EXHIBIT 99.1
FACTORS AFFECTING OUR FUTURE OPERATING RESULTS
Certain statements contained in our public filings, press releases and
other documents and materials as well as certain statements in written or
oral statements made by us or on our behalf are forward-looking statements
based on our current expectations and projections about future events,
including:
o strategic plans
o potential growth, including penetration of developed markets and
opportunities in emerging markets
o planned research and development efforts, product introductions
and innovation
o meeting customer expectations
o planned operational changes, including productivity improvements
o future financial performance, including expected capital
expenditures
o research and development expenditures
o potential acquisitions
o impact of completed acquisitions
o future cash sources and requirements
o liquidity
o impact of environmental costs
o potential cost savings
These forward-looking statements are subject to a number of risks and
uncertainties, including those discussed below, which could cause our
actual results to differ materially from historical results or those
anticipated and certain of which are beyond our control. The words
"believe," "expect," "anticipate" and similar expressions identify
forward-looking statements. We undertake no obligation to publicly update
or revise any forward-looking statements, whether as a result of new
information, future events or otherwise. The risks included here are not
exhaustive. Other sections of this report may describe additional factors
that could adversely impact our business and financial performance.
Moreover, we operate in a very competitive and rapidly changing
environment. New risk factors emerge from time to time and it is not
possible for us to predict all such risk factors, nor can we assess the
impact of all such risk factors on our business or the extent to which any
factor, or combination of factors, may cause actual results to differ
materially from those contained in any forward-looking statements. Given
these risks and uncertainties, investors should not place undue reliance on
forward-looking statements as a prediction of actual results.
Investors should also be aware that while we do, from time to time,
communicate with securities analysts, it is against our policy to disclose
to them any material non-public information or other confidential
commercial information. Accordingly, investors should not assume that we
agree with any statement or report issued by any analyst irrespective of
the content of the statement or report. Furthermore, we have a policy
against confirming financial forecasts or projections issued by others.
Thus, to the extent that reports issued by securities analysts contain any
projections, forecasts or opinions, such reports are not our
responsibility.
The following factors could cause actual results to differ materially
from historical results or anticipated results:
CURRENCY FLUCTUATIONS MAY AFFECT OUR OPERATING PROFITS
Because we conduct operations in many countries, our operating income
can be significantly affected by fluctuations in currency exchange rates.
Swiss franc-denominated expenses represent a much greater percentage of our
operating expenses than Swiss franc-denominated sales represent of our net
sales. In part, this is because most of our manufacturing costs in
Switzerland relate to products that are sold outside Switzerland. Moreover,
a substantial percentage of our research and development expenses and
general and administrative expenses are incurred in Switzerland. Therefore,
if the Swiss franc strengthens against all or most of our major trading
currencies (e.g., the U.S. dollar, the euro, other major European
currencies and the Japanese yen), our operating profit is reduced. We also
have significantly more sales in European currencies (other than the Swiss
franc) than we have expenses in those currencies. Therefore, when European
currencies weaken against the U.S. dollar and the Swiss franc, it also
decreases our operating profits. In recent years, the Swiss franc and other
European currencies have generally moved in a consistent manner versus the
U.S. dollar. Therefore, because the two effects previously described have
offset each other, our operating profits have not been materially affected
by movements in the U.S. dollar exchange rate versus European currencies.
However, there can be no assurance that these currencies will continue to
move in a consistent manner in the future. In 2002, we estimate that the
unfavorable impact due primarily to the strengthening of the Swiss franc
was approximately $4.3 million. We estimate that a one percent
strengthening of the Swiss franc against the euro would result in a
decrease in our earnings before tax of $0.8 million to $1.2 million on an
annual basis. In addition to the effects of exchange rate movements on
operating profits, our debt levels can fluctuate due to changes in exchange
rates, particularly between the U.S. dollar and the Swiss franc.
WE ARE SUBJECT TO CERTAIN RISKS ASSOCIATED WITH OUR INTERNATIONAL OPERATIONS
AND FLUCTUATING CONDITIONS IN EMERGING MARKETS
We do business in many countries, including emerging markets in Asia,
Latin America and Eastern Europe. In addition to the currency risks
discussed above, international operations pose substantial other risks and
problems for us. For instance, various local jurisdictions in which we
operate may revise or alter their respective legal and regulatory
requirements. In addition, we may encounter one or more of the following
obstacles or risks:
o tariffs and trade barriers
o difficulties in staffing and managing local operations
o credit risks arising from financial difficulties facing local
customers and distributors
o difficulties in protecting intellectual property
o nationalization of private enterprises
o restrictions on investments and/or limitations regarding foreign
ownership
o adverse tax consequences, including imposition or increase of
withholding and other taxes on remittances and other payments by
subsidiaries
o uncertain local economic, political and social conditions,
including hyper-inflationary conditions
We must also comply with a variety of regulations regarding the
conversion and repatriation of funds earned in local currencies. For
example, converting earnings from our operations in China into other
currencies and repatriating such funds require governmental approvals. If
we cannot comply with these or other applicable regulations, we may face
increased difficulties in utilizing cash flow generated by these operations
outside of China.
Economic conditions in emerging markets have from time to time
deteriorated significantly and some emerging markets are experiencing
recessionary trends, severe currency devaluations and inflationary prices.
Moreover, economic problems in individual markets can spread to other
economies, adding to the adverse conditions we face in emerging markets. We
remain committed to emerging markets, particularly those in Asia, Latin
America and Eastern Europe. However, we expect the fluctuating economic
conditions will affect our financial results in these markets for the
foreseeable future.
WE OPERATE IN HIGHLY COMPETITIVE MARKETS AND IT MAY BE DIFFICULT TO PRESERVE
OPERATING MARGINS, GAIN MARKET SHARE AND MAINTAIN A TECHNOLOGICAL ADVANTAGE
Our markets are highly competitive. Weighing instruments markets are
also fragmented both geographically and by application, particularly the
industrial and food retailing market. As a result, we face numerous
regional or specialized competitors, many of which are well established in
their markets. In addition, some of our competitors are divisions of larger
companies with potentially greater financial and other resources than our
own. Taken together, the competitive forces present in our markets can
impair our operating margins in certain product lines and geographic
markets. We expect our competitors to continue to improve the design and
performance of their products and to introduce new products with
competitive prices. Although we believe that we have certain technological
and other advantages over our competitors, we may not be able to realize
and maintain these advantages.
OUR PRODUCT DEVELOPMENT EFFORTS MAY NOT PRODUCE COMMERCIALLY VIABLE PRODUCTS
IN A TIMELY MANNER
We must timely introduce new products and enhancements, or our
products could become technologically obsolete over time, which would harm
our operating results. To remain competitive we must continue to invest in
research and development, sales and marketing and customer service and
support. We cannot be sure that we will have sufficient resources to
continue to make these investments. In developing new products, we may be
required to make substantial investments before we can determine their
commercial viability. As a result, we may not be successful in developing
new products and we may never realize the benefits of our research and
development activities.
A PROLONGED DOWNTURN OR ADDITIONAL CONSOLIDATION IN THE PHARMACEUTICAL, FOOD,
FOOD RETAILING AND CHEMICALS INDUSTRIES COULD ADVERSELY AFFECT OUR OPERATING
RESULTS
Our products are used extensively in the pharmaceutical, chemicals and
food and beverage industries. Consolidation in the pharmaceutical and
chemicals industries hurt our sales in prior years. A prolonged downturn or
additional consolidation in any of these industries could adversely affect
our operating results. In addition, the capital spending policies of our
customers in these industries are based on a variety of factors we cannot
control, including the resources available for purchasing equipment, the
spending priorities among various types of equipment and policies regarding
capital expenditures generally. Any decrease or delay in capital spending
by our customers would cause our revenues to decline and could harm our
profitability.
WE MAY FACE RISKS ASSOCIATED WITH FUTURE ACQUISITIONS
We plan to pursue acquisitions of complementary product lines,
technologies or businesses. Acquisitions involve numerous risks, including:
o difficulties in the assimilation of the acquired operations,
technologies and products
o diversion of management's attention from other business concerns
o potential departures of key employees of the acquired company
If we successfully identify acquisitions in the future, completing
such acquisitions may result in:
o new issuances of our stock that may be dilutive to current owners
o increases in our debt and contingent liabilities
o additional amortization expenses related to intangible assets
Any of these risks could materially adversely affect our
profitability. We continue to explore potential acquisitions. We may not be
able to identify, successfully complete or integrate potential acquisitions
in the future. However, even if we can, we cannot be sure that such
acquisitions will have a positive impact on our business or operating
results.
OUR CREDIT AGREEMENT RESTRICTS OUR ABILITY TO TAKE CERTAIN ACTIONS, INCLUDING
PAYING DIVIDENDS
Covenants in our debt obligations restrict our ability to incur
additional indebtedness, pay dividends, dispose of certain assets and make
capital expenditures. The covenants also restrict our other corporate
activities. Our ability to comply with these covenants may be affected by
events beyond our control, including economic, financial and industry
conditions. A failure to comply with the covenants and restrictions
contained in our debt obligations or any other agreements with respect to
any additional financing could result in an acceleration of the amount we
owe under our debt agreements.
IF WE CANNOT PROTECT OUR INTELLECTUAL PROPERTY RIGHTS OR IF WE INFRINGE OR
MISAPPROPRIATE THE PROPRIETARY RIGHTS OF OTHERS, OUR OPERATING RESULTS COULD
BE HARMED
Our success depends on our ability to obtain and enforce patents on
our technology and to protect our trade secrets. Our patents may not
provide complete protection, and competitors may develop similar products
that are not covered by our patents. Our patents may also be challenged by
third parties and invalidated. Although we take measures to protect
confidential information, improper use or disclosure of our trade secrets
may still occur.
We may be sued for infringing on the intellectual property rights of
others. The cost of any litigation could affect our profitability
regardless of the outcome, and management attention could be diverted. If
we are unsuccessful in such litigation, we may have to pay damages, stop
the infringing activity and/or obtain a license. If we fail to obtain a
required license, we may be unable to sell some of our products, which
could result in a decline in our revenues.
DEPARTURES OF KEY EMPLOYEES COULD IMPAIR OUR OPERATIONS
We have employment contracts with each of our key employees. In
addition, our key employees own shares of our common stock and have options
to purchase additional shares. Nonetheless, such individuals could leave
the Company. If any key employees stopped working for us, our operations
could be harmed. We have no key man life insurance policies with respect to
any of our senior executives.
WE MAY BE ADVERSELY AFFECTED BY THE ENVIRONMENTAL LAWS AND REGULATIONS TO
WHICH WE ARE SUBJECT
We are subject to various environmental laws and regulations,
including those relating to:
o air emissions
o wastewater discharges
o the handling and disposal of solid and hazardous wastes
o the remediation of contamination associated with the use and
disposal of hazardous substances
We incur capital and operating expenditures in complying with
environmental laws and regulations both in the United States and abroad. We
are currently involved in, or have potential liability with respect to, the
remediation of past contamination in facilities both in the United States
and abroad. In addition, some of these facilities have or had been in
operation for many decades and may have used substances or generated and
disposed of wastes that are hazardous or may be considered hazardous in the
future. Such sites and disposal sites owned by others to which we sent
waste may in the future be identified as contaminated and require
remediation. Accordingly, it is possible that we could become subject to
additional environmental liabilities in the future that may harm our
results of operations or financial condition.
WE MAY BE ADVERSELY AFFECTED BY FAILURE TO COMPLY WITH REGULATIONS OF THE
FOOD AND DRUG ADMINISTRATION AND OTHER GOVERNMENTAL AGENCIES
Some of our products are subject to regulation by the U.S. Food and
Drug Administration and similar international agencies. These regulations
govern a wide variety of activities relating to our products, from design
and development, to labeling, manufacturing, promotion, sales and
distribution. If we fail to comply with these regulations, we may have to
recall products and cease their manufacture and distribution. In addition,
we could be subject to fines or criminal prosecution.
GUIDELINES RELATING TO ACCOUNTING FOR GOODWILL COULD MAKE OUR
ACQUISITION-RELATED CHARGES LESS PREDICTABLE IN ANY GIVEN REPORTING PERIOD
Starting in 2002, our goodwill amortization charges have ceased. It is
possible that in the future we could incur impairment charges related to
the goodwill already recorded as well as goodwill arising out of future
acquisitions as we continue to expand our business.
IF WE ARE REQUIRED TO ACCOUNT FOR OPTIONS UNDER OUR STOCK OPTION PLAN AS A
COMPENSATION EXPENSE, IT WOULD REDUCE OUR NET EARNINGS AND EARNINGS PER SHARE
There has been increasing public debate about the proper accounting
treatment for employee stock options. Although we are not currently
required to record any compensation expense in connection with option
grants that have an exercise price at or above fair market value, it is
possible that future laws or regulations will require us to treat all stock
options as a compensation expense. Note 11 to the financial statements
shows the impact that such a change in accounting treatment would have had
on our net earnings and earnings per share if it had been in effect during
the past three fiscal years and if the compensation expense were calculated
as described in Note 11.
ANTI-TAKEOVER PROVISIONS IN OUR CERTIFICATE AND BY-LAWS AND UNDER DELAWARE
LAW COULD INHIBIT A CHANGE OF CONTROL OF OUR COMPANY
Our certificate of incorporation and by-laws contain provisions that
could make it more difficult for a third party to acquire the Company. In
August 2002, we put in place a Shareholder Rights Plan. Moreover, our
certificate of incorporation authorizes the Board of Directors to issue
preferred stock without shareholder approval and upon such terms as it may
determine. The rights of the holders of our common stock are subject to,
and may be adversely affected by, the rights of future holders of preferred
stock. In addition, our by-laws require shareholders to provide advance
notice to nominate candidates for election as directors and to submit
proposals for consideration at shareholder meetings. Section 203 of the
Delaware General Corporation Law makes it more difficult for an "interested
stockholder" (generally a 15% stockholder) to effect various business
combinations with a corporation for a three-year period after he becomes an
"interested stockholder". In general, these provisions may discourage a
third party from attempting to acquire the Company and therefore may
inhibit a change of control of our company under circumstances that could
give shareholders an opportunity to realize a premium over then-prevailing
market prices.