<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, 1997
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
--- ---
3,534,235 shares of the issuer's $.05 par value common stock, its only class
of common stock, were outstanding as of April 30, 1997.
<PAGE> 2
PART I. FINANCIAL INFORMATION
QUARTERLY REPORT ON FORM 10-Q
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Quarter Ended March 31, 1997
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, 1996.
<PAGE> 3
CEM CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 1997 AND JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
March 31 June 30
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ............ $ 4,566,000 $ 1,832,000
Short-term investments ............... 3,600,000 4,100,000
Trade receivables .................... 5,502,000 7,061,000
Inventories .......................... 5,547,000 5,639,000
Deferred taxes and other ............. 434,000 679,000
----------- -----------
Total current assets .............. 19,649,000 19,311,000
LONG-TERM INVESTMENTS ................... 2,269,000 2,024,000
PROPERTY, PLANT AND EQUIPMENT, NET ...... 5,264,000 5,569,000
OTHER ASSETS ............................ 878,000 680,000
----------- -----------
$28,060,000 $27,584,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 1,876,000 $ 2,254,000
Deferred income ...................... 987,000 1,098,000
Income taxes payable ................. 781,000 410,000
----------- -----------
Total current liabilities ......... 3,644,000 3,762,000
LONG-TERM DEBT, NET OF CURRENT MATURITIES 1,280,000 1,417,000
DEFERRED TAXES .......................... 54,000 54,000
SHAREHOLDERS' EQUITY .................... 23,082,000 22,351,000
----------- -----------
$28,060,000 $27,584,000
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 4
CEM CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Net sales .................................. $7,138,000 $7,518,000
Cost of goods sold ......................... 3,096,000 3,286,000
---------- ----------
Gross profit ........................... 4,042,000 4,232,000
Selling, general and administrative expenses 2,784,000 2,589,000
Research and development expenses .......... 754,000 721,000
---------- ----------
Income from operations ................. 504,000 922,000
Investment income .......................... 115,000 120,000
Other expenses, net ........................ 27,000 5,000
---------- ----------
Income before income taxes ............. 592,000 1,037,000
Provision for income taxes ................. 201,000 361,000
---------- ----------
Net income ............................. $ 391,000 $ 676,000
========== ==========
Net income per common and
common equivalent share ................ $ .11 $ .18
========== ==========
Weighted average common and
common equivalent shares outstanding ... 3,546,000 3,782,000
========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 5
CEM CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED MARCH 31, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Net sales .................................. $21,920,000 $23,710,000
Cost of goods sold ......................... 9,853,000 9,970,000
----------- -----------
Gross profit ........................... 12,067,000 13,740,000
Selling, general and administrative expenses 8,503,000 8,332,000
Research and development expenses .......... 2,106,000 2,108,000
----------- -----------
Income from operations ................. 1,458,000 3,300,000
Investment income .......................... 315,000 333,000
Other expenses, net ........................ 93,000 13,000
----------- -----------
Income before income taxes ............. 1,680,000 3,620,000
Provision for income taxes ................. 578,000 1,266,000
----------- -----------
Net income ............................. $ 1,102,000 $ 2,354,000
=========== ===========
Net income per common and
common equivalent share ................ $ .31 $ .63
=========== ===========
Weighted average common and
common equivalent shares outstanding ... 3,559,000 3,759,000
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 6
CEM CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED MARCH 31, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES .... $ 3,482,000 $ 1,803,000
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of available-for-sale investments ... 1,000,000 1,003,000
Sale of held-to-maturity investments ..... -- 1,000,000
Purchase of available-for-sale investments (500,000) (1,000,000)
Purchase of long-term investment ......... (250,000) --
Acquisition of intangibles ............... (310,000) --
Capital expenditures, net ................ (445,000) (636,000)
----------- -----------
Net cash (used in) provided by
investing activities .............. (505,000) 367,000
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock ... 142,000 534,000
Repurchase of common stock ............... (348,000) (397,000)
----------- -----------
Net cash (used in) provided by
financing activities .............. (206,000) 137,000
----------- -----------
EFFECTS OF EXCHANGE RATES ON CASH ............ (37,000) (8,000)
----------- -----------
Net increase in cash and cash equivalents .... 2,734,000 2,299,000
Cash and cash equivalents at
beginning of period ...................... 1,832,000 2,078,000
----------- -----------
Cash and cash equivalents at end of period ... $ 4,566,000 $ 4,377,000
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<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, 1997 and June 30,
1996 are as follows:
<TABLE>
<CAPTION>
March 31 June 30
---------- ----------
<S> <C> <C>
Parts and raw materials .......... $3,011,000 $2,974,000
Work-in-process and finished goods 2,536,000 2,665,000
---------- ----------
$5,547,000 $5,639,000
========== ==========
</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. NEW PRONOUNCEMENTS
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 123 "Accounting for Stock-Based Compensation" (SFAS No.
123), which is effective for years beginning after December 15, 1995. SFAS No.
123 encourages, but does not require, companies to recognize compensation
expense for grants of common stock, stock options, and other equity instruments
to employees based upon the fair value of the instruments when issued. Companies
electing not to recognize compensation expense are required to disclose what net
income and earnings per share would have been if the expense were recognized.
The Company has elected the disclosure option of SFAS No. 123 rather than
recognition of compensation expense.
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 128 "Earnings per Share" (SFAS No. 128), which is
effective for periods ending after December 15, 1997, including interim periods.
SFAS No. 128 establishes standards for computing and presenting earnings per
share and applies to entities with publicly held common stock or potential
common stock. The Company will implement SFAS No. 128 in the required period.
<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
----------------------------------------------
3/31/97 3/31/96 % Change
------------ ------------ -------------
<S> <C> <C> <C>
Net sales........................................ 100.0 % 100.0 % (5.1) %
Cost of goods sold............................... 43.4 43.7 (5.8)
------------ ------------
GROSS PROFIT.............................. 56.6 56.3 (4.5)
Selling, general and administrative expenses..... 39.0 34.4 7.5
Research and development expenses................ 10.5 9.6 4.6
------------ ------------
INCOME FROM OPERATIONS.................... 7.1 12.3 (45.3)
Investment income................................ 1.6 1.6 (4.2)
Other expenses, net.............................. 0.4 0.1 nm
------------ ------------
INCOME BEFORE INCOME TAXES................ 8.3 13.8 (42.9)
Provision for income taxes....................... 2.8 4.8 (44.3)
------------ ------------
NET INCOME................................ 5.5 % 9.0 % (42.2)
============ ============
</TABLE>
RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 1997
The decline in sales resulted from continued weakness in the U.S. government and
environmental markets and weaknesses of certain significant international
economies, primarily Germany and Japan. Lower sales in these areas were
partially offset by significant improvement in sales to Latin America, South
America and Asia. In addition, the Company's STAR(TM) system continues to
receive market acceptance. Compared to the prior year third quarter, foreign
sales as a percent of total sales remained at 45%. Management continues to
expect fiscal 1997 sales will be lower than the prior year.
Profit margins improved slightly from the prior year third quarter as the
Company experienced an increase in foreign subsidiaries' sales as a percent of
total sales which generally have a higher margin than U.S. sales.
Selling, general and administrative expenses increased primarily due to routine
legal costs, commissions and expenses related to the changing geographic mix of
sales to foreign distributors. Research and development expenses increased due
to continued emphasis on the Company's commitment to new product development and
enhancements. The Company expects these expences to remain between 8% and 10% of
net sales for the foreseeable future.
The Company's effective tax rate did not change significantly and approximated
the federal statutory rate. With the extension of the Research and
Experimentation tax credit, management does not expect the rate to change
significantly in fiscal 1997.
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS (CONTINUED)
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
--------------------------------------------
3/31/97 3/31/96 % Change
------------ ------------ -------------
<S> <C> <C> <C>
Net sales.......................................... 100.0 % 100.0 % (7.5) %
Cost of goods sold................................. 45.0 42.0 (1.2)
------------ ------------
GROSS PROFIT................................ 55.0 58.0 (12.2)
Selling, general and administrative expenses....... 38.8 35.2 2.1
Research and development expenses.................. 9.6 8.9 (0.1)
------------ ------------
INCOME FROM OPERATIONS...................... 6.6 13.9 (55.8)
Investment income.................................. 1.4 1.4 (5.4)
Other expenses, net................................ 0.4 0.1 nm
------------ ------------
INCOME BEFORE INCOME TAXES.................. 7.6 15.2 (53.6)
Provision for income taxes......................... 2.6 5.3 (54.3)
------------ ------------
NET INCOME.................................. 5.0 % 9.9 % (53.2)
============ ============
</TABLE>
RESULTS OF OPERATIONS - NINE MONTHS ENDED MARCH 31, 1997
The decline in total sales and the decline in foreign sales as a percent
of total sales from 47% to 46% resulted primarily from the same factors
described for the quarter ended March 31, 1997.
Gross profit declined primarily due to decline in sales from our German
subsidiary which carries higher margins than U.S. sales, incremental service and
warranty costs related to new product introductions, product mix and stable
fixed costs in relation to declining sales. Management expects fiscal 1997 gross
profit margins to be lower than the prior year.
Selling, general and administrative expenses increased primarily from the same
factors described for the quarter ended March 31, 1997.
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
FINANCIAL CONDITION
In the nine months ended March 31, 1997, the Company generated income from
operations of approximately $1.5 million. The Company's cash and short-term
investments increased to $8.2 million from $5.9 million at June 30, 1996, due
primarily to cash provided by operating activities. The decrease in accounts
receivable is primarily due to lower sales and improved collection efforts.
During the nine months ended March 31, 1997, the Company used approximately
$350,000 to acquire 32,200 shares of the Company's common stock under the stock
repurchase program. As of March 31, 1997, approximately $2.5 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.
As expected, the Company experienced lower sales and earnings for the quarter
ended March 31, 1997, as compared to prior year third quarter. The Company
recorded strong growth during the third quarter in sales to customers in Latin
America, South America and Asia, however the Company experienced particular
weakness in demand in Germany and the U.S. government and environmental sectors.
The Company continues to gain steady growth in demand for the STAR(TM) system
since it was introduced in the third quarter of fiscal 1996. A central focus of
the Company's strategic planning remains the research and development of new
instruments. The Company is committed to improving existing products and
developing new products. The Company expects earnings for fiscal 1997 to be
substantially lower than in fiscal 1996. The preceding forward looking statement
is subject to the following cautionary statement.
CAUTIONARY STATEMENT
The following cautionary statement identifies important factors that could cause
the Company's actual results to differ materially from those projected in
forward-looking statements made by or on behalf of the Company. Except for the
historical information contained herein, the matters discussed in "Management's
Discussion and Analysis of Results of Operations and Financial Condition" are
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. 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, are 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 and the timing of the release of Company's
customer 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.
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
CAUTIONARY STATEMENT (CONTINUED)
Demand for the Company's instrumentation is 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.
Moreover, the Company's success is dependent on its ability to continue to
develop and engineer high-quality, high-performance products that are
commercially acceptable. Risks associated with new product development include
market acceptance, competition from other products and the Company's ability to
manufacture and market products on an efficient and timely basis at a reasonable
cost and in sufficient volume.
<PAGE> 12
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, 1997
<PAGE> 13
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: April 30, 1997 CEM CORPORATION
BY: /s/ Richard N. Decker
-----------------------------
Richard N. Decker
Vice President - Finance and
Chief Financial Officer
<PAGE> 14
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, 1997 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> 1
Exhibit 11
CEM CORPORATION
COMPUTATION OF EARNINGS PER SHARE
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
NET INCOME .................................... $ 391,000 $ 676,000
========== ==========
Weighted average number of shares outstanding . 3,534,000 3,650,000
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 ...................... 12,000 132,000
---------- ----------
Weighted average number of shares outstanding,
as adjusted ............................... 3,546,000 3,782,000
========== ==========
PRIMARY EARNINGS PER SHARE .................... $ .11 $ .18
========== ==========
NET INCOME .................................... $ 391,000 $ 676,000
========== ==========
Weighted average number of shares outstanding . 3,534,000 3,650,000
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 ...................... 12,000 138,000
---------- ----------
Weighted average number of shares outstanding,
as adjusted ............................... 3,546,000 3,788,000
========== ==========
EARNINGS PER COMMON SHARE,
ASSUMING FULL DILUTION .................... $ .11 $ .18
========== ==========
</TABLE>
<PAGE> 2
Exhibit 11
CEM CORPORATION
COMPUTATION OF EARNINGS PER SHARE
FOR THE NINE MONTHS ENDED MARCH 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
NET INCOME .................................... $1,102,000 $2,354,000
========== ==========
Weighted average number of shares outstanding . 3,537,000 3,633,000
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 ...................... 22,000 126,000
---------- ----------
Weighted average number of shares outstanding,
as adjusted ............................... 3,559,000 3,759,000
========== ==========
PRIMARY EARNINGS PER SHARE .................... $ .31 $ .63
========== ==========
NET INCOME .................................... $1,102,000 $2,354,000
========== ==========
Weighted average number of shares outstanding . 3,537,000 3,633,000
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 ...................... 22,000 137,000
---------- ----------
Weighted average number of shares outstanding,
as adjusted ............................... 3,559,000 3,770,000
========== ==========
EARNINGS PER COMMON SHARE,
ASSUMING FULL DILUTION .................... $ .31 $ .62
========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> MAR-31-1997
<CASH> 4,566,000<F1>
<SECURITIES> 3,600,000
<RECEIVABLES> 5,502,000
<ALLOWANCES> 0
<INVENTORY> 5,547,000
<CURRENT-ASSETS> 19,649,000
<PP&E> 5,264,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 28,060,000
<CURRENT-LIABILITIES> 3,644,000
<BONDS> 1,280,000
0
0
<COMMON> 177,000
<OTHER-SE> 22,905,000
<TOTAL-LIABILITY-AND-EQUITY> 28,060,000
<SALES> 21,920,000
<TOTAL-REVENUES> 21,920,000
<CGS> 9,853,000
<TOTAL-COSTS> 9,853,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,680,000
<INCOME-TAX> 578,000
<INCOME-CONTINUING> 1,102,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,102,000
<EPS-PRIMARY> .31
<EPS-DILUTED> .31
<FN>
<F1>Certain information in the financial data scheule above has been condensed for
interim financial reporting pursuant to the rules and regulations of the
Securities and Exhange Commission.
</FN>
</TABLE>
