<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended June 30, 1994 Commission File Number 1-7378
RELIABILITY INCORPORATED
------------------------------------------------------
(Exact name of registrant as specified in its charter)
TEXAS 75-0868913
- ------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
16400 Park Row
Post Office Box 218370
Houston, Texas 77218-8370
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(713) 492-0550
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding twelve months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past ninety days.
YES X NO
----------- -----------
Indicate the number of shares outstanding of each of the issuer's classes
for common stock, as of the latest practicable date.
4,242,848 -- Common Stock -- No Par Value
as of August 10, 1994
1
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RELIABILITY INCORPORATED
FORM 10-Q
TABLE OF CONTENTS
June 30, 1994
PART I - FINANCIAL INFORMATION
Page No.
Item 1. Financial Statements (Unaudited):
Consolidated Balance Sheets
June 30, 1994 and December 31, 1993 3-4
Consolidated Statements of Operations
and Retained Earnings:
Six Months Ended June 30, 1994 and 1993 5
Three Months Ended June 30, 1994 and 1993 6
Consolidated Statements of Cash Flows
Six Months Ended June 30, 1994 and 1993 7
Notes to Consolidated Financial Statements 8-11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12-17
PART II - OTHER INFORMATION
Item 1.
through
Item 5. Not applicable. 18
Item 6. Exhibits and Reports on Form 8-K. 18
Signatures 19
The information furnished in this report reflects all adjustments which are,
in the opinion of management, necessary to a fair statement of the results
for the interim periods presented.
2
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
RELIABILITY INCORPORATED
CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS
June 30, December 31,
1994 1993
Current Assets:
Cash $ 1,900 $ 2,882
Accounts Receivable (Note 2) 4,903 3,074
Inventories (Notes 1 and 2) 3,465 2,356
Other Current Assets 193 314
------- -------
Total Current Assets 10,461 8,626
Property and Equipment, at Cost (Note 2):
Machinery and Equipment 11,260 11,994
Leasehold Improvements 2,597 2,543
------- -------
13,857 14,537
Less Accumulated Depreciation 11,737 12,280
------- -------
2,120 2,257
Other Assets 122 135
------- -------
$12,703 $11,018
======= =======
See accompanying notes
(unaudited)
3
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RELIABILITY INCORPORATED
CONSOLIDATED BALANCE SHEETS
(In thousands, except
for share data)
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, December 31,
1994 1993
Current Liabilities:
Accounts Payable $ 756 $ 524
Accrued Liabilities (Note 1) 2,030 2,016
Current Maturities on Long-Term Debt (Note 2) - 58
Income Taxes Payable 65 18
Liability for Restructuring (Note 5) 10 164
------- -------
Total Current Liabilities 2,861 2,780
Deferred Income Taxes 91 124
Commitments and Contingencies (Note 4) - -
Stockholders' Equity (Note 2):
Common Stock, Without Par Value;
20,000,000 Shares Authorized,
4,242,848 Shares Issued 5,926 5,926
Retained Earnings 3,825 2,188
------- -------
Total Stockholders' Equity 9,751 8,114
------- -------
$12,703 $11,018
======= =======
See accompanying notes
(unaudited)
4
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RELIABILITY INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
Six Months Ended June 30,
(In thousands, except
per share data)
1994 1993
Revenues $11,905 $13,292
Costs and Expenses:
Cost of Revenues 6,053 8,035
Marketing, General and Administrative 3,803 4,231
Research and Development 372 393
Provision for Restructuring (Note 5) - 319
------- -------
10,228 12,978
------- -------
Operating Income 1,677 314
Interest (Income) Expense, Net (Note 2) (34) 45
------- -------
Income Before Income Taxes 1,711 269
------- -------
Provision (Benefit) for Income Taxes (Note 1):
Current 107 (43)
Deferred (33) 9
------- -------
74 (34)
------- -------
Net Income 1,637 303
Retained Earnings (Deficit) Beginning of Period 2,188 (181)
------- -------
Retained Earnings End of Period $ 3,825 $ 122
======= =======
Net Income Per Share $ .39 $ .07
======= =======
See accompanying notes
(unaudited)
5
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RELIABILITY INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
Three Months Ended June 30,
(In thousands, except
per share data)
1994 1993
Revenues $ 6,680 $ 6,540
Costs and Expenses:
Cost of Revenues 3,343 3,868
Marketing, General and Administrative 2,064 1,688
Research and Development 137 151
------- -------
5,544 5,707
------- -------
Operating Income 1,136 833
Interest (Income) Expense, Net (Note 2) (19) 12
------- -------
Income Before Income Taxes 1,155 821
------- -------
Provision (Benefit) for Income Taxes (Note 1):
Current 79 (41)
Deferred (20) 14
------- -------
59 (27)
------- -------
Net Income 1,096 848
Retained Earnings (Deficit) Beginning of Period 2,729 (726)
------- -------
Retained Earnings End of Period $ 3,825 $ 122
======= =======
Net Income Per Share $ .26 $ .20
======= =======
See accompanying notes
(unaudited)
6
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RELIABILITY INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30,
(In thousands)
1994 1993
Cash Flows from Operating Activities:
Net Income $ 1,637 $ 303
Adjustments to Reconcile Net Income to
Net Cash (Used) Provided by Operating
Activities:
Depreciation and Amortization 540 675
Provision for Inventory Obsolescence 55 112
Provision for Restructuring - 319
Deferred Income Taxes (33) 9
(Gain) Loss on Disposal of Fixed Assets (2) 229
Exchange Loss - 197
Increase (Decrease) in Operating Cash Flows:
Accounts Receivable (1,829) 1,198
Inventories (1,164) 2,260
Refundable Income Taxes - (47)
Other Assets 109 500
Accounts Payable 232 (1,271)
Accrued Liabilities 14 (1,222)
Income Taxes Payable 47 (34)
Liability for Restructuring (154) (953)
------- -------
Total Adjustments (2,185) 1,972
------- -------
Net Cash (Used) Provided by Operating
Activities (548) 2,275
------- -------
Cash Flows from Investing Activities:
Expenditures for Property and Equipment (386) (312)
Proceeds from Sale of Equipment 6 1
------- -------
Net Cash (Used) by Investing Activities (380) (311)
------- -------
Cash Flows from Financing Activities:
Net (Payments) Borrowings Under Loan Agreements - (2,117)
Conversion of Notes Payable to Long-Term Debt - 381
Payments and Current Maturities on
Long-Term Debt (58) (142)
------- -------
Net Cash (Used) by Financing Activities (58) (1,878)
------- -------
Effects of Exchange Rate Changes on Cash 4 (77)
------- -------
Net Increase (Decrease) in Cash (982) 9
Cash at Beginning of Period 2,882 362
------- -------
Cash at End of Period $ 1,900 $ 371
======= =======
See accompanying notes
(unaudited)
7
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RELIABILITY INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1994
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of the
Company and its subsidiaries, all of which are wholly owned. All
significant intercompany balances and transactions have been eliminated in
consolidation.
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles. For more
complete information, refer to the financial statements and footnotes
thereto included in the Company's annual report on Form 10-K for the year
ended December 31, 1993.
Cash Equivalents
- ----------------
For the purposes of the statements of cash flows, the Company considers
all highly liquid cash investments with maturities of three months or less
to be cash equivalents.
Inventories
- -----------
Inventories are stated at the lower of standard cost (which approximates
first-in, first-out) or market (replacement cost or net realizable value)
and include:
June 30, December 31,
1994 1993
(In thousands)
Raw Materials $1,619 $1,702
Work-in-Progress 1,355 553
Finished Goods 491 101
------ ------
$3,465 $2,356
====== ======
Advanced Payments
- -----------------
Advanced payments included in accrued liabilities total $17,000 at June
30, 1994 and $341,000 at December 31, 1993. The advanced payments may be
refundable if the Company does not meet the terms of the order. Revenues
related to advanced payments are recognized when the products are shipped.
8
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RELIABILITY INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1994
Income Taxes
- ------------
Effective January 1, 1993, the Company changed its method of accounting
for income taxes by adopting Statement of Financial Accounting Standards
(SFAS) No. 109, "Accounting for Income Taxes", which requires an asset and
liability approach to financial accounting and reporting for income taxes.
The provision for income taxes includes Federal, foreign, and state
income taxes. Deferred income taxes are provided for temporary differences
between financial statement and income tax reporting. The differences
between the effective rate reflected in the provision (benefit) for income
taxes on income before income taxes and the amounts determined by applying
the statutory U.S. tax rate of 34% are analyzed below:
June 30,
1994 1993
(In thousands)
Provision at statutory rate $ 582 $ 91
Tax benefit of net operating loss carryforward (355) (108)
Tax effect of:
Foreign expenses for which a benefit
is available (37) -
Foreign income taxed at rates less
than U.S. rate (9) (1)
Foreign tax benefit of net operating
loss carryforward (103) -
Research and development tax credits (27) -
Other 23 (16)
----- -----
Provision (benefit) for income taxes $ 74 $ (34)
===== =====
2. 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, as defined,
of the U.S. Company. Interest is payable monthly at the bank's base rate
plus 2 1/2% (9 3/4% at June 30, 1994). There were no balances outstanding
at June 30, 1994. The loan is collateralized by the U.S. Company's accounts
receivable, inventories, fixed assets and certain other assets. The Company
had credit availability of $665,000 at June 30, 1994. The agreement
provides that if the tangible net worth, as defined, of the U.S. Company is
less than $3,000,000, the U.S. Company may not pay dividends or make certain
advances or loans without the written approval of the bank and becomes
subject to certain other defined restrictions. The agreement limits the
Company's annual capital expenditures. The financial requirements of the
financing agreement were met at June 30, 1994.
9
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RELIABILITY INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1994
The Company's Singapore subsidiary maintains an agreement with a
Singapore bank to provide an overdraft facility to the subsidiary of 500,000
Singapore dollars (U.S. $327,000) at the bank's prime rate plus 1% (6 1/2%
at June 30, 1994). There were no balances outstanding at June 30, 1994,
and amounts utilized under credit commitments totaled $128,000, resulting
in credit availability of $199,000 at June 30, 1994. The loan is
collateralized by all assets of the subsidiary and requires maintenance of
a minimum net worth of the Singapore subsidiary. Payment of dividends
requires written consent from the bank and continuation of the credit
facility is at the discretion of the bank.
The Company's Japanese subsidiary maintained an agreement with a related
party of the subsidiary to provide a credit facility to the subsidiary.
The related party of the subsidiary obtained a line of credit from a
Japanese bank and made the amount available to the Company. In April 1993,
the loan was converted to a term loan payable in monthly installments of
$9,900, plus interest paid quarterly. The Company made certain advance
payments and the loan was paid in full in March 1994.
Interest (income) expense for the periods ended June 30 is presented
net as follows:
1994 1993
(In thousands)
Interest expense $ 4 $ 49
Interest (income) (38) (4)
----- -----
Interest (income) expense, net $ (34) $ 45
===== =====
3. SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest and income taxes for the periods ended June 30
is as follows:
1994 1993
(In thousands)
Interest $ 1 $ 70
Income taxes paid $ 24 $ 25
10
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RELIABILITY INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1994
4. COMMITMENTS
The Company leases manufacturing and office facilities under
noncancelable operating lease agreements expiring through 1998.
Future minimum rental payments under leases in effect at June 30, 1994,
are: 1994 - $621,000; 1995 - $722,000; 1996 - $436,000; 1997 - $308,000;
1998 - $18,000.
The Company subleases excess manufacturing and office space in its U.S.
facility. Future income under the sublease will be: 1994 - $54,000 and
1995 - $38,000.
5. PROVISION FOR RESTRUCTURING
The Company recorded, in the quarter ended March 31, 1993, a provision
for restructuring of its U.S. operations totaling $319,000 related to
retirement and severance pay for employees who were terminated in March
1993. The Company recorded restructuring charges of $1,392,000 in 1992.
The 1992 amount represents a $1,000,000 provision for closing the Company's
Japanese subsidiary and a charge of $392,000 related to downsizing of the
Company's UK and Irish operations and downsizing of production capacity for
power sources in Singapore and shifting of production to Costa Rica. The
charge was related principally to the remaining lease obligations and
associated costs at the UK and Singapore facilities, severance liabilities
and write-off of fixed assets. The provision for closing the Japanese
subsidiary related to estimated losses on disposal of certain assets,
severance pay, estimated expenses to be incurred in curtailing operations
and settling lease obligations related to the subsidiary's facility.
11
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RELIABILITY INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1994
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
FINANCIAL CONDITION
Management considers cash provided by operations and retained earnings
to be primary sources of capital. The Company maintains lines of credit to
supplement these primary sources of capital and has leased its major
facilities, reducing the need to expend capital on such items. Changes in
the Company's financial condition, liquidity, and capital requirements since
June 30, 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.
Reduction in expenses related to the restructuring of operations, which was
completed in the first quarter of 1993, contributed to the Company returning
to profitability. Factors discussed in the management's discussion included
in the Company's 1993 Form 10-K are also applicable to operations for the
first six months of 1994 and should be read in conjunction with this
discussion.
Certain ratios and amounts monitored by management in evaluating the
Company's financial resources and performance are presented in the following
chart:
June 30, December 31, June 30,
1994 1993 1993
Working Capital:
Working Capital (in thousands) $7,600 $5,846 $3,633
Current Ratio 3.7 to 1 3.1 to 1 2.0 to 1
Equity Ratios:
Total Liabilities to Equity 0.3 0.4 0.7
Assets to Equity 1.3 1.4 1.7
Profitability Ratios:
Gross Profit 49% 43% 40%
Return on Revenues 14% 9% 2%
Return on Assets (Annualized) 26% 22% 6%
Return on Equity (Annualized) 34% 29% 10%
The Company's financial condition improved significantly during the
latter half of 1993 and first half of 1994. Working capital increased to
$7.6 million at June 30, 1994 from $3.6 million at June 30, 1993, and the
ratio of current assets to current liabilities increased to 3.7 at June 30,
1994, compared to 2.0 at June 30, 1993. The improvement is attributable to
a return to profitability resulting from completing actions related to
restructuring of operations during the first quarter of 1993 and expense
reductions which included reductions in personnel levels and excess lease
space and a general reduction in expenses, resulting in expenses being at
levels which are more appropriate for current revenue amounts.
12
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RELIABILITY INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
June 30, 1994
Net cash used by operating activities for the six months ended June
30, 1994 was $548,000, contrasted with $2.3 million provided by operations
in the 1993 period. The principal items contributing to the cash used by
operations in 1994 are increases in accounts receivable and inventories of
$1.8 million and $1.2 million, respectively. The increase in accounts
receivable resulted from shipment of product with high unit sales prices
during the latter part of June, and the inventory change resulted from an
increase in work in progress and finished goods inventory related to product
that will be shipped in the third quarter of 1994. The principal items
contributing to cash provided by operations in 1993 were decreases in
accounts receivable and inventories of $1.2 million and $2.3 million,
respectively. Cash provided by operations in 1993 was used to reduce debt
by $1.9 million and to reduce accounts payable and accrued liabilities by
a total of $2.5 million. In addition, the cash provided by operations was
used to reduce the liability for restructuring by $953,000.
The Company maintains bank lines of credit to provide funds to support
changes in liquidity. The Company's total bank debt was $324,000 at June
30, 1993. Cash flow from operations was used to pay off bank debt in 1993.
In addition, in 1993 the Company negotiated conversion of a short-term
borrowing to a term loan repayable over approximately 3 years. The amount
due under the term loan was $256,000 at June 30, 1993 and was paid in full
during the quarter ended March 31, 1994. The U.S. Company's working
capital line of credit is evidenced by demand notes, and credit availability
is limited to 80% of eligible accounts receivable. The Company's Singapore
subsidiary has an overdraft facility; continuation of the facility is at the
discretion of the bank. The Company could borrow $864,000 under its lines
of credit at June 30, 1994.
Capital expenditures during the first half of 1994 and 1993 were
$386,000 and $312,000, respectively. Management currently projects that
1994 expenditures may exceed $1.0 million. The lease on the Company's
corporate headquarters expires in 1995. The Company will decide during 1994
whether to continue to lease, purchase the existing facility or to relocate
to a different facility.
RESULTS OF OPERATIONS
Six months ended June 30, 1994 compared to six months ended June 30,
1993.
REVENUES
Revenues for the 1994 six-month period declined $1.4 million to $11.9
million. Conditioning Products and Conditioning Services revenues decreased
$1,439,000 and $91,000, respectively, while Power Sources revenues increased
$143,000.
13
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RELIABILITY INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
June 30, 1994
Revenues from the sale of Conditioning Products totaled $5.2 million in
1994, a decrease of 22% compared to the 1993 period. Revenues from the
sale of INTERSECT (tm) 30 burn-in and test systems declined due to a volume
decrease. This decline in revenues was offset somewhat by an increase in
revenues from the sale of burn-in chambers, resulting in a net decrease in
revenues in the segment.
Revenues in the Power Sources segment were $3.0 million in 1994,
reflecting a 5% increase from the 1993 period. The increase resulted from
product mix changes and volume increases due to increased demand.
Revenues in the Services segment for 1994 were $3.7 million, a decrease
of 2% compared to the 1993 period. Revenues related to conditioning
services increased at both of the Company's Services facilities due to
increased volume; the overall decrease in revenues in this segment is
attributable to the Company's Singapore service facility where revenues from
the sale of conditioning products to Services customers declined in 1994,
due to a decrease in demand.
COSTS AND EXPENSES
Total costs and expenses, excluding the 1993 provision for
restructuring, decreased $2.4 million compared to the revenue decrease of
$1.4 million. Cost of revenues decreased $2.0 million, marketing, general
and administrative expenses decreased $428,000 and research and development
expenses decreased $21,000.
The increase in the gross profit from 40% in 1993 to 49% in 1994 is
attributable to all three business segments and resulted from expense
reductions, changes in product mix and volume increases in the Power Sources
and Services segments.
The increase in the gross profit in the Conditioning Products segment
relates to cost reduction measures implemented throughout 1993, resulting
in a decrease in both fixed and variable manufacturing costs, and an
increase in the volume of burn-in chambers shipped during 1994.
The increase in the gross profit in the Services segment is due to a
reduction in expenses, volume increases and a decrease in revenues from the
sale of conditioning products to Services customers. The gross profit on
these products is traditionally low due to price competition.
The increase in the gross profit in the Power Sources segment is
attributable to a reduction in manufacturing costs and production
efficiencies resulting from shifting production capacity for this segment
to Costa Rica and an increase in unit prices for certain products resulting
from product mix changes.
14
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RELIABILITY INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
June 30, 1994
Marketing, general and administrative expenses, for the 1994 period,
decreased $428,000 in comparison to a $1.4 million decrease in revenues.
A significant portion of the decrease relates to reductions in personnel
levels at the Houston facility, for which a restructuring provision was
recorded in the first quarter of 1993. Most elements of expenses were
reduced throughout 1993 due to stringent expenses controls which contributed
to the 1994 decrease. In addition, expenses decreased in the Conditioning
Products segment due to a decrease in volume related expenses such as
commissions, royalties and installation costs associated with the decrease
in INTERSECT 30 burn-in and test product revenues.
The Company reduced personnel levels at its Houston facility during the
first quarter of 1993 and recorded a $319,000 provision for restructuring
of operations to cover the termination costs.
Research and Development costs decreased $21,000 in 1994 to $372,000.
The decrease is primarily attributable to a decrease in development costs
associated with the INTERSECT 30 burn-in and test system.
INTEREST (INCOME) EXPENSE
The change in net interest reflects a decrease in interest expense and
an increase in interest income. Interest expense decreased due to payment
of all debt balances. Interest income increased due to an increase in
investable cash balances.
PROVISION (BENEFIT) FOR INCOME TAXES
The Company's effective tax rate was 4% for the six months ended June
30, 1994, and an income tax benefit of $34,000 was recorded in 1993 related
to the income before tax of $269,000. The Company's effective tax rate
differed from the U.S. tax rate of 34% in 1994 due to tax benefits and tax
credits related to net operating loss carryforwards and tax benefits related
to expenses incurred in shutting down a foreign subsidiary. The principal
reason the Company's effective tax rate varied from the U.S. statutory rate
in 1993 was tax benefits related to a U.S. net operating loss carryforward.
Three months ended June 30, 1994, compared to three months ended June
30, 1993.
REVENUES
Revenues for the 1994 three-month period increased $140,000 to $6.7
million. Revenues in the Power Sources and Services segments increased
$221,000 and $65,000, respectively and Conditioning Products revenues
decreased $146,000.
15
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RELIABILITY INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
June 30, 1994
Revenues in the Conditioning Products segment were $3.2 million for the
second quarter of 1994 which is a decrease of $146,000 over the second
quarter of 1993 and is related to product mix changes. Revenues from the
sale of burn-in products declined 8% and revenues from the sale of loader
and unloader products also decreased, while revenues from the sale of
INTERSECT products increased.
Revenues in the Power Sources segment were $1.6 million for the second
quarter of 1994, reflecting a 16% increase from the second quarter of 1993.
Revenues were affected by an increase in unit volume due to increased demand
and unit price increases due to product mix changes.
Revenues in the Services segment for the 1994 quarter were $1.9 million,
an increase of 4% compared to the corresponding 1993 quarter. The increase
is related to both of the Company's services facilities, as explained in the
above discussion related to the six month period ended June 30, 1994. The
increase was partially offset, during the 1994 quarter, by a decrease in
revenues from the sale of burn-in products to Services customers at the
Singapore facility.
A decline in backlog as of June 30, 1994, in the Conditioning Products
segment, compared to March 31, 1994, relates to shipment of INTERSECT
products during 1994.
COSTS AND EXPENSES
Total costs and expenses decreased $163,000 to $5.5 million in
comparison to the revenue decrease of $140,000. Cost of revenues decreased
$525,000, marketing, general and administrative expenses increased $376,000
and research and development expenses decreased $14,000.
The increase in the gross profit from 41% in the 1993 quarter to 50% in
1994 is attributable to all business segments. The gross profit in the
Conditioning Products segment increased due to changes in product mix and
expense reductions. The increase in gross profit in the Power Sources
segment is attributable to cost reduction measures and product mix changes
as discussed in the above six months discussion. The principal reason for
the increase in the gross profit in the Services segment is the fact that
conditioning products sold to Services customers decreased as a percent of
total revenues in this segment. These products are traditionally sold at
a lower gross profit due to price competition.
Marketing, general and administrative expenses for the 1994 quarter
increased $376,000. The increase in expenses is primarily related to an
increase in incentive bonus expense which is directly related to net income
and an increase in volume related expenses in the Conditioning Products and
Power Sources segments due to the increase in revenues.
16
<PAGE>
RELIABILITY INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
June 30, 1994
Research and development costs decreased 9% in 1994 to $137,000, due
to a decrease in costs related to INTERSECT 30 development.
PROVISION (BENEFIT) FOR INCOME TAXES
The Company's effective tax rate was 5% for the quarter ended June 30,
1994, and a tax benefit of $27,000 was recorded during the 1993 quarter
related to taxable income of $821,000. The factors affecting income taxes
for the quarters ended June 30, 1994 and 1993 are the same as those
discussed in the above narrative related to income taxes for the six months
ended June 30, 1994.
17
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RELIABILITY INCORPORATED
PART II. OTHER INFORMATION
June 30, 1994
Items 1 through 5.
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
Exhibit No. Description Page No.
3 Amended and Restated
Bylaws of
Reliability Incorporated 20 - 33
(b) Reports on Form 8-K. There were no reports on Form 8-K filed by the
Company during the quarter ended June 30, 1994.
18
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RELIABILITY INCORPORATED
SIGNATURES
June 30, 1994
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RELIABILITY INCORPORATED
(Registrant)
/s/ Larry Edwards
Larry Edwards DATE: August 10, 1994
President and
Chief Executive Officer
/s/ Max T. Langley
Max T. Langley DATE: August 10, 1994
Sr. Vice President - Finance
and Principal Financial Officer
19
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AMENDED AND RESTATED
BYLAWS OF
RELIABILITY INCORPORATED
(the "Company")
ARTICLE I
Offices
Section 1.1. Offices. The principal business office of the
Company shall be 16400 Park Row, Houston, Texas. The Company may have such
other business offices within or without the State of Texas as the board of
directors may from time to time establish.
ARTICLE II
Capital Stock
Section 2.1. Certificate Representing Shares. Shares of the
capital stock of the Company shall be represented by certificates in such
form or forms as the board of directors may approve, provided that such form
or forms shall comply with all applicable requirements of law or of the
articles of incorporation. Such certificates shall be signed by the
chairman of the board or the president, and by the secretary or an assistant
secretary, of the Company and may be sealed with the seal of the Company or
imprinted or otherwise marked with a facsimile of such seal. The signature
of any or all of the foregoing officers of the Company may be represented
by a printed facsimile thereof. If any officer whose signature, or a fac-
simile thereof, shall have been set upon any certificate shall cease, prior
to the issuance of such certificate, to occupy the position in right of
which his signature, or facsimile thereof, was so set upon such certifi-
cate, the Company may nevertheless adopt and issue such certificate with the
same effect as if such officer occupied such position as of such date of
issuance; and issuance and delivery of such certificate by the Company shall
constitute adoption thereof by the Company. The certificates shall be
consecutively numbered, and as they are issued, a record of such issuance
shall be entered in the books of the Company.
Section 2.2. Stock Certificate Records and Shareholders of
Record. The secretary of the Company shall maintain, or cause to be
maintained, among other records, stock certificate records which shall set
forth the names and addresses of the holders of all issued shares of the
Company, the number of shares held by each, the number of certificates
representing such shares, the date of issue of such certificates, and
whether or not such shares originate from original issue or from transfer.
The names and addresses of shareholders as they appear on the stock certifi-
cate records shall be the official list of shareholders of record of the
Company for all purposes. The Company shall be entitled to treat the holder
of record of any shares as the owner thereof for all purposes, and shall not
be bound to
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recognize any equitable or other claim to, or interest in, such shares or
any rights deriving from such shares on the part of any other person,
including, but without limitation, a purchaser, assignee, or transferee,
unless and until such other person becomes the holder of record of such
shares, whether or not the Company shall have either actual or constructive
notice of the interest of such other person.
Section 2.3. Shareholder's Change of Name or Address. Each
shareholder shall promptly notify the secretary of the Company, at its
principal business office, by written notice sent by certified mail, return
receipt requested, of any change in name or address of the shareholder from
that as it appears upon the official list of shareholders of record of the
Company. The secretary of the Company shall then enter such changes into
all affected Company records, including, but not limited to, the official
list of shareholders of record.
Section 2.4. Transfer of Stock. The shares represented by any
certificate of the Company are transferable only on the books of the Company
by the holder of record thereof or by his duly authorized attorney or legal
representative upon surrender of the certificate for such shares, properly
endorsed or assigned. The board of directors may make such rules and
regulations concerning the issue, transfer, registration and replacement of
certificates as they deem desirable or necessary.
Section 2.5. Transfer Agent and Registrar. The board of
directors may appoint one or more transfer agents or registrars of the
shares, or both, and may require all share certificates to bear the
signature of a transfer agent or registrar, or both.
Section 2.6. Lost, Stolen or Destroyed Certificates. The
Company may issue a new certificate for shares of stock in the place of any
certificate theretofore issued and alleged to have been lost, stolen or
destroyed, but the board of directors may require the owner of such lost,
stolen or destroyed certificate, or his legal representative, to furnish an
affidavit as to such loss, theft, or destruction and to give a bond in such
form and substance, and with such surety or sureties, with fixed or open
penalty, as the board may direct, in order to indemnify the Company and its
transfer agents and registrars, if any, against any claim that may be made
on account of the alleged loss, theft or destruction of such certificate.
Section 2.7. Fractional Shares. Only whole shares of the stock
of the Company shall be issued. In case of any transaction by reason of
which a fractional share might otherwise be issued, the directors, or the
officers in the exercise of powers delegated by the directors, shall take
such measures consistent with the law, the articles of incorporation and
these bylaws, including (for example, and not by way of limitation) the
payment in cash of an amount equal to the fair value of any fractional
share, as they may deem proper to avoid the issuance of any fractional
share.
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ARTICLE III
The Shareholders
Section 3.1. Annual Meeting. Commencing in the calendar year
1984, the annual meeting of the shareholders, for the election of directors
and for the transaction of such other business as may properly come before
the meeting, shall be held at the principal office of the Company, at 10:00
a.m. local time, during the fourth week in April of each year, or at such
other place and time as may be designated by the board of directors.
Failure to hold any annual meeting or meetings shall not work a forfeiture
or dissolution of the Company.
Section 3.2. Special Meetings. Except as otherwise provided by
law or by the articles of incorporation, special meetings of the
shareholders may be called by the chairman of the board of directors, the
president, any one of the directors, or the holders of at least ten percent
of all the shares having voting power at such meeting, and shall be held at
the principal office of the Company or at such other place, and at such
time, as may be stated in the notice calling such meeting. The record date
for determining shareholders entitled to call a special meeting is the date
on which the first shareholder signs the notice of that meeting. Business
transacted at any special meeting of shareholders shall be limited to the
purpose stated in the notice of such meeting given in accordance with the
terms of Section 3.3.
Section 3.3. Notice of Meetings - Waiver. Written or printed
notice of each meeting of shareholders, stating the place, day and hour of
any meeting and, in case of a special shareholders' meeting, the purpose or
purposes for which the meeting is called, shall be delivered not less than
ten nor more than sixty days before the date of such meeting, either
personally or by mail, by or at the direction of the president, the
secretary, or the persons calling the meeting, to each shareholder of record
entitled to vote at such meeting. If mailed, such notice shall be deemed
to be delivered when deposited in the United States mail addressed to the
shareholder at his address as it appears on the stock certificate records
of the Company, with postage thereon prepaid. Such further or earlier
notice shall be given as may be required by law. The signing by a
shareholder of a written waiver of notice of any shareholders' meeting,
whether before or after the time stated in such waiver, shall be equivalent
to the receiving by him of all notice required to be given with respect to
such meeting. Attendance by a shareholder, whether in person or by proxy,
at a shareholders' meeting shall constitute a waiver of notice of such meet-
ing. No notice of any adjournment of any meeting shall be required.
Section 3.4. Discharge of Notice Requirement. The notice
provided for in Section 3.3. of these bylaws is not required to be given to
any shareholder if either notice of two consecutive annual meetings and all
notices of meetings held during the period between such annual meetings or
all payments, provided that there were at least two such payments and all
payments were sent by first class mail, of distributions or interest on
securities during a twelve-month period have been mailed to such
shareholder, addressed to the address as shown on the records of the Company
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and have been returned undeliverable. Any action or meeting taken or held
without notice to such a shareholder shall have the same force and effect
as if the notice had been duly given and any articles or document filed with
the Secretary of State pursuant to action taken may state that notice was
duly given to all persons to whom notice was required to be given. The
requirement that notice be given to such a shareholder shall be reinstated
if such shareholder delivers to the Company a written notice setting forth
his then current address.
Section 3.5. Closing of Transfer Books and Fixing Record Date.
For the purpose of determining shareholders entitled to notice of, or to
vote at, any meeting of shareholders or any adjournment thereof, or
shareholders entitled to receive a distribution by the Company (other than
a distribution involving a purchase or redemption by the Company of any of
its own shares) or a share dividend, or in order to make a determination of
shareholders for any other proper purpose, the board of directors of the
Company may provide that the stock transfer books shall be closed for a
stated period in no case to exceed sixty days. If the stock transfer books
shall be closed for the purpose of determining shareholders entitled to
notice of or to vote at a meeting of shareholders, such books shall be
closed for at least the ten days immediately preceding such meeting. In
lieu of closing the stock transfer books, the board of directors may fix in
advance a date as the record date for any such determination of
shareholders, such date in no case to be more than sixty days nor, in the
case of a meeting of shareholders, less than ten days prior to the date on
which the particular action requiring such determination of shareholders is
to be taken. If the stock transfer books are not closed and no record date
is fixed for the determination of shareholders entitled to notice of or to
vote at a meeting of shareholders, or shareholders entitled to receive a
distribution (other than a distribution involving a purchase or redemption
by the corporation of any of its own shares) or a share dividend, the date
on which notice of the meeting is mailed or the date on which the resolution
of the board of directors declaring such distribution or share dividend is
adopted, as the case may be, shall be the record date of such determination
of shareholders. When a determination of shareholders entitled to vote at
any meeting of shareholders has been made, as provided in this section, such
determination shall apply to any adjournment thereof except where the
determination has been made through the closing of stock transfer books and
the stated period of closing has expired.
Section 3.6. Distributions and Share Ownership as of Record Date.
Distributions of cash, tangible property or intangible property made or
payable by the Company, whether in liquidation or from earnings, profits,
assets or capital, including all distributions that were payable but not
paid to the registered owner of the shares, his heirs, successors or assigns
but that are now being held in suspense by the Company or that were paid or
delivered by it into an escrow account or to a trustee or custodian, shall
be payable by the Company, escrow agent, trustee or custodian to the person
registered as owner of the shares in the Company's stock certificate records
as of the record date determined for that distribution, as provided in
Section 3.5 of these bylaws, his heirs, successors or assigns. The person
in whose name the shares are or were registered in the stock certificate
records of the Company as of the record date shall be deemed to be the owner
of the shares registered in his name at that time.
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Section 3.7. Voting List. The officer or agent having charge of
the stock certificate records for shares of the Company shall make, at least
ten days before each meeting of shareholders, a complete list of the
shareholders entitled to vote at such meeting or any adjournment thereof,
arranged in alphabetical order, with the address of and the number of shares
held by each, which list, for a period of ten days prior to such meeting,
shall be kept on file at the registered office of the Company and shall be
subject to lawful inspection by any shareholder at any time during the
usual business hours. Such list shall also be produced and kept open at the
time and place of the meeting and shall be subject to the inspection of any
shareholder during the whole time of the meeting. Failure to comply with
this section shall not affect the validity of any action taken at such meet-
ing.
Section 3.8. Quorum and Officers. Except as otherwise provided
by law, by the articles of incorporation or by these bylaws, the holders of
a majority of the shares entitled to vote and represented in person or by
proxy shall constitute a quorum at a meeting of shareholders, but the
shareholders present at any meeting, although representing less than a
quorum, may from time to time adjourn the meeting to some other day and
hour, without notice other than announcement at the meeting. The
shareholders present at a duly organized meeting may continue to transact
business until adjournment, notwithstanding the withdrawal of enough
shareholders to leave less than a quorum. The vote of the holders of a
majority of the shares entitled to vote and thus represented at a meeting
at which a quorum is present shall be the act of the shareholders' meeting,
unless the vote of a greater number is required by law. The chairman of the
board or the president shall preside at, and the secretary shall keep the
records of, each meeting of shareholders, and in the absence of either such
officer, his duties shall be performed by any other officer authorized by
these bylaws or any person appointed by resolution duly adopted at the
meeting.
Section 3.9. Voting at Meetings. Each outstanding share shall
be entitled to one vote on each matter submitted to a vote at a meeting of
shareholders except to the extent that the articles of incorporation or the
laws of the State of Texas provide otherwise.
Section 3.10. Proxies. A shareholder may vote either in person
or by proxy executed in writing by the shareholder, or by his duly
authorized attorney-in-fact. No proxy shall be valid after eleven (11)
months from the date of its execution unless otherwise provided in the
proxy. A proxy shall be revocable unless the proxy form conspicuously
states that the proxy is irrevocable and the proxy is coupled with an
interest.
Section 3.11. Balloting. Upon the demand of any shareholder, the
vote upon any question before the meeting shall be by ballot. At each
meeting inspectors of election may be appointed by the presiding officer of
the meeting, and at any meeting for the election of directors, inspectors
shall be so appointed on the demand of any shareholder present or
represented by proxy and entitled to vote in such election of directors.
No director or candidate for the office of director shall be appointed as
such inspector. The number of votes cast by shares in the election of
directors shall be recorded in the minutes.
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Section 3.12. Voting Rights, Prohibition of Cumulative Voting for
Directors. Each outstanding share of common stock shall be entitled to one
(1) vote upon each matter submitted to a vote at a meeting of shareholders.
No shareholder shall have the right to cumulate his votes for the election
of directors but each share shall be entitled to one vote in the election
of each director. In the case of any contested election for any
directorship, the candidate for such position receiving a plurality of the
votes cast in such election shall be elected to such position.
Section 3.13. Record of Shareholders. The Company shall keep at
its principal business office, or the office of its transfer agents or
registrars, a record of its shareholders, giving the names and addresses of
all shareholders and the number and class of the shares held by each. This
list, compiled from the stock certificate records, shall be the official
list of shareholders of the Company for all purposes and shall be the same
list required by Section 2.2 hereof.
Section 3.14. Action Without Meeting. Any action required by
statute to be taken at a meeting of the shareholders of the Company, or any
action which may be taken at a meeting of the shareholders, may be taken
without a meeting if a consent in writing, setting forth the action so
taken, shall be signed by all of the shareholders entitled to vote with
respect to the subject matter thereof and such consent shall have the same
force and effect as a unanimous vote of the shareholders. Any such signed
consent, or a signed copy thereof, shall be placed in the minute book of the
Company.
ARTICLE IV
The Board of Directors
Section 4.1. Number, Qualifications and Term. The business and
affairs of the Company shall be managed and controlled by the board of
directors; and, subject to any restrictions imposed by law, by the articles
of incorporation, or by these bylaws, the board of directors may exercise
all the powers of the Company. The board of directors shall consist of
five members. Such number may be increased or decreased by amendment of
these bylaws, provided that no decrease shall effect a shortening of the
term of any incumbent director. Directors need not be residents of Texas
or shareholders of the Company absent provision to the contrary in the
articles of incorporation or laws of the State of Texas. Except as
otherwise provided in Section 4.3. of these bylaws, each position on the
board of directors shall be filled by election at the annual meeting of
shareholders. Any such election shall be conducted in accordance with
Section 3.8. of these bylaws. Each person elected a director shall hold of-
fice, unless removed in accordance with Section 4.2 of these bylaws, until
the next annual meeting of the shareholders and until his successor shall
have been duly elected and qualified.
Section 4.2. Removal. Any director or the entire board of
directors may be removed from office, with or without cause, at any special
meeting of shareholders by the affirmative vote of a majority of the shares
of the shareholders present in person or by proxy and entitled to vote at
such meeting, if notice of the intention to act upon such matter shall have
been
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given in the notice calling such meeting. If the notice calling such
meeting shall have so provided, the vacancy caused by such removal may be
filled at such meeting by the affirmative vote of a majority in number of
the shares of the shareholders present in person or by proxy and entitled
to vote.
Section 4.3. Vacancies. Any vacancy occurring in the board of
directors may be filled by the vote of a majority of the remaining
directors, even if such remaining directors comprise less than a quorum of
the board of directors. A director elected to fill a vacancy shall be
elected for the unexpired term of his predecessor in office. Any position
on the board of directors to be filled by reason of an increase in the
number of directors shall be filled by the vote of a majority of the
directors, election at an annual meeting of the shareholders, or at a
special meeting of shareholders duly called for such purpose, provided that
the board of directors may fill no more than two such directorships during
the period between any two successive annual meetings of shareholders.
Section 4.4. Regular Meetings. Regular meetings of the board of
directors shall be held immediately following each annual meeting of
shareholders, at the place of such meeting, and at such other times and
places as the board of directors shall determine. No notice of any kind of
such regular meetings needs to be given to either old or new members of the
board of directors.
Section 4.5. Special Meetings. Special meetings of the board of
directors shall be held at any time by call of the chairman of the board,
the president, the secretary or any one director. The secretary shall give
notice of each special meeting to each director at his usual business or
residence address by mail at least three days before the meeting or in
person, by telegraph, telefax or telephone at least one day before such
meeting. If mailed, such notice shall be deemed to be delivered when
deposited in the United States mail with postage thereon prepaid. Except
as otherwise provided by law, by the articles of incorporation, or by these
bylaws, such notice need not specify the business to be transacted at, or
the purpose of, such meeting. No notice shall be necessary for any
adjournment of any meeting. The signing of a written waiver of notice of
any special meeting by the person or persons entitled to such notice,
whether before or after the time stated therein, shall be equivalent to the
receiving of such notice. Attendance of a director at a meeting shall also
constitute a waiver of notice of such meeting, except where a director
attends a meeting for the express and announced purpose of objecting to the
transaction of any business on the ground that the meeting is not lawfully
called or convened.
Section 4.6. Quorum. A majority of the number of directors fixed
by these bylaws shall constitute a quorum for the transaction of business
and the act of not less than a majority of such quorum of the directors
shall be required in order to constitute the act of the board of directors,
unless the act of a greater number shall be required by law, by the articles
of incorporation or by these bylaws.
Section 4.7. Procedure at Meetings. The board of directors at
each regular meeting held immediately following the annual meeting of
shareholders shall appoint one of their number as chairman of the board of
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directors. The chairman of the board shall preside at meetings of the
board. In his absence at any meeting, any officer authorized by these
bylaws or any member of the board selected by the members present shall
preside. The secretary of the Company shall act as secretary at all
meetings of the board. In his absence, the presiding officer of the meeting
may designate any person to act as secretary. At meetings of the board of
directors, the business shall be transacted in such order as the board may
from time to time determine.
Section 4.8. Presumption of Assent. Any director of the Company
who is present at a meeting of the board of directors at which action on any
corporate matter is taken shall be presumed to have assented to the action
taken unless his dissent shall be entered in the minutes of the meeting or
unless he shall file his written dissent to such action with the person
acting as the secretary of the meeting before the adjournment thereof or
shall forward such dissent by registered mail to the secretary of the
Company immediately after the adjournment of the meeting. Such right to
dissent shall not apply to a director who voted in favor of such action.
Section 4.9. Action Without a Meeting. Any action required by
statute to be taken at a meeting of the directors of the Company, or which
may be taken at such meeting, may be taken without a meeting if a consent
in writing, setting forth the action so taken, shall be signed by each
director entitled to vote at such meeting, and such consent shall have the
same force and effect as a unanimous vote of the directors. Such signed
consent, or a signed copy thereof, shall be placed in the minute book of the
Company.
Section 4.10. Compensation. Directors shall receive such
compensation for their services as is set by resolution of the board of
directors, and reimbursement for reasonable expenses of attendance, if any,
may be allowed for attendance at each regular or special meeting of the
board of directors or at any meeting of the executive committee of direc-
tors, if any, to which such director may be elected in accordance with the
following Section 4.11; but nothing herein shall preclude any director from
serving the Company in any other capacity or receiving compensation there-
for.
Section 4.11. Executive Committee. The board of directors, by
resolution adopted by a majority of the full board of directors, may
designate an executive committee, which committee shall consist of two or
more of the directors of the Company. Such executive committee may exercise
such authority of the board of directors in the business and affairs of the
Company as the board of directors may, by resolution duly adopted, delegate
to it except as prohibited by law. The designation of such committee and
the delegation thereto of authority shall not operate to relieve the board
of directors, or any member thereof, of any responsibility imposed upon it
or him by law. Any member of the executive committee may be removed by the
board of directors. The executive committee shall keep regular minutes of
its proceedings and report the same to the board of directors when required.
The minutes of the proceedings of the executive committee shall be placed
in the minute book of the Company. Members of the executive committee shall
receive such compensation as may be approved by the board of directors and
will be reimbursed for reasonable expenses actually incurred by reason of
membership on the executive committee.
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Section 4.12. Other Committees. The board of directors, by
resolution adopted by a majority of the full board of directors, may appoint
one or more committees of two or more directors each. Such committees may
exercise such authority of the board of directors in the business and
affairs of the Company as the board of directors may, by resolution duly
adopted, delegate, except as prohibited by law. The designation of any
committee and the delegation thereto of authority shall not operate to
relieve the board of directors, or any member thereof, of any responsibility
imposed on it or him by law. Any member of a committee may be removed at
any time by the board of directors. Members of any such committees shall
receive such compensation as may be approved by the board of directors and
will be reimbursed for reasonable expenses actually incurred by reason of
membership on a committee.
ARTICLE V
Officers
Section 5.1. Officers. The officers of the Company shall consist
of a president, one or more vice presidents, a secretary and a treasurer;
and, in addition, such other officers and assistant officers and agents as
may be deemed appropriate or desirable. Officers shall be elected or
appointed by the board of directors. Any two or more offices may be held
by the same person. In its discretion, the board of directors may leave
unfilled any office except those of president, treasurer and secretary.
Section 5.2. Election; Term; Qualification. Officers shall be
chosen by the board of directors annually at the meeting of the board of
directors following the annual shareholders' meeting. Each officer shall
hold office until his successor has been chosen and qualified, or until his
death, resignation, or removal.
Section 5.3. Removal. Any officer or agent elected or appointed
by the board of directors may be removed by the board of directors whenever
in its judgment the best interests of the Company will be served thereby,
but such removal shall be without prejudice to the contract rights, if any,
of the person so removed. Election or appointment of an officer or agent
shall not of itself create any contract rights.
Section 5.4. Vacancies. Any vacancy in any office for any cause
may be filled by the board of directors at any meeting.
Section 5.5. Duties. The officers of the Company shall have such
powers and duties, except as modified by the board of directors, as
generally pertain to their offices, respectively, as well as such powers and
duties as from time to time shall be conferred by the board of directors and
by these bylaws.
Section 5.6. President. The president shall be the chief
executive officer of the Company and shall have general direction of the
affairs of the Company and general supervision over the several officers,
subject however to the control of the board of directors. The president
shall, at each annual meeting and from time to time, report to
the shareholders and the board of directors on all matters within his
knowledge concerning the
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Company, which, in his opinion, should be brought to the notice of such
persons. In the absence of the chairman of the board, or at his direction,
the president shall preside at all meetings of shareholders of the Company.
The president shall sign and execute in the name of the Company (i) all
contracts or other instruments authorized by the board of directors, and
(ii) all contracts or instruments in the usual and regular course of
business, pursuant to Section 6.2 hereof, excepting those contracts where
the signing thereof has been expressly delegated by the board or these
bylaws to some other officer or agent of the Company; and in general,
shall perform all duties incident to the office of the president and a chief
executive officer and such other duties as may from time to time be assigned
to him by the board of directors or as are prescribed by these bylaws.
Section 5.7. The Vice Presidents. At the request of the
president, or in the event of the absence or disability of the president,
the vice presidents, in the order of their election, shall perform the
duties of the president, and, when so acting, shall have all the powers of,
and be subject to all restrictions upon, the president. Any action taken
by the vice president in the performance of the duties of the president
shall be conclusive evidence of the absence or inability to act as the
president at the time such action is taken. The vice president shall
perform such other duties as may, from time to time, be assigned to them by
the board of directors or the president.
Section 5.8. Secretary. The secretary shall keep the minutes of
all meetings of the shareholders, of the board of directors, and of the
executive committee, if any, of the board of directors, in one or more books
provided for such purpose and shall see that all notices are duly given in
accordance with the provisions of these bylaws or as required by law. He
shall be custodian of the corporate records and of the seal (if any) of the
Company and see, if the Company has a seal, that the seal of the Company is
affixed to all documents the execution of which on behalf of the Company
under its seal is duly authorized; shall have general charge of the stock
certificate books, transfer books and stock ledgers, and such other books
and papers of the Company as the board of directors may direct, all of which
shall, at all reasonable times, be open to the examination of any director,
upon application at the office of the Company during business hours; and in
general shall perform all duties and exercise all powers incident to the
office of the secretary and such other duties and powers as the board of
directors or the president from time to time may assign to or confer on him.
Section 5.9. Treasurer. The treasurer shall keep complete and
accurate records of account, showing at all times the financial condition
of the Company. He shall be the legal custodian of all money, notes,
securities and other valuables which may from time to time come into the
possession of the Company. He shall furnish at meetings of the board of
directors, or whenever requested, a statement of the financial condition of
the Company, and shall perform such other duties as these bylaws may require
or the board of directors may prescribe.
Section 5.10. Assistant Officers. Any assistant secretary or
assistant treasurer appointed by the board of directors shall have power to
perform, and shall perform, all duties incumbent upon the secretary or
treasurer of the Company, respectively, subject to the general direction of
such respective officers, and shall perform such other duties as these
bylaws may require or the board of directors may prescribe.
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Section 5.11. Salaries. The salaries or other compensation of the
officers shall be fixed from time to time by the board of directors. No
officer shall be prevented from receiving such salary or other compensation
by reason of the fact that he is also a director of the Company.
Section 5.12. Bonds of Officers. The board of directors may
secure the fidelity of any officer of the Company by bond or otherwise, on
such terms and with such surety or securities, conditions, penalties or
securities as shall be deemed proper by the board of directors.
Section 5.13. Delegation. The board of directors may delegate
temporarily the powers and duties of any officer of the Company, in case of
his absence or for any other reason, to any other officer, and may authorize
the delegation by any officer of the Company of any of his powers and duties
to any agent or employee, subject to the general supervision of such
officer.
ARTICLE VI
Miscellaneous
Section 6.1. Distributions. Distributions, subject to the
provisions of the articles of incorporation and to limitations set forth by
law, if any, may be declared by the board of directors at any regular or
special meeting. Distributions may be in the form of a dividend, including
a share dividend, a purchase or redemption by the Company, directly or
indirectly, of any of its own shares or a payment by the Company
in liquidation of all or a portion of its assets. A distribution may not
be made if it would render the Company insolvent or if it exceeds the
surplus of the Company, except as otherwise allowed by law.
Subject to limitations upon the authority of the board of directors
imposed by law or by the articles of incorporation, the declaration of and
provision for payment of dividends shall be at the discretion of the board
of directors.
Section 6.2. Contracts. The president shall have the power and
authority to execute, on behalf of the Company, contracts or instruments
in the usual and regular course of business, and in addition the board of
directors may authorize any officer or officers, agent or agents, of the
Company to enter into any contract or execute and deliver any instrument in
the name of and on behalf of the Company, and such authority may be general
or confined to specific instances. Unless so authorized by the board of
directors or by these bylaws, no officer, agent or employee shall have any
power or authority to bind the Company by any contract or engagement, or
to pledge its credit or to render it pecuniarily liable for any purpose or
in any amount.
Section 6.3. Checks, Drafts, etc. All checks, drafts, or other
orders for the payment of money, notes, or other evidences of indebtedness
issued in the name of the Company shall be signed by such officers or
employees of the Company as shall from time to time be authorized pursuant
to these bylaws or by resolution of the board of directors.
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Section 6.4. Depositories. All funds of the Company shall be
deposited from time to time to the credit of the Company in such banks or
other depositories as the board of directors may from time to time
designate, and upon such terms and conditions as shall be fixed by the board
of directors. The board of directors may from time to time authorize the
opening and maintaining within any such depository as it may designate, of
general and special accounts, and may make such special rules and
regulations with respect thereto as it may deem expedient.
Section 6.5. Endorsement of Stock Certificates. Subject to the
specific directions of the board of directors, any share or shares of stock
issued by any corporation and owned by the Company, including reacquired
shares of the Company's own stock, may, for sale or transfer, be endorsed
in the name of the Company by the president or any vice president; and such
endorsement may be attested or witnessed by the secretary or any assistant
secretary either with or without the affixing thereto of the corporate seal.
Section 6.6. Corporate Seal. The corporate seal, if any, shall
be in such form as the board of directors shall approve, and such seal, or
a facsimile thereof, may be impressed on, affixed to, or in any manner
reproduced upon, instruments of any nature required to be executed by
officers of the Company.
Section 6.7. Fiscal Year. The fiscal year of the Company shall
begin and end on such dates as the board of directors at any time shall
determine.
Section 6.8. Books and Records. The Company shall keep correct
and complete books and records of account and shall keep minutes of the
proceedings of its shareholders and board of directors, and shall keep at
its registered office or principal place of business, or at the office of
its transfer agent or registrar, a record of its shareholders, giving the
names and addresses of all shareholders and the number and class of the
shares held by each.
Section 6.9. Resignations. Any director or officer may resign
at any time. Such resignations shall be made in writing and shall take
effect at the time specified therein, or, if no time is specified, at the
time of its receipt by the president or secretary. The acceptance of a
resignation shall not be necessary to make it effective, unless expressly
so provided in the resignation.
Section 6.10. Indemnification of Officers and Directors. The
Company shall indemnify to the full extent allowed by law any person who was
or is a party or is threatened to be made a party to any threatened,
pending, or completed action, suit, or proceeding, whether civil, criminal,
administrative, arbitrative, or investigative, any appeal in such an action,
suit, or proceeding, and any inquiry or investigation that could lead to
such an action, suit or proceeding by reason of the fact that he is or was
a director, officer, employee, or agent of the Company, or is or was serving
at the request of the Company as a director, officer, employee, partner,
venturer, proprietor, trustee, agent, or similar functionary of another
corporation, partnership, joint venture, trust, other enterprise, or
employee benefit plan. This indemnification shall, to the extent permitted
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by law, be against judgments, penalties, fines, settlements and reasonable
expenses actually incurred in connection with such investigation, action,
suit or proceeding but if the person is found liable to the Company or is
found liable on the basis that personal benefit was improperly received by
the person, indemnification shall be limited to reasonable expenses actually
incurred by the person in connection with the proceeding and shall not be
made in respect of any proceedings in which the person shall have been found
liable for willful or intentional misconduct in the performance of his duty
to the Company. A person acting in his official capacity as a director
of the Company must have conducted himself in good faith and reasonably
believed his actions to have been in the Company's best interests. A person
acting in any other capacity must have conducted himself in good faith and
reasonably have believed his actions were not opposed to the Company's best
interests. In the case of any criminal proceeding, indemnification requires
that the person indemnified have had no reasonable cause to believe
his conduct was unlawful.
Any indemnification under this section shall be made by the Company
only as authorized in the specific case upon a determination that
indemnification is proper because the director, officer, employee or agent
has met the applicable standard of conduct as set forth in the laws of the
State of Texas, and the amount of indemnification (before or after
termination of the proceedings) shall be made only as set forth in the laws
of the State of Texas. Such determinations shall be made as set forth in
the laws of the State of Texas.
Any indemnification of or advance of expenses to any officer,
director, employee, or agent of the Company shall be reported in writing to
the shareholders with or before the notice or waiver of notice of the next
shareholder's meeting or with or before the next submission to shareholders
of a consent to action without a meeting pursuant to Section 3.14 hereof
and, in any case, within the twelve-month period immediately following the
date of the indemnification or advance.
Any right of indemnification granted by this Section 6.10 shall be in
addition to and not in lieu of any other such right to which any director
or officer of the Company may at any time be entitled under the law of the
State of Texas; and if any indemnification which would otherwise be granted
by this Section 6.10 shall be disallowed by any competent court or
administrative body as illegal or against public policy, then any director
or officer with respect to whom such adjudication was made, and any other
officer or director, shall be indemnified to the fullest extent permitted
by law and public policy, it being the express intent of the Company to
indemnify its officers, directors, employees and agents to the fullest
extent possible in conformity with these bylaws, all applicable laws, and
public policy.
Section 6.11. Indemnity Insurance. The Company may purchase and
maintain insurance or another arrangement on behalf of a person who is or
was a director, officer, employee or agent of the Company or who is or was
serving at the request of the Company as a director, officer, partner,
venturer, proprietor, trustee, employee, agent or similar functionary of
another foreign or domestic corporation, partnership, joint venture, sole
proprietorship, trust, employee benefit plan, or other enterprise, against
any liability asserted against him and incurred by him in such capacity or
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arising out of his status as such a person, whether or not the Company would
have the power to indemnify him against that liability under these bylaws
or the laws of the State of Texas. If the insurance or other arrangement
is with a person or entity that is not regularly engaged in the business of
providing insurance coverage, the insurance or arrangement may provide for
payment of a liability with respect to which the Company would not have the
power to indemnify the person only if the shareholders of the Company
approve the inclusion of coverage for the additional liability.
Section 6.12. Meetings by Telephone. Subject to the provisions
required or permitted by these bylaws or the laws of the State of Texas for
notice of meetings, shareholders, members of the board of directors, or
members of any committee designated by the board of directors may
participate in and hold any meeting required or permitted under these bylaws
by telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other. Participation
in a meeting pursuant to this Section shall constitute presence in person
at such a meeting, except where a person participates in the meeting for the
express purpose of objecting to the transaction of any business on the
ground that the meeting is not lawfully called or convened.
ARTICLE VII
Amendments
Section 7.1. Amendments. These bylaws may be altered, amended,
or repealed, or new bylaws may be adopted, by a majority of the board of
directors at any duly held meeting of directors, provided that notice of
such proposed action shall have been contained in the notice of any such
meeting, unless the articles of incorporation or the laws of the State of
Texas reserve the power exclusively to the shareholders in whole or in part,
or the shareholders in amending, repealing or adopting a particular bylaw
expressly provide that the board of directors may not amend or repeal that
bylaw. Unless the articles of incorporation or a bylaw adopted by the
shareholders provides otherwise as to all or some portion of the Company's
bylaws, the holders of a majority of the shares represented at any duly held
meeting of the shareholders, provided that notice of such proposed action
shall have been contained in the notice of any such meeting, may amend,
repeal or adopt the Company's bylaws.
Certificate by Secretary
The undersigned, being the secretary of Reliability Incorporated,
hereby certifies that the foregoing bylaws of the Company was duly adopted
by the directors of said corporation effective on April 27, 1994.
IN WITNESS WHEREOF, I have signed this certification on this the 27th
day of April, 1994.
/s/ Max T. Langley
Max T. Langley, Secretary
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