<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO
------ ------
Commission File Number: 0-15383
CEM CORPORATION
- - -------------------------------------------------------------------------------
(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
- - ---------------------------------------- ---------------
(Address of principal executive offices) (Zip Code)
Post Office Box 200, Matthews, North Carolina 28106
- - -------------------------------------------------------------------------------
(Mailing address of principal executive offices)
(704) 821-7015
- - -------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
3,606,261 shares of the issuer's $.05 par value common stock, its only class of
common stock, were outstanding as of April 27, 1995.
Page 1 of 14
<PAGE> 2
PART I. FINANCIAL INFORMATION
QUARTERLY REPORT ON FORM 10-Q
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Quarter Ended March 31, 1995
CEM Corporation
Matthews, North Carolina
The condensed financial statements included herein have been prepared by the
Company, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are adequate to
make the information presented not misleading. It is suggested that these
condensed financial statements be read in conjunction with the financial
statements and the notes thereto included in the Company's annual report for
the fiscal year ended June 30, 1994.
Page 2 of 14
<PAGE> 3
CEM CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 1995 AND JUNE 30, 1994
(UNAUDITED)
<TABLE>
<CAPTION>
March 31 June 30
ASSETS ----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................... $ 2,049,000 $ 2,502,000
Short-term investments...................... 3,000,000 3,500,000
Accounts receivable......................... 6,525,000 6,110,000
Inventories................................. 5,075,000 4,045,000
Deferred taxes and other.................... 773,000 629,000
----------- -----------
Total current assets..................... 17,422,000 16,786,000
LONG-TERM INVESTMENTS.......................... 2,034,000 0
PROPERTY, PLANT AND EQUIPMENT, NET............. 5,897,000 5,733,000
OTHER ASSETS................................... 268,000 247,000
----------- -----------
$25,621,000 $22,766,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses....... $ 2,467,000 $ 2,610,000
Notes payable and current
maturities of long-term debt............. 230,000 0
Income taxes payable........................ 766,000 229,000
Deferred income............................. 1,054,000 1,055,000
----------- -----------
Total current liabilities................ 4,517,000 3,894,000
LONG-TERM DEBT, NET OF CURRENT MATURITIES...... 1,582,000 132,000
DEFERRED TAXES................................. 26,000 119,000
SHAREHOLDERS' EQUITY........................... 19,496,000 18,621,000
----------- -----------
$25,621,000 $22,766,000
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page 3 of 14
<PAGE> 4
CEM CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994
(UNAUDITED)
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Net sales...................................... $ 7,882,000 $ 6,857,000
Cost of goods sold............................. 3,351,000 2,872,000
----------- -----------
Gross profit................................ 4,531,000 3,985,000
Selling, general and administrative expenses... 2,757,000 2,421,000
Research and development expenses.............. 763,000 665,000
----------- -----------
Income from operations...................... 1,011,000 899,000
Investment income.............................. 71,000 71,000
Other income (expense), net.................... 36,000 (72,000)
----------- -----------
Income before income taxes.................. 1,118,000 898,000
Provision for income taxes..................... 414,000 269,000
----------- -----------
Net income.................................. $ 704,000 $ 629,000
=========== ===========
Net income per common and common
equivalent share............................ $ .19 $ .16
=========== ===========
Weighted average common and common equivalent
shares outstanding.......................... 3,719,000 4,000,000
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page 4 of 14
<PAGE> 5
CEM CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED MARCH 31, 1995 AND 1994
(UNAUDITED)
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Net sales...................................... $23,360,000 $21,360,000
Cost of goods sold............................. 9,839,000 8,927,000
----------- -----------
Gross profit................................ 13,521,000 12,433,000
Selling, general and administrative expenses... 8,333,000 7,644,000
Research and development expenses.............. 1,971,000 1,989,000
----------- -----------
Income from operations...................... 3,217,000 2,800,000
Investment income.............................. 170,000 164,000
Other income (expense), net.................... 45,000 (90,000)
----------- -----------
Income before income taxes.................. 3,432,000 2,874,000
Provision for income taxes..................... 1,223,000 926,000
----------- -----------
Net income.................................. $ 2,209,000 $ 1,948,000
=========== ===========
Net income per common and common
equivalent share............................ $ .59 $ .48
=========== ===========
Weighted average common and common equivalent
shares outstanding.......................... 3,740,000 4,027,000
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page 5 of 14
<PAGE> 6
CEM CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED MARCH 31, 1995 AND 1994
(UNAUDITED)
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES...... $ 1,826,000 $ 2,232,000
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of short-term investments.............. 3,000,000 4,100,000
Purchase of short-term investments.......... (2,502,000) (6,001,000)
Purchase of long-term investments........... (2,034,000) 0
Capital expenditures, net................... (715,000) (465,000)
----------- -----------
Net cash used in investing activities.... (2,251,000) (2,366,000)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term notes payable...... 196,000 0
Proceeds from long-term borrowings.......... 1,305,000 0
Principal payments on long-term debt........ (11,000) (125,000)
Proceeds from issuance of common stock...... 331,000 512,000
Repurchase of common stock.................. (1,868,000) (3,452,000)
----------- -----------
Net cash used in financing activities.... (47,000) (3,065,000)
----------- -----------
EFFECTS OF EXCHANGE RATES ON CASH.............. 19,000 (10,000)
----------- -----------
Net decrease in cash and cash equivalents...... (453,000) (3,209,000)
Cash and cash equivalents at beginning
of period................................... 2,502,000 4,758,000
----------- -----------
Cash and cash equivalents at end of period..... $ 2,049,000 $ 1,549,000
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page 6 of 14
<PAGE> 7
CEM CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The financial information included herein is unaudited; however, such
information reflects all adjustments (consisting of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
statement of results for the interim periods.
2. INVENTORIES
The components of inventories at current cost at March 31, 1995 and
June 30, 1994 are as follows:
<TABLE>
<CAPTION>
March 31 June 30
----------- -----------
<S> <C> <C>
Parts and raw materials........................ $ 2,665,000 $ 2,319,000
Work-in-process and finished goods............. 2,410,000 1,726,000
----------- -----------
$ 5,075,000 $ 4,045,000
=========== ===========
</TABLE>
3. NET INCOME PER SHARE
The computation of net income per common share is based on the weighted average
number of common shares outstanding for each period after adding dilutive
common stock equivalents. Common stock equivalents consist of dilutive stock
options using the treasury stock method. Fully diluted net income per share is
not presented because it approximates net income per common share.
4. SHORT-TERM INVESTMENTS
At March 31, 1995, the Company's portfolio of short-term investments consisted
of $2,000,000 in available-for-sale securities and $1,000,000 in
held-to-maturity securities. During the current periods, realized and
unrealized gains and losses were not material.
5. LONG-TERM INVESTMENTS
At March 31, 1995, the Company's portfolio of long-term investments consisted
of a $2,034,000 held-to-maturity security which is pledged as described in
Note 6.
6. FINANCING ARRANGEMENTS
During the quarter, the Company issued a foreign denominated short-term note
for $218,000 carrying interest at 8.5%.
On March 21, 1995, the Company entered into a foreign denominated 5 year term
note for $1,454,000 carrying a fixed interest rate of 9.25% and requiring a
balloon principal payment upon maturity. The note is collateralized by a
$2,034,000 5 year fixed investment.
Page 7 of 14
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The following table sets forth, for the three-month periods indicated,
the percentages which certain components of the condensed consolidated
statements of income bear to net sales and the percentage of change of such
components from the same period of the prior year.
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------------
3/31/95 3/31/94 % Change
----------- ----------- ----------
<S> <C> <C> <C>
Net sales.................................... 100.0% 100.0% 15.0%
Cost of goods sold........................... 42.5 41.9 16.7
----- -----
GROSS PROFIT.............................. 57.5 58.1 13.7
Selling, general and administrative expenses. 35.0 35.3 13.9
Research and development expenses............ 9.7 9.7 14.7
----- -----
INCOME FROM OPERATIONS.................... 12.8 13.1 12.5
Investment earnings.......................... 0.9 1.0 0.0
Other income (expense), net.................. 0.5 (1.0) nm
----- -----
INCOME BEFORE INCOME TAXES................ 14.2 13.1 24.5
Provision for income taxes................... 5.3 3.9 53.9
----- -----
NET INCOME................................ 8.9% 9.2% 11.9
===== =====
</TABLE>
The following table sets forth, for the nine-month periods indicated,
the percentages which certain components of the condensed consolidated
statements of income bear to net sales and the percentage of change of such
components from the same period of the prior year.
<TABLE>
<CAPTION>
Nine Months Ended
------------------------------------------
3/31/95 3/31/94 % Change
--------- ------------- ------------
<S> <C> <C> <C>
Net sales.................................... 100.0% 100.0% 9.4%
Cost of goods sold........................... 42.1 41.8 10.2
----- -----
GROSS PROFIT.............................. 57.9 58.2 8.8
Selling, general and administrative expenses. 35.7 35.8 9.0
Research and development expenses............ 8.4 9.3 (0.9)
----- -----
INCOME FROM OPERATIONS.................... 13.8 13.1 14.9
Investment earnings.......................... 0.7 0.7 3.7
Other income (expense), net.................. 0.2 (0.4) nm
----- -----
INCOME BEFORE INCOME TAXES................ 14.7 13.4 19.4
Provision for income taxes................... 5.2 4.3 32.1
----- -----
NET INCOME................................ 9.5% 9.1% 13.4
===== =====
</TABLE>
Page 8 of 14
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 1995:
Sales growth primarily resulted from increased unit sales of the Company's
microwave extraction, digestion and moisture systems. Higher demand for
digestion vessels also contributed to sales growth. Foreign sales increased as
a percentage of total sales from 36% to 44% as a result of stronger economies
in Europe, Asia and certain regions of South America. The successful
introduction of the MES-1000 (TM) Microwave Extraction System has further
stimulated incoming orders from international accounts. Although the advantages
of this new system have also led to considerable interest from U.S.-based
customers, the one to three year delay in obtaining formal EPA approval for its
use in environmental applications will limit initial sales. U.S. sales were
relatively flat as compared to the prior period resulting primarily from the
soft environmental laboratory market in which the Company sells its digestion
system. Currently, there are no signs of recovery in the U.S. environmental
market. The Company's export sales, other than those to its foreign
subsidiaries, are denominated in U.S. dollars.
Gross profit margins declined slightly mainly due to higher export sales which
generally have lower margins than domestic and foreign subsidiaries' sales.
As planned, selling, general and administrative expenses increased as a result
of investments in key personnel to position the Company for future revenue
growth and the continued promotion of the MES-1000 (TM), but declined as a
percentage of sales due to the Company's continued efforts to control costs.
Research and development expenses increased as the Company continued its
commitment to product development and enhancements. The Company expects these
expenses to remain between 8% and 10% of net 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
(expense) is a result of the small foreign exchange gain from this transaction
and a non-recurring patent royalties settlement in 1994.
The effective tax rate increased to 37% from 30% as the prior year included a
higher utilization of loss carry-forwards incurred from the start-up of foreign
subsidiaries.
RESULTS OF OPERATIONS - NINE MONTHS ENDED MARCH 31, 1995:
Year-to-date sales growth resulted primarily from increased unit sales of the
Company's microwave extraction systems, increased digestion vessel volume and
higher prices on the fat analysis system. Foreign sales for the nine months
increased as a percentage of total sales from 37% to 42% for the reasons cited
above.
Gross profit margins, operating expenses, other income and the effective tax
rate were affected by the same general factors as for the quarter.
Page 9 of 14
<PAGE> 10
LIQUIDITY AND CAPITAL RESOURCES:
At March 31, 1995, the Company had cash and short-term investments of
approximately $5.0 million and long-term investments of $2.0 million as
compared to $6.0 million and $0, respectively, at June 30, 1994. The primary
reason for the shift from short-term investments to long-term investments from
June 30, 1994 is the conversion of 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 our balance sheet,
this transaction resulted in a small gain and eliminated CEM's exposure to
future currency fluctuations on the intercompany note receivable.
During the nine months ended March 31, 1995, the Company used approximately
$1.9 million to acquire 158,000 shares of the Company's common stock under the
stock repurchase program. As of March 31, 1995, an additional $2.4 million
remains authorized to repurchase the Company's common stock.
Cash provided by operating activities declined from the prior year primarily as
a result of higher inventory requirements. Inventory increased in connection
with the introduction of new products.
Management believes that working capital needs, planned capital expenditures
and stock repurchase program requirements can be met with cash on hand and cash
generated from operations. The Company has never paid, and does not anticipate
paying, cash dividends in the foreseeable future.
PART II. OTHER INFORMATION
ITEMS 1, 2, 3, 4 and 5 are not applicable and are omitted.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
11 Statement of Computation of Earnings per Share
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.
(b) Reports on Form 8-K:
No Reports on Form 8-K were filed during the quarter
ended March 31, 1995.
Page 10 of 14
<PAGE> 11
CEM CORPORATION
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934 , the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 1, 1995 CEM CORPORATION
BY: /s/ Richard N. Decker
----------------------
Richard N. Decker
Secretary, Treasurer and
Chief Financial Officer
Page 11 of 14
<PAGE> 12
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
EXHIBITS
ITEM 6(A)
Quarterly Report on Form 10-Q
For the quarter ended March 31, 1995 Commission File Number: 0-15383
CEM CORPORATION
EXHIBIT INDEX
Exhibit Number: Exhibit Description
- - --------------- ---------------------------------------------------------
11 Computation of Earnings per Share
27 Financial Data Schedule (filed in electronic format only)
Page 12 of 14
<PAGE> 1
Exhibit 11
CEM CORPORATION
COMPUTATION OF EARNINGS PER SHARE
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 1995 AND 1994
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
--------------------------- ------------------------------
3/31/95 3/31/94 3/31/95 3/31/94
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
NET INCOME................... $ 704,000 $ 629,000 $2,209,000 $1,948,000
========= ========= ========== ==========
Weighted average number of
shares outstanding........ 3,603,000 3,881,000 3,636,000 3,953,000
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.............. 116,000 119,000 104,000 74,000
--------- --------- ---------- ----------
Weighted average number of
shares outstanding,
as adjusted............... 3,719,000 4,000,000 3,740,000 4,027,000
========= ========= ========== ==========
PRIMARY EARNINGS PER SHARE... $ .19 $ .16 $ .59 $ .48
========= ========= ========== ==========
NET INCOME................... $ 704,000 $ 629,000 $2,209,000 $1,948,000
========= ========= ========== ==========
Weighted average number of
shares outstanding........ 3,603,000 3,881,000 3,636,000 3,953,000
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.............. 116,000 120,000 104,000 119,000
--------- --------- ---------- ----------
Weighted average number of
shares outstanding,
as adjusted............... 3,719,000 4,001,000 3,740,000 4,072,000
========= ========= ========== ==========
EARNINGS PER COMMON SHARE,
ASSUMING FULL DILUTION.... $ .19 $ .16 $ .59 $ .48
========= ========= ========== ==========
</TABLE>
Page 13 of 14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
CEM CORPORATION - FINANCIAL DATA SCHEDULE<F1>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF CEM CORPORATION FOR THE NINE MONTHS ENDED MARCH 31,
1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-END> MAR-31-1995
<CASH> 2,049
<SECURITIES> 3,000
<RECEIVABLES> 6,525
<ALLOWANCES> 0
<INVENTORY> 5,075
<CURRENT-ASSETS> 17,422
<PP&E> 5,897
<DEPRECIATION> 0
<TOTAL-ASSETS> 25,621
<CURRENT-LIABILITIES> 4,517
<BONDS> 1,582
<COMMON> 180
0
0
<OTHER-SE> 19,316
<TOTAL-LIABILITY-AND-EQUITY> 25,621
<SALES> 23,360
<TOTAL-REVENUES> 23,360
<CGS> 9,839
<TOTAL-COSTS> 9,839
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,432
<INCOME-TAX> 1,223
<INCOME-CONTINUING> 2,209
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,209
<EPS-PRIMARY> .59
<EPS-DILUTED> .59
<FN>
<F1>Certain information in the financial data schedule above has been condensed for
interim financial reporting pursuant to the rules and regulations of the
Securities and Exchange Commission.
Page 14 of 14
</FN>
</TABLE>
