<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended June 30, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
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Commission file number 0-15383
CEM CORPORATION
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(Exact name of Registrant as specified in its charter)
North Carolina 56-1019741
------------------------ ------------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
3100 Smith Farm Road, Matthews, NC 28105
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(Address of principal executive offices)
Post Office Box 200, Matthews, North Carolina 28106
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(Mailing address of principal executive offices)
Registrant's telephone number, including area code: (704) 821-7015
Securities Registered Pursuant to Section 12(b) of the Act: NONE
Securities Registered Pursuant to Section 12(g) of the Act: $.05 par value
----------------
Common Stock
----------------
(Title of Class)
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 X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K 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. [ X ]
The aggregate market value of shares of the Registrant's $.05 par value Common
Stock, its only outstanding class of voting stock, held by non-affiliates as of
September 15, 1995, was $41,789,037. The number of issued and outstanding
shares of the Registrant's $.05 par value Common Stock, its only outstanding
class of Common Stock, as of September 15, 1995 was 3,619,165 shares.
Portions of the CEM Corporation Annual Report to Shareholders for the fiscal
year ended June 30, 1995 are incorporated by reference into Parts I and II.
Portions of the Proxy Statement for the Annual Meeting of Shareholders to be
held November 8, 1995 are incorporated by reference into Part III.
<PAGE> 2
PART I
ITEM 1 - BUSINESS
General
The Registrant engages in one line of business, the development,
manufacture, sale and service of microwave-based instrumentation for testing,
analysis and process control in analytical laboratory and industrial markets.
These sample preparation products provide advantages of speed and simplicity
compared to traditional methods of testing and analysis. The Registrant's
products are used in the general analytical laboratory market and in many
manufacturing and processing industries, including chemical and food
processing. A significant amount of the Registrant's sales consists of
consumable supplies, parts and service for its instrumentation. The Registrant
was organized as a North Carolina corporation in 1971.
Products
Microwave Digestion System. The Microwave Digestion System and related
accessories accounted for approximately 35%, 35%, and 39% of the Registrant's
consolidated sales in 1995, 1994, and 1993, respectively. This product is a
microwave heating system designed especially for use in the digestion of
samples for laboratory analysis. It performs a rapid dissolution of samples in
acid in a closed vessel system and is sold to the analytical laboratory market.
Moisture/Solids Analyzer. The Moisture/Solids Analyzer accounted for
approximately 22%, 23%, and 24% of the Registrant's consolidated sales in 1995,
1994, and 1993, respectively. This product performs percent moisture or percent
solids measurement in process control monitoring, quality control and product
development in a variety of industries, including chemical processing,
pharmaceuticals, food and dairy products, tobacco, textiles, paint and
coatings, pulp and paper, water and wastewater treatment.
Fat Analyzer System. The Registrant manufactures an automatic extraction
unit which is used in conjunction with the Moisture/Solids Analyzer to form the
Fat Analyzer System. This product measures the fat content of a variety of
samples and is sold primarily to meat processing and other food industries. In
fiscal 1995, a redesigned Fat Analyzer System replaced the existing product.
Microwave Extraction System. The Microwave Extraction System uses microwave
energy to rapidly heat solvents to high temperatures. These elevated
temperatures reduce the time necessary to extract organic compounds from solid
matrices. This product uses a unique temperature control system and multiple
safety devices to insure both rapid and safe sample preparation. This product
is a cost effective alternative to traditional solvent extraction due to its
high recoveries and significantly reduced solvent usage. The Microwave
Extraction System is marketed under the trade name, MES 1000. Sales of the MES
1000 will be limited in the United States until the U.S. Environmental
Protection Agency approves the use of microwave-based instruments as an
alternative method for extraction.
Microwave Ashing System. The Microwave Ashing System uses microwave energy
to rapidly oxidize a sample to determine the ash (metal oxide) content. This
product is primarily sold to the analytical laboratory market and petrochemical
industry. In fiscal 1995, an enhanced Microwave Ashing System was introduced.
SpectroPrep System. The SpectroPrep System is a fully automated microwave
heating system using a continuous flow-through process to digest samples for
laboratory analysis. Initial uses of the system include environmental, chemical
and agricultural applications.
2
<PAGE> 3
Marketing and Sales
The Registrant's marketing and sales strategy is based on identifying
applications for its products and providing its customers with prompt and
effective technical and applications support.
The Registrant's marketing strategy utilizes telemarketing, direct mail,
trade show demonstrations, articles, studies and trade journal advertising,
product releases, seminars and extensive use of the Registrant's applications
laboratory to develop specific testing applications for potential and existing
customers.
Sales in the U.S. are generated by full-time sales personnel through sales
and service locations throughout the country. Sales are conducted through
direct selling efforts including on-site demonstrations. Sales and service
representatives provide installation and training of production and laboratory
personnel. Sales representatives are paid a base salary, commissions and/or
other incentive compensation.
The Registrant's applications laboratory provides technical assistance to
customers and potential customers in developing new and improved applications
and related procedures. The applications laboratory performs tests in its
facility in North Carolina and provides the results to customers.
The Registrant's foreign sales are conducted through independent dealers
throughout the world and the Registrant's subsidiaries in England, Germany and
Italy. Foreign sales are primarily to customers in Europe, the Far East and
Latin America. Foreign sales accounted for 42%, 38%, and 39% of net sales in
fiscal 1995, 1994 and 1993, respectively.
Research and Development
The Registrant invests heavily in the research and development of potential
new products, product improvements and enhancements, and applications research
for existing products. For fiscal 1995, 1994, and 1993, research and
development expense was $2,605,000, $2,641,000, and $2,667,000, respectively.
Product Protection
The Registrant relies upon its proprietary technology, continuing research
and development and customer service support to maintain and enhance its
competitive position. Important features of certain of the Registrant's
products are protected by issued patents or pending patent applications.
Manufacturing
The Registrant's manufacturing operations are carried out at its
headquarters in Matthews, North Carolina and consist mostly of the assembly and
testing of mechanical and electronic components purchased from others.
Certain components are currently purchased from single source suppliers. An
interruption of one of these sources could result in delays in the Registrant's
production while the Registrant developed an alternative supplier and could
result in a loss of sales and income. There are other single source components
for which the Registrant has determined that other sources are readily
available.
The Registrant has experienced no significant production delays because of
a supplier's inability to ship an acceptable component. The Registrant stocks
what it believes is an adequate supply of all components and materials based
upon delivery lead times and orders currently in hand.
3
<PAGE> 4
Environmental Regulations
Compliance with federal, state and local provisions relating to protection
of the environment has not had, and is not expected to have, any material
adverse effects upon the production, capital expenditures, earnings or
competitive position of the Registrant and its subsidiaries.
Employees
At June 30, 1995, the Registrant employed 187 persons. None of the
Registrant's employees are covered by a collective bargaining agreement.
Backlog
The Registrant does not have a significant backlog of orders, as it
normally ships its products within a short time after it receives orders.
Competition
The Registrant experiences direct competition in both foreign and U.S.
markets from companies using microwave technology, traditional methods of
heating and drying and other technologies.
There are a number of methods for performing acid digestions, the most
common of which is the traditional "open vessel on a hot plate" method. There
are three other primary manufacturers of closed vessel microwave digestion
systems similar in nature to the Registrant's product. Also competing with the
Microwave Digestion System are other advanced methods utilizing higher pressure
and temperature including steel jacketed digestion vessels for use in
conventional ovens and high pressure wet ashers.
There are a number of other methods for testing the moisture or solids
content of various liquids and solids. In most instances, the equipment and
instruments, which consist typically of simple heating and drying units and
measurement techniques, are less expensive than the Moisture/Solids Analyzer
produced by the Registrant. In addition, infrared moisture analyzers, radio
frequency energy absorption techniques and the Karl Fischer titration method, a
wet chemical procedure, have been developed. These systems compete directly
with the Registrant's instrumentation in certain markets. Although there is one
manufacturer of a microwave moisture system similar in nature to the
Registrant's Moisture/Solids Analyzer, the Registrant does not believe there
have been significant sales of this competitive product to date.
There are a number of methods for performing extractions, the most common
of which are the traditional Soxhlet and sonication methods. Also competing
with the Registrant's Microwave Extraction System are other advanced methods
such as Supercritical Fluid Extraction and Accelerated Solvent Extraction.
The traditional method of ashing is with a resistance heat furnace. There
are a number of manufacturers of laboratory furnaces used for ashing. Although
these products are typically less expensive than the Microwave Ashing System
sold by the Registrant, the Registrant's product offers advantages in both
speed and process control.
Typically the Registrant's selling prices are higher than those of most of
its competitors. The Registrant competes primarily upon the speed, ease of use,
applications support and long-term cost savings to the users.
4
<PAGE> 5
International Operations and Sales
Information about the Registrant's international operations and sales is
incorporated by reference to footnotes 1 and 7 of the financial statements
contained in the Registrant's 1995 Annual Report to Shareholders.
ITEM 2 - PROPERTIES
The Registrant's headquarters, research and manufacturing operations are
located in an 82,000 square foot building on an eight and three-fourths acre
tract of land owned by the Registrant near Charlotte, North Carolina. The
Registrant also owns a 5,000 square foot office and warehouse facility in
England, owns a 5,200 square foot office and warehouse in Germany and leases a
1,500 square foot office in Italy. The facility in Germany is subject to a
mortgage which had a balance of $142,000 at June 30, 1995. Management believes
these facilities are adequate to serve existing markets for the next several
years.
ITEM 3 - LEGAL PROCEEDINGS
The Registrant is not a party to any material legal proceedings other than
routine litigation incidental to the business of the Registrant.
ITEM 4 is inapplicable and has been omitted.
PART II
ITEMS 5-7 are incorporated herein by reference to the inside front cover, pages
6-7, page 17 and items captioned "1995 Financial Highlights," "Management's
Discussion and Analysis" and Footnote 10 "Quarterly Information (Unaudited)" of
the Registrant's 1995 Annual Report to Shareholders.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements, notes to the financial statements and quarterly
supplemental financial data of the Registrant appearing on pages 8-17 of the
Registrant's 1995 Annual Report to Shareholders are hereby incorporated by
reference.
ITEM 9 is inapplicable and has been omitted.
5
<PAGE> 6
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of CEM Corporation:
We have audited the consolidated financial statements of CEM Corporation
and Subsidiaries as of June 30, 1995 and 1994, and for each of the three years
in the period ended June 30, 1995, which financial statements are included on
pages 8 through 17 of the 1995 Annual Report to Shareholders of CEM Corporation
and incorporated by reference herein. We have also audited the financial
statement schedule listed in the index on page 9 of this Form 10-K. These
financial statements and the financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and the financial statement schedule
based on our audits.
We have conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free from
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of CEM
Corporation and Subsidiaries as of June 30, 1995 and 1994, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended June 30, 1995, in conformity with generally accepted
accounting principles. In addition, in our opinion, the financial statement
schedule referred to above, when considered in relation to the basic financial
statements as a whole, presents fairly, in all material respects, the
information required to be included therein.
/s/ Coopers & Lybrand L.L.P.
Charlotte, North Carolina
July 24, 1995
6
<PAGE> 7
PART III
Separate Item - Executive Officers of the Registrant
Information as to the chief executive officer of the Registrant is
incorporated herein by reference to the section captioned "Election of
Directors" of the Registrant's Proxy Statement for the Annual Meeting of
Shareholders to be held November 8, 1995. The following information is provided
as to the executive officers of the Registrant who are not directors:
<TABLE>
<CAPTION>
Name Age Background
---- --- ----------
<S> <C> <C>
Richard N. Decker 46 Secretary, Treasurer and Chief Financial
Officer since February 1993; Vice
President-Finance of the Water and Gas
Meter Division of Schlumberger Limited
Corporation 1982-1993.
James A. Prendergast 54 Vice President - Sales and Service since
1995; Vice President - Marketing and Sales
1991-1995; Vice President-Waters Division of Millipore,
Inc. 1988-1991.
Dr. Brian W. Renoe 49 Vice President - Technology since July
1993; Director of Technology 1992-1993;
Director of Instrument Products of the
Hamilton Company 1990-1992.
</TABLE>
All of the Registrant's executive officers were appointed to their current
positions at the Annual Meeting of the Board of Directors held on November 10,
1994. All of the Registrant's executive officers' terms of office extend until
the next Annual Meeting of the Board of Directors and until their successors
are elected and qualified.
ITEMS 10 through 12 are incorporated herein by reference to the sections
captioned "Principal Shareholders and Holdings of Management," "Election of
Directors," "Executive Compensation," "Director Compensation" and "Compliance
with Section 16(a) of the Securities Exchange Act of 1934" in the Registrant's
Proxy Statement for Annual Meeting of Shareholders to be held November 8, 1995.
ITEM 13 is inapplicable and has been omitted.
7
<PAGE> 8
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial Statements. See accompanying Index to Financial Statements.
(2) Financial Statement Schedules. See accompanying Index to Financial
Statements.
(3) Exhibits.
<TABLE>
<S> <C> <C>
3.1 Restated Charter of the Registrant, as amended.(1)
3.2 Bylaws of the Registrant.(1)
10.1 CEM Corporation 1986 Nonqualified Stock Option Plan, as amended, incorporated herein by
reference to the Registrant's Registration Statement on Form S-8 (File No. 33-53694).
10.2 * CEM Corporation Employee Stock Purchase Plan, as amended, incorporated herein by reference to
the Registrant's Registration Statement on Form S-8 (File No. 33-80136).
10.3 * CEM Corporation 1987 Stock Option Plan, as amended.(1)
10.4 * CEM Corporation 1993 Management Equity Plan, incorporated herein by reference to the
Registrant's Registration Statement on Form S-8 (File No. 33-75368).
10.5 * CEM Corporation Management Incentive Compensation Plan.
10.6 CEM Corporation 1993 Nonqualified Stock Option Plan for Non-Employee Directors, incorporated
herein by reference to the Registrant's Registration Statement on Form S-8 (File No. 33-
75366).
11. Computation of Earnings per Share.
13. The Registrant's 1995 Annual Report to Shareholders. This Annual Report to shareholders is
furnished for the information of the Commission only and, except for the parts thereof
incorporated in this report, is not deemed to be "filed" as part of this filing.
21. List of the Registrant's Subsidiaries.(1)
23. Consent of Independent Accountants.
27. Financial Data Schedule (filed in electronic format only). This schedule shall not be deemed
"filed" for purposes of Section 11 of the Securities Act of 1933 or Section 18 of the
Securities Exchange Act of 1934 or otherwise be subject to the liabilities of such
sections, nor shall it be deemed a part of any registration statement to which it relates.
99. Revised Item 21 of Part II to the Registrant's registration statements on Form S-8
(Registration Numbers 33-11952 and 33-25739).(1)
</TABLE>
-------------------------
*This exhibit is one of the Registrant's management contracts and
compensatory plans and arrangements.
(1)Incorporated herein by reference to the Registrant's Form 10-K
for the year ended June 30, 1994.
(b) Reports on Form 8-K. No reports on Form 8-K have been filed during the last
quarter of the period covered by this report.
8
<PAGE> 9
PART IV (CONTINUED)
<TABLE>
<CAPTION>
Reference (Page)
----------------------------------
Annual
Form 10-K Report to
Item 14. (A) Index to Financial Statements and Schedules Annual Report Shareholders
-------------------------------------------------------- ------------- ------------
<S> <C> <C>
Data incorporated by reference from the attached
1995 Annual Report to Shareholders:
Balance Sheets as of June 30, 1995 and 1994 8
Statements of Income for the years ended
June 30, 1995, 1994 and 1993 9
Statements of Cash Flows for the years
ended June 30, 1995, 1994 and 1993 10
Statements of Shareholders' Equity for the 11
years ended June 30, 1995, 1994 and 1993
Notes to Financial Statements 12-17
Data submitted herewith:
Report of Independent Accountants 6
Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts 11
</TABLE>
With the exception of the consolidated financial statements listed in the above
index, the information referred to in Items 5, 6, 7 and the supplementary
quarterly information referred to in Item 8, all of which is included in the
1995 Annual Report to Shareholders of CEM Corporation and incorporated by
reference into this Form 10-K Annual Report, the 1995 Annual Report to
Shareholders is not to be deemed "filed" as part of this report.
9
<PAGE> 10
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Annual Report to be signed on
its behalf by the undersigned thereunto duly authorized.
CEM CORPORATION
By: /s/ Michael J. Collins
-----------------------------
Michael J. Collins
Dated: September 22, 1995 President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Annual Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
-------------------------- ----------------------------- ---------------------
<S> <C> <C>
/s/ Ronald A. Norelli Chairman of the Board September 22, 1995
---------------------- of Directors
Ronald A. Norelli
/s/ Michael J. Collins President, Chief Executive September 22, 1995
---------------------- Officer and Director
Michael J. Collins (Principal Executive Officer)
/s/ Richard N. Decker Treasurer (Principal Financial September 22, 1995
---------------------- and Accounting Officer)
Richard N. Decker
/s/ John L. Chanon Director September 22, 1995
----------------------
John L. Chanon
/s/ Francis H. Zenie Director September 22, 1995
----------------------
Francis H. Zenie
/s/ John D. Correnti Director September 22, 1995
----------------------
John D. Correnti
</TABLE>
10
<PAGE> 11
CEM CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JUNE 30, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
Balance at Charged to Balance at
beginning of costs and end of
Description period expenses Deductions period
----------------------- ------------ ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year ended Accounts receivable, $728,000 331,000 (307,000) $752,000
June 30, 1995 inventory and warranty
reserves
Year ended Accounts receivable, $559,000 485,000 (316,000) $728,000
June 30, 1994 inventory and warranty
reserves
Year ended Accounts receivable, $340,000 298,000 ( 79,000) $559,000
June 30, 1993 inventory and warranty
reserves
</TABLE>
11
<PAGE> 12
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS
ITEM 14(a)(3)
ANNUAL REPORT ON FORM 10-K
For the Fiscal Year Ended Commission File Number
------------------------- ----------------------
June 30, 1995 0-15383
CEM CORPORATION
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhbit No. Exhibit Description
---------- -------------------
<S> <C>
3.1 Restated Charter of the Registrant, as amended.(1)
3.2 Bylaws of the Registrant.(1)
10.1 CEM Corporation 1986 Nonqualified Stock Option Plan, as amended, incorporated herein by reference
to the Registrant's Registration Statement on Form S-8 (File No. 33-53694).
10.2 CEM Corporation Employee Stock Purchase Plan, as amended, incorporated herein by reference to the
Registrant's Registration Statement on Form S-8 (File No. 33-80136).
10.3 CEM Corporation 1987 Stock Option Plan, as amended.(1)
10.4 CEM Corporation 1993 Management Equity Plan, incorporated herein by reference to the Registrant's
Registration Statement on Form S-8 (File No. 33-75368).
10.5 CEM Corporation Management Incentive Compensation Plan (page __ of the sequentially numbered
pages).
10.6 CEM Corporation 1993 Nonqualified Stock Option Plan for Non-Employee Directors, incorporated herein
by reference to the Registrant's Registration Statement on Form S-8 (File No. 33-75366).
11. Computation of Earnings per Share (page __ of the sequentially numbered pages).
13. The Registrant's 1995 Annual Report to Shareholders. This Annual Report to shareholders is
furnished for the information of the Commission only and, except for the parts thereof
incorporated in this report, is not deemed to be "filed" as part of this filing (page __ of the
sequentially numbered pages).
21. List of the Registrant's Subsidiaries.(1)
23. Consent of Independent Accountants (page __ of the sequentially numbered pages).
</TABLE>
-------------------------
(1)Incorporated herein by reference to the Registrant's Form 10-K
for the year ended June 30, 1994.
12
<PAGE> 13
CEM CORPORATION
EXHIBIT INDEX
(continued)
<TABLE>
<CAPTION>
Exhbit No. Exhibit Description
---------- -------------------
<S> <C>
27. Financial Data Schedule (filed in electronic format only). This schedule shall not be deemed
"filed" for purposes of Section 11 of the Securities Act of 1933 or Section 18 of the
Securities Exchange Act of 1934 or otherwise be subject to the liabilities of such sections,
nor shall it be deemed a part of any registration statement to which it relates.
99. Revised Item 21 of Part II to the Registrant's registration statements on Form S-8 (Registration
Numbers 33-11952 and 33-25739).(1)
</TABLE>
-------------------------
(1)Incorporated herein by reference to the Registrant's Form 10-K
for the year ended June 30, 1994.
13
<PAGE> 1
EXHIBIT 10.5
C E M CORPORATION
MANAGEMENT INCENTIVE COMPENSATION PLAN ("MICP")
PRINCIPAL PLAN FEATURES FOR THE YEAR ENDING JUNE 30, 1995
Goals
- To have a relatively simple management incentive compensation plan
that rewards certain CEM employees for achievement of the Company's
short and long term objectives.
- For the plan to link incentive rewards to these CEM employees with the
interests of CEM's shareholders.
- To have a competitive total compensation package to attract and retain
the caliber of talent needed to achieve the Company's long term
objectives.
Participants
- Three groups of CEM employees as defined below:
-Senior Management
-Middle Management
-Key Individuals
Maximum Payout Determination by Group
- Maximum amount of incentive compensation available to each group is
determined by the Company's FY 1995 performance as measured by "Growth
in Net Income before Interest and Taxes" compared to Operating Income
for the year ended June 30, 1994.
- "Growth in Net Income before Interest and Taxes" must be at least __%
before funds are available for the Middle Management and Key
Individuals groups.
- "Growth in Net Income before Interest and Taxes" must exceed __%
before funds are available for the Senior Management group.
- Any additional payout for "Growth in Net Income before Interest and
Taxes" greater than __% is at the discretion of the Compensation
Committee.
<PAGE> 2
Individual Payout Determination
- The maximum incentive award available to an individual within any
group is equal to the percentage of that individual's base salary
corresponding to the average percentage of salary available to the
entire group.
- There is no discretionary component in determining the incentive award
for the Chief Executive Officer: 100% is determined by company
performance defined as "Growth in Net Income before Interest and
Taxes".
- For all other individuals participating in the MICP, two-thirds of
each incentive award (66 2/3%) is determined by company performance
defined as "Growth in Net Income before Interest and Taxes," with up
to an additional one-third (33 1/3% maximum) being discretionary based
on management's assessment of performance towards achievement of
pre-established individual objectives related to Company goals.
Form of Individual Payout
- For all individuals except Chief Executive Officer,
- 60% of each individual award is in cash and 40% in company
stock.
- 50% of the stock component to vest on date of award, with
remaining 50% to vest twelve months thereafter.
- Individuals responsible for applicable income taxes.
- The Chief Executive Officer has the option of receiving the 40%
portion also in cash, either current or deferred.
Additional Considerations
- Company performance targets and payout potential for subsequent years
will be based on the operating plans for the particular years as well
as the levels of performance consistent with the Company's long term
objectives established in its strategic plan.
2
<PAGE> 3
C E M CORPORATION
EMPLOYEE STOCK GRANT PLAN
PRINCIPAL PLAN FEATURES FOR THE YEAR ENDING JUNE 30, 1995
Goal
- To recognize and reward a broad base of CEM employees for unique
achievements and thus build morale, a sense of ownership and company
loyalty.
Eligible Participants
- Any CEM employee excluding the Officer and Middle Management groups as
defined in the MICP.
Type of Award
- Unrestricted Stock Grants and/or Stock Options with a four-year
vesting schedule (25% at the end of each twelve-month period following
the grant).
- Amount of a typical grant intended to be smaller than granted under
the Company's prior Stock Option Plan.
Method of Determining Grants
- Chief Executive Officer may recommend grants to the Compensation
Committee.
- Compensation Committee of the Board of Directors to make grants.
Other Details of Plan for Fiscal 1995
- Grants up to a total of 2,000 shares and/or options.
3
<PAGE> 1
EXHIBIT 11
CEM CORPORATION
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
For the years ended June 30
---------------------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
NET INCOME................................... $ 3,179,000 $ 2,791,000 $ 2,403,000
=========== =========== ===========
Weighted average number of
shares outstanding........................
3,631,000 3,913,000 4,184,000
Number of shares purchasable upon exercise
of options, reduced by the number of
shares which could have been purchased
with proceeds from the exercise of such
options at average market price...........
104,000 81,000 20,000
----------- ----------- -----------
Weighted average number of shares
outstanding, as adjusted.................. 3,735,000 3,994,000 4,204,000
=========== =========== ===========
PRIMARY EARNINGS PER SHARE................... $ .85 $ .70 $ .57
=========== =========== ===========
NET INCOME................................... $ 3,179,000 $ 2,791,000 $ 2,403,000
=========== =========== ===========
Weighted average number of
shares outstanding........................
3,631,000 3,913,000 4,184,000
Number of shares purchasable upon exercise
of options, reduced by the number of
shares which could have been purchased
with proceeds from exercise of such
options at the greater of period-end
market price or average market price...... 115,000 91,000 30,000
----------- ----------- -----------
Weighted average number of shares
outstanding, as adjusted.................. 3,746,000 4,005,000 4,214,000
=========== =========== ===========
EARNINGS PER COMMON SHARE,
ASSUMING FULL DILUTION.................... $ .85 $ .70 $ .57
=========== =========== ===========
</TABLE>
<PAGE> 1
EXHIBIT 13
1995 FINANCIAL HIGHLIGHTS
In thousands except per share data
<TABLE>
<CAPTION>
For the years ended June 30
-------------------------------------------------------------
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT AND CASH FLOWS
Net sales............................................. $31,611 $29,040 $26,320 $24,250 $21,849
Income from operations................................ 4,479 4,050 3,349 2,605 3,006
Income before income taxes............................ 4,891 4,134 3,348 2,925 3,457
Net income............................................ 3,179 2,791 2,403 1,890 2,434
Net income per share.................................. $ .85 $ .70 $ .57 $ .41 $ .54
Weighted average shares outstanding................... 3,735 3,994 4,204 4,647 4,547
Net cash provided by operating activities............. $ 3,063 $ 3,220 $ 5,203 $ 704 $ 1,642
</TABLE>
<TABLE>
<CAPTION>
As of June 30
-------------------------------------------------------------
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET
Working capital....................................... $14,047 $12,892 $14,343 $15,712 $13,838
Total assets.......................................... 26,653 22,766 23,414 25,367 21,174
Long-term debt........................................ 1,578 132 246 238 0
Shareholders' equity.................................. $20,592 $18,621 $20,038 $22,091 $18,913
</TABLE>
FOOTNOTE: The following graphs are presented for a five-year period and are
displayed below the tables:
1) Net Sales (In Millions)
2) Income from Operations (In Millions)
3) Net Income (In Millions)
4) Net Income Per Share
CEM provides microwave-based products for the laboratory marketplace. These
products create exceptional value for customers based on advantages of speed
and simplicity. They are sold on a worldwide basis to the general analytical
laboratory market as well as many manufacturing industries including chemical
and food processing.
INSIDE FRONT COVER
<PAGE> 2
FINANCIAL SECTION
Management's Discussion & Analysis............. 6
Consolidated Balance Sheets.................... 8
Consolidated Statements of Income.............. 9
Consolidated Statements of Cash Flows..........10
Consolidated Statements of Changes
in Shareholders' Equity...................11
Notes to Consolidated Financial Statements.....12
Report of Independent Accountants..............18
Corporate Information..........................19
5
<PAGE> 3
MANAGEMENT'S DISCUSSION & ANALYSIS
The following table sets forth the percentage relationship of net sales,
expenses and income for the periods indicated:
<TABLE>
<CAPTION>
For the years ended June 30
--------------------------------------------------------
Percent Change
Percentage of Sales Over Prior Period
------------------------------ -----------------
1995 1994 1993 1995 1994
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net sales....................................................... 100.0% 100.0% 100.0% 8.9% 10.3%
Cost of goods sold.............................................. 42.2 41.3 41.2 11.2 10.6
----- ----- -----
Gross profit.................................................... 57.8 58.7 58.8 7.2 10.1
Selling, general and administrative expenses.................... 35.4 35.7 36.0 8.1 9.5
Research and development expenses............................... 8.2 9.1 10.1 (1.4) (1.0)
----- ----- -----
Income from operations.......................................... 14.2 13.9 12.7 10.6 20.9
Investment income............................................... .9 .7 .6 35.4 29.7
Other income (expense), net..................................... .4 (.4) (.6) nm (22.9)
----- ----- -----
Income before income taxes...................................... 15.5 14.2 12.7 18.3 23.5
Provision for income taxes...................................... 5.4 4.6 3.6 27.5 42.1
----- ----- -----
Net income...................................................... 10.1% 9.6% 9.1% 13.9 16.1
===== ===== =====
</TABLE>
RESULTS OF OPERATIONS
FISCAL YEAR 1995 COMPARED TO FISCAL YEAR 1994
In 1995, newly introduced products were the primary contributors to sales
growth as the microwave extraction system, the enhanced ashing system and the
redesigned fat system boosted sales by approximately $1.9 million. Higher
demand for existing digestion vessel designs and the first complete sales year
for new vessel designs also contributed significantly to sales growth during
the year.
Foreign sales increased as a percentage of total sales from 38% to 42% as a
result of stronger economic conditions in Europe and Asia and the newly
introduced microwave extraction system. Although the advantages of this system
have generated considerable interest in the U.S. market, the one to three years
required for EPA approval for the system's use in environmental applications
has limited initial sales. U.S. sales were relatively flat as compared to the
prior year due to the weak environmental laboratory market. Currently, there
are no signs of recovery in the U.S. environmental market.
Gross profit margins declined from the prior year as a result of the increase
in foreign sales which generally have lower margins than domestic sales.
Research and development expenses declined following the introduction of two
major new products last year. Management expects research and development
expenses to remain between 8% and 10% of sales for the foreseeable future.
In March 1995, the Company replaced an intercompany note receivable with a
third-party bank loan, denominated in German marks. The change in other income
is a result of the foreign exchange gain from this transaction and a
non-recurring patent royalties settlement in 1994.
The Company's effective tax rate did not change significantly and approximates
the federal statutory rate. Management does not expect the rate to change
significantly in 1996.
6
<PAGE> 4
MANAGEMENT'S DISCUSSION & ANALYSIS
FISCAL YEAR 1994 COMPARED TO FISCAL YEAR 1993
The SpectroPrep digestion and microwave extraction systems and the introduction
of new vessel designs contributed approximately $1.5 million in sales growth in
1994. Service-related business and price increases also contributed to
increases in revenues. Export business declined as a percentage of total sales
from 39% in 1993 to 38% in 1994 as a result of persistent economic sluggishness
in Germany and Japan. Research and development expenses declined as a
percentage of sales after the initial development of the SpectroPrep system in
1993. The effective tax rate increased as certain foreign subsidiaries began
paying income taxes after fully utilizing loss-carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
In 1991, the Company began a stock repurchase program which has been extended
by the Board of Directors on several occasions. Repurchases totaled $1.9, $5.0,
and $4.4 million in 1995, 1994, and 1993, respectively. As of June 30, 1995, an
additional $2.4 million remains authorized to repurchase the Company's common
stock. Repurchases may be made from time to time in the open market or directly
from shareholders at prevailing market prices. The shares repurchased will
reduce the dilution of earnings to existing shareholders resulting from the
Company's stock option and compensation plans.
In March 1995, the Company converted an intercompany note receivable to a third
party bank loan of $1.5 million, denominated in German marks. The loan proceeds
and an additional $0.5 million of available cash were used to acquire a
long-term investment which was pledged to secure the loan. While the loan and
the corresponding long-term investment are now reflected on the balance sheet,
this transaction eliminated the Company's exposure to future currency
fluctuations on the intercompany note receivable.
Sales growth in the latter part of the fourth quarter resulted in increases in
accounts receivable. Inventories have increased as a result of new product
introductions.
The Company maintains an unsecured bank line of credit providing for short term
borrowings of up to $3.0 million at a rate not to exceed the bank's prime rate.
No amounts are presently outstanding. Should the need arise, management
believes the line of credit could be increased.
The Company primarily assembles components manufactured by others and
significant expenditures for property and equipment are not expected. Existing
facilities, which were expanded in 1991 and 1992, are expected to be sufficient
to serve existing markets for the next several years. Management believes that
working capital, capital expenditures, debt servicing and stock repurchases can
be funded currently from cash on hand and cash generated from operations.
The Company has never paid cash dividends and has no plans to do so in the
foreseeable future.
INFLATION
Inflation has not had a material impact on the Company's operations. The prices
of some components purchased by the Company have declined in the past several
years due in part to increased volume and improved purchasing practices.
Certain other materials and labor costs have increased, but management believes
that such increases have not exceeded the inflation rate of the national
economy as a whole.
7
<PAGE> 5
CEM Corporation
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30
-----------------------------
1995 1994
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................................................ $ 2,078,000 $ 2,502,000
Short-term investments........................................................... 4,000,000 3,500,000
Trade receivables................................................................ 6,733,000 6,110,000
Inventories...................................................................... 4,997,000 4,045,000
Deferred taxes................................................................... 415,000 414,000
Other current assets............................................................. 243,000 215,000
----------- -----------
Total current assets........................................................ 18,466,000 16,786,000
LONG-TERM INVESTMENTS................................................................. 2,031,000 --
PROPERTY, PLANT AND EQUIPMENT, NET.................................................... 5,868,000 5,733,000
OTHER ASSETS.......................................................................... 288,000 247,000
----------- -----------
$26,653,000 $22,766,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................................................................. $ 1,003,000 $ 791,000
Accrued payroll and benefits..................................................... 1,406,000 1,284,000
Deferred income.................................................................. 1,099,000 1,055,000
Income taxes payable............................................................. 532,000 229,000
Warranty reserve................................................................. 142,000 255,000
Other current liabilities........................................................ 237,000 280,000
----------- -----------
Total current liabilities................................................... 4,419,000 3,894,000
----------- -----------
LONG-TERM DEBT, NET OF CURRENT MATURITIES............................................. 1,578,000 132,000
----------- -----------
DEFERRED TAXES........................................................................ 64,000 119,000
----------- -----------
SHAREHOLDERS' EQUITY:
Preferred stock, $5 par value, authorized 1,000,000 shares; none issued..........
Common stock, $.05 par value; authorized 10,000,000 shares; issued and
outstanding, 3,621,000 shares in 1995 and 3,718,000 shares in 1994............. 181,000 186,000
Additional paid-in capital....................................................... 313,000 --
Retained earnings................................................................ 20,180,000 18,533,000
Translation of foreign currencies................................................ (82,000) (98,000)
----------- -----------
Total shareholders' equity.................................................. 20,592,000 18,621,000
----------- -----------
$26,653,000 $22,766,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
8
<PAGE> 6
CEM Corporation
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the years ended June 30
-----------------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Net sales............................................................ $31,611,000 $29,040,000 $26,320,000
Cost of goods sold................................................... 13,341,000 11,999,000 10,848,000
----------- ----------- -----------
Gross profit.................................................... 18,270,000 17,041,000 15,472,000
Selling, general and administrative expenses......................... 11,186,000 10,350,000 9,456,000
Research and development expenses.................................... 2,605,000 2,641,000 2,667,000
----------- ----------- -----------
Income from operations.......................................... 4,479,000 4,050,000 3,349,000
Investment income.................................................... 283,000 209,000 161,000
Other income (expense), net.......................................... 129,000 (125,000) (162,000)
----------- ----------- -----------
Income before income taxes...................................... 4,891,000 4,134,000 3,348,000
Provision for income taxes........................................... 1,712,000 1,343,000 945,000
----------- ----------- -----------
Net income...................................................... $ 3,179,000 $ 2,791,000 $ 2,403,000
=========== =========== ===========
Net income per common and common equivalent share.................... $ .85 $ .70 $ .57
=========== =========== ===========
Weighted average common and common equivalent
shares outstanding.............................................. 3,735,000 3,994,000 4,204,000
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
9
<PAGE> 7
CEM Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the years ended June 30
-----------------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income............................................................ $ 3,179,000 $ 2,791,000 $ 2,403,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.................................... 927,000 921,000 997,000
Deferred income taxes............................................ (56,000) (163,000) (30,000)
Loss (gain) on disposal of fixed assets.......................... (7,000) (34,000) 25,000
Gain on marketable securities.................................... -- -- (102,000)
Changes in operating assets and liabilities:
Trade receivables............................................. (557,000) (1,181,000) (44,000)
Inventories................................................... (837,000) 183,000 1,121,000
Accounts payable and accrued expenses......................... 259,000 622,000 372,000
Income taxes payable.......................................... 309,000 16,000 346,000
Other changes, net............................................ (154,000) 65,000 115,000
----------- ----------- -----------
Net cash provided by operating activities........................ 3,063,000 3,220,000 5,203,000
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of short-term investments........................................ 4,500,000 6,100,000 30,402,000
Purchase of short-term investments.................................... (5,004,000) (6,501,000) (28,300,000)
Purchase of long-term investments..................................... (2,032,000) -- --
Proceeds from sale of fixed assets.................................... 69,000 93,000 176,000
Capital expenditures.................................................. (1,028,000) (807,000) (749,000)
----------- ----------- -----------
Net cash provided by (used in) investing activities.............. (3,495,000) (1,115,000) 1,529,000
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable........................................... 200,000 -- 39,000
Proceeds from long-term debt.......................................... 1,333,000 -- --
Payment of notes payable.............................................. (200,000) (125,000) --
Payment of long-term debt............................................. (11,000) -- --
Repurchase of common stock............................................ (1,868,000) (4,957,000) (4,414,000)
Proceeds from issuance of common stock................................ 466,000 616,000 151,000
Income tax benefit from employees' stock options...................... 71,000 90,000 11,000
----------- ----------- -----------
Net cash used in financing activities............................ (9,000) (4,376,000) (4,213,000)
----------- ----------- -----------
EFFECTS OF EXCHANGE RATE CHANGES ON CASH.............................. 17,000 15,000 222,000
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents.................. (424,000) (2,256,000) 2,741,000
Cash and cash equivalents at beginning of year........................ 2,502,000 4,758,000 2,017,000
----------- ----------- -----------
Cash and cash equivalents at end of year.............................. $ 2,078,000 $ 2,502,000 $ 4,758,000
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
10
<PAGE> 8
CEM Corporation
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
For the years ended June 30, 1995, 1994 and 1993
---------------------------------------------------------------------------------------
COMMON SHARES ADDITIONAL TRANSLATION
---------------------- PAID-IN RETAINED OF FOREIGN
SHARES AMOUNT CAPITAL EARNINGS CURRENCIES TOTAL
--------- -------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
June 30, 1992..................... 4,613,000 $231,000 $ 6,768,000 $15,029,000 $ 63,000 $22,091,000
Issuance of shares under
stock benefit plans.......... 19,000 1,000 150,000 151,000
Repurchase of common stock........ (552,000) (28,000) (4,386,000) (4,414,000)
Income tax benefit from
employees' stock options..... 11,000 11,000
Translation adjustment............ (204,000) (204,000)
Net income........................ 2,403,000 2,403,000
--------- -------- ----------- ----------- ---------- -----------
June 30, 1993..................... 4,080,000 204,000 2,543,000 17,432,000 (141,000) 20,038,000
Issuance of shares under
stock benefit plans.......... 72,000 4,000 612,000 616,000
Repurchase of common stock........ (434,000) (22,000) (3,245,000) (1,690,000) (4,957,000)
Income tax benefit from
employees' stock options..... 90,000 90,000
Translation adjustment............ 43,000 43,000
Net income........................ 2,791,000 2,791,000
--------- -------- ----------- ----------- ---------- -----------
June 30, 1994..................... 3,718,000 186,000 0 18,533,000 (98,000) 18,621,000
Issuance of shares under
stock benefit plans.......... 61,000 3,000 570,000 573,000
Repurchase of common stock........ (158,000) (8,000) (328,000) (1,532,000) (1,868,000)
Income tax benefit from
employees' stock options..... 71,000 71,000
Translation adjustment............ 16,000 16,000
Net income........................ 3,179,000 3,179,000
--------- -------- ----------- ----------- ---------- -----------
June 30, 1995..................... 3,621,000 $181,000 $ 313,000 $20,180,000 $ (82,000) $20,592,000
========= ======== =========== =========== ========= ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
11
<PAGE> 9
CEM Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
CONSOLIDATION - The financial statements include the accounts of the Company
and its wholly-owned domestic and foreign subsidiaries after the elimination of
inter-company accounts and transactions.
SINGLE INDUSTRY SEGMENT - The Company engages in one line of business defined
as the development, manufacture, sale and service of microwave-based
instrumentation for testing, analysis and process control in analytical
laboratory and industrial markets.
TRANSLATION OF FOREIGN CURRENCIES - The Company's export sales, other than
those to its foreign subsidiaries, are denominated in U.S. dollars. For the
Company's foreign subsidiaries, assets and liabilities are translated at
exchange rates prevailing on the balance sheet date; revenues and expenses are
translated at average exchange rates prevailing during the period. Any
resulting translation adjustments are reported separately in shareholders'
equity. Net exchange gains (losses) from foreign currency transactions included
in income were $111,000 in 1995, ($14,000) in 1994 and ($130,000) in 1993.
CONCENTRATION OF CREDIT RISK - Financial instruments, which potentially subject
the Company to concentrations of credit risk, consist principally of temporary
cash investments and trade receivables. The Company places overnight cash
investments with high quality financial institutions. On June 30, 1995 and
1994, the Company purchased $1,534,000 and $843,000, respectively, of
Eurodollar investments under agreements to resell on July 1, 1995 and 1994,
respectively. Due to the short term nature of the agreements, the Company did
not take possession of the securities which were, instead, held by a custodian.
The Company sells instruments on open account terms. Sales are not concentrated
geographically and no single customer accounts for more than ten percent of
sales. The risk of significant loss related to trade receivables at June 30,
1995 and 1994 is minimal.
STATEMENT OF CASH FLOWS - For purposes of reporting cash flows, cash
equivalents include short-term interest bearing investments, generally maturing
within sixty days. Cash flows from operations include income taxes paid
totaling $1,384,000, $1,315,000 and $530,000 in 1995, 1994 and 1993,
respectively.
INVESTMENTS - On July 1, 1994, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." This Statement requires the use of fair value
accounting for those securities the Company identifies as trading and
available-for-sale, but retains the use of the amortized cost method for
investments in debt securities that the Company has the positive intent and
ability to hold to maturity. Unrealized holding gains and losses are included
in earnings for trading securities and are shown as a separate component of
shareholders' equity for available-for-sale securities net of the effects of
income taxes. Realized gains or losses continue to be determined on the
specific identification method and are reflected in income.
TRADE RECEIVABLES - Trade receivables are stated net of allowances for doubtful
accounts of $165,000 and $156,000 at June 30, 1995 and 1994, respectively.
INVENTORIES - Inventories are stated at the lower of cost or market. The
first-in, first-out (FIFO) basis is used to determine the cost of inventories.
PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment is stated at
cost. Depreciation is computed generally using straight-line methods over the
estimated useful lives, ranging from 3 to 40 years. When property is disposed
of, the cost and related depreciation are removed from the accounts and
resulting gains and losses are included in income. Major improvements are
capitalized. Repair and maintenance costs are charged to expense as incurred.
ADVERTISING COSTS - The Company is actively engaged in marketing both new and
existing products. All advertising and promotional costs are charged to
operations as incurred and totaled $742,000, $777,000 and $720,000 in 1995,
1994 and 1993, respectively.
12
<PAGE> 10
CEM Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
RESEARCH AND DEVELOPMENT COSTS - The Company is actively engaged in basic
technology and applied research and development programs which are designed to
develop new and improved products, and product applications. The costs of these
programs as well as ongoing product and process improvement, engineering and
support costs are charged to operations as incurred.
DEFERRED INCOME - The Company rents instruments to customers with an option to
purchase during the rental period. The portion of rental payments which apply
toward the purchase of instruments is deferred until the instruments are either
purchased or returned, at which time deferred income is either recorded as
sales revenue or rental income. Revenue from service contracts is recognized in
earnings ratably over the period of the service agreement.
DEFERRED INCOME TAXES - Deferred tax assets or liabilities are established for
temporary differences between financial and tax reporting bases and are
subsequently adjusted to reflect changes in tax rates expected to be in effect
when the temporary differences reverse.
NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE - The computation of net
income per common share is based on the weighted average number of common
shares outstanding each year, adjusted for all stock splits, after adding
dilutive common stock equivalents of 104,000 in 1995, 81,000 in 1994 and 20,000
in 1993.
Common stock equivalents consist of stock options. In determining the number of
dilutive common stock equivalents, the Company includes average common shares
attributable to dilutive stock options using the treasury stock method. Fully
diluted net income per share is not presented because it approximates net
income per common and common equivalent share.
2. INVESTMENTS
The following table summarizes the amortized cost, fair market value and
carrying value of the Company's investments at June 30, 1995 under SFAS No.
115. In 1995, proceeds from sales of available-for-sale securities were
$4,500,000. There were no realized gains or losses in any security
classification.
<TABLE>
<CAPTION>
Amortized Market Carrying
(In Thousands) Cost Value Value
----------------------------------------------- --------- ------ --------
<S> <C> <C> <C>
Short-term available-for-sale.................. $3,000 $3,000 $3,000
Short-term held-to-maturity.................... 1,000 1,000 1,000
------ ------ ------
$4,000 $4,000 $4,000
Long-term held-to-maturity
(see Note 5)................................ 2,031 2,105 2,031
------ ------ ------
$6,031 $6,105 $6,031
====== ====== ======
</TABLE>
The contractual maturities on the held-to-maturity securities range from less
than one year to five years.
Prior to the adoption of SFAS No. 115, the Company's investments were stated at
aggregate cost which approximated market value. At June 30, 1994 and 1993, the
Company's investments were short-term and totaled $3,500,000 and $3,100,000,
respectively. There were no unrealized gains or losses and net realized gains
were $0 in 1994 and $102,000 in 1993.
3. INVENTORIES
Inventories at current cost are as follows at June 30:
<TABLE>
<CAPTION>
(In Thousands) 1995 1994
--------------------------------------------------------- ------ ------
<S> <C> <C>
Parts and raw materials.................................. $2,559 $2,319
Work-in-process and finished goods....................... 2,438 1,726
------ ------
$4,997 $4,045
====== ======
</TABLE>
13
<PAGE> 11
CEM Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following at June 30:
<TABLE>
<CAPTION>
(In Thousands) 1995 1994
------------------------------------------------------------- ------ ------
<S> <C> <C>
Land......................................................... $ 701 $ 678
Buildings.................................................... 4,460 4,328
Machinery and equipment...................................... 4,060 3,648
Vehicles..................................................... 713 578
------ ------
9,934 9,232
Less accumulated depreciation................................ 4,066 3,499
------ ------
$5,868 $5,733
====== ======
</TABLE>
5. FINANCING ARRANGEMENTS
In November 1994, the Company increased its bank line of credit, without
collateral, to $3,000,000, which is renewable October 31, 1995. There were no
outstanding borrowings under the line of credit at June 30, 1995. The Company
is not subject to commitment fees related to the unused portion of the line of
credit.
At June 30, 1995, the Company had a foreign denominated mortgage note payable
totaling $142,000 carrying interest at an average rate of 7.4%. Principal
payments are due in equal installments until 2006 with the current portion
totaling approximately $12,000 per year.
On March 21, 1995, the Company entered into a 5-year term note denominated in
German marks for $1,447,000 carrying a 9.25% fixed interest rate and requiring
a balloon principal payment upon maturity. The note is collateralized by a
long-term held-to-maturity investment.
6. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
(In Thousands) 1995 1994 1993
------------------------------------------- ------ ------ ------
<S> <C> <C> <C>
Pre-Tax Income (Loss):
Domestic................................ $5,146 $3,817 $3,103
Foreign................................. (255) 317 245
------ ------ ------
$4,891 $4,134 $3,348
====== ====== ======
Current:
Federal and State....................... $1,816 $1,411 $ 975
Foreign................................. (48) 95 --
------ ------ ------
1,768 1,506 975
Deferred, Federal and State................ (56) (163) (30)
------ ------ ------
Total Taxes................................ $1,712 $1,343 $ 945
====== ====== ======
</TABLE>
The provision includes deferred taxes resulting from temporary differences in
the recognition of income and expense for tax and financial reporting purposes.
The sources of these differences and the tax effect of each are as follows:
<TABLE>
<CAPTION>
(In Thousands) 1995 1994 1993
------------------------------------------------ ------ ------ ------
<S> <C> <C> <C>
Unrealized foreign exchange losses.............. $(28) $ (52) $(13)
Gains on marketable securities.................. -- -- 35
Depreciation.................................... (26) (40) (34)
Inventories and reserves........................ 2 (36) (31)
Other items, net................................ (4) (35) 13
---- ----- ----
$(56) $(163) $(30)
==== ===== ====
</TABLE>
14
<PAGE> 12
CEM Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A reconciliation of the effective income tax rate to the amount computed by
applying the statutory federal income tax rate to income before income taxes
follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Federal statutory income tax rate................. 34.0% 34.0% 34.0%
State income taxes, net
of federal tax benefit......................... 2.5 2.4 1.8
Foreign losses (loss carryforwards
utilized)...................................... 0.8 (0.4) (3.7)
Tax-exempt foreign sales income................... (4.7) (4.9) (5.3)
Tax-exempt interest and
dividends received exclusion................... (0.9) (1.0) (0.1)
Research and development credits.................. (0.8) (1.4) (1.7)
Other items, net.................................. 4.1 3.8 3.2
---- ---- ----
Effective income tax rate......................... 35.0% 32.5% 28.2%
==== ==== ====
</TABLE>
Components of net deferred tax assets and liabilities at June 30 are as
follows:
<TABLE>
<CAPTION>
(In Thousands) 1995 1994
---------------------------------------------------------------- ---- ----
<S> <C> <C>
Current assets:
Inventories and reserves..................................... $291 $293
Net gains on marketable securities........................... 68 69
Foreign operations net operating
loss carry-forwards....................................... 26 22
Other........................................................ 56 52
---- ----
441 436
Valuation allowance.......................................... (26) (22)
---- ----
$415 $414
==== ====
Noncurrent liability (asset):
Depreciation................................................. $ 98 $124
Foreign exchange on
inter-company notes....................................... (34) (5)
---- ----
$ 64 $119
==== ====
</TABLE>
7. INTERNATIONAL OPERATIONS AND EXPORT SALES
The Company maintains three subsidiaries in Europe primarily for the
distribution of microwave-based instrumentation produced by the parent in the
US. Financial data by geographic area is presented below:
<TABLE>
<CAPTION>
(In Thousands) 1995 1994 1993
--------------------------------------- ------- ------- -------
<S> <C> <C> <C>
NET SALES:
U.S. Operations:
Unaffiliated customers:
U.S............................. $18,313 $18,090 $16,161
Europe.......................... 3,099 2,412 2,168
Other........................... 5,179 4,331 3,660
Inter-area transfers................ 3,118 2,302 2,378
------- ------- -------
29,709 27,135 24,367
European Operations:
Unaffiliated customers.............. 5,020 4,207 4,331
Eliminations........................... (3,118) (2,302) (2,378)
------- ------- -------
Consolidated........................ $31,611 $29,040 $26,320
======= ======= =======
NET INCOME (LOSS):
U.S. Operations........................ $ 3,513 $ 2,657 $ 2,037
European Operations.................... (207) 221 245
Eliminations........................... (127) (87) 121
------- ------- -------
Consolidated ....................... $ 3,179 $ 2,791 $ 2,403
======= ======= =======
IDENTIFIABLE ASSETS:
U.S. Operations........................ $22,404 $18,441 $19,398
European Operations.................... 5,081 5,240 4,551
Eliminations........................... (832) (915) (535)
------- ------- -------
Consolidated ....................... $26,653 $22,766 $23,414
======= ======= =======
</TABLE>
8. EMPLOYEE BENEFIT PLANS
The Company has a noncontributory profit-sharing and a 401(k) tax deferred
savings plan covering all employees meeting age and service requirements.
Participants can make pre-tax contributions with the Company matching certain
percentages of employee contributions. In addition to Company matching
contributions under the 401(k) plan, additional contributions may be made as
determined by the Board of Directors. The Company's policy is to fund amounts
accrued. Expense related to this plan amounted to $638,000, $574,000 and
$463,000 for the years ended June 30, 1995, 1994 and 1993, respectively.
15
<PAGE> 13
CEM Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. MANAGEMENT INCENTIVE AND STOCK OPTION PLANS
In fiscal 1994, the Company adopted the 1993 Management Equity Plan under which
officers and other key employees may receive stock and cash performance-based
incentive awards. Up to 375,000 shares are authorized under this plan. In 1995,
10,000 shares were awarded and options to purchase 57,000 shares were granted
at $11.00 per share. No stock awards were granted in 1994. At June 30, 1995, no
options were currently exercisable and 308,000 shares were reserved for future
grants. Total compensation expense accrued under the plan was $232,000 in 1995
and $282,000 in 1994.
Also in fiscal 1994, the Company adopted the 1993 Nonqualified Stock Option
Plan for Non-Employee Directors under which options may be granted to outside
directors. Up to 25,000 shares are authorized under this plan. In 1995, options
to purchase 1,500 shares were granted at $13.63 per share. In 1994, options to
purchase 1,500 shares were granted at $12.13 per share. At June 30, 1995,
options to purchase 1,500 shares were currently exercisable and 22,000 shares
were reserved for future grants.
Effective with the approval of the above plans, the Company's 1986 and 1987
stock option plans, under which options were granted to officers, employees,
and outside directors, were terminated. At June 30, 1995 the price on
outstanding options ranged from $6.56-$13.63 per share and no shares were
reserved for future grants.
Additional information with respect to the 1986 and 1987 stock option plans is
as follows:
<TABLE>
<CAPTION>
(In Thousands) Shares
-------------------------------------------------------------------- ------
<S> <C>
Outstanding at June 30, 1992........................................ 514
Granted at $7.50-$13.63 per share.............................. 44
Exercised at $7.00-$8.88 per share............................. (19)
Canceled....................................................... (27)
---
Outstanding at June 30, 1993........................................ 512
Granted at $8.50-$10.00 per share.............................. 58
Exercised at $6.56-$10.50 per share............................ (72)
Canceled....................................................... (9)
---
Outstanding at June 30, 1994........................................ 489
Granted............................................................. --
Exercised at $7.69-$10.50 per share............................ (51)
Canceled....................................................... (4)
---
Outstanding at June 30, 1995........................................ 434
===
Options exercisable at June 30, 1995................................ 363
===
</TABLE>
Options granted under all stock option plans are exercisable at the market
value of the shares at the date of grant. The options are exercisable over a
period not to exceed ten years. Tax benefits arising from disqualifying
dispositions are recognized at the time of disposition and are credited to
additional paid-in capital.
16
<PAGE> 14
CEM Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. QUARTERLY INFORMATION (UNAUDITED)
Selected quarterly results of operations and quarterly stock prices for fiscal
1995 and 1994 are summarized in the table below. The stock prices represent the
high and low sales prices for CEM common shares as reported on the NASDAQ
National Market System.
As of September 15, 1995, CEM Corporation had approximately 3,000 shareholders
based on the number of holders of record and an estimate of the number of
individual participants represented by security position listings. No cash
dividends were declared during the two fiscal years ended June 30, 1995.
<TABLE>
<CAPTION>
(In thousands except per share data) Q-1 Q-2 Q-3 Q-4 Year
----------------------------------------------------------- ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
1995:
Net sales............................................... $7,146 $8,332 $7,882 $8,251 $31,611
Gross profit............................................ 4,130 4,860 4,531 4,749 18,270
Net income.............................................. 620 885 704 970 3,179
Net income per share.................................... .16 .24 .19 .26 .85
STOCK PRICE:
High.................................................... $12.25 $13.63 $14.25 $13.25 $ 14.25
Low..................................................... 9.75 11.00 11.00 11.75 9.75
-------------------------------------------------------------------------------------------------------------------------
1994:
Net sales............................................... $6,735 $7,768 $6,857 $7,680 $29,040
Gross profit............................................ 3,898 4,550 3,985 4,608 17,041
Net income.............................................. 538 781 629 843 2,791
Net income per share.................................... .13 .19 .16 .22 .70
STOCK PRICE:
High.................................................... $11.00 $12.25 $12.75 $12.75 $ 12.75
Low..................................................... 8.00 9.50 11.50 11.25 8.00
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE> 15
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS OF CEM CORPORATION:
We have audited the accompanying consolidated balance sheets of CEM Corporation
and Subsidiaries as of June 30, 1995 and 1994, and the related consolidated
statements of income, changes in shareholders' equity, and cash flows for each
of the three years in the period ended June 30, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free from
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of CEM Corporation
and Subsidiaries as of June 30, 1995 and 1994, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended June 30, 1995, in conformity with generally accepted accounting
principles.
/s/ Coopers & Lybrand L.L.P.
Charlotte, North Carolina
July 24, 1995
18
<PAGE> 16
CORPORATE INFORMATION
<TABLE>
<S> <C>
DR. MICHAEL J. COLLINS TRANSFER AGENT
Director, President and Chief Executive Officer Wachovia Bank of North Carolina, N.A.
Winston Salem, North Carolina
JOHN L. CHANON
Director AUDITORS
Senior Vice President - Finance Coopers & Lybrand L.L.P.
Harris-Teeter, Inc. Charlotte, North Carolina
(Regional Supermarkets)
LEGAL COUNSEL
JOHN D. CORRENTI Kennedy Covington Lobdell & Hickman, L.L.P.
Director - Elected August 3, 1995 Charlotte, North Carolina
President and Chief Operating Officer
Nucor Corporation (Steel Products)
FORM 10-K/INVESTOR CONTACT
The Company's Annual Report on Form 10-K for the year
RICHARD N. DECKER ended June 30, 1995 filed with the Securities and
Secretary, Treasurer and Chief Financial Officer Exchange Commission is available without charge to
shareholders upon written request. These requests and
other investor contacts should be directed to Richard
RONALD A. NORELLI N. Decker, Secretary, at the corporate address.
Chairman of the Board
President and Chief Executive Officer
Norelli & Company (Management Consulting) ANNUAL MEETING
The annual meeting of shareholders of CEM Corporation
will be held at 11:00 am local time on November 8, 1995
JAMES A. PRENDERGAST at the corporate offices, 3100 Smith Farm Road,
Vice President - Sales and Service Matthews, North Carolina. Shareholders of record as of
September 15, 1995 will be entitled to vote at this
meeting.
DR. BRIAN W. RENOE
Vice President - Technology
TRADEMARKS
CEM(TM), MAC(TM), MES 1000(TM), MDS 2000(TM),
FRANCIS H. ZENIE MAS 7000(TM), Airwave 7000(TM), LabWave 9000(TM),
Director SpectroPrep(TM) and PrepLink(TM) are CEM Corporation
President and Chief Executive Officer trademarks. For ease of reading, designations of
Zymark Corporation (Laboratory Robotics) trademarks have been omitted from the text of this
report.
CORPORATE ADDRESS
CEM Corporation NASDAQ SYMBOL
3100 Smith Farm Road The Company's common shares are traded on the NASDAQ
P.O. Box 200 Stock Market (National Market System) under the symbol
Matthews, North Carolina 28106 CEMX.
(704) 821-7015
</TABLE>
19
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration
Statements of CEM Corporation on Form S-8 (File Numbers 33-11952, 33-25739,
33-53694, 33-75366, 33-75368, 33-80136 and 33-87676) of our report dated July
24, 1995, on our audits of the consolidated financial statements and financial
statement schedule of CEM Corporation as of June 30, 1995 and 1994, and for the
years ended June 30, 1995, 1994 and 1993, which report is included in this
Annual Report on Form 10-K.
/s/ Coopers & Lybrand L.L.P.
Charlotte, North Carolina
September 22, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF CEM CORPORATION FOR THE PERIOD ENDED JUNE 30, 1995 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-END> JUN-30-1995
<CASH> 2,078,000
<SECURITIES> 4,000,000
<RECEIVABLES> 6,898,000
<ALLOWANCES> 165,000
<INVENTORY> 4,997,000
<CURRENT-ASSETS> 18,446,000
<PP&E> 9,934,000
<DEPRECIATION> 4,066,000
<TOTAL-ASSETS> 26,653,000
<CURRENT-LIABILITIES> 4,419,000
<BONDS> 1,578,000
<COMMON> 181,000
0
0
<OTHER-SE> 20,411,000
<TOTAL-LIABILITY-AND-EQUITY> 26,653,000
<SALES> 31,611,000
<TOTAL-REVENUES> 31,611,000
<CGS> 13,341,000
<TOTAL-COSTS> 13,341,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 79,000
<INTEREST-EXPENSE> 53,000
<INCOME-PRETAX> 4,891,000
<INCOME-TAX> 1,712,000
<INCOME-CONTINUING> 3,179,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,179,000
<EPS-PRIMARY> .85
<EPS-DILUTED> .85
</TABLE>
