10-K 1 swsh_10k.htm ANNUAL REPORT swsh_10k.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-K
(Mark One)
þ
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended: December 31, 2012
 
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
 
27-3819646
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S.` Employer
Identification No.)
     
4725 Piedmont Row Drive, Suite 400
Charlotte, North Carolina
 
28210
(Address of Principal Executive Offices)
 
(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
 
Name of Each Exchange On Which Registered
Common Stock
 
The NASDAQ Stock Market LLC
$0.001 par value
   
 
Securities registered pursuant to Section 12(g) of the Act: None
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes o      No þ
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes o      No þ
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  þ      No  o
 
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 þ       No o
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of 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.  o
 
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
o
Accelerated filer
þ
Non-accelerated filer
o
Smaller reporting company
o
       
(Do not check if a smaller reporting company)
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes o      No þ
 
The aggregate market value of the shares of common stock held by non-affiliates of the registrant as of June 29, 2012 (based on the last reported sales price of such stock on the NASDAQ Global Select Market on such date of $2.52 per share) was approximately $234,891,002.
 
Number of shares outstanding of each of the registrant’s classes of Common Stock at April 26, 2013:  175,157,404 shares of Common Stock, $0.001 par value per share.


 
 

 
 
 
SWISHER HYGIENE INC.
 
ANNUAL REPORT ON FORM 10-K
 
FOR THE YEAR ENDED DECEMBER 31, 2012
 
 
PART I 1
     
ITEM 1. 1
     
ITEM 1A. 10
     
ITEM 1B. 17
     
ITEM 2. 17
     
ITEM 3. 18
     
ITEM 4. 19
     
PART II 20
     
ITEM 5. 20
     
ITEM 6. 22
     
ITEM 7. 22
     
ITEM 7A. 44
     
ITEM 8. 44
     
ITEM 9.  44
     
ITEM 9A. 44
     
ITEM 9B. 46
     
PART III 47
     
ITEM 10. 47
     
ITEM 11. 51
     
ITEM 12 . 61
     
ITEM 13. 63
     
ITEM 14. 64
     
PART V 65
     
ITEM 15. 65
     
SIGNATURES   
 
 
 
 
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 (as defined below), in which case these words, as well as “Swisher International,” refer to Swisher International, Inc. and its consolidated subsidiaries.
 
Business Overview and Outlook
 
We provide essential hygiene and sanitizing solutions to customers throughout much of North America and internationally through our network of company owned operations, franchisees and master licensees. These solutions include essential products and services that are designed to promote superior cleanliness and sanitation in commercial environments, while enhancing the safety, satisfaction and well-being of employees and patrons. These solutions are typically delivered by employees on a regularly scheduled basis and involve providing our customers with: (i) consumable products such as detergents, cleaning chemicals, soap, paper, and supplies, together with the rental and servicing of dish machines and other equipment for the dispensing of those products; (ii) the rental of facility service items requiring regular maintenance and cleaning, such as floor mats, mops, bar towels, and linens; and (iii) manual cleaning of their facilities. We serve customers in a wide range of end-markets, with a particular emphasis on the foodservice, hospitality, retail, and healthcare industries.
 
During 2013, we intend to grow in our existing markets primarily through organic growth. Future acquisitions will focus on opportunities which will primarily benefit our core chemical businesses.
 
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, 2012, which are included in this Annual Report on Form 10-K, which we refer to as the 2012 Form 10-K, are presented to show the operation of this single segment. Our principal executive offices are located at 4725 Piedmont Row Drive, Suite 400, Charlotte, North Carolina, 28210. The financial information about our geographical areas are included in Note 18, “Geographic Information” to the Notes to the Consolidated Financial Statements in this 2012 Form 10-K and are incorporated herein by this reference.
 
On August 17, 2010, Swisher International, Inc. (“Swisher International”) entered into a merger agreement (the “Merger Agreement”) that was completed on November 2, 2010, under which all of the outstanding common shares of Swisher International were exchanged for 57,789,630 common shares of CoolBrands International Inc. (“CoolBrands”), and Swisher International became a wholly-owned subsidiary of CoolBrands (the “Merger”). Immediately before the Merger, CoolBrands completed a redomestication to Delaware from Ontario, Canada and became Swisher Hygiene Inc. After the Merger, shareholders of CoolBrands held 56,225,433 shares of Swisher Hygiene Inc. common stock.
 
Our Strategy
 
Upon becoming a public company at the end of 2010, we set out a goal to become a full-service national provider of hygiene and sanitizing solutions, with a particular emphasis on the ability to provide chemical products and services in all 50 states to customers in the foodservice, hospitality, retail and healthcare markets. Our strategy was based on the fact that most multi-unit operators and regional distributors require a single provider for all of their units and customers. To achieve this goal we acquired 62 businesses across the United States, a majority of which were local and regional chemical operators, from the end of 2010 into early 2012. As a result, we believe that today we are one of only two institutional chemical service providers with national service coverage across the United States.
 
During the same period we set out a strategy to vertically integrate our chemical operations and expand our product offering. The foundation of our vertical integration was the purchase of J. F. Daley International, Ltd. in 2011. Together with the acquisition of additional regional chemical manufacturing plants, we now manufacture a majority of our chemical products internally rather than purchase them from third parties. We believe that our regional manufacturing footprint is a strategic asset for the company as it allows us to control freight costs and also sell products to wholesale customers that may not require our service capabilities. The expansion of our product offering includes the sale of complementary kitchen products, such as dish racks, water filters, and other consumable products purchased by foodservice, hospitality and healthcare customers, as well as the rental and cleaning of table and hospitality linen. Our current ability to offer these linen services is limited to those markets where we operate linen processing plants. We believe that customers are increasingly seeking 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 provides the Company with a valuable point of competitive differentiation.
 
 
We currently serve customers in a wide range of end-markets, with a particular emphasis on the foodservice, hospitality, retail, and healthcare industries. We strive to position ourselves to customers as the “one-stop-shop” for the hygiene, chemical and complementary products and services we offer. We believe this comprehensive approach to providing these solutions to our customers, coupled with the rental, installation, and service of dish machines and dispensing equipment, which provide us rental income and require the use of our products, provides stability in our business and encourages customer loyalty.
 
We believe we are well positioned to take advantage of the markets we serve. Our ability to service customers throughout North America, our broad customer base, and our strategy of combining a service based platform with our direct distribution capabilities, and that of our third-party distributor partners, provide multiple avenues for organic revenue growth. We believe our service and product offerings will allow us to continue to increase revenue through existing customers, who will be able to benefit from the breadth and depth of our current product and service offerings.
 
Organic Growth
 
Government regulation focusing on hygiene, food safety, and cleanliness has increased locally, nationally and worldwide. Climate change, water scarcity, and environmental concerns have combined to create further demand for products, services, and solutions designed to minimize waste and support broader sustainability. In addition, many of our customers require tailored cleaning solutions that can assist in reducing labor, energy, and water use, and the costs related to cleaning and hygiene activities.
 
We intend to capitalize on these industry dynamics by offering customers a “one-stop-shop” focused on their essential commercial hygiene and sanitizing needs. This entails providing existing hygiene customers with complementary chemical and facility service products and services, including warewashing and laundry detergents, linen processing, cleaning chemicals, disinfectants, sanitizers, and related kitchen products, while providing existing chemical customers with hygiene and facility service products and services from our route-based weekly cleaning and restroom product platform We believe our suite of products and services is a portfolio none of our competitors offer in full and, as a result, customers need not shop for their essential commercial hygiene and sanitizing needs on a piece-meal basis. In addition, we believe we provide our customers with more frequent service, superior results, and better pricing than our competitors. As a result, we believe we can increase our revenue per customer stop and that we are well positioned to secure new accounts.
 
Our national footprint and existing route structure provides a scalable service infrastructure, which we believe gives us a lower relative cost of service compared to local and regional competitors and the opportunity to generate attractive margins on incremental revenue from existing customers as well as revenue from new customers. We also believe the density of our routes coupled with our go-to-market strategy of utilizing both third-party distributors and company personnel to deliver products and perform services, provides sufficient capacity in our current route structure to efficiently service additional customer locations with minimal incremental infrastructure or personnel costs. We believe that our national footprint also differentiates us from local providers who are not able to service larger customers in foodservice, hospitality, retail and healthcare markets that require national service from a single provider. Our organic growth largely depends on our ability to execute on these strategies and increase the sales of our products and services to corporate accounts and regional distribution partners.
 
Acquisition Growth
 
We believe the markets for our service and product offerings are highly fragmented with a small number of large national competitors and many small, private, local and regional businesses in each of our core marketplaces. These independent market participants generally are not able to benefit from economies of scale in purchasing, manufacturing of chemical products, offering a full range of products or services, or providing the necessary level of support and customer service required by larger regional and national accounts within their specific markets.
 
We believe the range of our product and service offerings coupled with our national service infrastructure provide us the opportunity to increase revenue through targeted acquisitions of other chemical operations by providing these acquired businesses or assets access to our corporate accounts, additional products and services, and our broader marketing strategy. In addition, we believe a targeted acquisition strategy will result in improved gross margin and route margin of the acquired revenue through greater purchasing efficiencies, manufacturing and supply chain synergies, route consolidation, and consolidation of back office and administrative functions.
 
We will be opportunistic as it relates to acquiring or partnering with complementary businesses that (i) can provide us a competitive advantage; (ii) leverage, expand, or benefit from our distribution network; or (iii) provide us economies of scale or cost advantages.
 
 
Cost Savings and Operational Excellence Initiatives
 
In 2012, we began a series of cost savings initiatives that seek to further leverage the integration of our acquisitions and simplify our operations. These initiatives include consolidating routes and branch locations, centralizing office administration functions and standardizing our operating model. Additionally, we are consolidating certain of our chemical manufacturing facilities and rationalizing our supply chain to reduce our manufacturing costs, provide our products to customers in the most efficient manner and consolidate our inventory. During 2012, we eliminated approximately $10.0 million in annual costs, which we expect will benefit future periods. We have identified and are implementing an additional $10.0 million of annual costs reductions during 2013.
 
Our Market
 
We compete in many markets, including institutional and industrial cleaning chemicals (which includes foodservice chemicals), restroom hygiene, other facility service products, and paper and plastics. In several geographical markets we also provide dust control and linen services, including the rental of floor mats, linens, towels and other items. In each of these markets, there are numerous participants ranging from large multi-national companies to local and regional competitors. The focus of our company owned operations remains the United States and Canada, however, we may pursue new international opportunities in the future through additional licensing, joint ventures, or other forms of company expansion.
 
Based on our analysis of publicly available industry research and trade reports, as well as our competitors’ public filings, we estimate that the combined addressable market in the United States and Canada as of December 31, 2012 for the products and services that we offer exceeds $36.8 billion.
 
We believe the industrial and institutional cleaning chemical market is addressed both by large manufacturers as well as a number of local and regional competitors. However, we believe that we are one of the only competitors to maintain the service employees necessary to effectively service national and regional foodservice, hospitality, healthcare facilities, and other multi-unit facilities requiring the chemical expertise to provide regularly scheduled preventative maintenance and emergency service.
 
We believe our primary competitors in our legacy hygiene and facilities service rental market are large facility service and uniform providers, as well as numerous small local and regional providers, many of whom may focus on one particular product offering, such as floor mat rentals. The paper distribution market for the customers we target not only has competition among the providers listed above, but also from the foodservice and janitorial-sanitation distributors.
 
Our Products and Services
 
We provide products and services to end-customers primarily through company owned operations. While we report sales to and royalty revenue from franchisees and licensees separately, we utilize the same administrative and management personnel to oversee the operations of company owned operations, franchisees, and licensees. We typically enter into service agreements with our customers that outline the scope and frequency of services we will provide, the contractual length, as well as the pricing of the products and services. Given that we typically install, at no charge, dispensers for many of the consumable products we sell to customers, our service agreements usually provide for an early termination fee.
 
Chemical service and wholesale revenue, which include our laundry, ware washing, and concentrated and ready-to-use chemical products and cleaners, and soap, accounted for 68.8%, 63.6%, and 29.9% of consolidated revenue in 2012, 2011, and 2010, respectively. Hygiene service revenue, which includes the sale of paper items, manual cleaning services, and service delivery fees, accounted for 19.6%, 26.3%, and 47.3%, of consolidated revenues in 2012, 2011, and 2010, respectively. The rental and other component of our business consists of rental fees, linen processing, and ancillary other product sales and represented 11.0%, 8.0%, and 9.9% of consolidated revenue in 2012, 2011, and 2010, respectively. We anticipate that over time, our chemical revenue will continue to grow at a faster rate than any of our other product lines.
 
Chemical Service and Wholesale
 
We have placed particular emphasis on the development of our chemical offerings, particularly as it relates to ware washing and laundry solutions. These solutions are typically delivered by employees on a regularly scheduled basis and include periodic preventative maintenance and occasional emergency service. 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 concentrated forms to clean items such as bed linen, clothing, and table linen.
 
 
Our ware washing and laundry solutions are designed to address the needs of customers ranging from single store operators to multi-unit chains and large resorts. We often consult with customers that may have specialized needs or require custom programs to address different fabric or soil types.
 
For ware washing customers, we sell, rent or lease, as well as install and service dishwashing machines, and dish tables and racks. We also provide chemical dispensing units. Customers using our laundry services are offered various dispensing systems. We also provide a full line of concentrated and ready-to-use chemicals and cleaning products. This product line includes general purpose cleaners, disinfectants, detergents, oven and grill cleaners, general surface degreasers, floor cleaners, and specialty cleaning products, which when in concentrated form, benefit from the use of a dispensing system to ensure 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 customer 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 a Swisher employee or one of our third-party distributor partners; however, the service and maintenance is provided by a Swisher employee.
 
During 2011, we acquired facilities to manufacture our own chemicals and provide the ability to sell to wholesale chemical customers that do not require delivery or preventative maintenance service. Through these acquisitions, we manufacture a majority of the chemical products that we sell.
 
Hygiene and Facility Service
 
Our legacy restroom hygiene business offers a regularly scheduled service that includes cleaning the bowls, urinals, and sinks, the application of a germicide to such surfaces to inhibit bacteria growth, and the restocking of air fresheners for a fixed weekly fee. Additionally, we manage 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 free customers from purchasing and securing an inventory of soap and paper products.
 
Additionally, we provide a range of complementary services including the rental and cleaning of floor mats and mops. In 2012 and 2011, we further expanded our product line in certain markets to provide table and hospitality linen services through acquisitions of several linen processing plants.
 
These products and services are delivered to customers by our employees in company vehicles. We utilize GPS technology to monitor various driving habits, mileage, and vehicle diagnostic information. In several markets, we operate our own linen processing facilities to maintain and clean rental items such as floor mats, mops, and linens, while, in other markets we outsource the processing to third parties.
 
Manufacturing, Sales, and Distribution
 
We manufacture a majority of the chemical products that we sell in seven manufacturing plants geographically located across the United States. We also purchase some of the products we sell from third-party manufacturers and suppliers. 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 market and sell our products and services primarily through: (i) our field sales group, including the service technicians, which pursues new local customers and offers existing customers additional products and service; (ii) our corporate account sales team, which focuses on larger regional or national customers in the markets previously identified; 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 strategically 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. Our Account Managers and Hygiene Specialists focus solely on current customers with the single purpose of expanding the number of products and services provided by leveraging solid business relationships.
 
 
Selling to new corporate accounts is led by a separate sales team and is an involved and lengthy process that includes either displacing an existing supplier of the products and services or working with the customer to centralize and consolidate disparate purchasing decisions. These prospective customers often go through a vendor qualification process that may involve multiple criteria, and we often work with them in various test locations to validate both product efficacy and our ability to deliver the services on a national level. Additionally, large corporate accounts may operate via a franchise network of their own; the selection process with such corporate accounts may only result in a vendor qualification allowing us the right to sell our products and services to their franchisees. To date, we have been in vendor qualification processes with larger accounts that have ranged from less than three months to over 12 months. Contract terms on corporate account customers typically range from three to five years.
 
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, which 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 end customers as compared to its food items. Moreover, a distributor partner is then able to market to its end customers the “service” required to maintain their dish machines and chemical dispensing equipment. This service is provided by Swisher and documented under a separate contract between Swisher and the end customer. In effect, by Swisher partnering to be the service arm for the distributor, we help to generate demand for our rental equipment and our consumable products, while providing the distributor a competitive advantage. We contract with distributors on an exclusive or non-exclusive basis, depending on the markets they serve and the size of their customer base.
 
With the exception of product sales delivered via distributors and select remote markets, our services and products in the United States are delivered through vehicles operated by company employees and franchisees.
 
Sale of Waste Segment
 
On November 15, 2012, we completed a stock sale of Choice Environmental Services, Inc. ("Choice") and other acquired businesses that comprised our Waste segment to Waste Services of Florida, Inc. for $123.3 million, resulting in a gain of $13.8 million net of tax. Subject to completion of an audit of Choice's 2012 financial statements through November 15, 2012 and the achievement of a predetermined EBITDA target, $12.5 million of the purchase price was held back. As a result of the sale of our Waste segment, we operate in one business segment. See Note 3, "Discontinued Operations and Sale of Waste Segment" of the Notes to the Consolidated Financial Statements for information concerning the sale of our Waste segment.
 
Franchise Operations
 
As part of our strategic initiatives, we have repurchased the majority of our franchisees. As of December 31, 2012, we have two remaining franchisees located in North America and nine master licensees operating in the United Kingdom, Portugal, the Netherlands, Singapore, the Philippines, Taiwan, Korea, Hong Kong/Macau/China, and Mexico.
 
We collect royalty, marketing, and/or business service fees from our franchisees and licensees in exchange for maintaining and promoting the Swisher trademarks, continuing to develop the Swisher offering, managing vendors and sourcing new products, marketing and selling Swisher services to prospective customers that may have locations in franchise territories, and providing various ancillary services, including billing and collections on their behalf. Franchisees are obligated to buy most of the products used in their business from us.
 
Customer Dependence
 
Our business is not materially dependent upon a single customer, and no one customer accounts for 10% or more of our consolidated revenue. Our customer base ranges from large multi-national companies to entrepreneurs who operate a single location.
 
 
Sources and Availability of Raw Materials
 
As the result of our acquisitions of Mt. Hood Solutions, ProClean of Arizona, J.F. Daley International, Ltd., Specialty Products of America, and Total Services, we operate seven manufacturing plants geographically located across the United States. We also entered into a Manufacturing and Supply Agreement (the "Cavalier Agreement") with another plant in conjunction with our acquisition of Sanolite and Cavalier 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. 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 going market price for such product.
 
Although we manufacture 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. Other than the Cavalier Agreement, we are not currently party to any agreement, including with our chemical manufacturer, where we bear the commodity risk of the raw materials used in manufacturing; however, nothing prevents (i) the vendor from attempting to pass through the incremental costs of raw materials or (ii) us from considering alternative suppliers or vendors. We believe the raw materials used by the manufacturers of the products we currently sell, including petroleum-based surfactants, detergents, solvents, chlorine, caustic soda, and paper, are readily available; however, pricing pressure or temporary shortages may from time to time arise, resulting in increased costs and, we believe, under extreme conditions only, a loss in revenue from our inability to sell certain products.
 
We purchased 14.3%, 28.2%, and 76.7% of the chemicals required for company owned operations in 2012, 2011 and 2010, respectively, from one supplier that operates from a single manufacturing location. We expect this percentage to continue to decline as we expand our own manufacturing capability. We also have contingency plans to outsource production to other parties in the event that we need to, which we believe could mitigate any disruptions in the supply of chemicals from this supplier.
 
Patents and Trademarks
 
We maintain a number of trademarks in the United States, Canada and in certain other countries. We believe that many of these trademarks, including “Swisher,” "Daley," 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 “Swisher” by January 2014, (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 and franchisee 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 brand 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, on an organic basis, 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 directly related to the number of patrons they service. As such, events adversely affecting the business of the customer may have an adverse impact on our business.
 
 
Regulatory and Environmental
 
We are subject to numerous United States federal, state, local, and foreign laws that regulate the manufacture, storage, distribution, transportation, and labeling of many of our products, including all of our disinfecting, sanitizing, and antimicrobial products. 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, 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 United States federal, state, local, and foreign laws and regulations govern some of our products and require us to register our products and to comply with specified requirements. In the 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.
 
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, label disclosures are required for certain products containing chemicals listed by California. In addition, California, Maine, Massachusetts, Minnesota and Oregon have chemical management initiatives that promote pollution prevention through the research and development of safer chemicals and safer chemical processes. Numerous states have also enacted environmentally-preferable purchasing programs for cleaning products. Cleaning product ingredient disclosure legislation has been introduced in the United States Congress in the past few years but has not passed, and several states are considering further regulations in this area. The California Safer Consumer Products Act regulations focus on ingredients in consumer products and are expected to be enacted in 2013. To date, we generally 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.
 
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.
 
 
The National Fire Protection Association has aided various state and local government in the development of set of safety standards that generally fall under the OSHA Community Right to Know regulations that allows the local fire department to regulate the safety measures needed in a facility in order to prevent and lessen 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.
 
Other Environmental Regulation
 
Our manufacturing facilities are subject to various United States 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 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 would likely have a material adverse effect on our business, financial condition, results of operations, or 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, 2012, we had 1,641 employees. We are not a party to any collective bargaining agreement and have never experienced a work stoppage. We consider our employee relations to be good.
 
Significant Developments Since December 31, 2012
 
Restatements and Subsequent Filings
 
On February 19, 20, and 21, 2013, respectively, the Company filed amended quarterly reports on Form 10-Q/A for the periods ended March 31, 2011, June 30, 2011, and September 30, 2011 (the "Affected Periods"), including restated financial statements for the Affected Periods, to reflect adjustments to previously reported financial information. See the Company's separately filed amended Form 10-Q/As, for more information about the restatement adjustments recorded. On February 26, 2013, the Company filed its Annual Report on Form 10-K for the year ended December 31, 2011. On March 11, 15, and 18, 2013, respectively, the Company filed quarterly reports on Form 10-Q for the periods ended March 31, 2012, June 30, 2012, and September 30, 2012 (the "2012 Form 10-Qs").
 
NASDAQ and TSX Matters
 
As we have previously reported, the Company has maintained regular communication with The NASDAQ Stock Market ("NASDAQ") and the Toronto Stock Exchange (the "TSX") regarding our continued listing.  Following our completion of the filing of our 2012 Form 10-Qs, on March 20, 2013, the Company provided the NASDAQ Listing Qualifications Panel (the "Panel") an update on the Company’s compliance efforts and advised the Panel that it expects to complete and file the 2012 Form 10-K by April 30, 2013 and hold a combined 2012 and 2013 annual meeting on June 5, 2013.
 
 
Also, on March 20, 2013, the Company received a letter from NASDAQ indicating that the Company is not in compliance with the filing requirements for continued listing under NASDAQ Listing Rule 5250(c)(1) because the 2012 Form 10-K was not timely filed by March 18, 2013. The letter from NASDAQ advised the Company that the Panel will consider this additional deficiency in their decision regarding the Company’s continued listing on The NASDAQ Global Select Market.
 
On March 21, 2013, the Company received a letter from the Panel indicating its determination to continue the listing of the Company’s shares on NASDAQ, subject to the following conditions: (1) on or before April 30, 2013, the Company shall file the 2012 Form 10-K and (2) on or before June 5, 2013, the Company shall have solicited proxies and held its annual meeting. In order for the Company to comply with the terms of the Panel’s exception, the Company must be able to demonstrate compliance with all requirements for continued listing.
 
During the process of regaining compliance with NASDAQ, the Company expects that its common stock will continue trading on NASDAQ under the symbol "SWSH," however the Company can provide no assurance that it will satisfy the conditions required to maintain its listing on NASDAQ or, even if the Company satisfies the conditions, that NASDAQ will determine to continue the Company's listing.
 
Also, the Company has been noted in default of its continuous disclosure obligations by the securities regulators in several provinces of Canada for certain failures stemming from the non-compliance described above, including the failure to timely file its annual financial statements for the years ended December 31, 2011 and 2012 and related information, and for publicly acknowledging that certain of its previously filed financial statements may no longer be relied upon. While the Company has remedied a number of the continuous disclosure defaults, in the event that any remaining defaults remain uncorrected, the Canadian securities regulators may issue a general cease trade order against the Company prohibiting trading of the Company's shares in Canada.
 
On March 28, 2013, the Company received notice from the TSX that the time for the previously announced delisting of the Company's common stock from the TSX would be extended until the close of the market on May 15, 2013, subject to, among other things, the Company filing its 2012 Form 10-K and quarterly financial statements for the quarter ended March 31, 2013. If the Company is able to complete its filings by applicable deadlines and meet all other conditions for continued listing on the TSX before May 15, 2013, the Company may maintain its listing on the TSX. The Company can provide no assurance that it will satisfy the conditions required to maintain its listing on the TSX or, even if the Company satisfies the conditions, that the TSX will determine to continue the Company's listing.
 
 
 
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 2012 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 2012 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 recorded losses from continuing operations of approximately $58.9 million, $34.6 million and $15.1 million for the years ended December 31, 2012, 2011, and 2010, respectively. We may continue to incur operating losses for the foreseeable future, and such losses may be substantial. We will need to increase revenue in order to generate sustainable operating profit. Given our history of operating losses, we cannot assure you that we will be able to achieve or maintain operating profitability on an annual or quarterly basis, or at all.
 
Matters relating to or arising from our recent restatement could have a material adverse effect on our business, operating results and financial condition.
 
On March 28, 2012, we announced that the 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 our quarterly reports on Form 10-Q for the periods then ended, should no longer be relied upon and may require restatement.
 
These announcements, subsequent related announcements and delays in completing our public filings led to litigation claims and potential regulatory proceedings against us. The defense of any such claims or proceedings may cause the diversion of management’s attention and resources, and we may be required to pay damages if any such claims or proceedings are not resolved in our favor. Any litigation or regulatory proceeding, even if resolved in our favor, could cause us to incur significant legal and other expenses. We also may have difficulty raising equity capital or obtaining other financing, such as lines of credit or otherwise. Moreover, we have been and may continue to be the subject of negative publicity focusing on the financial statement adjustments and resulting restatement and negative reactions from our stockholders, creditors or others with which we do business. The occurrence of any of the foregoing could harm our business and reputation and cause the price of our securities to decline.
 
The negative publicity and uncertainty of the litigation resulting from the restatements has impacted our ability to attract and retain customers, employees and vendors, and may continue to do so in the future. Concerns include 1) the perception of the work effort required to address the Company’s accounting and control environment, 2) the ability for the Company to be a long term provider to customers, and 3) the Company’s ability to timely pay outstanding balances to vendors, including landlords and key suppliers.
 
In connection with the restatements of our previously issued financial statements and the evaluations of our disclosure controls and procedures and internal control over financial reporting, we concluded that as of December 31, 2011, we identified deficiencies in our internal control over financial reporting. In addition, although management began an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2012, as required under Section 404 of the Sarbanes−Oxley Act of 2002, management did not complete its assessment. Based on the deficiencies identified, management concluded that we did not maintain effective internal control over financial reporting as of December 31, 2012. Had management completed its evaluation as of December 31, 2012 additional deficiencies in our internal control over financial reporting might have been identified. Should we identify other deficiencies or be unable to remediate any such deficiencies promptly and effectively, such deficiencies could harm our operating results, result in a material misstatement of our financial statements, cause us to fail to meet our financial reporting obligations or prevent us from providing reliable and accurate financial reports or avoiding or detecting fraud. This, in turn, could result in a loss of investor confidence in the accuracy and completeness of our financial reports, which could have an adverse effect on our stock price. Any litigation or other proceeding or adverse publicity relating to our deficiencies or any future deficiencies could have a material adverse effect on our business and operating results.
 
 
We may not be able to properly integrate the operations of previously acquired businesses and achieve anticipated benefits of cost savings or revenue enhancements.
 
During 2010 and 2011, our business strategy included growing our business through a significant number of acquisitions. The success of any business combination 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. In addition, the acquired customer base must be integrated into the existing service route structure to improve absorption of fixed costs and create operational efficiencies. The retention and integration of the acquired customer base will be a key factor in realizing the revenue enhancements that should accompany each acquired business. We cannot assure you that future results will improve as a result of cost savings and efficiencies or revenue enhancements from any prior acquisitions, and we cannot predict the timing or extent to which cost savings and efficiencies or revenue enhancements will be achieved, if at all. For these reasons, if we are not successful in timely and cost-effectively integrating acquisitions and realizing the benefits of such acquisitions, it could have a material adverse effect on our business, financial condition, results of operations, and cash flows.
 
We may incur unexpected costs, expenses, or liabilities relating to undisclosed liabilities of our acquired businesses.
 
In the course of performing our acquisition strategy, we may not have identified liabilities of the acquisition candidate that were not otherwise disclosed. These may include liabilities arising from non-compliance with federal, state or local environmental laws by prior owners, pending or threatened litigation, and undisclosed contractual obligations, for each of which we, as a successor owner, may be responsible. We cannot assure you that such indemnifications, even if obtainable, will be enforceable, collectible, or sufficient in amount, scope, or duration to fully offset the potential liabilities arising from the acquisitions.
 
We may fail to maintain our listing on the NASDAQ Stock Market and the Toronto Stock Exchange.
 
We have received delisting notices from NASDAQ and the TSX as a result of our delinquent filings and failure to hold an annual meeting during 2012. If we fail to remain current in our public filings or fail to hold an annual meeting by June 5, 2013, our common stock may be delisted. A delisting of our common stock 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 satisfy the conditions required to maintain our listing on NASDAQ or the TSX and, even if we satisfy the conditions, NASDAQ or the TSX may not continue our listing.
 
Failure to attract, train, and retain personnel to manage our growth could adversely impact our operating results.
 
Our strategy to grow our operations may place a greater strain on our managerial, financial and human resources than that experienced by our larger competitors, as they have a larger employee base and administrative support group. As we grow we will need to:
 
  
build and train sales and marketing staff to create an expanding presence in the evolving marketplace for our products and services, and to keep staff informed regarding the features, issues and key selling points of our products and services;
 
  
attract and retain qualified personnel in order to continue to develop reliable and saleable products and services that respond to evolving customer needs; and
 
  
focus personnel on expanding our internal management, financial and product controls significantly, so that we can maintain control over our operations and provide support to other functional areas within our business as the number of personnel and the size of our operations increases.
 
Competition for such personnel can be intense, and we cannot assure you that we will be able to attract or retain highly qualified marketing, sales and managerial personnel in the future. Our inability to attract and retain the necessary management, technical, sales and marketing personnel may adversely affect our future growth and profitability. It may be necessary for us to increase the level of compensation paid to existing or new employees to a degree that our operating expenses could be materially increased, which could have a material adverse effect on our business, financial condition, results of operations, and cash flows.
 
 
We may recognize impairment charges which could adversely affect our results of operations and financial condition.
 
We assess our goodwill and other intangible assets and long-lived assets for impairment when required by generally accepted accounting principles in the United States of America (“GAAP”). These accounting principles require that we record an impairment charge if circumstances indicate that the asset carrying values exceed their fair values. Our assessment of goodwill, other intangible assets, or long-lived assets could indicate that an impairment of the carrying value of such assets may have occurred that could result in a material, non-cash write-down of such assets, which could have a material adverse effect on our results of operations.
 
Goodwill and other intangible assets resulting from acquisitions may adversely affect our results of operations.
 
Goodwill and other intangible assets are expected to increase as a result of future acquisitions, and potential impairment of goodwill and amortization of other intangible assets could adversely affect our financial condition and results of operations. We consider various factors in determining the purchase prices of acquired businesses, and it is not anticipated that any material portion of the goodwill related to any of these acquisitions will become impaired or that other intangible assets will be required to be amortized over a period shorter than their expected useful lives. However, future earnings could be materially adversely affected if management later determines either that the remaining balance of goodwill is impaired or that shorter amortization periods for other intangible assets are required.
 
Failure to retain our current customers and renew existing customer contracts could adversely affect our business.
 
Our success depends in part on our ability to retain current customers and renew existing customer service agreements. Our ability to retain current customers depends on a variety of factors, including the quality, price, and responsiveness of the services we offer, as well as our ability to market these services effectively and differentiate our offerings from those of our competitors. We cannot assure you that we will be able to renew existing customer contracts at the same or higher rates or that our current customers will not turn to competitors, cease operations, elect to bring the services we provide in-house, or terminate existing service agreements. The failure to renew existing service agreements or the loss of a significant number of existing service agreements would have a material adverse effect on our business, financial condition, results of operations, 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, 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.
 
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.
 
 
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, many of whom have greater financial and marketing resources than us, in the same markets primarily on the basis of brand name recognition, price, product quality, and customer service. To remain competitive in these markets, we may be required to reduce our prices for products and services. If our competitors offer discounts on certain products or services in an effort to recapture or gain market share, we may be required to lower prices or offer other favorable terms to compete successfully. Any such change would likely reduce margins and could adversely affect operating results. Some of our competitors may bundle products and services that compete with our products and services for promotional purposes as a long-term pricing strategy or may provide guarantees of prices and product implementations. Also, competitors may develop new or enhanced products and services more successfully and sell existing or new products and services better than we do. In addition, new competitors may emerge. These practices could, over time, limit the prices that we can charge for our products and services. If we cannot offset price reductions or other pricing strategies with a corresponding increase in sales or decrease in spending, then the reduced revenue resulting from lower prices would adversely affect our margins, operating costs, and profitability.
 
Several members of our senior management team are critical to our business and if these individuals do not remain with us in the future, it could have a material adverse impact on our business, financial condition, results of operations, and cash flows.
 
Our future success depends, in part, on the continued efforts and abilities of our senior management team. Their skills, experience and industry contacts are expected to significantly benefit our business. The loss of any member of our senior management team 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. Because the market for qualified management is highly competitive, we may not be able to retain our leadership team or fill new management positions or vacancies created by expansion or turnover at existing compensation levels. We do not carry “key-person” insurance on the lives of our senior management team or management personnel to mitigate the impact that the loss of a key member of our management team would cause. As a potential result of the loss of services of one or more of these individuals, or if one or more of them decide to join a competitor or otherwise compete directly with us, could 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.
 
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.
 
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.
 
 
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 and have generally increased. Fuel price increases raise the costs of operating vehicles and equipment. We cannot predict the extent to which we may experience future increases in fuel costs or whether we will be able to pass these increased costs through to our customers. A fuel shortage, higher transportation costs or the curtailment of scheduled service could adversely impact our relationship with customers and franchisees and reduce our profitability. If we experience delays in the delivery of products to our customers, or if the services or products are not provided to the customers at all, relationships with our customers could be adversely impacted, which could have a material adverse effect on our business and prospects. As a result, future increases in fuel costs 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 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 would 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.
 
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,” "Daley" 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.
 
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.
 
If we are unable to protect our information and telecommunication systems against disruptions or failures, our operations could be disrupted.
 
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. If our computer systems are damaged or cease to function properly, we may have to make a significant investment to fix or replace them, and we may have interruptions in our ability to service our customers. This disruption caused by the unavailability of our computer systems could significantly disrupt our operations or may result in financial damage or loss due to lost or misappropriated information.
 
Insurance policies may not cover all operating risks and a casualty loss beyond the limits of our coverage could adversely impact our business.
 
Our business is subject to all of the operating hazards and risks normally incidental to the operations of a company in the cleaning and maintenance solutions 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 current size and growth strategy could cause our revenue and operating results to fluctuate more than some of our larger, more established competitors or other public companies.
 
Our revenue is difficult to forecast and we believe it is likely to fluctuate significantly from quarter to quarter as we continue to grow. Some of the factors affecting our future revenue and results, many of which will be outside of our control and are discussed elsewhere in the Risk Factors, include:
 
  
competitive conditions in our industries, including new products and services, product announcements and incentive pricing offered by our competitors;
 
  
the ability to hire, train and retain sufficient sales and professional services staff;
 
  
the ability to develop and maintain relationships with partners, franchisees, distributors, and service providers;
 
  
the discretionary nature of our customers’ purchase and budget cycles and changes in their budgets for, and timing of, chemical, equipment and services purchases;
 
  
the length and variability of the sales cycles for our products and services;
 
  
strategic decisions by us or our competitors, such as acquisitions, divestitures, spin-offs, joint ventures, strategic investments or changes in business strategy;
 
  
our ability to complete our service obligations in a timely manner; and
 
  
timing of product development and new product and service initiatives.
 
Given our current revenue, particularly as compared with some of our competitors, even minor variations in the rate and timing of conversion of our sales prospects into revenue could cause us to plan or budget inaccurately, and have a greater impact on our results than the same variations would have on the results of our larger competitors.
 
In light of the foregoing, quarter-to-quarter comparisons of our operating results are not necessarily representative of future results and should not be relied upon as indications of likely future performance or annual operating results. Any failure to achieve expected quarterly earnings per share or other operating results could cause the market price of our common shares to decline or have a material adverse effect on our business, financial condition, results of operations, and cash flows.
 
Certain stockholders may exert significant influence over any corporate action requiring stockholder approval.
 
As of January 31, 2013, 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.
 
 
Future issuances of shares of our common stock in connection with acquisitions or pursuant to our stock incentive plan could have a dilutive effect.
 
Since the Merger through December 31, 2012, we have issued up to 4,069,773 shares of common stock and shares underlying convertible notes and may continue to issue additional shares of our common stock in connection with future acquisitions or for other business purposes, or under the Amended and Restated Swisher Hygiene Inc. 2010 Stock Incentive Plan (the “Plan”). Future acquisitions may involve the issuance of our common stock as payment, in part or in full, for the businesses or assets acquired. The benefits derived by us from an acquisition might not exceed the dilutive effect of the acquisition. Pursuant to the Plan, our board of directors may grant stock options, restricted stock units, or other equity awards to our directors and employees. When these awards vest or are exercised, the issuance of shares of our common stock underlying these awards may have a dilutive effect on our common stock.
 
Future sales of Swisher Hygiene shares by our stockholders could affect the market price of our shares.
 
We issued an aggregate of 57,789,630 shares of Swisher Hygiene common stock in the Merger, including 55,789,632 shares issued to H. Wayne Huizenga, Steven R. Berrard, and other former Swisher International shareholders. Any sales of the shares in the open market or the perception that such sales could occur could cause the price of our shares to decline and might also make it more difficult to sell our equity securities at a time and price that is deemed appropriate.
 
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.
 
 
None
 
 
We operate chemical manufacturing facilities in Oregon, Arizona, Colorado, Illinois, Florida, and New York.  We lease six of the buildings and we own one.
 
We lease our current corporate headquarters facility in Charlotte, North Carolina, pursuant to a lease expiring in February 2017. As of December 31, 2012, we also lease numerous facilities. The facilities are located in the states and territories where we operate our business. We also lease facilities related to our Canadian operations in Canadian provinces 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.
 
 
 
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
 
There have been six shareholder lawsuits 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 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 shareholder 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 shareholders in the U.S. District Court for the Western District of North Carolina against the same set of defendants. The plaintiffs in these cases have asserted claims alleging violations of Sections 10(b) and 20(a) of the Exchange Act of 1934 based on alleged false and misleading disclosures in the Company's public filings. In each of the putative securities class actions, the plaintiffs seek damages for losses suffered by the putative class of investors who purchased Swisher common stock.
 
On May 21, 2012, a shareholder derivative action was brought against the Company's former CEO and former CFO and the Company's directors for alleged breaches of fiduciary duty by another purported Company shareholder in the U.S. District Court for the Southern District of New York. In this derivative action, the plaintiff seeks to recover for the Company damages arising out of a possible restatement of the Company's financial statements.
 
On May 30, 2012, the Company, and 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, and 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 U.S. District Court for 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 U.S. District Court for 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. 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 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 names the Company's former Senior Vice President and Treasurer as an additional defendant. Defendants have sixty days from that date to answer or otherwise respond to the consolidated class action complaint.
 
Derivative Litigation
 
On April 11, 2012 and May 11, 2012, the Board of Directors of the Company received demand letters (the “Demands”) from two of the Company’s purported stockholders. In general, the Demands ask the Board to undertake an independent investigation into potential violations of Delaware and federal law relating to the Company's March 28, 2012 disclosure that its previously issued financial results for the first, second and third fiscal quarters of 2011 should no longer be relied upon, and to initiate claims against responsible parties and/or implement therapeutic changes as needed. The Board continues to work with its counsel to prepare its response to these Demands.
 
Other Related Matter
 
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 provide information about these matters on a voluntary basis 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.
 
 
Not applicable.
 
 
 
 
Market for Registrant’s Common Equity
 
Our common stock is listed and posted for trading on NASDAQ under the trading symbol “SWSH” and on the TSX under the trading symbol “SWI.” Our common stock commenced trading on NASDAQ on February 2, 2011. The following table sets out the reported low and high sale prices on NASDAQ for the periods indicated as reported by the exchange:
 
   
NASDAQ
Low/High Prices
 
Fiscal Quarter
 
2012
   
2011
 
First(1)
  $ 2.23 – 3.89     $ 5.50  – 6.83  
Second
  $ 1.51 – 2.70     $ 4.87  – 11.43  
Third
  $ 1.32 – 2.65     $ 3.31  – 5.80  
Fourth
  $ 1.10 – 1.94     $ 3.09  – 4.87  
_____________________
(1)  For the first quarter of 2011, the low/high prices were based on trading commencing on February 2, 2011. During the first quarter of 2011, the reported low sales price of our common stock on NASDAQ was $5.50 on February 8, 2011. The corresponding sales price on the TSX was $5.53 on February 8, 2011.
 
 The following table sets out the reported high and low sale prices (in U.S. dollars) on the TSX for the periods indicated as reported by the exchange:
 
   
TSX
Low/High Prices
 
   
2012
   
2011
 
Fiscal Quarter
           
First (2)
  $ 2.22 – 3.90     $ 4.76 –  6.83  
Second
  $ 1.51 – 2.70     $ 4.87 –  11.44  
Third
  $ 1.32 – 2.79     $ 3.31 –  5.87  
Fourth
  $ 1.10 – 1.90     $ 3.12 –  4.83  
 
(2) During the first quarter of 2011, the reported low sales price of our common stock on the TSX was $4.76 on January 4, 2011. Since the Company’s common stock commenced trading on NASDAQ on February 2, 2011, we do not have a corresponding sales price on NASDAQ on January 4, 2011.
 
Stock Performance Chart
 
The chart and table below compare the cumulative total stockholder return on our common stock from January 10, 2011 through December 31, 2012 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 (the "Peer Group"). The Peer Group consists of Calgon Carbon Corp., Casella Waste Systems Inc., Cintas Corp, Coinstar Inc., Ecolab, Inc., G&K Services Inc., Rollins Inc., Unifirst Corp., WCA Waste Corp. (included through March 23, 2012 when it was acquired by Macquarie Infrastructure Partners II), and ZEP Inc. The comparisons reflected in the graph and tables are not intended to forecast the future performance of our 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, and the Peer Group and that dividends were reinvested.
 
 
                           
INDEXED RETURNS
                               
   
Base
                     
Quarter Ending
                               
   
Period
                                                       
Company / Index
 
1/10/11
   
2/2/11
   
3/31/11
   
6/30/11
   
9/30/11
   
12/31/11
   
3/31/12
   
6/30/12
   
9/30/12
   
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
    100       101.46       107.41       107.24       85.97       100.73       112.81       108.77       114.64       117.18  
Peer Group
    100       99.54       103.34       112.52       96.36       114.84       124.16       133.33       128.55       138.01  
 
Our common stock is currently listed on NASDAQ under the symbol "SWSH" and the TSX under the symbol "SWI." 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, 2012 reflects trades on NASDAQ, which became our primary trading market on February 2, 2011, in U.S. dollars.
 
As of December 31, 2012, there were 175,157,404 shares of our common stock issued and outstanding. As of December 31, 2012, we had 1,088 registered stockholders of record.
 
We have not paid any cash dividends on our common stock and do not plan to pay any cash dividends in the foreseeable future. Our board of directors will determine our future dividend policy on the basis of many factors, including results of operations, capital requirements, and general business conditions.
 
 
 
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.
 
   
For the Year Ended December 31,
 
   
2012
   
2011(1)
   
2010
   
2009
   
2008
 
Selected Income Statement Data:
                             
                               
Revenue
  $ 230,521     $ 160,617     $ 63,652     $ 56,814     $ 64,109  
                                         
Loss from continuing operations
  $ (58,929 )   $ (34,574 )   $ (15,113 )   $ (6,850 )   $ (10,428 )
                                         
Net loss from continuing operations
  $ (80,775 )   $ (24,723 )   $ (17,570 )   $ (7,260 )   $ (11,988 )
                                         
Loss per share, continuing operations:
                                       
Basic and diluted
  $ (0.46 )   $ (0.16 )   $ (0.26 )   $ (0.13 )   $ (0.21 )
                                         
Selected Balance Sheet Data:
                                       
                                         
Total assets
  $ 327,685     $ 478,404     $ 106,234     $ 38,918     $ 30,281  
                                         
Swisher Hygiene Inc. stockholders' equity (deficit)
  $ 277,121     $ 343,834     $ 45,917     $ (19,455 )   $ (12,301 )
                                         
Long-term debt and obligations
  $ 5,284     $ 47,267     $ 44,408     $ 51,170     $ 32,567  
_____________________
(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 3, “Discontinued Operations and Sale of the Waste Segment” and Note 4, “Acquisitions” in the Notes to the Consolidated Financial Statements for additional information regarding these transactions.
 
 
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
 
Swisher Hygiene Inc. provides essential hygiene and sanitizing solutions to customers throughout much of North America and internationally through its network of company owned operations, franchisees and master licensees. These solutions include essential products and services that are designed to promote superior cleanliness and sanitation in commercial environments, while enhancing the safety, satisfaction and well-being of employees and patrons. These solutions are typically delivered by employees on a regularly scheduled basis and involve providing our customers with: (i) consumable products such as detergent, cleaning chemicals, soap, paper and supplies, together with the rental and servicing of dish machines and other equipment for the dispensing of those products; (ii) the rental of facility service items requiring regular maintenance and cleaning, such as floor mats, mops, bar towels, and linens; and (iii) manual cleaning of their facilities. We serve customers in a wide range of end-markets, with a particular emphasis on the foodservice, hospitality, retail, and healthcare industries.
 
 
We believe the markets for our service and product offerings are highly fragmented with a small number of large national competitors and many small, private, local and regional businesses in each of our core marketplaces. These smaller independent market participants generally are not able to benefit from economies of scale in purchasing, manufacturing of chemical products, offering a full range of products or services, or providing the necessary level of support and customer service required by larger regional and national accounts within their specific markets. To address this opportunity, during 2010 and 2011, we implemented an acquisition growth strategy and acquired 72 franchises and independent businesses in the chemical manufacturing, hygiene and waste and recycling services businesses. These acquisitions supported our overall strategy to continue growing from our legacy business of restroom hygiene to the premier “one-stop-shop” for complete hygiene and sanitation solutions for our customers and resulted in the following: 1) the purchase of primarily all of our franchises, 2) the development of a national platform to provide chemical and related services to customers in our key end-markets, 3) the vertical integration of our business through the purchase of seven chemical manufacturing plants located around the country and 4) the entrance into the solid waste collection and recycling business.
 
During 2012 and continuing into 2013, we have continued to focus on leveraging the integration of our acquisitions and simplifying our operations. These initiatives include the consolidation of routes and branch locations, centralizing administrative functions and standardizing our operating model. Additionally, we are consolidating certain of our chemical manufacturing facilities and rationalizing our supply chain to reduce our manufacturing costs, provide our products to customers in the most efficient manner and consolidate our inventory.
 
During 2013, we intend to grow in our existing markets primarily through organic growth. We will continue to focus our investments towards those opportunities which will most benefit our core chemical businesses.
 
Audit Committee Review and Restatement
 
On March 21, 2012, Swisher's Board of Directors (the "Board") determined that the Company's previously issued interim financial statements for the quarterly periods ended 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. Subsequently, on March 27, 2012, the Audit Committee concluded that the Company's previously issued interim financial statements for the quarterly period ended March 31, 2011 should no longer be relied upon. The Board and Audit Committee made these determinations in connection with the Audit Committee's then ongoing review into certain accounting matters. We refer to the interim financial statements and the other financial information described above as the "Prior Financial Information."
 
The Audit Committee initiated its review after an informal inquiry by the Company and its independent auditor regarding a former employee's concerns with the application of certain accounting policies. The Company first initiated the informal inquiry by requesting that both the Audit Committee and the Company’s independent auditor look into the matters raised by the former employee. Following this informal inquiry, the Company’s senior management and its independent auditor advised the Chairman of the Company’s Audit Committee regarding the matters. Subsequently, the Audit Committee determined that an independent review of the matters presented by the former employee should be conducted. During the course of its independent review, and due in part to the significant number of acquisitions made by the Company, the Audit Committee determined that it would be in the best interest of the Company and its stockholders to review the accounting entries relating to each of the 63 acquisitions made by the Company during the year ended December 31, 2011.
 
On May 17, 2012, the Company announced that the Audit Committee had substantially completed the investigative portion of its internal review. In connection with the substantial completion of its internal review, the Audit Committee recommended to the Board that the Company's Chief Financial Officer and two additional senior accounting personnel be separated from the Company as a result of their conduct in connection with the preparation of the Prior Financial Information. Following this recommendation, the Board determined that these three accounting personnel be separated from the Company, effective immediately. In making these employment determinations, the Board did not identify any conduct by these employees intended for or resulting in any personal benefit.
 
On February 19, 20, and 21, 2013, the Company filed amended quarterly reports on Form 10-Q/A for the quarterly periods ended March 31, 2011, June 30, 2011, and September 30, 2011, respectively, (the "Affected Periods"), including restated financial statements for the Affected Periods, to reflect adjustments to previously reported financial information. Please see the Company's separately filed Form 10-Q/As for more information about the restatement adjustments recorded.
 
 
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 2, “Summary of Significant Accounting Policies” in the Notes to Consolidated Financial Statements for additional discussion of the application of these and other accounting policies.
 
Segments
 
On March 1, 2011, the Company completed its acquisition of Choice Environmental Services, Inc. (“Choice”), a Florida based company that provides a complete range of solid waste and recycling collection, transportation, processing and disposal services. As a result of the acquisition of Choice, the Company operated in two segments: Hygiene and Waste. During the quarter ended June 30, 2012, the Company’s Board of Directors determined to sell its 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., and FSR Transporting & Crane Services, Inc. that comprise the Waste segment, to Waste Services of Florida, Inc. for $123.3 million. As discussed in Note 3, “Discontinued Operations and Sale of Waste Segment, in the Notes to the Consolidated Financial Statements, the Company has applied discontinued operations accounting treatment and disclosures for this transaction. As a result of the sale of Choice and all of its operations in the Waste segment, the Company’s continuing operations are classified in one business segment, Hygiene.
 
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, age of outstanding balances, historical write-off experience and specific account analysis that projects the ultimate collectability of the outstanding balances. Actual results could differ from these assumptions. Our allowance for doubtful accounts was $2.3 million and $2.2 million as of December 31, 2012 and 2011, respectively.
 
Purchase Accounting for Business Combinations
 
The Company acquired four independent businesses and purchased the remaining non-controlling interest in one of its subsidiaries during the year ended December 31, 2012 and acquired sixty-three franchises and independent businesses during the year ended December 31, 2011. The Company accounts for these 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 and Intangible Assets
 
Goodwill represents the excess of the cost of an acquired business over the fair value of the identifiable tangible and intangible assets purchased and liabilities assumed in a business combination. Identifiable intangible assets include customer relationships, non-compete agreements, trade names, trademarks and formulas. The fair value of these intangible assets at the time of acquisition is estimated based upon various valuation techniques including replacement costs and discounted future cash flow projections. Goodwill and intangible assets deemed to have indefinite lives are not amortized. 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 longevity of customers, 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 twenty years. Trademarks and trade names are considered to be indefinite lived intangible assets unless specific evidence exits that a shorter life is more appropriate.
 
 
The Company tests goodwill and other indefinite-lived intangible assets for impairment annually, or more frequently, if indicators for potential impairment exist. Impairment testing is performed at the reporting unit level at December 31. Under generally accepted accounting principles, a reporting unit is either the equivalent to, or one level below, an operating segment. The test to evaluate for impairment begins with an assessment of qualitative factors to determine whether the existence of events and circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events and circumstances, we determine it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary. However, if an entity concludes otherwise, then it is required to perform the first step of the two-step impairment test by calculating the fair value of the reporting unit and comparing the fair value with the carrying value of the reporting unit. If the fair value of the reporting unit is less than its carrying value, we will perform a second step to determine the implied fair value of goodwill associated with that reporting unit. If the carrying value of goodwill exceeds the implied fair value of goodwill, such excess represents the amount of goodwill impairment.
 
Determining the fair value of a reporting unit includes the use of significant estimates and assumptions. Management utilizes a discounted cash flow technique as a means for estimating fair value. This discounted cash flow analysis requires various judgmental assumptions including those about future cash flows, customer growth rates and discount rates. Expected cash flows are based on historical customer growth, including attrition, and continued long term growth of the business. The discount rates used for the analysis reflect a weighted average cost of capital based on industry and capital structure adjusted for equity risk and size risk premiums. These estimates can be affected by factors such as customer growth, pricing, and economic conditions that can be difficult to predict. The Company also looks at competitors from a market perspective and recent transactions, if they exist, to confirm the results of the discounted cash flow fair value estimate.
 
As part of this impairment testing, management also assesses the useful lives assigned to its separately identifiable finite lived intangible assets. Management utilized a discounted cash flow technique to estimate the initial fair value of separately identifiable intangible assets. Expected cash flows were based on historical customer growth, including attrition, continued long-term growth of the business, and the business use of the related assets. Management therefore periodically reviews the performance of acquired customers in relation to the assumptions used to estimate the original value for these assets. Discount rates used for the initial analysis reflect a weighted average cost of capital based on industry and capital structure adjusted for equity risk and size risk premiums. During the years ended December 31, 2012, 2011, and 2010, intangible asset impairment losses of $0.5 million, $0.0 million and $0.0 million respectively, were recognized.
 
A hypothetical 10% decrease in the fair value of our reporting units as of December 31, 2012 would have no impact on the carrying value of our goodwill.
 
Long-lived Assets
 
We recognize losses related to the impairment of long-lived assets when the carrying amount is not recoverable and exceeds its fair value. When facts and circumstances indicate that the carrying values of long-lived assets may be impaired, our management evaluates recoverability by comparing the carrying value of the assets to projected future cash flows, in addition to other qualitative and quantitative analyses. We also continue to accumulate and analyze data regarding the operating performance of certain assets and their useful lives which have the potential to impact the amount of depreciation expense recorded in our statement of operations. This analysis, during 2011, indicated that certain assets will continue to be used in the business for different periods than originally anticipated. As a result, the Company revised the estimated useful lives of certain property and equipment effective on January 1, 2011. Had this change taken place January 1, 2010, depreciation expense would have decreased by $0.8 million for the year ended December 31, 2010. See Note 2, “Summary of Significant Accounting Policies” in the Notes to Consolidated Financial Statements for further discussion.
 
Revenue Recognition
 
Revenue from product sales and service is recognized when services are performed or the product is delivered to the customer. The Company may enter into multiple deliverable agreements with customers that outline the scope and frequency of services to be provided as well as the consumable products to be delivered. These deliverables are considered to be separate units of accounting as defined by ASC 605-25-Revenue Recognition–Multiple-Element Arrangements. The timing of the delivery and performance of service is concurrent and ongoing and there are no contingent deliverables.
 
 
The Company’s sales policies provide for limited rights of return on specific products for limited time periods. Product returns have been historically insignificant. The Company records estimated reductions to revenue for customer programs and incentive offerings, including pricing arrangements, promotions and other volume-based incentives at the time the sale is recorded. The Company also records estimated reserves for anticipated uncollectible accounts and for product returns and credits at the time of sale.
 
The Company has entered into franchise and license agreements which grant the exclusive rights to develop and operate within specified geographic territories for a fee. The initial franchise or license fee is deferred and recognized as revenue when substantially all significant services to be provided by the Company are performed. Direct incremental costs related to franchise or license sales for which revenue has not been recognized is deferred until the related revenue is recognized. 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.
 
Income Taxes
 
Effective on January 1, 2007, Swisher International’s shareholders elected that the corporation be taxed under the provisions of Subchapter S of the Internal Revenue Code of 1986, as amended (the “Code”). Under this provision, the shareholders were taxed on their proportionate share of Swisher International’s taxable income. As a Subchapter S corporation, Swisher International bore no liability or expense for income taxes.
 
Due to the Merger in November 2010, Swisher International converted from a corporation taxed under the provisions of Subchapter S of the Internal Revenue Code (“S Corp”) to a tax-paying entity and accounts for income taxes under the asset and liability method. The undistributed earnings on the date the Company terminated the S Corp election were recorded as additional paid-in capital on the Consolidated Financial Statements since the termination of the S Corp election assumes a constructive distribution to the owners followed by a contribution of capital to the corporation.
 
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.
 
We include interest and penalties accrued in the Consolidated Financial Statements as a component of interest expenses. No significant amounts were required to be recorded as of December 31, 2012, 2011 and 2010. As of December 31, 2012, tax years of 2007 through 2011 remain open to inspection by the Internal Revenue Service.
 
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 12, “Equity Matters” in the Notes to Consolidated Financial Statements for further information on these assumptions.
 
 
Actuarially Determined Liabilities
 
We administer a defined benefit plan for certain retired employees (the “Plan”). The Plan has not allowed for new participants since October 2000. The measurement of our pension obligation is dependent on a variety of assumptions determined by management and used by our actuaries. Significant actuarial assumptions used in determining the pension obligation include the discount rate applied to the Plan obligation and expected long-term rate of return on the Plan’s assets. The discount rate assumption is calculated using a bond yield curve constructed from a population of high-quality, non-callable corporate bonds. The discount rate is calculated by matching the Plan’s projected cash flows to the yield curve. The expected return on Plan assets reflects asset allocations, investment strategies, and actual historical returns. Changes in benefit obligations associated with these assumptions may not be recognized as costs on the statement of income. Differences between actuarial assumptions and actual Plan results are deferred in Accumulated other comprehensive (loss) income and are amortized into cost only when the accumulated differences exceed 10% of the greater of the projected benefit obligation or the market value of the related Plan assets. We recognize the funded status of the Plan on the Consolidated Balance Sheet with the offsetting entry to Accumulated other comprehensive (loss) income.
 
The Plan assets are invested in U.S. equities, non-U.S. equities, and fixed income securities. Investment securities are exposed to various risks, including interest rate risk, credit risk, and overall market volatility. As a result of these risks, it is reasonably possible that the market values of investment securities could increase or decrease in the near term. Increases or decreases in market values could affect the current value of the Plan assets and, as a result, the future level of net periodic benefit cost.
 
Expected rate of return on Plan assets was developed by determining projected returns and then applying these returns to the target asset allocations of the Plan assets, resulting in a weighted average rate of return on Plan assets.
 
A one percent decrease in the discount rate assumption of 3.74% would result in an increase in the projected benefit obligation at December 31, 2012 of approximately $0.5 million. Based on the actuarial report as of December 31, 2012, we expect to make a minimum regulatory funding contribution of $22,000 during 2012.
 
Recently Adopted Accounting Pronouncements
 
Fair Value:  In May 2011, the FASB issued updated accounting guidance on fair value measurements. The updated guidance resulted in common fair value measurement and disclosure requirements between U.S. GAAP and IFRS. The Company adopted this guidance effective January 1, 2012. The adoption did not have a material impact on the disclosures of the Company’s consolidated financial information.
 
Comprehensive Income:  In June 2011 and subsequently amended in December 2011, the FASB issued final guidance on the presentation of comprehensive income. Under the newly issued guidance, net income and comprehensive income may only be presented either as one continuous statement or in two separate but consecutive statements. The Company adopted this guidance effective January 1, 2012, with net loss and comprehensive loss shown as one continuous statement.
 
Newly Issued Accounting Pronouncements
 
Comprehensive Income: In February 2013, the FASB issued ASU 2013-02 which requires companies to provide information about the amounts reclassified out of accumulated other comprehensive income component (“AOCI”). In addition, companies are required to present, either on the face of the statement where net income is presented or in the accompanying notes, significant amounts reclassified out of AOCI by the respective line items of net income, but only if the amount reclassified is required to be reclassified to net income in its entirety in the same reporting period. For amounts that are not required to be reclassified in their entirety to net income, companies are required to cross-reference to other disclosures that provide additional detail on those amounts. ASU 2013-02 is effective prospectively for reporting periods beginning after December 15, 2012. The Company is evaluating this accounting standard update and does not expect it to have a significant impact on its financial statement disclosure.
 
 
RESULTS OF OPERATIONS
 
The following table provides our results of operations for each of the years ended December 31, 2012, 2011, and 2010, 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.
 
   
Year ended December 31,
 
   
2012
   
2011
   
2010
 
    (In thousands except share and per share data)  
Revenue
                 
Products
 
$
202,968
   
$
131,109
   
$
37,690
 
Services
   
26,186
     
 26,107
     
17,737
 
Franchise and other
   
1,367
     
3,401
     
8,225
 
Total revenue
   
230,521
     
160,617
     
63,652
 
                         
Costs and expenses
                       
Cost of sales (exclusive of route expenses and related depreciation and amortization)
   
101,914
     
67,942
     
23,597
 
Route expenses
   
42,524
     
33,254
     
13,931
 
Selling, general, and administrative
   
123,439
     
79,557
     
31,258
 
Acquisition and merger expenses
   
582
     
6,107
     
5,122
 
Depreciation and amortization
   
20,991
     
12,690
     
4,857
 
Gain from bargain purchase
   
-
     
(4,359
)    
-
 
Total costs and expenses
   
289,450
     
195,191
     
78,765
 
Loss from continuing operations
   
(58,929
)    
(34,574
)    
(15,113
)
                         
Other expense, net
   
(3,093
)    
(6,765
)    
(757
)
Net loss from continuing operations before income taxes
   
(62,022
)    
(41,339
)    
(15,870
)
                         
Income tax (expense) benefit
   
(18,753
)    
16,616
     
(1,700
)
                         
Net loss from continuing operations
   
(80,775
)    
(24,723
)    
(17,570
)
                         
Discontinued Operations, net of tax
                       
Net loss from operations through disposal
   
(6,245
)    
(623
)    
-
 
Gain on disposal
   
13,844
     
-
     
-
 
Net income (loss) from discontinued operations
   
7,599
     
(623
)    
-
 
                         
Net loss
 
$
(73,176
)  
$
(25,346
)  
$
(17,570
)
 
Impact of Acquisitions
 
During the year ended December 31, 2011, we acquired nine franchisees and 54 independent businesses, including four in our Waste segment. 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 four businesses comprising the Waste segment. The term "Acquisitions" refers to the nine franchisees and 54 independent businesses acquired during the year ended December 31, 2011 and 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. See Note 3, “Discontinued Operations and Sale of Waste Segment” in the Notes to Consolidated Financial Statements for further information.
 
 
Comparison of the years ended December 31, 2012 to December 31, 2011
 
Revenue
 
Total revenue and the revenue derived from each revenue type for the years ended December 31, 2012 and 2011 are as follows:
 
   
2012
   
%
   
2011
   
%
 
   
(In thousands)
 
Company-owned operations:
                       
Chemical products
  $ 158,626       68.8 %   $ 102,162       63.6 %
Hygiene products and services
    45,200       19.6       42,196       26.3  
Rental and other
    25,328       11.0       12,858       8.0  
Total Company-owned operations
    229,154       99.4       157,216       97.9  
Franchise products and fees:
    1,367       0.6       3,401       2.1  
Total revenue
  $ 230,521       100.0 %   $ 160,617       100.0 %
 
Consolidated revenue increased $69.9 million to $230.5 million for the year ended December 31, 2012 as compared to 2011. The components of the revenue growth were a $71.9 million increase in revenue from Company-owned operations offset by a $2.0 million reduction in revenue from franchisees products and fees. These amounts represented revenue changes of 43.5% for total revenue, 45.8% for Company-owned operations, and (59.8)% for franchise revenue.
 
Within Company-owned operations, the $71.9 million in revenue growth from 2011 to 2012 was comprised of growth in chemical products of $56.5 million, Hygiene products of $2.9 million, Hygiene services of $0.1 million, and rental and other of $12.5 million. The amounts represent increases of 55.3%, 18.3%, 0.3%, and 97.0%, respectively. Throughout these product lines, increases in revenue were primarily attributable to acquisitions.
 
Excluding the impact of Acquisitions made during 2012 and 2011, including the potential growth in existing customers at the time of acquisition as well as new customer relationships created by the acquired business in 2012 and 2011, revenue from Company-owned operations increased by 10.9% and total revenue increased 4.3%. The lower percentage increase in total revenue is attributable to the decline on franchise products and fees which is attributable to the purchase of Swisher franchisees.
 
The change in revenue mix as well as the growth of the Company-owned operations was primarily attributable to i) acquisition efforts focused on chemical product and service companies to round out our North American operating footprint, ii) our emphasis on the expansion of our core ware-washing and laundry chemical offerings both through direct sales efforts and via distributors, with a reduction in focus on our legacy Hygiene services offering, and iii) strategic expansion in the dish machine and linen rental marketplace.
 
Cost of Sales
 
Cost of sales for the year ended December 31, 2012 and 2011 are as follows:
 
  
 
2012
     
%(1)
     
2011
     
%(1)
 
Cost of Sales
 
(In thousands)
 
                               
Company-owned operations
 
$
101,585
     
44.3
%
 
$
65,692
     
41.8
%
Franchise products and fees
   
329
     
24.1
     
2,250
     
66.2
 
Total cost of sales
 
$
101,914
     
44.2
%
 
$
67,942
     
42.3
%
_____________________
(1)
Represents cost as a percentage of the respective product and service line revenue.
 
Consolidated cost of sales increased $34.0 million, or 50.0%, to $101.9 million for the year ended December 31, 2012 compared with 2011. As a percentage of sales, consolidated cost of sales increased from 42.3% to 44.2%.  The dollar increase primarily reflects the inclusion of the Company’s Acquisitions, while the change in the cost of sales as a percent of revenue is attributable to the revenue mix change including increased direct and wholesale chemical sales.
 
 
The $35.9 million growth of Company-owned operations cost of sales from $65.7 million to $101.6 million and, as a percentage of revenue, from 41.8% to 44.3%, was primarily driven by a $56.5 million growth in chemical product sales during 2012. Chemical products, and in particular chemical products sold at wholesale, have a higher cost of sales as a percentage of revenue than many of the other components of Hygiene products and services revenue. Our increase in chemical wholesale sales and cost of sales is driven by our entry into the chemical manufacturing business primarily from our acquisition of Daley in the third quarter of 2011.
 
Excluding the impact of Acquisitions made during 2011 and 2012 the Company-owned operations cost of sales increased from 39.8% of revenue to 41.3% of revenue. This increase is primarily attributable to the change in our revenue mix to chemical product revenue.
 
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, 2012 and 2011 are as follows:
 
   
2012
     
%(1)
     
2011
     
%(1)
 
Route Expenses
 
(In thousands)
 
                               
Company-owned operations:
                             
Compensation
 
$
30,524
     
13.4
%
 
$
24,731
     
15.8
%
Vehicle and other expenses
   
12,000
     
5.2
     
8,523
     
5.4
 
Total Company-owned operations
                               
Total route expenses
 
$
42,524
     
18.6
%
 
$
33,254
     
21.2
%
_____________________
(1)
Represents cost as a percentage of total revenue from Company-owned operations.
 
Consolidated route expenses increased $9.3 million or 27.9% to $42.5 million and 18.6% of related product and service revenue for the year ended December 31, 2012, as compared to 2011. The percentage expense to revenue decreased from 21.2% in 2011 to 18.6% in 2012 resulting from the integration of acquisitions, our route consolidation efforts and the increase in wholesale chemical revenue, which does not have associated route costs. The increase in consolidated route expense primarily includes $7.7 million related to Acquisitions and $1.6 million due to organic growth.
 
Selling, General and Administrative Expenses
 
Selling, general and administrative expenses consist primarily of the costs incurred for:
 
Branch office and field management support costs that are related to field operations. These costs include compensation, occupancy expense and other general and administrative expenses,
 
Selling expenses, which include marketing expenses, compensation and commission for branch sales representatives and corporate account executives,
 
Corporate office expenses that are related to general support services, which include executive management compensation and related costs, as well as departmental costs for information technology, human resources, accounting, purchasing and other support functions,
 
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, 2012 and 2011 are as follows:
 
   
2012
     
%(1)
     
2011
     
%(1)
 
Selling, General & Administrative Expenses
 
(In thousands)
                               
Compensation
 
$
62,646
     
27.1
%
 
$
52,615
     
32.7
%
Occupancy
   
10,068
     
4.4
     
6,618
     
4.1
 
Other
   
50,725
     
22.0
     
20,324
     
12.7
 
                                 
Total selling, general & administrative expenses
 
$
123,439
     
53.5
%
 
$
79,557
     
49.5
%
_____________________
(1)
Represents cost as a percentage of total revenue.
 
Consolidated selling, general, and administrative expenses increased $43.9 million or 55.2% to $123.4 million for the year ended December 31, 2012 as compared to 2011. This increase includes $24.7 million related to Acquisitions and $25.6 million related primarily to professional fees partially offset by a $5.1 million decrease in compensation.
 
Compensation increased $10.0 million or 19.1% to $62.6 million for the year ended December 31, 2012 as compared to 2011 and includes an increase of $15.2 million related to Acquisitions. Excluding the impact of these Acquisitions, compensation decreased $5.1 million to $32.1 million for the year ended December 31, 2012 as compared to the same period of 2011.
 
Occupancy expenses from operations for the year ended December 31, 2012 increased $3.5 million or 52.1% to $10.1 million as compared to 2011 and includes $3.3 million related to Acquisitions.
 
Other expenses increased $30.4 million or 150.0% to $50.7 million as compared to 2011 and includes an increase of $6.3 million for Acquisitions. Excluding the impact of these Acquisitions, other expenses increased by $24.1 million or 139.3% to $40.8 million for the year ended December 31, 2012 as compared to 2011. Excluding the impact of Acquisitions and $21.8 million of investigation and review-related professional fees, other expenses increased by $2.3 million, related primarily to the expansion of our business.
 
Merger and Acquisition Expenses
 
Acquisition and merger expenses decreased $5.5 million or 90.5% to $0.6 million for the year ended December 31, 2012 as compared to 2011. Acquisition and merger expenses in 2012 are primarily due to costs directly-related to the acquisition of four independent businesses and the non-controlling interest in one of our subsidiaries. Acquisition and merger expenses for the year ended December 31, 2011 are primarily related costs directly-related to the acquisition of our nine franchisees and fifty-four independent companies. These costs include costs for third party due diligence, legal, accounting and professional service expenses.
 
Depreciation and Amortization
 
Depreciation and amortization for the year ended December 31, 2012 increased $8.3 million or 60.5% to $21.0 million as compared to 2011 primarily to depreciation and amortization expense on assets obtained from Acquisitions and depreciation on capital expenditures.
 
 
Gain on Bargain Purchase
 
During 2011, income of $4.4 million was related to the acquisition of J.F. Daley International LTD, a chemical manufacturer. Due to liquidity issues and the timing of debt maturities in 2011 being experienced by the sellers of Daley, the Company was able to acquire the business for consideration less than the fair value of the identifiable assets acquired and the liabilities assumed.
 
Other Expense, Net
 
Other expense, net for the years ended December 31, 2012 and 2011 is as follows:
 
   
2012
   
2011
 
Other Expense, Net
 
(In thousands)
 
             
Interest expense
 
$
(3,406
)  
$
(2,490
)
Realized and unrealized loss on fair value of convertible notes
   
66
     
(4,658
)
Earn-out     170       -  
Foreign currency
   
(15
)    
55
 
Loss from impairment
   
(507
)    
(116
)
Other
   
524
     
259
 
Interest income
   
75
     
185
 
                 
Total other expense, net
 
$
(3,093
)  
$
(6,765
)
 
Interest expense represents interest on borrowings under our credit facilities, equipment financing loans, notes incurred in connection with acquisitions including convertible promissory notes, advances from shareholders, and the purchase of equipment and software. Major components of interest expense for the year ended December 31, 2012 are interest on borrowings of $2.0 million related to our equipment financing loans, and $0.6 million of additional notes payables from acquisitions including convertible promissory notes, and capital leases entered into in connection with acquisitions.
 
For the year ended December 31, 2011, the net loss on debt related fair value measurements is due to the adjustment for the fair value of certain convertible promissory notes. The fair value of these convertible promissory notes is impacted by the market price of our stock. See Note 8, “Long-term Debt and Obligations” in the Notes to Consolidated Financial Statements.
 
Net Income (Loss) from Discontinued Operations
 
Net Income from discontinued operations for the year ended December 31, 2012 increased $8.2 million to $7.6 million as compared to $0.6 million loss during 2011.
 
Comparison of the years ended December 31, 2011 to December 31, 2010
 
Revenue
 
Total revenue and the revenue derived from each revenue type for the year ended December 31, 2011 and 2010 are as follows:
 
   
2011
   
%
   
2010
   
%
 
Revenue
 
(In thousands)
 
Company-owned operations:
                       
Chemical products
 
$
102,162
     
63.6
%
 
$
19,063
     
29.9
%
Hygiene products and services
   
42,196
     
26.3
 
   
30,075
     
47.3
 
Rental and other
   
12,858
     
8.0
 
   
6,289
     
9.9
 
Total Company-owned operations
   
157,216
     
97.9
 
   
55,427
     
87.1
 
                 Franchise products and fees
   
3,401
     
2.1
     
8,225
     
12.9
 
                                 
Total revenue
 
$
160,617
     
100.0
%
 
$
63,652
     
100.0
%
 
Total revenue increased $97.0 million or 152.3% for the year ended December 31, 2011 as compared to 2010. The components of the revenue growth were a $101.8 million or 183.7% increase in Company-owned operations offset by a $4.8 million or 58.7% reduction in revenue from franchise products and fees.
 
Within Company-owned operations, the $101.8 million in revenue growth from 2010 to 2011 was comprised of growth in chemical products of $83.1 million, Hygiene products and services of $12.1 million and rental and other of $6.6 million.  The amounts represent increases of 435.9%, 40.3%, and 104.5%, respectively.  Throughout these product lines, increases in revenue were primarily attributable to acquisitions made by the Company in late 2010 and 2011.
 
Excluding the impact of Acquisitions made during 2010 and 2011, including the potential growth in existing customers at the time of acquisition as well as new customer relationships created by the acquired business in 2010 and 2011, revenue from Company-owned operations increased by 28.2% and total revenue increased 16.5%. The lower percentage increase in total revenue is attributable to the decline on franchise products and fees which is attributable to the purchase of Swisher franchisees.
 
The change in revenue mix as well as the growth of the Company-owned operations was primarily attributable to i) acquisition efforts focused on chemical product and service companies to round out our North American operating footprint, ii) our emphasis on the expansion of our core ware- washing and laundry chemical offerings both through direct sales efforts and via distributors, with a reduction in focus on our legacy Hygiene services offering, and iii) strategic expansion in the dish machine and linen rental marketplace.
 
Cost of Sales
 
Cost of sales for the year ended December 31, 2011 and 2010 is as follows:
 
  
 
2011
    % (1)       2010     % (1)  
Cost of Sales
 
(In thousands)
 
Company-owned operations
  $ 65,692       41.8 %   $ 18,543       33.5 %
Franchise products and fees
    2,250       66.2       5,054       61.5  
                                 
Total cost of sales
  $ 67,942       42.3 %   $ 23,597       37.1 %
_____________________
(1)
Represents cost as a percentage of the respective product line revenue.
 
Consolidated cost of sales increased $44.4 million, or 187.9%, for the year ended December 31, 2011, compared to 2010. As a percentage of sales, consolidated cost of sales increased from 37.1% to 42.3%.  The dollar increase primarily reflects the Company’s acquisitions, and the change in the cost of sales as a percent of revenue is attributable to a revenue mix change, including increased direct and wholesale chemical sales.
 
The $47.2 million growth of Company-owned operations cost of sales and, as a percentage of revenue from 33.5% to 41.8%, were primarily driven by an $83.1 million growth in chemical product sales during 2011. Chemical products, and in particular chemical products sold at wholesale, have a higher cost of sales as a percentage of revenue than many of the other components of Hygiene products and services revenue. Our increase in chemical wholesale sales and cost of sales is related to our entry into the chemical manufacturing business primarily from our acquisition of Daley in the third quarter of 2011.
 
Route Expenses
 
Route expenses consist 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, 2011 and 2010 are as follows:
 
  
 
2011
     
% (1)
     
2010
     
% (1)
 
Route Expenses
 
(In thousands)
 
Compensation
 
$
24,731
     
15.8
%
 
$
9,930
     
17.9
%
Vehicle and other expenses
   
8,523
     
5.4
 
   
4,001
     
7.2
 
                                 
Total route expenses
 
$
33,254
     
21.2
%
 
$
13,931
     
25.1
%
_____________________
(1)
Represents cost as a percentage of total revenue from Company-owned operations.
 
Consolidated route expenses increased $19.3 million or 138.7% while the percentage expense to revenue decreased from 25.1% in 2010 to 21.2% in 2011 resulting from the integration of acquisitions. The overall dollar increase in consolidated route expense primarily includes:
 
   
$14.6 million related to Acquisitions
 
   
$4.7 million or 34.1% related to organic growth; 39.3% of related revenue in 2011 as compared to 25.1% in 2010. The increase of $4.7 million is primarily due to a higher revenue base resulting in higher compensation, vehicle and other route expenses. These increases are primarily the result of headcount and vehicles added as part of a distribution agreement entered into in December 2010.
 
Selling, General, and Administrative Expenses
 
The details of selling, general and administrative expenses for the year ended December 31, 2011 and 2010 are as follows:
 
  
 
2011
     
% (1)
     
2010
     
% (1)
 
Selling, General & Administrative Expenses
 
(In thousands)
 
Compensation
 
$
52,615
     
32.7
%
 
$
21,422
     
33.7
%
Occupancy
   
6,618
     
4.1
 
   
3,488
     
5.5
 
Other
   
20,324
     
12.7
 
   
6,348
     
10.0
 
                                 
Total selling, general & administrative expenses
 
$
79,557
     
49.5
%
 
$
31,258
     
49.2
%
_____________________
(1)
Represents cost as a percentage of total revenue.
 
Total selling, general, and administrative expenses for the year ended December 31, 2011 increased $48.3 million or 154.5% as compared to 2010. This increase includes $28.5 million related to Acquisitions and $19.8 million related to organic growth including $10.2 million related to compensation.
 
 
Compensation for the year ended December 31, 2011 increased $31.2 million or 145.6% to as compared to the same period of 2010. This increase includes an increase of $19.4 million related to Acquisitions. Excluding the impact of Acquisitions, compensation expense for the year ended December 31, 2011 increased $11.8 million or 48.4% to $33.2 million. This increase was primarily the result of an increase in costs and expenses related to our expansion of the corporate, field and distribution sales organizations to accelerate the growth in the core chemical program, and in increase in salaries and other costs largely associated with our transition from a private company to a public company.
 
Occupancy expenses for the year ended December 31, 2011 increased $3.1 million or 89.7% to $6.6 million as compared to 2010. This increase includes $2.8 million related to Acquisitions.
 
Other expenses for year ended December 31, 2011 increased $14.0 million or 220.2% as compared to 2010 and includes an increase of $6.4 million for Acquisitions. Excluding the impact of acquisitions, other expenses increased $7.6 million or 119.7%. This increase was primarily due to the expansion of our business, professional fees associated with being a newly public company, professional fees for uncompleted acquisitions, and the write-off of a note from a master licensee.
 
Acquisition and Merger Expenses
 
Acquisition and merger expenses increased $1.0 million or 19.2% to $6.1 million for the year ended December 31, 2011 as compared to 2010. Acquisition and merger expenses in 2011 are primarily due to costs directly related to the acquisitions of our nine franchises and fifty-four independent companies during the year ended December 31, 2011. Acquisition and merger expenses for the year ended December 31, 2010 are primarily related to the Merger. In connection with the Merger, we incurred certain directly-related legal, accounting and professional service fees.
 
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, 2011 increased $7.8 million or 161.2% to $12.7 million as compared to $4.9 million in 2010. This increase is primarily attributable to Acquisitions due to amortization for acquired intangible assets including customer relationships and non-compete agreements obtained as part of these acquisitions.
 
Gain on Bargain Purchase
 
During 2011, income of $4.4 million was related to the acquisition of J.F. Daley International LTD, a chemical manufacturer. Due to liquidity issues and the timing of debt maturities in 2011 being experienced by the sellers of Daley, the Company was able to acquire the business for consideration less than the fair value of the identifiable assets acquired and the liabilities assumed.
 
Other Expense, net
 
Other expense, net for the years ended December 31, 2011 and 2010 are as follows:
 
   
2011
   
2010
 
Other Expense, Net
 
(In thousands)
 
             
Interest expense
 
$
(2,490
)  
$
(1,400
)
Unrealized loss on convertible debt measurements
   
(4,658
)    
(277
)
Foreign currency gain
   
55
     
820
 
Impairment losses
   
(116
)    
-
 
Other
   
259
     
-
 
Interest income
   
185
     
100
 
                 
Total other expense, net
 
$
(6,765
)  
$
(757
)
 
Interest income primarily relates to a note receivable from our master licensee in the U.K. and interest earned on cash and cash equivalents balances.
 
Interest expense represents interest on borrowings under our credit facilities, notes incurred in connection with acquisitions, advances from shareholders and the purchase of equipment and software. Interest expenses for 2011 increased $1.1 million or 77.9% to $2.5 million as compared to 2010.  Major components of interest expense for the year ended December 31, 2011 are interest on additional borrowings of $15.0 million related to our equipment financing loans, and $29.8 million of additional notes payables from acquisitions including convertible promissory notes, and capital leases entered into in connection with acquisitions.
 
 
Gain on foreign currency represents the foreign currency translation adjustments.
 
For the year ended December 31. 2011, the net loss on debt related fair value measurements is due to the adjustment for the fair value of certain convertible promissory notes. The fair value of these convertible promissory notes is impacted by the market price of our stock. See Note 8, “Long-term Debt and Obligations” in the Notes to Consolidated Financial Statements.
 
Liquidity and Capital Resources
 
We fund the development and growth of our business with cash generated from operations, bank credit facilities, the sale of equity, third party financing for acquisitions, and capital leases for facilities and equipment.
 
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 are secured by a first priority lien on substantially all of our existing and hereafter acquired assets, including $25.0 million of cash on borrowings in excess of $75.0 million. Furthermore, borrowings under the facility are guaranteed by all of our domestic subsidiaries and secured by substantially all the assets and stock of our domestic subsidiaries and substantially all of the stock of our foreign subsidiaries. Interest on borrowings under the Credit Facility will typically accrue 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 includes specified adjustments and allowances authorized by the lender as provided for in such definition). We also have the option to request swingline loans and borrowings using a base rate. Interest is payable monthly or quarterly on all outstanding borrowings.
 
Borrowings and availability under the Credit Facility are subject to compliance with financial covenants, including achieving specified consolidated adjusted EBITDA levels, which will depend on the success of our acquisition strategy, and maintaining leverage and coverage ratios and a minimum liquidity requirement. The consolidated Adjusted EBITDA covenant, the leverage and coverage ratios, and the minimum liquidity requirements should not be considered indicative of the Company's expectations regarding future performance. The Credit Facility also placed restrictions on our ability to incur additional indebtedness, make certain acquisitions, create liens or other encumbrances, sell or otherwise dispose of assets, and merge or consolidate with other entities or enter into a change of control transaction. Failure to achieve or maintain the financial covenants in the credit facility or the failure to comply with one or more of the operational covenants could have adversely affected our ability to borrow monies and could have resulted in a default under the credit facility. The credit facility was subject to other standard default provisions.
 
In August 2011, the Company entered into an amendment to the Credit Facility that modified the covenants, including an increase in permitted indebtedness to $40.0 million. Failure to achieve or maintain the financial covenants in the credit facility or failure to comply with one or more of the operational covenants could have adversely affected our ability to borrow monies and could have resulted in a default under the Credit Facility. 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 Form 10-K for the year ended December 31, 2011 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 borrowing base requirements. The October 31, 2012 amendment required the Company to place certain amounts in the 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, we paid off the credit facility, which resulted in the termination of the credit facility.
 
 
Equipment Financing
 
In August 2011, we entered into an agreement, which provides financing up to $16.4 million for new and used trucks, carts, compactors, and containers for our Waste segment. The financing would consist of one or more fixed rate loans that have a term of five years. The interest rate for borrowings under this facility were to be determined at the time of each such borrowing based on a spread over the five year U.S. swap rate. The commitment letter expired in February 2012 with a renewal option of six months, if approved. During 2011, we made borrowings of $8.9 million at an average interest rate of 3.55%, which was paid in full during 2012.
 
Separately in August 2011, we entered into an agreement to finance new and replacement vehicles for our fleet that allows 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 the Waste segment’s vehicles and containers. The interest rate for borrowings under this facility were to be determined at the time of the loan and based on a spread above the U.S. swap rate for the applicable term, either four or five years. Borrowings under this loan commitment subject to the same financial convents as the above $100 million credit facility. During 2012, the Company made borrowings of $6.1 million at an average interest rate of 4.47%, which was paid in full during 2012.
 
In addition, in August 2011, we obtained an additional line of credit of $25.0 million for new and replacement vehicles for our fleet and obtained a commitment letter to finance information technology and related equipment not to exceed $2.5 million. The interest rate and term for each fixed rate loan will be determined at the time of each such borrowing based on a spread over the U.S. swap rate for the applicable term. The commitment expires in August 2014. During 2012, there were no borrowings under these agreements, which was paid in full during 2012.
 
Private Placements
 
On February 13, 2011, we entered into an Agreement and Plan of Merger (the "Choice Agreement") with SWSH Merger Sub, Inc. a Florida corporation and wholly-owned subsidiary of the Company, Choice, and other parties, as set forth in the Choice Agreement. The Choice Agreement provided for the acquisition of Choice by the Company by way of merger.
 
In connection with the merger with Choice, on February 23, 2011, we entered into an agency agreement, which the agents agreed to market, on a best efforts basis 12,262,500 subscription receipts (“Subscription Receipts”) at a price of $4.80 per Subscription Receipt for gross proceeds of up to $58,859,594. Each Subscription Receipt entitled the holder to acquire one share of our common stock, without payment of any additional consideration, upon completion of our acquisition of Choice.
 
On March 1, 2011, we closed the acquisition of Choice and issued 8,281,920 shares of our common stock to the former shareholders of Choice and assumed $1.7 million of debt. In addition, cash was paid to Choice debt holders of $40.7 million, including a prepayment penalty of $1.5 million, and certain shareholders of Choice received $5.7 million in cash and warrants to purchase an additional 918,076 shares at an exercise price of $6.21, which expired on March 31, 2011 and were not exercised. The prepayment penalty of $1.5 million was treated as a period expense in other expense on the Company’s income statement.
 
On March 1, 2011, in connection with the closing of the acquisition of Choice, the 12,262,500 Subscription Receipts were exchanged for 12,262,500 shares of our common stock. We agreed to use commercially reasonable efforts to file a resale registration statement with the SEC relating to the shares of common stock underlying the Subscription Receipts. If the registration statement was not filed or declared effective within specified time periods, or if the registration statement ceased to be effective for a period of time exceeding certain grace periods, the initial subscribers of Subscription Receipts would be entitled to receive an additional 0.1 share of common stock for each share of common stock underlying Subscription Receipts held by any such initial subscriber at that time. The Company filed a resale registration statement with the SEC relating to the 8,291,920 shares issued to the former shareholders of Choice and the 12,262,500 shares issued in connection with the private placement. The registration statement was effective as of the date of this filing of the Original 10-Q. The registration statement, including post effective amendments to the registration statement, remained effective through April 12, 2012. As a result of not timely filing our Annual Report on Form 10-K for the year ended December 31, 2011, the registration statements relating to shares issued in exchange for the Subscription Receipts is not effective.
 
 
On March 22, 2011, we entered into a series of arm's length securities purchase agreements to sell 12,000,000 shares of our common stock at a price of $5.00 per share, for aggregate proceeds of $60,000,000 to certain funds of a global financial institution (the "March Private Placement"). On March 23, 2011, we closed the March Private Placement and issued 12,000,000 shares of our common stock. Pursuant to the securities purchase agreements, the shares of common stock issued in the March Private Placement could not be transferred on or before June 24, 2011 without our consent. We agreed to use our commercially reasonable efforts to file a resale registration statement with the SEC relating to the shares of common stock sold in the March Private Placement. If the registration statement was not filed or declared effective within specified time periods the investors would have been, or if the registration statement ceases to remain effective for a period of time exceeding a sixty day grace period, the investors will be entitled to receive monthly liquidated damages in cash equal to one percent of the original offering price for each share purchased in the private placement that at such time remain subject to resale restrictions, with an interest rate of one percent per month accruing daily for liquidated damages not paid in full within ten business days. On April 21, 2011, the SEC declared effective a resale registration statement relating to the 12,000,000 shares issued in the March Private Placement. The registration statement, including post-effective amendments to the registration statement, remained effective through April 12, 2012. As a result of not timely filing our Annual Report on Form 10-K for the year ended December 31, 2011, the registration statement relating to shares issued in the March Private Placement is not effective, and as a result, we may be subject to liability under the penalty provision.
 
On April 15, 2011, we entered into a series of arm's length securities purchase agreements to sell 9,857,143 shares of our common stock at a price of $7.70 per share, for aggregate proceeds of $75.9 million to certain funds of a global financial institution (the "April Private Placement"). On April 19, 2011, we closed the April Private Placement and issued 9,857,143 shares of our common stock. Pursuant to the securities purchase agreements, the shares of common stock issued in the April Private Placement could not be transferred on or before June 24, 2011 without our consent. We agreed to use commercially reasonable efforts to file a resale registration statement with the SEC relating to the shares of common stock sold in the April Private Placement. If the registration statement was not filed or declared effective within the specified time periods the investors would have been, or if the registration statement ceases to remain effective for a period of time exceeding a sixty day grace period, the investors will be, entitled to receive monthly liquidated damages in cash equal to one percent of the original offering price for each share purchased in the April Private Placement that at such time remain subject to resale restrictions, with an interest rate of one percent per month accruing daily for liquidated damages not paid in full within ten business days. On August 12, 2011, the SEC declared effective a resale registration statement relating to the 9,857,143 shares issued in the April Private Placement. The registration statement, including post-effective amendments to the registration statement, remained effective through April 12, 2012. As a result of not timely filing our Annual Report on Form 10-K for the year ended December 31, 2011, the registration statement relating to shares issued in the April Private Placement is not effective, and as a result, we may be subject to liability under the penalty provision.
 
Acquisitions
 
During the years ended December 31, 2012, 2011 and 2010, we paid cash of $4.3 million, $121.8 million, and $4.9 million, respectively, for acquisitions. While the terms, prices, and conditions of each of these acquisitions were negotiated individually, consideration to the sellers typically consists of a combination of cash, common stock and the issuance of convertible promissory notes which may be converted into shares of Swisher Hygiene common stock subject to certain restrictions.
 
Shareholder Advances
 
As of the date of the Merger, we had borrowed $21.4 million from Royal Palm Mortgage Group LLC (“Royal Palm”), an affiliate of Mr. Huizenga, pursuant to an unsecured promissory note. The note bore interest at the one month LIBOR plus 2%. 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.
 
In 2010, we borrowed $0.95 million from Royal Palm pursuant to an unsecured promissory note. The note bears interest at the short-term Applicable Federal Rate, matured and was paid upon completion of the Merger.
 
In addition, during 2010, we borrowed $2.0 million from Royal Palm pursuant to an unsecured promissory note. The note matured on the one year anniversary of the effective time of the Merger. The note bears interest at the short-term Applicable Federal Rate and was paid in November 2012.  
 
In 2009, Mr. Berrard advanced the Company $0.8 million pursuant to an unsecured promissory note. The advance was repaid in March 2010.
 
 
Cash Flows
 
The following table summarizes cash flows from continuing operations for the years ended December 31, 2012, 2011, and 2010:
 
  
 
2012
   
2011
   
2010
 
   
(In thousands)
 
Cash used in operating activities of continuing operations
 
$
(39,244
)  
$
(27,151
)  
$
(11,520
)
Cash provided by (used in) investing activities of continuing operations
   
86,382
     
(131,391
)    
(14,799
)
Cash (used in) provided by financing activities of continuing operations
   
(49,417
)    
204,296
     
63,980
 
Net (decrease) increase  in cash from continuing operations
   
(2,279
   
45,754
     
37,661
 
Net cash used in discontinued operations
   
(6,810
)    
(14,178
)    
-
 
Net (decrease) increase in cash and cash equivalents
 
$
(9,089
)  
$
31,576
   
$
37,661
 
 
Operating Activities of Continuing Operations
 
Net cash used in operating activities increased $12.1 million or 44.6% to $39.2 million for the year ended December 31, 2012 compared with 2011. The net cash used is primarily due to a $56.1 million increase in our net loss, change in fair value on convertible notes increase of $4.9 million, change in stock based compensation of $1.1 million; partially offset by a decrease in bargain purchase gain of $4.4 million, a $38.4 million change in deferred income tax assets and liabilities, a $3.6 million change in working capital, an increase in depreciation of $8.3 million and a provision for doubtful accounts increase of $0.6 million.
 
Net cash used in operating activities increased $15.6 million or 135.7% for the year ended December 31, 2011 compared with 2010. The increase includes $7.8million higher loss, net of non-cash items, which as described above includes $6.1 million of merger expenses. This higher year to year loss was partly offset by increased depreciation and amortization of $7.8 million, and improved changes in working capital of $3.8 million.
 
Investing Activities of Continuing Operations
 
Net cash used in investing activities decreased $217.8 million to $86.4 million or 165.8% for the year ended December 31, 2012, compared with net cash used in investing activities of $131.4 million for 2011. This decrease primarily consists of additional capital expenditures of $3.9 million, change in restricted cash of $10.6 million, offset by a $117.5 million decrease in cash paid for acquisitions and a $111.8 million increase in cash received in Sale of Choice.
 
Net cash used in investing activities increased $116.6 million or 787.8% for the year ended December 31, 2011, compared to the same period of 2010. This increase is the result of an increase of $116.9 million for additional acquisitions, increased capital expenditures of $10.0 million, offset by $10.0 million of restricted cash in support of a convertible promissory note issued in connection with an acquisition in 2011.
 
Financing Activities of Continuing Operations
 
Net cash used by financing activities increased $253.7 million to $49.4 million or 124.2% for the year ended December 31, 2012, compared with net cash provided by financing activities of $204.3 million during 2011. This increase is primarily due to a decrease of proceeds received from private placements of $191.2 million, decrease in net proceeds received from line of credit and equipment financing loans of $43.3 million, an increase of principal payments on debt and capital leases of $19.3 million, an increase of $2.0 million of payment of shareholder advance, decrease in proceeds from exercise of stock options of $3.4 million; partially offset by an increase of proceeds from debt issuance of $2.7 million and a decrease of payments on lines of credit of $2.7 million.
 
Net cash provided by financing activities increased $140.3 million to $204.3 million or 219.3% for the year ended December 31, 2011, compared with net cash provided by financing activities during 2010. This increase is primarily due to proceeds received from private placements of $191.2 million, net proceeds received from line of credit and equipment financing loans of $15.8 million. These increases in sources of cash for financing activities are offset by $62.0 million in cash received in 2010 associated with a merger and a $2.4 million increase in principal payments on debt and $2.0 million of advances from shareholders in 2010.
 
 
Cash Requirements
 
Our cash requirements for the next twelve months consist primarily of: (i) capital expenditures associated with dispensing equipment, dish machines and other items in service at customer locations, laundry facility equipment, equipment, vehicles, containers, and software; (ii) working capital; and (iii) payment of principal and interest on borrowings under our credit facility, equipment financing borrowings, debt and convertible promissory notes issued or assumed in connection with acquisitions, and other notes payable for equipment and software.
 
As a result of the activities discussed above our cash and cash equivalents decreased by $3.7 million and were $66.8 million at December 31, 2012 compared to $70.5 million at December 31, 2011. We expect that our cash on hand and the cash flow provided by operating activities will be sufficient to fund working capital, general corporate needs and planned capital expenditure for the next twelve months. However, there is no assurance that these sources of liquidity will be sufficient to fund our internal growth initiatives or the investments and acquisition activities that we may wish to pursue. If we pursue significant internal growth initiatives or if we wish to acquire additional businesses in transactions that include cash payments as part of the purchase price, we may pursue additional debt or equity sources to finance such transactions and activities, depending on market conditions.
 
Contractual Obligations
 
Long term contractual obligations at December 31, 2012 are as follows:
 
   
Total
   
Less Than 1 Year
   
1-2 Years
   
3-4 Years
   
5 or More Years
 
   
(In thousands)
 
Long-term debt and obligations
 
$
14,429
   
$
9,145
   
$
3,931
   
$
890
   
$
463
 
Operating leases (1)
    18,744       4,904       4,400       3,664       5,776  
Employment contracts
    2,752       2,534       218       -       -  
Interest payments (2)
   
855
     
548
     
230
     
65
     
12
 
Total long-term contractual
                                       
cash obligations
 
$
36,780    
$
17,131    
$
8,779    
$
4,619    
$
6,251  
_____________________
(1)
Operating leases consist primarily of facility and vehicle leases.
 
(2)
Interest payments include interest on both fixed and variable rate debt. Rates have been assumed to increase 75 basis points in fiscal 2013, increase 100 basis points in fiscal 2014, increase 100 basis points in both fiscal 2015, 2016, and 2017 and increase additional 100 basis points in each year thereafter.
 
 
Inflation and Changing Prices
 
Changes in wages, benefits and energy costs have the potential to materially impact our financial results. We believe that we are able to increase prices to counteract the majority of the inflationary effects of increasing costs and to generate sufficient cash flows to maintain our production capability. During the years ended December 31, 2012 and 2011, 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, 2012 and 2011 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.
 
Adjusted EBITDA
 
In addition to net income determined in accordance with GAAP, we use certain non-GAAP measures, such as “Adjusted EBITDA,” in assessing our operating performance. We believe the non-GAAP measure serves as an appropriate measure to be used in evaluating the performance of our business. We define Adjusted EBITDA as net loss excluding the impact of income taxes, depreciation and amortization expense, net interest expense, foreign currency gain and other income, net loss on debt related fair value measurements, stock based compensation, severance, third party costs directly related to merger and acquisitions, including a debt prepayment penalty, and a gain from bargain purchase related to mergers and acquisitions, and investigation and review-related expenses. We present Adjusted EBITDA because we consider it an important supplemental measure of our operating performance and believe it is frequently used by securities analysts, investors and other interested parties in the evaluation of our results. Management uses this non-GAAP financial measure frequently in our decision-making because it provides supplemental information that facilitates internal comparisons to the historical operating performance of prior periods and gives a better indication of our core operating performance. We include this non-GAAP financial measure in our earnings announcement and guidance in order to provide transparency to our investors and enable investors to better compare our operating performance with the operating performance of our competitors. Adjusted EBITDA should not be considered in isolation from, and is not intended to represent an alternative measure of, operating results or of cash flows from operating activities, as determined in accordance with GAAP. Additionally, our definition of Adjusted EBITDA may not be comparable to similarly titled measures reported by other companies.
 
 
Under SEC rules, we are required to provide a reconciliation of non-GAAP measures to the most directly comparable GAAP measures. Accordingly, the following is a reconciliation of Adjusted EBITDA to our net losses for the years ended December 31, 2012, 2011, and 2010:
 
  
 
2012
   
2011
   
2010
 
   
(In thousands)
 
Net loss from continuing operations
  $ (80,775 )   $ (24,723 )   $ (17,570 )
Income tax expense (benefit)
    18,753       (16,616 )     1,700  
Depreciation and amortization expense
    20,991       12,690       4,857  
Interest expense, net
    3,331       2,305       1,300  
Foreign currency loss (gain)
    15       (55 )     (820 )
Realized and unrealized (gain) loss on fair value of convertible debt
    (236 )     4,658       277  
Stock based compensation
    3,521       4,648       398  
Severance     1,818       476       122  
Investigation and review-related expenses
    18,921       -       -  
Gain from bargain purchase
    -       (4,359 )     -  
Loss from impairment long-lived assets
    507       116       -  
Acquisition and merger expenses
    582       6,107       5,122  
Adjusted EBITDA for continuing operations
  $ (12,572 )   $ (14,753 )   $ (4,614 )

Adjusted EBITDA – Quarters
 
   
2012
 
      Q1       Q2       Q3       Q4    
Year to Date
 
Net loss from continuing operations
  $ (13,260 )   $ (18,029 )   $ (14,292 )   $ (35,194 )   $ (80,775 )
Income tax expense (benefit)
    80       8       22       18,643       18,753  
Depreciation and amortization expense
    4,976       5,188       5,656       5,171       20,991  
Interest expense, net
    581       531       433       1,786       3,331  
Foreign currency loss (gain)
    (3 )     43       (38 )     13       15  
Realized and unrealized gain on fair value of                                        
convertible debt
    (29 )     (170 )     -       (37 )     (236 )
Stock based compensation
    949       1,113       945       514       3,521  
Severance     425       805       209       379       1,818  
Investigation and review-related expenses
    1,874       9,511       4,999       2,537       18,921  
Loss from impairment of long-lived assets
    -       -       -       507       507  
Acquisition and merger expenses
    120       42       59       361       582  
Adjusted EBITDA for continuing operations
  $ (4,287 )   $ (958 )   $ (2,007 )   $ (5,320 )   $ (12,572 )

   
2011
 
      Q1       Q2       Q3       Q4    
Year to Date
 
Net loss from continuing operations
  $ (5,373 )   $ (8,366 )   $ (1,944 )   $ (9,039 )   $ (24,723 )
Income tax expense (benefit)
    (5,730 )     (4,403 )     (782 )     (5,701 )     (16,616 )
Depreciation and amortization expense
    2,122       2,482       3,860       4,226       12,690  
Interest expense, net
    334       253       946       772       2,305  
Foreign currency loss (gain)
    35       (128 )     105       (67 )     (55 )
Realized and unrealized (gain) loss on fair value of                                        
convertible debt
    1,961       3,625       (819 )     (109     4,658  
Stock based compensation
    802       1,044       1,187       1,615       4,648  
Severance     97       75       122       182       476  
Gain from bargain purchase
    -       -       (4,359 )     -       (4,359 )
Loss from impairment of long-lived assets
    -       -       -       116       116  
Acquisition and merger expenses
    1,264       2,734       643       1,466       6,107  
Adjusted EBITDA for continuing operations
  $ (4,488 )   $ (2,684 )   $ (1,041 )   $ (6,539 )   $ (14,753 )

 
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 2012 Form 10-K, as well as other written or oral statements made from time to time by us or by our authorized executive officers on our behalf, constitute “forward-looking statements” within the meaning of the Federal Private Securities Litigation Reform Act of 1995. We intend for our forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and we set forth this statement and these risk factors in order to comply with such safe harbor provisions. You should note that our forward-looking statements speak only as of the date of this 2012 Form 10-K or when made and we undertake no duty or obligation to update or revise our forward-looking statements, whether as a result of new information, future events or otherwise. Although we believe that the expectations, plans, intentions and projections reflected in our forward-looking statements are reasonable, such statements are subject to risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. The risks, uncertainties and other factors that our stockholders and prospective investors should consider include the following:
 
We have a history of significant operating losses and as such our future revenue and operating profitability are uncertain;
Matters relating to or arising from our recent restatement could have a material adverse effect on our business, operating results and financial condition;
We may not be able to properly integrate the operations of acquired businesses and achieve anticipated benefits of cost savings or revenue enhancements;
We may incur unexpected costs, expenses, or liabilities relating to undisclosed liabilities of our acquired businesses;
We may fail to maintain our listing on The NASDAQ Stock Market and the Toronto Stock Exchange;
Failure to attract, train, and retain personnel to manage our growth could adversely impact our operating results;
We may recognize impairment charges which could adversely affect our results of operations and financial condition;
Goodwill and other intangible assets resulting from acquisitions may adversely affect our results of operations;
Failure to retain our current customers and renew existing customer contracts could adversely affect our business;
The pricing, terms, and length of customer service agreements may constrain our ability to recover costs and to make a profit on our contracts;
Changes in economic conditions that impact the industries in which our end-users primarily operate in could adversely affect our business;
If we are required to change the pricing models for our products or services to compete successfully, our margins and operating results may be adversely affected;
Several members of our senior management team are critical to our business and if these individuals do not remain with us in the future, it could have a material adverse impact on our business, financial condition, results of operations, and cash flows;
The financial condition and operating ability of third parties may adversely affect our business;
The availability of raw materials and the volatility of their costs may adversely affect our 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;
We may not be able to adequately protect our intellectual property and other proprietary rights that are material to our business;
If we are unable to protect our information and telecommunication systems against disruptions or failures, our operations could be disrupted;
Insurance policies may not cover all operating risks and a casualty loss beyond the limits of our coverage could adversely impact our business;
Our current size and growth strategy could cause our revenue and operating results to fluctuate more than some of our larger, more established competitors or other public companies;
Certain stockholders may exert significant influence over any corporate action requiring stockholder approval;
 
 
Future issuances of our common stock in connection with acquisitions or pursuant to our stock incentive plan could have a dilutive effect;
Future sales of Swisher Hygiene shares by our stockholders could affect the market price of our shares; and
Provisions of Delaware law and our organizational documents may delay or prevent an acquisition of our company, even if the acquisition would be beneficial to our stockholders.
 
 
We are exposed to market risks, including changes in interest rates and fuel prices. We do not use financial instruments for speculative trading purposes and we do not hold derivative financial instruments that could expose us to significant market 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.
 
 
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 May 1, 2013, are filed as part of this report, beginning on page F-1.
 
 
None.
 
 
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.
 
On March 21, 2012, Swisher's Board of Directors (the "Board") determined that the Company's previously issued interim financial statements for the quarterly periods ended 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. Subsequently, on March 27, 2012, the Audit Committee concluded that the Company's previously issued interim financial statements for the quarterly period ended March 31, 2011 should no longer be relied upon. The Board and Audit Committee made these determinations in connection with the Audit Committee's then ongoing review into certain accounting matters.
 
On February 19, 20, and 21, 2013, respectively, the Company filed amended quarterly reports on Form 10-Q/A for the quarterly periods ended March 31, 2011, June 30, 2011, and September 30, 2011, including restated financial statements for the Affected Periods.  On February 26, 2013, the Company filed its Annual Report on Form 10-K for the year ended December 31, 2011.  On March 11, 15, and 18, 2013 respectively, the Company filed quarterly reports on Form 10-Q for the periods ended March 31, 2012, June 30, 2012, and September 30, 2012.  In connection with completing these filings, the Company evaluated, identified, and disclosed deficiencies in its internal control over financial reporting that contributed to the restatements and the delayed filings.
 
 
In connection with the preparation of this Annual Report on Form 10-K for the year ended December 31, 2012, the Company, under the supervision and with the participation of our management, including our Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), initiated a further evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission as required under Section 404 of the Sarbanes−Oxley Act of 2002. Management did not complete its evaluation as a result of the substantial internal and external resources necessary to complete the restatement process and regain compliance with our financial reporting obligations. Based on the deficiencies identified during this evaluation, which are described below, management concluded that we did not maintain effective internal control over financial reporting as of December 31, 2012. Had management completed its evaluation, additional deficiencies in our internal control over financial reporting as of December 31, 2012 might have been identified. BDO USA, LLP, our independent registered public accounting firm has issued an attestation report on our internal control over financial reporting, which is included in this 2012 Form 10-K at page F-3. The deficiencies identified are:
 
  
The effectiveness of our entity-level control environment, including maintaining effective communication within the financial reporting department.
 
  
The effectiveness of our financial statement review process, including application of formal written policies and procedures governing our financial statement close process, and control at the field entity-level in the preparation, documentation, review, and approval of journal entries, and in the preparation, review, and approval of account reconciliations.
 
  
The effectiveness of our accounting department resulting from the insufficient number of qualified accounting personnel.
 
  
The effectiveness of transactional level controls designed to ensure the proper recording and elimination of inter-company transactions for GAAP reporting purposes, appropriate cut-off procedures, proper tracking of the physical movement of fixed assets and inventory, and proper customer invoicing and payments.
 
  
The effectiveness of certain information technology controls regarding inaccurate system generated reports, such as control over the input, calculation, management, and review of spreadsheets that are integral to the financial reporting process.
 
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. The control deficiencies identified above contributed to the delay in filing of our Annual Report on Form 10-K for the year ended December 31, 2012, and 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 each of 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 2012 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, 2012.
 
Management's Remediation Plan
 
Following the Audit Committee's independent review, and in response to the deficiencies discussed above, we plan to continue efforts already underway to improve internal control over financial reporting, which include the following:
 
  
We continue to upgrade, monitor, and evaluate our compliance functions in order to improve control consciousness and minimize errors in financial reporting. We are continuing the education and training of employees involved in the financial reporting process, including with respect to the appropriateness and frequency of communications.
 
  
During 2012, we hired a new Chief Financial Officer, a Director of Financial Planning and Analysis, and Corporate Controller. We also hired a Vice President of Internal Audit, a senior level position reporting to the Audit Committee to oversee a newly established Internal Audit Department. We have filled other key accounting positions with qualified personnel and continue to augment our accounting staff as needed.  The Company continues to implement an internal audit program, which will provide an independent risk-based evaluation of the Company's control environment on an ongoing basis.
 
  
We have restructured the accounting organization in accordance with our new policies and enhanced control environment. We continue to enhance the segregation of duties and certain operational functions within Information Technology, Human Resources, Financial Planning and Analysis, and Accounting, including payroll and treasury. The restructuring resulted in defined review and approval levels by positions.
 
 
  
We have enhanced our journal entry policy, including a more stringent review and approval process. We have acquired and are implementing new software for recording asset acquisitions movement and disposal, and computing depreciation expense for financial and tax reporting. We have reduced the complexity of the Company's legal entities and have consolidated accounting data bases. We have enhanced our inventory management policies and procedures. We are implementing an automated process that uploads the trial balances of acquired entities' Enterprise Resource Planning ("ERP") systems into our corporate ERP system on a monthly basis with a standardized, centrally controlled chart of accounts mapping and reconciliation across the Company. By reducing complexity in this regard, we have also eliminated a significant portion of intercompany transactions. We are implementing enhanced management and review procedures over our field entity-level accounting activities.
 
Management and our Audit Committee will continue to monitor these remedial measures and the effectiveness of our internal controls and procedures. Other than as described above, there were no changes in our internal controls over financial reporting during the year ended December 31, 2012 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
 
Evaluation of 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, 2012. 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, 2012 because of the deficiencies in our internal control over financial reporting discussed in Management's Report on Internal Control over Financial Reporting, presented above.
 
 
None.
 
 
 
 
Directors
 
The following persons currently serve as members of our Board of Directors.
 
Name
 
Age
 
Position
 
Director Since (1)
             
H. Wayne Huizenga
 
75
 
Chairman of the Board
 
2010
Steven R. Berrard
 
58
 
Director
 
2004
David Braley
 
71
 
Director
 
2010
John Ellis Bush
 
60
 
Director
 
2010
Richard Handley
 
66
 
Director
 
2012
Harris W. Hudson
 
70
 
Director
 
2011
William D. Pruitt
 
72
 
Director
 
2011
David Prussky
 
55
 
Director
 
2010
Michael Serruya
 
48
 
Director
 
2010
__________________
(1)
Except for Messrs. Handley, Hudson and Pruitt, all directors were appointed on November 1, 2010 in connection with the Merger. Mr. Berrard has served as a director of Swisher International since 2004. 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. Mr. Serruya served as a director of CoolBrands since 1994.
 
We have set forth below certain information regarding each director, including the specific experience, qualifications, attributes, or skills that contributed to the Board’s conclusion that such person should serve as a director.
 
H. Wayne Huizenga
Chairman of the Board
 
Mr. Huizenga has served as Chairman of the Board of Swisher Hygiene since November 2010. Mr. Huizenga has been an investor in and stockholder of Swisher International, which we acquired in the Merger, since 2004. Over his career, he has also served as an executive officer and director of several public and private companies. Mr. Huizenga co-founded Waste Management, Inc. in 1971, which he helped build into the world’s largest integrated solid waste services company. Mr. Huizenga has served as Vice Chairman of Viacom Inc. and also served as Chairman and Chief Executive Officer of Blockbuster Entertainment Group, a division of Viacom, which he helped to grow from a small retail chain into the world’s largest video store operator. Mr. Huizenga has served as Chairman and Chief Executive Officer of Boca Resorts, Inc. until its acquisition by The Blackstone Group, as well as AutoNation, Inc., a leading North American automotive retail company. He has also served as Chairman of Republic Services, Inc. and Extended Stay America, Inc.
 
Mr. Huizenga is an experienced former executive officer and director of public companies with the skills necessary to serve as Chairman of the Board. Over his career, Mr. Huizenga has founded and developed multiple companies into industry leaders. As a member of the board of directors of several public companies, Mr. Huizenga has developed knowledge and experience leading public companies from the early stages of development to industry leaders in various service industries. Mr. Huizenga also provides substantial management experience gained from his years as an executive officer of Waste Management, Inc., Blockbuster Entertainment Group, AutoNation, Inc., and Boca Resorts, Inc.
 
Steven R. Berrard
Director
 
Mr. Berrard has served as a director of Swisher Hygiene since November 2010. Mr. Berrard served as the President and Chief Executive Officer of Swisher Hygiene from November 2010 to August 17, 2012. Mr. Berrard served as Chief Executive Officer and a director of Swisher International since 2004 until the Merger. Mr. Berrard is currently a director and Audit and Compensation Committee member of Walter Investment Management Corp., and director of Pivotal Fitness. Mr. Berrard served as the Managing Partner of private equity fund New River Capital Partners, which he co-founded in 1997, from 1997 to 2011. Throughout most of the 1980’s, Mr. Berrard served as President of Huizenga Holdings, Inc. as well as in various positions with subsidiaries of Huizenga Holdings. He has served as Chief Executive Officer of Blockbuster Entertainment Group (a division of Viacom, Inc.), Chief Executive Officer and Chairman of Jamba, Inc. (parent company of Jamba Juice Company), and co-founded and served as co-Chief Executive Officer of retail automotive industry leader AutoNation, Inc. Mr. Berrard has served as a director of numerous public and private companies including Viacom, Inc., AutoNation, Inc., Boca Resorts, Inc., Birmingham Steel Inc., Blockbuster Entertainment Group, Republic Industries Inc. and HealthSouth Corp.
 
 
Mr. Berrard is an experienced executive officer and director of public companies with relevant industry knowledge and skills necessary to serve as a director. Mr. Berrard developed the relevant industry experience and expertise while serving as the Chief Executive Officer and director of the company over the last six years. He combines this experience and expertise with experience as a public company director through his board memberships at Jamba, Inc., Walter Investment Management Corp., HealthSouth Corp., Birmingham Steel Inc., Boca Resorts, Inc. and Viacom, Inc. Mr. Berrard also has experience and knowledge leading public companies from the early stages of development to the position of an industry leader based on his work with AutoNation, Inc., Republic Industries Inc. and Blockbuster Entertainment Group.