SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 11-K
ANNUAL REPORT PURSUANT TO SECTION 15 (d) of
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
Commission File No. 2-83256
A. Full title of the plan and the address of the plan, if different from
that of the issuer named below:
RELIABILITY INCORPORATED EMPLOYEE STOCK SAVINGS PLAN AND TRUST
B. Name of issuer of the securities held pursuant to the plan and the
address of its principal executive office:
RELIABILITY INCORPORATED
16400 Park Row
Houston, Texas 77084
P. O. Box 218370
Houston, Texas 77218-8370
11k2k
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RELIABILITY INCORPORATED
EMPLOYEE STOCK SAVINGS PLAN AND TRUST
December 31, 1999
TABLE OF CONTENTS
Page
Number
Financial Statements:
Report of Independent Auditors 3
Statements of Net Assets Available for Benefits 4
Statement of Changes in Net Assets Available for Benefits 5
Notes to Financial Statements 6
Supplemental Schedules:
Schedule H, Line 4(i) - Schedule of Assets Held for
Investment Purposes at End of Year 10
Schedule H, Line 4(j)- Schedule of Reportable Transactions 11
Signatures 12
Exhibit 23 - Consent of Independent Auditors dated
June 6, 2000 13
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RELIABILITY INCORPORATED
EMPLOYEE STOCK SAVINGS PLAN AND TRUST
REPORT OF INDEPENDENT AUDITORS
The Administrative Committee
Reliability Incorporated Employee
Stock Savings Plan and Trust
We have audited the accompanying statements of net assets available for
benefits of the Reliability Incorporated Employee Stock Savings Plan and Trust
as of December 31, 1999 and 1998, and the related statement of changes in net
assets available for benefits for the year ended December 31, 1999. These
financial statements are the responsibility of the Plan's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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 financial statements referred to above present fairly,
in all material respects, the net assets available for benefits of the Plan at
December 31, 1999 and 1998, and the changes in its net assets available for
benefits for the year ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The accompanying supplemental schedules
of assets held for investment purposes as of December 31, 1999 and reportable
transactions for the year ended December 31, 1999, are presented for purposes
of additional analysis and are not a required part of the basic financial
statements, but are supplementary information required by the Department of
Labor's Rules and Regulations for Reporting and Disclosure under the Employee
Retirement Income Security Act of 1974. These supplemental schedules are the
responsibility of the Plan's management. The supplemental schedules have been
subjected to the auditing procedures applied in our audits of the basic
financial statements and, in our opinion, are fairly stated in all material
respects in relation to the basic financial statements taken as a whole.
/s/ ERNST & YOUNG LLP
Houston, Texas
May 10, 2000
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RELIABILITY INCORPORATED
EMPLOYEE STOCK SAVINGS PLAN AND TRUST
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
December 31,
1999 1998
---- ----
Plan assets:
Investments, at fair value (Note F) $5,634,006 $ 6,173,750
--------- ----------
Net assets available for benefits $5,634,006 $6,173,750
========= ==========
See accompanying notes.
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RELIABILITY INCORPORATED
EMPLOYEE STOCK SAVINGS PLAN AND TRUST
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
Year ended December 31, 1999
Investment income:
Interest and dividends $ 25,459
Net depreciation in fair value
of investments (99,341 )
---------
Total investment loss (73,882 )
---------
Contributions:
Employee 333,948
Employer 110,448
---------
Total contributions 444,396
---------
Withdrawals and terminations (910,258 )
---------
Net decrease in assets available for benefits (539,744 )
Net assets available for benefits
at beginning of year 6,173,750
---------
Net assets available for
benefits at end of year $5,634,006
=========
See accompanying notes.
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RELIABILITY INCORPORATED
EMPLOYEE STOCK SAVINGS PLAN AND TRUST
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
NOTE A - PARTICIPATION AND CONTRIBUTIONS
In July 1983, Reliability Incorporated (the "Company" or "Employer") adopted an
Employee Stock Savings Plan and Trust (the "Plan"). The following description
of the Plan provides only general information. Participants should refer to the
Plan Agreement for a more complete description of the Plan's provisions. The
Plan is subject to certain provisions of the Employee Retirement Income
Security Act of 1974 (ERISA). The Plan is administered by an Administrative
Committee (the "Committee") appointed by the Board of Directors of the Company.
All assets of the Plan are held under discretionary trust agreements.
Any United States employee of the Employer who has attained the age of 21 and
has completed six months of service including at least 900 hours or one year of
service with at least 1,000 hours of service, becomes a member ("Member") of
the Plan on the first day of the next month following the date on which the
employee becomes eligible and may elect to make contributions to the Plan.
Under the Plan, a Member may contribute, through payroll deductions, an amount
("Employee Contribution") equal to 2 to 15 percent of base compensation. Base
compensation excludes bonuses, commissions, shift differential, overtime
premiums, and similar payments. Participants may increase or decrease
contributions percentages each pay period. Members may elect to invest their
contributions in various mutual funds or in Reliability Incorporated Common
Stock
The Employer matches the Employee Contribution by an amount ("Employer
Contribution") equal to 50 percent of the Employee Contributions to a maximum
of 2 percent of the Member's base compensation. Also, the Employer annually
contributes, for employed Members, a supplemental amount ("Employer Voluntary
Contribution") equal to 1 percent of the Members' base compensation for the
period during which they were Members. An additional discretionary contribution
("Discretionary Contribution") may be made. The amount of the Discretionary
Contribution, if any, will be determined annually by the Board of Directors and
will be contributed as a percent of each Member's gross compensation. The
contribution for 1998 was 5% percent of the Member's total compensation. There
was no Discretionary Contribution made for 1999.
A Member receives a vested interest in the balances in Employer Contribution
accounts plus allocated earnings and realized and unrealized gains and losses
thereon ("Employer Account") based upon years of service (as defined in the
Plan) as follows:
Vested interest in
Years of Service Employer Account
---------------- ------------------
Less than 3 0%
3 20%
4 40%
5 60%
6 80%
7 100%
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RELIABILITY INCORPORATED
EMPLOYEE STOCK SAVINGS PLAN AND TRUST
NOTES TO FINANCIAL STATEMENTS - (Continued)
December 31, 1999
NOTE A - PARTICIPATION AND CONTRIBUTIONS - Continued
A Member always has a 100 percent vested interest in the balance in his
Employee Contributions plus allocated earnings and realized and unrealized
gains and losses thereon (his "Employee Account"). Upon death or total and
permanent disability, a Member is automatically fully vested in his Employer
Account. If the Plan is terminated by the Company, all Members become fully
vested in all their accounts.
NOTE B - SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements have been prepared using the accrual
basis of accounting. Certain prior year amounts have been reclassified to
conform to the current year presentation.
Investments in common stock and mutual funds are stated at their fair value
based on quoted market prices.
Amounts contributed by the Company are invested solely in Reliability
Incorporated Common Stock. Common stock may be purchased, by the Trustee,
directly from the Company or in the open market. The purchase price per share
for stock purchased from the Company is the closing price on the day prior to
the purchase by the Trustee.
Administrative expenses are paid by the Company. Gains and losses realized on
the sale of Reliability Incorporated Common Stock are recorded on an average
cost basis.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates that affect the
amounts reported in the financial statements and accompanying notes. Actual
results could differ from those estimates.
NOTE C - WITHDRAWALS AND TERMINATIONS
A Member may elect to withdraw all or a portion of his after-tax Employee
Contributions at any time. Certain restrictions apply to withdrawals of pre-tax
Employee Contributions. A Member making a withdrawal from pre-tax Employee
Contributions is not permitted to make future pre-tax Employee Contributions
prior to the first day of the month following the expiration of twelve months
from the date of such withdrawal.
Upon a Member's termination of employment, the Member will generally receive a
benefit in the form of a lump sum distribution. Members who had account
balances prior to January 1, 1996 may also be able to elect certain other forms
of payment.
The non-vested portions of the Employer Accounts of a Member whose employment
is terminated prior to the attainment of seven years of service or who retires
prior to Normal Retirement Age (as defined in the Plan), are forfeited and
allocated among the other Members ($15,516 in 1999 and $30,166 in 1998) in the
ratio that each such Member's defined compensation for the Plan Year, or that
portion of the Plan Year during which he was a
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RELIABILITY INCORPORATED
EMPLOYEE STOCK SAVINGS PLAN AND TRUST
NOTES TO FINANCIAL STATEMENTS - (Continued)
December 31, 1999
Member of the Plan, bears to the total defined compensation for all Members for
the Plan Year. Forfeitures do not reduce the Employer's Contribution or the
Employer's Voluntary Contributions.
NOTE D - PARTICIPANT LOANS
A participant may borrow up to the lesser of 1) $50,000 or 2) 50 percent of his
or her non-forfeitable accrued benefit. The minimum loan amount is $1,000 and
the maximum loan term is five years for general loans and 15 years for home
loans. Loan payments are made through payroll deductions. Loans are stated at
cost which approximates fair value.
NOTE E - FEDERAL INCOME TAX AND ERISA
The Plan received a determination letter from the Internal Revenue Service
dated January 17, 1997, stating that the Plan is qualified under Section 401(a)
of the Internal Revenue Code (the "Code") and, therefore, the related trust is
exempt from taxation. Once qualified, the Plan is required to operate in
conformity with the Code to maintain its qualification. The Plan Administrative
Committee believes the Plan is being operated in compliance with the applicable
requirements of the Code and, therefore, believes that the Plan and the related
trust is tax exempt.
NOTE F - INVESTMENTS
The following presents details related to investments that represent 5% or more
of the Plan's net assets.
December 31,
1999 1998
---- ----
Reliability Incorporated Common Stock* $1,547,574 $2,621,580
Large Capitalization Value Equity
Investment Fund 740,584 955,248
Large Capitalization Growth Investments Fund 1,183,893 946,185
Small Capitalization Growth Investments Fund 752,008 482,350
International Equity Investments Fund 614,187 326,483
Stable Value Investments Fund 675,715 758,353
--------- ---------
5,513,961 6,090,199
Participant loans 120,045 83,551
--------- ---------
$5,634,006 $6,173,750
========= =========
* Indicates both non participant directed and participant directed
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RELIABILITY INCORPORATED
EMPLOYEE STOCK SAVINGS PLAN AND TRUST
NOTES TO FINANCIAL STATEMENTS - (Continued)
December 31, 1999
During 1999, the Plan's investments, including gains and losses in investments
bought and sold, as well as held during the year, appreciated (depreciated) in
value as follows:
Reliability Incorporated Common Stock $(848,674 )
Mutual funds 749,333
--------
Net depreciation $ (99,341 )
========
NOTE G - NON-PARTICIPANT DIRECTED INVESTMENTS
Information about the significant components of the changes in net assets
relating to Reliability Incorporated Common Stock is as follows:
Year ended
December 31,
1999
------------
Employee Contributions $ 34,941
Employer Contributions 109,135
Interest and dividends 1,143
Net depreciation in fair value of Common Stock (848,674 )
Withdrawals and terminations (370,551 )
----------
Net decrease (1,074,006 )
Net Assets at beginning of the year 2,621,580
----------
Net assets at end of the year $ 1,547,574
==========
NOTE H - OTHER TRANSACTIONS
The Company's Austin, Texas services facility was shut down on September 30,
1999. A total of 47 employees of the facility were participating in the Plan.
The shut down was accounted for as a partial plan termination resulting in the
participants at the Austin facility being 100% vested in the Employer
Contribution accounts and receiving distributions from the Plan.
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RELIABILITY INCORPORATED
EMPLOYEE STOCK SAVINGS PLAN AND TRUST
SCHEDULE H, LINE 4(i) - SCHEDULE OF ASSETS
HELD FOR INVESTMENT PURPOSES AT END OF YEAR
EIN - 75-0868913
Plan Number - 001
December 31, 1999
Identity Current
of Issue Description Cost Value
Reliability Incorporated*
Common Stock $1,843,808 $1,547,574
--------- ---------
The Consulting Group Capital Market Funds*:
Large Capitalization Value
Equity Investments Fund ** 740,584
Large Capitalization Growth
Investments Fund ** 1,183,893
Small Capitalization Growth
Investments Fund ** 752,008
International Equity Investments ** 614,187
Stable Value Investments Fund ** 675,715
---------
3,966,387
---------
Loan Fund* - Participant Loans
(Interest Rates: 7% - 9.5%) 120,045
---------
TOTAL INVESTMENTS $5,634,006
=========
* Party-in-interest
**Cost not required for participant directed investments
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RELIABILITY INCORPORATED
EMPLOYEE STOCK SAVINGS PLAN AND TRUST
SCHEDULE H, LINE 4(j) - SCHEDULE OF REPORTABLE TRANSACTIONS
EIN - 75-0868913
Plan Number - 001
Year ended December 31, 1999
Identity Descrip-
of Party tion Purchases Cost Selling Net gain
Involved of Asset Price of Asset Price or (loss)
-------- -------- --------- -------- ------- --------
Series of non participant directed transactions
in excess of 5% of Plan assets:
Reliability
Incorporated
Common Stock $156,695 $156,695 - -
======= ======= ======= ======
Reliability
Incorporated
Common Stock - $309,527 $386,338 $76,811
======= ======= ======= ======
Note: Includes both participant directed and non-participant directed
transactions in Reliability Incorporated Common Stock.
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RELIABILITY INCORPORATED
EMPLOYEE STOCK SAVINGS PLAN AND TRUST
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
trustees (or other persons who administer the employee benefit plan) have duly
caused this annual report to be signed by the undersigned thereunto duly
authorized.
RELIABILITY INCORPORATED EMPLOYEE
STOCK SAVINGS PLAN AND TRUST
/s/ Max T. Langley
Max T. Langley
Date: June 8, 2000 Administrative Committee Member
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