<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, 1996
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
--- ---
3,651,421 shares of the issuer's $.05 par value common stock, its only class of
common stock, were outstanding as of May 6, 1996.
Page 1 of 13
<PAGE> 2
PART I. FINANCIAL INFORMATION
QUARTERLY REPORT ON FORM 10-Q
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Quarter Ended March 31, 1996
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 on
Form 10-K for the fiscal year ended June 30, 1995.
Page 2 of 13
<PAGE> 3
CEM CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 1996 AND JUNE 30, 1995
(UNAUDITED)
<TABLE>
3/31/96 6/30/95
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.................. $ 4,377,000 $ 2,078,000
Short-term available-for-sale investments.. 3,000,000 3,000,000
Short-term held-to-maturity investments.... 0 1,000,000
Trade receivables.......................... 6,585,000 6,733,000
Inventories................................ 5,349,000 4,997,000
Deferred taxes and other................... 1,206,000 658,000
----------- -----------
Total current assets.................... 20,517,000 18,466,000
LONG-TERM HELD-TO-MATURITY INVESTMENTS........ 2,026,000 2,031,000
PROPERTY, PLANT AND EQUIPMENT, NET............ 5,665,000 5,868,000
OTHER ASSETS.................................. 586,000 288,000
----------- -----------
$28,794,000 $26,653,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses...... $ 2,304,000 $2,788,000
Deferred income............................ 1,125,000 1,099,000
Income taxes payable....................... 630,000 532,000
----------- ------------
Total current liabilities................ 4,059,000 4,419,000
LONG-TERM DEBT, NET OF CURRENT MATURITIES..... 1,463,000 1,578,000
DEFERRED TAXES................................ 88,000 64,000
SHAREHOLDERS' EQUITY.......................... 23,184,000 20,592,000
----------- ------------
$28,794,000 $26,653,000
============ ============
</TABLE>
See accompanying notes to condensed consolidated
financial statements.
Page 3 of 13
<PAGE> 4
CEM CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
<TABLE>
1996 1995
------------- ------------
<S> <C> <C>
Net sales........................................ $7,518,000 $7,882,000
Cost of goods sold............................... 3,286,000 3,351,000
---------- ----------
Gross profit.................................. 4,232,000 4,531,000
Selling, general and administrative expenses..... 2,589,000 2,757,000
Research and development expenses................ 721,000 763,000
---------- ----------
Income from operations........................ 922,000 1,011,000
Investment income................................ 120,000 71,000
Other income (expense), net...................... (5,000) 36,000
---------- ----------
Income before income taxes.................... 1,037,000 1,118,000
Provision for income taxes....................... 361,000 414,000
---------- ----------
Net income.................................... $676,000 $ 704,000
========== ==========
Net income per common and
common equivalent share....................... $ .18 $ .19
========== ==========
Weighted average common and
common equivalent shares outstanding.......... 3,782,000 3,719,000
========== ==========
</TABLE>
See accompanying notes to condensed consolidated
financial statements.
Page 4 of 13
<PAGE> 5
CEM CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
<TABLE>
1996 1995
-------------- ------------
<S> <C> <C>
Net sales........................................ $23,710,000 $23,360,000
Cost of goods sold............................... 9,970,000 9,839,000
----------- -----------
Gross profit.................................. 13,740,000 13,521,000
Selling, general and administrative expenses..... 8,332,000 8,333,000
Research and development expenses................ 2,108,000 1,971,000
----------- -----------
Income from operations........................ 3,300,000 3,217,000
Investment income................................ 333,000 170,000
Other income (expense), net...................... (13,000) 45,000
----------- -----------
Income before income taxes.................... 3,620,000 3,432,000
Provision for income taxes....................... 1,266,000 1,223,000
----------- -----------
Net income.................................... $ 2,354,000 $ 2,209,000
=========== ===========
Net income per common and
common equivalent share....................... $ .63 $ .59
========== ===========
Weighted average common and
common equivalent shares outstanding.......... 3,759,000 3,740,000
========== ===========
</TABLE>
See accompanying notes to condensed consolidated
financial statements.
Page 5 of 13
<PAGE> 6
CEM CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
<TABLE>
1996 1995
------------- -------------
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES........ $1,815,000 $1,826,000
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of short-term available-for-sale......... 1,003,000 3,000,000
Maturity of short-term held-to-maturity....... 1,000,000 0
Purchase of short-term available-for-sale..... (1,000,000) (1,500,000)
Purchase of short-term held-to-maturity....... 0 (1,002,000)
Purchase of long-term held-to-maturity........ 0 (2,034,000)
Capital expenditures, net..................... (636,000) (715,000)
---------- ----------
Net cash provided by (used in)
investing activities.................... 367,000 (2,251,000)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable................... 0 196,000
Proceeds from long-term debt.................. 0 1,305,000
Principal payments on long-term debt.......... (12,000) (11,000)
Proceeds from issuance of common stock........ 534,000 331,000
Repurchase of common stock.................... (397,000) (1,868,000)
---------- ----------
Net cash provided by (used in)
financing activities..................... 125,000 (47,000)
---------- ----------
EFFECTS OF EXCHANGE RATES ON CASH............... (8,000) 19,000
---------- ----------
Net increase (decrease) in
cash and cash equivalents..................... 2,299,000 (453,000)
Cash and cash equivalents at
beginning of period........................... 2,078,000 2,502,000
---------- ----------
Cash and cash equivalents at end of period....... $4,377,000 $2,049,000
========== ==========
</TABLE>
See accompanying notes to condensed consolidated
financial statements.
Page 6 of 13
<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
presentation of results for the interim periods.
2. INVENTORIES
The components of inventories at current cost at March 31, 1996 and June 30,
1995 are as follows:
<TABLE>
3/31/96 6/30/95
---------- ----------
<S> <C> <C>
Parts and raw materials.......................... $2,709,000 $2,559,000
Work-in-process and finished goods............... 2,640,000 2,438,000
----------- ----------
$5,349,000 $4,997,000
========== ==========
</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. ACCOUNTING FOR STOCK-BASED COMPENSATION
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standard No. 123 "Accounting for Stock-Based Compensation" for the
Company's adoption in fiscal year 1997. Under the new standard, companies will
be encouraged, but not required, to adopt a new method of accounting for
stock-based compensation awards based on estimated fair value at the date the
awards are granted. Companies that continue to follow existing standards will
be required to disclose the pro-forma effect of the new fair value method in a
footnote. The Company has not yet adopted this statement and has not yet
determined the method of adoption or its financial statement effect.
Page 7 of 13
<PAGE> 8
MANAGEMENT'S DISCUSSION & ANALYSIS
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>
Three Months Ended
--------------------------
3/31/96 3/31/95 % Change
------- ------- --------
<S> <C> <C> <C>
Net sales.................................... 100.0% 100.0% (4.6)%
Cost of goods sold........................... 43.7 42.5 (1.9)
----- -----
GROSS PROFIT.............................. 56.3 57.5 (6.6)
Selling, general and administrative expenses. 34.4 35.0 (6.1)
Research and development expenses............ 9.6 9.7 (5.5)
----- -----
INCOME FROM OPERATIONS.................... 12.3 12.8 (8.8)
Investment income............................ 1.6 0.9 69.0
Other income (expense), net.................. (0.1) 0.5 (113.9)
----- -----
INCOME BEFORE INCOME TAXES................ 13.8 14.2 (7.2)
Provision for income taxes................... 4.8 5.3 (12.8)
----- -----
NET INCOME................................ 9.0% 8.9% (4.0)
===== =====
</TABLE>
RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 1996:
Sales for the third quarter declined as a result of the United States
government's budget impasse and continued softness in environmental markets.
International business was relatively flat. The decline in sales, however, was
offset in part by the favorable initial response to our new STAR(TM)
instruments which were introduced worldwide during March. Although little
change is anticipated over the near term in the US, international sales are
expected to remain solid. For the third quarter of 1996, international sales
increased slightly as a percentage of total sales to 45% versus 44% in the
year-earlier period.
Gross profit margins decreased due to changes in product mix and lower than
anticipated production volume that resulted in manufacturing variances.
In response to the sales shortfall, the Company was able to control its
selling, general and administrative expenses which declined both in total and
as a percentage of sales. Research and development expenses remained between 8%
and 10% of net sales as the Company continued its commitment to new product
development.
In March 1995, the Company converted intercompany notes to third-party debt and
placed the proceeds in a long-term held-to-maturity investment. As a result,
investment income has increased over the prior year. Other income declined as a
result of the nonrecurring exchange gain recorded on the note conversion in
1995.
During the quarter, the Company secured exclusive rights from a private
research firm to develop and market a microwave-based sterilization system for
the dental, medical and laboratory markets. The agreement had no significant
impact on the Company's results of operations or financial condition.
Page 8 of 13
<PAGE> 9
MANAGEMENT'S DISCUSSION & ANALYSIS
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>
Nine Months Ended
------------------------------
3/31/96 3/31/95 % Change
--------- --------- ----------
<S> <C> <C> <C>
Net sales...................................... 100.0% 100.0% 1.5%
Cost of goods sold............................. 42.1 42.1 1.3
----- -----
GROSS PROFIT................................ 57.9 57.9 1.6
Selling, general and administrative expenses... 35.1 35.7 0.0
Research and development expenses.............. 8.9 8.4 7.0
----- -----
INCOME FROM OPERATIONS...................... 13.9 13.8 2.6
Investment income.............................. 1.4 0.7 95.9
Other income (expense), net.................... 0.0 0.2 (128.9)
----- -----
INCOME BEFORE INCOME TAXES.................. 15.3 14.7 5.5
Provision for income taxes..................... 5.4 5.2 3.5
----- -----
NET INCOME.................................. 9.9% 9.5% 6.6
===== ======
</TABLE>
RESULTS OF OPERATIONS - NINE MONTHS ENDED MARCH 31, 1996:
Sales growth primarily resulted from increased unit sales of the Company's
microwave digestion system in Asia and Western Europe . Results in the United
States were affected by the same factors that affected the third quarter of
fiscal 1996. International sales increased as a percentage of total sales from
42% to 47%.
Selling, general and administrative expenses remained flat in total and
decreased as a percentage of sales due to the Company's efforts to control
these costs. Research and development expenses increased as the Company
continued its internal development efforts on new products. The Company expects
research and development expenses to remain between 8% and 10% of net sales for
the foreseeable future.
The increase in investment income resulted from long-term investments that were
not present for the entire period in the prior year.
The Company's effective tax rate did not change significantly and approximated
the federal statutory rate. Management does not expect the rate to change
significantly in fiscal 1996.
Page 9 of 13
<PAGE> 10
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1996, the Company had cash and short-term investments of
approximately $7.4 million as compared to $6.1 million at June 30, 1995. The
increase primarily resulted from operating activities. The increase in
inventories and other current assets and the decrease in accounts payable and
accrued expenses reflects temporary timing differences. Long-term investments
were unchanged at $2.0 million.
During the nine months ended March 31, 1996, the Company used approximately
$0.4 million to acquire 30,000 shares of the Company's common stock under the
stock repurchase program. Approximately $2.0 million remains authorized for the
repurchase of the Company's common stock.
Management believes that working capital, planned capital expenditures, debt
servicing and stock repurchases can be funded currently 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.
OUTLOOK
The following cautionary statement identifies important factors that could
cause the Company's actual results to differ materially from those projected in
any forward-looking statements made by or on behalf of the company. These
cautionary statements are made pursuant to Section 27A of the Securities Act of
1933 and Section 21E of the Securities Exchange Act of 1934, both enacted
pursuant to the Private Securities Litigation Reform Act of 1995.
The industry in which the Company competes, as well as the markets that it
serves, may be characterized by cyclical market patterns as a consequence of,
among other things, business cycles, foreign exchange fluctuations, regulatory
changes, government spending levels and general economic conditions. These
factors affect the timing of orders from the Company's customers and cause
substantial variations in sales and profitability from quarter to quarter.
Likewise, supplier-related delays in the release of orders may affect
quarter-to-quarter sales and profitability. The Company's sales may also be
adversely affected by direct and indirect competition from third parties
including, but not limited to, legal challenges to existing patents or pending
patent applications.
Demand for the Company's instrumentation may be substantially affected by the
enactment, timing, extent and severity of state, federal and foreign laws
governing environmental testing standards as well as product labeling
requirements including foods and pharmaceuticals. The Company has and may
experience fluctuations in sales of such products as well as in demand for
particular product enhancements as a result of actual or perceived changes in
regulatory requirements. Legislation or regulations resulting in the
development or expansion of acceptance standards for specific testing methods
has and may result in periodic delays in sales, especially in the United
States. Conversely, increases in international sales have resulted, and may
result in the future, from less stringent or nonexistent acceptance standards
in a given country. The Company expects such fluctuations to continue in the
future.
Moreover, the Company's success is dependent on its ability to continue to
develop and engineer high-quality, high-performance products demanded by its
customers. Risks associated with new product development include the timing of
market acceptance, possible competition from other products and the Company's
ability to manufacture products on an efficient and timely basis at a
reasonable cost and in sufficient volume.
Page 10 of 13
<PAGE> 11
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, 1996.
Page 11 of 13
<PAGE> 12
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 13, 1996 CEM CORPORATION
BY: /s/ Richard N. Decker
---------------------
Richard N. Decker
Secretary, Treasurer and
Chief Financial Officer
Page 12 of 13
<PAGE> 13
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, 1996 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 13 of 13
<PAGE> 1
EXHIBIT 11
CEM CORPORATION
COMPUTATION OF EARNINGS PER SHARE
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
<TABLE>
1996 1995
---------- ---------
<S> <C> <C>
NET INCOME....................................... $ 676,000 $ 704,000
========== ==========
Weighted average number of shares outstanding.... 3,650,000 3,603,000
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
average market price.......................... 132,000 116,000
---------- ----------
Weighted average number of shares outstanding,
as adjusted.................................. 3,782,000 3,719,000
========== ==========
PRIMARY EARNINGS PER SHARE....................... $ .18 $ .19
========== ==========
NET INCOME....................................... $676,000 $ 704,000
========== ==========
Weighted average number of shares outstanding.... 3,650,000 3,603,000
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.......................... 138,000 116,000
---------- ----------
Weighted average number of shares outstanding,
as adjusted................................... 3,788,000 3,719,000
========== ==========
EARNINGS PER COMMON SHARE,
ASSUMING FULL DILUTION........................ $ .18 $ .19
========== ==========
</TABLE>
Page 1 of 2
<PAGE> 2
EXHIBIT 11
CEM CORPORATION
COMPUTATION OF EARNINGS PER SHARE
FOR THE NINE MONTHS ENDED MARCH 31, 1996 AND 1995
<TABLE>
1996 1995
---------- ----------
<S> <C> <C>
NET INCOME....................................... $2,354,000 $2,209,000
========== ==========
Weighted average number of shares outstanding.... 3,633,000 3,636,000
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
average market price.......................... 126,000 104,000
---------- ----------
Weighted average number of shares outstanding,
as adjusted.................................. 3,759,000 3,740,000
========== ==========
PRIMARY EARNINGS PER SHARE....................... $ .63 $ .59
========== ==========
NET INCOME....................................... $2,354,000 $2,209,000
========== ==========
Weighted average number of shares outstanding.... 3,633,000 3,636,000
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.......................... 137,000 104,000
---------- ----------
Weighted average number of shares outstanding,
as adjusted................................... 3,770,000 3,740,000
========== ==========
EARNINGS PER COMMON SHARE,
ASSUMING FULL DILUTION........................ $ .62 $ .59
========== ==========
</TABLE>
Page 2 of 2
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF CEM CORPORATION FOR THE NINE MONTHS ENDED MARCH 31,
1996, 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-30-1996<F1>
<PERIOD-END> MAR-31-1996
<CASH> 4,377,000
<SECURITIES> 3,000,000
<RECEIVABLES> 6,585,000
<ALLOWANCES> 0
<INVENTORY> 5,349,000
<CURRENT-ASSETS> 20,517,000
<PP&E> 5,665,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 28,794,000
<CURRENT-LIABILITIES> 4,059,000
<BONDS> 1,463,000
0
0
<COMMON> 183,000
<OTHER-SE> 23,001,000
<TOTAL-LIABILITY-AND-EQUITY> 28,794,000
<SALES> 23,710,000
<TOTAL-REVENUES> 23,710,000
<CGS> 9,970,000
<TOTAL-COSTS> 9,970,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,620,000
<INCOME-TAX> 1,266,000
<INCOME-CONTINUING> 2,354,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,354,000
<EPS-PRIMARY> .63
<EPS-DILUTED> .62
<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.
</FN>
</TABLE>
