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Reliability Incorporated
collage showing elements of Reliability Incorporated equipment
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Annual Report
g:\ofsusers\financial\anrpt96.wp1
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TABLE OF CONTENTS
Photo
DC/DC Converters
Selected Financial Information I
To Our Shareholders II
Corporate Information IV
Form 10-K 1
Five Year Selected Financial Data 9
Management's Discussion 10
Consolidated Financial Statements F-1
Notes To Consolidated Financial Statements F-7
Photo of RK94 Photo of Criteria 18
Burn-in Test System Chamber
Photograph of
Intersect 2000
Burn-in Test
System
The products on this page are the results of the Company's recent
expenditures for research and development.
TOP LEFT - DC/DC Converters - The Company has introduced a new series of
wide input range 10 to 25 watt DC/DC converters, which increases the number
of higher wattage units in this product line.
LEFT CENTER - RK94(tm) - This system is a low-cost addition to our
Intersect line and has the capacity to burn-in and functionally test
up to 8,064 16 and 64 Meg DRAMs. It is also designed to interface
with automatic burn-in board loading and unloading cartridges.
RIGHT CENTER - Criteria(r) 18-HD(tm) - This high heat dissipation (15 KW)
chamber was developed to burn-in and functionally test high frequency
micrologic devices. By eliminating the need for chilled water cooling, this
system occupies a significantly smaller amount of floor space than similar
chambers.
FAR RIGHT - Intersect(tm) 2000 - This system is based on the
previously introduced Intersect 30. It has the capacity to burn-in
and functionally test 15,360 16 or 64 Meg DRAMS.
(inside front cover)
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SELECTED FINANCIAL INFORMATION
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(In Thousands, except per share data)
1994 1995 % Change
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Revenues $23,427 $33,930 + 45%
Operating Income 2,580 6,004 +133
Net Income 2,645 4,063 + 54
Net Income Per Share .62 .96 + 55
Working Capital 8,974 8,504 - 5
Stockholders' Equity 10,759 14,822 + 38
Total Assets 13,284 23,727 + 79
Average Shares Outstanding 4,243 4,243 --
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The following graphs represent those shown in the printed annual report.
The graphs in the annual report are vertical bar graphs showing the dollars
along the left side and the years along the bottom. These three graphs are
flush left alongside page II, To Our Shareholders.
REVENUES (Thousands of Dollars)
1995 |XXXXXX|XXXXXX|XXXXXX|XXX | $33,930
1994 |XXXXXX|XXXXXX|X $23,427
1993 |XXXXXX|XXXXXX|XXXX $27,022
$0 $10,000 $20,000 $30,000 $40,000
OPERATING INCOME (Thousands of Dollars)
1995 |XXXXXX|XXXXXX|XXXXXX| $ 6,004
1994 |XXXXXX|X $ 2,580
1993 |XXXXXX|X $ 2,465
$0 $2,000 $4,000 $6,000 $8,000
NET INCOME (Thousands of Dollars
1995 |XXXXXX|XXXXXX|XXXXXX|XXXXXX|X $4,063
1994 |XXXXXX|XXXXXX|XXXX $2,645
1993 |XXXXXX|XXXXXX|XX $2,369
$0 $1,000 $2,000 $3,000 $4,000 $5,000
II
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The following graphs represent those shown in the printed annual report.
The graphs in the annual report are vertical bar graphs showing the dollars
along the left side and the years along the bottom. These three graphs are
flush right alongside page III, To Our Shareholders.
WORKING CAPITAL (Thousands of Dollars)
1995 |XXXXX|XXXXX|XXXXX|XXXXX|XXX $ 8,504
1994 |XXXXX|XXXXX|XXXXX|XXXXX|XXXX $ 8,974
1993 |XXXXX|XXXXX|XXXX $ 5,846
$0 $2,000 $4,000 $6,000 $8,000 $10,000
STOCKHOLDER'S EQUITY (Thousands of Dollars)
1995 |XXXXXXX|XXXXXXX|XXXXXXX|XXXX $14,822
1994 |XXXXXXX|XXXXXXX|XXXXX $10,759
1993 |XXXXXXX|XXXXXXX|XX $ 8,114
$0 $4,000 $8,000 $12,000 $16,000
TOTAL ASSETS (Thousands of Dollars)
1995 |XXXXXXXX|XXXXXXXX|XXXXXXXX|XXXXXXXX|XXXXXX $23,727
1994 |XXXXXXXX|XXXXXXXX|XXXX $13,284
1993 |XXXXXXXX|XXXXXXXX|X $11,018
$0 $5,000 $10,000 $15,000 $20,000 $25,000
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To Our Shareholders:
FINANCIAL REVIEW - 1995 was one of the best years in Reliability's history.
We reported record quarterly revenues, quarterly operating profits, and
backlogs.
New orders booked during 1995 were at an all time high of $45 million, more
than twice the level of orders for 1994. Our revenues increased 45% to
$33.9 million, leading to an operating profit of $6.0 million, up 133% from
1994. Backlog reched $14.1 million at the end of 1995, as compared to $3.4
million at the end of 1994.
Revenue for the year started slowly; however, it increased each quarter,
reaching an unprecedented $12.8 million for the fourth quarter of 1995, a
192% gain over the same quarter in the previous year. Operating income
increased at a faster rate than revenues and hit a record $3.1 million for
the fourth quarter, 20% greater than our total 1994 operating profit.
Needless to say, the unprecedented demand for micrologic and 4, 16 and 64
Meg DRAMs had a positive effect on the demand for our products and services.
PRODUCTS AND SERVICES - To respond to the strong demand we doubled our
Research & Development expenditures to $2.2 million. This allowed us to
complete development of and get into production (1) two low cost memory
burn-in and test systems, the Intersect 2000 and the RK-94; (2) three phases
of our newly developed software package, RelNet, to provide process control,
data collection and reporting for the test during burn-in process; and (3)
a new Criteria 18-HD, which has the capability to dissipate 15,000 watts.
These four products contributed over 70% of the 1995 revenue for test during
burn-in products, which increased by 83% over the 1994 level.
The Power Sources segment introduced a number of new DC/DC converters which
were well received by our customers. Orders were received for two new 10-
watt converters and a filter before the designs were complete. Other
additions to the power source line during 1995 include a 3.3 volt, 15 watt,
wide input voltage converter and our first dual voltage converters for the
15 watt family. Overall, the Power Sources segment brought a record number
of new products to market, and we expect these products to significantly
contribute to our growth in 1996 and 1997.
The strength of the DRAM market in 1995 drove Services revenues up 35%. In
response to this greater demand we purchased, for cash, 17 acres and a
43,500 sq. ft. building in North Carolina. This site will provide us with
both a building and land for expansion to meet our customer's needs for the
foreseeable future. We are now moving new equipment and upgrades into the
building and will start production in the first quarter of 1996. We should
be in full operation by the end of the second quarter. In addition, we
added over $1.0 million of capital to increase our capacity in our Singapore
facilities.
CAPITAL EXPENDITURES - Corporate-wide, Reliability invested $8.3 million in
capital equipment and facilities in 1995 to increase our productivity and
capacity to process DRAMs, to reduce our cost and time-to-market, and to
improve cash flow in the future. During 1995 we invested over $3.2 million
in our service facilities in North Carolina and Singapore in order to
increase our capacity for processing larger volumes of 4 Meg and 16 Meg
DRAMs and to decrease our cost by increasing the automation in these
facilities. We also have already committed an additional $1.0 million for
the purchase of capital assets to be delivered during the first part of
1996.
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We purchased the 7 acre site and the 131,000 square feet corporate
headquarters building in Houston which we had leased for over 10 years. This
is also home for our test during burn-in development and manufacturing
operations. This acquisition has reduced our total space cost in Houston
by approximately 50%. We also purchased for cash the land and a 29,500 sq.
ft. building which Power Sources has been leasing in Costa Rica since 1987.
This will substantially reduce our space cost for Power Sources.
FINANCIAL POSITION - Even though our spending for R&D and capital exceeded
$10 million for 1995, our balance sheet remains very strong. Our current
ratio is a healthy 2.4:1, the liabilities to equity is a strong 0.6:1,
working capital is $8.5 million, and our net worth is $14.8 million. Our
only long-term debt is the $2.5 million mortgage on our Houston building,
which is a 15 year, fixed interest mortgage.
In addition, we have revolving lines of credit in place in excess of $2
million, which will be available if we need to finance any additional growth
opportunities or to meet peak cash demands in 1996.
OUTLOOK FOR 1996 - Going into 1996, we remain optimistic about the future.
We are starting out the year with a backlog of $14.1 million, which is the
highest beginning backlog in the history of Reliability. We believe that
we have developed winning strategies for our three business segments, and
we offer our past three years' financial results as proof that these
strategies are working very well. In the past few years Reliability has made
some very large shared investments in R&D and capital with market leaders
who manufacture DRAM and micrologic devices, and we plan to continue with
this winning strategy. Since most market analysts are forecasting that the
DRAM and micrologic markets will grow at compound annual growth rates in
excess of 25% for the balance of the '90s, and since we are planning to
continue to serve the leaders in these markets, we believe that 1996 will
be similar to 1995 - gain momentum through the year, and result in higher
revenue for 1996.
/s/Larry Edwards
Larry Edwards
President and Chief Executive Officer
February 20, 1996
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Corporate Information
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Directors Officers
Larry Edwards Larry Edwards Paul Nesrsta
Chairman President and Chief Vice President
Executive Officer
W. L. Hampton Max T. Langley Margaret Bauer
Retired Senior Vice President Assistant Vice President
Finance, Chief Finan-
John R. Howard cial Officer, Secre- Lane Petterson
Attorney tary and Treasurer Assistant Vice President
Thomas L. Langford James M. Harwell Margaret A. Chapman
President Vice President Assistant Secretary
The Parsons
Corporation* Robert W. Hildenbrand, Jr.
Vice President
A.C. Lederer, Jr. *The Parsons Corporation is
Investments J. E. (Jim) Johnson a holding company whose sub-
Vice President sidiaries are engaged in
the engineering and
construction business.
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Stockholder Information
Inquiries Concerning Inquiries Concerning the
Legal Counsel the Company Company's Stock
Butler & Binion, L.L.P.
Houston, Texas If you have any ques- If you have any
tions concerning the questions concerning
Auditors Company's operations, stock certificates,
Ernst & Young, LLP recent results, his- change of address,
Houston, Texas torical performance or consolidation of
wish to receive pre- accounts, transfer
Annual Meeting vious annual reports, of ownership or
Shareholders are press releases or other other stock account
cordially invited to Company information matters, please
attend the annual please contact: contact the Company's
meeting of share- stock transfer agent
holders of Reliability at the following
Incorporated, to be Investor Relations address:
held at the Company's Manager
executive offices, Reliability Incorporated KeyCorp Shareholder
16400 Park Row, P.O. Box 218370 Services, Inc.
Houston, Texas on Houston, Texas 77218 700 Louisiana St.
April 24, 1996 at Tel: (713) 492-0550 Suite 2620
10:00 a.m. Fax: (713) 492-0615 Houston, Texas 77002-2729
TEL: (713) 546-5500
(800) 539-6549
FAX: (713) 546-5510
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Reliability Incorporated
P.O. Box 218370
Houston, Texas 77218
(713) 492-0550
Two photos of
Reliabilty North Carolina
Reliability Incorporated
North Carolina Operations
3427 Industrial Drive
Durham, North Carolina 27704
(919) 471-1491
Two photos of
RICR de Costa Rica, S.A.
RICR de Costa Rica, S.A.
P.O. Box 1-3006
Zona Franca Metropolitana
Barreal, Heredia
Costa Rica, A.C.
506-293-4384
Reliability Singapore Pte Ltd.
5004 Ang Mo Kio Ave. 5
#04-01 Techplace II
Singapore 569872
65-481-9266
(inside back cover)
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logo Reliability Incorporated
P.O. Box 218370
Houston, Texas 77218
(back cover)
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