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, 1997
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
1
RELIABILITY INCORPORATED
EMPLOYEE STOCK SAVINGS PLAN AND TRUST
December 31, 1997
TABLE OF CONTENTS
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:
Line 27a - Schedule of Assets Held for Investment Purposes 20
Line 27d - Schedule of Reportable Transactions 21
Signatures 22
Exhibit 23 - Consent of Independent Auditors dated 24
June 8, 1998
2
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 (the Plan) as of December 31, 1997 and 1996, and the related statement
of changes in net assets available for benefits for the year ended December
31, 1997. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the net assets available for benefits of
the Plan at December 31, 1997 and 1996, and the changes in its net assets
available for benefits for the year ended December 31, 1997, in conformity
with generally accepted accounting principles.
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 at December 31, 1997 and
reportable transactions for the year ended December 31, 1997, are presented
for purposes of complying with the Department of Labor's Rules and
Regulations for Reporting and Disclosure under the Employee Retirement
Income Security Act of 1974 and are not a required part of the basic
financial statements. 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
April 28, 1998
3
RELIABILITY INCORPORATED
EMPLOYEE STOCK SAVINGS PLAN AND TRUST
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
December 31,
------------------
1997 1996
---- ----
Plan assets (at fair value):
Investment in common stock of Reliability
Incorporated $8,716,304 $2,025,975
Short-term investments at fair value,
which approximates cost 3,020 60,374
Investments in the Consulting
Group Capital Market Funds:
Large Capitalization Value Equity
Investments Fund 670,967 431,258
Large Capitalization Growth Investments
Fund 695,359 352,048
Small Capitalization Growth Investments
Fund 447,183 307,681
International Equity Investments Fund 272,090 205,445
Stable Value Investments Fund 1,040,033 709,864
Participant Loans Outstanding 116,256 90,766
---------- ---------
Total Investments 11,961,212 4,183,411
Other assets 259 192
---------- ---------
Net assets available for benefits $11,961,471 $4,183,603
========== =========
See accompanying notes.
4
RELIABILITY INCORPORATED
EMPLOYEE STOCK SAVINGS PLAN AND TRUST
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
Year ended December 31, 1997
Investment income:
Interest and dividends $ 9,966
Net appreciation in fair value
of investments 7,132,119
----------
Total investment income 7,142,085
----------
Contributions:
Employee 402,222
Employer 500,854
----------
Total contributions 903,076
----------
Withdrawals and terminations (267,293)
----------
Net increase in assets available for benefits 7,777,868
Net assets available for benefits
at beginning of year 4,183,603
----------
Net assets available for
benefits at end of year $11,961,471
==========
See accompanying notes.
5
RELIABILITY INCORPORATED
EMPLOYEE STOCK SAVINGS PLAN AND TRUST
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
NOTE A - PARTICIPATION AND CONTRIBUTIONS
In July 1983, Reliability Incorporated (the "Company" or "Employer") adopted
an Employee Stock Savings Plan and Trust (the "Plan"). Under the Plan,
employees of the Company who meet the requirements described below are
eligible to participate in 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. 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.
Effective April 1, 1996, a United States employee of the Employer who has
attained the age of 21 and has completed six months of service with at least
900 hours or one year of service with at least 1,000 hours, becomes a member
("Member") of the Plan on the first day of the next month following the date
on which the employee became eligible and may elect to make contributions
to the Plan as described below. Prior to April 1, 1996, the waiting period
was one year and the entry date was the January 1 or July 1 next following
the date on which the employee became eligible.
Under the Plan, a Member may contribute, through payroll deductions, an
amount ("Employee Contribution") equal to 2 to 15 percent of base
compensation. Prior to February 1, 1996 a Member could elect to have all
or a portion of his contributions subject to federal income taxes ("after-
tax contributions"). Effective February 1, 1996, no portion of the Employee
Contributions are subject to federal income taxes in accordance with Section
401(k) of the Internal Revenue Code ("pre-tax contributions"). Base
compensation excludes bonuses, commissions, shift differential, overtime
premiums, and similar payments. Participants may increase or decrease
contributions percentages each pay period.
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.
Effective January 1, 1997, an additional discretionary contribution may be
made. The amount to be contributed, if any, will be determined annually by
the Board of Directors and will be contributed as a percent of each Member's
gross compensation.
6
RELIABILITY INCORPORATED
EMPLOYEE STOCK SAVINGS PLAN AND TRUST
NOTES TO FINANCIAL STATEMENTS - (Continued)
December 31, 1997
NOTE A - PARTICIPATION AND CONTRIBUTIONS - Continued
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%
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 - PLAN INVESTMENTS
Effective January 1, 1995, the Trustee of the Plan is the Consulting Group
of Smith Barney, Inc. A member may elect to invest his contribution in one
or more of six funds: (i) the Reliability Incorporated ("RI") Common Stock
Fund; (ii) the Large Capitalization Value Equity Investments Fund; (iii) the
Large Capitalization Growth Investments Fund; (iv) the Small Capitalization
Growth Investments Fund; (v) the International Equity Investments Fund; and
(vi) the Stable Value Investments Fund.
The contribution to each fund elected may be any whole percentage of the
Member's total contributions. The investment election for future
contributions and existing fund balances may be changed daily. The minimum
investment balance in any selected fund may be any whole percentage of the
Member's Employee Account.
Employee Contributions to the Large Capitalization Value Equity Investments
Fund are primarily invested in a diversified portfolio of highly liquid
common stocks, with an emphasis on companies with an above average total
return potential. The Fund's assets will be invested primarily in common
stocks of issuers with total market capitalization of $1 billion or greater
at the time of purchase. The fair value of the Fund is based on quoted
market prices of those stocks it owns.
Employee Contributions to the Large Capitalization Growth Investments Fund
are primarily invested in a diversified portfolio of common stocks, with an
emphasis on companies with superior prospects for long-term earnings growth.
The Fund's assets will be invested primarily in common stocks of issuers
with total market capitalization of $1 billion or greater at the time of
purchase. The fair value of the Fund is based on quoted market prices of
those stocks it owns.
7
RELIABILITY INCORPORATED
EMPLOYEE STOCK SAVINGS PLAN AND TRUST
NOTES TO FINANCIAL STATEMENTS - (Continued)
December 31, 1997
NOTE B - PLAN INVESTMENTS - Continued
Employee Contributions to the Small Capitalization Growth Investments Fund
are primarily invested in a diversified portfolio of common stocks, with an
emphasis on companies with capitalization of less than $1 billion and with
superior potential for capital appreciation. The fair value of the Fund is
based on quoted market prices of those stocks it owns.
Employee Contributions to the International Equity Investments Fund are
primarily invested in equity securities of companies domiciled outside the
United States. The fair value of the Fund is based on quoted market prices
of the equity securities it owns.
Employee Contributions to the Stable Value Investments Fund are primarily
invested in a portfolio of investment contracts issued by high quality life
insurance and investment companies. The fair value of the Fund approximates
the contract value of the investment contracts held.
Employee Contributions to the RI Common Stock Fund are invested in the
common stock of the Company, which is purchased by the Trustee in the open
market, and in temporary short-term investments. The fair value of the RI
Common Stock Fund is based on quoted market prices.
Amounts contributed by the Company are invested solely in the RI Common
Stock Fund. During 1996 and the first quarter of 1997 common stock of the
Company was purchased by the Trustee in the open market at quoted market
prices. Beginning in the second quarter of 1997, common stock was purchased
directly from the Company by the Trustee. The purchase price per share for
stock purchased from the Company was the closing price on the day prior to
the purchase by the Trustee.
A participant who is 55 years of age and who is 100% vested in his Employer
Accounts may elect to have a portion of his balance in these accounts
diversified to other investment funds offered under the Plan. This election
may be made only once during each Plan year.
Administrative expenses are paid by the Company. Gains and losses realized
on the sale of securities in the RI Common Stock Fund are recorded on an
average cost basis.
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.
8
RELIABILITY INCORPORATED
EMPLOYEE STOCK SAVINGS PLAN AND TRUST
NOTES TO FINANCIAL STATEMENTS - (Continued)
December 31, 1997
NOTE C - WITHDRAWALS AND TERMINATIONS - Continued
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 ($8,113 in 1997 and $17,745
in 1996) 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 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% 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
A favorable determination letter dated January 17, 1997, was received from
the Internal Revenue Service for the Plan as amended on April 3, 1995 and
February 28, 1996, regarding its qualification under Section 401(a) of the
Internal Revenue Code, and the Plan is exempt from federal income taxes
under the provisions of Section 501(a) of the Internal Revenue Code.
The Plan was amended on April 30, 1997 (effective January 1, 1997) to change
the definition of compensation for the purposes of allocating the employer
additional discretionary contribution to include bonuses, commissions, shift
differentials, overtime premiums, and similar payments.
Once qualified, the Plan is required to operate in conformity with the
Internal Revenue Code to maintain its qualification. The Plan
Administrative Committee is not aware of any course of action or series of
events that have occurred that might adversely affect the Plan's qualified
status.
9
RELIABILITY INCORPORATED
EMPLOYEE STOCK SAVINGS PLAN AND TRUST
NOTES TO FINANCIAL STATEMENTS - (Continued)
NOTE F - STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS BY INVESTMENT FUND
December 31, 1997
-------------------------------------
Reliability Incorporated
Common Stock Fund
Non-Par-
Total Participant ticipant
Plan Directed Directed
----- ----------- --------
Plan assets (at fair value):
Investment in common stock of
Reliability Incorporated $ 8,716,304 $919,036 $7,797,268
Short-term investments 3,020 - 1,400
Investments in the Consulting
Group Capital Market Funds:
Large Capitalization Value
Equity Investments Fund 670,967 - -
Large Capitalization Growth
Investments Fund 695,359 - -
Small Capitalization Growth
Investments Fund 447,183 - -
International Equity
Investments Fund 272,090 - -
Stable Value Investments
Fund 1,040,033 - -
Loan Fund 116,256 - -
---------- ------- ---------
Total investments 11,961,212 919,036 7,798,668
Other assets 259 - 151
---------- ------- ---------
Net Assets Available for Benefits $11,961,471 $919,036 $7,798,819
========== ======= =========
10
RELIABILITY INCORPORATED
EMPLOYEE STOCK SAVINGS PLAN AND TRUST
NOTES TO FINANCIAL STATEMENTS - (Continued)
NOTE F - STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS BY INVESTMENT FUND
(Continued)
December 31, 1997
-----------------------------
Large Large Small
Capital- Capital- Capital-
ization ization ization
Value Equity Growth Growth
Fund Fund Fund
Participant Directed
-------- ------- ------
Plan assets (at fair value):
Investment in common stock of
Reliability Incorporated $ - $ - $ -
Short-term investments 283 333 250
Investments in the Consulting
Group Capital Market Funds:
Large Capitalization Value
Equity Investments Fund 670,967 - -
Large Capitalization Growth
Investments Fund - 695,359 -
Small Capitalization Growth
Investments Fund - - 447,183
International Equity
Investments Fund - - -
Stable Value Investments Fund - - -
Loan Fund - - -
------- ------- -------
Total investments 671,250 695,692 447,433
Other assets 20 22 22
------- ------- -------
Net Assets Available for Benefits $671,270 $695,714 $447,455
======= ======= =======
11
RELIABILITY INCORPORATED
EMPLOYEE STOCK SAVINGS PLAN AND TRUST
NOTES TO FINANCIAL STATEMENTS - (Continued)
NOTE F - STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS BY INVESTMENT FUND
(Continued)
December 31, 1997
-----------------------------
Interna-
tional Stable
Equity Value Loan
Fund Fund Fund
Participant Directed
------ ------- ----
Plan assets (at fair value):
Investment in common stock of
Reliability Incorporated $ - $ - $ -
Short-term investments 227 527 -
Investments in the Consulting
Group Capital Market Funds:
Large Capitalization Value
Equity Investments Fund - - -
Large Capitalization Growth
Investments Fund - - -
Small Capitalization Growth
Investments Fund - - -
International Equity
Investments Fund 272,090 - -
Stable Value Investments Fund - 1,040,033 -
Loan Fund - - 116,256
------- --------- -------
Total investments 272,317 1,040,560 116,256
Other assets 13 31 -
------- --------- -------
Net Assets Available for Benefits $272,330 $1,040,591 $116,256
======= ========= =======
12
RELIABILITY INCORPORATED
EMPLOYEE STOCK SAVINGS PLAN AND TRUST
NOTES TO FINANCIAL STATEMENTS - (Continued)
NOTE F - STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS BY INVESTMENT FUND
(Continued)
December 31, 1996
-----------------------------------
Reliability Incorporated
Common Stock Fund
Non-Par-
Total Participant ticipant
Plan Directed Directed
----- ----------- --------
Plan assets (at fair value):
Investment in common stock of
Reliability Incorporated $2,025,975 $255,758 $1,770,217
Short-term investments 60,374 5,077 48,377
Investments in the Consulting
Group Capital Market Funds:
Large Capitalization Value
Equity Investments Fund 431,258 - -
Large Capitalization Growth
Investments Fund 352,048 - -
Small Capitalization Growth
Investments Fund 307,681 - -
International Equity
Investments Fund 205,445 - -
Stable Value Investments Fund 709,864 - -
Loan Fund 90,766 - -
--------- ------- ---------
Total investments 4,183,411 260,835 1,818,594
Other assets 192 8 54
--------- ------- ---------
Net Assets Available for Benefits $4,183,603 $260,843 $1,818,648
========= ======= =========
13
RELIABILITY INCORPORATED
EMPLOYEE STOCK SAVINGS PLAN AND TRUST
NOTES TO FINANCIAL STATEMENTS - (Continued)
NOTE F - STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS BY INVESTMENT FUND
(Continued)
December 31, 1996
-----------------------------
Large Large Small
Capital- Capital- Capital-
ization ization ization
Value Equity Growth Growth
Fund Fund Fund
Participant Directed
-------- ------- ------
Plan assets (at fair value):
Investment in common stock of
Reliability Incorporated $ - $ - $ -
Short-term investments 1,087 710 467
Investments in the Consulting
Group Capital Market Funds:
Large Capitalization Value
Equity Investments Fund 431,258 - -
Large Capitalization Growth
Investments Fund - 352,048 -
Small Capitalization Growth
Investments Fund - - 307,681
International Equity
Investments Fund - - -
Stable Value Investments Fund - - -
Loan Fund - - -
------- ------- -------
Total investments 432,345 352,758 308,148
Other assets 25 26 26
------- ------- -------
Net Assets Available for Benefits $432,370 $352,784 $308,174
======= ======= =======
14
RELIABILITY INCORPORATED
EMPLOYEE STOCK SAVINGS PLAN AND TRUST
NOTES TO FINANCIAL STATEMENTS - (Continued)
NOTE F - STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS BY INVESTMENT FUND
(Continued)
December 31, 1996
----------------------------
Interna-
tional Stable
Equity Value Loan
Fund Fund Fund
Participant Directed
------ ------- ----
Plan assets (at fair value):
Investment in common stock of
Reliability Incorporated $ - $ - $ -
Short-term investments 2,532 2,124 -
Investments in the Consulting
Group Capital Market Funds:
Large Capitalization Value
Equity Investments Fund - - -
Large Capitalization Growth
Investments Fund - - -
Small Capitalization Growth
Investments Fund - - -
International Equity
Investments Fund 205,445 - -
Stable Value Investments Fund - 709,864 -
Loan Fund - - 90,766
------- ------- ------
Total investments 207,977 711,988 90,766
Other assets 18 35 -
------- ------- ------
Net Assets Available for Benefits $207,995 $712,023 $90,766
======= ======= ======
15
RELIABILITY INCORPORATED
EMPLOYEE STOCK SAVINGS PLAN AND TRUST
NOTES TO FINANCIAL STATEMENTS - (Continued)
NOTE F - STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS BY
INVESTMENT FUND
December 31, 1997
------------------------------------
Reliability Incorporated
Common Stock Fund
Non-Par-
Total Participant ticipant
Plan Directed Directed
---------- ------------ ---------
Investment income (loss):
Interest and dividends $ 9,966 $ 58 $ 1,082
Net appreciation (depreciation)
in fair value of investments 7,132,119 807,039 5,978,039
---------- ------- ---------
Total investment income (loss) 7,142,085 807,097 5,979,121
---------- ------- ---------
Contributions:
Employee 402,222 26,662 -
Employer 500,854 - 500,854
---------- ------- ---------
Total contributions 903,076 26,662 500,854
---------- ------- ---------
Withdrawals and terminations (267,293) (7,551) (148,578)
Investment transfers - (170,972) (351,226)
Transfers (to) from Loan Fund - 2,957 -
---------- ------- ---------
Net increase in assets
available for benefits 7,777,868 658,193 5,980,171
Net assets available for
benefits at beginning of year 4,183,603 260,843 1,818,648
---------- ------- ---------
Net assets available for benefits
at end of year $11,961,471 $ 919,036 $7,798,819
========== ======= =========
16
RELIABILITY INCORPORATED
EMPLOYEE STOCK SAVINGS PLAN AND TRUST
NOTES TO FINANCIAL STATEMENTS - (Continued)
NOTE F - STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS BY
INVESTMENT FUND - (Continued)
December 31, 1997
---------------------------------
Large Cap- Large Small
italiza- Capital- Capital-
tion Value ization ization
Equity Growth Growth
Fund Fund Fund
Participant Directed
------- ------- -----
Investment income (loss):
Interest and dividends $ 137 $ 146 $ 152
Net appreciation (depreciation)
in fair value of investments 147,001 121,304 31,498
------- ------- -------
Total investment income (loss) 147,138 121,450 31,650
------- ------- -------
Contributions:
Employee 70,593 75,690 77,646
Employer - - -
------- ------- -------
Total contributions 70,593 75,690 77,646
------- ------- -------
Withdrawals and terminations (23,493) (20,603) (13,172)
Investment transfers 49,793 167,792 45,697
Transfers (to) from Loan Fund (5,131) (1,399) (2,540)
------- ------- -------
Net increase in assets
available for benefits 238,900 342,930 139,281
Net assets available for
benefits at beginning of year 432,370 352,784 308,174
------- ------- -------
Net assets available for benefits
at end of year $671,270 $695,714 $447,455
======= ======= =======
17
RELIABILITY INCORPORATED
EMPLOYEE STOCK SAVINGS PLAN AND TRUST
NOTES TO FINANCIAL STATEMENTS - (Continued)
NOTE F - STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS BY
INVESTMENT FUND - (Continued)
December 31, 1997
----------------------------
Inter-
national Stable
Equity Value Loan
Fund Fund Fund
Participant Directed
------- --------- ----
Investment income (loss):
Interest and dividends $ 82 $ 212 $ 8,097
Net appreciation (depreciation)
in fair value of investments (2,812) 50,050 -
------- --------- -------
Total investment income (loss) (2,730) 50,262 8,097
------- --------- -------
Contributions:
Employee 43,498 108,133 -
Employer - - -
------- --------- -------
Total Contributions 43,498 108,133 -
------- --------- -------
Withdrawals and terminations (14,069) (39,827) -
Investment transfers 38,799 220,117 -
Transfers (to) from Loan Fund (1,163) (10,117) 17,393
------- --------- -------
Net increase in assets
available for benefits 64,335 328,568 25,490
Net assets available for benefits
at beginning of year 207,995 712,023 90,766
------- --------- -------
Net assets available for benefits
at end of year $272,330 $1,040,591 $116,256
======= ========= =======
18
RELIABILITY INCORPORATED
EMPLOYEE STOCK SAVINGS PLAN AND TRUST
NOTES TO FINANCIAL STATEMENTS - (Continued)
NOTE G - RECONCILIATION OF FINANCIAL STATEMENTS TO FORM 5500
The following is a reconciliation of net assets available for benefits per
the financial statements to the Form 5500:
December 31,
1997 1996
---- ----
Net assets available for benefits per
the financial statements $11,961,471 $4,183,603
Amounts allocated to withdrawing
participants - (7,464)
---------- ---------
Net assets available for benefits
per Form 5500 $11,961,471 $4,176,139
========== =========
The following is a reconciliation of benefits paid to participants per the
financial statements to the Form 5500:
Year ended
December 31, 1997
-----------------
Benefits paid to participants per the
financial statements $267,293
Add: Amounts allocated to withdrawing
participants at December 31, 1997 -
Less: Amounts allocated to withdrawing
participants at December 31, 1996 (7,464)
-------
Benefits paid to participants per the Form 5500 $259,829
=======
Amounts allocated to withdrawing participants are recorded on the Form 5500
for benefit claims that have been processed and approved for payment prior
to December 31 but not yet paid as of that date.
NOTE H - YEAR 2000 ISSUE (unaudited)
The Company has developed a plan to modify its internal information
technology to be ready for the year 2000 and has begun converting critical
data processing systems. The project also includes determining whether
third party service providers have reasonable plans in place to become year
2000 compliant. The Company currently expects the project to be
substantially complete by early 1999. The Company does not expect this
project to have a significant effect on Plan operations.
NOTE I - SUBSEQUENT EVENTS
The Company's North Carolina services facility was shut down on April 1,
1998. A total of 45 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 North Carolina facility being 100%
vested in their Employer Contribution accounts and receiving distributions
from the Plan.
On April 28, 1998, an amendment was adopted to update various Plan
provisions to bring them into accordance with recent changes mandated by
federal income tax law and regulations.
19
RELIABILITY INCORPORATED
EMPLOYEE STOCK SAVINGS PLAN AND TRUST
LINE 27a - SCHEDULE OF ASSETS
HELD FOR INVESTMENT PURPOSES
December 31, 1997
------------------------
Identity Fair
of Issue Description Cost Value
- -------- ----------- ---- -----
Reliability Incorporated*
Common stock $1,872,026 $8,716,304
--------- ----------
The Consulting Group
Capital Market Funds*
Large Capitalization
Value Equity Investments 610,906 670,967
Large Capitalization
Growth Investments 597,531 695,359
Small Capitalization
Growth Investments 461,648 447,183
International Equity Investments 284,394 272,090
Stable Value Investments Fund 963,808 1,040,033
--------- ----------
2,918,287 3,125,632
--------- ----------
Smith Barney*
Short-term investments 3,020 3,020
--------- ----------
Loan Fund* - Participant Loans
(Interest Rates: 7% - 9.5%) -0- 116,256
--------- ----------
TOTAL INVESTMENTS $4,793,333 $11,961,212
========= ==========
*Party-in-interest
See accompanying notes.
20
RELIABILITY INCORPORATED
EMPLOYEE STOCK SAVINGS PLAN AND TRUST
LINE 27d - SCHEDULE OF REPORTABLE TRANSACTIONS
Year ended December 31, 1997
----------------------------------------------------
Identity Descrip- Purchases Dispositions Dispositions Gain (Loss) on
of Issue tion Price Cost Price Dispositions
- -------- -------- --------- ------------ ------------ ------------
Series of transactions in excess of 5% of Plan assets:
Reliability
Incorporated
Common Stock $ 897,074 $ 183,392 $ 958,557 $775,165
========= ========= ========= =======
The Consulting Group
Capital Market Funds:
Large Capitaliza-
tion Value Equity
Investments $ 330,051 $ 95,024 $ 114,879 $ 19,855
Large Capitaliza-
tion Growth
Investments 371,091 81,725 100,297 18,572
Small Capitaliza-
tion Growth
Investments 334,882 197,086 196,189 (897)
International
Equity Investments 149,459 74,537 76,714 2,177
Stable Value 605,665 302,134 325,544 23,410
--------- --------- --------- -------
$1,791,148 $ 750,506 $ 813,623 $ 63,117
========= ========= ========= =======
Smith Barney
Short-term
investment funds $1,695,749 $1,752,978 $1,752,978 $ -0-
========= ========= ========= =======
See accompanying notes.
21
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 9, 1998 Administrative Committee Member
22
RELIABILITY INCORPORATED
EMPLOYEE STOCK SAVINGS PLAN AND TRUST
INDEX TO EXHIBITS
Exhibit Page
Number Description of Exhibits Number
23. Consent of Independent Auditors dated Page 24
June 8, 1998
23
RELIABILITY INCORPORATED
EMPLOYEE STOCK SAVINGS PLAN AND TRUST
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No.33-47803) pertaining to the Reliability Incorporated Employee
Stock Savings Plan and Trust of our report dated April 28, 1998, with
respect to the financial statements and schedules of the Reliability
Incorporated Employee Stock Savings Plan and Trust included in this Annual
Report (Form 11-K) for the year ended December 31, 1997.
By: /s/ Ernst & Young LLP
- --------------------------
Houston, Texas
June 8, 1998
24