including legal fees, all from insurance proceeds, to settle all of the Canadian securities class
actions, with full and complete releases provided to the defendants. Notice has been given of the Canadian Settlement.
Other Matters
The Company has been contacted by the staff of the Atlanta Regional Office of the SEC and by the United States
Attorney's Office for the Western District of North Carolina (the "U.S. Attorney's Office") after the Company's March 28, 2012
public announcement of the Audit Committee's internal review and the delays in filing its periodic reports. The Company has
been asked to make certain individuals available and to provide certain information about these matters to the SEC and the U.S.
Attorney's Office. The Company is fully cooperating with the SEC and the U.S. Attorney's Office. Any action by the SEC, the
U.S. Attorney's Office or other government agency could result in criminal or civil sanctions against the Company and/or
certain of its current or former officers, directors or employees.
ITEM 1A. RISK FACTORS
In addition to the other information set forth in this report, you should carefully consider the risk factors discussed in
Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2014 which could materially affect our
business, financial condition, or future results. There have been no material changes to the risk factors previously disclosed in
our 2014 Form 10-K.
ITEM 5. OTHER INFORMATION
On May 11, 2015, the Lender temporarily waived certain cash management requirements and certain expanded reporting
requirements that would otherwise go into effect upon the occurrence of a Springing DACA Event until May 12, 2015. For
additional information, see Note 6 – Long-term Debt and Obligations of the Condensed Consolidated Financial Statements.
The waiver is filed as Exhibit 10.3, and incorporated herein by reference.
24
ITEM 6.
EXHIBITS
Exhibit
Number Description
10.1
Second Amendment to Employment Agreement by and between Swisher Hygiene Inc. and William M. Pierce,
dated January 31, 2015 (incorporated by reference to Exhibit 10.38 to the Company's Annual Report on Form 10-
K for the year ended December 31, 2014, filed with the Securities and Exchange Commission on April 1, 2015).
†
Letter Agreement, dated as of March 25, 2015, by and among Siena Lending Group LLC and the Borrowers listed
thereto (incorporated by reference to Exhibit 10.39 to the Company's Annual Report on Form 10-K for the year
ended December 31, 2014, filed with the Securities and Exchange Commission on April 1, 2015).
Waiver Letter, dated May 11, 2015, by Siena Lending Group LLC.
Section 302 Certification of Chief Executive Officer.
Section 302 Certification of Chief Financial Officer.
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.*
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.*
10.2
10.3
31.1
31.2
32.1
32.2
XBRL Instance Document.
101.INS
101.SCH XBRL Taxonomy Extension Schema.
101.CAL XBRL Taxonomy Extension Calculation Linkbase.
101.LAB XBRL Taxonomy Extension Label Linkbase.
101.PRE XBRL Taxonomy Extension Presentation Linkbase.
101.DEF XBRL Taxonomy Extension Definition Linkbase.
________________________
*Furnished herewith.
†Management contacts or compensatory plans, contracts or arrangements.
25
Pursuant to the requirements 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.
SIGNATURES
Dated: May 11, 2015
Dated: May 11, 2015
Dated: May 11, 2015
SWISHER HYGIENE INC.
(Registrant)
By: /s/William M. Pierce
William M. Pierce
President and Chief Executive Officer
(Principal Executive Officer)
By: /s/William T. Nanovsky
William T. Nanovsky
Senior Vice President and Chief Financial Officer
(Principal Financial Officer)
By: /s/Linda C. Wilson-Ingram
Linda C. Wilson-Ingram
Vice President, Corporate Controller and Chief
Accounting Officer
(Principal Accounting Officer)
26
EXHIBIT INDEX
Exhibit
Number Description
10.1
Second Amendment to Employment Agreement by and between Swisher Hygiene Inc. and William M. Pierce,
dated January 31, 2015 (incorporated by reference to Exhibit 10.38 to the Company's Annual Report on Form 10-
K for the year ended December 31, 2014, filed with the Securities and Exchange Commission on April 1, 2015).
†
Letter Agreement, dated as of March 25, 2015, by and among Siena Lending Group LLC and the Borrowers listed
thereto (incorporated by reference to Exhibit 10.39 to the Company's Annual Report on Form 10-K for the year
ended December 31, 2014, filed with the Securities and Exchange Commission on April 1, 2015).
Waiver Letter, dated May 11, 2015, by Siena Lending Group LLC.
Section 302 Certification of Chief Executive Officer.
Section 302 Certification of Chief Financial Officer.
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.*
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.*
10.2
10.3
31.1
31.2
32.1
32.2
XBRL Instance Document.
101.INS
101.SCH XBRL Taxonomy Extension Schema.
101.CAL XBRL Taxonomy Extension Calculation Linkbase.
101.LAB XBRL Taxonomy Extension Label Linkbase.
101.PRE XBRL Taxonomy Extension Presentation Linkbase.
101.DEF XBRL Taxonomy Extension Definition Linkbase.
________________________
*Furnished herewith.
†Management contacts or compensatory plans, contracts or arrangements.
27
EXHIBIT 31.1
I, William M. Pierce, certify that:
1 I have reviewed this Quarterly Report on Form 10-Q of Swisher Hygiene Inc.;
CERTIFICATION
2.
3.
4.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made,
not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
b)
c)
d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control
over financial reporting; and
5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or
persons performing the equivalent functions):
a)
b)
All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant's internal control over financial reporting.
Date: May 11, 2015
By: /s/ William M. Pierce
William M. Pierce
President and Chief Executive Officer
(Principal Executive Officer)
EXHIBIT 31.2
I, William T. Nanovsky, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Swisher Hygiene Inc.;
CERTIFICATION
2.
3.
4.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made,
not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
b)
c)
d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control
over financial reporting; and
5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or
persons performing the equivalent functions):
a)
b)
All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant's internal control over financial reporting.
Date: May 11, 2015
By: /s/ William T. Nanovsky
William T. Nanovsky
Senior Vice President and Chief Financial
Officer
(Principal Financial Officer)
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Swisher Hygiene Inc. (the “Company”) for the quarter ended March
31, 2015, as filed with the Securities and Exchange Commission (the “Report”), I, William M. Pierce, President and Chief
Executive Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of
1934, as amended; and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
Date: May 11, 2015
By: /s/ William M. Pierce
William M. Pierce
President and Chief Executive Officer
(Principal Executive Officer)
EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Swisher Hygiene Inc. (the “Company”) for the quarter ended March
31, 2015, as filed with the Securities and Exchange Commission (the “Report”), I, William T. Nanovsky, Senior Vice President
and Chief Financial Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of
1934, as amended; and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
Date: May 11, 2015
By: /s/ William T. Nanovsky
William T. Nanovsky
Senior Vice President and Chief Financial
Officer
(Principal Financial Officer)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2015
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to _____________.
Commission File Number: 001-35067
SWISHER HYGIENE INC.
(Exact Name of Registrant as Specified in Its Charter)
(State or Other Jurisdiction of Incorporation or Organization)
Delaware
27-3819646
(I.R.S. Employer Identification No.)
4725 Piedmont Row Drive, Suite 400
Charlotte, North Carolina
(Address of Principal Executive Offices)
(704) 364-7707
(Registrant's Telephone Number, Including Area Code)
28210
(Zip Code)
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 No
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 No
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:
Larger Accelerated filer
Non-accelerated filer
(Do not check if a smaller reporting company)
Accelerated filer
Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
Number of shares outstanding of each of the registrant's classes of Common Stock at August 6, 2015: 17,628,914 shares of Common
Stock, $0.001 par value per share.
SWISHER HYGIENE INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2015
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Page
ITEM 1.
FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets at June 30, 2015 (Unaudited) and December 31, 2014
Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited) for the
Three and Six Months Ended June 30, 2015 and 2014
Condensed Consolidated Statements of Cash Flows (Unaudited) for the Six Months Ended June 30, 2015
and 2014
Notes to Condensed Consolidated Financial Statements (Unaudited)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 4.
CONTROLS AND PROCEDURES
PART II. OTHER INFORMATION
ITEM 1.
LEGAL PROCEEDINGS
ITEM 1A. RISK FACTORS
ITEM 6.
EXHIBITS
1
1
2
3
4
12
22
22
25
26
26
SWISHER HYGIENE INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
June 30,
2015
(Unaudited)
December 31,
2014
Current assets
Cash and cash equivalents
Restricted cash
Accounts receivable (net of allowance for doubtful accounts of approximately $0.9 million at
June 30, 2015 and $1.0 million at December 31, 2014)
Inventory, net
Deferred income taxes
Other assets
Total current assets
Property and equipment, net
Other intangibles, net
Customer relationships and contracts, net
Other noncurrent assets
Total assets
$
Current liabilities
Accounts payable
Accrued payroll and benefits
Accrued expense
Long-term debt and obligations due within one year
Line of credit
Total current liabilities
Long-term debt and obligations
Deferred income taxes
Other long-term liabilities
Total noncurrent liabilities
$
$
$
1,672
231
7,233
231
16,024
13,592
497
3,367
35,383
32,162
5,471
19,585
1,725
94,326
10,763
2,806
7,741
1,935
611
23,856
931
558
4,028
5,517
$
$
18,751
15,426
534
2,525
44,700
37,037
6,654
22,792
2,015
113,198
13,627
3,467
7,122
1,884
-
26,100
1,185
558
4,065
5,808
Equity
Preferred stock, par value $0.001, authorized 10,000,000 shares; no shares issued and
outstanding at June 30, 2015 and December 31, 2014
Common stock, par value $0.001, authorized 600,000,000 shares; 17,622,216 shares and
17,612,278 shares issued and outstanding at June 30, 2015 and December 31, 2014 (1)
Additional paid-in capital (1)
Accumulated deficit
Accumulated other comprehensive loss
Total equity
Total liabilities and equity
-
-
18
390,145
(323,884)
(1,326)
64,953
94,326
$
18
389,942
(307,363)
(1,307)
81,290
113,198
$
(1) All outstanding share amounts and computations using such amounts have been retroactively adjusted to reflect the June
3, 2014 one-for-ten reverse stock split.
See Notes to Condensed Consolidated Financial Statements
1
SWISHER HYGIENE INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
(In thousands, except share and per share data)
Revenue
Products
Services
Franchise and other
Total revenue
Costs and expenses
Cost of sales (exclusive of route expenses and related
depreciation and amortization)
Route expenses
Selling, general, and administrative expenses
Depreciation and amortization
Impairment loss on assets held for sale
Impairment loss on goodwill and intangible assets
Total costs and expenses
Loss from operations
Other income (expense), net
Net loss before income taxes
Income tax (expense) benefit
Net loss
Comprehensive loss
Foreign currency translation adjustment
Comprehensive loss
Loss per share (1)
Basic and diluted
Three Months Ended June 30,
Six Months Ended June 30,
2015
2014
2015
2014
$
$
40,160
4,398
276
44,834
44,780 $
4,809
366
49,955
$
79,423
8,727
526
88,676
88,021
9,503
726
98,250
20,706
11,630
15,858
4,530
-
166
52,890
(8,056)
357
(7,699)
5
(7,694)
22,973
12,598
17,134
5,175
960
5,821
64,661
(14,706)
(501)
(15,207)
60
(15,147)
40,668
23,321
32,370
9,120
-
166
105,645
(16,969)
471
(16,498)
(23)
(16,521)
44,785
24,961
36,904
10,533
2,989
5,821
125,993
(27,743)
(1,219)
(28,962)
23
(28,939)
8
(7,686) $
16
(15,131) $
(19)
(16,540) $
1
(28,938)
(0.43) $
(0.86) $
(0.93) $
(1.64)
$
$
Weighted-average common shares used in the computation of loss per share (1)
Basic and diluted
17,753,691
17,703,886 17,751,962
17,696,221
(1) All outstanding share amounts and computations using such amounts have been retroactively adjusted to reflect the
June 3, 2014 one-for-ten reverse stock split.
See Notes to Condensed Consolidated Financial Statements
2
SWISHER HYGIENE INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Operating activities
Net loss from continuing operations
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation and amortization
Provision for doubtful accounts
Stock based compensation
Deferred income taxes
Impairment loss on assets held for sale
Impairment loss on intangible assets
Impairment loss on goodwill
Loss on sale of assets
(Gain) loss on sale of assets held for sale
Changes in operating assets and liabilities:
Accounts receivable
Inventory
Accounts payable, accrued expense and other current liabilities
Other assets and non-current assets
Net cash used in operating activities of continuing operations
Net cash used in operating activities of discontinued operations
Cash used in operating activities
Investing activities
Purchases of property and equipment
Cash received on sale of assets held for sale
Cash received on sale of property and equipment
Restricted cash
Cash provided by (used in) investing activities
Financing activities
Principal payments on debt
Proceeds from debt issuances
Proceeds from line of credit, net of issuance costs
Payments on line of credit
Proceeds from capital lease
Taxes paid related to income tax withheld on settlement of equity awards
Cash provided by (used in) financing activities
Six Months Ended June 30,
2015
2014
$
(16,521) $
(28,939)
9,120
553
208
37
-
166
-
339
(1,190)
1,406
1,834
(497)
(2,962)
(7,507)
-
(7,507)
(2,962)
4,463
42
-
1,543
(2,147)
1,934
3,935
(3,324)
10
(5)
403
10,533
231
1,011
(51)
2,989
5,821
54
814
1,732
(512)
3,113
1,421
(1,783)
(2,069)
(3,852)
(4,049)
54
1,149
1,087
(1,759)
(2,525)
-
-
-
(22)
(2,547)
Net decrease in cash and cash equivalents
Cash and cash equivalents at the beginning of the period
Cash and cash equivalents at the end of the period
(5,561)
7,233
1,672
$
(8,158)
21,465
13,307
$
See Notes to Condensed Consolidated Financial Statements
3
SWISHER HYGIENE INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
NOTE 1 — BASIS OF PRESENTATION
The accompanying Condensed Consolidated Financial Statements have been prepared in accordance with United
States generally accepted accounting principles (“GAAP”) for interim financial information and in accordance with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X promulgated by the Securities and Exchange Commission
(“SEC”) and therefore do not contain all of the information and footnotes required by GAAP and the SEC for annual financial
statements. The Company's Condensed Consolidated Financial Statements reflect all adjustments that management believes
are necessary for the fair presentation of their financial position, results of operations, comprehensive loss and cash flows for
the periods presented. The information at December 31, 2014 in the Company's Condensed Consolidated Balance Sheets
included in this quarterly report was derived from the audited Consolidated Balance Sheet included in the Company's Annual
Report on Form 10-K for the year ended December 31, 2014, filed with the SEC on April 1, 2015. The Company's 2014 Annual
Report on Form 10-K is referred to in this quarterly report as the “2014 Annual Report.” This quarterly report should be read
in conjunction with the 2014 Annual Report.
Intercompany balances and transactions have been eliminated in consolidation. Tabular information, other than share
and per share data, is presented in thousands of dollars. Certain reclassifications have been made to prior year amounts for
consistency with the current period presentation.
The preparation of financial statements in conformity with U.S. 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 Condensed Consolidated Financial Statements. Actual results could differ from those estimates and
such differences could affect the results of operations reported in future periods.
The Company's significant accounting policies are discussed in Note 1 of the Notes to Consolidated Financial
Statements in our 2014 Annual Report. There have been no significant changes to those policies.
On June 3, 2014, a one-for-ten reverse split of the Company's issued and outstanding common stock, $0.001 par value
per share, became effective ("Reverse Stock Split"). Trading of the common stock on a post-Reverse Stock Split adjusted basis
began at the open of business on the morning of June 3, 2014. All historic share and per share information, including loss per
share, in this Form 10-Q have been retroactively adjusted to reflect the Reverse Stock Split.
Going Concern
Our Condensed Consolidated Financial Statements were prepared on a going concern basis in accordance with U.S.
GAAP. The going concern basis of presentation assumes that we will continue in operation for the next twelve months and will
be able to realize our assets and discharge our liabilities and commitments in the normal course of business and does not include
any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and
classification of liabilities that may result from our inability to continue as a going concern. The Company has suffered recurring
losses from operations and has not generated positive cash flows from operations. These factors raise substantial doubt about
the Company’s ability to continue as a going concern. In order for us to continue operations beyond the next twelve months
and be able to discharge our liabilities and commitments in the normal course of business, we must do, but not limited to, some
or all of the following: (i) improve operating results through improved customer retention, profitable organic revenue growth,
and continued improvements in cost efficiencies; (ii) sell additional assets; (iii) raise additional equity; and/or (iv) obtain
additional financing through debt. There can be no assurance that we will be able to improve operating results or obtain
additional funds by selling additional assets, raising additional equity or obtaining additional financing when needed or that
such funds, if available, will be obtainable on terms satisfactory to us.
If we are not able to improve operating results or obtain additional funds by selling additional assets, continued
improvements in cost efficiencies, raising additional equity or obtaining additional financing, material adverse events may
occur including, but not limited to: 1) a reduction in the nature and scope of our operations, 2) our inability to fully implement
our current business plan, and 3) defaults under the Credit Facility (as defined below). There can be no assurances that we will
be able to successfully improve our liquidity position. Our condensed consolidated financial statements do not reflect any
adjustments that might result from the adverse outcome relating to this uncertainty.
4
Newly Issued Accounting Pronouncements
In April, 2014, the Financial Accounting Standards Board issued Accounting Standards Update ASU No. 2014-08,
Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. The amendments in this
accounting standard raise the threshold for a disposal to qualify as a discontinued operation and require new disclosures of both
discontinued operations and certain other disposals that do not meet the definition of a discontinued operation. This accounting
standard update is effective for annual periods beginning on or after December 15, 2014 and related interim periods, with early
adoption allowed. The adoption of this standard did not have a material impact on the Company’s consolidated financial results.
In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update ASU No. 2014-09,
Revenue from Contracts with Customers. This ASU is intended to clarify the principles for recognizing revenue by providing
a more robust framework for addressing revenue issues; improving comparability of revenue recognition practices; and
providing more useful information to users of financial statements through improved revenue disclosure requirements. The
provisions of this ASU are effective for interim and annual periods beginning after December 15, 2017. Early adoption is
permitted. The Company is currently evaluating the impact of this standard and has elected to not adopt the standard early.
In August 2014, the Financial Accounting Standards Board issued ASU Update No. 2014-15, Disclosure of
Uncertainties about an Entity’s Ability to Continue as a Going Concern. This ASU provides guidance related to management’s
responsibility to evaluate whether there is substantial doubt about the entity’s ability to continue as a going concern and to
provide related footnote disclosures. The new requirements are effective for the annual periods ending after December 15,
2016, and for interim periods and annual periods thereafter. Early adoption is permitted. The Company is currently evaluating
the impact of this standard and has elected to not adopt the standard early.
NOTE 2 — DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE
Discontinued Operations
For the six months ended June 30, 2015, there were no discontinued operations. For the six month period ended June
30, 2014, net cash used in operating activities of discontinued operations was $2.1 million and consisted of payments primarily
related to legal fees and the settlement of a contractual dispute that the Company accepted responsibility to resolve as a part of
the sale of the Waste segment. The Company completed the sale of its Waste segment on November 15, 2012.
Assets Held For Sale
In accordance with ASC 360, Property, Plant and Equipment, the Company’s estimates of fair value require significant
judgment and are regularly reviewed and subject to change based on market conditions, changes in the customer base of the
operations or routes, and our continuing evaluation as to the facility's acceptable sale price.
During the second quarter of 2014, the Company updated its estimates of the fair value of certain linen routes and
operations to reflect various events that occurred during the period. The cumulative impairment loss for the six months ended
June 30, 2014 was $3.0 million, of which $1.7 million was attributable to a reduction in the estimate of net sale proceeds for a
linen processing operation. The factors driving the $1.7 million reduction were the cancellation notifications, received from
three major customers, resulting in a significant loss of forecasted revenue; and the operation’s 2014 year-to-date loss which
was in excess of the Company’s estimates. The Company made the decision to close this linen processing operation and the
fair value was written down to zero. During the first quarter of 2015, the Company completed the sale of equipment of this
closed operation classified as asset held for sale, resulting in the net receipt of $0.3 million in cash and a $0.3 million gain. The
gain is included in “Other income (expense), net” in the Condensed Consolidated Statements of Operations and Comprehensive
Loss.
During March 2015, the Board of Directors of the Company approved a resolution to sell the Company’s remaining
linen operation. In accordance with ASC 360, Property, Plant and Equipment, these assets were classified as assets held for
sale at March 31, 2015 and were adjusted to the lower of historical carrying amount or fair value, less costs to sell, which was
$3.1 million. The estimated fair value was derived based on the assessment of the potential net selling price. The Company
completed the sale of this linen operation on May 12, 2015 receiving $4.0 million in cash and notes receivable plus purchased
accounts receivables, resulting in a gain of $0.9 million. The gain is included in “Other income (expense), net” in the Condensed
Consolidated Statements of Operations and Comprehensive Loss.
5
For the three and six months ended June 30, 2015, linen related revenue attributable to the assets held for sale and sold
linen assets was $0.7 million and $2.3 million, respectively, and $1.1 million and $2.5 million for the three and six months
ended June 30, 2014, respectively. The 2014 annual revenue was $9.6 million attributable to the assets held for sale and sold
linen assets. As of June 30, 2015, there were no assets held for sale.
NOTE 3 — GOODWILL AND OTHER INTANGIBLE ASSETS
The Company’s accounting policy is to perform an annual impairment test in the fourth quarter or more frequently
whenever events or circumstances indicated that the carrying value of intangible assets may not be recoverable. On a quarterly
basis, we monitor the key drivers of fair value to detect the existence of indicators or changes that would warrant an interim
impairment test for our intangible assets. Goodwill was fully written-off in the second quarter of 2014 with a non-cash
impairment charge of $5.8 million. The Company performed an assessment of its proprietary chemical formulas in the quarter
ended June 30, 2015 because of initiatives throughout the organization to reduce the number of active stock keeping units
(“SKUs”). Upon completion of the assessment and impairment testing, it was determined that the fair value of formulas was
lower than the net book value, resulting in an impairment charge of $0.2 million.
Amortization expense on finite lived intangible assets for the three months ended June 30, 2015 and 2014 was $1.7
and $2.0 million, respectively, and for the six months ended June 30, 2015 and 2014 was $3.4 million and $4.0 million,
respectively.
NOTE 4 — INVENTORY
Inventory, net of reserves, as of June 30, 2015 and December 31, 2014 consisted of the following:
Finished goods
Raw materials
Work in process
Total
NOTE 5 — EQUITY
$
$
10,584
2,573
435
13,592
$
$
June 30,
2015
December 31,
2014
12,286
2,780
360
15,426
On May 15, 2014, the Reverse Stock Split of the Company’s issued and outstanding common stock at a ratio of one-
for-ten was approved by the Company’s stockholders. The Reverse Stock Split became effective June 3, 2014, pursuant to a
Certificate of Amendment to the Company’s Amended and Restated Certificate of Incorporation filed with the State of
Delaware. The Company is authorized in its Amended and Restated Certificate of Incorporation to issue up to a total of
600,000,000 shares of common stock at a par value of $.001 per share and 10,000,000 shares of preferred stock at a par value
of $.001 per share. The Company’s common stock continues to trade on the Nasdaq Capital Market under the symbol SWSH
under a new CUSIP number. In the Condensed Consolidated Balance Sheets, the Equity section has been retroactively adjusted
to reflect the Reverse Stock Split for all periods presented by reducing the line item Common stock and increasing the line item
Additional paid-in capital, with no change to Equity in the aggregate.
Changes in equity for the six months ended June 30, 2015 consisted of the following:
Balance at December 31, 2014
Stock based compensation
Payments to cover RSU's
Foreign currency translation adjustment
Net loss
Balance at June 30, 2015
$
$
81,290
208
(5)
(19)
(16,521)
64,953
6
Comprehensive Loss
A summary of the changes in the components of accumulated other comprehensive loss for the six months ended June
30, 2015 is provided below:
Balance at December 31, 2014
Current period other comprehensive loss
Balance at June 30, 2015
NOTE 6 — LONG-TERM DEBT AND OBLIGATIONS
Notes payable
Convertible promissory notes, 4.0%: maturing at various dates through 2016
Capitalized lease obligations and other financing
Total debt and obligations
Long-term debt and obligations due within one year
Long-term debt and obligations
Foreign
Currency
Translation
Adjustment
Employee
Benefit Plan
Adjustment,
Net of Tax
Accumulated
Other
Comprehensive
Loss
$
$
(125) $
(19)
(144) $
(1,182) $
-
(1,182) $
(1,307)
(19)
(1,326)
June 30,
2015
December 31,
2014
$
$
$
1,058
486
1,322
2,866
(1,935)
$
931
1,193
832
1,044
3,069
(1,884)
1,185
Interest on notes payable range between 3.7% and 4.0% and mature at various dates through 2019. At the Company’s
election, the Company may settle, at any time prior to and including the maturity date, any portion of the outstanding convertible
promissory notes’ principal balance of $0.5 million, plus accrued interest, in a combination of cash and shares of common
stock. To the extent that the Company’s common stock is part of such settlement, the settlement price is the most recent closing
price of the Company’s common stock on the trading day prior to the date of settlement. Although none of these notes have
been settled to date with shares, if all notes outstanding at June 30, 2015 were to be settled with shares the Company would
issue 462,700 shares of common stock based on the per share value at June 30, 2015.
On August 29, 2014, the Company entered into a $20.0 million revolving credit facility, through the execution of a
Loan and Security Agreement, by and among the Company, as Guarantor, and certain subsidiaries of the Company and
collectively, as Borrower, and Siena Lending Group LLC, as Lender (the “Credit Facility”). The Credit Facility matures on
August 29, 2017.
Interest on borrowings under the Credit Facility will accrue at the Base Rate plus 2.00% and will be payable
monthly. Base Rate is defined as the greater of (1) the Prime Rate, (2) the Federal Funds Rate plus 0.50%, or (3) 3.25%.
Borrowings and availability under the Credit Facility are subject to a borrowing base and limitations, and compliance
with other terms specified in the agreement. Borrowings under the Credit Facility are secured by a first priority lien on certain
of the Company’s and its subsidiaries’ assets. The calculated borrowing base as of June 30, 2015 was $11.0 million, of which
$4.1 million was outstanding under letters of credit, $0.6 million was outstanding under borrowings and $6.3 million was
unused.
The Credit Facility contains certain customary representations and warranties, and certain customary covenants on
the Company’s ability to, among other things, incur additional indebtedness, create liens or other encumbrances, sell or
otherwise dispose of assets, and merge or consolidate with other entities or enter into a change of control transaction. The
Credit Facility contains various events of default and certain cash management and reporting requirements. The Company has
met all required covenants under the Credit Facility as of June 30, 2015.
The Company has entered into capitalized lease obligations with third party finance companies to finance the cost of
certain equipment. At June 30, 2015, these obligations bore interest at rates ranging between 4.0% and 18.4% and at December
31, 2014, interest ranged between 4.0% and 18.4%.
7
The fair value of the Company's debt is estimated based on the current borrowing rates available to the Company for
bank loans with similar terms and maturities, and approximates the carrying value of these liabilities.
NOTE 7 — OTHER INCOME (EXPENSE), NET
Interest income
Interest expense
Foreign currency
Other
Total other income (expense), net
Three Months Ended
June 30,
2015
2014
Six Months Ended
June 30,
2015
2014
$
$
-
(103)
(100)
560
357
$
$
3 $
(145)
(85)
(274)
(501) $
-
(197)
(171)
839
471
$
$
7
(223)
(100)
(903)
(1,219)
As described in Note 2, “Discontinued Operations and Assets Held for Sale”, “Other” for the three and six months
ended June 30, 2015, primarily consists of a $0.9 and $1.2 million gain related to closed operations, and for the three and six
months ended June 30, 2014, primarily represents a $0.2 million and $0.8 million loss related to the sale of assets held for sale.
NOTE 8 — SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for income taxes
Cash paid for interest
Cash received from interest
NOTE 9 — LOSS PER SHARE
Six Months Ended June 30,
2015
2014
$
$
$
33
197
-
$
$
$
91
223
7
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. Shares of common stock underlying outstanding stock options of
which the market price of the common stock is higher than the exercise price of the related stock awards and unvested restricted
stock units of 75 were not included in the computation of diluted loss per share for the six months ended June 30, 2015, since
their inclusion would be anti-dilutive.
Shares of common stock underlying outstanding stock options of which the market price of the common stock is
higher than the exercise price of the related stock awards and unvested restricted stock units of 21,479 were not included in the
computation of diluted loss per share for the six months ended June 30, 2014 since their inclusion would be anti-dilutive.
NOTE 10 — INCOME TAXES
In projecting the Company’s income tax expense for 2015, management has concluded that it is not more likely than
not that the Company will realize the benefit of its deferred tax assets and as a result a full valuation allowance will be required
as of December 31, 2015. Therefore, the Company has not recognized a tax benefit as it relates to the current loss for the period
ended June 30, 2015.
For the three month and six months ended June 30, 2015, the Company has recorded an estimate for income taxes
based on the Company’s projected income tax expense for the twelve month period ending December 31, 2015. The Company’s
tax provision has an unusual relationship to pretax loss mainly because of the existence of a full deferred tax asset valuation
allowance. This circumstance generally results in a zero net tax provision since the income tax expense or benefit that would
otherwise be recognized is offset by the change to the valuation allowance. However, tax expense recorded in the first and
second quarter of 2015 included the accrual of income tax expense related to an additional valuation allowance in connection
with the tax amortization of the Company’s indefinite-lived intangible assets that was not available to offset existing deferred
tax assets (termed a “naked credit”). Specifically, the Company does not consider the deferred tax liabilities related to indefinite
lived intangible assets when determining the need for a valuation allowance.
8
NOTE 11— RELATED PARTY TRANSACTIONS
The Company paid fees 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 significant shareholder, former director and three former executives of
the Company have a controlling interest. Fees paid during the three and six months ended June 30, 2015 and 2014 were less
than $0.1 million.
As discussed further below in Note 12, “Commitments and Contingencies,” the Company entered into a
Manufacturing and Supply Agreement (the “Cavalier Agreement”) with a plant in connection with its acquisition of Sanolite
in July 2011. The Cavalier Agreement was terminated in September 2014, pursuant to the terms of the agreement. In connection
with the acquisition in 2011, two of the owners of both Sanolite and the manufacturing plant became Company
employees. There were no purchases, pursuant to the Cavalier Agreement, for the three and six months ended June 30, 2015
and $1.6 million and $3.1 million for the three and six months ending June 30, 2014, respectively. At June 30, 2015, there were
no balances included in accounts payable due to this entity, and at December 31, 2014, the Company had $0.3 million included
in accounts payable due to this entity. As described below, the transactions pursuant to the Cavalier Agreement were considered
to be conducted at the going market prices for such products.
The Company is obligated to make lease payments pursuant to certain real property and equipment lease agreements
with employees that were former owners of acquired companies. Such lease payments made were $0.2 million during the three
months ended June 30, 2015 and 2014, and were $0.4 million during the six months ended June 30, 2015 and 2014.
NOTE 12 — COMMITMENTS AND CONTINGENCIES
Guarantees
In connection with a distribution agreement entered into in December 2010, the Company provided a guarantee that
the distributor’s 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 distributor’s 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
a pre-designated amount. No value was assigned to the fair value of the guarantee at June 30, 2015 and December 31, 2014,
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 Condensed
Consolidated Financial Statements. This liability would be considered a Level 3 financial instrument given the unobservable
inputs used in the projected cash flow model.
As discussed above in Note 11, “Related Party Transactions,” the Company entered into the Cavalier Agreement. The
agreement, which was scheduled to expire on December 31, 2012, was extended for an additional two year period with an
automatic 18-month renewal term and a six month termination provision. The agreement provides for pricing adjustments, up
or down, on the first of each month based on the vendor’s actual average product costs incurred during the prior month.
Additional product payments made by the Company due to the vendors pricing adjustment as a result of this agreement have
not been significant and have not represented costs materially above the going market price for such product. The Cavalier
Agreement was terminated in September 2014 pursuant to the terms of the agreement.
LEGAL MATTERS
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 no assurance can be given 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.
Securities Litigation
On May 21, 2012, a stockholder derivative action was brought against the Company’s former CEO and former CFO
and the Company’s then directors for alleged breaches of fiduciary duty by a purported Company stockholder in the United
States District Court for the Southern District of New York. In this derivative action, captioned Arsenault v. Berrard, et al.,
1:12-cv-4028, the plaintiff seeks to recover for the Company damages arising out of the Company’s March 28, 2012
9
announcement regarding the Board of Director’s conclusion that the Company’s previously issued interim financial statements
for the quarterly periods ended March 31, 2011, June 30, 2011 and September 30, 2011, and the other financial information in
the Company’s quarterly reports on Form 10-Q for the periods then ended, should no longer be relied upon and that an internal
review by the Company’s Audit Committee primarily relating to possible adjustments to the Company’s financial statements
was ongoing.
On August 13, 2012, the Arsenault derivative action, along with a related putative securities class action pending in
the Southern District of New York, was transferred to the United States District Court for the Western District of North Carolina
where other related putative securities class actions were pending. All actions were consolidated under the caption In re Swisher
Hygiene, Inc. Securities and Derivative Litigation, MDL No. 2384. On August 21, 2012, the Western District of North Carolina
issued an order governing the practice and procedure in the actions transferred to the Western District of North Carolina as
well as the actions originally filed there. On October 18, 2012, the Western District of North Carolina held an Initial Pretrial
Conference at which it appointed lead counsel and lead plaintiffs for the securities class actions, and set a schedule for the filing
of a consolidated class action complaint and defendants’ time to answer or otherwise respond to the consolidated class action
complaint. The Western District of North Carolina stayed the Arsenault derivative action, pending the outcome of the securities
class actions.
On August 6, 2014, following a hearing, the Western District of North Carolina approved a settlement of the securities
class actions, and issued an Order and Final Judgment that, among other things, dismissed the securities class actions pending
in the United States with prejudice and provided for full and complete releases to defendants. The Arsenault derivative action
is still pending.
On June 11, 2013, an individual action was filed in the United States District Court for the Southern District of Florida
captioned Miller, et al. v. Swisher Hygiene, Inc., et al., No. 0:13-CV-61292-JAL, against the Company, its former CEO and
former CFO, and a former Company director, bringing state and federal claims founded on the allegations that in deciding to
sell their company to the Company, plaintiffs relied on defendants’ statements about such things as the Company’s accounting
and internal controls, which, in light of the Company’s restatement of its financial statements, were false. On July 17, 2013,
the Company notified the United States Judicial Panel on Multidistrict Litigation (“MDL Panel”) of this action, and requested
that it be transferred and centralized in the Western District of North Carolina with the other actions pending there. On July 23,
2013, the MDL Panel issued a Conditional Transfer Order (the “Miller CTO”), conditionally transferring the case to the
Western District of North Carolina. On July 29, 2013, plaintiffs notified the MDL Panel that they would seek to vacate the
Miller CTO. In light of the proceedings in the MDL Panel, defendants requested that the Southern District of Florida stay all
proceedings pending the MDL Panel’s ruling. On August 6, 2013, the Southern District of Florida issued a stay of all
proceedings pending a ruling by the MDL Panel. On October 2, 2013, following briefing on the issue of whether the Miller
CTO should be vacated, the MDL Panel issued an order transferring the action to the Western District of North Carolina. The
Company and the individual defendants filed motions to dismiss the complaint on March 20, 2014. Briefing on the motions to
dismiss was completed on May 12, 2014. On June 2, 2014, plaintiffs filed a motion with the Western District of North Carolina
seeking a suggestion for remand from that court to the MDL Panel. Briefing on that motion was completed on June 26, 2014.
Oral argument on the motions to dismiss and motion for suggestion for remand were heard on July 22, 2014. On August 5,
2014, the Western District of North Carolina denied plaintiffs’ motion for suggestion for remand. On October 22, 2014, the
Company filed a notice of supplemental authority in support of its motion to dismiss the complaint. On November 4, 2014,
plaintiffs filed a response to the notice of supplemental authority. On July 8, 2015, the Western District of North Carolina ruled
on the motions to dismiss. The Western District of North Carolina dismissed plaintiffs’ federal claims and certain of their state
law claims. Other state law claims against the Company, its former CEO, and a former Company director, were not dismissed.
After issuing its ruling, the Western District of North Carolina recommended by letter to the MDL Panel that the action be
transferred back to the Southern District of Florida. On July 16, 2015, the Western District of North Carolina issued an order
staying all proceedings in the action pending a determination by the MDL Panel on its recommendation.
Other Matters
The Company has been contacted by the staff of the Atlanta Regional Office of the SEC and by the United States
Attorney’s Office for the Western District of North Carolina (the “U.S. Attorney’s Office”) after the Company’s March 28,
2012 public announcement of the Audit Committee’s internal review and the delays in filing its periodic reports. The Company
has been asked to make certain individuals available and to provide certain information about these matters to the SEC and the
U.S. Attorney’s Office. The Company is fully cooperating with the SEC and the U.S. Attorney’s Office. Any action by the
SEC, the U.S. Attorney’s Office or other government agency could result in fines and/or criminal or civil sanctions against the
Company and/or certain of its current or former officers, directors or employees.
10
NOTE 13 — SUBSEQUENT EVENT
In August 2015, the Company sold its wholly owned subsidiary which conducted all of the Company's operations in
Canada for total proceeds of $2.769 million. The difference between the sale price and the carrying value of the assets sold
will be accounted for in the third quarter of 2015 and the Company expects to record a gain at that time.
11
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
You should read the following discussion and analysis in conjunction with our unaudited Condensed Consolidated
Financial Statements and the related notes thereto included in Item 1 of this Quarterly Report on Form 10-Q as well as our
“Selected Financial Data” and our audited Consolidated Financial Statements and the related notes thereto included in Item
6 and Item 8, respectively, of our Annual Report on Form 10-K for the year ended December 31, 2014 (the “2014 Form 10-
K”). In addition to historical consolidated financial information, this discussion and analysis contains forward-looking
statements that reflect our plans, estimates, and beliefs. Actual results could differ from these expectations as a result of certain
risk factors, including those described under Item 1A, “Risk Factors,” of our 2014 Form 10-K and this Quarterly Report on
Form 10-Q.
Business Overview
We currently operate in one business segment, Hygiene, which encompasses providing essential hygiene and
sanitizing service solutions to customers in a wide range of end-markets, including foodservice, hospitality, retail and healthcare
industries. Certain of our products are registered with the Environmental Protection Agency and follow the Center for Disease
Control guidelines for disinfection of surface areas such as children’s playgrounds, hospitals, and assisted living
environments. We sell consumable products such as detergents, cleaning chemicals, soap, paper, water filters and supplies,
together with the rental and servicing of dish machines and other equipment for the dispensing of those products as well as
additional services such as the deep cleaning and sanitizing of restrooms and other facilities. We continue to see the positive
impact of cost efficiencies, capital resource management and planning, plant consolidations and route optimization efforts;
however, we believe we still need to increase revenue in order to maximize our profitability. We are committed to our
philosophy of Service, People and Profitability and to Selling Through Service. To that end, we are continuing our realignment
of our field service and sales teams to better serve our customers since we believe this will ultimately drive increased revenues
through improved customer retention and the ability to leverage our current customer base.
Critical Accounting Policies and Estimates
The preparation of our financial statements requires management to make estimates and assumptions that affect the
reported amounts of assets, liabilities, sales and expenses. We believe the most complex and sensitive judgments, because of
their significance to the Consolidated Financial Statements, result primarily from the need to make estimates about the effects
of matters that are inherently uncertain. Management’s Discussion and Analysis of Financial Condition and Results of
Operations and Note 1 to the Consolidated Financial Statements in our 2014 Form 10-K, describe these significant accounting
estimates and policies used in preparation of the Consolidated Financial Statements. Actual results in these areas could differ
from management’s estimates. There have been no significant changes in our critical accounting policies since the filing of the
2014 Form 10-K.
Newly Issued Accounting Pronouncements
In April, 2014, the Financial Accounting Standards Board issued Accounting Standards Update ASU No. 2014-08,
Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. The amendments in this
accounting standard raise the threshold for a disposal to qualify as a discontinued operation and require new disclosures of both
discontinued operations and certain other disposals that do not meet the definition of a discontinued operation. This accounting
standard update is effective for annual periods beginning on or after December 15, 2014 and related interim periods, with early
adoption allowed. The adoption of this standard did not have a material impact on the Company’s consolidated financial results.
In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update ASU No. 2014-09,
Revenue from Contracts with Customers. This ASU is intended to clarify the principles for recognizing revenue by providing
a more robust framework for addressing revenue issues; improving comparability of revenue recognition practices; and
providing more useful information to users of financial statements through improved revenue disclosure requirements. The
provisions of this ASU are effective for interim and annual periods beginning after December 15, 2017. Early adoption is
permitted. The Company is currently evaluating the impact of this standard and has elected to not adopt the standard early.
12
In August 2014, the Financial Accounting Standards Board issued ASU Update No. 2014-15, Disclosure of
Uncertainties about an Entity’s Ability to Continue as a Going Concern. This ASU provides guidance related to management’s
responsibility to evaluate whether there is substantial doubt about the entity’s ability to continue as a going concern and to
provide related footnote disclosures. The new requirements are effective for the annual periods ending after December 15,
2016, and for interim periods and annual periods thereafter. Early adoption is permitted. The Company is currently evaluating
the impact of this standard and has elected to not adopt the standard early.
Assets Held for Sale
In accordance with ASC 360, Property, Plant and Equipment, the Company’s estimates of fair value require significant
judgment and are regularly reviewed and subject to change based on market conditions, changes in the customer base of the
operations or routes, and our continuing evaluation as to the facility's acceptable sale price.
During the second quarter of 2014, the Company updated its estimates of the fair value of certain linen routes and
operations to reflect various events that occurred during the period. The cumulative impairment loss for the six months ended
June 30, 2014 was $3.0 million, of which $1.7 million was attributable to a reduction in the estimate of net sale proceeds for a
linen processing operation. The factors driving the $1.7 million reduction were the cancellation notifications, received from
three major customers, resulting in a significant loss of forecasted revenue; and the operation’s 2014 year-to-date loss which
was in excess of the Company’s estimates. The Company made the decision to close this linen processing operation and the
fair value was written down to zero. During the first quarter of 2015, the Company completed the sale of equipment of this
closed operation classified as asset held for sale, resulting in the net receipt of $0.3 million in cash and a $0.3 million gain. The
gain is included in “Other income (expense), net” in the Condensed Consolidated Statements of Operations and Comprehensive
Loss.
During March 2015, the Board of Directors of the Company approved a resolution to sell the Company’s remaining
linen operation. In accordance with ASC 360, Property, Plant and Equipment, these assets were classified as assets held for
sale at March 31, 2015 and were adjusted to the lower of historical carrying amount or fair value, less costs to sell, which was
$3.1 million. The estimated fair value was derived based on the assessment of the potential net selling price. The Company
completed the sale of this linen operation on May 12, 2015 receiving $4.0 million in cash and notes receivable plus purchased
accounts receivables, resulting in a gain of $0.9 million. The gain is included in “Other income (expense), net” in the Condensed
Consolidated Statements of Operations and Comprehensive Loss.
For the three and six months ended June 30, 2015, linen related revenue attributable to the assets held for sale and sold
linen assets was $0.7 million and $2.3 million, respectively, and $1.1 million and $2.5 million for the three and six months
ended June 30, 2014, respectively. The 2014 annual revenue was $9.6 million attributable to the assets held for sale and sold
linen assets. As of June 30, 2015, there were no assets held for sale.
RESULTS OF CONTINUING OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2015
Revenue
Revenue from products is primarily comprised of the sales and delivery of consumable products such as detergents
and cleaning chemicals, the rental, sales and servicing of dish machines and other equipment used to dispense those products,
the sale of paper items, rental fees, linen processing and other ancillary product sales. Revenues from services are primarily
comprised of manual cleaning and delivery service fees. Franchise and other consists of fees charged to franchisees.
Total revenue and the revenue derived from each revenue type for the three months ended June 30, 2015 and 2014 are
as follows:
Revenue
Products
Services
Franchise and other
Total revenue
2015
$
$
40,160
4,398
276
44,834
%
(In thousands)
2014
89.6% $
9.8%
0.6%
100.0% $
44,780
4,809
366
49,955
%
89.7%
9.6%
0.7%
100.0%
13
Consolidated revenue decreased $5.1 million or 10.3% to $44.8 million for the three months ended June 30, 2015
compared to 2014. Excluding revenue generated from linen assets sold and held for sale for the three months ended June 30,
2015 and 2014, consolidated revenue decreased 6.8% on a comparable basis. Product revenue decreased $4.6 million partially
due to a $1.9 million decrease related to linen assets sold or held for sale. The remaining $2.7 million decrease is primarily due
to a $0.9 million reduction in purchasing from large wholesale and distribution customers, and the attrition of $0.4 million in
customers resulting from the termination of the Manufacturing and Supply Agreement (the “Cavalier Agreement”) which was
terminated in September 2014, as well as $1.4 million of additional attrition, volume reductions and strategic separations from
customers due to lack of profitability. Service revenues declined $0.4 million due to the loss of hygiene customers and
customers sold in connection with assets held for sale. Franchise and other revenue declined $0.1 million primarily due to the
timing of purchases with one of our international licensees.
Cost of Sales
Cost of sales consists primarily of the cost of chemical, paper, air freshener and other consumable products sold to, or
used in the servicing of, our customers. These costs are exclusive of route expense and related depreciation and amortization.
Cost of sales for the three months ended June 30, 2015 and 2014 are as follows:
Cost of Sales
Products
Services
Franchise and other
Total cost of sales
2015
%(1)
(In thousands)
2014
%(1)
$
$
20,604
(4)
106
20,706
51.3% $
-0.1%
38.4%
46.2% $
22,778
131
64
22,973
50.9%
2.7%
17.5%
46.0%
(1) Represents cost as a percentage of the respective product and service line revenue.
Cost of sales decreased $2.3 million or 9.9% to $20.7 million for the three months ended June 30, 2015, compared to
2014 primarily due to a decline in sales volume. The increase in cost of sales as a percentage of revenue from the prior-year
period primarily reflects the impact of exiting the linen business, partially offset by cost efficiencies. As a percentage of sales,
consolidated cost of sales increased slightly from 46.0% to 46.2%.
Route Expenses
Route expenses consist of costs incurred by the Company for the delivery of products and providing services to
customers. The components of route expenses for the three months ended June 30, 2015 and 2014 are as follows:
Route Expenses
Compensation
Vehicle and other expenses
Total route expenses
2015
$
$
8,896
2,734
11,630
%(1)
2014
(In thousands)
20.0% $
6.1%
26.1% $
9,847
2,751
12,598
%(1)
19.9%
5.5%
25.4%
(1) Represents route expenses as a percentage of total non-franchise revenue.
Route expenses decreased $1.0 million or 7.7% to $11.6 million for the three months ended June 30, 2015 compared
to 2014. The components of this change were decreases in compensation, primarily through route optimization efforts, of $1.0
million. Route expense as a percentage of total revenue was 26.1% and 25.4% for the three months ended June 30, 2015 and
2014, respectively. The increase as a percentage of revenue was primarily due to the decline in revenue from the prior period.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist primarily of the costs incurred for:
● Local office and field management support costs that are related to field operations. These costs include
compensation, occupancy expense and other general and administrative expenses.
14
● Selling expenses which include compensation and commissions for local sales representatives and corporate
account representatives.
● Marketing expenses.
● Corporate office expenses which include executive management, information technology, human resource,
accounting, purchasing and other support costs.
The details of selling, general and administrative expenses for the three months ended June 30, 2015 and 2014 are as
follows:
Selling, General & Administrative Expenses
Compensation
Occupancy
Other
Total selling, general & administrative expenses
(1) Represents expenses as a percentage of total revenue.
2015
%(1)
2014
%(1)
$
$
7,906
1,720
6,232
15,858
(In thousands)
17.6% $
3.8%
13.9%
35.4% $
10,007
1,820
5,307
17,134
20.0%
3.6%
10.6%
34.2%
Selling, general and administrative expenses decreased $1.3 million to $15.9 million for the three months ended June
30, 2015 compared to the three months ended June 30, 2014. The components of this change were decreases in compensation
of $2.1 million, occupancy of $0.1 million, and offset by an increase in other expenses of $0.9 million. Compensation expense
decreased primarily due to headcount reductions primarily due to the sale of the linen business, a reduction in stock based
compensation and other operational efforts. Occupancy decreased due to the closure of a linen plant, the sale of a linen plant
and due to ongoing efforts to reduce facility infrastructure costs. Other expenses increased primarily due to an increase in
professional fees of $0.5 million, an increase in bad debt expense of $0.2 million and an increase in bank charges of $0.1
million.
Depreciation and Amortization
Depreciation and amortization consists of depreciation of property and equipment and the amortization of intangible
assets. Depreciation and amortization decreased $0.6 million to $4.5 million or 12.5% for the three months ended June 30,
2015. The decrease is primarily the result of fixed assets being fully depreciated and a decrease in capital expenditures.
Other Income (Expense), Net
Details of other income (expense), net for three months ended June 30, 2015 and 2014 are as follows:
Interest income
Interest expense
Foreign currency loss
Other income (expense)
Total other income (expense), net
2015
2014
(In thousands)
$
$
-
(102)
(100)
559
357
$
$
3
(145)
(85)
(274)
(501)
The increase in other income is due primarily to the $0.9 million gain related to the sale of a linen facility during the
second quarter of 2015, offset by impairment loss on intangible assets of $0.2 million and loss on sale of assets of $0.3 million
compared to the loss on sale of certain assets held for sale during the first quarter of 2014.
Income Tax Expense
In projecting the Company’s income tax expense for 2015, management has concluded that it is not more likely than
not that the Company will realize the benefit of its deferred tax assets and as a result a full valuation allowance will be required
as of December 31, 2015. Therefore, the Company has not recognized a tax benefit as it relates to the current loss for the period
ended June 30, 2015.
15
For the three months ended June 30, 2015, the Company has recorded an estimate for income taxes based on the
Company’s projected income tax expense for the twelve month period ending December 31, 2015. The Company’s tax
provision has an unusual relationship to pretax loss mainly because of the existence of a full deferred tax asset valuation
allowance. This circumstance generally results in a zero tax provision since the income tax expense or benefit that would
otherwise be recognized is offset by the change to the valuation allowance. However, tax expense recorded in the first and
second quarter of 2015 included the accrual of income tax expense related to an additional valuation allowance in connection
with the tax amortization of the Company’s indefinite-lived intangible assets that was not available to offset existing deferred
tax assets (termed a “naked credit”). The Company does not consider the deferred tax liabilities related to indefinite lived
intangible assets when determining the need for a valuation allowance.
RESULTS OF CONTINUING OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2015
Revenue
Revenue from products is primarily comprised of the sales and delivery of consumable products such as detergents
and cleaning chemicals, the rental, sales and servicing of dish machines and other equipment used to dispense those products,
the sale of paper items, rental fees, linen processing and other ancillary product sales. Revenues from services are primarily
comprised of manual cleaning and delivery service fees. Franchise and other consists of fees charged to franchisees.
Total revenue and the revenue derived from each revenue type for the six months ended June 30, 2015 and 2014 are
as follows:
Revenue
Products
Services
Franchise and other
Total revenue
2015
$
$
79,423
8,727
526
88,676
%
(In thousands)
2014
89.6% $
9.8%
0.6%
100.0% $
88,021
9,503
726
98,250
%
89.6%
9.7%
0.7%
100.0%
Consolidated revenue decreased $9.6 million or 9.7% to $88.7 million for the six months ended June 30, 2015
compared to 2014. Excluding revenue generated from linen assets sold and held for sale for the six months ended June 30,
2015 and 2014, consolidated revenue decreased 6.5% on a comparable basis. Product revenue decreased $8.6 million partially
due to a $3.1 million decrease related to linen assets sold or held for sale. The remaining $5.5 million decrease is primarily due
to a $1.4 million reduction in purchasing from large wholesale and distribution customers, the attrition of $0.7 million in
customers resulting from the termination of the Manufacturing and Supply Agreement (the “Cavalier Agreement”) which was
terminated in September 2014, as well as $3.4 million of additional attrition, volume reductions and strategic separations from
customers due to lack of profitability. Service revenues declined $0.8 million due to the loss of hygiene customers and
customers sold in connection with assets held for sale. Franchise and other revenue declined $0.2 million primarily due to the
timing of purchases with one of our international licensee.
Cost of Sales
Cost of sales consists primarily of the cost of chemical, paper, air freshener and other consumable products sold to, or
used in the servicing of our customers. These costs are exclusive of route expense and related depreciation and amortization.
Cost of sales for the six months ended June 30, 2015 and 2014 are as follows:
Cost of Sales
Products
Services
Franchise and other
Total cost of sales
2015
%(1)
(In thousands)
2014
%(1)
$
$
40,456
(3)
215
40,668
50.9% $
0.0%
40.9%
45.9% $
44,358
265
162
44,785
50.4%
2.8%
22.3%
45.6%
Represents cost as a percentage of the respective product and
service line revenue.
16
Cost of sales decreased $4.1 million or 9.2% to $40.7 million for the six months ended June 30, 2015, compared to
2014 primarily due to a decline in sales volume. The increase in cost of sales as a percentage of revenue from the prior-year
period primarily reflects the impact of exiting the linen business, partially offset by cost efficiencies. As a percentage of sales,
consolidated cost of sales increased slightly from 45.6% to 45.9%.
Route Expenses
Route expenses consist of costs incurred by the Company for the delivery of products and providing services to
customers. The components of route expenses for the six months ended June 30, 2015 and 2014 are as follows:
Route Expenses
Compensation
Vehicle and other expenses
Total route expenses
2015
%(1)
2014
%(1)
$
$
18,023
5,298
23,321
(In thousands)
20.4% $
6.0%
26.4% $
19,264
5,697
24,961
19.8%
5.8%
25.6%
Represents route expenses as a percentage of total non-franchise revenue.
Route expenses decreased $1.6 million or 6.6% to $23.3 million for the six months ended June 30, 2015 compared to
2014. The components of this change were decreases in compensation, primarily through route optimization efforts, of $1.2
million and also decreases in vehicle and other expenses of $0.4 million. Route expense as a percentage of total revenue was
26.4% and 25.6% for the six months ended June 30, 2015 and 2014, respectively. The increase as a percentage of revenue was
primarily due to the decline in revenue from the prior period.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist primarily of the costs incurred for:
● Local office and field management support costs that are related to field operations. These costs include
compensation, occupancy expense and other general and administrative expenses.
● Selling expenses which include compensation and commissions for local sales representatives and corporate
account representatives.
● Marketing expenses.
● Corporate office expenses which include executive management, information technology, human resource,
accounting, purchasing and other support costs.
The details of selling, general and administrative expenses for the six months ended June 30, 2015 and 2014 are as
follows:
Selling, General & Administrative Expenses
Compensation
Occupancy
Other
Total selling, general & administrative expenses
Represents expenses as a percentage of total revenue.
2015
%(1)
2014
%(1)
$
$
16,552
3,384
12,434
32,370
(In thousands)
18.7% $
3.8%
14.0%
36.5% $
20,922
3,901
12,081
36,904
21.3%
4.0%
12.3%
37.6%
Selling, general and administrative expenses decreased $4.5 million to $32.4 million for the six months ended June
30, 2015 compared to 2014. The components of this change were decreases in compensation of $4.4 million, occupancy of
$0.5 million, offset by an increase in other expenses of $0.4 million. Compensation expense decreased primarily due to
headcount reductions, primarily due to the sale of the linen business, a reduction in stock based compensation and other
operational optimization efforts. Occupancy decreased due to the closure of a linen plant and due to ongoing efforts to reduce
facility infrastructure costs. Other expenses increased primarily due to increases in bad debt expense of $0.3 million and bank
charges of $0.2 million, offset by decreases in other SG&A of $0.1 million.
17
Depreciation and Amortization
Depreciation and amortization consists of depreciation of property and equipment and the amortization of intangible
assets. Depreciation and amortization decreased $1.4 million to $9.1 million or 13.4% for the six months ended June 30, 2015.
The decrease is primarily the result of fixed assets being fully depreciated and a decrease in capital expenditures.
Other Income (Expense), Net
Details of other income (expense), net for six months ended June 30, 2015 and 2014 are as follows:
Interest income
Interest expense
Foreign currency loss
Other income (expense)
Total other income (expense), net
2015
2014
(In thousands)
$
$
-
(197)
(171)
839
471
$
$
7
(223)
(100)
(903)
(1,219)
The increase in other income is due primarily to the $0.9 million gain related to the sale of a linen facility during the
second quarter of 2015, compared to the loss on sales of certain assets held for sale during the first quarter of 2014.
Income Tax Expense
In projecting the Company’s income tax expense for 2015, management has concluded that it is not more likely than
not that the Company will realize the benefit of its deferred tax assets and as a result a full valuation allowance will be required
as of December 31, 2015. Therefore, the Company has not recognized a tax benefit as it relates to the current loss for the period
ended June 30, 2015.
For the six months ended June 30, 2015, the Company has recorded an estimate for income taxes based on the
Company’s projected income tax expense for the twelve month period ending December 31, 2015. The Company’s tax
provision has an unusual relationship to pretax loss mainly because of the existence of a full deferred tax asset valuation
allowance. This circumstance generally results in a zero tax provision since the income tax expense or benefit that would
otherwise be recognized is offset by the change to the valuation allowance. However, tax expense recorded in the first and
second quarter of 2015 included the accrual of income tax expense related to an additional valuation allowance in connection
with the tax amortization of the Company’s indefinite-lived intangible assets that was not available to offset existing deferred
tax assets (termed a “naked credit”). The Company does not consider the deferred tax liabilities related to indefinite lived
intangible assets when determining the need for a valuation allowance.
Cash Flows Summary
Cash flows from continuing operations for the six months ended June 30, 2015 and 2014 were:
Net cash used in operating activities
Net cash provided by (used) in investing activities
Net cash provided by (used in) financing activities
Net decrease in cash and cash equivalents from continuing operations
2015
2014
(In thousands)
(7,507) $
1,543
403
(5,561) $
(1,783)
(1,759)
(2,547)
(6,089)
$
$
Net cash used in operating activies increased by $5.7 million primarily due to a $6.0 million change in operating assets
and liabilities as the net loss for both periods, as adjusted for non-cash items including depreciation and amortization,
impairment and (gain) loss on sale of assets, was relatively constant. Net cash provided by investing activities increased by
$3.3 million, primarily due to a $1.1 million reduction in purchase of property and equipment and a $3.3 million increase in
cash received from sale of assets held for sale and property and equipment offset by a $1.1 million change in restricted cash.
Cash provided by financing activities was $0.4 million compared with $2.5 million used during the same period in 2014. The
increase of $2.9 million was primarily due to an increase in proceeds from debt issuances related to insurance financing of $1.9
million and payments on the line of credit of $3.9 million, offset by proceeds from the line of credit of $3.3 million, and a
decrease in principal payments on debt of $0.4 million.
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Cash flows used in discontinued operations for the six months ended June 30, 2014 were $2.1 million. For the six
months ended June 30, 2015, there were no discontinued operations.
Cash flows used in operating activities from discontinued operations in 2014 consisted of payments made related to
legal fees and a settlement payment related to a contractual dispute that the Company accepted responsibility to resolve as a
part of the sale of the Waste segment.
Liquidity and Capital Resources
Going Concern
Our Condensed Consolidated Financial Statements were prepared on a going concern basis in accordance with U.S.
GAAP. The going concern basis of presentation assumes that we will continue in operation for the next twelve months and will
be able to realize our assets and discharge our liabilities and commitments in the normal course of business and does not include
any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and
classification of liabilities that may result from our inability to continue as a going concern. The Company has suffered recurring
losses from operations and has not generated positive cash flows from operations. These factors raise substantial doubt about
the Company’s ability to continue as a going concern. In order for us to continue operations beyond the next twelve months
and be able to discharge our liabilities and commitments in the normal course of business, we must do, but not limited to, some
or all of the following: (i) improve operating results through improved customer retention, profitable organic revenue growth,
and continued improvements in cost efficiencies; (ii) sell additional assets; (iii) raise additional equity; and/or (iv) obtain
additional financing through debt. There can be no assurance that we will be able to improve operating results or obtain
additional funds by selling additional assets, raising additional equity or obtaining additional financing when needed or that
such funds, if available, will be obtainable on terms satisfactory to us.
If we are not able to improve operating results or obtain additional funds by selling additional assets, continuing
improvements in cost efficiencies, raising additional equity or obtaining additional financing, material adverse events may
occur including, but not limited to: 1) a reduction in the nature and scope of our operations, 2) our inability to fully implement
our current business plan, and 3) defaults under the Credit Facility. There can be no assurances that we will be able to
successfully improve our liquidity position. Our consolidated financial statements do not reflect any adjustments that might
result from the adverse outcome relating to this uncertainty.
Cash Requirements
As a result of the activities discussed above, our cash and cash equivalents decreased by $5.5 million to $1.7 million
at June 30, 2015 compared to $7.2 million at December 31, 2014. 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, equipment, vehicles and software; (ii) working capital; and (iii) payment of principal and interest on
borrowings under our convertible promissory notes, acquisition notes payable and capital lease obligations and other financing.
We expect that through capital resource management and the use of additional customer equipment programs, our annual
capital expenditures in 2015 are expected to be less than 2014 capital expenditures of $8.6 million.
We expect that our cash on hand, the cash flow provided by operating activities along with availability under our
Credit Facility, and the cash flow from investing activities, including the potential sale of assets, such as the sale of the
Company's Canadian operations in August of 2015 as discussed in Note 13 of the financial statements, will be sufficient to
execute our business plan for the next twelve months. However, we believe it is contingent upon improved customer retention,
profitable organic growth and continued improvement in cost efficiencies in 2015. Failure to execute our plan successfully or
unforecasted shortfalls in available cash may require us to alter our plan, sell other assets, or raise additional equity which could
be dilutive to existing shareholders or obtain additional financing through debt. There can be no assurances that we could sell
assets in a timely manner, or that such equity and debt would be available and would be likely subject to prevailing market
conditions and the Company’s performance.
Credit Facility
On August 29, 2014, we entered into a $20.0 million revolving credit facility, through the execution of a Loan and
Security Agreement, by and among the Company, as Guarantor, and certain subsidiaries of the Company and collectively, as
Borrower, and Siena Lending Group LLC, as Lender (the “Credit Facility”). The Credit Facility matures on August 29, 2017.
19
Interest on borrowings under the Credit Facility will accrue at the Base Rate plus 2.00% and will be payable
monthly. The Base Rate is defined as the greater of (1) the Prime Rate, (2) the Federal Funds Rate plus 0.50%, or (3) 3.25%.
Borrowings and availability under the Credit Facility are subject to a borrowing base and limitations, and compliance
with other terms specified in the agreement. Borrowings under the Credit Facility are secured by a first priority lien on certain
of the Company’s assets. The calculated borrowing base as of June 30, 2015 was $11.0 million, of which $4.1 million was
outstanding under letters of credit, $0.6 million was outstanding under borrowings and $6.3 million was unused.
The Credit Facility contains certain customary representations and warranties, and certain customary covenants on the
Company’s ability to, among other things, incur additional indebtedness, create liens or other encumbrances, sell or otherwise
dispose of assets, and merge or consolidate with other entities or enter into a change of control transaction. The Credit Facility
contains various events of default and reporting requirements. The Company has met all required covenants under the Credit
Facility as of June 30, 2015.
Off-Balance Sheet Arrangements
Other than operating leases, there are no significant off-balance sheet financing arrangements or relationships with
unconsolidated entities or financial partnerships which are often referred to as “variable interest 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 between the Company and a distributor
of Company-owned products, we provided a guarantee that the distributor’s 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 distributor’s annual operating cash flow does fall below the agreed-to annual minimums, we
reimburse the distributor for any such short fall up to a pre-designated amount. No value was assigned to the fair value of this
guarantee at June 30, 2015 and December 31, 2014 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 provision in the agreement and thus there
is no amount accrued for the guarantee in the Condensed Consolidated Financial Statements.
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-Q, 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-Q 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, except as required by law. 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 independent registered public accounting firm’s report for our audited financial statements for the year
ended December 31, 2014 contains an explanatory paragraph that expresses substantial doubt as to our ability
to continue as a going concern.
● The Company may need to raise additional equity or capital in the future and such capital may not be available
when needed or at all.
20
● Our failure or inability to meet certain terms of our Credit Facility could have a material adverse effect on
our business, financial condition and results of operations.
● We have identified material weaknesses in our internal control over financial reporting and we may be unable
to develop, implement and maintain appropriate controls in future periods. If the material weaknesses are not
remediated, then they could result in material misstatements to the financial statements.
● Failure to retain our current customers and renew existing customer contracts could adversely affect our
business.
● Changes in economic conditions that impact the industries in which our end-users primarily operate in could
adversely affect our business.
● The financial condition and operating ability of third parties may adversely affect our business.
● We recognized significant impairment charges in 2014 and prior years, and may recognize additional
impairment charges in the future which could adversely affect our results of operations and financial
condition.
● The availability of our raw materials and the volatility of their costs may adversely affect our operations.
● We are and may in the future be subject to legal proceedings, the outcome of which are uncertain, and
resolutions adverse to us could negatively affect our earnings, financial condition and cash flows.
● The pricing, terms, and length of customer service agreements may constrain our ability to recover costs and
to make a profit on our contracts.
● 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 consolidation of customers may adversely affect our business, consolidated financial condition or results
of operations.
● We may fail to maintain our listing on The Nasdaq Stock Market.
● The loss of one or more key members of our senior management, or our inability to attract and retain qualified
personnel could adversely impact our business, financial condition and results of operations.
● Increases in fuel and energy costs and fuel shortages 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.
● If our products are improperly manufactured, packaged, or labeled or become adulterated or expire, those
items may need to be recalled or withdrawn from sale.
● Changes in the types or variety of our service offerings could affect our financial performance.
● Prior acquisitions involve a number of risks and could have an adverse effect on results of operations.
● We may not be able to adequately protect our intellectual property and other proprietary rights that are
material to our business.
21
● Interruptions in our information and telecommunication systems, or a failure to maintain the security,
confidentiality or privacy of sensitive data residing on such systems, could adversely affect our business.
● Insurance policies may not cover all operating risks and a casualty loss beyond the limits of our coverage
could adversely impact our business.
● Our stock price has been and may in the future be volatile, which could cause purchasers of our common
stock to incur substantial losses.
● Certain stockholders may exert significant influence over any corporate action requiring stockholder
approval.
● 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 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risks including changes in interest rates and fuel prices. Borrowings under the Credit Facility
are indexed to a variable interest rate. As of June 30, 2015, there was $0.6 million outstanding under borrowings from our
Credit Facility, and we have $4.1 million of letters of credit outstanding at a fixed fee under our Credit Facility. As of June 30,
2015, a hypothetical 10% change in our interest rate would change our results of operations by less than $0.1 million.
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 and commodity 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 increases in whole or in part to our customers
or realize the cost savings needed to offset these increases. This discussion does not consider the effects that may have an
adverse change on the overall economy, and it also does not consider actions we may take to mitigate our exposure to these
changes. We cannot guarantee that the action we take to mitigate these exposures will be successful.
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 potential charges have not been in the past, and we believe will not be going forward,
applicable to all customers. Consequently, an increase in fuel costs normally results in a decrease in our operating margin
percentage. At our current consumption level, a $0.50 per gallon change in the price of fuel changes our fuel costs by
approximately $0.6 million on an annual basis.
ITEM 4.
CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures, as defined in Rule 13a-15(e) under the Securities Exchange Act of
1934, as amended (the “Exchange Act”), that are designed to ensure that information required to be disclosed in the reports
that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods
specified in SEC rules and forms, and, include controls and procedures designed to ensure that such information is accumulated
and communicated to our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”),
as appropriate, to allow timely decisions regarding required disclosure.
In connection with the preparation of this quarterly report, we carried out an evaluation, under the supervision and
with the participation of our management, including our CEO and CFO, of the effectiveness of our disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of June 30, 2015. Based upon that evaluation,
management concluded that the deficiencies in our internal control over financial reporting identified in the 2014 Form 10-K
were under ongoing remediation and therefore continue to exist, and as such our disclosure controls and procedures were not
effective as of June 30, 2015 for the following reasons:
22
● We did not maintain an effective control environment as we lacked sufficient oversight of activities related to our
internal control over financial reporting. In addition, we did not have a sufficient structure in place to identify and
evaluate gaps in the knowledge and technical experience of the accounting personnel responsible for the
implementation and execution of our control environment.
● We did not maintain effective controls over certain control activities. Specifically, the following individual material
weaknesses were identified in connection with our control activities:
● We did not implement effective controls to properly account for the sale, disposal and movement of dish
machines at customer locations and our own facilities, which resulted in substantial post-closing journal entries
that our review process failed to identify.
● We did not implement effective controls to accurately and completely evaluate and calculate our allowance for
doubtful accounts. Additionally, our review process was not sufficient to detect material errors in the
methodology and calculations of the allowance resulting in material post-closing adjustments.
We did not implement effective controls to properly identify, analyze and account for non-routine transactions
reflected in the financial statements.
● We did not develop and implement an overall financial reporting review process that encompassed all
significant financial statement accounts or contained an appropriate level of precision. This review process did
not identify the issues surrounding the accounting and recording for our dish machines, allowance for doubtful
accounts, and non-routine transactions.
● We did not design, implement and maintain effective controls over the corporate review of significant journal
entries processed at our field-level locations, which represents a significant portion of our business, to ensure
that these entries were appropriate in nature and correct.
● We did not maintain effective controls over user security and program change management for the information
technology systems and accounting software at the field-level locations.
● We did not maintain effective controls to ensure the timely preparation of financial records sufficient to allow
management adequate time to prevent or detect and correct material misstatements and to fulfill its other control
activity responsibilities.
● We did not maintain effective information and communication controls to generate relevant and quality information
for use in the financial reporting close process. These control failures contributed to the transactions involving our
dish machines and to information generated relating to the allowance for doubtful accounts.
● We did not maintain effective information and communication controls with external parties due to delays in our
financial statement close process as evidenced by the untimely filing of our Annual Report on form 10-K for the year
ended December 31, 2014, and our failure to identify and timely disclose control deficiencies in previous filings.
● We did not maintain effective monitoring controls sufficient to ascertain whether key components of internal control
were present and functioning, as evidenced by our incorrect initial assessment of the effectiveness of our internal
controls over financial reporting.
● We did not maintain effective monitoring controls to communicate the deficiencies in our internal control over
financial reporting to our board of directors in sufficient time to allow them to take corrective action.
A deficiency in internal control over financial reporting exists when the design or operation of a control does not
allow management or employees, in the normal course of performing their assigned functions, to prevent or detect
misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control over
financial reporting, such that there is a reasonable possibility that a material misstatement of the company's annual or interim
financial statements will not be prevented or detected on a timely basis. Based on its evaluation of internal control over financial
reporting, management has determined that the control deficiencies identified above should be considered material weaknesses
in our internal control over financial reporting.
23
As set forth below, management has taken and will continue to take steps to remediate the control deficiencies
identified above. Notwithstanding the control deficiencies identified above, management concludes that the financial
statements included in this report fairly represent, in all material aspects, our financial condition, results of operations and cash
flows for the periods presented.
Management's Remediation Plan
As reported in the Annual Report on Form 10-K for the year ended December 31, 2014, we are engaged in remedial
actions in response to the deficiencies discussed above, and we plan to continue efforts underway to improve internal control
over financial reporting:
● Management will continue to enhance its training programs for our accounting personnel both at the corporate and
field-level, emphasizing financial reporting responsibilities and accountability for implementing and maintaining
effective internal control over financial reporting.
● Dish machines are being serialized in the fixed asset system to track the movement of the dish machines and periodic
field observations will be performed to ensure the existence and accuracy of these fixed assets.
● Management will continue to track collection trends across the business and evaluate the accuracy of the assumptions
used in the estimates for the allowance for doubtful accounts on an annual basis, at a minimum.
● Management will put in place controls to properly identify, analyze and account for non-routine transactions and will
use the appropriate level of oversight to ensure the transactions are reflected accurately and timely in the financial
statements.
● Management continues to implement controls over user access and change management related to the field-level
information technology systems.
● Management will perform a comprehensive review to re-evaluate our activities related to internal control over
financial reporting, including monitoring controls related to the operating effectiveness, timeliness and communication
of certain control activities.
While management and our audit committee are closely monitoring the implementation of these remediation plans,
there is no assurance that the aforementioned plans will be sufficient to fully remediate the deficiencies identified above and
that additional remediation steps may be necessary.
Changes in Internal Control over Financial Reporting
Other than the changes noted above to remediate the previously reported material weaknesses, there have been no
adverse changes in our internal control over financial reporting during the quarter ended June 30, 2015 that have materially
affected, or are reasonably likely to materially affect, our internal control over financial reporting.
24
ITEM 1.
LEGAL PROCEEDINGS
PART II. OTHER INFORMATION
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 no assurance can be given 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.
Securities Litigation
On May 21, 2012, a stockholder derivative action was brought against the Company's former CEO and former CFO
and the Company's then directors for alleged breaches of fiduciary duty by a purported Company stockholder in the United
States District Court for the Southern District of New York. In this derivative action, captioned Arsenault v. Berrard, et al.,
1:12-cv-4028, the plaintiff seeks to recover for the Company damages arising out of the Company's March 28, 2012
announcement regarding the Board of Director's conclusion that the Company's previously issued interim financial statements
for the quarterly periods ended March 31, 2011, June 30, 2011 and September 30, 2011, and the other financial information in
the Company's quarterly reports on Form 10-Q for the periods then ended, should no longer be relied upon and that an internal
review by the Company's Audit Committee primarily relating to possible adjustments to the Company's financial statements
was ongoing.
On August 13, 2012, the Arsenault derivative action, along with a related putative securities class action pending in
the Southern District of New York, was transferred to the United States District Court for the Western District of North Carolina
where other related putative securities class actions were pending. All actions were consolidated under the caption In re Swisher
Hygiene, Inc. Securities and Derivative Litigation, MDL No. 2384. On August 21, 2012, the Western District of North Carolina
issued an order governing the practice and procedure in the actions transferred to the Western District of North Carolina as
well as the actions originally filed there. On October 18, 2012, the Western District of North Carolina held an Initial Pretrial
Conference at which it appointed lead counsel and lead plaintiffs for the securities class actions, and set a schedule for the filing
of a consolidated class action complaint and defendants' time to answer or otherwise respond to the consolidated class action
complaint. The Western District of North Carolina stayed the Arsenault derivative action, pending the outcome of the securities
class actions.
On August 6, 2014, following a hearing, the Western District of North Carolina approved a settlement of the securities
class actions, and issued an Order and Final Judgment that, among other things, dismissed the securities class actions pending
in the United States with prejudice and provided for full and complete releases to defendants. The Arsenault derivative action
is still pending.
On June 11, 2013, an individual action was filed in the United States District Court for the Southern District of Florida
captioned Miller, et al. v. Swisher Hygiene, Inc., et al., No. 0:13-CV-61292-JAL, against the Company, its former CEO and
former CFO, and a former Company director, bringing state and federal claims founded on the allegations that in deciding to
sell their company to the Company, plaintiffs relied on defendants' statements about such things as the Company's accounting
and internal controls, which, in light of the Company's restatement of its financial statements, were false. On July 17, 2013, the
Company notified the United States Judicial Panel on Multidistrict Litigation ("MDL Panel") of this action, and requested that
it be transferred and centralized in the Western District of North Carolina with the other actions pending there. On July 23,
2013, the MDL Panel issued a Conditional Transfer Order (the "Miller CTO"), conditionally transferring the case to the Western
District of North Carolina. On July 29, 2013, plaintiffs notified the MDL Panel that they would seek to vacate the Miller CTO.
In light of the proceedings in the MDL Panel, defendants requested that the Southern District of Florida stay all proceedings
pending the MDL Panel's ruling. On August 6, 2013, the Southern District of Florida issued a stay of all proceedings pending
a ruling by the MDL Panel. On October 2, 2013, following briefing on the issue of whether the Miller CTO should be vacated,
the MDL Panel issued an order transferring the action to the Western District of North Carolina. The Company and the
individual defendants filed motions to dismiss the complaint on March 20, 2014. Briefing on the motions to dismiss was
completed on May 12, 2014. On June 2, 2014, plaintiffs filed a motion with the Western District of North Carolina seeking a
suggestion for remand from that court to the MDL Panel. Briefing on that motion was completed on June 26, 2014. Oral
argument on the motions to dismiss and motion for suggestion for remand were heard on July 22, 2014. On August 5, 2014,
the Western District of North Carolina denied plaintiffs' motion for suggestion for remand. On October 22, 2014, the Company
filed a notice of supplemental authority in support of its motion to dismiss the complaint. On November 4, 2014, plaintiffs
25
filed a response to the notice of supplemental authority. On July 8, 2015, the Western District of North Carolina ruled on the
motions to dismiss. The Western District of North Carolina dismissed plaintiffs' federal claims and certain of their state law
claims. Other state law claims against the Company, its former CEO, and a former Company director, were not dismissed.
After issuing its ruling, the Western District of North Carolina recommended by letter to the MDL Panel that the action be
transferred back to the Southern District of Florida. On July 16, 2015, the Western District of North Carolina issued an order
staying all proceedings in the action pending a determination by the MDL Panel on its recommendation.
Other Matters
The Company has been contacted by the staff of the Atlanta Regional Office of the SEC and by the United States
Attorney's Office for the Western District of North Carolina (the "U.S. Attorney's Office") after the Company's March 28, 2012
public announcement of the Audit Committee's internal review and the delays in filing its periodic reports. The Company has
been asked to make certain individuals available and to provide certain information about these matters to the SEC and the U.S.
Attorney's Office. The Company is fully cooperating with the SEC and the U.S. Attorney's Office. Any action by the SEC, the
U.S. Attorney's Office or other government agency could result in fines and/or criminal or civil sanctions against the Company
and/or certain of its current or former officers, directors or employees.
ITEM 1A. RISK FACTORS
In addition to the other information set forth in this report, you should carefully consider the risk factors discussed in
Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2014 which could materially affect our
business, financial condition, or future results. There have been no material changes to the risk factors previously disclosed in
our 2014 Form 10-K.
ITEM 6.
EXHIBITS
Exhibit
Number Description
10.1
Waiver letter, dated May 11, 2015 by Siena Lending Group LLC (incorporated by reference to Exhibit 10.3 to
the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2015, filed with the Securities
and Exchange Commission on May 11, 2015).
31.1
31.2
32.1
32.2
Section 302 Certification of Chief Executive Officer.
Section 302 Certification of Chief Financial Officer.
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.*
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.*
101.INS
XBRL Instance Document.
101.SCH XBRL Taxonomy Extension Schema.
101.CAL XBRL Taxonomy Extension Calculation Linkbase.
101.LAB XBRL Taxonomy Extension Label Linkbase.
101.PRE XBRL Taxonomy Extension Presentation Linkbase.
101.DEF XBRL Taxonomy Extension Definition Linkbase.
________________________
* Furnished herewith.
26
Pursuant to the requirements 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.
SIGNATURES
Dated: August 10, 2015
Dated: August 10, 2015
Dated: August 10, 2015
SWISHER HYGIENE INC.
(Registrant)
By: /s/William M. Pierce
William M. Pierce
President and Chief Executive Officer
(Principal Executive Officer)
By: /s/William T. Nanovsky
William T. Nanovsky
Senior Vice President and Chief Financial Officer
(Principal Financial Officer)
By: /s/Linda C. Wilson-Ingram
Linda C. Wilson-Ingram
Vice President, Corporate Controller and Chief
Accounting Officer
(Principal Accounting Officer)
27
EXHIBIT INDEX
Exhibit
Number
10.3
Description
Waiver letter, dated May 11, 2015 by Siena Lending Group LLC (incorporated by reference to Exhibit 10.3 to
the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2015, filed with the Securities
and Exchange Commission on May 11, 2015).
31.1
31.2
32.1
32.2
Section 302 Certification of Chief Executive Officer.
Section 302 Certification of Chief Financial Officer.
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.*
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.*
101.INS
XBRL Instance Document.
101.SCH XBRL Taxonomy Extension Schema.
101.CAL XBRL Taxonomy Extension Calculation Linkbase.
101.LAB XBRL Taxonomy Extension Label Linkbase.
101.PRE XBRL Taxonomy Extension Presentation Linkbase.
101.DEF XBRL Taxonomy Extension Definition Linkbase.
________________________
* Furnished herewith.
28
EXHIBIT 31.1
I, William M. Pierce, certify that:
1 I have reviewed this Quarterly Report on Form 10-Q of Swisher Hygiene Inc.;
CERTIFICATION
2.
3.
4.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made,
not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
b)
c)
d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control
over financial reporting; and
5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or
persons performing the equivalent functions):
a)
b)
All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant's internal control over financial reporting.
Date: August 10, 2015
By: /s/ William M. Pierce
William M. Pierce
President and Chief Executive Officer
(Principal Executive Officer)
EXHIBIT 31.2
I, William T. Nanovsky, certify that:
CERTIFICATION
1. I have reviewed this Quarterly Report on Form 10-Q of Swisher Hygiene Inc.;
2.
3.
4.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made,
not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
b)
c)
d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control
over financial reporting; and
5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or
persons performing the equivalent functions):
a)
b)
All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant's internal control over financial reporting.
Date: August 10, 2015
By: /s/ William T. Nanovsky
William T. Nanovsky
Senior Vice President and Chief Financial
Officer
(Principal Financial Officer)
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Swisher Hygiene Inc. (the “Company”) for the quarter ended June
30, 2015, as filed with the Securities and Exchange Commission (the “Report”), I, William M. Pierce, President and Chief
Executive Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of
1934, as amended; and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
Date: August 10, 2015
By: /s/ William M. Pierce
William M. Pierce
President and Chief Executive Officer
(Principal Executive Officer)
EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Swisher Hygiene Inc. (the “Company”) for the quarter ended June
30, 2015, as filed with the Securities and Exchange Commission (the “Report”), I, William T. Nanovsky, Senior Vice President
and Chief Financial Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of
1934, as amended; and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
Date: August 10, 2015
By: /s/ William T. Nanovsky
William T. Nanovsky
Senior Vice President and Chief Financial
Officer
(Principal Financial Officer)
It’s our mIssIon
to deliver industry leading service to
our customers by providing operational
solutions complemented by quality
products with excellent value.
HEADQUARTERS
BOARD OF DIRECTORS
4725 Piedmont Row Drive
Suite 400
Charlotte, North Carolina 28210
Telephone (800) 444-4138
INVESTOR CONTACT AND INFORMATION REQUESTS
Stockholders, securities analysts, portfolio managers and representatives of
financial institutions requesting copies of our Annual Report, Form 10-K, quarterly
reports and other corporate literature should call (704) 602-7116 or write Swisher
Hygiene Inc., Investor Relations, at the above address.
NOTICE OF ANNUAL MEETING
Joseph Burke
Management Consultant - Finance and
Operations, Hudson Capital Group
Richard L. Handley
Chairman of the Board,
Senior Vice President, Secretary and General
Counsel, Huizenga Holdings, Inc.
Harris W. Hudson
Chairman and Owner,
Hudson Capital Group
The Annual Meeting of Stockholders of Swisher Hygiene Inc. will be held at
10:00 a.m. Eastern Time, Thursday, October 15, 2015 at the Charlotte Marriott
SouthPark – Morrison Ballroom B, 2200 Rexford Road, Charlotte, NC 28211-3431.
Telephone: (704) 364-8220.
William M. Pierce
President and Chief Executive Officer,
Swisher Hygiene Inc. and Senior Vice
President, Huizenga Holdings, Inc.
COMMON STOCK INFORMATION
The Company’s common stock trades on the NASDAQ Capital Market under the
symbol “SWSH.”
William D. Pruitt
President, Pruitt Ventures, Inc.
and General Manager, Pruitt Enterprises, LP
COMMON STOCK TRANSFER AGENT AND REGISTRAR
David Prussky
Director,
Swisher Hygiene Inc.
For inquiries regarding address changes, stock transfers, lost shares or other
account matters, please contact: TMX Equity Transfer Services, 200 University
Avenue, Suite 300, Toronto, Ontario M5H 4H1.
BOARD COMMITTEES
Registered owners of Swisher Hygiene common stock may also call Investor
Services at 1 (866) 393-4891 ext. 205 to inquire about address changes, stock
transfers, lost shares or other account matters.
Audit Committee
Joseph Burke
William D. Pruitt
David Prussky
Internet users can access information at www.tmxequitytransferservices.com.
Compensation Committee
Richard L. Handley
William D. Pruitt
Nominating & Corporate
Governance Committee
Richard L. Handley
David Prussky
FORM 10-K
A copy of Swisher Hygiene’s Annual Report on Form 10-K for the year ended
December 31, 2014 as filed with the Securities and Exchange Commission
is available without charge under the “Investors” section of our website at
www.swsh.com, or by writing to: Swisher Hygiene Inc., Attn: Investor Relations
4725 Piedmont Row Drive, Suite 400, Charlotte, North Carolina 28210.
FORWARD-LOOKING STATEMENTS
Some of the statements and information contained throughout this Annual
Report constitute “forward-looking statements” within the meaning of the
Federal Private Securities Litigation Reform Act of 1995. The forward- looking
statements describe our expectations, plans and intentions about our business,
financial condition and prospects. Known and unknown risks, uncertainties and
other factors (including those described in our Annual Report on Form 10-K)
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. We undertake no duty to update or
revise our forward-looking statements, whether as a result of new information,
future events or otherwise, except as required by law.
ANNUAL REPORT 2014
800.360.SWSH ■ SWSH.COM