SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OR
THE SECURITIES EXCHANGE ACT OF 1934
----------------
For the fiscal year ended December 31, 1993 Commission file number 1-7378
RELIABILITY INCORPORATED
(Exact name of registrant as specified in its charter)
Texas 75-0868913
(State or other jurisdiction (I.R.S. employer
of incorporation) identification number)
16400 Park Row, Houston, Texas 77084
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code: (713) 492-0550
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value per share
(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.
X Yes No
----- -----
State the aggregate market value of the voting stock held by non-
affiliates of the registrant. The aggregate market value shall be computed
by reference to the price at which the stock was sold, or the average bid
and asked price of such stock, as of a specific date within 60 days prior
to the date of filing.
$10,110,100, based on the last trade price as reported on The Nasdaq
Stock Market System on February 18, 1994.
1
Indicate the number of shares outstanding of each of the registrant's
classes of common stock as of the latest practicable date:
Common Stock, no par value per share 4,242,848
(title of class) (number of shares outstanding)
as of February 18, 1994
-----------------------
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.
-----
Documents Incorporated by Reference
Listed hereunder are the documents incorporated by reference and the
Part of the Form 10-K into which such documents are incorporated:
Part III........................... Proxy Statement for the 1994 Annual
Meeting of Shareholders of the
Registrant (to be filed within 120 days
of the close of the registrant's fiscal
year)
2
RELIABILITY INCORPORATED
1993 FORM 10-K
TABLE OF CONTENTS
PART I
Page
Item 1. Business. . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Item 2. Properties. . . . . . . . . . . . . . . . . . . . . . . . . . 11
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . 12
Item 4. Submission of Matters to a Vote of Security Holders . . . . . 12
Item 4A. Executive Officers of the Registrant. . . . . . . . . . . . . 12
PART II
Item 5. Market for the Registrant's Common Stock and
Related Stockholder Matters . . . . . . . . . . . . . . . . 13
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . 14
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . 15
Item 8. Consolidated Financial Statements and
Supplementary Data. . . . . . . . . . . . . . . . . . . . . F-1
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure . . . . . . . . . . . . 21
PART III
Item 10. Part III is omitted as the Company will file a
Item 11. Proxy Statement for the 1994 Annual Meeting of
Item 12. Shareholders as indicated in this report. . . . . . . . . 21
Item 13.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . 21
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . 22
3
PART I
Item 1. Business.
(a) GENERAL DEVELOPMENT OF BUSINESS. Reliability Incorporated
("Reliability") and its subsidiaries are principally engaged in the
manufacture of equipment used to condition and test integrated circuits
("ICs"). The Company and its subsidiaries also operate testing laboratories
which condition and test integrated circuits as a service to others and
manufacture power sources, primarily a line of DC to DC power converters
which convert direct current voltage into a higher or lower voltage.
The following table shows the active subsidiaries of the Company as of
the date of this report:
Reliability Incorporated
(a Texas corporation)
------------------------
RICR de Costa Rica, S.A. Reliability Singapore Pte Ltd.
(a Costa Rica corporation) (a Singapore corporation)
Reliability Japan Incorporated(1)
(a Japanese corporation)
(1) This subsidiary has discontinued operations and is in the process
of being dissolved.
As used in this report, the terms "Company" and "Registrant" refer to
Reliability, its present subsidiaries and their predecessors, unless a
different meaning is stated or indicated.
The Company was incorporated under the laws of Texas in 1953. All
subsidiaries are incorporated under a variant of the "Reliability" name.
The Company's business was started in 1971 when substantially all of the
assets of a testing laboratory owned by Texas Instruments Incorporated were
acquired by Reliability, Inc. Reliability, Inc. was not at the time owned
by the Registrant. The Registrant, in 1974, acquired Reliability, Inc. and
began providing conditioning and testing services. In 1984, this separate
company was merged into Reliability Incorporated. Reliability Singapore Pte
Ltd. began operations during 1978 and provides conditioning services and
manufactures certain conditioning products at a facility in Singapore.
Reliability Singapore also manufactured power sources until 1993, when the
power sources manufacturing operations were transferred to Costa Rica. RICR
de Costa Rica, S.A. began operating in 1990, and manufactures and sells
power sources.
The companies described in this paragraph have discontinued operations
and have been or are in the process of being dissolved. Reliability
Nederland B.V. began operations in 1974 in the Republic of Ireland and
manufactured power sources until 1991, when the company permanently closed
the facility in Ireland. Reliability Nederland B.V. was chartered in the
4
Netherlands and also functioned as a holding company for certain of the
Company's foreign subsidiaries until December 1993, when it was dissolved,
at which time subsidiaries owned by Reliability Nederland B.V. became
subsidiaries of the Company. Reliability Europe Ltd. was incorporated in
England in 1984 to serve as a sales representative and product demonstration
facility for the Company in Europe; from 1988 to 1990 it also manufactured
conditioning systems. In 1992, this company ceased operations completely.
Reliability International, Inc., a U.S. Virgin Islands corporation, was
incorporated in 1984 as a foreign sales corporation and ceased operations
on December 31, 1992. Reliability Japan Incorporated, located in Tokyo,
Japan, was incorporated in 1987 and served as a sales and technology center
for conditioning and testing systems which were manufactured by the Company.
Operations of the Japanese subsidiary were discontinued during 1993 and the
subsidiary will be dissolved in 1994.
The Company operates in three industry segments as discussed below.
CONDITIONING AND TESTING PRODUCTS. ("Conditioning Products") Under
current semiconductor technology and manufacturing processes, manufacturers
are unable to consistently produce batches of ICs which are completely free
of defects. An IC may be defective at the time it is produced, or it may
have a latent defect which permits it to operate according to specifications
for a period of time but eventually causes it to fail. An IC with such a
defect will almost always fail during the first 500 to 1,000 hours of normal
use. Accordingly, it has become customary to "condition" ICs, i.e., to
subject them, during a relatively short period of time, to controlled
stresses which simulate the first several hundred hours of operation in an
effort to uncover defects. Such stresses may include maximum rated
temperature, voltage and electrical signals and are also commonly referred
to as "burn-in". Following conditioning, an IC is tested to determine
whether it operates as intended. There are two general types of electrical
tests to which an IC may be subjected. Parametric testing determines
whether the electrical characteristics of the IC fall within certain
specified limits. Functional testing determines whether the IC performs its
specified function. The Company's products condition and functionally test
ICs.
The Company manufactures conditioning systems which are marketed under
the names CRITERIA(R) and TITAN(tm); these products can perform most burn-
in conditioning processes, but they do not test the ICs during conditioning.
CRITERIA systems were originally designed for internal use in the Company's
test labs ("TLs") but, since 1974, these systems have been sold to outside
customers.
Conditioning systems generally are used on new IC production lines, but
may also be added to existing production lines. There are a number of
different models within the product lines, each with a different capacity
and conditioning capability. The CRITERIA models condition relatively large
numbers of similar ICs at one time. The TITAN burn-in products provide wide
range flexibility to users with relatively small quantities and multiple
types of ICs to be conditioned. The TITAN products are designed primarily
for IC users, but may also be used by IC manufacturers. CRITERIA products
are purchased primarily by companies that manufacture large volumes of
similar ICs, but they are also purchased by companies that use ICs.
5
The Company manufactures, under the trade name INTERSECT(tm), systems
which functionally test ICs during conditioning. This represents a
significant difference in the way most ICs are tested. Most functional
testing is performed sequentially, that is, one IC is tested at a time after
the IC is conditioned; INTERSECT systems perform parallel functional
testing, a process by which more than one IC is tested at a time. INTERSECT
systems test ICs during the conditioning process, resulting in substantial
time savings. INTERSECT systems are computer controlled for high volume
burn-in and testing of semiconductor devices. The Company's INTERSECT
systems can vary in their capacities and testing capabilities.
The Company also produces and sells other conditioning and testing
products and related equipment. The Company manufactures the RI Automatic
Loader/Unloader(tm) which is appropriate for handling surface mount and dual
inline IC packages. The Company also manufactures IDEA Automatic Loader and
Unloader products which use a load/unload technique that is appropriate for
dual inline and surface mount IC packages requiring high volume throughput.
Conditioning systems and INTERSECT products are the principal products
marketed and sold by the Company. The other conditioning and testing
products represent options available to customers to enhance the performance
of the Company's principal products.
Conditioning and testing products are manufactured at the Company's
Texas facility and certain limited manufacturing is also done at the
Company's facility in Singapore.
CONDITIONING AND TESTING SERVICES. ("Services") The Company provides
conditioning and testing Services through its TLs to companies that
manufacturer integrated circuits. Services revenues also include revenues
from the sale of certain conditioning products, purchased by Services
customers, which are used by the Company to provide services to the
customers. The Company has TLs at its Durham, North Carolina and Singapore
facilities, although only conditioning services are available in Singapore.
The Durham TL provides conditioning and testing services to a customer in
the Research Triangle area of North Carolina.
The Company uses CRITERIA systems and burn-in boards to provide
conditioning Services. Sequential testing equipment manufactured by other
vendors is utilized by the Company in certain testing procedures. Services
are generally sold on a long-term, non-binding purchase order basis.
POWER SOURCES. The operating components of electronic equipment
frequently have varying electrical requirements. Rather than provide
electricity to each component separately, specialized devices, called DC-
DC converters, or power sources, are used to convert a given electrical
input into an electrical output of different voltage. By using small DC-
DC converters, electronic equipment can operate from a single output power
supply yet provide a specific, and different, voltage to operating
components. These DC-DC converters allow a designer of electronic equipment
to localize power requirements, increase modularity in the product design,
and expand equipment without having to redefine power needs.
6
The Company specializes in the one watt to twenty-five watt DC-DC
converter market and manufactures a wide range of power sources classified
into various product series. The Company introduced its initial product
series, the V-PAC(R), in 1972. The V-PAC is a DC-DC converter compatible
with electronic equipment assembly operations. The Company also
manufactures the Z-PAC(R), which is a high efficiency DC-DC power source,
the S-PAC(tm), a smaller one watt unit which is similar to the V-PAC, the
TELECOM-PAC(R) and the ISDN-PAC(tm), which are power sources designed for
the telecommunications industry, and the LAN, a power source designed to
operate with Local Area Network computer applications.
The Company's power sources are sold primarily to companies that
manufacture computers and peripheral equipment for computers, and
secondarily to companies that manufacture industrial control systems,
pipeline sensing and control products, and telecommunications and telephone
circuits. The Company has a power sources manufacturing facility in San
Jose, Costa Rica. In 1991, the Company closed a power sources manufacturing
facility in Ireland and shifted production of power sources for the European
market to Costa Rica. During 1993 the power sources manufacturing capacity
in Singapore was also transferred to Costa Rica.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS. The Company's
business is divided into three industry segments - (i) manufacture of
conditioning products (Conditioning Products), (ii) conditioning services
which condition and test ICs for others (Services), and (iii) manufacture
of power sources (Power Sources). The table included in Note 2 of the
Company's Consolidated Financial Statements provides certain information
regarding the Company's industry segments.
(c) NARRATIVE DESCRIPTION OF BUSINESS. The business of the Company
is generally described in part (a) of this Item 1. The following paragraphs
provide additional information concerning various aspects of the Company's
business. Unless otherwise indicated, the information provided is
applicable to all industry segments in which the Company operates.
(i) PRINCIPAL PRODUCTS. Information as to the principal products and
services of the Company is given in part (a) of this Item 1. The
Conditioning Products segment of the Company's business is the dominant
segment. The following table sets forth the percentage of the Company's
total revenues by business segment:
Years Ended December 31,
----------------------
Business Segment 1993 1992 1991
- ---------------- ---- ---- ----
Conditioning Products 53% 54% 45%
Services 27 24 25
Power Sources 20 22 30
--- --- ---
Total revenues 100% 100% 100%
=== === ===
Reference is made to Note 2 of the Company's Consolidated Financial
Statements for additional information.
7
(ii) NEW PRODUCTS. During 1993, Reliability began development of
the INNOVATION(r) 2000 which further enhances the RI Automatic
Loader/Unloader product line. The INNOVATION 2000 provides additional
automation features such as device media and burn-in board handling. These
additional features will significantly improve productivity by providing
continuous and unattended device loading and unloading for approximately
forty-five minutes, allowing one operator to handle multiple machines or
operations. Delivery of the INNOVATION 2000 is scheduled for the first
quarter of 1994.
During 1993, Reliability introduced a burn-in board screener which
allows INTERSECT 30 customers to prescreen and functionally test both 16 and
64 Meg DRAMs. The machine improves the utilization of the INTERSECT system
and, in some cases, eliminates the need for a pre-test on a more expensive
serial test system.
The Company also introduced a software product called Burn-In Board
Management ("BIB Management(tm)") which allows customers to track the usage,
history, and defect rate of burn-in boards ("BIBs"). Using reports
generated by the program, a customer can make decisions about the cost
compared to performance of sockets and BIBs and will know when the BIBs
become unreliable and need to be replaced. In addition, the BIB Management
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 Company, during 1993, continued to investigate the use of surface
mount technology in the process of manufacturing power source products.
Surface mount technology removes the human element from certain
manufacturing processes thereby enhancing the reliability of the power
sources. The technology also enables products to be assembled in smaller
packages and therefore provides higher power output from smaller units. The
Company introduced, in 1993, a new 15 watt DC-DC converter adding another
higher wattage unit to the product line and continued development efforts
related to reducing the cost of manufacturing power sources.
(iii) RAW MATERIALS AND INVENTORY. The Company's products are designed
by its engineers and are manufactured, assembled, and tested at its
facilities in Houston, Texas; San Jose, Costa Rica; and to a limited degree
in Singapore. The Company's products utilize certain parts which it
manufactures and components purchased from others. Certain metal
fabrications and subassembly functions are performed by others for the
Company.
The Company maintains an inventory of components and parts for its
manufacturing activities. There are many sources for most of the raw
materials needed for the Company's manufacturing activities, although a few
components come from sole sources. The Company has not experienced any
significant inability to obtain components or parts, but does experience
occasional delays in receiving certain items.
(iv) PATENTS, TRADEMARKS. The Company has patents and pending patent
applications in the United States and certain other countries which cover
key components of the CRITERIA and INTERSECT systems, and components of
certain other conditioning and testing products.
8
The Company considers its patent for the EX-SERT(tm) backplane system
to be material. This patent, which was granted in the United States in
February 1983, and will expire in February 2000, covers the use of a cavity
at the rear wall of the burn-in chamber to isolate power and signal
connectors from the harsh environment of the burn-in chamber. In many burn-
in systems, the power and signal connectors are subjected to intense heat
generated within the burn-in chamber, resulting in shortened connector life.
The connection assembly disclosed in the patent reduces connector
maintenance problems. A patent with respect to the backplane connection
assembly has also been granted in Japan.
The Company also considers its patents covering a method of IC
extraction during the process of unloading burn-in boards and a patent for
a floating head mechanism related to the loading of ICs onto burn-in boards
to be significant. These patents expire in 2001 and 2005, respectively.
The Company believes that its other patents and patent applications are
useful, but their loss would not be material to the business of the Company.
The Company believes that the rapidly changing technology in the electronics
industry makes the Company's future success dependent more on the quality
of its products, services, and performance and the technical skills of its
personnel and its ability to adapt to the changing technological environment
than upon any patents which it has or may be able to obtain.
The Company has certain trademarks which are registered with the U.S.
Patent & Trademark Office for use in connection with its products and
services, including "ri (plus design)", "RELIABILITY", "CRITERIA", "V-PAC",
"Z-PAC", "INNOVATION", "TELECOM-PAC" and "RI STINGRAY". In addition, the
Company uses certain other trade names which are not presently registered,
including "TITAN", "INTERSECT", "INTERACT", "INTERNET", "EX-SERT",
"UNLOADER", "S-PAC", "ISDN-PAC" and "RI Automatic Loader/Unloader" and
others not listed here which are used less frequently.
The Company has in the past and will in the future protect vigorously
all of its patents and trademarks as well as its other proprietary rights.
(v) SEASONALITY. The Company's business is not seasonal, but is
cyclical depending on the electronics manufacturing and semiconductor
industries.
(vi) WORKING CAPITAL. The Company finances its inventory and other
working capital needs out of internally generated funds and periodic
borrowings. The Company has short-term credit facilities on which the
Company could draw additional funds as of December 31, 1993. Reference is
made to Note 3 of the Company's Consolidated Financial Statements for
additional information as to credit agreements under which working capital
is or could be available if required.
(vii) MAJOR CUSTOMERS. In 1993 and 1992, four customers accounted for
73% and 67% of the Company's consolidated revenues. The four customers are
Intel Corporation, International Business Machines Corporation, Mitsubishi
Semiconductor America, Inc. and Texas Instruments Incorporated. In 1993 and
1992, two of the customers accounted for approximately 52% and 45% and 46%
and 49% of revenues, respectively, in the Services segment. In addition in
1993 and 1992 two other customers accounted for 46% and 44% and 24% and 57%
9
of revenues, respectively, in the Conditioning Products segment. Note 2 to
the Company's Consolidated Financial Statements discloses information
concerning customers that accounted for more than 10% of consolidated
revenues. In the Conditioning Products and Power Sources segments,
decreased business from one customer may be replaced by new or increased
business from other customers, but there is no assurance that this will
occur. The Company believes that its relationships with its customers are
good. The loss of or reduction in orders from a major customer and the
failure of the Company to obtain other sources of revenue could have a
material adverse impact on the Company.
(viii) BACKLOG. The following table sets forth the Company's backlog
at the dates indicated:
December 31,
-------------
Business Segment 1993 1992
- ---------------- ---- ----
(In thousands)
Conditioning Products $ 3,653 $ 7,091
Services 649 1,517
Power Sources 1,022 824
------ ------
Total $ 5,324 $ 9,432
====== ======
Backlog for sales of Conditioning Products and Power Sources represents
orders for delivery within twelve months from the date on which backlog is
reported. Backlog for Services represents orders for services where the ICs
to be conditioned have been delivered to the Company and orders for
Conditioning Products that are directly related to providing services to
customers. The Company's backlog as of December 31, 1993, is believed to
be firm, although portions of the backlog are not subject to legally binding
agreements. Orders included in backlog of the Conditioning Products segment
totaling $694,000 are not currently scheduled for delivery, but management
projects that the products will be scheduled for delivery in 1994.
(ix) GOVERNMENTAL BUSINESS. The Company does not carry on a material
amount of business with any governmental agency.
(x) COMPETITION. The markets for the Company's products and
services are subject to intense competition. The Company's primary
competitors in the manufacture of Conditioning Products are other
independent manufacturers of such systems and manufacturers of ICs who
design their own equipment. The primary methods of competition in the
manufacturing market are quality, service, delivery, price, and product
features. The Company believes that its service after the sale, including
its ability to provide installation, maintenance service, and spare parts,
enhances its competitiveness.
The world market for power sources is divided into the merchant and the
captive markets. There are less than one thousand competitors in the
merchant market of the power source manufacturing business, most of which
target a particular application for their business. The Company believes
10
there are approximately twenty significant competitors whose products
compete directly with those of the Company in its U.S. and foreign markets.
Competition in the power sources market is based primarily on the specific
features of the power sources, price and quality.
The primary areas of competition for the Company's Services are price,
service level, and geographic location. The Singapore TL provides services
to companies in southeast Asia that manufacture and use ICs, and the Durham
TL provides services to a major IC manufacturer in the Research Triangle
area of North Carolina.
(xi) RESEARCH. The demand of the semiconductor industry for
increasingly complex and sophisticated equipment results in the Company's
continuing development of new products and review and modification of its
existing products to adapt to technology changes in the industry. The
Company also focuses on the development of peripheral equipment and options
for its CRITERIA, INTERSECT and TITAN lines. In 1993, 1992 and 1991, the
Company spent $889,000, $2,639,000 and $3,105,000, respectively, on research
and development activities. Substantially all of the Company's research and
development resources, during 1991 and 1992, were devoted to an INTERSECT
project and other conditioning products. The Company completed development
of the INTERSECT 30 in 1992. Other developmental projects, which are
primarily related to the Conditioning Products segment, were undertaken in
1993.
(xii) ENVIRONMENTAL MATTERS. The business of the Company is not
expected to be affected by zoning, environmental protection, or other
similar laws or ordinances.
(xiii) EMPLOYEES. On December 31, 1993, the Company had 409 employees.
Continued growth of the Company is dependent upon the Company's ability
to attract and retain its technical staff and skilled employees. During
recent years, the Company has experienced a low turnover rate among its
employees, except that due to the very low unemployment rates in Singapore
and Costa Rica, turnover at these facilities has been high.
(d) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND
EXPORT SALES. See Note 2 to the Company's Consolidated Financial Statements
for a table showing information about foreign and domestic operations of the
Company for the last three years.
Item 2. Properties
The corporate headquarters of the Company are located in a 131,000
square foot facility on a seven acre tract of land in Park 10, an office and
industrial park on Interstate Highway 10 located on the west side of
Houston. The Company occupies 101,000 square feet in the facility and the
remaining 30,000 square feet has been sub-leased. This facility also
includes manufacturing operations for conditioning products, research and
development activities, and sales and marketing of power sources for the
U.S. market. The lease for this facility will expire in 1995, and the
Company has an option to renew for five additional years.
11
A subsidiary of the Registrant occupies 18,200 square feet of leased
space in Singapore. The Singapore facility is devoted to an TL and
manufacture of burn-in boards. The Durham TL is located in 15,300 square
feet of leased space in North Carolina. A subsidiary of the Registrant
occupies 18,900 square feet of leased space in San Jose, Costa Rica. The
plant in Costa Rica manufactures and sells power sources. See Note 7 to the
Company's Consolidated Financial Statements.
Item 3. Legal Proceedings.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 4A. Executive Officers of the Registrant.
The following table sets out certain information regarding each
executive officer of the Company:
Officer of
Reliability Position currently
Incorporated held with
Name Age Since Reliability Incorporated
---- --- ------------ ------------------------
Larry Edwards 52 1981 President and Chief
Executive Officer
Max T. Langley 47 1978 Senior Vice President and
Chief Financial Officer/
Secretary/Treasurer
Robert W. Hildenbrand, Jr. 45 1984 Vice President
J.E. (Jim) Johnson 48 1984 Vice President
James M. Harwell 39 1993 Vice President
Paul Nesrsta 37 1993 Vice President
Mr. Edwards became the chief executive officer of the Company in March
1993. He was president and chief operating officer of the Company from
April 1990 to March 1993 and was executive vice president and chief
operating officer of the Company for more than five years prior to becoming
the president in 1990.
Mr. Harwell has been a vice president of the Company since July 1993.
Mr. Harwell was the division manager of the automation equipment division
of the Company from February 1991 to July 1993 and held positions as
managing director of two of the Company's foreign subsidiaries for more than
five years prior to February 1991.
Mr. Nesrsta has been a vice president of the Company since July 1993.
Mr. Nesrsta was manager of the test systems division of the Company for more
than five years prior to becoming a vice president in 1993.
Each other person named above has held his present position for more
than five years.
12
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder
Matters.
The Common Stock of Reliability trades on The Nasdaq Stock Market under
the stock symbol REAL. The high and low last trade prices for 1993 and
1992, as reported by The Nasdaq Stock Market, are set forth below. These
quotations represent prices between dealers without retail mark-up, mark-
down, or commission, and do not necessarily reflect actual transactions.
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- ------
- -
1993
- ----
High $2.50 $1.28 $4.88 $5.63
Low .81 .69 .94 2.50
1992
- ----
High $2.13 $2.13 $2.88 $2.00
Low 1.00 1.25 1.38 1.25
A covenant in a working capital financing agreement restricts the
Company's ability to pay dividends if certain criteria are not met. The
Company could pay a dividend at December 31, 1993. The Company paid no
dividends in 1993 or 1992. The Company intends to retain any earnings for
use in its business and therefore does not anticipate paying dividends in
the foreseeable future. See Note 3 to the Company's Consolidated Financial
Statements.
Reliability had approximately 920 shareholders of record as of February
18, 1994.
13
Item 6. Selected Financial Data.
The following table sets out certain selected financial data for the
years indicated:
Years Ended December 31,
------------------------------------
1993 1992 1991 1990 1989
------ ------ ------ ------ ------
(In thousands, except per share data)
Revenues $27,022 $31,413 $29,612 $34,311 $38,073
Costs and expenses:
Operating costs 24,269 32,587 32,617 38,499 37,693
Provision for restructuring 288 1,392 1,000 - -
Interest expense (income), net 43 125 83 78 (21)
------ ------ ------ ------ ------
Total costs and expenses 24,600 34,104 33,700 38,577 37,672
------ ------ ------ ------ ------
Income (loss) before
income taxes 2,422 (2,691) (4,088) (4,266) 401
Provision (benefit) for
income taxes 53 (46) 101 (543) 309
------ ------ ------ ------ ------
Net income (loss) (1) $ 2,369 $(2,645) $(4,189) $(3,723) $ 92
====== ====== ====== ====== ======
Average shares outstanding 4,243 4,243 4,242 4,213 4,211
====== ====== ====== ====== ======
Net income (loss) per share (1) $ .56 $ (.62) $ (.99) $ (.88) $ .02
====== ====== ====== ====== ======
Dividends per share $ .00 $ .00 $ .00 $ .00 $ .00
====== ====== ====== ====== ======
Total assets $11,018 $14,693 $13,615 $17,320 $23,696
Long-term debt - - - - 600
Working capital 5,846 2,413 4,298 6,661 9,561
Property and equipment, net 2,257 3,312 3,758 5,810 7,474
Stockholders' equity 8,114 5,745 8,390 12,564 16,276
- -----
(1) The net loss and net loss per share for 1992 originally reflected the
tax benefit of a net operating loss carryforward as an extraordinary
item. The tax benefit of the net operating loss carryforward has been
reclassified and netted against the income tax provision, as explained
in Note 5 to the Consolidated Financial Statements.
14
Item 7. 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
during the three year period ended December 31, 1993 are attributable to
significant operating losses through the first quarter of 1993 and a return
to profitability in the periods subsequent to the March 1993 quarter. The
return to profitability resulted in a significant improvement in the
Company's financial condition. The losses resulted from a general decline
in demand for products sold by the Company, significant expenses to maintain
certain foreign subsidiaries, costs associated with excess capacity and
costs related to restructuring of operations. The reduction in expenses
resulting from the restructuring of operations, which was completed in the
first quarter of 1993, resulted in the Company returning to profitability
in 1993.
Certain ratios and amounts monitored by management in evaluating the
Company's financial resources and performance are presented in the following
chart:
1993 1992 1991
-------- -------- --------
Working capital:
Working capital (thousands of dollars) $ 5,846 $ 2,413 $ 4,298
Current ratio 3.1 to 1 1.3 to 1 1.9 to 1
Profitability ratios:
Gross profit 43 % 42 % 39 %
Return on revenues 9 % ( 8)% (14)%
Return on assets 22 % (18)% (31)%
Return on equity 29 % (46)% (50)%
Equity ratios:
Total liabilities to equity 0.4 1.6 0.6
Assets to equity 1.4 2.6 1.6
The Company's financial condition improved significantly during 1993.
Working capital increased to $5.8 million at December 31, 1993 from $2.4
million at December 31, 1992, and the ratio of current assets to current
liabilities increased to 3.1 at the end of 1993, compared to 1.3 at the end
of 1992. The improvement is attributable to a return to profitability
resulting from expense reductions which included reductions in personnel
levels and restructuring of operations, reduction in excess leased space and
a general reduction in most expense items.
Net cash provided by operating activities was $5.2 million in 1993,
contrasted with $1.5 million used by operations in 1992. The principal
items contributing to the cash provided by operations in 1993 are net income
15
of $2.4 million, depreciation and amortization of $1.3 million, and
decreases in accounts receivable and inventories. Cash provided by
operations was used to reduce debt under financing agreements by $2.4
million in the 1993 period.
Cash flows from operations were also used to reduce accounts payable and
accrued liabilities by a total of $2.3 million and provided cash of $1.7
million which was used to substantially complete restructuring of
operations. Accounts receivable were unusually high at December 31, 1992
due to shipment of conditioning products during the latter part of the
fourth quarter of 1992. The decrease in inventories in 1993 resulted from
shipment of conditioning products in the first quarter of 1993 that were
partially completed at December 31, 1992 and a decrease in raw materials
inventory resulting from a decrease in demand for products sold by the
Company. The decrease in the current ratio and working capital in 1992
compared to 1991 resulted principally from the $2.6 million loss reported
in 1992 and an increase in inventories and accounts receivable. The
inventory increase resulted from an increase in work-in-progress inventory
related to products that were shipped in 1993. Short-term borrowing and an
increase in accounts payable were used to support cash used by operations
and to purchase $1.4 million of capital equipment in 1992.
Capital expenditures during 1993 totaled $492,000, a decrease from
expenditures of $1.4 million in 1992. A change in product mix and volume
increases at the Company's Service facilities will require additional
equipment during 1994. 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 the first half of 1994
whether to continue to lease or purchase the existing facility, or to
relocate to a different facility.
The Company maintains bank lines of credit to provide funds to support
periodic changes in liquidity. Bank debt decreased $2.4 million in 1993
after increasing $2.0 million in 1992. Cash flow from operations was used
to pay off all bank debt in 1993. Borrowings under loan agreements during
1992 were used to support cash used by operations and to finance capital
expenditures. 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 an additional $1.4 million under its lines
of credit at December 31, 1993. Current projections indicate that cash
generated by operations supplemented by incidental bank borrowing under
existing agreements will be sufficient to meet the cash requirements of the
Company during 1994.
Effective January 1, 1993, the Company changed its method of accounting
for income taxes from the deferred method to the liability method required
by Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes." The adoption of this standard did not have a material effect
on the Company's Financial Statements.
Reliability's revenue is dependent on conditions within the
semiconductor industry and profitability is dependent on revenues and
controlling expenses. Semiconductor manufacturers experienced good sales
16
growth during 1992 and 1993 and current forecasts indicate an increase in
revenues for the industry in 1994. The Company has net operating loss
carryforwards available to reduce income taxes on a portion of future
taxable income.
RESULTS OF OPERATIONS.
OVERVIEW. Revenues from products sold by the Company declined during
the three year period ending in 1993 except that an increase in revenues in
the Conditioning Products segment in 1992 was attributable to revenues from
the sale of INTERSECT 30 systems. Delivery of these high unit price systems
began in the second quarter of 1992 and continued throughout 1993. A
decline in revenues during the three year period in the Power Sources
segment resulted from price competition, resulting in a significant decrease
in unit prices and a decrease in unit volume. Customer requirements for
conditioning Services decreased slightly in 1993. A small decrease in
Services revenues in 1992 resulted from a revenue decrease at one of the
Company's services facilities.
REVENUES. Revenues decreased 14% in 1993 to $27 million, reflecting
decreases in all business segments. Revenues in the Central America
geographical segment increased while the U.S., Asia and Pacific and Western
Europe segments declined. The increase in the Central America segment is
attributable to shifting Power Sources manufacturing to Costa Rica from
Ireland and Singapore. The overall decrease in the U.S. segment is related
to volume and unit price decreases. A substantial portion of the decrease
in the Asia Pacific segment is related to shifting Power Sources
manufacturing from Singapore to Costa Rica and to shut-down of the Japanese
operation. In 1992, revenues were $31.4 million, an increase of 6% over
1991, reflecting an increase in the Conditioning Products segment, a
decrease in the Power Sources segment and a small decrease in the Services
segment.
Conditioning Products revenues decreased 16% in 1993 to $14.2 million
after increasing 27% in 1992. A decrease in the unit volume of older models
of burn-in chambers and loader and unloader products and lower average unit
prices contributed to the decline. The increase in 1992 is attributable to
a significant increase in revenues from the sale of INTERSECT 30 products.
Revenues in the Conditioning Products segment overall, excluding INTERSECT
products, declined during the three year period due to changes in
requirements by the semiconductor industry for burn-in and other
conditioning products and to product mix changes. Domestic conditioning and
testing product shipments increased due to shipment of INTERSECT 30 systems
beginning in the second quarter of 1992. Revenues from the sale of
conditioning and testing products in Japan decreased significantly in 1992
due to a reduction in capital spending by Japanese semiconductor
manufacturers.
Revenues in the Power Sources segment decreased in 1993 to $5.4 million
after decreasing 20% to $7.0 million in 1992. The decrease, in both years,
resulted principally from price competition resulting in average unit sale
price and volume decreases. The decline in revenues appeared to be
stabilizing during the latter part of 1993.
17
Revenues in the Services segment decreased 3% in 1993 to $7.4 million
after decreasing only $6,000 in 1992. The 1993 decrease in revenues is
attributable to product mix changes and unit price decreases resulting from
lower operating costs being passed through to customers. Average unit
prices increased during the latter part of 1993 due to a shift in product
mix. Revenues included in the Services segment from the sale of
conditioning products to Services customers increased during 1993 due to a
change in product mix. Revenues at the Durham services facility decreased
in 1992 due to volume decreases caused by product mix changes. Revenues at
the Singapore facility increased in 1992 due to volume increases and
increases in average unit sales prices due to product mix changes.
INFLATION. The overall impact of inflation on revenues has been
minimal. Salaries and wages have increased at rates less than the general
inflation rate during the three year period due to salary reductions and
wages freezes during 1991 and 1992. The cost of raw materials and purchased
parts increased at rates somewhat greater than the general inflation rate
due to general increases in demand.
COSTS AND EXPENSES. Changes in costs and expenses during the three year
period are primarily related to various cost reduction and restructuring
measures, changes in revenue levels and the changes in research and
development expenditures.
Total costs and expenses, excluding the provision for restructuring,
decreased $8.3 million in 1993 compared to the revenue decrease of $4.4
million. Cost of revenues decreased $2.7 million; marketing, general and
administrative expenses decreased $3.8 million; and research and development
expenses decreased $1.8 million. The overall decrease in expenses, in 1993,
related to restructuring of operations, expense reduction programs and a
decrease in revenue and volume related expenses. Total costs and expenses,
excluding the provision for restructuring, decreased $30,000 in 1992 to
$32.6 million, compared to a revenue increase of $1.8 million. In general,
costs and expenses decreased in 1992 due to a reduction in personnel levels
and various cost reduction programs. The decreases were offset in some
instances by volume related expenses associated with revenues from the sale
of the INTERSECT 30 products. Costs and expenses were also affected by
certain operations operating below levels necessary to absorb fixed overhead
costs.
The Company's gross profit, as a percent of revenues, was 43%, 42% and
39% in 1993, 1992 and 1991, respectively. The 1993 increase is related to
an increase in the Conditioning Products segment. The increase in the
Conditioning Products segment resulted from a decrease in both fixed and
variable manufacturing costs and changes in product mix. The increase also
resulted from a reduction in expenses due to shut-down of the Japanese
operation. A small decline in the gross profit in the Services segment is
due principally to an increase in revenues from the sale of conditioning
products to Services customers, because the gross profit on these products
is traditionally low due to price competition. Revenues in the Power
Sources segment declined 22% in 1993, but the gross profit in the segment
was basically unchanged compared to 1992. Total manufacturing costs
declined significantly due to the restructuring of operations and shifting
18
of all production capacity for this segment to Costa Rica. A significant
portion of the benefit of the change took effect in the third quarter of
1993. The overall 1992 gross profit increase is principally related to an
increase in the Conditioning Products segment and to a lesser extent to an
increase in the Service segment, reduced by a decrease in the Power Sources
segment. The increase in the Conditioning Products segment resulted from
a reduction in overhead expenses, including personnel and expense
reductions, and a higher absorption of fixed overhead by certain operations.
The increase in the Services segment in 1992 results from product mix
changes and a reduction in overhead expense. Expense controls at both of
the Company's services facilities and a reduction in overhead expense also
contributed to the increase. The 1992 decrease in the Power Sources segment
relates to volume and price decreases and the cost of carrying excess
production capacity.
Marketing, general, and administrative expenses decreased $3.8 million
in 1993 in comparison to a $4.4 million decrease in revenues. Expenses were
reduced throughout 1993 by stringent expense reduction programs, reductions
in personnel levels and discontinuation of operations at two foreign
facilities. Approximately 45% of the decrease is due to shut-down of the
UK and Japanese operations in late 1992 and consolidation of Power Sources
manufacturing in Costa Rica. In addition, expenses decreased in the
Conditioning Products segment due to a decrease in revenue related expenses
such as commissions and warranty and installation costs. The increase of
$459,000 in 1992 is related to an increase in revenue related expenses, such
as commissions, royalties and similar expenses, in the Conditioning Products
segment resulting from shipment of INTERSECT systems. Expenses in the Power
Sources and Services segments decreased in 1992. The decrease in expenses
in the Services segment resulted from stringent expense control measures.
Expenses in the Power Sources segment decreased in 1992 due to volume
decreases and the shut-down of the Irish power sources facility in 1991.
Expenses at the Costa Rica and Singapore power sources operations increased,
but at rates less than the decrease related to the Irish operation. Expense
controls and personnel reductions at most facilities during 1992 resulted
in a decrease in marketing, general and administrative expenses. The
expense reductions were offset by the revenue related expenses associated
with the increase in INTERSECT revenues, but expenses in the Conditioning
Products segment increased only 16% while revenues increased 27%.
Research and development expenditures totaled $889,000 in 1993, compared
to $2.6 and $3.1 million in 1992 and 1991, respectively. A significant
portion of expenditures in each of the three years related to development
of conditioning and testing products, with a substantial portion of these
expenditures being related to development of the INTERSECT 30 line of burn-
in and test systems. The decrease in 1992 and 1993 results from completion
of the INTERSECT 30 development project in 1992. Costs associated with
development of conditioning products increased in 1993 after declining in
1992. Development costs in the Power Sources segment declined in 1993 and
also in 1992.
The Company recorded in 1993 a provision for restructuring of operations
totaling $288,000. The provision was composed of $319,000 related to
retirement and severance pay for U.S. employees who were terminated in March
1993 and a $31,000 reduction of the 1992 restructuring provision related to
19
downsizing power sources production capacity in Singapore. The Company
recorded a $1.4 million provision for restructuring of operations in 1992.
The provision was composed of $1.0 million for curtailment of operations in
Japan, $216,000 related to closing of the U.K. facility, $325,000 related
to reduction of power sources manufacturing capacity in Singapore and a
$149,000 reduction of the 1991 provision for closing of the Irish power
sources facility. The Company recorded a $1.0 million provision for shut-
down of its Irish power sources facility in the third quarter of 1991. The
shut-down was completed during 1992 at a cost which was $149,000 less than
the original estimate.
Net interest expense decreased significantly in 1993 due to a reduction
in debt balances during the last half of 1993. Interest expense increased
in 1992 compared to 1991 due to an increase in debt balances, reduced
somewhat by a decline in interest rates. Interest income declined in 1993
and 1992 due to a decrease in investable cash balances and a decrease in
interest rates in 1992.
INCOME TAX EXPENSE (BENEFIT). The Company's income tax expense
(benefit) was $53,000, $(46,000) and $101,000, in 1993, 1992 and 1991,
respectively. This equated to an effective tax rate of 2% in 1993 and a
negative 2% in 1992. The 1991 provision of $101,000 was recorded on a loss
of $4.1 million. The Company's effective tax rates differed from the U.S.
tax rate of 34% due to tax benefits of net operating loss carryforwards in
1993 and 1992; tax provided on a dividend from a foreign subsidiary in 1992;
tax benefits, in 1993, related to expenses incurred in shutting down a
foreign subsidiary; expenses of foreign subsidiaries for which tax benefits
were not available in 1992 and 1991; and in 1991 tax benefits were not
available to the U.S. Company due to net operating loss carryback
limitations.
20
Item 8. Consolidated Financial Statements and Supplementary Data.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
Page
----
Report of independent public accountants. . . . . . . . . . . . . . . . . F-2
Consolidated balance sheets at December 31, 1993 and 1992 . . . . . . . . F-3
For each of the three years in the period ended December 31, 1993:
Consolidated statements of operations . . . . . . . . . . . . . . . . . F-4
Consolidated statements of cash flows . . . . . . . . . . . . . . . . . F-5
Consolidated statements of stockholders' equity . . . . . . . . . . . . F-6
Notes to consolidated financial statements. . . . . . . . . . . . . . . . F-7
Supplementary financial information:
Quarterly results of operations (unaudited) . . . . . . . . . . . . . . S-1
Schedules for each of the three years in the period
ended December 31, 1993:
V - Property, plant and equipment. . . . . . . . . . . . . . . . . . S-2
VI - Accumulated depreciation of property, plant
and equipment . . . . . . . . . . . . . . . . . . . . . . . S-3
VIII - Valuation and qualifying accounts and reserves . . . . . . . . . S-4
IX - Short-term borrowings. . . . . . . . . . . . . . . . . . . . . . S-5
X - Supplementary income statement information . . . . . . . . . . . S-6
All other schedules are omitted since the required information is not
present, or is not present in amounts sufficient to require submission of
the schedule, or because the information required is included in the
consolidated financial statements and notes thereto.
F-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders
Reliability Incorporated
We have audited the accompanying consolidated balance sheets of Reliability
Incorporated as of December 31, 1993 and 1992, and the related consolidated
statements of operations, cash flows and stockholders' equity for each of
the three years in the period ended December 31, 1993. Our audits also
included the financial statement schedules listed in the Index on page F-
1. These financial statements and schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and schedules 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
of 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of Reliability Incorporated at December 31, 1993 and 1992, and the
consolidated results of its operations and its cash flows for each of the
three years in the period ended December 31, 1993, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedules, when considered in relation to the basic
financial statements taken as a whole, present fairly in all material
respects the information set forth therein.
BY/s/ERNST & YOUNG
Houston, Texas
February 11, 1994
F-2
RELIABILITY INCORPORATED
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31,
--------------
1993 1992
---- ----
(In thousands)
Current assets:
Cash $ 2,882 $ 362
Accounts receivable (Note 3) 3,074 4,103
Inventories (Note 3) 2,356 5,939
Deferred income taxes (Note 5) - 60
Other 314 519
------ ------
Total current assets 8,626 10,983
Property and equipment, at cost (Note 3):
Machinery and equipment 11,994 12,884
Leasehold improvements 2,543 2,588
------ ------
14,537 15,472
Less accumulated depreciation 12,280 12,160
------ ------
2,257 3,312
Other assets 135 398
------ ------
$11,018 $14,693
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 524 $ 1,878
Short-term borrowings (Note 3) - 2,408
Accrued liabilities (Note 8) 2,016 2,951
Current maturities on long-term debt (Note 3) 58 -
Income taxes payable (Note 5) 18 53
Liability for restructuring (Note 6) 164 1,280
------ ------
Total current liabilities 2,780 8,570
Deferred income taxes (Note 5) 124 153
Liability for restructuring (Note 6) - 225
Commitments and contingencies (Note 7) - -
Stockholders' equity (Notes 3 and 4):
Common stock, without par value; 20,000,000
shares authorized; 4,242,848 shares issued 5,926 5,926
Retained earnings (deficit) 2,188 (181)
------ ------
Total stockholders' equity 8,114 5,745
------ ------
$11,018 $14,693
====== ======
See accompanying notes.
F-3
RELIABILITY INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Years Ended December 31,
------------------------
1993 1992 1991
---- ---- ----
Revenues:
Product sales $19,651 $23,834 $22,027
Services 7,371 7,579 7,585
------ ------ ------
27,022 31,413 29,612
Costs and expenses:
Cost of product sales 10,986 13,759 13,245
Cost of services 4,419 4,376 4,913
Marketing, general and administrative 7,975 11,813 11,354
Research and development 889 2,639 3,105
Provision for restructuring (Note 6) 288 1,392 1,000
------ ------ ------
24,557 33,979 33,617
------ ------ ------
Operating income (loss) 2,465 (2,566) (4,005)
Interest expense, net (Note 3) 43 125 83
------ ------ ------
Income (loss) before income taxes 2,422 (2,691) (4,088)
Provision (benefit) for income taxes (Note 5) 53 (46) 101
------ ------ ------
Net income (loss) $ 2,369 $(2,645) $(4,189)
====== ====== ======
Net income (loss) per share $ .56 $ (.62) $ (.99)
====== ====== ======
See accompanying notes.
F-4
RELIABILITY INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Years Ended December 31,
------------------------
1993 1992 1991
---- ---- ----
Cash flows from operating activities:
Net income (loss) $ 2,369 $(2,645) $(4,189)
Adjustments to reconcile net income (loss)
to cash provided by operating activities:
Depreciation and amortization 1,258 1,761 2,407
Provisions for restructuring 288 1,392 1,000
Deferred income taxes 31 (51) (58)
Loss (gain) on disposal of fixed assets 352 131 (1)
Provision for inventory obsolescence 262 636 347
Provision for bad debts - (12 ) (30)
Exchange (gain) loss (49) 62 (14)
Change in assets and liabilities:
(Increase) decrease in assets:
Short-term investment - 100 (100)
Accounts receivable 1,042 (1,498) 1,360
Inventories 3,338 (2,066) (164)
Refundable income taxes - 120 703
Other assets 457 354 14
Increase (decrease) in liabilities:
Accounts payable (1,366) 720 88
Accrued liabilities (978) 274 (52)
Income taxes payable (35) (241) 56
Liability for restructuring (1,744) (491) (396)
------ ------ ------
Total adjustments 2,856 1,191 5,160
------ ------ ------
Net cash provided (used) by operating activities 5,225 (1,454) 971
------ ------ ------
Cash flows from investing activities:
Expenditures for plant and equipment (492) (1,436) (665)
Proceeds from sale of equipment 15 27 54
------ ------ ------
Net cash (used) in investing activities (477) (1,409) (611)
------ ------ ------
Cash flows from financing activities:
Borrowings (payments) under loan agreements (2,457) 2,035 (53)
Conversion of note payable to long-term debt 393 - -
Payments and current maturities on
long-term debt (335) - -
Issuance of common stock - - 15
------ ------ ------
Net cash (used) provided by financing activities (2,399) 2,035 (38)
------ ------ ------
Effect of exchange rate changes on cash 171 (36) (13)
------ ------ ------
Net increase (decrease) in cash 2,520 (864) 309
Cash at beginning of year 362 1,226 917
------ ------ ------
Cash at end of year $ 2,882 $ 362 $ 1,226
====== ====== ======
See accompanying notes.
F-5
RELIABILITY INCORPORATED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1993, 1992 and 1991
(In thousands)
Common Stock
------------ Retained
Earnings Total
Shares Amount (Deficit) Amount
------ ------ -------- ------
Balance at December 31, 1990 4,223 $5,911 $6,653 $12,564
Net (loss) (4,189) (4,189)
Shares issued to employee
stock savings plan 20 15 15
----- ----- ------ ------
Balance at December 31, 1991 4,243 5,926 2,464 8,390
Net (loss) (2,645) (2,645)
----- ----- ------ ------
Balance at December 31, 1992 4,243 5,926 (181) 5,745
Net income 2,369 2,369
----- ----- ------ ------
Balance at December 31, 1993 4,243 $5,926 $ 2,188 $ 8,114
===== ===== ====== ======
See accompanying notes.
F-6
RELIABILITY INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1993
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 majority owned. All
significant intercompany balances and transactions have been eliminated in
consolidation. Certain amounts in the consolidated financial statements for
the years ended December 31, 1992 and 1991 have been reclassified to conform
to the 1993 presentation.
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:
1993 1992
---- ----
(In thousands)
Raw materials $1,702 $2,924
Work-in-progress 553 2,553
Finished goods 101 462
----- -----
$2,356 $5,939
===== =====
PROPERTY, PLANT AND EQUIPMENT
For financial statement purposes, depreciation is computed principally
on the straight-line method using lives from 4 to 10 years for leasehold
improvements and the straight-line and double-declining balance methods
using lives from 2 to 8 years for machinery and equipment.
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.
F-7
RELIABILITY INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
December 31, 1993
FOREIGN CURRENCY TRANSLATION
The financial statements of foreign subsidiaries are translated into
U.S. dollar equivalents in accordance with Statement of Financial Accounting
Standards No. 52. The Company's primary functional currency is the U.S.
dollar. Accordingly, translation adjustments and transaction gains or losses
for foreign subsidiaries that use the U.S. dollar as their functional
currency are recognized in consolidated income in the year of occurrence.
The remaining entity used the local currency as its functional currency and
translation adjustments were immaterial.
2. INFORMATION ON BUSINESS SEGMENTS AND GEOGRAPHIC AREAS
The Company operates in three industry segments: (1) manufacture of
conditioning products which are used in conditioning and testing of
integrated circuits; (2) conditioning services which condition and test
integrated circuits and (3) manufacture of power sources.
Financial information by industry segment is as follows:
1993 1992 1991
---- ---- ----
(In thousands)
Revenues from unaffiliated customers:
Conditioning products $14,218 $16,840 $13,241
Conditioning services 7,371 7,579 7,585
Power sources 5,433 6,994 8,786
------ ------ ------
$27,022 $31,413 $29,612
====== ====== ======
Operating income (loss):
Conditioning products $ 1,892 $(1,910) $(3,649)
Conditioning services 1,384 1,854 1,218
Power sources (190) (849) (276)
Provision for restructuring of operations:
Conditioning product (280) (1,108) -
Power sources (8) (284) (1,000)
General corporate expenses (333) (269) (298)
------ ------ ------
$ 2,465 $(2,566) $(4,005)
====== ====== ======
Identifiable assets:
Conditioning products $ 5,718 $ 8,922 $ 7,014
Conditioning services 2,905 2,634 2,057
Power sources 2,395 3,077 4,066
General corporate assets - 60 478
------ ------ ------
$11,018 $14,693 $13,615
====== ====== ======
F-8
RELIABILITY INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
December 31, 1993
Financial information by industry segment is as follows (Continued):
1993 1992 1991
---- ---- ----
(In thousands)
Depreciation:
Conditioning products $ 341 $ 627 $ 706
Conditioning services 597 762 1,231
Power sources 271 336 401
------ ------ ------
$ 1,209 $ 1,725 $ 2,338
====== ====== ======
Capital expenditures:
Conditioning products $ 248 $ 422 $ 301
Conditioning services 191 933 342
Power sources 53 81 46
------ ------ ------
$ 492 $ 1,436 $ 689
====== ====== ======
Financial information by geographical area is as follows:
1993 1992 1991
---- ---- ----
(In thousands)
Revenues from unaffiliated customers:
United States $19,469 $23,018 $20,136
Asia and Pacific 4,755 6,459 6,958
Central America 2,798 1,895 20
Western Europe - 41 2,498
Intergeographic revenues:
United States 120 956 678
Asia and Pacific 408 1,453 1,816
Central America 911 935 834
Western Europe - - 6
Eliminations (1,439) (3,344) (3,334)
------ ------ ------
$27,022 $31,413 $29,612
====== ====== ======
F-9
RELIABILITY INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
December 31, 1993
Financial information by geographical area is as follows (Continued):
1993 1992 1991
---- ---- ----
(In thousands)
Operating income (loss):
United States $ 2,798 $ (200) $(2,660)
Asia and Pacific 197 (812) 341
Central America 95 105 (479)
Western Europe - 2 91
Provision for restructuring of operations:
United States (318) - -
Asia and Pacific 30 (1,325) -
Western Europe - (67) (1,000)
General corporate expenses (337) (269) (298)
------ ------ ------
$ 2,465 $(2,566) $(4,005)
====== ====== ======
Identifiable assets:
United States $ 7,349 $ 8,948 $ 8,681
Asia and Pacific 2,100 4,497 3,255
Central America 1,569 1,131 778
Western Europe - 117 901
------ ------ ------
$11,018 $14,693 $13,615
====== ====== ======
The Company provides products and services to companies in the
electronics and semiconductor industries, many of which are industry
leaders. There are a limited number of companies which purchase
conditioning products and services sold by the Company. The Company's four
largest customers accounted for approximately 73%, 67% and 47% of
consolidated revenues in 1993, 1992 and 1991, respectively. Accounts
receivable are generally due within 30 days and collateral is not required
except that export sales from the United States generally require letters
of credit. Historically, the Company's bad debts have been very low, an
indication of the credit worthiness of the customers to which the Company
sells.
Intersegment sales, which are not material, and intergeographic sales
of manufactured products are priced at cost plus a reasonable profit.
The Company had export revenues from its United States operation to the
following geographical areas:
1993 1992 1991
---- ---- ----
(In thousands)
Asia and Pacific $2,165 $2,605 $2,517
Europe 3,140 4,331 583
North America and other 457 726 934
----- ----- -----
$5,762 $7,662 $4,034
===== ===== =====
F-10
RELIABILITY INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
December 31, 1993
Revenues from major customers, as a percent of total revenues and
industry segments, are as follows:
Total Conditioning Conditioning Power
Revenues Products Services Sources
-------- ------------ ------------ -------
1993
----
Customer A 24% 46% -% -%
Customer B 23 44 - -
Customer C 14 - 52 -
Customer D 12 - 45 -
1992
----
Customer A 13 24 - 1
Customer B 31 57 - -
Customer C 11 - 46 -
Customer D 12 - 49 -
1991
----
Customer A 18 39 - 1
Customer B 5 11 - -
Customer C 9 4 32 -
Customer D 15 - 62 -
3. SHORT-TERM BORROWINGS 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 of the U.S.
Company. Interest is payable monthly at the bank's base rate plus 2 1/2%
(8 1/2% at December 31, 1993). There were no balances outstanding at
December 31, 1993. The loan is collaterized by the U.S. Company's accounts
receivable, inventories, fixed assets and certain other assets. The Company
had credit availability of $1,206,000 at December 31, 1993. The agreement
limits the Company's annual capital expenditures. The financing agreement
was amended in July 1993. The amended 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 financial requirements of the financing
agreement were met at December 31, 1993.
The Company's Singapore subsidiary maintains an agreement with a
Singapore bank to provide an overdraft facility to the Company at the bank's
prime rate plus 1% (6% at December 31, 1993). The line of credit was
reduced, in August 1993, from 1,500,000 Singapore dollars (U.S. $938,000)
F-11
RELIABILITY INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
December 31, 1993
to 500,000 Singapore dollars (U.S. $313,000). There were no balances
outstanding at December 31, 1993, and amounts utilized under credit
commitments totalled $125,000, resulting in credit availability of $188,000
at December 31, 1993. 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 entered into an agreement with a
related party of the subsidiary, in December 1990, 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. The interest rate is the rate paid on the underlying loan plus
20%, which totalled 6% at December 31, 1993. In April 1993, the loan was
converted to a term loan payable in monthly installments of $9,900, plus
interest paid quarterly. The Company has made certain advance payments, and
the loan is currently scheduled to be paid in full in June 1994. The
subsidiary may not borrow additional amounts as of December 31, 1993. At
December 31, 1993, the total loan balance was $58,000, and amounts due under
this agreement have been classified as current maturities on long-term debt.
Interest paid on debt during 1993, 1992 and 1991 was $82,000, $134,000
and $126,000, respectively.
Interest expense is presented net as follows:
1993 1992 1991
---- ---- ----
(In thousands)
Interest expense $ 58 $ 147 $ 131
Interest (income) (15) (22) (48)
---- ---- ----
Interest expense, net $ 43 $ 125 $ 83
==== ==== ====
4. EMPLOYEE STOCK PLAN
The Company sponsors an Employee Stock Savings Plan and Trust (the
"Plan"). United States employees of the Company who have completed at least
one year of service become participants in the Plan. The Plan allows an
employee to contribute up to 15% of defined compensation to the Plan and to
elect to have contributions not be subject to Federal income taxes under
Section 401(k) of the Internal Revenue Code. The Company contributes a
matching amount to the Plan equal to 50% of the employee's contribution, to
a maximum of 2%, for employees who contribute 2% or more. The Company also
contributes, as a voluntary contribution, an amount equal to 1% of the
defined compensation of all participants. The Company's contribution for
matching and voluntary contributions amounted to $105,000 in 1993, $121,000
in 1992 and $116,000 in 1991. Employee contributions may be invested in
Company stock or other investment options offered by the Plan. The
Company's contributions vest with the employee over seven years and are
invested solely in Company stock.
F-12
RELIABILITY INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
December 31, 1993
The Company, during 1992, registered and reserved 500,000 shares of
common stock for sale to the Plan. The Plan purchased, in the open market,
64,115 and 78,288 shares during 1993 and 1992, for an aggregate purchase
price of $150,000 and $143,000, respectively. At December 31, 1993, 357,597
reserved shares remain unissued under the registration. The Company had
previously registered and reserved 100,000 shares of common stock for sale
to the Plan. At December 31, 1993 and 1992, all 100,000 of the shares had
been sold to the Plan. The purchase price per share was the closing price
on the day prior to purchase by the Plan. During 1991, the Plan purchased
20,000 shares of stock from the Company for an aggregate purchase price of
$15,000. The Plan purchased, in the open market, 97,000 shares during 1991
for an aggregate purchase price of $146,000. The Plan did not purchase any
stock from the Company during 1993 or 1992.
5. INCOME TAXES
Effective January 1, 1993, the Company changed its method of accounting
for income taxes and adopted 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 difference between the financial statement and tax basis of assets and
liabilities is determined annually. Deferred income tax assets and
liabilities are computed for those differences that have future tax
consequences using the currently enacted tax laws and rates that apply to
the periods in which they are expected to affect taxable income. Valuation
allowances are established, if necessary, to reduce the deferred tax asset
to the amount that will more likely than not be realized. Income tax
expense is the current tax payable or refundable for the period plus or
minus the net change in the deferred tax assets and liabilities.
The cumulative effect of adopting SFAS 109 on the Company's financial
position and results of operations was not material. As permitted under the
new rules, prior period financial statements have not been restated except
that the tax benefit from utilization of a net operating loss carryforward
in 1992 has been reclassified to the provision for income taxes. This
reclassification results in income tax for 1992 being presented in a manner
consistent with the presentation required under SFAS 109.
F-13
RELIABILITY INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
December 31, 1993
The provision (benefit) for income taxes is based on income (loss)
before income taxes as follows:
Geographic area 1993 1992 1991
--------------- ---- ---- ----
(In thousands)
United States $ 2,187 $( 442) $(2,502)
Foreign 145 (2,192) (1,664)
Eliminations and corporate items 90 (57) 78
------ ------ ------
$ 2,422 $(2,691) $(4,088)
====== ====== ======
The components of the provision (benefit) for income taxes are as
follows:
Current Deferred Total
------- -------- -----
(In thousands)
1993
----
Federal $ - $ - $ -
Foreign 17 31 48
State 5 - 5
---- ---- ----
$ 22 $ 31 $ 53
1992 ==== ==== ====
----
Federal - Provision $ 344 $ - $ 344
Federal Tax Benefit from utilization
of net operating loss carryforward (316) - (316)
Foreign (28) (51) (79)
State 5 - 5
---- ---- ----
$ 5 $ (51) $ (46)
1991 ==== ==== ====
----
Federal $ (87) $ 45 $ (42)
Foreign 240 (103) 137
State 6 - 6
---- ---- ----
$ 159 $ (58) $ 101
==== ==== ====
F-14
RELIABILITY INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
December 31, 1993
The differences between the effective rate reflected in the provision
(benefit) for income taxes on income (loss) before income taxes and the
amounts determined by applying the statutory U.S. tax rate of 34% are
analyzed below:
1993 1992 1991
---- ---- ----
(In thousands)
Provision (benefit) at statutory rate $ 823 $(915) $(1,390)
Tax benefit of net operating loss carryforward (245) (316) -
Tax effects of:
Foreign expenses for which a tax benefit
(is available) is not available (495) 778 715
Foreign income taxed at rates less
than U.S. rate (11) (19) (10)
U.S. Federal tax on dividend from
foreign subsidiary - 486 -
Alternative minimum tax - 29 7
Benefits not recorded due to net loss
carryforward position - - 759
Other (19) (89) 20
---- ---- ------
$ 53 $ (46) $ 101
==== ==== ======
The components of the provision (benefit) for deferred income taxes for
the years ended December 31, 1992 and 1991 are as follows:
1992 1991
---- ----
(In thousands)
Depreciation $ (8) $(215)
Benefits not recorded due to net loss
carryforward position 170 101
Distributions of former DISC (29) (29)
(Benefit) associated with restructuring charge (98) -
Inventory and other reserves (79) 45
Timing difference in recognition of intercompany transfers (29) 24
Other 22 16
---- ----
$ (51) $ (58)
==== ====
The Company's cash requirements made it necessary for the Singapore
subsidiary to remit a cash dividend to the Company during the second quarter
of 1992. U.S. income taxes of $486,000 were provided on the remittance.
F-15
RELIABILITY INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
December 31, 1993
The significant components of the Company's net deferred tax liabilities
and assets are as follows:
1993 1992
---- ----
(In thousands)
Deferred tax liabilities:
Depreciation $ 103 $ 96
Domestic international sales corp. dividend 21 42
Other - 15
----- ------
Total deferred tax liabilities 124 153
----- ------
Deferred tax assets:
Reserves not currently deductible (416) (559)
Foreign tax credits (490) (531)
Net operating loss carryforwards (255) (370)
Business tax credits (253) (253)
Provision for restructuring - (98)
Other (21) (18)
----- ------
Total deferred tax assets (1,435) (1,829)
Valuation allowance 1,435 1,769
----- ------
Net deferred tax assets - (60)
----- ------
Net deferred tax liability $ 124 $ 93
===== ======
SFAS 109 requires that the tax benefit of net operating losses,
temporary differences and credit carryforwards be recorded as an asset to
the extent that management assesses that realization is more likely than
not. Realization of the future tax benefits is dependent on the Company's
ability to generate sufficient taxable income within the carryforward
period. Because of the Company's history of operating losses, management
believes that recognition of the deferred tax assets arising from the above-
mentioned future tax benefits is currently not appropriate and, accordingly,
has provided a valuation allowance.
The Company completed a restructuring of its foreign operations in
1993. As part of the restructuring the Company changed its policy and began
providing United States taxes on unremitted foreign earnings. Earnings on
which United States taxes have been provided total $1,700,000 at December
31, 1993.
Net income for 1992 included income of a subsidiary operating in Costa
Rica under an export processing tax exemption. The subsidiary is exempt
from Costa Rica income tax through 1998 and is 50% exempted from 1999
through 2002. Except for 1992, the subsidiary has operated at a loss. A
1992 tax benefit of $19,000 related to income of the subsidiary.
Net cash payments (refunds) for income taxes during 1993, 1992 and 1991
were $54,000, $100,000 and $(606,000), respectively.
F-16
RELIABILITY INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
December 31, 1993
At December 31, 1993, the Company had a domestic net operating loss
carryforward for financial reporting purposes of approximately $2,170,000.
Such carryforward for income tax purposes is $750,000 and will expire in
2007 and 2008. The net operating loss carryforward for alternative minimum
tax purposes is $640,000. In addition, the Company has alternative minimum
tax credit carryforwards of $73,000, which can be carried forward
indefinitely, and research and development and foreign tax credit
carryforwards of $743,000, expiring in various years from 1994 through
2007.
6. PROVISION FOR RESTRUCTURING
The Company recorded in 1993 a provision for restructuring totaling
$288,000. The provision is composed of $319,000 related to retirement and
severance pay for U.S. employees who were terminated in March 1993 and a
$31,000 reduction of the 1992 restructuring provision related to downsizing
production capacity for power sources in Singapore. The Company recorded
restructuring charges of $1,392,000 and $1,000,000 in 1992 and 1991,
respectively. The 1991 charge related to costs associated with the closure
of the Company's power sources facility located in Ireland. The Company
completed the shut-down in 1992. The provision for shut-down was reduced
by $149,000 in 1992. The 1992 amount represents a $1,000,000 provision
for curtailment of operations of the Company's Japanese subsidiary, and a
charge of $541,000, reduced by a $149,000 credit applicable to Irish
closure, related to downsizing of the Company's UK marketing operation,
downsizing production capacity for power sources in Singapore and shifting
production to Costa Rica. The charge is related principally to the
remaining lease obligations and associated costs at the two facilities,
severance liabilities and write off of fixed assets. The provision for
curtailment of operations of the Japanese subsidiary relates 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.
7. COMMITMENTS
The Company leases manufacturing and office facilities under
noncancelable operating lease agreements, expiring through 1998. Rental
expense for 1993, 1992 and 1991 was $1,234,000, $1,627,000 and $1,636,000,
respectively.
Future minimum rental payments under leases in effect at December 31,
1993 are: 1994 - $1,166,000; 1995 - $654,000; 1996 - $420,000; 1997 -
$297,000; 1998 - $18,000; subsequent to 1998 - None.
The Company entered into an agreement in August 1993 to sub-lease
manufacturing and office space in its U.S. facility. Rental income for 1993
was $41,000. Future income under the sub-lease will be: 1994 - $108,000;
and 1995 - $38,000.
F-17
RELIABILITY INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
December 31, 1993
8. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
1993 1992
---- ----
(In thousands)
Payroll $ 950 $1,091
Advanced payments 341 845
Warranty 453 291
Other 272 724
----- -----
$2,016 $2,951
===== =====
The advanced payments balance at December 31, 1993 relates principally
to payments for conditioning products which are included in the Company's
backlog at December 31, 1993. Advanced payments are refundable if the
Company does not meet the terms of the orders. Revenues related to advanced
payments are recognized when the products are shipped.
9. RELATED PARTY TRANSACTIONS
The husband of an employee of the Company has an ownership interest in
a company that provides computer software development and technical
assistance for certain products sold by the Company. The net expense
accrued related to these transactions, including royalties, amounted to
$454,000, $964,000 and $417,000 during 1993, 1992 and 1991, respectively.
The amounts payable to such Company were $1,000 and $117,000 at December 31,
1993 and 1992, respectively, and the accounts are settled in the ordinary
course of business.
F-18
RELIABILITY INCORPORATED
SUPPLEMENTARY FINANCIAL INFORMATION
QUARTERLY RESULTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
1993
----
Net sales $ 6,752 $ 6,540 $ 7,239 $ 6,491
Gross profit 2,585 2,672 3,417 2,943
Net income (loss) (545)(1) 848 1,198 868(2)
Net income (loss) per share (.13) .20 .28 .21
1992(3)
----
Net sales $ 6,520 $10,351 $ 8,453 $ 6,089
Gross profit 2,764 4,856 3,616 2,042
Net income (loss) (906)(4) 777 160 (2,676)(5)
Net income (loss) per share (.21) .18 .04 (.63)
- ----
(1) The net loss for the first quarter of 1993 includes a $319,000
provision for restructuring of U.S. operations.
(2) The net income for the fourth quarter of 1993 is increased by a
$31,000 reduction in cost associated with restructuring of operations
in Asia.
(3) The net income (loss) and net income (loss) per share for the second,
third and fourth quarters of 1992 originally presented the tax benefit
of a net operating loss carryforward as an extraordinary item. The
tax benefit of the net operating loss carryforward has been netted
against the income tax provision. See Note 5 to Consolidated
Financial Statements.
(4) The net loss for the first quarter of 1992 is reduced by a $120,000
decrease in a provision for restructuring of operations that was
recorded in 1991.
(5) The net loss for the fourth quarter of 1992 includes a $1,529,000
provision for restructuring of operations in Europe and Asia.
S-1
RELIABILITY INCORPORATED
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
Years Ended December 31, 1993, 1992 and 1991
(In thousands)
Building Machinery
and and
Land Improvements Equipment Total
---- ------------ --------- -----
1993
----
Balance at beginning of year $ - $2,588 $12,884 $15,472
Additions - 43 449 492
Retirements - (88) (1,339) (1,427)
--- ----- ------ ------
Balance at end of year $ - $2,543 $11,994 $14,537
=== ===== ====== ======
1992
----
Balance at beginning of year $ - $2,613 $12,230 $14,843
Additions - 52 1,384 1,436
Retirements - (77) (730) (807)
--- ----- ------ ------
Balance at end of year $ - $2,588 $12,884 $15,472
=== ===== ====== ======
1991
----
Balance at beginning of year $ 5 $2,977 $12,661 $15,643
Additions - 88 601 689
Retirements (5) (452) (1,032) (1,489)
--- ----- ------ ------
Balance at end of year $ - $2,613 $12,230 $14,843
=== ===== ====== ======
S-2
RELIABILITY INCORPORATED
SCHEDULE VI - ACCUMULATED DEPRECIATION OF PROPERTY, PLANT AND EQUIPMENT
Years Ended December 31, 1993, 1992 and 1991
(In thousands)
Building Machinery
and and
Improvements Equipment Total
------------ --------- -----
1993
----
Balance at beginning of year $1,768 $10,392 $12,160
Additions 267 942 1,209
Retirements (54) (1,035) (1,089)
----- ------ ------
Balance at end of year $1,981 $10,299 $12,280
===== ====== ======
1992
----
Balance at beginning of year $1,557 $ 9,528 $11,085
Additions 284 1,441 1,725
Retirements (73) (577) (650)
----- ------ ------
Balance at end of year $1,768 $10,392 $12,160
===== ====== ======
1991
----
Balance at beginning of year $1,458 $ 8,375 $ 9,833
Additions 291 2,047 2,338
Retirements (192) (894) (1,086)
----- ------ ------
Balance at end of year $1,557 $ 9,528 $11,085
===== ====== ======
S-3
RELIABILITY INCORPORATED
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Years Ended December 31, 1993, 1992 and 1991
(In thousands)
1993 1992 1991
---- ---- ----
Inventory reserves at beginning of year $1,092 $ 753 $1,034
Additions charged to costs and expenses 262 636 347
Amounts charged to reserve (751) (297) (628)
----- ----- -----
Inventory reserves at end of year $ 603 $1,092 $ 753
===== ===== =====
S-4
RELIABILITY INCORPORATED
SCHEDULE IX - SHORT-TERM BORROWINGS
Years Ended December 31, 1993, 1992 and 1991
(In thousands)
Weighted
Maximum Average Average
Weighted Amount Amount Interest
Balance Average Outstanding Outstanding Rate
Category of Aggregate at End Interest During the During the During the
Short-Term Borrowings (1) of Period Rate Period Period (2) Period (3)
--------------------- --------- -------- ----------- ----------- ----------
1993
----
$2,500 working capital agreement $ - 8.50% $1,946 $312 10.42%
938 to 313 revolving credit agreement $ - 6.00% $ 818 $310 6.10%
400 credit facility $ - -% $ 392 $ 95 7.66%
1992
----
$2,500 working capital agreement $1,334 8.50% $2,163 $787 10.20%
938 revolving credit agreement $ 724 6.25% $ 892 $454 6.47%
400 credit facility $ 350 7.80% $ 354 $247 7.80%
514 credit facility $ - -% $ 340 $129 12.82%
1991
----
$2,500 working capital agreement $ - -% $1,441 $309 11.49%
807 revolving credit agreement $ - -% $ 508 $230 8.19%
400 credit facility $ 24 9.84% $ 314 $171 10.30%
514 credit facility $ 353 13.00% $ 514 $161 12.40%
598 factored note receivable $ - -% $ 598 $148 8.00%
(1) See Note 3 to Consolidated Financial Statements for terms of short-term borrowings.
(2) Computed by adding daily balances divided by 360 or 365 days.
(3) Computed as total interest for the period divided by the average amount outstanding during the period.
S-5
RELIABILITY INCORPORATED
SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION
Years Ended December 31, 1993, 1992 and 1991
(In thousands)
1993 1992 1991
---- ---- ----
Maintenance and repairs $413 $523 $517
Taxes other than payroll and income taxes $311 $431 $506
Royalties $291 $300 $ -
S-6
RELIABILITY INCORPORATED
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not applicable.
PART III
In accordance with paragraph (3) of General Instruction G to Form 10-K,
Part III of this Report is omitted because the Company will file with the
Securities and Exchange Commission not later than 120 days after the end
of 1993 a definitive proxy statement pursuant to Regulation 14A involving
the election of directors.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) The following financial statements are filed as part of this
report:
1. Consolidated Financial Statements and Supplementary
Data. Listed in the Index to Financial Statements
provided in response to Item 8 hereof (see p. F-1 for
Index).
2. Financial Statement Schedules. Listed in the Index to
Financial Statements provided in response to Item 8
hereof (see p. F-1 for Index).
(b) The following exhibits are filed as part of this report:
3.1 Restated Articles of Incorporation (with amendment).
Reference is made to Exhibit 3.1 to the Company's
Registration Statement on Form S-1, Registration No. 2-
90034.
3.2 Restated and Amended Bylaws. Reference is made to
Exhibit 3 to the Company's Quarterly Report on Form 10-
Q for the quarter ended June 30, 1990.
3.3 Amendment to Bylaws. Reference is made to Exhibit 3 to
the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1993.
4. Capital and Surplus Retention Agreement. Reference is
made to Exhibit 4 to the Company's report on Form 10-Q
for the quarter ended September 30, 1993.
22. List of subsidiaries.
24. Consent of Independent Public Accountants dated March
18, 1994.
(c) No reports on Form 8-K were required to be filed by the
Company during the last quarter of the fiscal year covered
by this report.
21
RELIABILITY INCORPORATED
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
RELIABILITY INCORPORATED (Registrant) DATE: March 21, 1994
BY/s/Max T. Langley, Senior Vice President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Company and in the capacities and on the dates indicated.
BY/s/Larry Edwards, President and DATE: March 21, 1994
Chief Executive Officer
BY/s/Max T. Langley, Senior Vice President, DATE: March 21, 1994
Chief Financial Officer,
Principal Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Company and in the capacities and on the dates indicated.
BY/s/W. L. Hampton, Director DATE: March 21, 1994
BY/s/Everett Hanlon, Director DATE: March 21, 1994
BY/s/John R. Howard, Director DATE: March 21, 1994
BY/s/Thomas L. Langford, Director DATE: March 21, 1994
BY/s/A. C. Lederer, Jr., Director DATE: March 21, 1994
22
RELIABILITY INCORPORATED
INDEX TO EXHIBITS
Exhibit Page
Number Description of Exhibits Number
- ------- ----------------------- ------
3.1 Restated Articles of Incorporation (with
amendment). Reference is made to Exhibit 3.1
to the Company's Registration Statement on Form
S-1, Registration No. 2-90034.
3.2 Restated and Amended Bylaws. Reference is made
to Exhibit 3 to the Company's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1990.
3.3 Amendment to Bylaws. Reference is made to Exhibit
3 to the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1993.
4. Capital and Surplus Retention Agreement.
Reference is made to Exhibit 4 to the Company's
report on Form 10-Q for the quarter ended
September 30, 1993.
22. List of Subsidiaries. Page 24
24. Consent of Independent Public Accountants Page 25
dated March 18, 1994.
23
RELIABILITY INCORPORATED
Exhibit 22
LIST OF SUBSIDIARIES
Subsidiary Jurisdiction of Incorporation
---------- -----------------------------
Reliability Singapore Pte Ltd. Singapore
Reliability Japan Incorporated (1) Japan
RICR de Costa Rica, S.A. Costa Rica
Each subsidiary does business under its respective corporate name.
(1) Inactive as of December 31, 1993
24
RELIABILITY INCORPORATED
Exhibit 24
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-47803) pertaining to the Reliability Incorporated Employee
Stock Savings Plan and Trust and in the related Prospectus of our report
dated February 11, 1994, with respect to the consolidated financial
statements and schedules of Reliability Incorporated included in this Annual
Report (Form 10-K) for the year ended December 31, 1993.
BY/s/ERNST & YOUNG
Houston, Texas
March 18, 1994
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