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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended September 30, 1994
Commission File Number 1-7378
RELIABILITY INCORPORATED
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(Exact name of registrant as specified in its charter)
TEXAS 75-0868913
- ------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
16400 Park Row
Post Office Box 218370
Houston, Texas 77218-8370
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(713) 492-0550
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding twelve 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 ninety days.
YES X NO
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Indicate the number of shares outstanding of each of the issuer's classes
for common stock, as of the latest practicable date.
4,242,848 -- Common Stock -- No Par Value
as of November 9, 1994
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RELIABILITY INCORPORATED
FORM 10-Q
TABLE OF CONTENTS
September 30, 1994
PART I - FINANCIAL INFORMATION
Page No.
Item 1. Financial Statements (Unaudited):
Consolidated Balance Sheets
September 30, 1994 and December 31, 1993 3-4
Consolidated Statements of Operations
and Retained Earnings:
Nine Months Ended September 30, 1994 and 1993 5
Three Months Ended September 30, 1994 and 1993 6
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1994 and 1993 7
Notes to Consolidated Financial Statements 8-11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12-17
PART II - OTHER INFORMATION
Item 1.
through
Item 5. Not applicable. 18
Item 6. Exhibits and Reports on Form 8-K. 18
Signatures 19
The information furnished in this report reflects all adjustments (none of
which were other than normal recurring accruals) which are, in the opinion
of management, necessary to a fair statement of the results for the interim
periods presented.
2
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
RELIABILITY INCORPORATED
CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS
September 30, December 31,
1994 1993
Current Assets:
Cash and Cash Equivalents $ 6,292 $ 2,882
Accounts Receivable (Note 2) 2,297 3,074
Inventories (Notes 1 and 2) 2,186 2,356
Deferred Tax Assets 159 -
Other Current Assets 456 314
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Total Current Assets 11,390 8,626
Property and Equipment, at Cost (Note 2):
Machinery and Equipment 11,266 11,994
Leasehold Improvements 2,606 2,543
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13,872 14,537
Less Accumulated Depreciation 11,918 12,280
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1,954 2,257
Other Assets 124 135
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$13,468 $11,018
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See accompanying notes
(unaudited)
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RELIABILITY INCORPORATED
CONSOLIDATED BALANCE SHEETS
(In thousands, except
for share data)
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, December 31,
1994 1993
Current Liabilities:
Accounts Payable $ 367 $ 524
Accrued Liabilities (Note 1) 2,249 2,016
Current Maturities on Long-Term Debt (Note 2) - 58
Income Taxes Payable 21 18
Liability for Restructuring (Note 5) - 164
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Total Current Liabilities 2,637 2,780
Deferred Tax Liabilities 89 124
Commitments and Contingencies (Note 4) - -
Stockholders' Equity (Note 2):
Common Stock, Without Par Value;
20,000,000 Shares Authorized,
4,242,848 Shares Issued 5,926 5,926
Retained Earnings 4,816 2,188
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Total Stockholders' Equity 10,742 8,114
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$13,468 $11,018
======= =======
See accompanying notes
(unaudited)
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RELIABILITY INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
Nine Months Ended September 30,
(In thousands, except
per share data)
1994 1993
Revenues $19,046 $20,531
Costs and Expenses:
Cost of Revenues 10,141 11,857
Marketing, General and Administrative 5,504 6,150
Research and Development 755 663
Provision for Restructuring (Note 5) - 319
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16,400 18,989
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Operating Income 2,646 1,542
Interest (Income) Expense, Net (Note 2) (75) 51
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Income Before Income Taxes 2,721 1,491
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Provision (Benefit) for Income Taxes (Note 1):
Current 287 (35)
Deferred (194) 25
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93 (10)
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Net Income 2,628 1,501
Retained Earnings (Deficit) Beginning of Period 2,188 (181)
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Retained Earnings End of Period $ 4,816 $ 1,320
======= =======
Net Income Per Share $ .62 $ .35
======= =======
See accompanying notes
(unaudited)
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RELIABILITY INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
Three Months Ended September 30,
(In thousands, except
per share data)
1994 1993
Revenues $ 7,141 $ 7,239
Costs and Expenses:
Cost of Revenues 4,088 3,822
Marketing, General and Administrative 1,701 1,919
Research and Development 383 270
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6,172 6,011
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Operating Income 969 1,228
Interest (Income) Expense, Net (Note 2) (41) 6
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Income Before Income Taxes 1,010 1,222
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Provision (Benefit) for Income Taxes (Note 1):
Current 180 8
Deferred (161) 16
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19 24
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Net Income 991 1,198
Retained Earnings Beginning of Period 3,825 122
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Retained Earnings End of Period $ 4,816 $ 1,320
======= =======
Net Income Per Share $ .23 $ .28
======= =======
See accompanying notes
(unaudited)
6
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RELIABILITY INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30,
(In thousands)
1994 1993
Cash Flows from Operating Activities:
Net Income $ 2,628 $ 1,501
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating
Activities:
Depreciation and Amortization 809 965
Provision for Inventory Obsolescence 112 197
Provision for Restructuring - 319
Change in Deferred Tax
Assets and Liabilities (194) 25
(Gain) Loss on Disposal of Fixed Assets (2) 351
Exchange Loss - 242
Increase (Decrease) in Operating Cash Flows:
Accounts Receivable 777 1,132
Inventories 58 2,701
Refundable Income Taxes - (29)
Other Assets (171) 305
Accounts Payable (157) (1,195)
Accrued Liabilities 233 (802)
Income Taxes Payable 3 (53)
Liability for Restructuring (164) (1,490)
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Total Adjustments 1,304 2,668
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Net Cash Provided by Operating
Activities 3,932 4,169
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Cash Flows Used By Investing Activities:
Expenditures for Property and Equipment (538) (352)
Proceeds from Sale of Equipment 63 15
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Net Cash (Used) by Investing Activities (475) (337)
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Cash Flows from Financing Activities:
Net (Payments) Borrowings Under Loan Agreements - (2,443)
Conversion of Notes Payable to Long-Term Debt - 381
Payments and Current Maturities on
Long-Term Debt (58) (293)
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Net Cash (Used) by Financing Activities (58) (2,355)
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Effects of Exchange Rate Changes on Cash 11 (116)
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Net Increase in Cash 3,410 1,361
Cash at Beginning of Period 2,882 362
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Cash at End of Period $ 6,292 $ 1,723
======= =======
See accompanying notes
(unaudited)
7
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RELIABILITY INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1994
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of the
Company and its subsidiaries, all of which are wholly owned. All
significant intercompany balances and transactions have been eliminated in
consolidation. Certain amounts in the consolidated financial statements for
the periods ended September 30, 1993 have been reclassified to conform to
the 1994 presentation.
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles. For more
complete information, refer to the financial statements and footnotes
thereto included in the Company's annual report on Form 10-K for the year
ended December 31, 1993.
Cash Equivalents
- ----------------
For the purposes of the statements of cash flows, the Company considers
all highly liquid cash investments with maturities of three months or less
to be cash equivalents.
Inventories
- -----------
Inventories are stated at the lower of standard cost (which approximates
first-in, first-out) or market (replacement cost or net realizable value)
and include:
September 30, December 31,
1994 1993
(In thousands)
Raw Materials $1,272 $1,702
Work-in-Progress 789 553
Finished Goods 125 101
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$2,186 $2,356
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Advanced Payments
- -----------------
Advanced payments included in accrued liabilities total $83,000 at
September 30, 1994 and $341,000 at December 31, 1993. The advanced payments
may be refundable if the Company does not meet the terms of the order.
Revenues related to advanced payments are recognized when the products are
shipped.
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RELIABILITY INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1994
Income Taxes
- ------------
Effective January 1, 1993, the Company changed its method of accounting
for income taxes by adopting Statement of Financial Accounting Standards
(SFAS) No. 109, "Accounting for Income Taxes", which requires an asset and
liability approach to financial accounting and reporting for income taxes.
The provision for income taxes includes Federal, foreign, and state
income taxes. Deferred income taxes are provided for temporary differences
between financial statement and income tax reporting. The differences
between the effective rate reflected in the provision (benefit) for income
taxes on income before income taxes and the amounts determined by applying
the statutory U.S. tax rate of 34% are analyzed below:
September 30,
1994 1993
(In thousands)
Provision at statutory rate $ 925 $ 507
Tax benefit of net operating loss carryforward (355) (219)
Change in valuation allowance (214) -
Tax effect of:
Foreign expenses for which a benefit
is available (37) (251)
Foreign income taxed at rates less
than U.S. rate (8) (26)
Foreign tax benefit of net operating
loss carryforward (96) -
Research and development tax credits (167) -
Other 45 (21)
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Provision (benefit) for income taxes $ 93 $ (10)
===== =====
2. FINANCING AGREEMENTS AND LONG-TERM DEBT
The Company maintains a working capital financing agreement with
NationsBank of Texas, N.A. Under the agreement, the Company may request
loan advances, evidenced by demand notes, up to $2,500,000. Credit
availability is limited to 80% of eligible accounts receivable, as defined,
of the U.S. Company. Interest is payable monthly at the bank's base rate
plus 2 1/2% (10 1/4% at September 30, 1994). There were no balances
outstanding at September 30, 1994. The loan is collateralized by the U.S.
Company's accounts receivable, inventories, fixed assets and certain other
assets. The Company had credit availability of $617,000 at September 30,
1994.
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RELIABILITY INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1994
The agreement provides that if the tangible net worth, as defined, of
the U.S. Company is less than $3,000,000, the U.S. Company may not pay
dividends or make certain advances or loans without the written approval of
the bank and becomes subject to certain other defined restrictions. The
agreement limits the Company's annual capital expenditures. The financial
requirements of the financing agreement were met at September 30, 1994.
The Company's Singapore subsidiary maintains an agreement with a
Singapore bank to provide an overdraft facility to the subsidiary of 500,000
Singapore dollars (U.S. $338,000) at the bank's prime rate plus 1% (6 3/4%
at September 30, 1994). There were no balances outstanding at September 30,
1994, and amounts utilized under credit commitments totaled $131,000,
resulting in credit availability of $207,000 at September 30, 1994. The
loan is collateralized by all assets of the subsidiary and requires
maintenance of a minimum net worth of the Singapore subsidiary. Payment of
dividends requires written consent from the bank and continuation of the
credit facility is at the discretion of the bank.
The Company's Japanese subsidiary maintained an agreement with a related
party of the subsidiary to provide a credit facility to the subsidiary.
The related party of the subsidiary obtained a line of credit from a
Japanese bank and made the amount available to the Company. In April 1993,
the loan was converted to a term loan payable in monthly installments of
$9,900, plus interest paid quarterly. The Company made certain advance
payments and the loan was paid in full in March 1994.
Interest (income) expense for the periods ended September 30 is
presented net as follows:
1994 1993
(In thousands)
Interest expense $ 4 $ 55
Interest (income) (79) (4)
----- -----
Interest (income) expense, net $ (75) $ 51
===== =====
3. SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest and income taxes for the periods ended
September 30 is as follows:
1994 1993
(In thousands)
Interest $ 1 $ 79
Income taxes paid $ 248 $ 51
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RELIABILITY INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1994
4. COMMITMENTS
The Company leases manufacturing and office facilities under
noncancelable operating lease agreements expiring through 1998.
Future minimum rental payments under leases in effect at September 30,
1994, are: 1994 - $313,000; 1995 - $730,000; 1996 - $442,000; 1997 -
$310,000; 1998 - $18,000.
The Company subleases excess manufacturing and office space in its U.S.
facility. Future income under the sublease will be: 1994 - $27,000 and
1995 - $38,000.
5. PROVISION FOR RESTRUCTURING
The Company recorded, in the quarter ended March 31, 1993, a provision
for restructuring of its U.S. operations totaling $319,000 related to
retirement and severance pay for employees who were terminated in March
1993. The Company recorded restructuring charges of $1,392,000 in 1992.
The 1992 amount represented a $1,000,000 provision for closing the Company's
Japanese subsidiary and a net charge of $392,000 related to downsizing of
the Company's UK operation and a credit related to closure, in 1991, of an
Irish operation and downsizing of production capacity for power sources in
Singapore and shifting of production to Costa Rica. The charge was related
principally to the remaining lease obligations and associated costs at the
UK and Singapore facilities, severance liabilities and write-off of fixed
assets. The provision for closing the Japanese subsidiary related to
estimated losses on disposal of certain assets, severance pay, estimated
expenses to be incurred in curtailing operations and settling lease
obligations related to the subsidiary's facility.
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RELIABILITY INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
September 30, 1994
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
FINANCIAL CONDITION
Management considers cash provided by operations and retained earnings
to be primary sources of capital. The Company maintains lines of credit to
supplement these primary sources of capital and has leased its major
facilities, reducing the need to expend capital on such items. Changes in
the Company's financial condition, liquidity, and capital requirements since
September 30, 1993 are attributable to significant operating losses through
the first quarter of 1993 and significant positive cash flow from operations
related to a return to profitability in the periods subsequent to the March
1993 quarter. Reduction in expenses related to the restructuring of
operations, which was completed in the first quarter of 1993, resulted to
the Company returning to profitability and contributed to the improvement
in financial condition during 1994. Factors discussed in the management's
discussion included in the Company's 1993 Form 10-K are also applicable to
operations for the first nine months of 1994 and should be read in
conjunction with this discussion.
Certain ratios and amounts monitored by management in evaluating the
Company's financial resources and performance are presented in the following
chart:
September 30, December 31, September 30,
1994 1993 1993
Working Capital:
Working Capital (in thousands) $8,753 $5,846 $4,881
Current Ratio 4.3 to 1 3.1 to 1 2.4 to 1
Equity Ratios:
Total Liabilities to Equity 0.3 0.4 0.5
Assets to Equity 1.3 1.4 1.5
Profitability Ratios:
Gross Profit 47% 43% 42%
Return on Revenues 14% 9% 7%
Return on Assets (Annualized) 26% 22% 18%
Return on Equity (Annualized) 33% 29% 28%
The Company's financial condition improved significantly during the
latter half of 1993 and first nine months of 1994. Working capital
increased to $8.8 million at September 30, 1994 from $4.9 million at
September 30, 1993, and the ratio of current assets to current liabilities
increased to 4.3 at September 30, 1994, compared to 2.4 at September 30,
1993. The improvement is attributable to profitability resulting from
expense reductions related to restructuring of operations during the first
quarter of 1993. Expense reductions included reductions in personnel levels
and excess lease space and a general reduction in expenses, resulting in
expenses being at levels which are more appropriate for current revenue
amounts.
12
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RELIABILITY INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
September 30, 1994
Net cash provided by operating activities for the nine months ended
September 30, 1994 was $3.9 million, compared with $4.2 million provided
by operations in the 1993 period. The principal items contributing to the
cash provided by operations in 1994 are net income of $2.6 million,
depreciation and amortization and a decrease in accounts receivable. The
decrease in accounts receivable resulted from low revenues in the
Conditioning Products segment in the months of August and September 1994.
Significant items contributing to cash provided by operations in 1993 were
decreases in accounts receivable and inventories of $1.1 million and $2.7
million, respectively. Cash provided by operations in 1993 was used to
reduce debt by $2.4 million and to reduce accounts payable and accrued
liabilities by a total of $2.0 million. In addition, the cash provided by
operations was used to reduce the liability for restructuring by $1.5
million.
The Company maintains bank lines of credit to provide funds to support
changes in liquidity. The Company's total bank debt was $11,000 at
September 30, 1993. Cash flow from operations was used to pay off bank debt
in 1993. In addition, in 1993, the Company negotiated conversion of a
short-term borrowing to a term loan repayable over approximately 3 years.
The amount due under the term loan was $93,000 at September 30, 1993 and the
loan was paid in full during the quarter ended March 31, 1994. The U.S.
Company's working capital line of credit is evidenced by demand notes, and
credit availability is limited to 80% of eligible accounts receivable. The
Company's Singapore subsidiary has an overdraft facility; continuation of
the facility is at the discretion of the bank. The Company could borrow
$824,000 under its lines of credit at September 30, 1994.
Capital expenditures during the first nine months of 1994 and 1993 were
$538,000 and $352,000, respectively. Management currently projects that
1994 expenditures may exceed $1.0 million. The lease on the Company's
corporate headquarters expires in 1995. The Company will decide during 1994
whether to continue to lease or purchase the existing facility or to
relocate to a different facility.
A decline in backlog as of September 30, 1994, compared to June 1994,
relates to the Conditioning Products and Power Sources segments and results
from a decrease in demand for Conditioning Products and volume and unit
price decreases in the Power Sources segment. These changes in demand are
forecasted to affect operations in the fourth quarter of 1994 and first
quarter of 1995. Consolidated revenues for the fourth quarter could decline
below the $5.0 million level resulting in a small loss for the quarter.
Based on information currently available, management projections indicate
a modest increase in revenues in the first quarter of 1995 followed by a
return to more normal levels.
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RELIABILITY INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
September 30, 1994
RESULTS OF OPERATIONS
Nine months ended September 30, 1994 compared to nine months ended
September 30, 1993.
REVENUES
Revenues for the 1994 nine-month period declined $1.5 million to $19.0
million. Conditioning Products revenue decreased $1,951,000 while
Conditioning Services and Power Sources revenues increased $407,000 and
$59,000, respectively.
Revenues from the sale of Conditioning Products totaled $8.8 million in
1994, a decrease of 18% compared to the 1993 period. Revenues from the
sale of INTERSECT (tm) 30 burn-in and test systems declined due to a volume
decrease. The decline in revenues was offset somewhat by an increase in
revenues from the sale of burn-in chambers, resulting in a net decrease in
revenues in the segment. The changes in revenues in this segment were
related to changes in demand.
Revenues in the Power Sources segment were $4.3 million in 1994,
reflecting a 1% increase from the 1993 period. The increase resulted from
product mix changes and volume increases due to increased demand, reduced
by volume and unit price decreases in the third quarter of 1994.
Revenues in the Services segment for 1994 were $5.9 million, an increase
of 7% compared to the 1993 period. Revenues related to Conditioning
Services increased at both of the Company's Services facilities due to
volume increases; the increase in revenues in this segment is reduced
somewhat by a decline during the first half of 1994, in revenues from the
sale of conditioning products to Services customers, due to a decrease in
demand.
COSTS AND EXPENSES
Total costs and expenses, excluding the 1993 provision for
restructuring, decreased $2.3 million compared to the revenue decrease of
$1.5 million. Cost of revenues decreased $1.7 million, marketing, general
and administrative expenses decreased $646,000 and research and development
expenses increased $92,000.
The increase in the gross profit from 42% in 1993 to 47% in 1994 is
attributable to all three business segments and resulted from expense
reductions, changes in product mix and volume increases in the Power Sources
and Services segments.
The increase in the gross profit in the Conditioning Products segment
relates to cost reduction measures implemented throughout 1993, resulting
in a decrease in both fixed and variable manufacturing costs, and an
increase in the volume of burn-in chambers shipped during 1994.
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RELIABILITY INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
September 30, 1994
The increase in the gross profit in the Services segment is due to a
reduction in expenses, volume increases and a decrease in revenues from the
sale of conditioning products to Services customers. The gross profit on
these products is traditionally low due to price competition.
The increase in the gross profit in the Power Sources segment is
attributable to a reduction in manufacturing costs and production
efficiencies resulting from shifting production capacity for this segment
to Costa Rica and an increase in unit prices, during the first six months
of 1994, for certain products resulting from product mix changes.
Marketing, general and administrative expenses, for the 1994 period,
decreased $646,000 in comparison to a $1.5 million decrease in revenues.
A significant portion of the decrease relates to reductions in personnel
levels at the Houston facility, for which a restructuring provision was
recorded in the first quarter of 1993. Most elements of expenses were
reduced throughout 1993 due to stringent expenses controls which contributed
to the 1994 decrease. In addition, expenses decreased in the Conditioning
Products segment due to a decrease in volume related expenses, such as
commissions, royalties and installation costs associated with the decrease
in INTERSECT 30 burn-in and test product revenues.
Research and Development costs increased $92,000 in 1994 to $755,000.
The increase is primarily attributable to an increase in costs associated
with a project to develop a new model burn-in and test system.
The Company reduced personnel levels at its Houston facility during the
first quarter of 1993 and recorded a $319,000 provision for restructuring
of operations to cover the termination costs.
INTEREST (INCOME) EXPENSE
The change in net interest reflects a decrease in interest expense and
an increase in interest income. Interest expense decreased due to payment
of all debt balances. Interest income increased due to an increase in
investable cash balances and an increase in interest rates.
PROVISION (BENEFIT) FOR INCOME TAXES
The Company's effective tax rate was 3% for the nine months ended
September 30, 1994, and an income tax benefit of $10,000 was recorded in
1993 related to the income before tax of $1,491,000. The Company's
effective tax rate differed from the U.S. tax rate of 34% in 1994 due to tax
benefits and tax credits related to net operating loss carryforwards and tax
benefits related to expenses incurred in shutting down a foreign subsidiary
and a tax benefit related to a change in the deferred tax valuation
allowance. The principal reason the Company's effective tax rate varied
from the U.S. statutory rate in 1993 was tax benefits related to a U.S. net
operating loss carryforward and a U.S. tax benefit related to expenses
associated with the shut-down of foreign operations.
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RELIABILITY INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
September 30, 1994
Three months ended September 30, 1994, compared to three months ended
September 30, 1993.
REVENUES
Revenues for the 1994 three-month period decreased $98,000 to $7.1
million. Revenues in the Services segments increased $498,000 while
Conditioning Products and Power Sources revenues decreased $512,000 and
$84,000, respectively.
Revenues in the Conditioning Products segment were $3.7 million for the
third quarter of 1994 which is a decrease of $512,000 over the third quarter
of 1993. The decrease is related to product mix changes. Revenues from the
sale of burn-in products increased while revenues from the sale of loader
and unloader products decreased. Revenues from the sale of INTERSECT
products also decreased. The changes reflect changes in demand for capital
equipment required by the Company's customers.
Revenues in the Power Sources segment were $1.25 million for the third
quarter of 1994, reflecting a 6% decrease from the third quarter of 1993.
Revenues were affected by an increase in unit volume due to increased demand
which was offset by the effect of volume and unit price decreases, in the
third quarter of 1994, resulting from price competition.
Revenues in the Services segment for the 1994 quarter were $2.2 million,
an increase of 29% compared to the corresponding 1993 quarter. The increase
is related to both of the Company's Services facilities and is attributable
to volume increases and a significant increase, during the 1994 quarter, in
revenues from the sale of burn-in products to Services customers at the
Singapore facility.
COSTS AND EXPENSES
Total costs and expenses increased $161,000 to $6.2 million in
comparison to the revenue decrease of $98,000. Cost of revenues increased
$266,000, marketing, general and administrative expenses decreased $218,000
and research and development expenses increased $113,000.
The decrease in the gross profit from 47% in the 1993 quarter to 43% in
1994 is attributable to the Conditioning Products and Conditioning Services
segments. The gross profit in the conditioning products segment decreased
due to product mix changes. The principal reason for the decrease in the
gross profit in the Services segment is the fact that Conditioning Products
sold to Services customers increased as a percent of total revenues during
the quarter. These products are traditionally sold at a lower gross profit
due to price competition. Gross profit in the Power Sources segment
increased and is attributable to cost reduction measures as discussed in the
above nine months discussion.
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RELIABILITY INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
September 30, 1994
Marketing, general and administrative expenses for the 1994 quarter
decreased $218,000. The decrease in expenses is primarily related to a
decrease in volume related expenses in the Conditioning Products and Power
Sources segments due to the decrease in revenues.
Research and development costs increased 42% in 1994 to $383,000, for
the reasons discussed in the above narrative for the nine months period.
INTEREST (INCOME) EXPENSE
The change in net interest is explained in the above narrative for the
nine month period.
PROVISION (BENEFIT) FOR INCOME TAXES
The Company's effective tax rate was 2% for the quarters ended September
30, 1994 and 1993. The factors affecting income taxes for the quarters
ended September 30, 1994 and 1993 are the same as those discussed in the
above narrative related to income taxes for the nine months ended September
30, 1994.
17
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RELIABILITY INCORPORATED
PART II. OTHER INFORMATION
September 30, 1994
Items 1 through 5.
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Not applicable.
(b) Reports on Form 8-K. There were no reports on Form 8-K filed by the
Company during the quarter ended September 30, 1994.
18
<PAGE>
RELIABILITY INCORPORATED
SIGNATURES
September 30, 1994
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RELIABILITY INCORPORATED
(Registrant)
/s/ Larry Edwards
Larry Edwards DATE: November 9, 1994
President and
Chief Executive Officer
/s/ Max T. Langley
Max T. Langley DATE: November 9, 1994
Sr. Vice President - Finance
and Principal Financial Officer
19
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> SEP-30-1994
<CASH> 6,292
<SECURITIES> 0
<RECEIVABLES> 2,297
<ALLOWANCES> 0
<INVENTORY> 2,186
<CURRENT-ASSETS> 11,390
<PP&E> 13,872
<DEPRECIATION> 11,918
<TOTAL-ASSETS> 13,468
<CURRENT-LIABILITIES> 2,637
<BONDS> 0
<COMMON> 5,926
0
0
<OTHER-SE> 4,816
<TOTAL-LIABILITY-AND-EQUITY> 13,468
<SALES> 19,046
<TOTAL-REVENUES> 19,046
<CGS> 10,141
<TOTAL-COSTS> 10,141
<OTHER-EXPENSES> 6,259
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (75)
<INCOME-PRETAX> 2,721
<INCOME-TAX> 93
<INCOME-CONTINUING> 2,628
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,628
<EPS-PRIMARY> 0.62
<EPS-DILUTED> 0.62
</TABLE>
