##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-K
 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For fiscal year ended, SEPTEMBER 30, 2007
 Commission File Number 1-9965
 KEITHLEY INSTRUMENTS, INC.
  Ohio
(State or other jurisdiction of incorporation or organization)
    
    34-0794417
(I.R.S. Employer Identification No.)
 28775 Aurora Road, Solon, Ohio, 44139  (440) 248-0400
  Common Shares, Without Par Value
(Title of Each Class)
    
    New York Stock Exchange
(Name of Each Exchange on Which Registered)
 None
 o þ
 o þ
 þ o
 þ
  Large accelerated filer o Accelerated filer þ Non-accelerated filer o
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE




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##### 



Keithley Instruments, Inc.
10-K Annual Report
 Table of Contents
 PAGEPART I:Item 1
    
    Business
    
    
    2Item 1A
    
    Risk Factors
    
    
    6Item 1B
    
    Unresolved Staff Comments
    
    
    7Item 2
    
    Properties
    
    
    7Item 3
    
    Legal Proceedings
    
    
    8Item 4
    
    Submission of Matters to a Vote of Security Holders
    
    
    8PART II:Item 5
    
    Market for the Registrant's Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    9Item 6
    
    Selected Financial Data
    
    
    11Item 7
    
    Management's Discussion and Analysis of Financial Condition and Results of Operations
    
    
    12Item 7A
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    18Item 8
    
    Financial Statements and Supplementary Data
    
    
    18Item 9
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    39Item 9A
    
    Controls and Procedures
    
    
    39Item 9B
    
    Other Information
    
    
    40PART III:Item 10
    
    Directors and Executive Officers of the Registrant
    
    
    40Item 11
    
    Executive Compensation
    
    
    40Item 12
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    40Item 13
    
    Certain Relationships and Related Transactions
    
    
    40Item 14
    
    Principal Accountant Fees and Services
    
    
    40PART IV:Item 15
    
    Exhibits and Financial Statement Schedules
    
    
    41SIGNATURES
    
    
    
    
    43EX-10(Z)EX-10(AA)EX-10(BB)EX-10(CC)EX-10(DD)EX-10(EE)EX-21EX-23EX-31(A)EX-31(B)EX-32(A)EX-32(B)
  -1-




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Forward-Looking Statements
     
 PART I
 
 ITEM 1  BUSINESS
 General
     Business Strategy
   -2-




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Product Offerings
  New Products During Fiscal Year 2007
      ®
 1 2
  -3-




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Geographic Markets and Distribution
   Sources and Availability of Raw Materials
  Patents
  Seasonal Trends and Working Capital Requirements
  Customers
  Backlog
  Competition
  Research and Development
  Government Regulations
  Employees
  Foreign Operations and Export Sales
  -4-




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Executive Officers Of The Registrant
  Name
    
    Position
    
    AgeJoseph P. Keithley
    
    Chairman of the Board of Directors, President and Chief Executive Officer
    
    
    58Steven A. Chipchase
    
    Vice President Operations
    
    
    44Philip R. Etsler
    
    Vice President Human Resources
    
    
    57Alan S. Gaffney
    
    Vice President Commercial Marketing and Information Systems
    
    
    37Mark A. Hoersten
    
    Vice President Business Management
    
    
    49Larry L. Pendergrass
    
    Vice President New Product Development
    
    
    52John A. Pesec
    
    Vice President Worldwide Sales and Support
    
    
    47Mark J. Plush
    
    Vice President and Chief Financial Officer
    
    
    58Linda C. Rae
    
    Executive Vice President and Chief Operating Officer
    
    
    42Suzanne S. Taylor
    
    Vice President and Chief Compliance Officer
    
    
    44
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ITEM 1A  RISK FACTORS
  Cyclicality of the electronics industry and timing of large orders
 30-50
 Rapid technology changes
  Competitive factors
  Dependence on key suppliers
  International operations, political and economic conditions
  Changes in manufacturing processes
  Tax planning strategies
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Information technology management systems
   Fixed cost of sales force
  Non-cash compensation expense
  Historical stock option grant practices
     Other risk factors
  
 ITEM 1B  UNRESOLVED STAFF COMMENTS
  
 ITEM 2  PROPERTIES
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ITEM 3  LEGAL PROCEEDINGS
   
    
    There was no evidence of backdating annual stock option grants prior to the date of
approval by the Board of Directors.
    
    There was a multi-day delay by management in setting the exercise price for annual stock
option grants in 2000, 2001 and 2002. The delay resulted in the options having a lower
exercise price than the price on the date of Board approval.
    
    Although the Special Committee determined that the terms of the Companys stock incentive
plans required the options to be priced on the date the Board approved them, there was no
finding of intentional misconduct on the part of senior management or any other Keithley
officer, director or employee responsible for the administration of the Companys stock option
grants.
    
    Based on evidence gathered and analyzed by the Independent Counsel, the Special Committee
found the dates selected by management for the annual grants in 2000-2002 are the appropriate
measurement dates for accounting purposes. Accordingly, the Company was not required to record
any compensation expense with respect to the annual option grants in 2000-2002, and the
Company was not required to restate its financial statements as a result of these grants.
    
    The Special Committee concluded that the Companys public filings regarding annual options
grants during the years reviewed were accurate; there is no evidence that the Company timed
the grant date or pricing of annual stock option grants to take advantage of material
non-public information; and there was no wrong doing or lack of oversight by the Companys
independent directors or the Human Resources and Compensation Committee of the Board of
Directors (the Compensation Committee).
    
    The Special Committee also reviewed the Companys practices regarding stock option grants,
other than its annual grants, which are generally grants of smaller numbers of options to new
hires and to existing employees for promotions. The Special Committee concluded that
management exceeded certain of the authority granted to management by the Companys stock
option plans and the Compensation Committee, but that these grants involved small numbers of
shares and were largely the result of ministerial errors by management.
     
 ITEM 4  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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PART II
 
 ITEM 5  MARKET FOR THE REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
  Cash DividendsCash Dividends
    
    Per Class BHigh
    
    Low
    
    Per Common Share
    
    Common ShareFiscal 2007First Quarter
    
    $
    13.85
    
    
    $
    11.79
    
    
    $
    .0375
    
    
    $
    .0300Second Quarter
    
    
    16.44
    
    
    
    12.75
    
    
    
    .0375
    
    
    
    .0300Third Quarter
    
    
    15.73
    
    
    
    11.80
    
    
    
    .0375
    
    
    
    .0300Fourth Quarter
    
    
    14.45
    
    
    
    9.30
    
    
    
    .0375
    
    
    
    .0300Fiscal 2006First Quarter
    
    $
    16.30
    
    
    $
    13.81
    
    
    $
    .0375
    
    
    $
    .0300Second Quarter
    
    
    15.95
    
    
    
    13.71
    
    
    
    .0375
    
    
    
    .0300Third Quarter
    
    
    16.10
    
    
    
    11.36
    
    
    
    .0375
    
    
    
    .0300Fourth Quarter
    
    
    13.43
    
    
    
    10.77
    
    
    
    .0375
    
    
    
    .0300
  Equity Compensation Plan Information as of September 30, 2007
 Number of securities remainingavailable for future issuanceNumber of securities to be
    
    Weighted-average
    
    under equity compensationissued upon exercise of
    
    exercise price of
    
    plans (excluding securitiesoutstanding options
    
    outstanding options
    
    reflected in column (a))Plan category
    
    (a)
    
    (b)
    
    (c)Equity compensation plans
approved
by security holders
    
    
    3,241,580
    
    
    $
    20.31
    
    
    
    1,267,263
    (1)Equity compensation plans not
approved by security holders
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    3,241,580
    
    
    $
    20.31
    
    
    
    1,267,263
    (1)
 
 (1)
    
    Includes 483,914 shares available for issuance under the 2005 Employee Stock Purchase and
Dividend Reinvestment Plan. Issuer Purchases of Equity Securities
  Total number of shares
    
    Maximum number ofpurchased as part of
    
    shares that may yetTotal number of
    
    Average price
    
    publicly announced
    
    be purchased underPeriod
    
    shares purchased
    
    paid per share (1)
    
    plans or programs
    
    the plans or programsJuly 1  31, 2007
    
    
    7,500
    
    
    $
    11.45
    
    
    
    7,500
    
    
    
    1,992,500August 1  31, 2007
    
    
    78,300
    
    
    $
    10.20
    
    
    
    78,300
    
    
    
    1,914,200September 1  30,
2007
    
    
    83,015
    (2)
    
    $
    10.09
    (2)
    
    
    65,200
    
    
    
    1,849,000Total
    
    
    168,815
    (2)
    
    $
    10.20
    (2)
    
    
    151,000
    
    
    
    1,849,000
 
 (1)
    
    Price includes commissions.(2)
    
    Includes 17,815 shares acquired in exchange for the exercise of a non-qualified stock option at
a price of $9.63 per share.  -9-




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Stock Performance Graph
  
 9/02
    
    
    
    9/03
    
    
    
    9/04
    
    
    
    9/05
    
    
    
    9/06
    
    
    
    9/07Keithley Instruments, Inc.
    
    
    
    100.00
    
    
    
    
    117.85
    
    
    
    
    146.51
    
    
    
    
    123.74
    
    
    
    
    109.29
    
    
    
    
    91.97Russell 2000
    
    
    
    100.00
    
    
    
    
    136.50
    
    
    
    
    162.12
    
    
    
    
    191.23
    
    
    
    
    210.20
    
    
    
    
    236.14S&P Information Technology
    
    
    
    100.00
    
    
    
    
    159.55
    
    
    
    
    162.68
    
    
    
    
    184.55
    
    
    
    
    190.56
    
    
    
    
    235.02
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ITEM 6  SELECTED FINANCIAL DATA.
  For the years ended September 30,(In thousands of dollars except for per share data)
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003Operating Results:Net sales
    
    $
    143,658
    
    
    
    155,212
    
    
    
    141,552
    
    
    
    140,248
    
    
    
    106,718Gross margin percentage
    
    
    59.8
    %
    
    
    61.3
    %
    
    
    60.7
    %
    
    
    61.1
    %
    
    
    55.3
    %(Loss) income before income taxes
    
    $
    (1,685
    )
    
    
    9,913
    
    
    
    14,087
    
    
    
    15,541
    
    
    
    (4,361
    )Net (loss) income
    
    $
    (349
    )
    
    
    8,361
    
    
    
    10,128
    
    
    
    11,381
    
    
    
    (4,192
    )Basic (loss) earnings per share
    
    $
    (0.02
    )
    
    
    0.51
    
    
    
    0.62
    
    
    
    0.71
    
    
    
    (0.27
    )Diluted (loss) earnings per share
    
    $
    (0.02
    )
    
    
    0.50
    
    
    
    0.61
    
    
    
    0.69
    
    
    
    (0.27
    )Common Stock Information:Cash dividends per Common Share
    
    $
    0.150
    
    
    
    0.150
    
    
    
    0.150
    
    
    
    0.150
    
    
    
    0.150Cash dividends per Class B Common Share
    
    $
    0.120
    
    
    
    0.120
    
    
    
    0.120
    
    
    
    0.120
    
    
    
    0.120Weighted average number of shares
outstanding- diluted
    
    
    16,207
    
    
    
    16,567
    
    
    
    16,591
    
    
    
    16,544
    
    
    
    15,487At fiscal year-end:Dividend payout ratio
    
    
    n/m
    
    
    
    30.0
    %
    
    
    24.6
    %
    
    
    21.7
    %
    
    
    n/mShareholders equity per share
    
    $
    6.76
    
    
    
    7.03
    
    
    
    6.81
    
    
    
    6.26
    
    
    
    5.33Closing market price
    
    $
    10.60
    
    
    
    12.75
    
    
    
    14.60
    
    
    
    17.45
    
    
    
    14.15Balance Sheet Data:Total assets
    
    $
    146,406
    
    
    
    148,892
    
    
    
    142,364
    
    
    
    136,666
    
    
    
    114,186Current ratio
    
    
    3.8
    
    
    
    4.2
    
    
    
    4.2
    
    
    
    3.3
    
    
    
    3.4Short-term debt
    
    $
    799
    
    
    
    872
    
    
    
    
    
    
    
    440
    
    
    
    409Long-term obligations
    
    $
    11,102
    
    
    
    9,792
    
    
    
    8,240
    
    
    
    7,348
    
    
    
    9,631Shareholders equity
    
    $
    113,024
    
    
    
    116,503
    
    
    
    111,976
    
    
    
    101,577
    
    
    
    84,763Total debt-to-capital
    
    
    0.7
    %
    
    
    0.7
    %
    
    
    
    
    
    
    0.4
    %
    
    
    0.5
    %Other Data:Return on average shareholders equity
    
    
    -0.3
    %
    
    
    7.3
    %
    
    
    9.5
    %
    
    
    12.2
    %
    
    
    -4.7
    %Return on average total assets
    
    
    -0.2
    %
    
    
    5.7
    %
    
    
    7.3
    %
    
    
    9.1
    %
    
    
    -3.6
    %Return on net sales
    
    
    -0.2
    %
    
    
    5.4
    %
    
    
    7.2
    %
    
    
    8.1
    %
    
    
    -3.9
    %Number of employees
    
    
    698
    
    
    
    673
    
    
    
    651
    
    
    
    632
    
    
    
    608Sales per employee
    
    $
    209.6
    
    
    
    234.5
    
    
    
    220.7
    
    
    
    226.2
    
    
    
    174.9Cash flow:Net cash provided by (used in) operating
activities
    
    $
    5,641
    
    
    
    5,985
    
    
    
    10,543
    
    
    
    15,045
    
    
    
    (6,530
    )Ten-year compound annual growth rate:Net sales
    
    
    1.5
    %
    
    
    2.7
    %
    
    
    2.6
    %
    
    
    4.6
    %
    
    
    1.6
    %Net income
    
    
    n/m
    
    
    
    n/m
    
    
    
    7.5
    %
    
    
    28.8
    %
    
    
    n/m
  -11-




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ITEM 7  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  Introduction and Overview
  Business Overview
      Critical Accounting Policies and Estimates
  Use of estimates:
  -12-




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Revenue recognition:
  Inventories:
  Income taxes:
   Pension plan:
     -13-




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Stock compensation plans:
   Results of Operations
   2007
    
    
    2006
    
    
    2005Net sales
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0Cost of goods sold
    
    
    40.2
    
    
    
    38.7
    
    
    
    39.3Gross profit
    
    
    59.8
    
    
    
    61.3
    
    
    
    60.7Selling, general and administrative expenses
    
    
    44.5
    
    
    
    40.9
    
    
    
    39.7Product development expenses
    
    
    18.0
    
    
    
    15.3
    
    
    
    12.0Operating (loss) income
    
    
    (2.7
    )
    
    
    5.1
    
    
    
    9.0Investment income
    
    
    1.5
    
    
    
    1.3
    
    
    
    1.0Interest expense
    
    
    (0.0
    )
    
    
    (0.0
    )
    
    
    (0.0
    )(Loss) income before income taxes
    
    
    (1.2
    )
    
    
    6.4
    
    
    
    10.0(Benefit) provision for income taxes
    
    
    (1.0
    )
    
    
    1.0
    
    
    
    2.8Net (loss) income
    
    
    (0.2
    )
    
    
    5.4
    
    
    
    7.2
    -14-




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Financial Condition, Liquidity and Capital Resources
 Working Capital
  2007
    
    
    2006Current assets:Cash and cash equivalents
    
    $
    12,888
    
    
    $
    10,501Short-term investments
    
    
    32,340
    
    
    
    36,203Refundable income taxes
    
    
    136
    
    
    
    583Accounts receivable and other, net
    
    
    19,510
    
    
    
    26,836Total inventories
    
    
    14,675
    
    
    
    14,647Deferred income taxes
    
    
    3,961
    
    
    
    4,206Other current assets
    
    
    2,026
    
    
    
    1,664Total current assets
    
    
    85,536
    
    
    
    94,640Current liabilities:Short-term debt
    
    
    799
    
    
    
    872Accounts payable
    
    
    8,018
    
    
    
    8,033Accrued payroll and related expenses
    
    
    4,799
    
    
    
    6,089Other accrued expenses
    
    
    4,753
    
    
    
    4,870Income taxes payable
    
    
    3,911
    
    
    
    2,733Total current liabilities
    
    
    22,280
    
    
    
    22,597Working capital
    
    $
    63,256
    
    
    $
    72,043
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Sources and Uses of Cash
  2007
    
    
    2006Cash provided by (used in):Operating activities
    
    $
    5,641
    
    
    $
    5,985Investing activities
    
    
    (525
    )
    
    
    (4,182
    )Financing activities
    
    
    (3,152
    )
    
    
    (5,861
    )
          Payments Due by PeriodContractual Obligations
    
    Total
    
    
    Less than 1 year
    
    
    1-3 years
    
    
    3-5 years
    
    
    More than 5 yearsShort-Term Debt
    
    $
    799
    
    
    $
    799
    
    
    $
    
    
    
    $
    
    
    
    $
    Operating Lease Obligations
    
    
    6,328
    
    
    
    2,761
    
    
    
    2,941
    
    
    
    452
    
    
    
    174Payments Under Deferred
Compensation Agreements (a)
    
    
    4,278
    
    
    
    401
    
    
    
    1,246
    
    
    
    301
    
    
    
    2,330Pension Benefit (b)
    
    
    
    
    
    
    
    
    
    
    (b
    )
    
    
    (b
    )
    
    
    (b
    )Non-cancelable Purchase Commitments
    
    
    820
    
    
    
    820
    
    
    
    
    
    
    
    
    
    
    
    Total Contractual Obligations
    
    $
    12,225
    
    
    $
    4,781
    
    
    $
    4,187
    
    
    $
    753
    
    
    $
    $2,504
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(a)
    
    Includes amounts due under deferred compensation agreements with current and former employees
and a Director. Amounts exclude additional interest and investment gains or losses that will be
earned or incurred from September 30, 2007 through the time of payment.(b)
    
    The obligation related
to pension benefits is actuarially determined and is reflective of obligations as of September 30,
2007. The Company made a 2007 pension contribution of $2,500 in fiscal 2007, and as such does not
have a required contribution due in fiscal 2008. We are not able to reasonably estimate our future
required contributions beyond 2007 due to uncertainties regarding significant assumptions involved
in estimating future required contributions to our defined benefit pension plans, including
interest rate levels, the amount and timing of asset returns; what, if any, changes may occur in
legislation; and how contributions in excess of the minimum requirements could impact the amounts
and timing of future contributions. Off-Balance Sheet Arrangements
  Recent Accounting Pronouncements
        -17-




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ITEM 7A  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
     
 ITEM 8  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 Report of Independent Registered Public Accounting Firm
     
 -18-




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Consolidated Statements of Operations
  2007
    
    2006
    
    2005Net sales
    
    $
    143,658
    
    
    $
    155,212
    
    
    $
    141,552Cost of goods sold
    
    
    57,724
    
    
    
    60,037
    
    
    
    55,567Gross profit
    
    
    85,934
    
    
    
    95,175
    
    
    
    85,985Selling, general and administrative expenses
    
    
    64,008
    
    
    
    63,554
    
    
    
    56,177Product development expenses
    
    
    25,863
    
    
    
    23,671
    
    
    
    17,040Operating (loss) income
    
    
    (3,937
    )
    
    
    7,950
    
    
    
    12,768Investment income
    
    
    2,307
    
    
    
    1,972
    
    
    
    1,383Interest expense
    
    
    (55
    )
    
    
    (9
    )
    
    
    (64
    )(Loss) income before income taxes
    
    
    (1,685
    )
    
    
    9,913
    
    
    
    14,087(Benefit) provision for income taxes
    
    
    (1,336
    )
    
    
    1,552
    
    
    
    3,959Net (loss) income
    
    $
    (349
    )
    
    $
    8,361
    
    
    $
    10,128Basic (loss) earnings per share
    
    $
    (0.02
    )
    
    $
    0.51
    
    
    $
    0.62Diluted (loss) earnings per share
    
    $
    (0.02
    )
    
    $
    0.50
    
    
    $
    0.61
  -19-




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Consolidated Balance Sheets
 2007
    
    
    2006AssetsCurrent assets:Cash and cash equivalents
    
    $
    12,888
    
    
    $
    10,501Short-term investments
    
    
    32,340
    
    
    
    36,203Refundable income taxes
    
    
    136
    
    
    
    583Accounts receivable and other, net of allowance for doubtful accounts of
$500 and $448 as of September 30, 2007 and 2006, respectively
    
    
    19,510
    
    
    
    26,836Inventories:Raw materials
    
    
    9,599
    
    
    
    9,375Work in process
    
    
    984
    
    
    
    1,208Finished products
    
    
    4,092
    
    
    
    4,064Total inventories
    
    
    14,675
    
    
    
    14,647Deferred income taxes
    
    
    3,961
    
    
    
    4,206Prepaid expenses
    
    
    2,026
    
    
    
    1,664Total current assets
    
    
    85,536
    
    
    
    94,640Property, plant and equipment, at cost:Land
    
    
    1,325
    
    
    
    1,325Buildings and leasehold improvements
    
    
    17,262
    
    
    
    16,961Manufacturing, laboratory and office equipment
    
    
    33,368
    
    
    
    31,68251,955
    
    
    
    49,968Less-Accumulated depreciation and amortization
    
    
    38,256
    
    
    
    35,543Total property, plant and equipment, net
    
    
    13,699
    
    
    
    14,425Deferred income taxes
    
    
    23,823
    
    
    
    17,679Intangible assets
    
    
    1,400
    
    
    
    Other assets
    
    
    21,948
    
    
    
    22,148Total assets
    
    $
    146,406
    
    
    $
    148,892Liabilities and Shareholders EquityCurrent liabilities:Short-term debt
    
    $
    799
    
    
    $
    872Accounts payable
    
    
    8,018
    
    
    
    8,033Accrued payroll and related expenses
    
    
    4,799
    
    
    
    6,089Other accrued expenses
    
    
    4,753
    
    
    
    4,870Income taxes payable
    
    
    3,911
    
    
    
    2,733Total current liabilities
    
    
    22,280
    
    
    
    22,597Long-term deferred compensation
    
    
    3,924
    
    
    
    3,549Deferred income taxes
    
    
    74
    
    
    
    Other long-term liabilities
    
    
    7,104
    
    
    
    6,243Commitments and contingencies (See Note K)Shareholders equity:Common Shares, stated value $.0125:Authorized - 80,000,000; issued and outstanding - 14,580,978 and 14,410,245 in
2007 and 2006
    
    
    182
    
    
    
    180Class B Common Shares, stated value $.0125:Authorized - 9,000,000; issued and outstanding - 2,150,502 in 2007 and 2006
    
    
    27
    
    
    
    27Capital in excess of stated value
    
    
    36,436
    
    
    
    33,703Retained earnings
    
    
    85,676
    
    
    
    88,393Accumulated other comprehensive (loss) income
    
    
    (946
    )
    
    
    615Common Shares held in treasury, at cost
    
    
    (8,351
    )
    
    
    (6,415
    )Total shareholders equity
    
    
    113,024
    
    
    
    116,503Total liabilities and shareholders equity
    
    $
    146,406
    
    
    $
    148,892
  -20-




---



##### Table of Contents



Consolidated Statements of Shareholders Equity
 Capital
    
    
    
    
    
    Accumulated
    
    CommonClass B
    
    in excess
    
    
    
    
    
    other
    
    Shares
    
    TotalCommon
    
    Common
    
    of stated
    
    Retained
    
    comprehensive
    
    held in
    
    shareholdersShares
    
    Shares
    
    value
    
    earnings
    
    income
    
    treasury
    
    equityBalance September 30, 2004
    
    $
    176
    
    
    $
    27
    
    
    $
    27,412
    
    
    $
    74,686
    
    
    $
    501
    
    
    $
    (1,225
    )
    
    $
    101,577Comprehensive Income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,128Translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2Minimum pension liability adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (18
    )Net unrealized gain on
derivative
securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    75Net unrealized investment loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (163
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,024Cash dividends:Common Shares ($.15 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,131
    )
    
    
    
    
    
    
    
    
    
    
    (2,131
    )Class B Common Shares ($.12 per
share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (258
    )
    
    
    
    
    
    
    
    
    
    
    (258
    )Shares issued under stock plans, net
of taxes
    
    
    3
    
    
    
    
    
    
    
    2,749
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,752Common Shares acquired for
settlement of deferred Directors
fees
    
    
    
    
    
    
    
    
    
    
    172
    
    
    
    
    
    
    
    
    
    
    
    (172
    )
    
    
    Common Shares reissued in settlement
of Directors
fees
    
    
    
    
    
    
    
    
    
    
    (190
    )
    
    
    
    
    
    
    
    
    
    
    190
    
    
    
    Amortization
    
    
    
    
    
    
    
    
    
    
    12
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12Balance September 30, 2005
    
    
    179
    
    
    
    27
    
    
    
    30,155
    
    
    
    82,425
    
    
    
    397
    
    
    
    (1,207
    )
    
    
    111,976Comprehensive Income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,361Translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    182Minimum pension liability
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9Net unrealized loss on
derivative securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15
    )Net unrealized investment gain
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    42Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,579Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    2,240
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,240Cash dividends:Common Shares ($.15 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,135
    )
    
    
    
    
    
    
    
    
    
    
    (2,135
    )Class B Common Shares ($.12 per
share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (258
    )
    
    
    
    
    
    
    
    
    
    
    (258
    )Shares issued under stock plans, net
of taxes
    
    
    1
    
    
    
    
    
    
    
    1,127
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,128Common Shares acquired for
settlement of deferred Directors
fees
    
    
    
    
    
    
    
    
    
    
    222
    
    
    
    
    
    
    
    
    
    
    
    (222
    )
    
    
    Common Shares reissued in settlement
of Directors
fees
    
    
    
    
    
    
    
    
    
    
    (41
    )
    
    
    
    
    
    
    
    
    
    
    41
    
    
    
    Repurchase of Common Shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,027
    )
    
    
    (5,027
    )Balance September 30, 2006
    
    
    180
    
    
    
    27
    
    
    
    33,703
    
    
    
    88,393
    
    
    
    615
    
    
    
    (6,415
    )
    
    
    116,503Comprehensive Income:Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (349
    )Translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    459Minimum pension liability
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2
    )Net unrealized loss on
derivative
securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (126
    )Net unrealized investment gain
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    83Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    65Adjustment to initially apply SFAS
No. 158,
net of taxes of $1,081
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,975
    )
    
    
    
    
    
    
    (1,975
    )Stock-based compensation
    
    
    1
    
    
    
    
    
    
    
    1,508
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,509Cash dividends:Common Shares ($.15 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,110
    )
    
    
    
    
    
    
    
    
    
    
    (2,110
    )Class B Common Shares ($.12 per
share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (258
    )
    
    
    
    
    
    
    
    
    
    
    (258
    )Shares issued under stock plans, net
of taxes
    
    
    1
    
    
    
    
    
    
    
    1,011
    
    
    
    
    
    
    
    
    
    
    
    (172
    )
    
    
    840Common Shares acquired for
settlement of deferred Directors
fees
    
    
    
    
    
    
    
    
    
    
    255
    
    
    
    
    
    
    
    
    
    
    
    (255
    )
    
    
    Common Shares reissued in settlement
of Directors
fees
    
    
    
    
    
    
    
    
    
    
    (41
    )
    
    
    
    
    
    
    
    
    
    
    41
    
    
    
    Repurchase of Common Shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,550
    )
    
    
    (1,550
    )Balance September 30, 2007
    
    $
    182
    
    
    $
    27
    
    
    $
    36,436
    
    
    $
    85,676
    
    
    $
    (946
    )
    
    $
    (8,351
    )
    
    $
    113,024
  -21-




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##### Table of Contents



Consolidated Statements of Cash Flows
 2007
    
    2006
    
    2005Cash flows from operating activities:Net (loss) income
    
    $
    (349
    )
    
    $
    8,361
    
    
    $
    10,128Adjustments to reconcile net income to
net cash provided by operating activities:Depreciation
    
    
    4,380
    
    
    
    4,194
    
    
    
    4,081Deferred income taxes
    
    
    (4,517
    )
    
    
    1,041
    
    
    
    (2,079
    )Deferred compensation
    
    
    519
    
    
    
    208
    
    
    
    (30
    )Stock-based compensation
    
    
    1,509
    
    
    
    2,240
    
    
    
    Loss on the disposition/impairment of assets
    
    
    181
    
    
    
    256
    
    
    
    126Change in current assets and liabilities:Refundable income taxes
    
    
    449
    
    
    
    (195
    )
    
    
    (203
    )Accounts receivable and other
    
    
    8,031
    
    
    
    (7,458
    )
    
    
    2,181Inventories
    
    
    107
    
    
    
    (1,459
    )
    
    
    (554
    )Prepaid expenses
    
    
    91
    
    
    
    31
    
    
    
    117Other current liabilities
    
    
    (2,155
    )
    
    
    (510
    )
    
    
    (5,128
    )Tax benefit of stock purchase and stock-based
compensation arrangements
    
    
    
    
    
    
    
    
    
    
    3,313Other operating activities
    
    
    (2,605
    )
    
    
    (724
    )
    
    
    (1,409
    )Net cash provided by operating activities
    
    
    5,641
    
    
    
    5,985
    
    
    
    10,543Cash flows from investing activities:Capital expenditures
    
    
    (4,511
    )
    
    
    (4,910
    )
    
    
    (3,768
    )Purchase of investments and other
    
    
    (32,927
    )
    
    
    (35,665
    )
    
    
    (38,194
    )Proceeds from maturities and sales of investments
    
    
    36,913
    
    
    
    36,393
    
    
    
    29,176Net cash used in investing activities
    
    
    (525
    )
    
    
    (4,182
    )
    
    
    (12,786
    )Cash flows from financing activities:Net (repayment) borrowing of short-term debt
    
    
    (79
    )
    
    
    865
    
    
    
    (439
    )Proceeds from employee stock purchase and option plans
    
    
    487
    
    
    
    428
    
    
    
    2,921Tax benefit of stock purchase and stock-based
compensation arrangements
    
    
    358
    
    
    
    266
    
    
    
    Repurchase of Common Shares
    
    
    (1,550
    )
    
    
    (5,027
    )
    
    
    Cash dividends
    
    
    (2,368
    )
    
    
    (2,393
    )
    
    
    (2,389
    )Net cash (used in) provided by financing activities
    
    
    (3,152
    )
    
    
    (5,861
    )
    
    
    93Effect of changes in foreign currency exchange
rates on cash and cash equivalents
    
    
    423
    
    
    
    162
    
    
    
    96Increase (decrease) in cash and cash equivalents
    
    
    2,387
    
    
    
    (3,896
    )
    
    
    (2,054
    )Cash and cash equivalents at beginning of period
    
    
    10,501
    
    
    
    14,397
    
    
    
    16,451Cash and cash equivalents at end of period
    
    $
    12,888
    
    
    $
    10,501
    
    
    $
    14,397Supplemental disclosures of cash flow informationCash paid during the year for:Income taxes
    
    $
    1,565
    
    
    $
    2,003
    
    
    $
    3,774Interest
    
    
    50
    
    
    
    51
    
    
    
    182
  -22-




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  Note A  Summary of Significant Accounting Policies
 Principles of consolidation
  Nature of operations
  Revenue recognition
  Foreign currency translation
  Advertising
  Intangible assets
  Product development expenses
  Cash and cash equivalents
  Accounts receivable and allowance for doubtful accounts
  2007
    
    
    2006
    
    
    2005Balance at beginning of year
    
    $
    448
    
    
    $
    451
    
    
    $
    454Additions
    
    
    48
    
    
    
    86
    
    
    
    4Write-offs, net of recoveries
    
    
    (11
    )
    
    
    (94
    )
    
    
    (3
    )Foreign exchange revaluation
    
    
    15
    
    
    
    5
    
    
    
    (4
    )Balance at end of year
    
    $
    500
    
    
    $
    448
    
    
    $
    451
 -23-




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##### Table of Contents



Inventories
  Property, plant and equipment
  Capitalized software
  Impairment of long-lived assets
  Capital stock
   Class B
    
    Common SharesCommon Shares
    
    Common Shares
    
    held in treasuryBalance September 30, 2004
    
    
    14,067,107
    
    
    
    2,150,502
    
    
    
    (143,991
    )Common Shares acquired for settlement of
deferred Directors fees
    
    
    
    
    
    
    
    
    
    
    (11,222
    )Common Shares reissued in settlement of
directors fees
    
    
    
    
    
    
    
    
    
    
    17,795Shares issued under stock plans
    
    
    233,569
    
    
    
    
    
    
    
    Balance September 30, 2005
    
    
    14,300,676
    
    
    
    2,150,502
    
    
    
    (137,418
    )Common Shares acquired for settlement of
deferred Directors fees
    
    
    
    
    
    
    
    
    
    
    (17,563
    )Common Shares reissued in settlement of
directors fees
    
    
    
    
    
    
    
    
    
    
    8,856Shares issued under stock plans
    
    
    109,569
    
    
    
    
    
    
    
    Repurchase of Common Shares
    
    
    
    
    
    
    
    
    
    
    (405,500
    )Balance at September 30, 2006
    
    
    14,410,245
    
    
    
    2,150,502
    
    
    
    (551,625
    )Common Shares acquired for settlement of
deferred Directors fees
    
    
    
    
    
    
    
    
    
    
    (21,542
    )Common Shares reissued in settlement of
directors fees
    
    
    
    
    
    
    
    
    
    
    1,934Shares issued under stock plans
    
    
    170,733
    
    
    
    
    
    
    
    Repurchase of Common Shares
    
    
    
    
    
    
    
    
    
    
    (168,815
    )Balance at September 30, 2007
    
    
    14,580,978
    
    
    
    2,150,502
    
    
    
    (740,048
    )
 -24-




---



##### Table of Contents



Accumulated other comprehensive income
  2007
    
    
    2006Translation adjustment
    
    $
    1,162
    
    
    $
    703Minimum pension liability adjustment
    
    
    (29
    )
    
    
    (27
    )Net unrealized (loss) gain on derivative securities
    
    
    (86
    )
    
    
    40Net unrealized investment loss
    
    
    (18
    )
    
    
    (101
    )Benefit plan obligation
    
    
    (1,975
    )
    
    
    Accumulated other comprehensive (loss) income
    
    $
    (946
    )
    
    $
    615
 Income taxes
  Use of estimates
  Earnings per share
  2007
    
    
    2006
    
    
    2005Net (loss) income in thousands
    
    $
    (349
    )
    
    $
    8,361
    
    
    $
    10,128Weighted average shares outstanding
    
    
    16,206,698
    
    
    
    16,395,407
    
    
    
    16,337,903Assumed exercise of stock options,
weighted average of incremental
shares
    
    
    
    
    
    
    170,495
    
    
    
    251,408Assumed purchase of stock under
stock purchase plan, weighted
average
    
    
    
    
    
    
    1,262
    
    
    
    1,983Diluted shares  adjusted
weighted-average shares and
assumed conversions
    
    
    16,206,698
    
    
    
    16,567,164
    
    
    
    16,591,294Basic (loss) earnings per share
    
    $
    (0.02
    )
    
    $
    0.51
    
    
    $
    0.62Diluted (loss) earnings per share
    
    $
    (0.02
    )
    
    $
    0.50
    
    
    $
    0.61
  Stock-based compensation
  -25-




---



##### Table of Contents



2005Net income
    
    $
    10,128Deduct: Stock-based employee compensation income included in
reported income,
net of related tax effects
    
    
    (5
    )Deduct: Stock-based employee compensation expense determined under
fair value
based methods for all awards, net of related tax effects
    
    
    (6,168
    )Pro forma net income
    
    $
    3,955Pro forma earnings per share:Basic
    
    $
    0.24Diluted
    
    $
    0.24
 Derivatives and Hedging Activities
    Reclassifications
  Recent accounting pronouncements
  -26-




---



##### Table of Contents



Note B  Guarantors Disclosure Requirements
 Guarantee of original lease:
  Product warranties:
  -27-




---



##### Table of Contents



2007
    
    
    2006Beginning balance
    
    $
    992
    
    
    $
    1,084Accruals for warranties issued during the period
    
    
    1,125
    
    
    
    1,442Accruals related to pre-existing warranties
(including changes in estimates and expiring
warranties)
    
    
    (68
    )
    
    
    (211
    )Settlements made (in cash or in kind) during the period
    
    
    (1,327
    )
    
    
    (1,323
    )Ending balance
    
    $
    722
    
    
    $
    992
 Note C  Repurchase of Common Shares
    2007
    
    2006Total number of shares purchased
    
    
    168,815
    
    
    
    405,500Average price paid per share
(including commissions)
    
    $
    10.20
    
    
    $
    12.40Identity of broker-dealer used to effect the purchases
    
    National Financial
    
    National FinancialSecurities LLC
    
    Securities LLCNumber of shares purchased as part of a publicly
announced repurchase program
    
    
    151,000
    
    
    
    405,500Maximum number of shares that remain to be purchased
under the program
    
    
    1,849,000
    
    
    
    1,594,500
   Note D  Investments
   Adjusted cost
    
    
    Unrealized gains
    
    
    Unrealized losses
    
    
    Market valueU.S. government and agency securities
    
    $
    7,270
    
    
    $
    
    
    
    $
    (27
    )
    
    $
    7,243Corporate notes, bonds, and other
fixed income securities
    
    
    25,097
    
    
    
    
    
    
    
    
    
    
    
    25,097Total short-term investments
    
    $
    32,367
    
    
    $
    
    
    
    $
    (27
    )
    
    $
    32,340
  Adjusted cost
    
    
    Unrealized gains
    
    
    Unrealized losses
    
    
    Market valueU.S. government and agency securities
    
    $
    16,558
    
    
    $
    
    
    
    $
    (154
    )
    
    $
    16,404Corporate notes, bonds, and other
fixed income securities
    
    
    19,799
    
    
    
    
    
    
    
    
    
    
    
    19,799Total short-term investments
    
    $
    36,357
    
    
    $
    
    
    
    $
    (154
    )
    
    $
    36,203
 -28-




---



##### Table of Contents



2007
    
    
    2006Less than 1 year
    
    $
    13,743
    
    
    $
    13,3531 year to 5 years
    
    
    
    
    
    
    11,1515 to 10 years
    
    
    672
    
    
    
    2,62910 to 15 years
    
    
    
    
    
    
    1,505Greater than 15 years
    
    
    17,925
    
    
    
    7,565Total short-term investments
    
    $
    32,340
    
    
    $
    36,203
 
  2007
    
    
    2006Non-marketable equity securities
    
    $
    1,250
    
    
    $
    1,250Notes receivable
    
    
    3,073
    
    
    
    2,750Venture capital fund
    
    
    74
    
    
    
    183$
    4,397
    
    
    $
    4,183
   Note E  Financing Arrangements
   Note F  Foreign Currency
    -29-




---



##### Table of Contents



Note G  Employee Benefit Plans
  Adoption
of SFAS No. 158
    United States Plan
    
    German Plan2007
    
    2006
    
    2007
    
    2006Change in projected benefit obligations:Benefit obligation at beginning of year
    
    $
    33,800
    
    
    $
    36,940
    
    
    $
    7,135
    
    
    $
    6,379Service cost
    
    
    1,420
    
    
    
    1,641
    
    
    
    250
    
    
    
    214Interest cost
    
    
    2,203
    
    
    
    2,000
    
    
    
    344
    
    
    
    275Actuarial loss (gain)
    
    
    1,271
    
    
    
    (5,668
    )
    
    
    (1,092
    )
    
    
    54Benefits paid
    
    
    (1,127
    )
    
    
    (1,113
    )
    
    
    (193
    )
    
    
    (149
    )Foreign currency exchange rate changes
    
    
    
    
    
    
    
    
    
    
    862
    
    
    
    362Benefit obligation at year end
    
    $
    37,567
    
    
    $
    33,800
    
    
    $
    7,306
    
    
    $
    7,135Accumulated benefit obligation at year end
    
    $
    33,571
    
    
    $
    30,176
    
    
    $
    6,770
    
    
    $
    6,380Change in plan assets:Fair value of plan assets at beginning of year
    
    $
    37,883
    
    
    $
    34,409
    
    
    $
    1,219
    
    
    $
    1,092Actual return on pension assets
    
    
    5,921
    
    
    
    3,087
    
    
    
    26
    
    
    
    26Employer contributions
    
    
    2,500
    
    
    
    1,500
    
    
    
    24
    
    
    
    61Participants contributions
    
    
    
    
    
    
    
    
    
    
    48
    
    
    
    Benefits paid
    
    
    (1,127
    )
    
    
    (1,113
    )
    
    
    (32
    )
    
    
    (22
    )Foreign currency exchange rate changes
    
    
    
    
    
    
    
    
    
    
    154
    
    
    
    62Fair value of plan assets at end of year
    
    
    45,177
    
    
    
    37,883
    
    
    
    1,439
    
    
    
    1,219Funded status  over (under) funded
    
    
    7,610
    
    
    
    4,083
    
    
    
    (5,867
    )
    
    
    (5,916
    )Unrecognized actuarial loss
    
    
    
    
    
    
    4,593
    
    
    
    
    
    
    
    754Contributions after measurement date
    
    
    1,000
    
    
    
    1,000
    
    
    
    
    
    
    
    Unrecognized prior service cost
    
    
    
    
    
    
    692
    
    
    
    
    
    
    
    29Unrecognized initial net obligation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    41Prepaid pension assets (pension liability) recognized
    
    $
    8,610
    
    
    $
    10,368
    
    
    $
    (5,867
    )
    
    $
    (5,092
    )
 *
    
    The Company has purchased indirect insurance of $5,827 which is expected to be available to the
Company as German pension liabilities of $5,867 mature. The caption, Other assets, on the
Companys Consolidated Balance Sheets includes $5,827 and $4,885 at September 30, 2007 and 2006,
respectively, for this asset. In accordance with generally accepted accounting principles this
Company asset is not included in the German plan assets.  -30-




---



##### Table of Contents



2007
    
    2006United States Plan
    
    $
    (2,289
    )
    
    $
    German Plan
    
    
    121
    
    
    
    Other
    
    
    193
    
    
    
    Total
    
    $
    (1,975
    )
    
    $
    
  United States Plan
    
    German PlanNet actuarial loss
    
    $
    83
    
    
    $
    Prior service benefit
    
    
    179
    
    
    
    5Transition obligation
    
    
    
    
    
    
    22Total
    
    $
    262
    
    
    $
    27
  United States Plan
    
    German Plan2007
    
    2006
    
    2007
    
    2006Service cost-benefits earned during the year
    
    $
    1,420
    
    
    $
    1,641
    
    
    $
    250
    
    
    $
    214Interest cost on projected benefit obligation
    
    
    2,203
    
    
    
    2,000
    
    
    
    344
    
    
    
    275Expected return on plan assets
    
    
    (3,129
    )
    
    
    (2,890
    )
    
    
    (67
    )
    
    
    (80
    )Amortization of transition asset
    
    
    
    
    
    
    (10
    )
    
    
    23
    
    
    
    21Amortization of prior service cost
    
    
    179
    
    
    
    178
    
    
    
    5
    
    
    
    5Amortization of net loss
    
    
    65
    
    
    
    438
    
    
    
    3
    
    
    
    Net periodic pension cost
    
    $
    738
    
    
    $
    1,357
    
    
    $
    558
    
    
    $
    435
  June 30,2007
    
    2006Equity securities
    
    
    65
    %
    
    
    63
    %Fixed income
    
    
    11
    
    
    
    12Market neutral hedge fund
    
    
    17
    
    
    
    18Cash equivalent (money market fund)
    
    
    5
    
    
    
    4Real estate
    
    
    2
    
    
    
    3100
    %
    
    
    100
    %
    2007
    
    
    2006United States Pension Plan:Discount rate
    
    
    6.375
    %
    
    
    6.625
    %Rate of increase in compensation levels
    
    
    4.0
    %
    
    
    4.0
    %German Pension Plan:Discount rate
    
    
    5.5
    %
    
    
    4.5
    %Rate of increase in compensation levels
    
    
    2.5
    %
    
    
    3.0
    %
 -31-




---



##### Table of Contents



2007
    
    
    2006
    
    
    2005United States Pension Plan:Discount rate
    
    
    6.625
    %
    
    
    5.375
    %
    
    
    6.5
    %Expected long-term rate of return on plan assets
    
    
    8.25
    %
    
    
    8.25
    %
    
    
    8.25
    %Rate of increase in compensation levels
    
    
    4.0
    %
    
    
    3.5
    %
    
    
    3.5
    %German Pension Plan:Discount rate
    
    
    4.5
    %
    
    
    4.25
    %
    
    
    5.25
    %Expected long-term rate of return on plan assets
    
    
    5.0
    %
    
    
    5.0
    %
    
    
    7.0
    %Rate of increase in compensation levels
    
    
    3.0
    %
    
    
    3.0
    %
    
    
    3.0
    %
   United States Plan
    
    German Plan2008
    
    $
    1,245
    
    
    $
    2262009
    
    $
    1,265
    
    
    $
    2732010
    
    $
    1,304
    
    
    $
    2912011
    
    $
    1,404
    
    
    $
    3132012
    
    $
    1,582
    
    
    $
    3372013  2017
    
    $
    10 351
    
    
    $
    2,104
   Note H  Stock Plans
   2007
    
    2006Cost of goods sold
    
    $
    91
    
    
    $
    104Selling, general and administrative expenses
    
    
    1,211
    
    
    
    1,868Product development expenses
    
    
    207
    
    
    
    268Stock-based compensation included in operating expenses
    
    
    1,509
    
    
    
    2,240Estimated tax impact of stock-based compensation
    
    
    497
    
    
    
    745Stock-based compensation expense, net of tax
    
    $
    1,012
    
    
    $
    1,495Stock-based compensation expense per share, net of tax
    
    $
    0.06
    
    
    $
    0.09
 -32-




---



##### Table of Contents



Stock Option Activity
  Weighted
    
    Weighted AverageNumber
    
    Average
    
    Remaining
    
    Aggregateof Shares
    
    Exercise Price
    
    Contractual Life (Years)
    
    Intrinsic ValueOutstanding at September 30, 2004
    
    
    3,404,846
    
    
    $
    19.88Options granted at fair market value
    
    
    94,250
    
    
    
    16.33Options exercised
    
    
    (67,050
    )
    
    
    7.24
    
    
    
    
    
    
    $
    624Options forfeited
    
    
    (38,825
    )
    
    
    15.49Options expired
    
    
    (50,875
    )
    
    
    23.50Outstanding at September 30, 2005
    
    
    3,342,346
    
    
    
    20.03Options granted at fair market value
    
    
    165,651
    
    
    
    15.05Options exercised
    
    
    (59,366
    )
    
    
    5.46
    
    
    
    
    
    
    $
    540Options forfeited
    
    
    (1,500
    )
    
    
    13.76Options expired
    
    
    (124,150
    )
    
    
    17.85Outstanding at September 30, 2006
    
    
    3,322,981
    
    
    
    20.12Options granted at fair market value
    
    
    106,025
    
    
    
    13.91Options exercised
    
    
    (122,376
    )
    
    
    4.70
    
    
    
    
    
    
    $
    1,045Options forfeited
    
    
    
    
    
    
    Options expired
    
    
    (65,050
    )
    
    
    29.70Outstanding at September 30, 2007
    
    
    3,241,580
    
    
    $
    20.31
    
    
    
    5.04
    
    
    $
    945Vested and expected to vest
at September 30, 2007
    
    
    3,240,080
    
    
    $
    20.31
    
    
    
    5.04
    
    
    $
    945Exercisable at September 30, 2007
    
    
    2,968,904
    
    
    $
    20.84
    
    
    
    4.72
    
    
    $
    945
 -33-




---



##### Table of Contents



Outstanding
    
    ExercisableWeighted AverageNumber
    
    Remaining
    
    Weighted
    
    Number
    
    WeightedRange of
    
    of Shares
    
    Contractual
    
    Average
    
    of Shares
    
    AverageExercise Prices
    
    Outstanding
    
    Life (years)
    
    Exercise Price
    
    Exercisable
    
    Exercise Price$2.53 - $13.76
    
    
    690,604
    
    
    
    4.22
    
    
    $
    11.51
    
    
    
    684,704
    
    
    $
    11.51$14.00 -$16.12
    
    
    811,526
    
    
    
    6.62
    
    
    $
    15.62
    
    
    
    544,750
    
    
    $
    16.09$16.23 -$18.41
    
    
    578,700
    
    
    
    4.34
    
    
    $
    18.06
    
    
    
    578,700
    
    
    $
    18.06$18.72 -$19.23
    
    
    569,050
    
    
    
    6.41
    
    
    $
    18.81
    
    
    
    569,050
    
    
    $
    18.81$19.97 -$45.13
    
    
    587,700
    
    
    
    3.19
    
    
    $
    40.52
    
    
    
    587,700
    
    
    $
    40.52$48.44 -$66.75
    
    
    4,000
    
    
    
    3.00
    
    
    $
    61.05
    
    
    
    4,000
    
    
    $
    61.053,241,580
    
    
    
    5.04
    
    
    $
    20.31
    
    
    
    2,968,904
    
    
    $
    20.84
   2007
    
    2006
    
    2005Expected life (years)
    
    
    4.75
    
    
    
    4.5
    
    
    
    2.5Risk-free interest rate
    
    
    4.785
    %
    
    
    4.3
    %
    
    
    3.4
    %Volatility
    
    
    42
    %
    
    
    45
    %
    
    
    44
    %Dividend yield
    
    
    1.1
    %
    
    
    1.0
    %
    
    
    1.0
    %
  Performance Award Units
   Weighted AverageGrant DateNumber of Units
    
    Fair ValueOutstanding at September 30, 2005
    
    
    
    
    
    
    Awards granted
    
    
    164,025
    
    
    $
    15.05Awards forfeited
    
    
    (2,400
    )
    
    
    15.05Outstanding at September 30, 2006
    
    
    161,625
    
    
    
    15.05Awards granted
    
    
    142,800
    
    
    
    13.95Awards forfeited
    
    
    (4,375
    )
    
    
    14.62Adjustment of 2006 awards
    
    
    (79,525
    )
    
    
    15.05Outstanding at September 30, 2007
    
    
    220,525
    
    
    $
    14.34
 -34-




---



##### Table of Contents



Restricted Award Units
   Weighted AverageGrant DateNumber of Units
    
    Fair ValueOutstanding at September 30, 2005
    
    
    
    
    
    
    Awards granted
    
    
    16,775
    
    
    $
    14.91Awards forfeited
    
    
    (850
    )
    
    
    15.05Outstanding at September 30, 2006
    
    
    15,925
    
    
    
    14.90Awards granted
    
    
    25,250
    
    
    
    13.59Awards vested
    
    
    (650
    )
    
    
    15.05Awards forfeited
    
    
    (2,425
    )
    
    
    14.57Outstanding at September 30, 2007
    
    
    38,100
    
    
    $
    13.96
  Directors Equity Plans
  Employee Stock Purchase Plan
   -35-




---



##### Table of Contents



Note I  Income Taxes
  2007
    
    
    2006
    
    
    2005United States
    
    $
    (6,216
    )
    
    $
    8,705
    
    
    $
    13,637Non-U.S.
    
    
    4,531
    
    
    
    1,208
    
    
    
    450$
    (1,685
    )
    
    $
    9,913
    
    
    $
    14,087
  2007
    
    
    2006
    
    
    2005Current:Federal
    
    $
    633
    
    
    $
    (109
    )
    
    $
    4,032Non-U.S.
    
    
    2,503
    
    
    
    617
    
    
    
    1,705State and local
    
    
    45
    
    
    
    3
    
    
    
    301Total current
    
    
    3,181
    
    
    
    511
    
    
    
    6,038Deferred:Federal, state and local
    
    
    (4,034
    )
    
    
    962
    
    
    
    (1,530
    )Non-U.S.
    
    
    (483
    )
    
    
    79
    
    
    
    (549
    )Total deferred
    
    
    (4,517
    )
    
    
    1,041
    
    
    
    (2,079
    )Total (benefit) provision
    
    $
    (1,336
    )
    
    $
    1,552
    
    
    $
    3,959
  2007
    
    
    2006
    
    
    2005Federal income (benefit) tax at statutory rate
    
    $
    (573
    )
    
    $
    3,370
    
    
    $
    4,790State and local income taxes
    
    
    29
    
    
    
    612
    
    
    
    (9
    )Extraterritorial Income Exclusion
    
    
    (306
    )
    
    
    (547
    )
    
    
    (697
    )Domestic Manufacturing Deduction
    
    
    
    
    
    
    (24
    )
    
    
    Research Tax Credit
    
    
    (880
    )
    
    
    (201
    )
    
    
    (674
    )Tax on non-U.S. income
    
    
    3,265
    
    
    
    265
    
    
    
    481Foreign tax credit carryforwards
    
    
    (2,242
    )
    
    
    (400
    )
    
    
    (323
    )Valuation allowance
    
    
    15
    
    
    
    (1,281
    )
    
    
    234Adjustment for prior years taxes
    
    
    (752
    )
    
    
    (315
    )
    
    
    Other
    
    
    108
    
    
    
    73
    
    
    
    157Effective (benefit) provision for income taxes
    
    $
    (1,336
    )
    
    $
    1,552
    
    
    $
    3,959Effective income tax rate
    
    
    (79.3
    )%
    
    
    15.7
    %
    
    
    28.1
    %
  -36-




---



##### Table of Contents



2007
    
    
    2006Deferred tax assets:Stock options
    
    $
    1,253
    
    
    $
    940Capitalized research and development
    
    
    12,470
    
    
    
    11,125Inventory
    
    
    1,516
    
    
    
    1,640Deferred compensation
    
    
    1,467
    
    
    
    1,408Tax credit carryforward
    
    
    9,503
    
    
    
    6,343Depreciation
    
    
    1,201
    
    
    
    1,274Warranty
    
    
    213
    
    
    
    318Medical
    
    
    122
    
    
    
    131State and local taxes
    
    
    976
    
    
    
    940Foreign net operating losses
    
    
    933
    
    
    
    1,135Other
    
    
    1,987
    
    
    
    1,470Total deferred tax assets
    
    
    31,641
    
    
    
    26,724Deferred tax liabilities:Pension
    
    
    2,709
    
    
    
    3,552Other
    
    
    42
    
    
    
    146Total deferred tax liabilities
    
    
    2,751
    
    
    
    3,698Valuation allowance
    
    
    (1,180
    )
    
    
    (1,141
    )Net deferred tax assets
    
    $
    27,710
    
    
    $
    21,885
   2007
    
    
    2006
    
    
    2005Balance at beginning of year
    
    $
    1,141
    
    
    $
    3,000
    
    
    $
    2,627Charged to costs and expenses
    
    
    213
    
    
    
    561
    
    
    
    373Deductions
    
    
    (174
    )
    
    
    (2,420
    )
    
    
    Balance at end of year
    
    $
    1,180
    
    
    $
    1,141
    
    
    $
    3,000
   Year Expiration CommencesAlternative minimum tax credit
    
    $
    2,212
    
    
    indefiniteForeign tax credit
    
    
    2,008
    
    
    
    2012-2017R&D credit
    
    
    5,283
    
    
    
    2009-2022Foreign net operating losses
    
    
    933
    
    
    2010-indefinite
   -37-




---



##### Table of Contents



Note J  Commitments and Contingencies
  2008
    
    $
    2,7612009
    
    
    2,1642010
    
    
    7772011
    
    
    3882012
    
    
    64After 2012
    
    
    174Total minimum operating lease payments
    
    $
    6,328
   
    
    There was no evidence of backdating annual stock option grants prior to the date of
approval by the Board of Directors.
    
    There was a multi-day delay by management in setting the exercise price for annual stock
option grants in 2000, 2001 and 2002. The delay resulted in the options having a lower
exercise price than the price on the date of Board approval.
    
    Although the Special Committee determined that the terms of the Companys stock incentive
plans required the options to be priced on the date the Board approved them, there was no
finding of intentional misconduct on the part of senior management or any other Keithley
officer, director or employee responsible for the administration of the Companys stock option
grants.
    
    Based on evidence gathered and analyzed by the Independent Counsel, the Special Committee
found the dates selected by management for the annual grants in 2000-2002 are the appropriate
measurement dates for accounting purposes. Accordingly, the Company was not required to record
any compensation expense with respect to the annual option grants in 2000-2002, and the
Company was not required to restate its financial statements as a result of these grants.
    
    The Special Committee concluded that the Companys public filings regarding annual options
grants during the years reviewed were accurate; there is no evidence that the Company timed
the grant date or pricing of annual stock option grants to take advantage of material
non-public information; and there was no wrong doing or lack of oversight by the Companys
independent directors or the Human Resources and Compensation Committee of the Board of
Directors (the Compensation Committee).
    
    The Special Committee also reviewed the Companys practices regarding stock option grants,
other than its annual grants, which are generally grants of smaller numbers of options to new
hires and to existing employees for promotions. The Special Committee concluded that
management exceeded certain of the authority granted to management by the Companys stock
option plans and the Compensation Committee, but that these grants
involved small numbers of shares and were largely the result of ministerial errors by management.
      -38-




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##### Table of Contents



Note K  Segment and Geographic Information
  2007
    
    
    2006
    
    
    2005Net sales:United States
    
    $
    37,275
    
    
    $
    46,489
    
    
    $
    39,819Other Americas
    
    
    2,785
    
    
    
    4,982
    
    
    
    3,418Germany
    
    
    18,238
    
    
    
    19,791
    
    
    
    15,903Other Europe
    
    
    29,416
    
    
    
    30,387
    
    
    
    27,641Japan
    
    
    16,688
    
    
    
    16,691
    
    
    
    17,189Other Asia
    
    
    39,256
    
    
    
    36,872
    
    
    
    37,582$
    143,658
    
    
    $
    155,212
    
    
    $
    141,552Long-lived assets:United States
    
    $
    29,557
    
    
    $
    30,246
    
    
    $
    24,408Germany
    
    
    6,369
    
    
    
    5,406
    
    
    
    4,720Other
    
    
    1,121
    
    
    
    921
    
    
    
    1,064$
    37,047
    
    
    $
    36,573
    
    
    $
    30,192
  Unaudited Quarterly Results of Operations
  First
    
    Second
    
    Third
    
    FourthFiscal 2007Net sales
    
    $
    41,026
    
    
    $
    32,930
    
    
    $
    33,446
    
    
    $
    36,256Gross profit
    
    
    24,914
    
    
    
    19,640
    
    
    
    19,387
    
    
    
    21,993Income (loss) before income taxes
    
    
    3,085
    
    
    
    (2,639
    )
    
    
    (2,446
    )
    
    
    315Net (loss) income
    
    
    3,075
    
    
    
    (2,073
    )
    
    
    (459
    )
    
    
    (892
    )Diluted earnings (loss) per share
    
    
    .19
    
    
    
    (.13
    )
    
    
    (.03
    )
    
    
    (.05
    )Fiscal 2006Net sales
    
    $
    35,790
    
    
    $
    39,679
    
    
    $
    38,427
    
    
    $
    41,316Gross profit
    
    
    22,203
    
    
    
    24,215
    
    
    
    23,427
    
    
    
    25,330Income before income taxes
    
    
    2,621
    
    
    
    3,008
    
    
    
    1,730
    
    
    
    2,554Net income
    
    
    1,926
    
    
    
    2,098
    
    
    
    1,669
    
    
    
    2,668Diluted earnings per share
    
    
    .12
    
    
    
    .13
    
    
    
    .10
    
    
    
    .16
 
 ITEM 9  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  
 ITEM 9A  CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
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##### Table of Contents



Managements Report on Internal Control Over Financial Reporting
   Changes in Internal Control Over Financial Reporting
  Chief Executive and Chief Financial Officer Certifications
  
 ITEM
9B  OTHER INFORMATION
  
 PART III
 
 ITEM 10  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
   
 ITEM 11  EXECUTIVE COMPENSATION
  
 ITEM 12  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
  
 ITEM 13  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
  
 ITEM 14  PRINCIPAL ACCOUNTANT FEES AND SERVICES
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##### Table of Contents



PART IV
 
 ITEM 15  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
 (a)(1) Financial Statements
  (a)(2) Financial Statement Schedules
   (a)(3) Index to Exhibits
 ExhibitNumber
    
    Description3(a)
    
    Code of Regulations, as amended on February 9, 1985. (Reference is made to Exhibit 3(a) of the Companys
Annual Report on Form 10-K
for the year ended September 30, 2002 (File No. 1-9965), which Exhibit is incorporated herein by reference.)3(b)
    
    Amended Articles of Incorporation, as amended on February 17, 2001. (Reference is made to Exhibit 3(c) of the
Companys Quarterly
Report on Form 10-Q for the fiscal quarter ended March 31, 2001 (File No. 1-9965), which Exhibit is
incorporated herein by reference.)4(a)
    
    Specimen Share Certificate for the Common Shares, without par value. (Reference is made to Exhibit 4(a) of
the Companys Annual
Report on Form 10-K for the year ended September 30, 1999 (File No. 1-9965), which Exhibit is incorporated
herein by reference.)10(a)*
    
    Keithley Instruments, Inc. Supplemental Deferral Plan as amended. (Reference is made to Exhibit 10(b) of the
Companys Annual Report
on Form 10-K for the year ended September 30, 1999 (File No. 1-9965), which Exhibit is incorporated herein by
reference.)10(b)*
    
    Employment Agreement with Mark J. Plush dated April 7, 1994. (Reference is made to Exhibit 10(k) of the
Companys Annual Report on
Form 10-K for the year ended September 30, 1998 (File No. 1-9965), which Exhibit is incorporated herein by
reference.)10(c)*
    
    Supplemental Executive Retirement Plan. (Reference is made to Exhibit 10(e) of the Companys Annual Report on
Form 10-K for the year
ended September 30, 1999 (File No. 1-9965), which Exhibit is incorporated herein by reference.)10(d)*
    
    1992 Stock Incentive Plan, as amended. (Reference is made to Exhibit 10(f) of the Companys Annual Report on
Form 10-K for the year
ended September 30, 1999 (File No. 1-9965), which Exhibit is incorporated herein by reference.)10(e)*
    
    1992 Directors Stock Option Plan. (Reference is made to Exhibit 10(g) of the Companys Annual Report on Form
10-K for the year ended
September 30, 1999 (File No. 1-9965), which Exhibit is incorporated herein by reference.)10(f)
    
    Credit Agreement dated as of March 30, 2001 by and among Keithley Instruments, Inc. and Subsidiary Borrowers
and the Lenders and
Bank One, NA, as agent. (Reference is made to Exhibit 10(l) of the Companys Quarterly Report on form 10-Q
for the quarter ended
March 31, 2001 (File No. 1-9965) which Exhibit is incorporated herein by reference.)10(g)
    
    First Amendment to Credit Agreement, dated August 1, 2002. (Reference is made to Exhibit 10(j) of the
Companys Quarterly Report on
Form 10-Q for the quarter year ended June 30, 2002 (File No. 1-9965), which Exhibit is incorporated herein by
reference.)10(h)
    
    Second Amendment to Credit Agreement, dated March 28, 2003. (Reference is made to Exhibit 10(l) of the
Companys Quarterly Report
on Form 10-Q for the quarter ended March 31, 2003 (File No. 1-9965), which Exhibit is incorporated herein by
reference.)10(i)
    
    Third Amendment to Credit Agreement, dated March 30, 2004. (Reference is made to Exhibit 10(m) of the
Companys Quarterly Report
on Form 10-Q for the quarter ended March 31, 2004 (File No. 1-9965), which Exhibit is incorporated herein by
reference.)10(j)
    
    Fourth Amendment to Credit Agreement, dated March 30, 2005. (Reference is made to Exhibit 10(n) of the
Companys Current Report
on Form 8-K dated March 30, 2005 (File No. 1-9965), which Exhibit is incorporated herein by reference.)10(k)
    
    Fifth Amendment to Credit Agreement, dated September 27, 2006. (Reference is made to Exhibit 10(r) of the
Companys Annual Report
on Form 10-K for the fiscal year ended September 30, 2006 (File No. 1-9965), which Exhibit is incorporated
herein by reference.)10(l)*
    
    1996 Outside Directors Deferred Stock Plan. (Reference is made to Exhibit 10(x) of the Companys Quarterly
Report on Form 10-Q for
the fiscal quarter ended March 31, 1996 (File No. 1-9965), which Exhibit is incorporated herein by reference.)10(m)*
    
    1997 Directors Stock Option Plan, adopted in February 1997. (Reference is made to Exhibit 10(z) of the
Companys Annual Report on Form 10-K for the fiscal year ended September 30, 1997 (File No. 1-9965), which Exhibit is incorporated
herein by reference.)10(n)*
    
    Keithley Instruments, Inc. 2002 Stock Incentive Plan. (Reference is made to Exhibit 4(b) of the Companys
Registration Statement under
The Securities Act of 1933 dated May 13, 2002 on Form S-8 (File No. 333-88088), which Exhibit is incorporated
herein by reference.)10(o)*
    
    Form of Indemnification Agreement entered into by the Company and each of Brian R. Bachman, James T.
Bartlett, James B. Griswold,
Leon J. Hendrix, Jr., William Hudson, Joseph P. Keithley, Dr. N. Mohan Reddy, Barbara Scherer and R. Elton
White, as members of the
Companys Board of Directors On December 2, 2004. (Reference is made to Exhibit 10.1 of the Companys Current
Report on Form 8-K
dated December 2, 2004 (File No. 1-9965), which Exhibit is incorporated herein by reference.)10(p)*
    
    Form of Indemnification Agreement entered into by the Company and each of Philip R. Etsler, Mark J. Plush and
Linda C. Rae, as executive
officers of the Company, on December 2, 2004. (Reference is made to Exhibit 10.2 of the Companys Current
Report on Form 8-K dated
December 2, 2004 (File No. 1-9965), which Exhibit is incorporated herein by reference.)
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##### Table of Contents



10(q)*
    
    Form of Indemnification Agreement entered into by the Company and Brian J. Jackman, as a member of
the Companys Board of Directors on May 5, 2005. (Reference is made to Exhibit 10.1 of the Companys Current Report on Form
8-K dated December 2, 2004 (File No. 1-9965), which Exhibit is incorporated herein by reference.)10(r)*
    
    Form of Indemnification Agreement entered into by the Company and Thomas A. Saponas, as a member of
the Companys Board of
Directors, on May 11, 2007. (Reference is made to Exhibit 10.1 of the Companys Current Report on
Form 8-K dated December 2, 2004
(File No. 001-09965), which Exhibit is incorporated herein by reference.)10(s)*
    
    Form of Indemnification Agreement entered into by the Company and Suzanne Schulze Taylor, as an
executive officer of the Company,
on May 11, 2007. (Reference is made to Exhibit 10.2 of the Companys Current Report on Form 8-K
dated December 2, 2004 (File No.
001-09965), which Exhibit is incorporated herein by reference.)10(t)*
    
    Keithley Instruments, Inc. 2005 Employee Stock Purchase and Dividend Reinvestment Plan. (Reference
is made to Appendix B of the
Companys Definitive Proxy Statement dated December 29, 2005 (File No. 1-9965), which is
incorporated herein by reference.)10(u)*
    
    Keithley Instruments, Inc. form of option agreement for use in connection with awards granted under
the Keithley Instruments, Inc. 2002
Stock Incentive Plan. (Reference is made to Exhibit 10.1 of the Companys Current Report on Form 8-K
dated October 3, 2005 (File No.
1-9965), which Exhibits are incorporated herein by reference.)10(v)*
    
    Keithley Instruments, Inc. form of performance award agreement for use in connection with awards
granted under the Keithley
Instruments, Inc. 2002 Stock Incentive Plan. (Reference is made to Exhibit 10.2 of the Companys
Current Report on Form 8-K dated
October 3, 2005 (File No. 1-9965), which Exhibits are incorporated herein by reference.)10(u)*
    
    Keithley Instruments, Inc. form of restricted unit award agreement for use in connection with awards
granted under the Keithley
Instruments, Inc. 2002 Stock Incentive Plan. (Reference is made to Exhibit 10.3 of the Companys
Current Report on Form 8-K dated
October 3, 2005 (File No. 1-9965), which Exhibits are incorporated herein by reference.)10(x)*
    
    Keithley Instruments, Inc. 2002 Stock Incentive Plan (as amended December 28, 2006). (Reference is
made to Exhibit 10v of the
Companys Annual Report on Form 10-K for the year ended September 30, 2006 (File No. 1-9965), which
Exhibit is incorporated herein
by reference.)10(y)*
    
    Keithley Instruments, Inc. Annual Incentive Compensation Plan. (Reference is made to Exhibit 10.1 of
the Companys Current Report on
Form 8-K dated October 1, 2007 (File No. 1-9965), which Exhibit is incorporated herein by reference.)10(z)*
    
    Keithley Instruments, Inc. 2005 Employee Stock Purchase and Dividend Reinvestment Plan (as amended
August 2007).10(aa)*
    
    Keithley Instruments, Inc. form of option agreement for use in connection with awards granted under
the Keithley Instruments, Inc. 2002
Stock Incentive Plan.10(bb)*
    
    Keithley Instruments, Inc. form of performance award agreement for use in connection with awards
granted under the Keithley
Instruments, Inc. 2002 Stock Incentive Plan.10(cc)*
    
    Keithley Instruments, Inc. form of restricted unit award agreement for use in connection with awards
granted under the Keithley
Instruments, Inc. 2002 Stock Incentive Plan.10(dd)*
    
    Keithley Instruments, Inc. Deferred Compensation Plan, including Amendment No. 1.10(ee)*
    
    Fourth Amendment to Keithley Instruments, Inc. Supplemental Deferral Plan as amended.14
    
    Code of Ethics. (Reference is made to Exhibit 14 of the Companys Annual Report on Form 10-K for the
year ended September 30, 2005
(File No. 1-9965), which Exhibit is incorporated herein by reference.)21
    
    Subsidiaries of the Company.23
    
    Consent of PricewaterhouseCoopers LLP.31(a)
    
    Certification of Joseph P. Keithley pursuant to Rule 13a-14(a)-15d-14(a).31(b)
    
    Certification of Mark J. Plush pursuant to Rule 13a-14(a)-15d-14(a).32(a)+
    
    Certification of Joseph P. Keithley pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350.32(b)+
    
    Certification of Mark J. Plush pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350.
 
 *
    
    Management contract or compensatory plan or arrangement.+
    
    The certifications furnished pursuant to this item will not be deemed filed for purposes of
Section 18 of the Exchange Act (15 U.S.C.
78r), or otherwise subject to the liability of that section. Such certification will not be deemed
to be incorporated by reference into any
filing under the Securities Act or the Exchange Act, except to the extent that the registrant
specifically incorporates it by reference. ITEM 15(c) EXHIBITS
  ITEM 15(d) FINANCIAL STATEMENT SCHEDULES
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##### Table of Contents



SIGNATURES
  
 By:
    
    /s/ Joseph P. KeithleyJoseph P. Keithley, (Chairman, President and Chief Executive Officer)Date:
    
    December 14, 2007
  Signature
    
    Title
    
    Date/s/ Joseph P. Keithley
    
    Chairman of the Board of Directors, President and
    
    12/14/07Joseph P. Keithley
    
    Chief
Executive Officer (Principal Executive Officer)/s/ Mark J. Plush
    
    Vice President and Chief Financial Officer
    
    12/14/07Mark J. Plush
    
    (Principal
Financial and Accounting Officer)/s/ Brian R. Bachman
    
    Director
    
    12/14/07Brian R. Bachman/s/ James T. Bartlett
    
    Director
    
    12/14/07James T. Bartlett/s/ James B. Griswold
    
    Director
    
    12/14/07James B. Griswold/s/ Leon J. Hendrix, Jr.
    
    Director
    
    12/14/07Leon J. Hendrix, Jr./s/ Brian J. Jackman
    
    Director
    
    12/14/07Brian J. Jackman/s/ N. Mohan Reddy
    
    Director
    
    12/14/07N. Mohan Reddy/s/ Thomas A. Saponas
    
    Director
    
    12/14/07Thomas A. Saponas/s/ Barbara V. Scherer
    
    Director
    
    12/14/07Barbara V. Scherer/s/ R. Elton White
    
    Director
    
    12/14/07R. Elton White
 -43-