<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
For the fiscal year ended June 30, 1998
[ ] 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
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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 8, 1998, was $28,576,467 assuming, for purposes of this filing, that
all executive officers and directors of the Registrant are affiliates. 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 8,
1998, was 3,158,157 shares.
Portions of the CEM Corporation Annual Report to Shareholders for the fiscal
year ended June 30, 1998 are incorporated by reference into Parts I and II.
Portions of the Proxy Statement for the Annual Meeting of Shareholders to be
held November 5, 1998 are incorporated by reference into Part III.
<PAGE> 2
PART I
ITEM 1 - BUSINESS
General
CEM Corporation (the "Company") 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 Company'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 Company's sales consists of consumable
supplies, parts and service for its instrumentation. The Company was organized
as a North Carolina corporation in 1971.
Products
Microwave Accelerated Reaction System("MARS") and Microwave Digestion
System("MDS"). MARS and MDS and related accessories accounted for approximately
33%, 29%, and 35% of the Company's consolidated sales in 1998, 1997 and 1996,
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. MARS, which was introduced in the first quarter of
fiscal 1998 and is the next generation of MDS, permits higher pressures to be
used safely and provides greater measurement data for control of the instrument.
Moisture/Solids Analyzer. The Moisture/Solids Analyzer and related
accessories accounted for approximately 17%, 19% and 18% of the Company's
consolidated sales in 1998, 1997 and 1996, 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.
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.
STAR System. The STAR system, which incorporates temperature control and
reagent (acid) addition, is an open cavity microwave heating system designed
initially for use in the digestion of samples for laboratory analysis. It
performs a rapid dissolution of samples and is sold to the food, polymer,
petroleum, chemical and semi-conductor industries.
Fat Analyzer System. The Company 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.
ProFat II System. The ProFat II System, which was introduced in the first
quarter of 1998, is a microwave-based instrument that provides rapid moisture,
fat and protein results on most meat products, without solvents. The product is
sold primarily to companies processing beef, poultry and pork products that
require a rapid result for process control purposes and companies which utilize
non solvent-based instruments for product analysis.
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 ensure 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.
<PAGE> 3
Marketing and Sales
The Company'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 Company's marketing strategy utilizes telemarketing, direct mail,
trade show demonstrations, articles, studies, trade journal advertising, product
releases, seminars and makes extensive use of the Company'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 Company's applications laboratories provide technical assistance to
customers and potential customers in developing new and improved applications
and related procedures. The applications laboratories perform tests in its
facilities in North Carolina and Germany and provides the results to customers.
The Company's foreign sales are conducted through independent dealers
throughout the world and the Company's subsidiaries in England, Germany and
Italy. Foreign sales are primarily to customers in Europe, Asia and Latin
America. Foreign sales accounted for 45%, 46% and 46% of net sales in fiscal
1998, 1997 and 1996, respectively.
Research and Development
The Company invests heavily in the research and development of potential
new products, product improvements and enhancements, and applications research
for existing products. For fiscal 1998, 1997 and 1996, research and development
expense was $2,943,000, $2,742,000 and $2,891,000, respectively.
In early fiscal 1998, development was completed on the MARS platform, which
offers a technological base on which the Company is focusing a considerable
portion of its overall research and development efforts. Based on the MARS
platform, MAX, a microwave ashing system designed for the asphalt industry, is
currently being developed and other instruments are planned.
The Company's product development efforts continue to progress for the use
of certain proprietary technology which was licensed in 1996. The Company
expects to deliver prototype instruments used in testing for bacteria in raw
milk to prospective customers in early fiscal 1999.
Product Protection
The Company 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 Company's products are protected
by issued patents or pending patent applications.
Manufacturing
The Company'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 Company's
production while the Company developed an alternative supplier and could result
in a loss of sales and income. There are other single source components for
which the Company has determined that other sources are readily available.
The Company has experienced no significant production delays because of a
supplier's inability to ship an acceptable component. The Company stocks what it
believes is an adequate supply of all components and materials based upon
delivery lead times and orders currently in hand.
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 Company and its subsidiaries.
<PAGE> 4
Employees
At June 30, 1998, the Company employed 177 persons. None of the Company's
employees are covered by a collective bargaining agreement.
Backlog
The Company does not have a significant backlog of orders, as it normally
ships its products within a short time after it receives orders.
Competition
The Company 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 Company's products. Also competing with MARS
and MDS 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 Company. 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 Company's instrumentation in certain markets. Although there is one
manufacturer of a microwave moisture system similar in nature to the Company's
Moisture/Solids Analyzer, the Company does not believe there have been
significant sales of this competitive product to date.
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 Company, the Company's product offers advantages in both speed and
process control.
The microwave open vessel digestion system (the STAR System) is designed to
digest large samples or samples that are very reactive and can not be safely
digested in a closed vessel digestion system. There is currently one competitor
in this market, which also utilizes microwave based technology and automatic
reagent additions, but the Company believes its product offers advantages in
price and performance.
The Company's Fat Analyzer System is the only direct moisture, fat and
protein system available that is approved by the Association of Analytical
Chemists. However, there is a competing technology using an indirect measurement
method of analysis, which results in a quicker result time but is not considered
as accurate. In addition, this competing system is sold at a significantly
higher price than the Company's system.
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 Company's Microwave Extraction System are other advanced methods such as
Supercritical Fluid Extraction and Accelerated Solvent Extraction.
Typically the Company's selling prices are higher than those of most of its
competitors. The Company competes primarily upon the speed, ease of use,
applications support and long-term cost savings to the users.
International Operations and Sales
Information about the Company's international operations and sales is
incorporated by reference to footnotes 1 and 8 of the financial statements
contained in the Company's 1998 Annual Report to Shareholders.
<PAGE> 5
ITEM 2 - PROPERTIES
The Company'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 Company in Matthews, North Carolina. The Company 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 4,000 square foot
office in Italy. The facility in Germany is subject to a mortgage which had a
balance of $80,000 at June 30, 1998. Management believes these facilities are
adequate to serve existing markets for the next several years.
ITEM 3 - LEGAL PROCEEDINGS
Nothing is required to be disclosed pursuant to this item.
ITEM 4 is inapplicable and has been omitted.
PART II
ITEM 5 is incorporated by reference to Footnote 12 on page 19 "Quarterly
Information (Unaudited)" and on the inside back cover "Corporate Information" of
the Registrant's 1998 Annual Report to Shareholders (Exhibit 13 hereto).
ITEM 6 is incorporated by reference to the inside front cover of items captioned
"1998 Financial Highlights" of the Registrant's 1998 Annual Report to
Shareholders (Exhibit 13 hereto).
ITEM 7 is incorporated by reference to page 6 captioned "Management's
Discussion and Analysis" of the Registrant's 1998 Annual Report to Shareholders
(Exhibit 13 hereto).
ITEM 7A is incorporated by reference to Footnote 2 on page 14 "Financial
Instruments" of the Registrant's 1998 Annual Report to Shareholders (Exhibit 13
hereto).
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements, notes to the financial statements and quarterly
supplemental financial data of the Company appearing on pages 9-19 of the
Company's 1998 Annual Report to Shareholders are hereby incorporated by
reference.
ITEM 9 is inapplicable and has been omitted.
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information as to the directors and chief executive officer of the
Company is incorporated herein by reference to the section captioned "Election
of Directors" of the Company's Proxy Statement for the Annual Meeting of
Shareholders to be held November 5, 1998. The following information is provided
as to the executive officers of the Company who are not directors:
<TABLE>
<CAPTION>
Name Age Background
- ----------------------------------- -------- -----------------------------------------------------------------------------
<S> <C> <C>
Richard N. Decker 49 Vice President - Finance, Chief Financial Officer, Secretary and Treasurer
since 1995; Secretary, Treasurer and Chief Financial Officer 1993-1995; Vice
President-Finance of the Water and Gas Meter Division of Schlumberger Limited
Corporation 1982-1993.
</TABLE>
All of the Company's executive officers were appointed to their current
positions at the Annual Meeting of the Board of Directors held on November 6,
1997. All of the Company'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.
ITEM 11 is incorporated by reference to the sections captioned "Executive
Compensation" and "Director Compensation" in the Registrant's Proxy Statement
for Annual Meeting of Shareholders to be held November 5, 1998.
<PAGE> 6
ITEM 12 is incorporated by reference to the sections captioned "Principal
Shareholders and Holdings of Management" and "Section 16(a) Beneficial Ownership
Reporting Compliance" in the Registrant's Proxy Statement for Annual Meeting of
Shareholders to be held November 5, 1998.
ITEM 13 is inapplicable and has been omitted.
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 Company, as amended.(1)
3.2 Bylaws of the Company.(1)
10.1 * CEM Corporation 1986 Nonqualified Stock Option Plan, as amended, incorporated herein by
reference to the Company'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 Company'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
Company's Registration Statement on Form S-8 (File No. 33-75368).
10.5 * CEM Corporation Management Incentive Compensation Plan(2).
10.6 CEM Corporation 1993 Nonqualified Stock Option Plan for Non-Employee Directors, incorporated
herein by reference to the Company's Registration Statement on Form S-8 (File No. 33-75366).
13. The Company's 1998 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 Company's Subsidiaries.(1)
23. Consent of Independent Accountants.
27. Financial Data Schedules (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 Company's registration statements on Form S-8 (Registration
Numbers 33-11952 and 33-25739).(1)
</TABLE>
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* This exhibit is one of the Company's management contracts and
compensatory plans and arrangements.
(1) Incorporated herein by reference to the Company's Form 10-K
for the year ended June 30, 1994.
(2) Incorporated herein by reference to the Company's Form 10-K
for the year ended June 30, 1997.
(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.
(c) Exhibits. See Item 14(a)(3) above.
<PAGE> 7
<TABLE>
<CAPTION>
Reference (Page)
-----------------------------------
Annual
Form 10-K Report to
Item 14. (D) Index to Financial Statements and Schedules Annual Report Shareholders
- ---------------------------------------------------------------------- ------------- ------------
<S> <C> <C>
Data incorporated by reference from the attached 1998 Annual Report to
Shareholders:
Report of Independent Accountants 20
Consolidated Balance Sheets as of June 30, 1998 and 1997 9
Consolidated Statements of Income for the years ended 10
June 30, 1998, 1997 and 1996
Consolidated Statements of Cash Flows for the years 11
ended June 30, 1998, 1997 and 1996
Consolidated Statements of Changes in Shareholders' Equity for the 12
years ended June 30, 1998, 1997 and 1996
Notes to Consolidated Financial Statements 13 - 19
Data submitted herewith:
Report of Independent Accountants 8
Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts 10
</TABLE>
The 1998 Annual Report to Shareholders of CEM Corporation is not to be deemed
"filed" as part of this report except for those parts thereof specifically
incorporated herein by reference.
<PAGE> 8
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of CEM Corporation:
Our audits of the consolidated financial statements referred to in our report
dated July 22, 1998 appearing on page 20 of the 1998 Annual Report to
Shareholders of CEM Corporation (which report and consolidated financial
statements are incorporated by reference in this Annual Report on Form 10-K)
also included an audit of the financial statement schedule listed in Item
14(a)(2) of this Form 10-K. In our opinion, this financial statement schedule
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
/s/ PricewaterhouseCoopers LLP
Charlotte, North Carolina
July 22, 1998
<PAGE> 9
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company 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
President and Chief Executive Officer
By: /s/ Richard N. Decker
----------------------
Dated: September 24, 1998 Richard N. Decker
Chief Financial Officer, Secretary
and Treasurer (Principal Financial
and Accounting 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 Company
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 of Directors September 24, 1998
- ----------------------------------------
Ronald A. Norelli
/s/ Michael J. Collins President, Chief Executive Officer and Director September 24, 1998
- --------------------------------------- (Principal Executive Officer)
Michael J. Collins
/s/ John L. Chanon Director September 24, 1998
- ----------------------------------------
John L. Chanon
/s/ John D. Correnti Director September 24, 1998
- ----------------------------------------
John D. Correnti
</TABLE>
<PAGE> 10
CEM CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JUNE 30, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
Balance at
beginning of Charged to costs Balance at
Description period and expenses Deductions end of period
---------------------- ------------ ---------------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Year ended Accounts receivable, $1,039,000 404,000 (425,000) $1,018,000
June 30, 1998 inventory and warranty
reserves
Year ended Accounts receivable, $ 720,000 607,000 (287,000) $1,039,000
June 30, 1997 inventory and warranty
reserves
Year ended Accounts receivable, $ 752,000 301,000 (333,000) $ 720,000
June 30, 1996 inventory and warranty
reserves
</TABLE>
<PAGE> 11
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
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June 30, 1998 0-15383
CEM CORPORATION
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Exhibit Description
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<S> <C>
3.1 Restated Charter of the Company, as amended.(1)
3.2 Bylaws of the Company.(1)
10.1 CEM Corporation 1986 Nonqualified Stock Option Plan, as
amended, incorporated herein by reference to the Company'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 Company'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 Company's Registration Statement on
Form S-8 (File No. 33-75368).
10.5 CEM Corporation Management Incentive Compensation Plan.(2)
10.6 CEM Corporation 1993 Nonqualified Stock Option Plan for
Non-Employee Directors, incorporated herein by reference to
the Company's Registration Statement on Form S-8 (File No.
33-75366).
13. The Company's 1998 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 Company's Subsidiaries.(1)
23. Consent of Independent Accountants (page __ of the sequentially
numbered pages).
27. Financial Data Schedules (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 Company's registration
statements on Form S-8 (Registration Numbers 33-11952 and
33-25739).(1)
</TABLE>
- ----------------------
(1) Incorporated herein by reference to the Company's Form 10-K
for the year ended June 30, 1994.
(2) Incorporated herein by reference to the Company's Form 10-K
for the year ended June 30, 1997.
<PAGE> 1
Exhibit 13
1998 Financial Highlights
-------------------------
In thousands, except per share data
<TABLE>
<CAPTION>
For the years ended June 30
---------------------------------------------------
1998 1997 1996 1995 1994
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<S> <C> <C> <C> <C> <C>
Income Statement and Cash Flows
Net sales ............................... $32,362 $30,075 $31,477 $31,611 $29,040
Income from operations .................. 3,049 2,378 4,136 4,479 4,050
Net income .............................. 2,424 1,837 2,908 3,179 2,791
Net income per share
Basic ................................ $ .71 $ .52 $ .80 $ .88 $ .71
Diluted .............................. $ .70 $ .52 $ .78 $ .85 $ .70
Average shares outstanding
Basic ................................ 3,435 3,530 3,626 3,630 3,913
Diluted .............................. 3,469 3,550 3,748 3,735 3,994
Net cash provided by operating activities $ 3,744 $ 4,883 $ 2,020 $ 3,134 $ 3,220
<CAPTION>
As of June 30
---------------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Balance Sheet
Working capital ......................... $13,636 $16,409 $15,549 $14,047 $12,892
Total assets ............................ 28,298 29,214 27,584 26,653 22,766
Long-term debt .......................... 1,177 1,229 1,417 1,578 132
Shareholders' equity .................... $21,719 $23,480 $22,351 $20,592 $18,621
</TABLE>
FOOTNOTE: The following graphs are presented for a five-year period and are
displayed below the tables:
1) Net Sales (In Millions)
2) Net Income (In Millions)
3) Net Income Per Diluted Share
4) Return on Equity
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.
Inside Front Cover
<PAGE> 2
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
-------------------------- -----------------
1998 1997 1996 1998 1997
------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
Net sales .................................. 100.0% 100.0% 100.0% 7.6% (4.5)%
Cost of goods sold ......................... 46.4 44.8 41.6 11.5 2.9
----- ----- ----- ----- -----
Gross profit ............................... 53.6 55.2 58.4 4.4 (9.7)
Selling, general and administrative expenses 35.1 38.2 36.1 (1.2) 1.1
Research and development expenses .......... 9.1 9.1 9.2 7.3 (5.2)
----- ----- ----- ----- -----
Income from operations ..................... 9.4 7.9 13.1 28.2 (42.5)
Investment income .......................... 1.7 1.5 1.4 20.5 2.9
Other expense, net ......................... .2 .4 .1 NM nm
----- ----- ----- ----- -----
Income before income taxes ................. 10.9 9.0 14.4 30.8 (40.2)
Provision for income taxes ................. 3.4 2.9 5.2 28.3 (46.3)
----- ----- ----- ----- -----
Net income ................................. 7.5% 6.1% 9.2% 32.0 (36.8)
===== ===== ===== ===== =====
</TABLE>
Results of Operations
FISCAL YEAR 1998 COMPARED TO FISCAL YEAR 1997
Net sales for fiscal 1998 increased to a record of $32.4 million or 8% above
prior year. The primary driver for the increase in net sales was the Company's
Microwave Accelerated Reaction System (MARS), a new closed vessel digestion
system, which was introduced in the first quarter and accounted for over 18% of
fiscal 1998 sales. The increase in net sales was accomplished against the
backdrop of a sharp slowdown in sales to Asia, which declined 31%. Sales in the
U.S., Europe and other international areas contributed substantial gains for the
year and offset the Asian downturn. Foreign sales as a percentage of total sales
decreased from 46% to 45%.
As expected, gross profit margins declined from 55.2% to 53.6% primarily due to
high MARS costs and changes in product mix. Management has identified certain
engineering and manufacturing changes that it intends to pursue during fiscal
1999 to enhance the return on the Company's investment in developing and
marketing this system. In the near term, the Company expects margins to remain
at or slightly below the 1998 level as several new product introductions are
planned for fiscal 1999 and 2000.
Cost containment measures continue to show positive results as selling, general
and administrative expenses decreased slightly from prior year. The increase in
research and development expenses by 7% reflects the Company's continued
commitment to develop new products and product enhancements in both new and
existing markets. Management expects research and development expenses to remain
between 8% and 10% of sales for the foreseeable future.
Investment income increased due to effective cash management strategies and an
increase in average cash and investment balances during the year.
The Company's effective tax rate decreased from 32.0% to 31.4% as a result of
lower state income taxes and various other minor factors. In the near term,
management expects the effective tax rate to remain relatively consistent with
fiscal years 1998 and 1997.
During the fourth quarter of fiscal 1997, the United States District Court for
the Eastern District of North Carolina issued a judgment that CEM's patent
related to microwave digestion vessels is valid and enforceable. The Court held
that Questron Corporation, a privately held manufacturer of microwave-based
instruments, had willfully and deliberately infringed the Company's patent.
Questron and its owners were permanently enjoined by the Court from infringing
the patent or inducing others to infringe the patent. While the Company was
awarded approximately $1.5 million plus treble damages, attorneys fees and
interest, the collection of any significant amount by CEM is doubtful due to
Questron's filing for Chapter 7 bankruptcy in July 1997. Therefore, no gain has
been recorded. The Company continues to pursue collection of damages awarded.
Resolution of this matter reflects management's strong commitment to enforce all
rights related to the Company's intellectual property.
6
<PAGE> 3
Management's Discussion & Analysis
FISCAL YEAR 1997 COMPARED TO FISCAL YEAR 1996
In 1997, sales declined $1.4 million or 5%, primarily due to weakness in the
U.S. and German markets. The decline primarily resulted from significantly lower
MDS instrument sales in environmental, governmental, food and other industries.
As expected, this decline was partially offset by increased sales of our STAR
instruments which were introduced in March 1996. Foreign sales were 46% of total
sales in 1997 and 1996.
Gross profit margins declined from 58.4% to 55.2% primarily due to changes in
product mix, additions to inventory obsolescence reserves, higher warranty costs
associated with new product introductions, and increased profit sharing
expenses. Additionally, gross margins were negatively impacted due to the
decrease in sales by the Company's European subsidiaries which, on a
consolidated basis, carry higher margins than U. S. sales.
Foreign distributor commissions and legal costs, offset by a decrease in
advertising, were primary contributors to the $120,000 or 1.1% increase in
selling, general and administrative expenses. Research and development expenses
were consistent with management's expectations.
The Company's effective tax rate declined from 35.7% to 32.0% resulting from the
renewal of the Research and Experimentation tax credit and higher non-taxable
investment income as a percentage of income before income taxes.
Liquidity and Capital Resources
Cash provided by operating activities during fiscal 1998 totaled $3.7 million
and decreased $1.1 million from the prior year due to higher inventory levels
needed to support the MARS implementation and increased receivables resulting
from increased fourth quarter fiscal 1998 sales.
The Company maintains unsecured bank lines of credit providing for short term
borrowings of up to $3.6 million at market rates. At June 30, 1998 and 1997,
$83,000 and $57,000 respectively, was outstanding under these bank lines of
credit. Should the need arise, management believes the lines of credit could be
increased.
In 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 collateralize 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.
In 1991, the Company began a stock repurchase program, which has been extended
by the Board of Directors on several occasions. Repurchases totaled $5.0, $0.8,
and $2.0 million in 1998, 1997, and 1996, respectively. As of June 30, 1998, an
additional $1.1 million remained authorized to repurchase the Company's common
stock. From time to time, repurchases may be made in the open market at
prevailing market prices. The shares repurchased will reduce any dilution of
earnings per share to existing shareholders resulting from the Company's stock
option and compensation plans. The stock repurchase program had the effect of
increasing earnings per diluted share by $.02, $.01 and $.01 in 1998, 1997 and
1996, respectively. It should have a more significant effect on earnings per
share in fiscal 1999.
The Company has undertaken a comprehensive effort to assess and address its
exposure to the "Year 2000 Issue" that results from computers and other systems
that process or use date sensitive information and may incorrectly respond to
dates on or after January 1, 2000. The Company is substantially complete in
identifying both information technology (IT) and non-IT systems that may be
affected by the Year 2000 issue. IT systems that could be affected include
principally financial management systems both in the United States and in the
Company's foreign operations, which means that a number of systems must be
analyzed. The Company has also identified a number of non-IT systems within its
physical plant that may be affected by the Year 2000 issue. Finally, the Company
has communicated with third party vendors, suppliers and customers with whom the
Company has a significant relationship to evaluate whether these third parties
have significant Year 2000 problems that could have a material adverse effect on
the Company. No such problems have been identified. CEM instrument operations
will be unaffected when year 2000 occurs. CEM instruments do not use the date
for operation; rather, they use the date as a stamp for printouts only.
The Company expects to complete its plan for addressing the Year 2000 Issue by
the end of its second fiscal quarter. Plans for addressing IT systems in the
United States are substantially complete and involve primarily software upgrades
and/or hardware upgrades. The Company believes that it will be able to identify
similar ways to address IT systems located outside of the United States. For
non-IT systems, the Company does not expect to identify any areas that are not
capable of being repaired at fairly low cost or where Year 2000 problems would
have a material impact on the Company.
During the most recent fiscal year, the Company spent approximately $10,000 to
address the Year 2000 Issue. The Company does not believe that its future
expenditures to address this issue will be material to the Company, although
there can be no assurance in this regard until the Company's assessments,
planning and implementation are complete.
7
<PAGE> 4
Management's Discussion & Analysis
The Company expects to complete the implementation of its plans to address the
Year 2000 Issue sometime during late fiscal 1999, in time to allow testing to
ensure that the steps taken will be adequate to address the problems identified.
If the Company's plans to address these issues are not successful, the Company
would attempt to identify and purchase replacement systems that do not have
problems associated with the Year 2000 Issue. The cost of such replacement
systems has not been estimated by the Company.
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.
Outlook
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" may be
deemed 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. For
example, sales from Asia, which accounted for 8.3% of total fiscal 1998 sales,
could be negatively impacted with any further deterioration in Asian economies.
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 the 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.
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 for foods and pharmaceuticals. The Company has experienced and may
continue to 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 limited and may continue to limit sales of certain products, 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.
Inflation
Inflation has not had a material impact on the Company's operations. In the past
several years, prices of some components purchased by the Company have
increased, while prices of other components have declined due, in part, to
changes in volume. Management believes that increases in costs have not exceeded
the inflation rate of the national economy as a whole.
8
<PAGE> 5
CEM Corporation
Consolidated Balance Sheets
In thousands, except share data
<TABLE>
<CAPTION>
June 30
--------------------
1998 1997
-------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ............................................... $ 2,963 $ 5,833
Short-term investments .................................................. 3,200 3,100
Trade receivables, net .................................................. 6,616 5,990
Inventories ............................................................. 5,675 5,139
Deferred taxes .......................................................... 231 357
Other current assets .................................................... 257 385
-------- --------
Total current assets ................................................ 18,942 20,804
LONG-TERM INVESTMENTS ....................................................... 3,117 2,018
INVESTMENT IN AFFILIATE ..................................................... 325 250
PROPERTY, PLANT AND EQUIPMENT, NET .......................................... 4,925 5,296
OTHER ASSETS ................................................................ 989 846
-------- --------
$ 28,298 $ 29,214
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable and current maturities of long-term debt .................. $ 92 $ 67
Accounts payable ........................................................ 1,491 1,095
Accrued payroll and benefits ............................................ 1,115 916
Deferred income ......................................................... 1,280 1,039
Income taxes payable .................................................... 538 488
Warranty reserve ........................................................ 213 218
Other current liabilities ............................................... 577 572
-------- --------
Total current liabilities ........................................... 5,306 4,395
-------- --------
LONG-TERM DEBT, NET OF CURRENT MATURITIES ................................... 1,177 1,229
-------- --------
DEFERRED TAXES .............................................................. 96 110
-------- --------
SHAREHOLDERS' EQUITY:
Preferred stock, $5 par value, 1,000,000 shares authorized; none issued . -- --
Common stock, $.05 par value; 10,000,000 shares authorized; 3,180,000 and
3,487,000 shares issued and outstanding as of June 30, 1998 and 1997,
respectively .......................................................... 159 174
Additional paid-in capital .............................................. -- --
Retained earnings ....................................................... 21,800 23,463
Translation of foreign currencies ....................................... (240) (157)
-------- --------
Total shareholders' equity .......................................... 21,719 23,480
-------- --------
$ 28,298 $ 29,214
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
9
<PAGE> 6
CEM Corporation
Consolidated Statements of Income
In thousands, except per share data
<TABLE>
<CAPTION>
For the years ended June 30
---------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Net sales .................................. $32,362 $30,075 $31,477
Cost of goods sold ......................... 15,030 13,481 13,096
------- ------- -------
Gross profit .......................... 17,332 16,594 18,381
Selling, general and administrative expenses 11,340 11,474 11,354
Research and development expenses .......... 2,943 2,742 2,891
------- ------- -------
Income from operations ................ 3,049 2,378 4,136
Investment income .......................... 547 454 441
Other expense, net ......................... 62 130 58
------- ------- -------
Income before income taxes ............ 3,534 2,702 4,519
Provision for income taxes ................. 1,110 865 1,611
------- ------- -------
Net income ............................ $ 2,424 $ 1,837 $ 2,908
======= ======= =======
Earnings per share
Basic ................................. $ .71 $ .52 $ .80
Diluted ............................... $ .70 $ .52 $ .78
Average shares outstanding
Basic ................................. 3,435 3,530 3,626
Diluted ............................... 3,469 3,550 3,748
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
10
<PAGE> 7
CEM Corporation
Consolidated Statements of Cash Flows
In thousands
<TABLE>
<CAPTION>
For the years ended June 30
-----------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ........................................ $ 2,424 $ 1,837 $ 2,908
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ................. 1,261 1,116 1,052
Deferred income taxes ......................... 112 (64) 151
Loss (gain) on disposal of fixed assets ....... 21 32 (73)
Changes in operating assets and liabilities:
Trade receivables ........................... (673) 942 (346)
Inventories ................................. (580) 389 (719)
Accounts payable and accrued expenses ....... 885 508 (690)
Income taxes payable ........................ 163 101 (3)
Other changes, net .......................... 131 22 (260)
------- ------- -------
Net cash provided by operating activities ..... 3,744 4,883 2,020
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Sales of short-term investments ................... 3,100 1,500 2,603
Purchase of short-term investment ................. (3,200) (500) (2,700)
Purchase of long-term investment .................. (1,152) -- --
Purchase of investment in affiliate ............... (75) (250) --
Proceeds from sale of fixed assets ................ 29 56 193
Capital expenditures and acquisition of intangibles (1,119) (1,165) (1,013)
------- ------- -------
Net cash used in investing activities ......... (2,417) (359) (917)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable ....................... 84 59 50
Payment of notes payable .......................... -- -- (11)
Payment of long-term debt ......................... (65) (8) --
Repurchase of common stock ........................ (4,999) (767) (2,025)
Proceeds from issuance of common stock ............ 784 147 639
------- ------- -------
Net cash used in financing activities ......... (4,196) (569) (1,347)
------- ------- -------
------- ------- -------
EFFECTS OF EXCHANGE RATE CHANGES ON CASH .......... (1) 46 (2)
------- ------- -------
Net (decrease)increase in cash and cash equivalents (2,870) 4,001 (246)
Cash and cash equivalents at beginning of year .... 5,833 1,832 2,078
------- ------- -------
Cash and cash equivalents at end of year .......... $ 2,963 $ 5,833 $ 1,832
======= ======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
11
<PAGE> 8
CEM Corporation
Consolidated Statements of Changes in Shareholders' Equity
In thousands
<TABLE>
<CAPTION>
ADDITIONAL TRANSLATION
PAID-IN RETAINED OF FOREIGN
SHARES AMOUNT CAPITAL EARNINGS CURRENCIES TOTAL
-------- -------- ---------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
June 30, 1995 .................... 3,621 $ 181 $ 313 $ 20,180 $ (82) $ 20,592
Issuance of shares under stock
benefit plans .............. 77 4 717 -- -- 721
Repurchase of common stock ... (147) (7) (1,154) (865) -- (2,026)
Income tax benefit from
employees' stock options ... -- -- 124 -- -- 124
Translation adjustment ....... -- -- -- -- 32 32
Net income ................... -- -- -- 2,908 -- 2,908
-------- -------- -------- -------- -------- --------
June 30, 1996 .................... 3,551 178 -- 22,223 (50) 22,351
Issuance of shares under stock
benefit plans .............. 16 1 146 -- -- 147
Repurchase of common stock ... (80) (5) (165) (597) -- (767)
Income tax benefit from
employees' stock options ... -- -- 19 -- -- 19
Translation adjustment ....... -- -- -- -- (107) (107)
Net income ................... -- -- -- 1,837 -- 1,837
-------- -------- -------- -------- -------- --------
June 30, 1997 .................... 3,487 174 -- 23,463 (157) 23,480
Issuance of shares under stock
benefit plans .............. 95 5 779 -- 784
Repurchase of common stock ... (402) (20) (892) (4,087) -- (4,999)
Income tax benefit from
employees' stock options ... -- -- 113 -- 113
Translation adjustment ....... -- -- -- -- (83) (83)
Net income ................... -- -- -- 2,424 -- 2,424
-------- -------- -------- -------- -------- --------
June 30, 1998 .................... 3,180 $ 159 $ -- $ 21,800 $ (240) $ 21,719
======== ======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
12
<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.
ESTIMATES - The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
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 $51,000 in
1998, ($26,000) in 1997, and $57,000 in 1996.
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 $817,000,
$788,000, and $1,312,000 in 1998, 1997 and 1996, respectively. Interest paid
totaled $127,000, $135,000, and $143,000 in 1998, 1997 and 1996, respectively.
The Company had noncash activity related to the income tax benefit from
employees' stock options of $113,000, $19,000 and $124,000 in 1998, 1997 and
1996, respectively.
INVESTMENTS - The Company records investments in accordance with 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.
INVESTMENT IN AFFILIATE - In 1996, the Company entered into an exclusive,
worldwide licensing agreement with an Israeli-based company, Sirotech, Ltd.,
related to the development and marketing of instruments used in rapid testing
for bacteria in raw milk. The Company increased its ownership in Sirotech, Ltd.
from 10% in 1997 to 13% in 1998. The investment is accounted for under the cost
method.
TRADE RECEIVABLES, NET - Trade receivables are stated net of allowances for
doubtful accounts of $306,000 and $265,000 at June 30, 1998 and 1997,
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.
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 $480,000, $383,000 and $960,000 in 1998, 1997
and 1996, respectively.
13
<PAGE> 10
CEM Corporation
Notes to Consolidated Financial Statements
1. ACCOUNTING POLICIES (CONTINUED)
PROPERTY, PLANT AND EQUIPMENT, NET - Property, plant and equipment is stated at
cost. Depreciation is computed generally using straight-line methods over the
estimated useful lives as follows: 20-40 years for buildings, 3-10 years for
machinery and equipment, and 3-5 years for vehicles. 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.
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 expense as incurred.
DEFERRED 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.
STOCK OPTIONS - The Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation," which establishes financial accounting and reporting standards
for stock-based compensation, including employee stock purchase plans and stock
option plans. As allowed by SFAS No. 123, the Company continues to measure
compensation expense under the provisions of APB No. 25, "Accounting for Stock
Issued to Employees."
NEW ACCOUNTING STANDARDS - Statement of Financial Accounting Standard No. 130
("FAS 130"), Comprehensive Income, is effective in fiscal year 1999. FAS 130
requires transactions that are currently reported directly to shareholders'
equity to be reported in a financial statement that is displayed as prominently
as other financial statements. FAS 130 impacts disclosure only, therefore, it
will have no impact on the Company's financial condition, cash flows, or results
of operations.
2. FINANCIAL INSTRUMENTS
Foreign Currency Risk
The Company has a term note denominated in German marks for $1,106,000 maturing
in fiscal 2000. To mitigate the effect of foreign currency movements, the
Company has investments denominated in German marks also maturing in fiscal 2000
which management intends to utilize to extinguish this debt.
Interest Rate Swap
The Company has entered into an interest rate swap whereby a variable rate,
based on IBOR (Interstate Bank Offered Rate) plus 1.65% on the Company's term
note denominated in German marks, was swapped for a fixed interest rate.
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 major financial
institutions. On June 30, 1998 and 1997, the Company purchased $997,000 and
$1,770,000, respectively, of Eurodollar investments under agreements to resell
on July 1, 1998 and 1997, 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. Management considers the risk of significant loss related to trade
receivables at June 30, 1998 and 1997 to be minimal.
3. INVESTMENTS
The following table summarizes the amortized cost, fair market value and
carrying value of the Company's investments at June 30, 1998 and 1997 under SFAS
No. 115. Proceeds from sales of available-for-sale securities were $3,100,000
and $1,500,000 in 1998 and 1997, respectively. There were no realized gains or
losses in 1998 or 1997 in any security classification. In 1996, realized gains
on sales of available-for-sale securities totaled $3,000 and there were no
realized losses.
<TABLE>
<CAPTION>
1998: Amortized Market Carrying
(In Thousands) Cost Value Value
- ----------------------------------------- --------- ------ --------
<S> <C> <C> <C>
Short-term available-for-sale ........... $3,200 $3,200 $3,200
Long-term held-to-maturity
(see Note 6) .......................... 3,117 3,165 3,117
------ ------ ------
$6,317 $6,365 $6,317
====== ====== ======
<CAPTION>
1997: Amortized Market Carrying
(In Thousands) Cost Value Value
- ----------------------------------------- --------- ------ --------
<S> <C> <C> <C>
Short-term available-for-sale ........... $3,100 $3,100 $3,100
Long-term held-to-maturity
(see Note 6) .......................... 2,018 2,055 2,018
------ ------ ------
$5,118 $5,155 $5,118
====== ====== ======
</TABLE>
The long-term held-to-maturity securities mature in fiscal 2000.
14
<PAGE> 11
CEM Corporation
Notes to Consolidated Financial Statements
4. INVENTORIES
Inventories at current cost are as follows at June 30:
<TABLE>
<CAPTION>
(In Thousands) 1998 1997
- ---------------------------------------------- ------ ------
<S> <C> <C>
Parts and raw materials ...................... $3,302 $2,560
Work-in-process and finished goods ........... 2,373 2,579
------ ------
$5,675 $5,139
====== ======
</TABLE>
5. PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment consisted of the following at June 30:
<TABLE>
<CAPTION>
(In Thousands) 1998 1997
- ------------------------------------------------ ------- -------
<S> <C> <C>
Land ........................................... $ 691 $ 693
Buildings ...................................... 4,432 4,411
Machinery and equipment ........................ 4,928 4,466
Vehicles ....................................... 690 708
------- -------
10,741 10,278
Less: accumulated depreciation ............... 5,816 4,982
------- -------
$ 4,925 $ 5,296
======= =======
</TABLE>
6. FINANCING ARRANGEMENTS
The Company maintains unsecured bank lines of credit providing for short term
borrowings of up to $3.6 million at market rates. $83,000 and $57,000, was
outstanding at June 30, 1998 and 1997, respectively under these bank lines of
credit. The Company is not subject to commitment fees related to the unused
portion of the lines of credit.
At June 30, 1998, the Company had a foreign denominated mortgage note payable
totaling $80,000 bearing interest at an average rate of 7.4%. Principal payments
are due in equal installments until 2006 with the current portion totaling
approximately $10,000 per year.
At June 30, 1998, the Company had a term note maturing in fiscal 2000 and
denominated in German marks for $1,106,000 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. The carrying amount
of this term note approximates its fair value.
7. INCOME TAXES
Pre-tax income and the provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
(In Thousands) 1998 1997 1996
- ---------------------------------------- ------- ------- -------
<S> <C> <C> <C>
Pre-tax income (loss):
Domestic ............................. $ 3,266 $ 2,705 $ 4,456
Foreign .............................. 268 (3) 63
------- ------- -------
3,534 2,702 4,519
======= ======= =======
Current taxes:
Federal and state .................... 845 929 1,418
Foreign .............................. 153 -- 50
------- ------- -------
998 929 1,468
Deferred taxes, federal and state ...... 112 (64) 143
------- ------- -------
Total taxes ............................ $ 1,110 $ 865 $ 1,611
======= ======= =======
</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) 1998 1997 1996
- ---------------------------------------- ------- ------- -------
<S> <C> <C> <C>
Unrealized foreign exchange gains .......... $ -- $ -- $ 27
Expiration of capital loss
carryforwards on
marketable securities .................... -- -- 68
Depreciation ............................... 14 40 (23)
Inventories and reserves ................... 185 (139) 23
Other items, net ........................... (87) 35 48
----- ----- -----
$ 112 $ (64) $ 143
===== ===== =====
</TABLE>
15
<PAGE> 12
CEM Corporation
Notes to Consolidated Financial Statements
7. INCOME TAXES (CONTINUED)
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>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Federal statutory income
tax rate .............................. 34.0% 34.0% 34.0%
State income taxes, net
of federal tax benefit ................ 2.8 3.0 3.1
Foreign income .......................... 1.7 -- 0.6
Tax-exempt foreign sales
income ................................ (3.0) (3.0) (4.8)
Tax-exempt interest and
dividends received
exclusion ............................. (2.4) (2.4) (1.0)
Research and
development credits ................... (1.6) (1.6) --
Other items, net ........................ (0.1) 2.0 3.8
---- ---- ----
Effective income tax rate .............. 31.4% 32.0% 35.7%
==== ==== ====
</TABLE>
Components of net deferred tax assets and liabilities at June 30 are as follows:
<TABLE>
<CAPTION>
(In Thousands) 1998 1997
- ---------------------------------------------------- ----- -----
<S> <C> <C>
Current asset (liability):
Inventories and reserves ......................... $ 203 $ 388
Employee compensation and benefits ............... (3) (29)
Other ............................................ 31 (2)
----- -----
$ 231 $ 357
===== =====
Noncurrent liability (asset):
Depreciation and difference in asset basis ....... $ (19) $ 46
Amortization of patents .......................... 128 56
Foreign exchange on inter-company notes .......... (10) 18
Deferred gain on sale/leaseback transaction ...... (3) (10)
----- -----
$ 96 $ 110
===== =====
</TABLE>
8. INTERNATIONAL OPERATIONS AND EXPORT SALES
The Company operates three subsidiaries in Europe primarily for the distribution
of microwave-based instrumentation produced by the parent in the United States.
Financial data by geographic area is presented below:
<TABLE>
<CAPTION>
(In Thousands) 1998 1997 1996
- ------------------------------ -------- -------- --------
<S> <C> <C> <C>
NET SALES:
U.S. operations:
Unaffiliated customers:
U.S ......................... $ 17,793 $ 16,165 $ 16,964
Europe ...................... 3,311 2,221 2,824
Asia ........................ 2,678 3,855 3,657
Other ....................... 3,064 2,561 2,353
Inter-area transfers .......... 2,724 2,308 2,415
-------- -------- --------
29,570 27,110 28,213
European operations:
Unaffiliated customers ........ 5,516 5,273 5,679
Eliminations .................... (2,724) (2,308) (2,415)
-------- -------- --------
Consolidated ...................... $ 32,362 $ 30,075 $ 31,477
======== ======== ========
NET INCOME (LOSS):
U.S. operations ................. $ 2,446 $ 1,776 $ 2,970
European operations ............. 35 (3) 13
Eliminations .................... (57) 64 (75)
-------- -------- --------
Consolidated ...................... $ 2,424 $ 1,837 $ 2,908
======== ======== ========
IDENTIFIABLE ASSETS:
U.S. operations ................. $ 24,659 $ 25,506 $ 23,553
European operations ............. 4,652 4,967 5,248
Eliminations .................... (1,013) (1,259) (1,217)
-------- -------- --------
Consolidated ...................... $ 28,298 $ 29,214 $ 27,584
======== ======== ========
</TABLE>
9. 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, 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 $573,000, $569,000 and $105,000 for the years
ended June 30, 1998, 1997 and 1996, respectively.
16
<PAGE> 13
CEM Corporation
Notes to Consolidated Financial Statements
10. NET INCOME PER COMMON SHARE
Basic Earnings Per Share Computation:
The computation of basic earnings per share is computed by dividing income
available to common shareholders by the weighted average number of common shares
outstanding during the period. Shares issued during the period and shares
repurchased by the Company during the period are weighted for the portion of the
period that they were outstanding. Income and share information for the years
ended June 30, 1998, 1997 and 1996 follows:
(In thousands, except per share data)
<TABLE>
<CAPTION>
1998 1997 1996
--------------------------- --------------------------- ---------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net income................. $ 2,424 $ 1,837 $ 2,908
Less: preferred stock
dividends.................. -- -- --
------- ------- -------
Income available to common
stockholders............... $ 2,424 $ 1,837 $ 2,908
======= ======= =======
Dates WEIGHTED Weighted Weighted
Outstanding FRACTION AVERAGE Fraction Average Fraction Average
----------- SHARES OF PERIOD SHARES Shares of Period Shares Shares of Period Shares
------ --------- -------- ------ --------- -------- ------ --------- --------
Shares outstanding, 3,487 3,551 3,621
beginning
Shares repurchased during
the period................. (402) 77/365 (85) (80) 160/365 (35) (147) 102/365 (41)
Stock options exercised
during the period.......... 95 127/365 33 16 320/365 14 71 206/365 40
Stock grants issued during
the period................. -- -- 7 314/365 6
------- ------- -------
Weighted average shares.... 3,435 3,530 3,626
======= ======= =======
Basic earnings per common
share...................... $ .71 $ .52 $ .80
======= ======= ========
</TABLE>
Diluted Earnings Per Share Computation:
The computation of diluted earnings per common share is similar to the
computation of basic earnings per common share except that the denominator is
increased to include the number of additional common shares that would have been
outstanding if the dilutive potential common shares had been issued. Potential
common shares consist of dilutive stock options using the treasury stock method.
Income and share information for the years ended June 30, 1998, 1997, and 1996
follows:
(In thousands, except per share data)
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Net Income ..................................... $2,424 $1,837 $2,908
Less: preferred stock dividends ............... -- -- --
====== ====== ------
Income available to common stockholders ........ $2,424 $1,837 $2,908
====== ====== ======
Weighted average shares ........................ 3,435 3,530 3,626
Dilutive potential common shares (stock options) 34 20 122
------ ------ ------
Adjusted weighted average shares ............... 3,469 3,550 3,748
====== ====== ======
Diluted earnings per share ..................... $ .70 $ .52 $ .78
====== ====== ======
</TABLE>
Options to purchase 160,000, 308,000 and 8,000 shares of common stock at a
weighted average price of $10.45, $9.52 and $13.57 per share were outstanding
during the twelve months ended June 30, 1998, 1997 and 1996 respectively, which
were not included in the computation of diluted earnings per share because the
option exercise prices were greater than the average market price of the common
shares during the periods.
17
<PAGE> 14
Notes to Consolidated Financial Statements
11. 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. At June
30, 1998, 196,000 shares were reserved for future grants. No compensation
expense was accrued under the plan in 1998, 1997, and 1996.
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. At June 30, 1998,
9,000 shares were reserved for future grants.
Additional information with respect to the 1993 Management Equity Plan and 1993
Nonqualified Stock Option Plan is as follows:
<TABLE>
<CAPTION>
(In Thousands) Shares
- ------------------------------------------------------------------ ------
<S> <C>
Stock awards:
1995 awards at $11.00 per share ................................ 10
1996 awards at $13.00 per share ................................ 7
1997 & 1998 awards ............................................. --
----
Total stock awards at $11.00 - $13.00 per share .................. 17
Options to purchase shares:
Outstanding at June 30, 1995
at $11.00 - $13.63 per share ................................. 60
----
Granted at $12.75 - $13.75 per share ....................... 61
Exercised at $11.00 per share .............................. (1)
Canceled at $11.00 - $13.63 per share ...................... (15)
----
Outstanding at June 30, 1996
at $11.00 - $13.75 per share ................................. 105
----
Granted at $8.25 - $10.69 per share ........................ 65
Canceled at $10.69 - $13.00 per share ...................... (20)
====
Outstanding at June 30, 1997
at $8.25 - $13.75 per share .................................. 150
----
Granted at $9.06 - $11.25 per share......................... 65
Exercised at $10.69 - $11.00 per share...................... (2)
Canceled at $9.06 - $13.00 per share........................ (21)
----
Outstanding at June 30, 1998
at $8.25 - $13.75. ........................................... 192
====
Options exercisable at June 30, 1998
at $8.25 - $13.75............................................. 66
====
</TABLE>
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, 1998, 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>
Options to purchase shares:
Outstanding at June 30, 1995
at $6.56 - $13.63 per share ................................. 434
Exercised at $7.69 - $10.50 per share ....................... (69)
Canceled at $8.50 - $11.00 per share ........................ (2)
----
Outstanding at June 30, 1996
at $6.56 - $13.63 per share ................................. 363
----
Exercised at $7.69 - $10.50 per share ....................... (16)
Canceled at $8.50 - $10.50 per share ........................ (47)
----
Outstanding at June 30, 1997
at $6.56 - $13.63 per share ................................. 300
----
Exercised at $6.56 - $10.50 per share ....................... (93)
Canceled at $7.75 - $11.25 per share ........................ (24)
----
Outstanding at June 30, 1998
at $7.75 - $13.63 per share ................................. 183
====
Options exercisable at June 30, 1998
at $7.75 - $13.63 ........................................... 183
====
</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, are credited to additional paid-in
capital and recorded as noncash activity on the statement of cash flows.
18
<PAGE> 15
Notes to Consolidated Financial Statements
11. MANAGEMENT INCENTIVE AND STOCK OPTION PLANS (CONTINUED)
PRO FORMA INFORMATION- The Company continues to apply APB No. 25 in accounting
for its stock-based compensation plans. Accordingly, no compensation cost has
been recognized in the accompanying consolidated statements of operations for
its stock option plans. Had compensation cost for the Company's stock-based
compensation plans been determined in accordance with the fair value method
prescribed in SFAS No. 123, the Company's net income and earnings per share
would have changed to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
(in thousands) 1998 1997 1996
- ----------------------------------- -------- -------- --------
<S> <C> <C> <C>
Net income............ as reported $ 2,424 $ 1,837 $ 2,908
pro forma $ 2,291 $ 1,751 $ 2,868
Earnings per share:
Basic.............. as reported $ .71 $ .52 $ .80
Basic.............. pro forma $ .67 $ .50 $ .79
Diluted............ as reported $ .70 $ .52 $ .78
Diluted............ pro forma $ .66 $ .49 $ .77
</TABLE>
The preceding pro forma amounts include compensation expense for options granted
since July 1, 1995, and may not be representative of that to be expected in
future years. The pro forma amounts assume that the fair values assigned to the
options were amortized using the straight-line method over the vesting period of
the options, which is one to four years.
The fair value of each option granted under the stock option plans is estimated
on the date of grant using the Black-Scholes option-pricing model with the
following weighted average assumptions used for grants in 1998, 1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Risk-free interest rate.... 5.8% 6.5% 6.0%
Expected life.............. 6 YEARS 6 years 6 years
Expected volatility........ 40% 30% 20%
</TABLE>
A dividend yield of zero was used for each year. These assumptions resulted in
weighted-average values as of the grant dates of $5.26, $4.52, and $4.64 per
share for stock options granted in 1998, 1997 and 1996 respectively.
12. QUARTERLY INFORMATION (UNAUDITED)
Selected quarterly results of operations and quarterly stock prices for fiscal
1998 and 1997 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 Stock
Market.
No cash dividends were declared during the two fiscal years ended June 30, 1998.
<TABLE>
<CAPTION>
Q-1 Q-2 Q-3 Q-4 Year
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1998:
NET SALES .................. $ 6,603 $ 8,705 $ 8,012 $ 9,042 $ 32,362
GROSS PROFIT ............... 3,542 4,654 4,234 4,902 17,332
NET INCOME ................. 241 725 582 876 2,424
NET INCOME PER SHARE
BASIC ............... .07 .21 .17 .26 .71
DILUTED ............ .07 .21 .17 .26 .70
STOCK PRICE:
HIGH ............... $ 10.75 $ 11.25 $ 11.63 $ 13.75 $ 13.75
LOW ................ 7.50 9.00 9.25 8.75 7.50
- -----------------------------------------------------------------------------------------------
1997:
Net sales .................. $ 6,610 $ 8,172 $ 7,137 $ 8,156 $ 30,075
Gross profit ............... 3,552 4,472 4,041 4,529 16,594
Net income ................. 106 605 391 735 1,837
Net income per share
Basic ............... .03 .17 .11 .21 .52
Diluted ............ .03 .17 .11 .21 .52
Stock Price:
High ............... $ 14.00 $ 11.00 $ 12.75 $ 9.25 $ 14.00
Low ................ 10.50 7.50 8.00 7.75 7.50
- -----------------------------------------------------------------------------------------------
</TABLE>
19
<PAGE> 16
Report of Independent Accountants
To the Shareholders of CEM Corporation:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, of changes in shareholders' equity and of
cash flows present fairly, in all material respects, the financial position of
CEM Corporation and its subsidiaries at June 30, 1998 and 1997, and the results
of their operations and their cash flows for each of the three years in the
period ended June 30, 1998, in conformity with generally accepted accounting
principles. 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 of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers LLP
Charlotte, North Carolina
July 22, 1998
20
<PAGE> 17
Corporate Information
OFFICERS & DIRECTORS
DR. MICHAEL J. COLLINS
Director, President and Chief Executive Officer
JOHN L. CHANON
Director
Area Partner
Tatum CFO Partners LP (CFO Services)
JOHN D. CORRENTI
Director
Vice Chairman, President and Chief Executive Officer
Nucor Corporation (Steel Products)
RICHARD N. DECKER
Vice President - Finance, Chief Financial Officer, Secretary and Treasurer
RONALD A. NORELLI
Chairman of the Board
President and Chief Executive Officer
Norelli & Company (Management Consulting)
CORPORATE ADDRESS
CEM Corporation
3100 Smith Farm Road
P.O. Box 200
Matthews, North Carolina 28106-0200
(704) 821-7015
e:mail: [email protected]
Web: http://www.cemx.com
TRANSFER AGENT
Wachovia Bank of North Carolina, N.A.
Winston Salem, North Carolina
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
Charlotte, North Carolina
GENERAL COUNSEL
Robinson, Bradshaw & Hinson, P.A.
Charlotte, North Carolina
ANNUAL MEETING
The annual meeting of shareholders of CEM Corporation will be held at 11:00 am
local time on November 5, 1998 at the corporate offices, 3100 Smith Farm Road,
Matthews, North Carolina. Shareholders of record as of September 8, 1998 will be
entitled to vote at this meeting.
TRADEMARKS
CEM(R), MAC(TM), MAS 7000(TM), Airwave 7000(TM), LabWave 9000(TM), CEM STAR
System 6(R), MARS 5(R), ProFat 2(TM), Customercare Plus(R) and PrepLink(TM) are
CEM Corporation trademarks. For ease of reading, designations of trademarks have
sometimes been omitted from the text of this report.
NASDAQ SYMBOL
The Company's common shares are traded on the Nasdaq Stock Market (National
Market System) under the symbol CEMX.
SHAREHOLDERS OF RECORD
As of September 8, 1998, The Company had approximately 2,100 shareholders of
record and an estimate of the number of individual participants represented by
security position listings.
FORM 10-K/INVESTOR CONTACT
THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED JUNE 30, 1998 FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS AVAILABLE WITHOUT CHARGE TO
SHAREHOLDERS UPON WRITTEN REQUEST. THESE REQUESTS AND OTHER INVESTOR CONTACTS
SHOULD BE DIRECTED TO RICHARD N. DECKER, SECRETARY, AT THE CORPORATE ADDRESS.
21
<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 reports dated July
22, 1998, on our audits of the consolidated financial statements and financial
statement schedule of CEM Corporation as of June 30, 1998 and 1997, and for the
years ended June 30, 1998, 1997 and 1996, which report is incorporated by
reference in this Annual Report on Form 10-K.
/s/ PricewaterhouseCoopers LLP
Charlotte, North Carolina
September 24, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> JUN-30-1998
<CASH> 2,963
<SECURITIES> 3,200
<RECEIVABLES> 6,616
<ALLOWANCES> 306
<INVENTORY> 5,675
<CURRENT-ASSETS> 18,942
<PP&E> 10,741
<DEPRECIATION> 5,816
<TOTAL-ASSETS> 28,298
<CURRENT-LIABILITIES> 5,306
<BONDS> 1,177
0
0
<COMMON> 159
<OTHER-SE> 21,560
<TOTAL-LIABILITY-AND-EQUITY> 28,298
<SALES> 32,362
<TOTAL-REVENUES> 32,362
<CGS> 15,030
<TOTAL-COSTS> 15,030
<OTHER-EXPENSES> 14,283
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,534
<INCOME-TAX> 1,110
<INCOME-CONTINUING> 2,424
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,424
<EPS-PRIMARY> .71
<EPS-DILUTED> .70
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998<F1>
<PERIOD-END> SEP-30-1997
<CASH> 6,271
<SECURITIES> 3,800
<RECEIVABLES> 4,778
<ALLOWANCES> 0
<INVENTORY> 5,042
<CURRENT-ASSETS> 20,468
<PP&E> 5,183
<DEPRECIATION> 0
<TOTAL-ASSETS> 28,793
<CURRENT-LIABILITIES> 3,794
<BONDS> 1,210
0
0
<COMMON> 175
<OTHER-SE> 23,504
<TOTAL-LIABILITY-AND-EQUITY> 28,793
<SALES> 6,603
<TOTAL-REVENUES> 6,603
<CGS> 3,061
<TOTAL-COSTS> 6,379
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 359
<INCOME-TAX> 118
<INCOME-CONTINUING> 241
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 241
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
<FN>
<F1>THE RESTATED FINANCIAL DATA SCHEDULE HAS BEEN SUBMITTED TO REFLECT ANY
CHANGES DUE TO FAS 128.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997<F1>
<PERIOD-END> JUN-30-1997
<CASH> 5,833
<SECURITIES> 3,100
<RECEIVABLES> 6,255
<ALLOWANCES> 265
<INVENTORY> 5,139
<CURRENT-ASSETS> 20,804
<PP&E> 10,278
<DEPRECIATION> 4,982
<TOTAL-ASSETS> 29,214
<CURRENT-LIABILITIES> 4,395
<BONDS> 1,229
0
0
<COMMON> 174
<OTHER-SE> 23,306
<TOTAL-LIABILITY-AND-EQUITY> 29,214
<SALES> 30,075
<TOTAL-REVENUES> 30,075
<CGS> 13,481
<TOTAL-COSTS> 13,481
<OTHER-EXPENSES> 14,216
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,702
<INCOME-TAX> 865
<INCOME-CONTINUING> 1,837
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,837
<EPS-PRIMARY> .52
<EPS-DILUTED> .52
<FN>
<F1>THE RESTATED FINANCIAL DATA SCHEDULE HAS BEEN SUBMITTED TO REFLECT ANY
CHANGES DUE TO FAS 128.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997<F1>
<PERIOD-END> MAR-31-1997
<CASH> 4,566
<SECURITIES> 3,600
<RECEIVABLES> 5,502
<ALLOWANCES> 0
<INVENTORY> 5,547
<CURRENT-ASSETS> 19,649
<PP&E> 5,264
<DEPRECIATION> 0
<TOTAL-ASSETS> 28,060
<CURRENT-LIABILITIES> 3,644
<BONDS> 1,280
0
0
<COMMON> 177
<OTHER-SE> 22,905
<TOTAL-LIABILITY-AND-EQUITY> 28,060
<SALES> 21,920
<TOTAL-REVENUES> 21,920
<CGS> 9,853
<TOTAL-COSTS> 9,853
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,680
<INCOME-TAX> 578
<INCOME-CONTINUING> 1,102
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,102
<EPS-PRIMARY> .31
<EPS-DILUTED> .31
<FN>
<F1>THE RESTATED FINANCIAL DATA SCHEDULE HAS BEEN SUBMITTED TO REFLECT ANY
CHANGES DUE TO FAS 128.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997<F1>
<PERIOD-END> SEP-30-1996
<CASH> 2,313
<SECURITIES> 3,600
<RECEIVABLES> 6,113
<ALLOWANCES> 0
<INVENTORY> 6,125
<CURRENT-ASSETS> 18,886
<PP&E> 5,475
<DEPRECIATION> 0
<TOTAL-ASSETS> 27,387
<CURRENT-LIABILITIES> 3,657
<BONDS> 1,406
0
0
<COMMON> 177
<OTHER-SE> 22,093
<TOTAL-LIABILITY-AND-EQUITY> 27,387
<SALES> 6,610
<TOTAL-REVENUES> 6,610
<CGS> 3,058
<TOTAL-COSTS> 3,058
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 164
<INCOME-TAX> 58
<INCOME-CONTINUING> 106
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 106
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
<FN>
<F1>THE RESTATED FINANCIAL DATA SCHEDULE HAS BEEN SUBMITTED TO REFLECT ANY
CHANGES DUE TO FAS 128.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997<F1>
<PERIOD-END> DEC-31-1996
<CASH> 3,181
<SECURITIES> 3,600
<RECEIVABLES> 6,558
<ALLOWANCES> 0
<INVENTORY> 6,016
<CURRENT-ASSETS> 19,857
<PP&E> 5,474
<DEPRECIATION> 0
<TOTAL-ASSETS> 28,425
<CURRENT-LIABILITIES> 3,973
<BONDS> 1,392
0
0
<COMMON> 177
<OTHER-SE> 22,829
<TOTAL-LIABILITY-AND-EQUITY> 28,425
<SALES> 14,782
<TOTAL-REVENUES> 14,782
<CGS> 6,757
<TOTAL-COSTS> 6,757
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,088
<INCOME-TAX> 377
<INCOME-CONTINUING> 711
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 711
<EPS-PRIMARY> .20
<EPS-DILUTED> .20
<FN>
<F1>THE RESTATED FINANCIAL DATA SCHEDULE HAS BEEN SUBMITTED TO REFLECT ANY CHANGES
DUE TO FAS 128.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996<F1>
<PERIOD-END> JUN-30-1996
<CASH> 1,832
<SECURITIES> 4,100
<RECEIVABLES> 7,306
<ALLOWANCES> 245
<INVENTORY> 5,639
<CURRENT-ASSETS> 19,311
<PP&E> 10,405
<DEPRECIATION> 4,836
<TOTAL-ASSETS> 27,584
<CURRENT-LIABILITIES> 3,762
<BONDS> 0
0
0
<COMMON> 178
<OTHER-SE> 22,173
<TOTAL-LIABILITY-AND-EQUITY> 27,584
<SALES> 31,477
<TOTAL-REVENUES> 31,477
<CGS> 13,096
<TOTAL-COSTS> 13,096
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 110
<INTEREST-EXPENSE> 147
<INCOME-PRETAX> 4,519
<INCOME-TAX> 1,611
<INCOME-CONTINUING> 2,908
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,908
<EPS-PRIMARY> .80
<EPS-DILUTED> .78
<FN>
<F1>THE RESTATED FINANCIAL DATA SCHEDULE HAS BEEN SUBMITTED TO REFLECT ANY
CHANGES DUE TO FAS 128.
</FN>
</TABLE>
