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RELIABILITY
INCORPORATED
(Picture
ri
Logo)
ANNUAL
REPORT
1993
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TABLE OF CONTENTS
Selected Financial Information
I
To Our Shareholders
II
Corporate Information
IV
Form 10-K
1
Five Year Selected Financial Data
9
Management's Discussion
9
Consolidated Financial Statements
F-1
Notes to Consolidated Financial Statements
F-7
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SELECTED FINANCIAL INFORMATION
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(In thousands, except per share data)
1992 1993 % Change
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Revenues $31,413 $27,022 -14%
Net Income (Loss) (2,645) 2,369 N/M
Net Income (Loss) Per Share (.62) .56 N/M
Working Capital 2,413 5,846 +142
Stockholders' Equity 5,745 8,114 + 41
Total Assets 14,693 11,018 - 25
Average Shares Outstanding 4,243 4,243 -
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Graph Graph
Graph Graph
Graph See following pages
for the graphs
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REVENUES
(Thousands of Dollars)
1993 |XXXXXXXX|XXXXXXXX|XXXXX $27,022
1992 |XXXXXXXX|XXXXXXXX|XXXXXXXX|X $31,413
1991 |XXXXXXXX|XXXXXXXX|XXXXXXX $29,612
$0 $10,000 $20,000 $30,000 $40,000
TOTAL ASSETS
(Thousands of Dollars)
1993 |XXXXXXXX|XXXXXXXX|X $11,018
1992 |XXXXXXXX|XXXXXXXX|XXXXXXX $14,693
1991 |XXXXXXXX|XXXXXXXX|XXX $13,615
$0 $5,000 $10,000 $15,000
WORKING CAPITAL
(Thousands of Dollars)
1993 |XXXXXXXX|XXXXXXXX|XXXXXXX $ 5,846
1992 |XXXXXXXX|X $ 2,413
1991 |XXXXXXXX|XXXXXXXX|X $ 4,298
$0 $2,000 $4,000 $6,000
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NET INCOME (Loss)
(Thousands of Dollars
1993 |XXXXXX|X $2,369
1992 XX|XXXXXX| $(2,645)
1991 X|XXXXXX|XXXXXX| $(4,189)
$(6,000) $(2,000) $2,000
($4,000) $0
STOCKHOLDER'S EQUITY
(Thousands of Dollars)
1993 |XXXXXXXXXX|XXXXXX $ 8,114
1992 |XXXXXXXXXX|XX $ 5,745
1991 |XXXXXXXXXX|XXXXXXX $ 8,390
$0 $5,000 $10,000
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TO OUR SHAREHOLDERS
1993 Financial Review
1993 unfolded almost as planned, and exceeded our expectations in many
ways. Reliability not only returned to profitability during the year, as
forecasted, but generated net income of $2,369,000 vs. a loss of $2,645,000
in 1992.
During 1993 the semiconductor manufacturers who purchase Reliability
equipment and services saw their market increase by 30% instead of the 16%
originally projected. Microprocessors and micrologic devices led the
expansion, and memory joined the growth cycle later in the year. Due to
the high average sales prices of complex integrated circuits, semiconductor
unit demand expanded by only 8-9% but generated a 30% increase in dollars.
The increased requirement for these ICs resulted in a higher demand for
Reliability's more complex equipment and services, while the revenue from
our more traditional lines suffered.
We started 1993 on a low note by posting a $545,000 loss in the first
quarter as we restructured again by reducing space and people in the U.S.
This brought expenses in line with the forecasted revenues. The first
quarter restructuring followed the closing of our Irish Power Sources
manufacturing facility in 1991, the transfer of Power Sources operations
from Singapore to Costa Rica in 1992, and the closing of our Japanese
equipment and sales office in 1992.
Although the first quarter was a disappointment, we actually lost less
than forecasted. Since we had already closed facilities that were losing
money, expense levels for the company were more in line with the lower
revenues. The next three quarters produced earnings in excess of our plan.
Reliability recorded profits of $848,000 in the second quarter, $1,198,000
in the third quarter, and $868,000 in the fourth quarter. Total 1993 profit
after tax was $2,369,000.
The cost reduction and restructuring also had a dramatic effect on the
balance sheet. Cash as of December 31, 1993, was $2.9 million, compared to
$362,000 on December 31, 1992. Total borrowing decreased from $2.4 million
to $58,000, and net worth increased from $5.7 million to $8.1 million.
The biggest disappointment of the year was a revenue decrease from $31.4
million in 1992 to $27.0 million in 1993. Revenue decreased in every
business segment.
Testing Services
Testing Services revenue dropped slightly primarily due to lower volumes
as the demand for 1 Meg DRAMs shifted to 4 and 16 Meg DRAMs. Our slightly
higher processing prices for 4 Meg and 16 Meg DRAMs did not make up for the
lower volumes. However, Testing Services still enjoyed its sixth straight
profitable year. As the demand for 4Meg and 16Meg DRAMs increases in 1994,
we plan to install additional capacity in both our Testing Services
facilities. We feel that the additional capacity and our relationship with
our existing customers puts us in a good position to participate in the
forecasted growth in DRAMs in 1994.
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Conditioning Products
Conditioning Products revenue was down by a little over $2.6 million in
1993. Part of the decrease was due to the closing of our plant in Japan,
which had been operating at a loss. The revenue from sales of both
Intersect(tm) and Criteria(r) systems coupled with the cost reductions
achieved by the restructuring produced a 1993 operating profit of $1.9
million as compared to losses of $1.9 million in 1992 and $3.6 million in
1991.
Conditioning Products started developing and introduced several new
products during 1993. One new product is a burn-in board screener which
allows our Intersect 30 customers to pre-screen and functionally test both
16 and 64 Meg DRAMs which are loaded into Intersect 30 boards. The machine
improves the utilization of the Intersect system and, in some cases,
eliminates the need for pre-testing devices on more expensive serial test
systems.
Another new product being developed is "BIB Management" (Burn-In Board
Management) software which allows our customers to track the usage, history,
and defect rate of burn-in boards. Based on reports generated by the
program, customers will be able to make logical decisions about the price
vs. performance of sockets and burn-in boards. It will also show when the
burn-in boards are no longer reliable and need to be replaced. In addition,
this software can be used in conjunction with Reliability's Interactive
System Controller to prevent an operator from loading an inappropriate board
into a system or running an incorrect test plan.
The Innovation(r) 2000 loader/unloader is also under development. It
will automate burn-in board and device handling and provide approximately
45 minutes of unattended device loading/unloading. As a result one
equipment operator will be able to handle multiple machines. Shipping of
the first Innovation 2000 is scheduled for 1994.
Power Sources
1993 was not a good year for our Power Sources segment. Revenues
dropped from $7.0 million in 1992 to $5.4 million in 1993. We expected that
the restructuring would return the segment to profitability, but we were
only able to approach breakeven. The consolidation of manufacturing in
Costa Rica did not achieve the low cost objectives that we had set.
However, some of our efforts to reduce our dependence on Local Area Network
(LAN) products were successful as less than 30% of our sales came from LAN
products, but, we were not able to expand our sales in the targeted higher
wattage areas as fast as we had forecasted. We had several design wins with
our new products such as the new 15 watt DC to DC converters which will be
the specified converter by several of our customers in Europe. Also, we
introduced several custom power supplies for key customers in 1993, which
should start to produce revenue for us in 1994.
Looking Ahead to 1994
We are approaching 1994 with cautious optimism, and cost reduction will
remain a major portion of our 1994 plan. U.S. semiconductor manufacturers
are entering 1994 with record backlogs, and sales are forecasted to grow by
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10-20% according to most industry analysts. Although the growth rate is
slower than 1993, it is still a good, solid, double-digit rate which should
create strong demand for semiconductor manufacturing equipment. We expect
the Power Sources operations to at least break even as we get our costs
under control in Costa Rica. We will also realize the benefits of
repositioning our product line away from LAN and into higher wattage DC to
DC converters. Our increased capacity for processing 4 Meg and 16 Meg DRAMs,
coupled with the strong forecasted demand for memory devices in 1994, should
position Testing Services to have an excellent year. Conditioning and Test
Products will specifically target micrologic and memory manufacturers who
should experience better than the average industry growth during 1994 and
1995. Therefore, Reliability is looking forward to another successful year
in 1994.
Larry Edwards
President and Chief Executive Officer
March 1, 1994
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CORPORATE INFORMATION
DIRECTORS Paul Nesrsta INQUIRIES CONCERNING
W.L. Hampton Vice President THE COMPANY
Retired If you have any
Margaret Bauer questions concerning
Everett Hanlon Assistant Vice the Company's
Retired President operations, recent
results, historical
John R. Howard Lane Petterson performance or wish
Attorney Assistant Vice to receive previous
President annual reports, press
Thomas L. Langford releases or other
President, Maggie A. Chapman Company information
The Parsons Assistant Secretary please contact:
Corporation*
Investor Relations
A.C. Lederer, Jr. Manager
Investments Reliability
Incorporated
OFFICERS P.O. Box 218370
Larry Edwards LEGAL COUNSEL Houston, Texas 77218
President and Butler & Binion, L.L.P. TEL: (713) 492-0550
Chief Operating Houston, Texas FAX: (713) 492-0615
Officer
AUDITORS INQUIRIES CONCERNING
Max T. Langley Ernst & Young THE COMPANY'S STOCK
Senior Vice President, Houston, Texas If you have any
Finance, Chief Finan- questions concerning
cial Officer, Secretary ANNUAL MEETING stock certificates,
and Treasurer Shareholders are change of address,
cordially invited consolidation of
James M. Harwell to attend the annual accounts, transfer
Vice President meeting of share- of ownership or
holders of Reli- other stock account
Robert W. ability Incorporated, matters, please
Hildenbrand, Jr. to be held at the contact the Company's
Vice President Company's executive stock transfer agent
offices, the following on
J.E. Johnson 16400 Park Row, address:
Vice President Houston, Texas
April 27, 1994 Society National Bank,
at 10:00 a.m. c/o Society Shareholder
Services, Inc., Texas
Commerce Tower, Suite
1100, 600 Travis Street
Houston, Texas 77002
TEL: (713) 216-2417
*The Parsons Corporation is a holding
company whose subsidiaries are engaged
in the engineering and construction
business.
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Reliability Incorporated
P.O. Box 218370
Houston, Texas 77218
(713) 492-0550
Reliability Incorporated
North Carolina Operations
2810 Meridian Parkway, #144
Durham, North Carolina 27713
(919) 544-6704
Reliability Singapore Pte Ltd.
5004 Ang Mo Kio Ave. 5 #04-01
Singapore 2056
65-481-9266
RICR de Costa Rica, S.A.
P.O. Box 1-3006
Zona Franca Metropolitana
Barreal, Heredia
Costa Rica, A.C.
506-293-4384
ri
Quality Is Reliability
A Zero Defects Company
10
