0000950144-95-002657.txt : 19950926 0000950144-95-002657.hdr.sgml : 19950926 ACCESSION NUMBER: 0000950144-95-002657 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950922 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CEM CORP CENTRAL INDEX KEY: 0000793933 STANDARD INDUSTRIAL CLASSIFICATION: INDUSTRIAL INSTRUMENTS FOR MEASUREMENT, DISPLAY, AND CONTROL [3823] IRS NUMBER: 561019741 STATE OF INCORPORATION: NC FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-15383 FILM NUMBER: 95575443 BUSINESS ADDRESS: STREET 1: 3100 SMITH FARM RD CITY: MATTHEWS STATE: NC ZIP: 28106 BUSINESS PHONE: 7048217015 MAIL ADDRESS: STREET 1: P.O. BOX 200 CITY: MATTHEWS STATE: NC ZIP: 28106-0200 10-K405 1 CEM CORPORATION FORM 10-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) For the fiscal year ended June 30, 1995 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the transition period from to --------- --------- 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) Post Office Box 200, Matthews, North Carolina 28106 -------------------------------------------------------------------------------- (Mailing address of principal executive offices) Registrant's telephone number, including area code: (704) 821-7015 Securities Registered Pursuant to Section 12(b) of the Act: NONE Securities Registered Pursuant to Section 12(g) of the Act: $.05 par value ---------------- Common Stock ---------------- (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ] The aggregate market value of shares of the Registrant's $.05 par value Common Stock, its only outstanding class of voting stock, held by non-affiliates as of September 15, 1995, was $41,789,037. The number of issued and outstanding shares of the Registrant's $.05 par value Common Stock, its only outstanding class of Common Stock, as of September 15, 1995 was 3,619,165 shares. Portions of the CEM Corporation Annual Report to Shareholders for the fiscal year ended June 30, 1995 are incorporated by reference into Parts I and II. Portions of the Proxy Statement for the Annual Meeting of Shareholders to be held November 8, 1995 are incorporated by reference into Part III. 2 PART I ITEM 1 - BUSINESS General The Registrant engages in one line of business, the development, manufacture, sale and service of microwave-based instrumentation for testing, analysis and process control in analytical laboratory and industrial markets. These sample preparation products provide advantages of speed and simplicity compared to traditional methods of testing and analysis. The Registrant's products are used in the general analytical laboratory market and in many manufacturing and processing industries, including chemical and food processing. A significant amount of the Registrant's sales consists of consumable supplies, parts and service for its instrumentation. The Registrant was organized as a North Carolina corporation in 1971. Products Microwave Digestion System. The Microwave Digestion System and related accessories accounted for approximately 35%, 35%, and 39% of the Registrant's consolidated sales in 1995, 1994, and 1993, respectively. This product is a microwave heating system designed especially for use in the digestion of samples for laboratory analysis. It performs a rapid dissolution of samples in acid in a closed vessel system and is sold to the analytical laboratory market. Moisture/Solids Analyzer. The Moisture/Solids Analyzer accounted for approximately 22%, 23%, and 24% of the Registrant's consolidated sales in 1995, 1994, and 1993, respectively. This product performs percent moisture or percent solids measurement in process control monitoring, quality control and product development in a variety of industries, including chemical processing, pharmaceuticals, food and dairy products, tobacco, textiles, paint and coatings, pulp and paper, water and wastewater treatment. Fat Analyzer System. The Registrant manufactures an automatic extraction unit which is used in conjunction with the Moisture/Solids Analyzer to form the Fat Analyzer System. This product measures the fat content of a variety of samples and is sold primarily to meat processing and other food industries. In fiscal 1995, a redesigned Fat Analyzer System replaced the existing product. Microwave Extraction System. The Microwave Extraction System uses microwave energy to rapidly heat solvents to high temperatures. These elevated temperatures reduce the time necessary to extract organic compounds from solid matrices. This product uses a unique temperature control system and multiple safety devices to insure both rapid and safe sample preparation. This product is a cost effective alternative to traditional solvent extraction due to its high recoveries and significantly reduced solvent usage. The Microwave Extraction System is marketed under the trade name, MES 1000. Sales of the MES 1000 will be limited in the United States until the U.S. Environmental Protection Agency approves the use of microwave-based instruments as an alternative method for extraction. Microwave Ashing System. The Microwave Ashing System uses microwave energy to rapidly oxidize a sample to determine the ash (metal oxide) content. This product is primarily sold to the analytical laboratory market and petrochemical industry. In fiscal 1995, an enhanced Microwave Ashing System was introduced. SpectroPrep System. The SpectroPrep System is a fully automated microwave heating system using a continuous flow-through process to digest samples for laboratory analysis. Initial uses of the system include environmental, chemical and agricultural applications. 2 3 Marketing and Sales The Registrant's marketing and sales strategy is based on identifying applications for its products and providing its customers with prompt and effective technical and applications support. The Registrant's marketing strategy utilizes telemarketing, direct mail, trade show demonstrations, articles, studies and trade journal advertising, product releases, seminars and extensive use of the Registrant's applications laboratory to develop specific testing applications for potential and existing customers. Sales in the U.S. are generated by full-time sales personnel through sales and service locations throughout the country. Sales are conducted through direct selling efforts including on-site demonstrations. Sales and service representatives provide installation and training of production and laboratory personnel. Sales representatives are paid a base salary, commissions and/or other incentive compensation. The Registrant's applications laboratory provides technical assistance to customers and potential customers in developing new and improved applications and related procedures. The applications laboratory performs tests in its facility in North Carolina and provides the results to customers. The Registrant's foreign sales are conducted through independent dealers throughout the world and the Registrant's subsidiaries in England, Germany and Italy. Foreign sales are primarily to customers in Europe, the Far East and Latin America. Foreign sales accounted for 42%, 38%, and 39% of net sales in fiscal 1995, 1994 and 1993, respectively. Research and Development The Registrant invests heavily in the research and development of potential new products, product improvements and enhancements, and applications research for existing products. For fiscal 1995, 1994, and 1993, research and development expense was $2,605,000, $2,641,000, and $2,667,000, respectively. Product Protection The Registrant relies upon its proprietary technology, continuing research and development and customer service support to maintain and enhance its competitive position. Important features of certain of the Registrant's products are protected by issued patents or pending patent applications. Manufacturing The Registrant's manufacturing operations are carried out at its headquarters in Matthews, North Carolina and consist mostly of the assembly and testing of mechanical and electronic components purchased from others. Certain components are currently purchased from single source suppliers. An interruption of one of these sources could result in delays in the Registrant's production while the Registrant developed an alternative supplier and could result in a loss of sales and income. There are other single source components for which the Registrant has determined that other sources are readily available. The Registrant has experienced no significant production delays because of a supplier's inability to ship an acceptable component. The Registrant stocks what it believes is an adequate supply of all components and materials based upon delivery lead times and orders currently in hand. 3 4 Environmental Regulations Compliance with federal, state and local provisions relating to protection of the environment has not had, and is not expected to have, any material adverse effects upon the production, capital expenditures, earnings or competitive position of the Registrant and its subsidiaries. Employees At June 30, 1995, the Registrant employed 187 persons. None of the Registrant's employees are covered by a collective bargaining agreement. Backlog The Registrant does not have a significant backlog of orders, as it normally ships its products within a short time after it receives orders. Competition The Registrant experiences direct competition in both foreign and U.S. markets from companies using microwave technology, traditional methods of heating and drying and other technologies. There are a number of methods for performing acid digestions, the most common of which is the traditional "open vessel on a hot plate" method. There are three other primary manufacturers of closed vessel microwave digestion systems similar in nature to the Registrant's product. Also competing with the Microwave Digestion System are other advanced methods utilizing higher pressure and temperature including steel jacketed digestion vessels for use in conventional ovens and high pressure wet ashers. There are a number of other methods for testing the moisture or solids content of various liquids and solids. In most instances, the equipment and instruments, which consist typically of simple heating and drying units and measurement techniques, are less expensive than the Moisture/Solids Analyzer produced by the Registrant. In addition, infrared moisture analyzers, radio frequency energy absorption techniques and the Karl Fischer titration method, a wet chemical procedure, have been developed. These systems compete directly with the Registrant's instrumentation in certain markets. Although there is one manufacturer of a microwave moisture system similar in nature to the Registrant's Moisture/Solids Analyzer, the Registrant does not believe there have been significant sales of this competitive product to date. There are a number of methods for performing extractions, the most common of which are the traditional Soxhlet and sonication methods. Also competing with the Registrant's Microwave Extraction System are other advanced methods such as Supercritical Fluid Extraction and Accelerated Solvent Extraction. The traditional method of ashing is with a resistance heat furnace. There are a number of manufacturers of laboratory furnaces used for ashing. Although these products are typically less expensive than the Microwave Ashing System sold by the Registrant, the Registrant's product offers advantages in both speed and process control. Typically the Registrant's selling prices are higher than those of most of its competitors. The Registrant competes primarily upon the speed, ease of use, applications support and long-term cost savings to the users. 4 5 International Operations and Sales Information about the Registrant's international operations and sales is incorporated by reference to footnotes 1 and 7 of the financial statements contained in the Registrant's 1995 Annual Report to Shareholders. ITEM 2 - PROPERTIES The Registrant's headquarters, research and manufacturing operations are located in an 82,000 square foot building on an eight and three-fourths acre tract of land owned by the Registrant near Charlotte, North Carolina. The Registrant also owns a 5,000 square foot office and warehouse facility in England, owns a 5,200 square foot office and warehouse in Germany and leases a 1,500 square foot office in Italy. The facility in Germany is subject to a mortgage which had a balance of $142,000 at June 30, 1995. Management believes these facilities are adequate to serve existing markets for the next several years. ITEM 3 - LEGAL PROCEEDINGS The Registrant is not a party to any material legal proceedings other than routine litigation incidental to the business of the Registrant. ITEM 4 is inapplicable and has been omitted. PART II ITEMS 5-7 are incorporated herein by reference to the inside front cover, pages 6-7, page 17 and items captioned "1995 Financial Highlights," "Management's Discussion and Analysis" and Footnote 10 "Quarterly Information (Unaudited)" of the Registrant's 1995 Annual Report to Shareholders. ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements, notes to the financial statements and quarterly supplemental financial data of the Registrant appearing on pages 8-17 of the Registrant's 1995 Annual Report to Shareholders are hereby incorporated by reference. ITEM 9 is inapplicable and has been omitted. 5 6 REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders of CEM Corporation: We have audited the consolidated financial statements of CEM Corporation and Subsidiaries as of June 30, 1995 and 1994, and for each of the three years in the period ended June 30, 1995, which financial statements are included on pages 8 through 17 of the 1995 Annual Report to Shareholders of CEM Corporation and incorporated by reference herein. We have also audited the financial statement schedule listed in the index on page 9 of this Form 10-K. These financial statements and the financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and the financial statement schedule based on our audits. We have conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of CEM Corporation and Subsidiaries as of June 30, 1995 and 1994, and the consolidated results of their operations and their cash flows for each of the three years in the period ended June 30, 1995, in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements as a whole, presents fairly, in all material respects, the information required to be included therein. /s/ Coopers & Lybrand L.L.P. Charlotte, North Carolina July 24, 1995 6 7 PART III Separate Item - Executive Officers of the Registrant Information as to the chief executive officer of the Registrant is incorporated herein by reference to the section captioned "Election of Directors" of the Registrant's Proxy Statement for the Annual Meeting of Shareholders to be held November 8, 1995. The following information is provided as to the executive officers of the Registrant who are not directors:
Name Age Background ---- --- ---------- Richard N. Decker 46 Secretary, Treasurer and Chief Financial Officer since February 1993; Vice President-Finance of the Water and Gas Meter Division of Schlumberger Limited Corporation 1982-1993. James A. Prendergast 54 Vice President - Sales and Service since 1995; Vice President - Marketing and Sales 1991-1995; Vice President-Waters Division of Millipore, Inc. 1988-1991. Dr. Brian W. Renoe 49 Vice President - Technology since July 1993; Director of Technology 1992-1993; Director of Instrument Products of the Hamilton Company 1990-1992.
All of the Registrant's executive officers were appointed to their current positions at the Annual Meeting of the Board of Directors held on November 10, 1994. All of the Registrant's executive officers' terms of office extend until the next Annual Meeting of the Board of Directors and until their successors are elected and qualified. ITEMS 10 through 12 are incorporated herein by reference to the sections captioned "Principal Shareholders and Holdings of Management," "Election of Directors," "Executive Compensation," "Director Compensation" and "Compliance with Section 16(a) of the Securities Exchange Act of 1934" in the Registrant's Proxy Statement for Annual Meeting of Shareholders to be held November 8, 1995. ITEM 13 is inapplicable and has been omitted. 7 8 PART IV ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a)(1) Financial Statements. See accompanying Index to Financial Statements. (2) Financial Statement Schedules. See accompanying Index to Financial Statements. (3) Exhibits. 3.1 Restated Charter of the Registrant, as amended.(1) 3.2 Bylaws of the Registrant.(1) 10.1 CEM Corporation 1986 Nonqualified Stock Option Plan, as amended, incorporated herein by reference to the Registrant's Registration Statement on Form S-8 (File No. 33-53694). 10.2 * CEM Corporation Employee Stock Purchase Plan, as amended, incorporated herein by reference to the Registrant's Registration Statement on Form S-8 (File No. 33-80136). 10.3 * CEM Corporation 1987 Stock Option Plan, as amended.(1) 10.4 * CEM Corporation 1993 Management Equity Plan, incorporated herein by reference to the Registrant's Registration Statement on Form S-8 (File No. 33-75368). 10.5 * CEM Corporation Management Incentive Compensation Plan. 10.6 CEM Corporation 1993 Nonqualified Stock Option Plan for Non-Employee Directors, incorporated herein by reference to the Registrant's Registration Statement on Form S-8 (File No. 33- 75366). 11. Computation of Earnings per Share. 13. The Registrant's 1995 Annual Report to Shareholders. This Annual Report to shareholders is furnished for the information of the Commission only and, except for the parts thereof incorporated in this report, is not deemed to be "filed" as part of this filing. 21. List of the Registrant's Subsidiaries.(1) 23. Consent of Independent Accountants. 27. Financial Data Schedule (filed in electronic format only). This schedule shall not be deemed "filed" for purposes of Section 11 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 or otherwise be subject to the liabilities of such sections, nor shall it be deemed a part of any registration statement to which it relates. 99. Revised Item 21 of Part II to the Registrant's registration statements on Form S-8 (Registration Numbers 33-11952 and 33-25739).(1)
------------------------- *This exhibit is one of the Registrant's management contracts and compensatory plans and arrangements. (1)Incorporated herein by reference to the Registrant's Form 10-K for the year ended June 30, 1994. (b) Reports on Form 8-K. No reports on Form 8-K have been filed during the last quarter of the period covered by this report. 8 9 PART IV (CONTINUED)
Reference (Page) ---------------------------------- Annual Form 10-K Report to Item 14. (A) Index to Financial Statements and Schedules Annual Report Shareholders -------------------------------------------------------- ------------- ------------ Data incorporated by reference from the attached 1995 Annual Report to Shareholders: Balance Sheets as of June 30, 1995 and 1994 8 Statements of Income for the years ended June 30, 1995, 1994 and 1993 9 Statements of Cash Flows for the years ended June 30, 1995, 1994 and 1993 10 Statements of Shareholders' Equity for the 11 years ended June 30, 1995, 1994 and 1993 Notes to Financial Statements 12-17 Data submitted herewith: Report of Independent Accountants 6 Financial Statement Schedule: Schedule II - Valuation and Qualifying Accounts 11
With the exception of the consolidated financial statements listed in the above index, the information referred to in Items 5, 6, 7 and the supplementary quarterly information referred to in Item 8, all of which is included in the 1995 Annual Report to Shareholders of CEM Corporation and incorporated by reference into this Form 10-K Annual Report, the 1995 Annual Report to Shareholders is not to be deemed "filed" as part of this report. 9 10 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Annual Report to be signed on its behalf by the undersigned thereunto duly authorized. CEM CORPORATION By: /s/ Michael J. Collins ----------------------------- Michael J. Collins Dated: September 22, 1995 President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature Capacity Date -------------------------- ----------------------------- --------------------- /s/ Ronald A. Norelli Chairman of the Board September 22, 1995 ---------------------- of Directors Ronald A. Norelli /s/ Michael J. Collins President, Chief Executive September 22, 1995 ---------------------- Officer and Director Michael J. Collins (Principal Executive Officer) /s/ Richard N. Decker Treasurer (Principal Financial September 22, 1995 ---------------------- and Accounting Officer) Richard N. Decker /s/ John L. Chanon Director September 22, 1995 ---------------------- John L. Chanon /s/ Francis H. Zenie Director September 22, 1995 ---------------------- Francis H. Zenie /s/ John D. Correnti Director September 22, 1995 ---------------------- John D. Correnti
10 11 CEM CORPORATION SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED JUNE 30, 1995, 1994 AND 1993
Balance at Charged to Balance at beginning of costs and end of Description period expenses Deductions period ----------------------- ------------ ----------- ---------- ---------- Year ended Accounts receivable, $728,000 331,000 (307,000) $752,000 June 30, 1995 inventory and warranty reserves Year ended Accounts receivable, $559,000 485,000 (316,000) $728,000 June 30, 1994 inventory and warranty reserves Year ended Accounts receivable, $340,000 298,000 ( 79,000) $559,000 June 30, 1993 inventory and warranty reserves
11 12 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 EXHIBITS ITEM 14(a)(3) ANNUAL REPORT ON FORM 10-K For the Fiscal Year Ended Commission File Number ------------------------- ---------------------- June 30, 1995 0-15383 CEM CORPORATION EXHIBIT INDEX
Exhbit No. Exhibit Description ---------- ------------------- 3.1 Restated Charter of the Registrant, as amended.(1) 3.2 Bylaws of the Registrant.(1) 10.1 CEM Corporation 1986 Nonqualified Stock Option Plan, as amended, incorporated herein by reference to the Registrant's Registration Statement on Form S-8 (File No. 33-53694). 10.2 CEM Corporation Employee Stock Purchase Plan, as amended, incorporated herein by reference to the Registrant's Registration Statement on Form S-8 (File No. 33-80136). 10.3 CEM Corporation 1987 Stock Option Plan, as amended.(1) 10.4 CEM Corporation 1993 Management Equity Plan, incorporated herein by reference to the Registrant's Registration Statement on Form S-8 (File No. 33-75368). 10.5 CEM Corporation Management Incentive Compensation Plan (page __ of the sequentially numbered pages). 10.6 CEM Corporation 1993 Nonqualified Stock Option Plan for Non-Employee Directors, incorporated herein by reference to the Registrant's Registration Statement on Form S-8 (File No. 33-75366). 11. Computation of Earnings per Share (page __ of the sequentially numbered pages). 13. The Registrant's 1995 Annual Report to Shareholders. This Annual Report to shareholders is furnished for the information of the Commission only and, except for the parts thereof incorporated in this report, is not deemed to be "filed" as part of this filing (page __ of the sequentially numbered pages). 21. List of the Registrant's Subsidiaries.(1) 23. Consent of Independent Accountants (page __ of the sequentially numbered pages).
------------------------- (1)Incorporated herein by reference to the Registrant's Form 10-K for the year ended June 30, 1994. 12 13 CEM CORPORATION EXHIBIT INDEX (continued)
Exhbit No. Exhibit Description ---------- ------------------- 27. Financial Data Schedule (filed in electronic format only). This schedule shall not be deemed "filed" for purposes of Section 11 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 or otherwise be subject to the liabilities of such sections, nor shall it be deemed a part of any registration statement to which it relates. 99. Revised Item 21 of Part II to the Registrant's registration statements on Form S-8 (Registration Numbers 33-11952 and 33-25739).(1)
------------------------- (1)Incorporated herein by reference to the Registrant's Form 10-K for the year ended June 30, 1994. 13 EX-10.5 2 MANAGEMENT INCENTIVE COMPENSATION PLAN 1 EXHIBIT 10.5 C E M CORPORATION MANAGEMENT INCENTIVE COMPENSATION PLAN ("MICP") PRINCIPAL PLAN FEATURES FOR THE YEAR ENDING JUNE 30, 1995 Goals - To have a relatively simple management incentive compensation plan that rewards certain CEM employees for achievement of the Company's short and long term objectives. - For the plan to link incentive rewards to these CEM employees with the interests of CEM's shareholders. - To have a competitive total compensation package to attract and retain the caliber of talent needed to achieve the Company's long term objectives. Participants - Three groups of CEM employees as defined below: -Senior Management -Middle Management -Key Individuals Maximum Payout Determination by Group - Maximum amount of incentive compensation available to each group is determined by the Company's FY 1995 performance as measured by "Growth in Net Income before Interest and Taxes" compared to Operating Income for the year ended June 30, 1994. - "Growth in Net Income before Interest and Taxes" must be at least __% before funds are available for the Middle Management and Key Individuals groups. - "Growth in Net Income before Interest and Taxes" must exceed __% before funds are available for the Senior Management group. - Any additional payout for "Growth in Net Income before Interest and Taxes" greater than __% is at the discretion of the Compensation Committee. 2 Individual Payout Determination - The maximum incentive award available to an individual within any group is equal to the percentage of that individual's base salary corresponding to the average percentage of salary available to the entire group. - There is no discretionary component in determining the incentive award for the Chief Executive Officer: 100% is determined by company performance defined as "Growth in Net Income before Interest and Taxes". - For all other individuals participating in the MICP, two-thirds of each incentive award (66 2/3%) is determined by company performance defined as "Growth in Net Income before Interest and Taxes," with up to an additional one-third (33 1/3% maximum) being discretionary based on management's assessment of performance towards achievement of pre-established individual objectives related to Company goals. Form of Individual Payout - For all individuals except Chief Executive Officer, - 60% of each individual award is in cash and 40% in company stock. - 50% of the stock component to vest on date of award, with remaining 50% to vest twelve months thereafter. - Individuals responsible for applicable income taxes. - The Chief Executive Officer has the option of receiving the 40% portion also in cash, either current or deferred. Additional Considerations - Company performance targets and payout potential for subsequent years will be based on the operating plans for the particular years as well as the levels of performance consistent with the Company's long term objectives established in its strategic plan. 2 3 C E M CORPORATION EMPLOYEE STOCK GRANT PLAN PRINCIPAL PLAN FEATURES FOR THE YEAR ENDING JUNE 30, 1995 Goal - To recognize and reward a broad base of CEM employees for unique achievements and thus build morale, a sense of ownership and company loyalty. Eligible Participants - Any CEM employee excluding the Officer and Middle Management groups as defined in the MICP. Type of Award - Unrestricted Stock Grants and/or Stock Options with a four-year vesting schedule (25% at the end of each twelve-month period following the grant). - Amount of a typical grant intended to be smaller than granted under the Company's prior Stock Option Plan. Method of Determining Grants - Chief Executive Officer may recommend grants to the Compensation Committee. - Compensation Committee of the Board of Directors to make grants. Other Details of Plan for Fiscal 1995 - Grants up to a total of 2,000 shares and/or options. 3 EX-11 3 COMPUTATION OF EARNINGS PER SHARE 1 EXHIBIT 11 CEM CORPORATION COMPUTATION OF EARNINGS PER SHARE
For the years ended June 30 --------------------------------------------------- 1995 1994 1993 ----------- ----------- ----------- NET INCOME................................... $ 3,179,000 $ 2,791,000 $ 2,403,000 =========== =========== =========== Weighted average number of shares outstanding........................ 3,631,000 3,913,000 4,184,000 Number of shares purchasable upon exercise of options, reduced by the number of shares which could have been purchased with proceeds from the exercise of such options at average market price........... 104,000 81,000 20,000 ----------- ----------- ----------- Weighted average number of shares outstanding, as adjusted.................. 3,735,000 3,994,000 4,204,000 =========== =========== =========== PRIMARY EARNINGS PER SHARE................... $ .85 $ .70 $ .57 =========== =========== =========== NET INCOME................................... $ 3,179,000 $ 2,791,000 $ 2,403,000 =========== =========== =========== Weighted average number of shares outstanding........................ 3,631,000 3,913,000 4,184,000 Number of shares purchasable upon exercise of options, reduced by the number of shares which could have been purchased with proceeds from exercise of such options at the greater of period-end market price or average market price...... 115,000 91,000 30,000 ----------- ----------- ----------- Weighted average number of shares outstanding, as adjusted.................. 3,746,000 4,005,000 4,214,000 =========== =========== =========== EARNINGS PER COMMON SHARE, ASSUMING FULL DILUTION.................... $ .85 $ .70 $ .57 =========== =========== ===========
EX-13 4 CEM 1995 ANNUAL REPORT 1 EXHIBIT 13 1995 FINANCIAL HIGHLIGHTS In thousands except per share data
For the years ended June 30 ------------------------------------------------------------- 1995 1994 1993 1992 1991 ------- ------- ------- ------- ------- INCOME STATEMENT AND CASH FLOWS Net sales............................................. $31,611 $29,040 $26,320 $24,250 $21,849 Income from operations................................ 4,479 4,050 3,349 2,605 3,006 Income before income taxes............................ 4,891 4,134 3,348 2,925 3,457 Net income............................................ 3,179 2,791 2,403 1,890 2,434 Net income per share.................................. $ .85 $ .70 $ .57 $ .41 $ .54 Weighted average shares outstanding................... 3,735 3,994 4,204 4,647 4,547 Net cash provided by operating activities............. $ 3,063 $ 3,220 $ 5,203 $ 704 $ 1,642
As of June 30 ------------------------------------------------------------- 1995 1994 1993 1992 1991 ------- ------- ------- ------- ------- BALANCE SHEET Working capital....................................... $14,047 $12,892 $14,343 $15,712 $13,838 Total assets.......................................... 26,653 22,766 23,414 25,367 21,174 Long-term debt........................................ 1,578 132 246 238 0 Shareholders' equity.................................. $20,592 $18,621 $20,038 $22,091 $18,913
FOOTNOTE: The following graphs are presented for a five-year period and are displayed below the tables: 1) Net Sales (In Millions) 2) Income from Operations (In Millions) 3) Net Income (In Millions) 4) Net Income Per Share CEM provides microwave-based products for the laboratory marketplace. These products create exceptional value for customers based on advantages of speed and simplicity. They are sold on a worldwide basis to the general analytical laboratory market as well as many manufacturing industries including chemical and food processing. INSIDE FRONT COVER 2 FINANCIAL SECTION Management's Discussion & Analysis............. 6 Consolidated Balance Sheets.................... 8 Consolidated Statements of Income.............. 9 Consolidated Statements of Cash Flows..........10 Consolidated Statements of Changes in Shareholders' Equity...................11 Notes to Consolidated Financial Statements.....12 Report of Independent Accountants..............18 Corporate Information..........................19 5 3 MANAGEMENT'S DISCUSSION & ANALYSIS The following table sets forth the percentage relationship of net sales, expenses and income for the periods indicated:
For the years ended June 30 -------------------------------------------------------- Percent Change Percentage of Sales Over Prior Period ------------------------------ ----------------- 1995 1994 1993 1995 1994 ------ ------ ------ ------ ------ Net sales....................................................... 100.0% 100.0% 100.0% 8.9% 10.3% Cost of goods sold.............................................. 42.2 41.3 41.2 11.2 10.6 ----- ----- ----- Gross profit.................................................... 57.8 58.7 58.8 7.2 10.1 Selling, general and administrative expenses.................... 35.4 35.7 36.0 8.1 9.5 Research and development expenses............................... 8.2 9.1 10.1 (1.4) (1.0) ----- ----- ----- Income from operations.......................................... 14.2 13.9 12.7 10.6 20.9 Investment income............................................... .9 .7 .6 35.4 29.7 Other income (expense), net..................................... .4 (.4) (.6) nm (22.9) ----- ----- ----- Income before income taxes...................................... 15.5 14.2 12.7 18.3 23.5 Provision for income taxes...................................... 5.4 4.6 3.6 27.5 42.1 ----- ----- ----- Net income...................................................... 10.1% 9.6% 9.1% 13.9 16.1 ===== ===== =====
RESULTS OF OPERATIONS FISCAL YEAR 1995 COMPARED TO FISCAL YEAR 1994 In 1995, newly introduced products were the primary contributors to sales growth as the microwave extraction system, the enhanced ashing system and the redesigned fat system boosted sales by approximately $1.9 million. Higher demand for existing digestion vessel designs and the first complete sales year for new vessel designs also contributed significantly to sales growth during the year. Foreign sales increased as a percentage of total sales from 38% to 42% as a result of stronger economic conditions in Europe and Asia and the newly introduced microwave extraction system. Although the advantages of this system have generated considerable interest in the U.S. market, the one to three years required for EPA approval for the system's use in environmental applications has limited initial sales. U.S. sales were relatively flat as compared to the prior year due to the weak environmental laboratory market. Currently, there are no signs of recovery in the U.S. environmental market. Gross profit margins declined from the prior year as a result of the increase in foreign sales which generally have lower margins than domestic sales. Research and development expenses declined following the introduction of two major new products last year. Management expects research and development expenses to remain between 8% and 10% of sales for the foreseeable future. In March 1995, the Company replaced an intercompany note receivable with a third-party bank loan, denominated in German marks. The change in other income is a result of the foreign exchange gain from this transaction and a non-recurring patent royalties settlement in 1994. The Company's effective tax rate did not change significantly and approximates the federal statutory rate. Management does not expect the rate to change significantly in 1996. 6 4 MANAGEMENT'S DISCUSSION & ANALYSIS FISCAL YEAR 1994 COMPARED TO FISCAL YEAR 1993 The SpectroPrep digestion and microwave extraction systems and the introduction of new vessel designs contributed approximately $1.5 million in sales growth in 1994. Service-related business and price increases also contributed to increases in revenues. Export business declined as a percentage of total sales from 39% in 1993 to 38% in 1994 as a result of persistent economic sluggishness in Germany and Japan. Research and development expenses declined as a percentage of sales after the initial development of the SpectroPrep system in 1993. The effective tax rate increased as certain foreign subsidiaries began paying income taxes after fully utilizing loss-carryforwards. LIQUIDITY AND CAPITAL RESOURCES In 1991, the Company began a stock repurchase program which has been extended by the Board of Directors on several occasions. Repurchases totaled $1.9, $5.0, and $4.4 million in 1995, 1994, and 1993, respectively. As of June 30, 1995, an additional $2.4 million remains authorized to repurchase the Company's common stock. Repurchases may be made from time to time in the open market or directly from shareholders at prevailing market prices. The shares repurchased will reduce the dilution of earnings to existing shareholders resulting from the Company's stock option and compensation plans. In March 1995, the Company converted an intercompany note receivable to a third party bank loan of $1.5 million, denominated in German marks. The loan proceeds and an additional $0.5 million of available cash were used to acquire a long-term investment which was pledged to secure the loan. While the loan and the corresponding long-term investment are now reflected on the balance sheet, this transaction eliminated the Company's exposure to future currency fluctuations on the intercompany note receivable. Sales growth in the latter part of the fourth quarter resulted in increases in accounts receivable. Inventories have increased as a result of new product introductions. The Company maintains an unsecured bank line of credit providing for short term borrowings of up to $3.0 million at a rate not to exceed the bank's prime rate. No amounts are presently outstanding. Should the need arise, management believes the line of credit could be increased. The Company primarily assembles components manufactured by others and significant expenditures for property and equipment are not expected. Existing facilities, which were expanded in 1991 and 1992, are expected to be sufficient to serve existing markets for the next several years. Management believes that working capital, capital expenditures, debt servicing and stock repurchases can be funded currently from cash on hand and cash generated from operations. The Company has never paid cash dividends and has no plans to do so in the foreseeable future. INFLATION Inflation has not had a material impact on the Company's operations. The prices of some components purchased by the Company have declined in the past several years due in part to increased volume and improved purchasing practices. Certain other materials and labor costs have increased, but management believes that such increases have not exceeded the inflation rate of the national economy as a whole. 7 5 CEM Corporation CONSOLIDATED BALANCE SHEETS
June 30 ----------------------------- 1995 1994 ----------- ----------- ASSETS CURRENT ASSETS: Cash and cash equivalents........................................................ $ 2,078,000 $ 2,502,000 Short-term investments........................................................... 4,000,000 3,500,000 Trade receivables................................................................ 6,733,000 6,110,000 Inventories...................................................................... 4,997,000 4,045,000 Deferred taxes................................................................... 415,000 414,000 Other current assets............................................................. 243,000 215,000 ----------- ----------- Total current assets........................................................ 18,466,000 16,786,000 LONG-TERM INVESTMENTS................................................................. 2,031,000 -- PROPERTY, PLANT AND EQUIPMENT, NET.................................................... 5,868,000 5,733,000 OTHER ASSETS.......................................................................... 288,000 247,000 ----------- ----------- $26,653,000 $22,766,000 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable................................................................. $ 1,003,000 $ 791,000 Accrued payroll and benefits..................................................... 1,406,000 1,284,000 Deferred income.................................................................. 1,099,000 1,055,000 Income taxes payable............................................................. 532,000 229,000 Warranty reserve................................................................. 142,000 255,000 Other current liabilities........................................................ 237,000 280,000 ----------- ----------- Total current liabilities................................................... 4,419,000 3,894,000 ----------- ----------- LONG-TERM DEBT, NET OF CURRENT MATURITIES............................................. 1,578,000 132,000 ----------- ----------- DEFERRED TAXES........................................................................ 64,000 119,000 ----------- ----------- SHAREHOLDERS' EQUITY: Preferred stock, $5 par value, authorized 1,000,000 shares; none issued.......... Common stock, $.05 par value; authorized 10,000,000 shares; issued and outstanding, 3,621,000 shares in 1995 and 3,718,000 shares in 1994............. 181,000 186,000 Additional paid-in capital....................................................... 313,000 -- Retained earnings................................................................ 20,180,000 18,533,000 Translation of foreign currencies................................................ (82,000) (98,000) ----------- ----------- Total shareholders' equity.................................................. 20,592,000 18,621,000 ----------- ----------- $26,653,000 $22,766,000 =========== ===========
The accompanying notes are an integral part of the consolidated financial statements. 8 6 CEM Corporation CONSOLIDATED STATEMENTS OF INCOME
For the years ended June 30 ----------------------------------------------- 1995 1994 1993 ----------- ----------- ----------- Net sales............................................................ $31,611,000 $29,040,000 $26,320,000 Cost of goods sold................................................... 13,341,000 11,999,000 10,848,000 ----------- ----------- ----------- Gross profit.................................................... 18,270,000 17,041,000 15,472,000 Selling, general and administrative expenses......................... 11,186,000 10,350,000 9,456,000 Research and development expenses.................................... 2,605,000 2,641,000 2,667,000 ----------- ----------- ----------- Income from operations.......................................... 4,479,000 4,050,000 3,349,000 Investment income.................................................... 283,000 209,000 161,000 Other income (expense), net.......................................... 129,000 (125,000) (162,000) ----------- ----------- ----------- Income before income taxes...................................... 4,891,000 4,134,000 3,348,000 Provision for income taxes........................................... 1,712,000 1,343,000 945,000 ----------- ----------- ----------- Net income...................................................... $ 3,179,000 $ 2,791,000 $ 2,403,000 =========== =========== =========== Net income per common and common equivalent share.................... $ .85 $ .70 $ .57 =========== =========== =========== Weighted average common and common equivalent shares outstanding.............................................. 3,735,000 3,994,000 4,204,000 =========== =========== ===========
The accompanying notes are an integral part of the consolidated financial statements. 9 7 CEM Corporation CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended June 30 ----------------------------------------------- 1995 1994 1993 ----------- ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income............................................................ $ 3,179,000 $ 2,791,000 $ 2,403,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization.................................... 927,000 921,000 997,000 Deferred income taxes............................................ (56,000) (163,000) (30,000) Loss (gain) on disposal of fixed assets.......................... (7,000) (34,000) 25,000 Gain on marketable securities.................................... -- -- (102,000) Changes in operating assets and liabilities: Trade receivables............................................. (557,000) (1,181,000) (44,000) Inventories................................................... (837,000) 183,000 1,121,000 Accounts payable and accrued expenses......................... 259,000 622,000 372,000 Income taxes payable.......................................... 309,000 16,000 346,000 Other changes, net............................................ (154,000) 65,000 115,000 ----------- ----------- ----------- Net cash provided by operating activities........................ 3,063,000 3,220,000 5,203,000 ----------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Sale of short-term investments........................................ 4,500,000 6,100,000 30,402,000 Purchase of short-term investments.................................... (5,004,000) (6,501,000) (28,300,000) Purchase of long-term investments..................................... (2,032,000) -- -- Proceeds from sale of fixed assets.................................... 69,000 93,000 176,000 Capital expenditures.................................................. (1,028,000) (807,000) (749,000) ----------- ----------- ----------- Net cash provided by (used in) investing activities.............. (3,495,000) (1,115,000) 1,529,000 ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from notes payable........................................... 200,000 -- 39,000 Proceeds from long-term debt.......................................... 1,333,000 -- -- Payment of notes payable.............................................. (200,000) (125,000) -- Payment of long-term debt............................................. (11,000) -- -- Repurchase of common stock............................................ (1,868,000) (4,957,000) (4,414,000) Proceeds from issuance of common stock................................ 466,000 616,000 151,000 Income tax benefit from employees' stock options...................... 71,000 90,000 11,000 ----------- ----------- ----------- Net cash used in financing activities............................ (9,000) (4,376,000) (4,213,000) ----------- ----------- ----------- EFFECTS OF EXCHANGE RATE CHANGES ON CASH.............................. 17,000 15,000 222,000 ----------- ----------- ----------- Net increase (decrease) in cash and cash equivalents.................. (424,000) (2,256,000) 2,741,000 Cash and cash equivalents at beginning of year........................ 2,502,000 4,758,000 2,017,000 ----------- ----------- ----------- Cash and cash equivalents at end of year.............................. $ 2,078,000 $ 2,502,000 $ 4,758,000 =========== =========== ===========
The accompanying notes are an integral part of the consolidated financial statements. 10 8 CEM Corporation CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the years ended June 30, 1995, 1994 and 1993 --------------------------------------------------------------------------------------- COMMON SHARES ADDITIONAL TRANSLATION ---------------------- PAID-IN RETAINED OF FOREIGN SHARES AMOUNT CAPITAL EARNINGS CURRENCIES TOTAL --------- -------- ----------- ----------- ---------- ----------- June 30, 1992..................... 4,613,000 $231,000 $ 6,768,000 $15,029,000 $ 63,000 $22,091,000 Issuance of shares under stock benefit plans.......... 19,000 1,000 150,000 151,000 Repurchase of common stock........ (552,000) (28,000) (4,386,000) (4,414,000) Income tax benefit from employees' stock options..... 11,000 11,000 Translation adjustment............ (204,000) (204,000) Net income........................ 2,403,000 2,403,000 --------- -------- ----------- ----------- ---------- ----------- June 30, 1993..................... 4,080,000 204,000 2,543,000 17,432,000 (141,000) 20,038,000 Issuance of shares under stock benefit plans.......... 72,000 4,000 612,000 616,000 Repurchase of common stock........ (434,000) (22,000) (3,245,000) (1,690,000) (4,957,000) Income tax benefit from employees' stock options..... 90,000 90,000 Translation adjustment............ 43,000 43,000 Net income........................ 2,791,000 2,791,000 --------- -------- ----------- ----------- ---------- ----------- June 30, 1994..................... 3,718,000 186,000 0 18,533,000 (98,000) 18,621,000 Issuance of shares under stock benefit plans.......... 61,000 3,000 570,000 573,000 Repurchase of common stock........ (158,000) (8,000) (328,000) (1,532,000) (1,868,000) Income tax benefit from employees' stock options..... 71,000 71,000 Translation adjustment............ 16,000 16,000 Net income........................ 3,179,000 3,179,000 --------- -------- ----------- ----------- ---------- ----------- June 30, 1995..................... 3,621,000 $181,000 $ 313,000 $20,180,000 $ (82,000) $20,592,000 ========= ======== =========== =========== ========= ===========
The accompanying notes are an integral part of the consolidated financial statements. 11 9 CEM Corporation NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ACCOUNTING POLICIES CONSOLIDATION - The financial statements include the accounts of the Company and its wholly-owned domestic and foreign subsidiaries after the elimination of inter-company accounts and transactions. SINGLE INDUSTRY SEGMENT - The Company engages in one line of business defined as the development, manufacture, sale and service of microwave-based instrumentation for testing, analysis and process control in analytical laboratory and industrial markets. TRANSLATION OF FOREIGN CURRENCIES - The Company's export sales, other than those to its foreign subsidiaries, are denominated in U.S. dollars. For the Company's foreign subsidiaries, assets and liabilities are translated at exchange rates prevailing on the balance sheet date; revenues and expenses are translated at average exchange rates prevailing during the period. Any resulting translation adjustments are reported separately in shareholders' equity. Net exchange gains (losses) from foreign currency transactions included in income were $111,000 in 1995, ($14,000) in 1994 and ($130,000) in 1993. CONCENTRATION OF CREDIT RISK - Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of temporary cash investments and trade receivables. The Company places overnight cash investments with high quality financial institutions. On June 30, 1995 and 1994, the Company purchased $1,534,000 and $843,000, respectively, of Eurodollar investments under agreements to resell on July 1, 1995 and 1994, respectively. Due to the short term nature of the agreements, the Company did not take possession of the securities which were, instead, held by a custodian. The Company sells instruments on open account terms. Sales are not concentrated geographically and no single customer accounts for more than ten percent of sales. The risk of significant loss related to trade receivables at June 30, 1995 and 1994 is minimal. STATEMENT OF CASH FLOWS - For purposes of reporting cash flows, cash equivalents include short-term interest bearing investments, generally maturing within sixty days. Cash flows from operations include income taxes paid totaling $1,384,000, $1,315,000 and $530,000 in 1995, 1994 and 1993, respectively. INVESTMENTS - On July 1, 1994, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities." This Statement requires the use of fair value accounting for those securities the Company identifies as trading and available-for-sale, but retains the use of the amortized cost method for investments in debt securities that the Company has the positive intent and ability to hold to maturity. Unrealized holding gains and losses are included in earnings for trading securities and are shown as a separate component of shareholders' equity for available-for-sale securities net of the effects of income taxes. Realized gains or losses continue to be determined on the specific identification method and are reflected in income. TRADE RECEIVABLES - Trade receivables are stated net of allowances for doubtful accounts of $165,000 and $156,000 at June 30, 1995 and 1994, respectively. INVENTORIES - Inventories are stated at the lower of cost or market. The first-in, first-out (FIFO) basis is used to determine the cost of inventories. PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment is stated at cost. Depreciation is computed generally using straight-line methods over the estimated useful lives, ranging from 3 to 40 years. When property is disposed of, the cost and related depreciation are removed from the accounts and resulting gains and losses are included in income. Major improvements are capitalized. Repair and maintenance costs are charged to expense as incurred. ADVERTISING COSTS - The Company is actively engaged in marketing both new and existing products. All advertising and promotional costs are charged to operations as incurred and totaled $742,000, $777,000 and $720,000 in 1995, 1994 and 1993, respectively. 12 10 CEM Corporation NOTES TO CONSOLIDATED FINANCIAL STATEMENTS RESEARCH AND DEVELOPMENT COSTS - The Company is actively engaged in basic technology and applied research and development programs which are designed to develop new and improved products, and product applications. The costs of these programs as well as ongoing product and process improvement, engineering and support costs are charged to operations as incurred. DEFERRED INCOME - The Company rents instruments to customers with an option to purchase during the rental period. The portion of rental payments which apply toward the purchase of instruments is deferred until the instruments are either purchased or returned, at which time deferred income is either recorded as sales revenue or rental income. Revenue from service contracts is recognized in earnings ratably over the period of the service agreement. DEFERRED INCOME TAXES - Deferred tax assets or liabilities are established for temporary differences between financial and tax reporting bases and are subsequently adjusted to reflect changes in tax rates expected to be in effect when the temporary differences reverse. NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE - The computation of net income per common share is based on the weighted average number of common shares outstanding each year, adjusted for all stock splits, after adding dilutive common stock equivalents of 104,000 in 1995, 81,000 in 1994 and 20,000 in 1993. Common stock equivalents consist of stock options. In determining the number of dilutive common stock equivalents, the Company includes average common shares attributable to dilutive stock options using the treasury stock method. Fully diluted net income per share is not presented because it approximates net income per common and common equivalent share. 2. INVESTMENTS The following table summarizes the amortized cost, fair market value and carrying value of the Company's investments at June 30, 1995 under SFAS No. 115. In 1995, proceeds from sales of available-for-sale securities were $4,500,000. There were no realized gains or losses in any security classification.
Amortized Market Carrying (In Thousands) Cost Value Value ----------------------------------------------- --------- ------ -------- Short-term available-for-sale.................. $3,000 $3,000 $3,000 Short-term held-to-maturity.................... 1,000 1,000 1,000 ------ ------ ------ $4,000 $4,000 $4,000 Long-term held-to-maturity (see Note 5)................................ 2,031 2,105 2,031 ------ ------ ------ $6,031 $6,105 $6,031 ====== ====== ======
The contractual maturities on the held-to-maturity securities range from less than one year to five years. Prior to the adoption of SFAS No. 115, the Company's investments were stated at aggregate cost which approximated market value. At June 30, 1994 and 1993, the Company's investments were short-term and totaled $3,500,000 and $3,100,000, respectively. There were no unrealized gains or losses and net realized gains were $0 in 1994 and $102,000 in 1993. 3. INVENTORIES Inventories at current cost are as follows at June 30:
(In Thousands) 1995 1994 --------------------------------------------------------- ------ ------ Parts and raw materials.................................. $2,559 $2,319 Work-in-process and finished goods....................... 2,438 1,726 ------ ------ $4,997 $4,045 ====== ======
13 11 CEM Corporation NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 4. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consisted of the following at June 30:
(In Thousands) 1995 1994 ------------------------------------------------------------- ------ ------ Land......................................................... $ 701 $ 678 Buildings.................................................... 4,460 4,328 Machinery and equipment...................................... 4,060 3,648 Vehicles..................................................... 713 578 ------ ------ 9,934 9,232 Less accumulated depreciation................................ 4,066 3,499 ------ ------ $5,868 $5,733 ====== ======
5. FINANCING ARRANGEMENTS In November 1994, the Company increased its bank line of credit, without collateral, to $3,000,000, which is renewable October 31, 1995. There were no outstanding borrowings under the line of credit at June 30, 1995. The Company is not subject to commitment fees related to the unused portion of the line of credit. At June 30, 1995, the Company had a foreign denominated mortgage note payable totaling $142,000 carrying interest at an average rate of 7.4%. Principal payments are due in equal installments until 2006 with the current portion totaling approximately $12,000 per year. On March 21, 1995, the Company entered into a 5-year term note denominated in German marks for $1,447,000 carrying a 9.25% fixed interest rate and requiring a balloon principal payment upon maturity. The note is collateralized by a long-term held-to-maturity investment. 6. INCOME TAXES The provision for income taxes consists of the following:
(In Thousands) 1995 1994 1993 ------------------------------------------- ------ ------ ------ Pre-Tax Income (Loss): Domestic................................ $5,146 $3,817 $3,103 Foreign................................. (255) 317 245 ------ ------ ------ $4,891 $4,134 $3,348 ====== ====== ====== Current: Federal and State....................... $1,816 $1,411 $ 975 Foreign................................. (48) 95 -- ------ ------ ------ 1,768 1,506 975 Deferred, Federal and State................ (56) (163) (30) ------ ------ ------ Total Taxes................................ $1,712 $1,343 $ 945 ====== ====== ======
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:
(In Thousands) 1995 1994 1993 ------------------------------------------------ ------ ------ ------ Unrealized foreign exchange losses.............. $(28) $ (52) $(13) Gains on marketable securities.................. -- -- 35 Depreciation.................................... (26) (40) (34) Inventories and reserves........................ 2 (36) (31) Other items, net................................ (4) (35) 13 ---- ----- ---- $(56) $(163) $(30) ==== ===== ====
14 12 CEM Corporation NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A reconciliation of the effective income tax rate to the amount computed by applying the statutory federal income tax rate to income before income taxes follows:
1995 1994 1993 ---- ---- ---- Federal statutory income tax rate................. 34.0% 34.0% 34.0% State income taxes, net of federal tax benefit......................... 2.5 2.4 1.8 Foreign losses (loss carryforwards utilized)...................................... 0.8 (0.4) (3.7) Tax-exempt foreign sales income................... (4.7) (4.9) (5.3) Tax-exempt interest and dividends received exclusion................... (0.9) (1.0) (0.1) Research and development credits.................. (0.8) (1.4) (1.7) Other items, net.................................. 4.1 3.8 3.2 ---- ---- ---- Effective income tax rate......................... 35.0% 32.5% 28.2% ==== ==== ====
Components of net deferred tax assets and liabilities at June 30 are as follows:
(In Thousands) 1995 1994 ---------------------------------------------------------------- ---- ---- Current assets: Inventories and reserves..................................... $291 $293 Net gains on marketable securities........................... 68 69 Foreign operations net operating loss carry-forwards....................................... 26 22 Other........................................................ 56 52 ---- ---- 441 436 Valuation allowance.......................................... (26) (22) ---- ---- $415 $414 ==== ==== Noncurrent liability (asset): Depreciation................................................. $ 98 $124 Foreign exchange on inter-company notes....................................... (34) (5) ---- ---- $ 64 $119 ==== ====
7. INTERNATIONAL OPERATIONS AND EXPORT SALES The Company maintains three subsidiaries in Europe primarily for the distribution of microwave-based instrumentation produced by the parent in the US. Financial data by geographic area is presented below:
(In Thousands) 1995 1994 1993 --------------------------------------- ------- ------- ------- NET SALES: U.S. Operations: Unaffiliated customers: U.S............................. $18,313 $18,090 $16,161 Europe.......................... 3,099 2,412 2,168 Other........................... 5,179 4,331 3,660 Inter-area transfers................ 3,118 2,302 2,378 ------- ------- ------- 29,709 27,135 24,367 European Operations: Unaffiliated customers.............. 5,020 4,207 4,331 Eliminations........................... (3,118) (2,302) (2,378) ------- ------- ------- Consolidated........................ $31,611 $29,040 $26,320 ======= ======= ======= NET INCOME (LOSS): U.S. Operations........................ $ 3,513 $ 2,657 $ 2,037 European Operations.................... (207) 221 245 Eliminations........................... (127) (87) 121 ------- ------- ------- Consolidated ....................... $ 3,179 $ 2,791 $ 2,403 ======= ======= ======= IDENTIFIABLE ASSETS: U.S. Operations........................ $22,404 $18,441 $19,398 European Operations.................... 5,081 5,240 4,551 Eliminations........................... (832) (915) (535) ------- ------- ------- Consolidated ....................... $26,653 $22,766 $23,414 ======= ======= =======
8. EMPLOYEE BENEFIT PLANS The Company has a noncontributory profit-sharing and a 401(k) tax deferred savings plan covering all employees meeting age and service requirements. Participants can make pre-tax contributions with the Company matching certain percentages of employee contributions. In addition to Company matching contributions under the 401(k) plan, additional contributions may be made as determined by the Board of Directors. The Company's policy is to fund amounts accrued. Expense related to this plan amounted to $638,000, $574,000 and $463,000 for the years ended June 30, 1995, 1994 and 1993, respectively. 15 13 CEM Corporation NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 9. MANAGEMENT INCENTIVE AND STOCK OPTION PLANS In fiscal 1994, the Company adopted the 1993 Management Equity Plan under which officers and other key employees may receive stock and cash performance-based incentive awards. Up to 375,000 shares are authorized under this plan. In 1995, 10,000 shares were awarded and options to purchase 57,000 shares were granted at $11.00 per share. No stock awards were granted in 1994. At June 30, 1995, no options were currently exercisable and 308,000 shares were reserved for future grants. Total compensation expense accrued under the plan was $232,000 in 1995 and $282,000 in 1994. Also in fiscal 1994, the Company adopted the 1993 Nonqualified Stock Option Plan for Non-Employee Directors under which options may be granted to outside directors. Up to 25,000 shares are authorized under this plan. In 1995, options to purchase 1,500 shares were granted at $13.63 per share. In 1994, options to purchase 1,500 shares were granted at $12.13 per share. At June 30, 1995, options to purchase 1,500 shares were currently exercisable and 22,000 shares were reserved for future grants. Effective with the approval of the above plans, the Company's 1986 and 1987 stock option plans, under which options were granted to officers, employees, and outside directors, were terminated. At June 30, 1995 the price on outstanding options ranged from $6.56-$13.63 per share and no shares were reserved for future grants. Additional information with respect to the 1986 and 1987 stock option plans is as follows:
(In Thousands) Shares -------------------------------------------------------------------- ------ Outstanding at June 30, 1992........................................ 514 Granted at $7.50-$13.63 per share.............................. 44 Exercised at $7.00-$8.88 per share............................. (19) Canceled....................................................... (27) --- Outstanding at June 30, 1993........................................ 512 Granted at $8.50-$10.00 per share.............................. 58 Exercised at $6.56-$10.50 per share............................ (72) Canceled....................................................... (9) --- Outstanding at June 30, 1994........................................ 489 Granted............................................................. -- Exercised at $7.69-$10.50 per share............................ (51) Canceled....................................................... (4) --- Outstanding at June 30, 1995........................................ 434 === Options exercisable at June 30, 1995................................ 363 ===
Options granted under all stock option plans are exercisable at the market value of the shares at the date of grant. The options are exercisable over a period not to exceed ten years. Tax benefits arising from disqualifying dispositions are recognized at the time of disposition and are credited to additional paid-in capital. 16 14 CEM Corporation NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 10. QUARTERLY INFORMATION (UNAUDITED) Selected quarterly results of operations and quarterly stock prices for fiscal 1995 and 1994 are summarized in the table below. The stock prices represent the high and low sales prices for CEM common shares as reported on the NASDAQ National Market System. As of September 15, 1995, CEM Corporation had approximately 3,000 shareholders based on the number of holders of record and an estimate of the number of individual participants represented by security position listings. No cash dividends were declared during the two fiscal years ended June 30, 1995.
(In thousands except per share data) Q-1 Q-2 Q-3 Q-4 Year ----------------------------------------------------------- ------ ------ ------ ------ ------- 1995: Net sales............................................... $7,146 $8,332 $7,882 $8,251 $31,611 Gross profit............................................ 4,130 4,860 4,531 4,749 18,270 Net income.............................................. 620 885 704 970 3,179 Net income per share.................................... .16 .24 .19 .26 .85 STOCK PRICE: High.................................................... $12.25 $13.63 $14.25 $13.25 $ 14.25 Low..................................................... 9.75 11.00 11.00 11.75 9.75 ------------------------------------------------------------------------------------------------------------------------- 1994: Net sales............................................... $6,735 $7,768 $6,857 $7,680 $29,040 Gross profit............................................ 3,898 4,550 3,985 4,608 17,041 Net income.............................................. 538 781 629 843 2,791 Net income per share.................................... .13 .19 .16 .22 .70 STOCK PRICE: High.................................................... $11.00 $12.25 $12.75 $12.75 $ 12.75 Low..................................................... 8.00 9.50 11.50 11.25 8.00 -------------------------------------------------------------------------------------------------------------------------
17 15 REPORT OF INDEPENDENT ACCOUNTANTS TO THE SHAREHOLDERS OF CEM CORPORATION: We have audited the accompanying consolidated balance sheets of CEM Corporation and Subsidiaries as of June 30, 1995 and 1994, and the related consolidated statements of income, changes in shareholders' equity, and cash flows for each of the three years in the period ended June 30, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of CEM Corporation and Subsidiaries as of June 30, 1995 and 1994, and the consolidated results of their operations and their cash flows for each of the three years in the period ended June 30, 1995, in conformity with generally accepted accounting principles. /s/ Coopers & Lybrand L.L.P. Charlotte, North Carolina July 24, 1995 18 16 CORPORATE INFORMATION DR. MICHAEL J. COLLINS TRANSFER AGENT Director, President and Chief Executive Officer Wachovia Bank of North Carolina, N.A. Winston Salem, North Carolina JOHN L. CHANON Director AUDITORS Senior Vice President - Finance Coopers & Lybrand L.L.P. Harris-Teeter, Inc. Charlotte, North Carolina (Regional Supermarkets) LEGAL COUNSEL JOHN D. CORRENTI Kennedy Covington Lobdell & Hickman, L.L.P. Director - Elected August 3, 1995 Charlotte, North Carolina President and Chief Operating Officer Nucor Corporation (Steel Products) FORM 10-K/INVESTOR CONTACT The Company's Annual Report on Form 10-K for the year RICHARD N. DECKER ended June 30, 1995 filed with the Securities and Secretary, Treasurer and Chief Financial Officer Exchange Commission is available without charge to shareholders upon written request. These requests and other investor contacts should be directed to Richard RONALD A. NORELLI N. Decker, Secretary, at the corporate address. Chairman of the Board President and Chief Executive Officer Norelli & Company (Management Consulting) ANNUAL MEETING The annual meeting of shareholders of CEM Corporation will be held at 11:00 am local time on November 8, 1995 JAMES A. PRENDERGAST at the corporate offices, 3100 Smith Farm Road, Vice President - Sales and Service Matthews, North Carolina. Shareholders of record as of September 15, 1995 will be entitled to vote at this meeting. DR. BRIAN W. RENOE Vice President - Technology TRADEMARKS CEM(TM), MAC(TM), MES 1000(TM), MDS 2000(TM), FRANCIS H. ZENIE MAS 7000(TM), Airwave 7000(TM), LabWave 9000(TM), Director SpectroPrep(TM) and PrepLink(TM) are CEM Corporation President and Chief Executive Officer trademarks. For ease of reading, designations of Zymark Corporation (Laboratory Robotics) trademarks have been omitted from the text of this report. CORPORATE ADDRESS CEM Corporation NASDAQ SYMBOL 3100 Smith Farm Road The Company's common shares are traded on the NASDAQ P.O. Box 200 Stock Market (National Market System) under the symbol Matthews, North Carolina 28106 CEMX. (704) 821-7015
19 EX-23 5 CONSENT OF INDEPENDENT ACCOUNTANTS 1 EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the Registration Statements of CEM Corporation on Form S-8 (File Numbers 33-11952, 33-25739, 33-53694, 33-75366, 33-75368, 33-80136 and 33-87676) of our report dated July 24, 1995, on our audits of the consolidated financial statements and financial statement schedule of CEM Corporation as of June 30, 1995 and 1994, and for the years ended June 30, 1995, 1994 and 1993, which report is included in this Annual Report on Form 10-K. /s/ Coopers & Lybrand L.L.P. Charlotte, North Carolina September 22, 1995 EX-27 6 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF CEM CORPORATION FOR THE PERIOD ENDED JUNE 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. YEAR JUN-30-1995 JUN-30-1995 2,078,000 4,000,000 6,898,000 165,000 4,997,000 18,446,000 9,934,000 4,066,000 26,653,000 4,419,000 1,578,000 181,000 0 0 20,411,000 26,653,000 31,611,000 31,611,000 13,341,000 13,341,000 0 79,000 53,000 4,891,000 1,712,000 3,179,000 0 0 0 3,179,000 .85 .85