EXHIBIT 99.1
FACTORS AFFECTING OUR FUTURE OPERATING RESULTS
WE HAVE SUBSTANTIAL DEBT AND WE MAY INCUR SUBSTANTIALLY MORE DEBT, WHICH
COULD AFFECT OUR ABILITY TO MEET OUR DEBT OBLIGATIONS AND MAY OTHERWISE
RESTRICT OUR ACTIVITIES.
We have substantial debt, and we may be able to incur substantial
additional debt in the future. As of December 31, 2003, we had total
indebtedness of approximately $196.4 million, net of cash of $45.1 million.
We are also permitted by the terms of our debt instruments to incur
substantial additional indebtedness, subject to the restrictions therein.
Our debt could have important consequences to you. For example, it
could:
o make it more difficult for us to satisfy our obligations under
our debt instruments;
o require us to dedicate a substantial portion of our cash flow to
payments on our indebtedness, which would reduce the amount of
cash flow available to fund working capital, capital
expenditures, product development and other corporate
requirements;
o increase our vulnerability to general adverse economic and
industry conditions, including changes in raw material costs;
o limit our ability to respond to business opportunities;
o limit our ability to borrow additional funds, which may be
necessary; and
o subject us to financial and other restrictive covenants, which,
if we fail to comply with these covenants and our failure is not
waived or cured, could result in an event of default under our
debt.
TO SERVICE OUR DEBT, WE WILL REQUIRE A SIGNIFICANT AMOUNT OF CASH. OUR
ABILITY TO GENERATE CASH DEPENDS ON MANY FACTORS BEYOND OUR CONTROL.
Our ability to make payments on our debt and to fund planned capital
expenditures and research and development efforts will depend on our
ability to generate cash in the future. This, to an extent, is subject to
general economic, financial, competitive, legislative, regulatory and other
factors, including those described in this exhibit, that are beyond our
control.
We cannot assure you that our business will generate sufficient cash
flow from operations or that future borrowings will be available to us
under our new senior credit facility in an amount sufficient to enable us
to pay our debt, or to fund our other liquidity needs. We may need to
refinance all or a portion of our indebtedness on or before maturity. We
cannot assure you that we will be able to refinance any of our debt,
including our senior credit facility and the senior notes, on commercially
reasonable terms or at all.
THE AGREEMENTS GOVERNING OUR DEBT IMPOSE RESTRICTIONS ON OUR BUSINESS.
The indenture governing our senior notes and the agreements governing
our senior credit facility contain a number of covenants imposing
significant restrictions on our business. These restrictions may affect our
ability to operate our business and may limit our ability to take advantage
of potential business opportunities as they arise. The restrictions these
covenants place on us and our restricted subsidiaries include limitations
on our ability and the ability of our restricted subsidiaries to:
o enter into sale and leaseback arrangements;
o incur liens; and
o consolidate, merge, sell or lease all or substantially all of our
assets;
Our senior credit facility also requires us to meet several financial
ratios.
Our ability to comply with these agreements may be affected by events
beyond our control, including prevailing economic, financial and industry
conditions and are subject to the risks in this exhibit. The breach of any
of these covenants or restrictions could result in a default under the
indenture governing the senior notes or under our senior credit facility.
An event of default under our senior credit facility would permit our
lenders to declare all amounts borrowed from them to be immediately due and
payable. Acceleration of our other indebtedness may cause us to be unable
to make interest payments on the senior notes and repay the principal
amount of the senior notes.
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. Accordingly, the Swiss franc exchange rate
to the euro is an important cross-rate monitored by the Company. 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. Based on our outstanding debt at December 31, 2003, we
estimate that a ten percent weakening of the U.S. dollar against the
currencies in which our debt is denominated, would result in an increase of
approximately $4.7 million in the reported U.S. dollar value of the debt.
WE ARE SUBJECT TO CERTAIN RISKS ASSOCIATED WITH OUR INTERNATIONAL
OPERATIONS AND FLUCTUATING CONDITIONS IN EMERGING MARKETS.
We conduct 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 other substantial 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; and
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 these 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 results of operations in these markets for the
foreseeable future.
The past outbreak and possible recurrence of severe acute respiratory
syndrome, or SARS, or other public health-related developments could have a
negative impact on our results of operations. In particular, SARS-related
factors may reduce our sales to affected regions and disrupt our
manufacturing centers located in China. Any disruption to our manufacturing
operations could result in reduced sales and increased supply chain costs.
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 and analytical
instruments markets are also fragmented both geographically and by
application, particularly the industrial and food retailing markets. As a
result, we face numerous regional or specialized competitors, many of whom
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 company. 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 introduce new products and enhancements in a timely manner, or
our products could become technologically obsolete over time, which would
harm our operating results. To remain competitive, we must continue to make
significant investments 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, food and
beverage and chemical 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;
and
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; and
o additional amortization expenses related to intangible assets.
Any of these acquisition-related risks could materially adversely
affect our profitability.
We may not be able to identify, successfully complete or integrate
potential acquisitions in the future. However, even if we can do so, we
cannot be sure that these acquisitions will have a positive impact on our
business or operating results.
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 or narrowed. 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. Nevertheless, 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 ENVIRONMENTAL LAWS AND REGULATIONS.
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; and
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 U.S. and abroad. We are
currently involved in, or have potential liability with respect to, the
remediation of past contamination in facilities both in the U.S. 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.
These 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
GOVERNMENTAL AGENCIES.
Our products are subject to regulation by governmental 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. As at
December 31, 2003 our consolidated balance sheet included goodwill of
$421.9 million and other intangible assets of $126.9 million.
Our business acquisitions typically result in goodwill and other
intangible assets, which affect the amount of future period amortization
expense and possible impairment expense that we will incur. The
determination of the value of such intangible assets requires management to
make estimates and assumptions that affect our consolidated financial
statements.
In accordance with SFAS No. 142, "Goodwill and Other Intangible
Assets" ("SFAS 142"), our goodwill and indefinite-lived intangible assets
are not amortized, but are evaluated for impairment annually in the fourth
quarter, or more frequently if events or changes in circumstances indicate
that an asset might be impaired. The annual evaluation is based on
valuation models that estimate fair value based on expected future cash
flows and profitability projections. In preparing the valuation models we
consider a number of factors, including operating results, business plans,
economic conditions, future cash flows, and transactions and market place
data. There are inherent uncertainties related to these factors and our
judgment in applying them to the impairment analyses. The significant
estimates and assumptions within our fair value models include sales
growth, controllable cost growth, perpetual growth, effective tax rates and
discount rates. Our assessments to date have indicated that there has been
no impairment of these assets.
Our drug discovery reporting unit is sensitive to changes in Biopharma
capital spending and, drug discovery experienced a double-digit decline in
revenue and profitability during 2003. However, the fair value of the
Company's drug discovery reporting unit exceeded its carrying value of $29
million as of September 30, 2003 and December 31, 2003. In accordance with
the provisions of SFAS 142, the Company will monitor the fair value of this
reporting unit closely to determine if the 2004 business plan is being
achieved. For example, we will monitor whether the forecasted benefits of
our drug discovery cost reduction programs are being realized, including
the program of manufacturing site rationalization currently in progress.
Should any of these estimates or assumptions in the preceding
paragraphs not be accurate, or should we incur lower than expected
operating performance or cash flows, we may experience a triggering event
that requires a new fair value assessment for our reporting units prior to
the required annual assessment. These types of events and resulting
analysis could result in impairment charges for goodwill and other
indefinite lived intangible assets if the fair value estimate declines
below the carrying value.
Our amortization expense related to intangible assets with finite
lives may materially change should our estimates of their useful lives
change.
IF WE ARE REQUIRED TO ACCOUNT FOR EMPLOYEES' OPTIONS UNDER OUR STOCK OPTION
PLAN AS A COMPENSATION EXPENSE, IT WOULD REDUCE OUR NET EARNINGS.
There has been increasing public debate in the U.S. and elsewhere
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 12 to our
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 12.
UNANTICIPATED CHANGES IN OUR TAX RATES OR EXPOSURE TO ADDITIONAL INCOME TAX
LIABILITIES COULD IMPACT OUR PROFITABILITY.
We are subject to income taxes in both the United States and various
other foreign jurisdictions, and our domestic and international tax
liabilities are subject to allocation of expenses among different
jurisdictions. Our effective tax rates could be adversely affected by:
o changes in the mix of earnings by jurisdiction
o changes in tax laws or tax rates
o changes in the valuation of deferred tax assets and liabilities
o material audit adjustments.
In particular, the carrying value of deferred tax assets, which are
predominantly in the U.S., is dependent upon our ability to generate future
taxable income in the U.S. In addition, the amount of income taxes we pay
is subject to ongoing audits in various jurisdictions and a material
assessment by a governing tax authority could affect our profitability.