TABLE OF CONTENTS




|           |                                                                                                 |  |  |  |  |  |  | 
|---------- | ----------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I.   
|           | ITEM 1  BUSINESS.                                                                             
|           | ITEM 2  PROPERTIES.                                                                           
|           | ITEM 3  LEGAL PROCEEDINGS.                                                                    
|           | ITEM 4  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.                                  
|PART II.  
|           | ITEM 5  MARKET FOR THE REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.            
|           | ITEM 6  SELECTED FINANCIAL DATA.                                                              
|           | ITEM 7  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
|           | ITEM 7(a)  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                         
|           | ITEM 8  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.                                          
|           | ITEM 9  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. 
|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.                      
|           | ITEM 13  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.                                      
|PART IV.  
|           | ITEM 14  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.                     
|SIGNATURES
|Exhibit 11
|Exhibit 21
|Exhibit 23



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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, 2001 |  | Commission file number |  | 1-9965

KEITHLEY INSTRUMENTS, INC.(Exact name of registrant as specified in its charter)

|                                                                        |  |                                                
|----------------------------------------------------------------------- |  | -----------------------------------------------
|Ohio
(State of incorporation or organization)                           |  | 34-0794417
(I.R.S. Employer Identification No.)
|                                                                       
|28775 Aurora Road, Solon, Ohio
(Address of principal executive offices) |  | 44139
(Zip Code)                               

Registrants telephone number, including area code(440) 248-0400

Securities registered pursuant to Section 12(b) of the Act:

|                                                       |  |                                                               
|------------------------------------------------------ |  | --------------------------------------------------------------
|Common Shares, Without Par Value
(Title of each class) |  | New York Stock Exchange
(Name of exchange on which registered)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.Yes X   No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]

As of December 11, 2001 there were outstanding 13,478,054 Common Shares,
without par value (net of shares held in treasury), and 2,150,502 Class B
Common Shares, without par value. At that date, the aggregate market value of
the Common Shares of the Registrant held by non-affiliates was $ 221,621,764
and the aggregate market value of the Class B Common Shares of the Registrant
held by non-affiliates was $ 331,057 for a total aggregate market value of all
classes of Common Shares held by non-affiliates of $ 221,952,821. While the
Class B Common Shares are not listed for public trading on any exchange or
market system, shares of that class are convertible into Common Shares at any
time on a share-for-share basis. The market values indicated were calculated
based upon the last sale price of the Common Shares as reported by the New York
Stock Exchange on December 11, 2001, which was $16.87.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrants Proxy Statement for the registrants Annual
Meeting to Shareholders to be held on February 16, 2002 (the 2002 Annual
Meeting) are incorporated by reference in Part III in this Annual Report on
Form 10-K (this Annual Report) and are identified under the appropriate items
in this Annual Report.



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##### Table of Contents



KEITHLEY INSTRUMENTS, INC.

10-K ANNUAL REPORT

Table of Contents

|         |  |          |  |                                                                                       |  |      |    | 
|-------- |  | -------- |  | ------------------------------------------------------------------------------------- |  | ---- | -- | 
|PART I:  |  |          |  |                                                                                       |  | PAGE
|         |  |          |  |                                                                                       |  |     
|        
|         |  | Item 1.  |  | Business                                                                              |  |      | 1  | 
|         |  | Item 2.  |  | Properties                                                                            |  |      | 6  | 
|         |  | Item 3.  |  | Legal Proceedings                                                                     |  |      | 6  | 
|         |  | Item 4.  |  | Submission of Matters to a Vote of Security Holders                                   |  |      | 7  | 
|        
|PART II: |  |          |  |                                                                                       |  |      |   
|        
|         |  | Item 5.  |  | Market for the Registrants Common Equity and Related
Stockholder Matters             |  |      | 8  | 
|         |  | Item 6.  |  | Selected Financial Data                                                               |  |      | 9  | 
|         |  | Item 7.  |  | Managements Discussion and Analysis of Financial
Condition and Results of Operations |  |      | 10 | 
|         |  | Item 8.  |  | Financial Statements and Supplementary Data                                           |  |      | 15 | 
|         |  | Item 9.  |  | Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure  |  |      | 15 | 
|        
|PART III |  |          |  |                                                                                       |  |      |   
|        
|         |  | Item 10. |  | Directors and Executive Officers of the Registrant                                    |  |      | 16 | 
|         |  | Item 11. |  | Executive Compensation                                                                |  |      | 16 | 
|         |  | Item 12. |  | Security Ownership of Certain Beneficial Owners and
Management                        |  |      | 16 | 
|         |  | Item 13. |  | Certain Relationships and Related Transactions                                        |  |      | 16 | 
|        
|PART IV: |  |          |  |                                                                                       |  |      |    | 
|        
|         |  | Item 14. |  | Exhibits, Financial Statement Schedules and Reports on
Form 8-K                       |  |      | 17 | 





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PART I.




ITEM 1  BUSINESS.

General

Keithley Instruments, Inc. is a corporation that was founded in 1946 and
organized under the laws of the State of Ohio on October 1, 1955. Its
principal executive offices are located at 28775 Aurora Road, Solon, Ohio
44139; telephone (440) 248-0400. References herein to the Company or
Keithley are to Keithley Instruments, Inc. and its subsidiaries unless the
context indicates otherwise.

The Company focuses its product and market development efforts toward
production test applications in growing industries including the
telecommunications, optoelectronics and semiconductor industries. In July of
fiscal 1998 and November of fiscal 1999, the Company sold two businesses that
no longer fit this core strategy. By pruning the organization of these
non-strategic businesses, the Company was better able to leverage resources and
greatly improve the quality of earnings over the last two years.

Keithleys business is to develop, manufacture and sell measurement
systems geared to the specialized needs of electronics manufacturers for
high-performance production testing, process monitoring, product development
and research. The Companys primary products are integrated systems used to
source, measure, connect, control or communicate. The Companys customers are
engineers, technicians and scientists in manufacturing, product development and
research functions. During fiscal 2001, approximately one-third of the
Companys orders were received from customers involved in the semiconductor
industry. Approximately 12 percent came from the telecommunications customer
group, approximately 14 percent came from the optoelectronics customer group,
approximately 14 percent came from the Companys research and education
customers, with the remainder coming from various electronic component and
sub-assembly manufacturers and others. Although the Companys products vary in
capability, sophistication, use, size and price, they generally test, measure
and analyze electrical and physical properties. As such, the Company considers
its business to be in a single industry segment.

Business Strategy

The Companys strategy for sales growth consists of a few key points.
First, the Company has focused its efforts on identifying specific production
test applications within the targeted industries mentioned above. The Company
works closely with customers in these industries not only to determine what
their measurement needs are today, but also what their emerging needs might be.
A thorough understanding of their applications coupled with the Companys
precision measurement technology enables Keithley to add value to its
customers processes; improving the quality, throughput and yield of their
products. Forming consultative relationships with customers where the Company
can add value is a key part of the strategy. Additionally, the Company
recognizes the importance of traditional research customers. Whether they are
doing basic or applied research in a university or an industrial laboratory,

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these customers give the Company a first-hand look at new industry trends and
technologies, as well as establish long-lasting relationships.

Second, sales growth also requires a steady stream of innovative new
products. These products may be designed for very specific production test
applications driven by the target industry approach discussed above, or may be
used in applications that cross over a variety of industries. The Company
refers to its products as computer-based solutions because regardless of the
form factor, they are designed for usage with industry-leading computer
hardware and software. By continuing to develop new computer-based solutions,
the Company believes it can capture a greater share of purchases from the
broader segments of the overall test and measurement market. Additionally, the
Company is broadening its product offerings to include solutions for optical
and RF (radio frequency) applications in addition to its DC (direct current)
applications.

Third, with the growth in popularity of the Internet and expanding role of
E-commerce, there is a greater opportunity to offer the Companys production
test applications knowledge to a wider range of its customers and prospects
worldwide. The Companys web site, www.keithley.com, is globally accessible 24
hours a day, and is an excellent, cost effective way to interact with current
and potential customers. Additionally, advances in database management allow
the Company to do a better job of reaching those people who are more likely to
benefit from its product offerings.

Product Offerings

The Company has approximately 500 products that basically test, measure,
and analyze electrical and physical properties. During fiscal 2001, the
Company introduced its first products that have the ability to make RF and
optical measurements. The Company offers integrated systems solutions, along
with instruments and PC plug-in boards that can be used as system components or
stand-alone solutions. Prices per product vary. Parametric test systems used
by semiconductor wafer manufacturers generally range in price from $125,000 to
$400,000 depending upon the configuration specified by the customer. The
Companys semiconductor characterization system ranges in price from $30,000 to
$75,000 depending upon the configuration and options. Bench top instruments
generally range in price from $1,000 to $10,000 on a stand-alone basis and from
$15,000 to $25,000 when used as a system. PC plug-in boards are used for
process control and data collection applications, and machine builders and
system integrators in production test. Selling prices generally range from
$200 to $4,000.

New Products During Fiscal Year 2001

New products may be developed for a specific industry application or for
general purposes to serve a larger customer constituency. New products
introduced during fiscal 2001 included the following:

The Company continued to expand its product offering for optoelectronics
customers with the introduction of several new products. The 2500INT
Integrating Sphere combines Keithleys Model 2500 with a custom-designed
integrating sphere optical head from

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Labsphere, Inc, and is the Companys first offering of an optical sensor for testing laser diode modules. With the
introduction of the Model 2520 Pulsed Laser Diode Test System the Company
expanded the applications it serves. The Model 2520 simplifies laser diode
L-I-V (light intensity, current, voltage) testing at earlier stages in their
fabrication and assembly, and is the Companys first product designed for
testing at the chip/bar stage or finished modules. The Company also introduced
other new products targeted for the optoelectronics industry including the
Model 2440 5 Amp Sourcemeter, the Model 2510-AT Autotuning TEC SourceMeter, and
the Model 7090 Optical Switching card, which enables optical, DC and RF
switching all within one instrument.

The Company continued to expand its product offerings for
telecommunication customers with its Model 2015-P Audio Analyzing DMM. The
Model 2015-P provides a unique, highly cost-effective solution to audio quality
testing in telecommunication applications. While other instruments exist that
can be adapted to this purpose, they are typically general-purpose instruments
that are larger, slower, more expensive, and more complex to operate. The
Model 2015-P, along with companion Models 2015 and 2016, are aimed specifically
at production applications that demand rapid, automated testing, especially in
the 300-4000 Hz spectrum where human voice frequencies are found.
Additionally, the Company introduced the Model S46 Microwave Switch System, the
first system of this type that can be ordered in a wide variety of
configurations for off-the-shelf delivery.

The Company also introduced its next generation process monitoring
solution that addresses its semiconductor industry customers RF process
monitoring needs. This next generation technology enables monitoring of
high-speed processes for probing communications and high-speed digital wafer
devices. This new S400DC/RF ATE system combines the Companys expertise in
parametric test with its RF capabilities, and will allow its customers to test
next-generation devices at an earlier stage in the manufacturing process
increasing their yields. The S400DC/RF system is an example of how the Company
leverages capabilities gained in one industry and applies them to another. Additionally, the
Company introduced new software for its parametric test systems and its Model
4200-SCS Semiconductor Characterization System also designed for use by
customers in the semiconductor industry.

Building off the Model 2700 Multimeter/Data Acquisition System introduced
in 2000, the Company introduced the 2750 Multimeter/Switching System in 2001.
This latest addition to the Keithley Integra Series has new mainframe features
and plug-in module options that provide precision measurement and control in a
single, highly integrated enclosure for either rack mounting or bench top use.
Along with the Model 2750 mainframe, Keithley introduced three new plug-in
modules: the Model 7709 6x8 Matrix Switch module, Model 7707
Multiplexer-Digital I/O module, and the Model 7701 32-Channel Multiplexer
module. A number of different analog and digital I/O modules can be used with
the Model 2750 to create highly flexible and cost-effective test platforms.
Its functionality can be changed through the use of plug-in modules to
accommodate different applications for various industries. Additionally, the
Company introduced the KPCI-3130 Series Universal Analog Output Source Boards.
The KPCI-3130 Series, which includes the 3130 and 3132, represents a continued
commitment to manufacturers of semiconductor capital equipment, factory
automation machines, and OEM integrators who require industrial-grade PCI
boards. It comes bundled with Keithleys extensive Up & Running software.

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Geographic Markets and Distribution

During fiscal 2001, all of the Companys products were manufactured in
Ohio and were sold throughout the world in over 80 countries. The Companys
principal markets are the United States, Europe and the Pacific Basin.

In the United States, the Companys products are sold by the Companys
sales personnel, independent sales representatives and through direct marketing
and catalog mailings. United States sales offices are located in Solon, Ohio
and Santa Clara, California. The Company markets its products directly in
countries in which it has a sales office and through distributors in other
countries. European subsidiaries have sales and service offices located in or
near London, Munich, Paris, Amsterdam, Zurich and Milan. The Company also has
sales offices in Belgium, Finland, Sweden, China, Korea, Taiwan and India.
Sales in markets outside the above named locations are made through independent
sales representatives and distributors; although beginning in the second half
of fiscal 2002, the Company will start to sell direct in Japan
through a subsidiary.

Sources and Availability of Raw Materials

The Companys products require a wide variety of electronic and mechanical
components, most of which are purchased. The Company has multiple sources for
the vast majority of the components and materials it uses; however, there are
some instances where the components are obtained from a sole-source supplier.
If a sole-source supplier ceased to deliver, the Company could experience a
temporary adverse impact on its operations; however, management believes
alternative sources could be developed quickly. Although shortages of
purchased materials and components have been experienced from time to time,
these items have generally been available to the Company as needed.

Patents

Electronic instruments of the nature the Company designs, develops and
manufactures cannot generally be patented in their entirety. Although the
Company holds patents with respect to certain of its products, it does not
believe that its business is dependent to any material extent upon any single
patent or group of patents, because of the rapid rate of technological change
in the industry.

Seasonal Trends and Working Capital Requirements

Although the Company is not subject to significant seasonal trends,
portions of its business are cyclical particularly those areas tied to the
global communications and broadband sectors. The current cyclical downturn in
the electronics industry has adversely effected the Companys business with its
semiconductor, telecommunications and optoelectronics customers. The Company
does not have any unusual working capital requirements.

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Customers

The Companys customers generally are involved in production test,
engineering research and development, electronic service or repair, and
educational and governmental research. During the fiscal year ended September
30, 2001 no one customer accounted for more than 10% of the Companys sales.
Management believes that the loss of any one of its customers would not
materially affect the sales or net income of the Company.

Backlog

The Companys backlog of unfilled orders amounted to approximately
$12,176,000 as of September 30, 2001 and approximately $32,142,000 as of
September 30, 2000. It is expected that the majority of the orders included in
the 2001 backlog will be delivered during fiscal 2002; however, a small portion
of orders included in backlog are shippable beyond fiscal 2002. Additionally,
the Companys past experience indicates that a portion of orders included in
backlog may be canceled; however, management does not believe that cancellations will
materially affect the future sales or net income of the Company.

Competition

The Company competes on the basis of quality, performance, service and
price, with quality and performance frequently being dominant. There are many
firms in the world engaged in the manufacture of electronic measurement
instruments, some of which are larger and have greater financial resources than
the Company. In general, the Company competes with a number of companies in
specialized areas of other test and measurement products and one large broad
line measurement products supplier, Agilent Technologies, Inc.

Research and Development

The Companys engineering development activities are directed toward the
development of new products that will complement, replace or add to the
products currently included in the Companys product line. The Company does
not perform basic research, but on an ongoing basis utilizes new component and
software technologies in the development of its products. The highly technical
nature of the Companys products and the rapid rate of technological change in
the industry require a large and continuing commitment to engineering
development efforts. Product development expenses were $14,667,000 in 2001,
$12,387,000 in 2000 and $10,745,000 in 1999, or approximately 10%, 8% and 11%
of net sales, respectively, for each of the last three fiscal years.

Government Regulations

The Company believes that its current operations and its current uses of
property, plant and equipment conform in all material respects to applicable
laws and regulations. The Company has not experienced, nor does it anticipate,
any material claim or material capital expenditure in connection with
environmental laws and other regulations.

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Employees

As of September 30, 2001, the Company employed approximately 640 persons,
141 of whom were located outside the United States. None of the Companys
employees are covered under the terms of a collective bargaining agreement and
the Company believes that relations with its employees are good.

Foreign Operations and Export Sales

Information related to foreign and domestic operations and export sales is
contained in Note K of the Notes to the Consolidated Financial Statements
included in a separate section at the end of this Form 10-K Annual Report.

The Company has significant revenues from outside the United States which
increase the complexity and risk to the Company. These risks include increased
exposure to the risk of foreign currency fluctuations and the potential
economic and political impacts from conducting business in foreign countries.
With the exception of changes in the value of foreign currencies, which is not
possible to predict, the Company believes that its foreign subsidiaries and
other larger international markets are in countries where the economic and
political climate is generally stable.




ITEM 2  PROPERTIES.

The Companys principal administrative, sales, marketing, manufacturing
and development activities are conducted at two Company-owned buildings in
Solon, Ohio. The two buildings total approximately 200,000 square feet and sit
on approximately 33 acres of land. The Company also owns another 50,000 square
foot building on 5.5 acres of land adjacent to its executive offices. This
facility is currently being leased to others, but is available for expansion
should the Company require additional space. The Company also maintains a
number of sales and service offices in the United States and overseas. The
Company believes that the facilities it owns and leases are well maintained,
adequately insured and suitable for their present and intended uses.




ITEM 3  LEGAL PROCEEDINGS.

On March 26, 2001, a purported class action complaint (the Complaint)
was filed in the United States District Court for the Northern District of Ohio
against Keithley Instruments, Inc. (Keithley or the Company) and Joseph P.
Keithley, the Companys chairman, president and chief executive officer,
alleging violations of Section 10(b) and Section 20(a) of the Securities
Exchange Act of 1934, as amended. The purported class action was filed on
behalf of all those who purchased Keithley stock between January 18, 2001 and
March 9, 2001 (the Class Period). According to the plaintiffs, the Company,
with the knowledge and assistance of the individual defendant, made certain
false and misleading statements concerning the Companys business condition and
prospects for the second quarter of fiscal 2001, the three months ending March
31, 2001, during the Class Period. The plaintiffs are seeking unspecified
amounts as damages, interest costs and other ancillary relief. The Company and
Mr. Keithley have been served with six additional complaints that are identical

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to the Complaint described above. These complaints were filed in the United
States District Court for the Northern District of Ohio on March 28, 2001,
March 29, 2001, March 30, 2001, April 5, 2001, April 12, 2001 and May 4, 2001.
On July 23, 2001 the actions were consolidated and recaptioned In re: Keithley
Instruments, Inc., Securities Litigation. On August 29, 2001, plaintiffs filed
an Amended Complaint that included additional factual allegations and also
named Gabriel Rosica, an officer of the Company, as a defendant. On December
5, 2001, pursuant to an agreed order, Mr. Rosica was dismissed from the case.
The Company will respond to all the allegations at the appropriate time.

Management believes that these lawsuits are without merit, and management
and the Company intend to defend them vigorously.




ITEM 4  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.

EXECUTIVE OFFICERS OF THE REGISTRANT:

The description of executive officers is included pursuant to Instruction
3 to Section (b) of Item 401 of Regulation S-K under the Securities and
Exchange Act of 1934.

The following table sets forth the names of all executive officers of the
Company and certain other information relating to their position held with the
Company and other business experience.

|                   |  |     |    |                            |  |                                                                                                                                                                                                                                              
|------------------ |  | --- | -- | -------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Executive Officer  |  | Age |    | Recent Business Experience
|                   |  |     |    |                           
|Joseph P. Keithley |  |     | 53 |                            |  | Chairman of the Board of Directors since 1991,
Chief Executive Officer since November 1993
and President since May 1994.                                                                                                                     
|                  
|Philip R. Etsler   |  |     | 51 |                            |  | Vice President Human Resources of the Company
since 1990.                                                                                                                                                                                    
|                  
|                  
|David H. Patricy   |  |     | 52 |                            |  | Vice President Corporate Planning and
Development since April 2001. Previously Vice
President and General Manager of Test and
Measurement of the Company from 1997 to 2001,
and General Manager of the Instrument Division
from 1994 to 1997.

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|                  |  |     |    |                            |  |                                                                                                                                                                                                                             
|----------------- |  | --- | -- | -------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Executive Officer |  | Age |    | Recent Business Experience
|                  |  |     |    |                           
|Mark J. Plush     |  |     | 52 |                            |  | Vice President and Chief Financial Officer of
the Company since October 1998. Previously,
Controller since 1982 and an Officer of the
Company since 1989.                                                                   
|                 
|Gabriel A. Rosica |  |     | 61 |                            |  | Executive Vice President since April 2001.
Previously Senior Vice President and General
Manager of Semiconductor from 1996 to 2001,
and Chief Operating Officer of Bailey Controls
Company from August 1994 to January 1996.




PART II.




ITEM 5  MARKET FOR THE REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

The Companys Common Shares trade on the New York Stock Exchange under the
symbol KEI. The high and low prices shown below are sales prices of the
Companys Common Shares as reported on the NYSE. There is no established
public trading market for the Companys Class B Common Shares; however, they
are readily convertible on a one-for-one basis into Common Shares.

|               |  |      |        |     |  |                  |       |              |  |                |       |             |  |                |       | 
|-------------- |  | ---- | ------ | --- |  | ---------------- | ----- | ------------ |  | -------------- | ----- | ----------- |  | -------------- | ----- | 
|               |  |      |        |     |  |                  |       |              |  |                |       |             |  | Cash Dividends
|               |  |      |        |     |  |                  |       |              |  | Cash Dividends |       | Per Class B
|               |  | High |        | Low |  | Per Common Share |       | Common Share
|               |  |      |        |     |  |                  |       |             
|              
|Fiscal 2001    |  |      |        |     |  |                  |       |              |  |                |       |             |  |                |       | 
|              
|First Quarter  |  | $    | 83.50  |     |  | $                | 30.00 |              |  | $              | .0275 |             |  | $              | .0220 | 
|Second Quarter |  |      | 69.60  |     |  |                  | 14.00 |              |  |                | .0375 |             |  |                | .0300 | 
|Third Quarter  |  |      | 32.39  |     |  |                  | 12.21 |              |  |                | .0375 |             |  |                | .0300 | 
|Fourth Quarter |  |      | 22.75  |     |  |                  | 11.95 |              |  |                | .0375 |             |  |                | .0300 | 
|              
|Fiscal 2000    |  |      |        |     |  |                  |       |              |  |                |       |             |  |                |       | 
|              
|First Quarter  |  | $    | 11.19  |     |  | $                | 7.00  |              |  | $              | .0205 |             |  | $              | .0164 | 
|Second Quarter |  |      | 37.00  |     |  |                  | 9.44  |              |  |                | .0275 |             |  |                | .0220 | 
|Third Quarter  |  |      | 91.50  |     |  |                  | 15.38 |              |  |                | .0275 |             |  |                | .0220 | 
|Fourth Quarter |  |      | 107.44 |     |  |                  | 42.25 |              |  |                | .0275 |             |  |                | .0220 | 

The approximate number of shareholders of record of Common Shares and
Class B Common Shares, including those shareholders participating in the
Dividend Reinvestment Plan, as of December 1, 2001 was 2,653 and 4,
respectively.

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ITEM 6  SELECTED FINANCIAL DATA.

The following table sets forth consolidated selected financial data for
the Company. The financial data should be read in conjunction with the
Financial Statements and Notes thereto, included in a separate section at the
end of this Annual Report, and with Managements Discussion and Analysis of
Financial Condition and Results of Operations, included in Item 7 of this
Annual Report.

|                                          |                                                        |                                          |            |         |                                   |      |   |         |        |      |   |         |       |   |   |         |        |   |   |         |        |   | 
|----------------------------------------- | ------------------------------------------------------ | ---------------------------------------- | ---------- | ------- | --------------------------------- | ---- | - | ------- | ------ | ---- | - | ------- | ----- | - | - | ------- | ------ | - | - | ------- | ------ | - | 
|                                          |                                                        |                                          |            |         | For the years ended September 30,
|                                          |                                                        |                                          |            |         |                                  
|(In thousands, except for per share data) |                                                        | 2001                                     |            | 2000    |                                   | 1999 |   | 1998    |        | 1997
|                                          |                                                        |                                          |            |         |                                   |      |   |         |        |     
|Operating Results                         |                                                        |                                          |            |         |                                   |      |   |         |        |      |   |         |       |   |   |         |        |   |   |        
|                                         
|                                         
|                                         
|                                         
|                                          | Net sales                                              |                                          | $          | 149,692 |                                   |      | $ | 150,561 |        |      | $ | 100,938 |       |   | $ | 117,776 |        |   | $ | 123,295 |       
|                                         
|                                         
|                                         
|                                         
|                                          | Income before income taxes                             |                                          |            | 26,199  |                                   |      |   | 32,471  |        |      |   | 16,717  |       |   |   | 8,189   |        |   |   | 1,211   |       
|                                         
|                                         
|                                         
|                                         
|                                          | Net income                                             |                                          |            | 17,392  |                                   |      |   | 21,045  |        |      |   | 13,708  |       |   |   | 5,004   |        |   |   | 790     |       
|                                         
|                                         
|                                         
|                                         
|                                          | Basic earnings per share                               |                                          |            | 1.06    |                                   |      |   | 1.43    |        |      |   | 0.92    |       |   |   | 0.32    |        |   |   | 0.05    |       
|                                         
|                                         
|                                         
|                                         
|                                          | Diluted earnings per share                             |                                          |            | 1.05    |                                   |      |   | 1.30    |        |      |   | 0.90    |       |   |   | 0.31    |        |   |   | 0.05    |       
|                                         
|                                         
|                                         
|                                         
|Common Stock Information                  |                                                        |                                          |            |         |                                   |      |   |         |        |      |   |         |       |   |   |         |        |   |   |        
|                                         
|                                         
|                                         
|                                         
|                                          | Cash dividends per Common Share                        |                                          |            | 0.140   |                                   |      |   | 0.103   |        |      |   | 0.070   |       |   |   | 0.063   |        |   |   | 0.063   |       
|                                         
|                                         
|                                         
|                                         
|                                          | Cash dividends per Class B Common Share                |                                          |            | 0.112   |                                   |      |   | 0.082   |        |      |   | 0.056   |       |   |   | 0.050   |        |   |   | 0.050   |       
|                                         
|                                         
|                                         
|                                         
|                                          | Weighted average number of shares
outstanding- diluted |                                          |            | 16,583  |                                   |      |   | 16,168  |        |      |   | 15,315  |       |   |   | 16,131  |        |   |   | 15,734  |       
|                                         
|                                         
|                                         
|                                         
|At fiscal year-end:                       |                                                        |                                          |            |         |                                   |      |   |         |        |      |   |         |       |   |   |         |        |   |   |        
|                                         
|                                         
|                                         
|                                         
|                                          | Dividend payout ratio                                  |                                          |            | 13.3    | %                                 |      |   | 7.9     | %      |      |   | 7.8     | %     |   |   | 20.2    | %      |   |   | 125.0   | %     
|                                         
|                                         
|                                         
|                                         
|                                          | Price/earnings ratio                                   |                                          |            | 13.7    |                                   |      |   | 53.8    |        |      |   | 7.9     |       |   |   | 8.2     |        |   |   | 120.0   |       
|                                         
|                                         
|                                         
|                                         
|                                          | Shareholders equity per share                         |                                          |            | 5.90    |                                   |      |   | 4.77    |        |      |   | 3.08    |       |   |   | 2.46    |        |   |   | 2.13    |       
|                                         
|                                         
|                                         
|                                         
|                                          | Closing market price                                   |                                          |            | 14.35   |                                   |      |   | 70.00   |        |      |   | 7.09    |       |   |   | 2.53    |        |   |   | 6.00    |       
|                                         
|                                         
|                                         
|                                         
|Balance Sheet Data                        |                                                        |                                          |            |         |                                   |      |   |         |        |      |   |         |       |   |   |         |        |   |   |        
|                                         
|                                         
|                                         
|                                         
|                                          | Total assets                                           |                                          |            | 123,600 |                                   |      |   | 112,338 |        |      |   | 74,751  |       |   |   | 71,017  |        |   |   | 79,113  |       
|                                         
|                                         
|                                         
|                                         
|                                          | Current ratio                                          |                                          |            | 4.5     |                                   |      |   | 3.0     |        |      |   | 2.0     |       |   |   | 1.9     |        |   |   | 1.9     |       
|                                         
|                                         
|                                         
|                                         
|                                          | Total debt                                             |                                          |            | 3,000   |                                   |      |   | 3,225   |        |      |   | 3,000   |       |   |   | 6,099   |        |   |   | 17,458  |       
|                                         
|                                         
|                                         
|                                         
|                                          | Total debt-to-capital                                  |                                          |            | 3.1     | %                                 |      |   | 4.1     | %      |      |   | 6.4     | %     |   |   | 13.6    | %      |   |   | 34.8    | %     
|                                         
|                                         
|                                         
|                                         
|                                          | Shareholders equity                                   |                                          |            | 93,946  |                                   |      |   | 75,773  |        |      |   | 43,781  |       |   |   | 38,742  |        |   |   | 32,683  |       
|                                         
|                                         
|                                         
|                                         
|Other Data                                |                                                        |                                          |            |         |                                   |      |   |         |        |      |   |         |       |   |   |         |        |   |   |        
|                                         
|                                         
|                                         
|                                         
|                                          | Return on average shareholders equity                 |                                          |            | 20.5    | %                                 |      |   | 35.2    | %      |      |   | 33.2    | %     |   |   | 14.0    | %      |   |   | 2.5     | %     
|                                         
|                                         
|                                         
|                                         
|                                          | Return on average total assets                         |                                          |            | 14.7    | %                                 |      |   | 22.5    | %      |      |   | 18.8    | %     |   |   | 6.7     | %      |   |   | 1.0     | %     
|                                         
|                                         
|                                         
|                                         
|                                          | Return on net sales                                    |                                          |            | 11.6    | %                                 |      |   | 14.0    | %      |      |   | 13.6    | %     |   |   | 4.2     | %      |   |   | 0.6     | %     
|                                         
|                                         
|                                         
|                                         
|                                          | Number of employees                                    |                                          |            | 640     |                                   |      |   | 626     |        |      |   | 526     |       |   |   | 564     |        |   |   | 693     |       
|                                         
|                                         
|                                         
|                                         
|                                          | Sales per employee                                     |                                          |            | 236.5   |                                   |      |   | 261.4   |        |      |   | 185.2   |       |   |   | 187.4   |        |   |   | 175.0   |       
|                                         
|                                         
|                                         
|                                         
|                                          | Cash flow                                              |                                          |            |         |                                   |      |   |         |        |      |   |         |       |   |   |         |        |   |   |         |       
|                                         
|                                         
|                                         
|                                         
|                                          |                                                        | Noncash charges to income                |            |         | 4,712                             |      |   |         | 4,757  |      |   |         | 3,581 |   |   |         | 4,709  |   |   |         | 3,390  |  
|                                         
|                                         
|                                         
|                                         
|                                          |                                                        | Net cash provided by (used in) operating |            |         | 38,273                            |      |   |         | 10,549 |      |   |         | 9,659 |   |   |         | 13,033 |   |   |         | (1,011 | )
|                                         
|                                         
|                                         
|                                         
|                                          |                                                        |                                          | activities |         |                                   |      |   |         |        |      |   |         |       |   |   |         |        |   |   |         |        |   | 
|                                         
|                                         
|                                         
|                                         
|                                          | Ten-year compound annual growth rate                   |                                          |            |         |                                   |      |   |         |        |      |   |         |       |   |   |         |        |   |   |         |       
|                                         
|                                         
|                                         
|                                         
|                                          |                                                        | Net sales                                |            |         | 4.2                               | %    |   |         | 4.1    | %    |   |         | 1.3   | % |   |         | 5.0    | % |   |         | 7.9    | %
|                                         
|                                         
|                                         
|                                         
|                                          |                                                        | Net income                               |            |         | 15.2                              | %    |   |         | 20.1   | %    |   |         | 12.7  | % |   |         | -0.8   | % |   |         | -13.3  | %

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ITEM 7  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion should be read in conjunction with the Financial
Statements and related Notes included in a separate section at the end of this
Annual Report.

Results of Operations (In Thousands of Dollars Except for Per-Share Data)

Percent of net sales for the years ended September 30, 2001, 2000 and 1999

|                                             |  |      |       |      |  |      |       |   |  |  |       |  
|-------------------------------------------- |  | ---- | ----- | ---- |  | ---- | ----- | - |  |  | ----- | -
|                                             |  | 2001 |       | 2000 |  | 1999
|                                             |  |      |       |      |  |     
|Net sales                                    |  |      | 100.0 |      |  |      | 100.0 |   |  |  | 100.0 |  
|Cost of goods sold                           |  |      | 39.9  |      |  |      | 38.9  |   |  |  | 39.6  |  
|Selling, general and administrative expenses |  |      | 33.6  |      |  |      | 32.2  |   |  |  | 38.5  |  
|Product development expenses                 |  |      | 9.8   |      |  |      | 8.2   |   |  |  | 10.6  |  
|Gain on sale of business                     |  |      |      |      |  |      | (0.6  | ) |  |  | (5.1  | )
|Net financing income                         |  |      | (0.8  | )    |  |      | (0.3  | ) |  |  | (0.2  | )
|                                             |  |      |       |      |  |      |       |   |  |  |       |  
|Income before income taxes                   |  |      | 17.5  |      |  |      | 21.6  |   |  |  | 16.6  |  
|Income taxes                                 |  |      | 5.9   |      |  |      | 7.6   |   |  |  | 3.0   |  
|                                             |  |      |       |      |  |      |       |   |  |  |       |  
|Net income                                   |  |      | 11.6  |      |  |      | 14.0  |   |  |  | 13.6  |  
|                                             |  |      |       |      |  |      |       |   |  |  |       |  

Net income was $17,392, or $1.05 per share on a diluted basis, in 2001.
Excluding gains on sales of businesses in 2000 and 1999 and a favorable tax
adjustment in 1999, comparable net income was $20,448, or $1.26 per share, in
2000, and $8,201, or $.54 per share, in 1999. Net income in 2001 was the
second highest in the Companys history after fiscal 2000. Net income as
reported for fiscal 2000 was $21,045, or $1.30 per share on a diluted basis,
and for fiscal 1999 was $13,708, or $.90 per share.

Net sales were the second highest in the companys history at $149,692 in
2001. This compares with $150,561 in 2000, and $100,938 in 1999. Net sales
decreased less than one percent in 2001 from 2000. Excluding the effect of an
8 percent stronger U.S. dollar versus foreign currencies, sales would have
increased one percent. Fiscal 2001 started out strong with double-digit sales
growth in the first half, but the downturn in the targeted industries the
company serves, in particular, the semiconductor, telecommunications and
optoelectronics industries, took their toll on results for the remainder of the
year. Net sales increased 49 percent in 2000 from 1999, and were the highest
in the companys history. The increase in 2000 from 1999 was due to strong
sales to customers in the Companys targeted industries. During 1999, the
semiconductor industry began to recover from a down cycle. The recovery
continued throughout 2000 and contributed to the sales growth in 2000. The
Company believes it has gained market share in its targeted industries.
Geographically, sales were down 11 percent in the United States, up 27 percent
in the Pacific Basin region and essentially flat in Europe, in 2001 from 2000.
In 2000, sales were up in all major geographies with domestic sales up 52
percent, the Pacific Basin region up 76 percent and Europe up 45 percent, from
1999.

Cost of goods sold was $59,699, $58,625 and $39,923 in 2001, 2000 and
1999, respectively. As a percentage of net sales, it was 39.9, 38.9 and 39.6
in 2001, 2000 and 1999,

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respectively. Cost of goods sold in 2001 was negatively impacted by spreading fixed costs over lower manufacturing volumes
during the second half of the fiscal year. Additionally, the U.S. dollar
strengthened 8 percent in 2001. Improved manufacturing efficiencies due to
higher sales lowered cost of goods sold as a percentage of net sales in 2000.
This more than offset the unfavorable impact of a 9 percent stronger U.S.
dollar in 2000. Foreign exchange hedging had a minimal effect on cost of goods
sold in 2001, 2000 and 1999.

Selling, general and administrative expenses of $50,384 increased 4
percent in 2001 from $48,476 in 2000, and increased 25 percent in 2000 from
$38,885 in 1999. Selling, general and administrative expenses as a percentage
of net sales were 33.6%, 32.2% and 38.5%, in 2001, 2000 and 1999, respectively.
The increase in 2001 was due primarily to higher personnel costs because of an
increase in headcount in sales and marketing, and an increase in marketing
communications programs, partially offset by lower incentive compensation
costs. The increase in dollars in 2000 was due to higher commissions on
increased sales, higher personnel costs due to increased headcount, higher
incentive costs and increased promotion and e-business initiatives.

Product development expenses of $14,667 in 2001 increased 18 percent from
$12,387 in 2000, and increased 15 percent in 2000 from $10,745 in 1999.
Product development expenses as a percentage of net sales were 9.8%, 8.2% and
10.6%, in 2001, 2000 and 1999, respectively. The dollar increase in 2001 and
2000 is due to higher personnel costs resulting from the Companys efforts to
increase development resources to take advantage of opportunities existing in
its targeted markets, particularly the optoelectronics industry. During 2001
and 2000, the Company introduced approximately two dozen products designed
specifically for its targeted industries of semiconductor, telecommunications
and optoelectronics, as well as those designed for multi-industries.

On November 9, 1998, the Company sold certain assets used in the operation
of its Quantox product line to KLA-Tencor Corporation for $9,147 in cash. The
agreement, which was effective October 31, 1998, included the sale of the
Quantox inventory, certain machinery, equipment and other tangible personal
property. The Company retained the accounts receivable. The sale resulted in
a pretax gain of $4,808, or $.20 per share, recorded in the first quarter of
fiscal 1999. During the fourth quarter of fiscal 1999, and the first and
fourth quarters of fiscal 2000, additional pretax gains of $345, or $.01 per
share, $477, or $.02 per share, and $476, or $.02 per share, respectively, were
recorded for the above mentioned sale of this business. At the time of the
sale of this business, the Company established liabilities for certain items
that were to be settled at future dates. The additional adjustments recorded
in fiscal 1999 and 2000 represent the settlement of certain of these issues.
(See Note B.)

The Company generated net financing income of $1,257 in 2001, $445 in 2000
and $179 in 1999. The increase is due to higher average cash and cash
equivalents and short-term investment balances in 2001 over 2000, and in 2000
over 1999.

The effective tax rate for 2001 was 33.6 percent and 35.2 percent for
fiscal 2000. The rates are lower than the statutory tax rate for federal,
state and local taxes due to foreign sales corporation benefits. The effective
tax rate for 1999 was 18.0 percent as a result of the combination of several
factors: the gain on the sale of businesses recorded at the statutory rate

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including state and local taxes, a tax benefit resulting from the release of
certain valuation reserves due to the settlement of prior years tax
liabilities and improved profitability in the Companys U.S. operations, which
enabled the Company to utilize a number of tax credits.

The Companys financial results are affected by foreign exchange rate
fluctuations. Generally, a weakening U.S. dollar causes the price of the
Companys product to be more attractive in foreign markets and favorably
impacts the Companys sales and earnings. A strengthening U.S. dollar has an
unfavorable effect. This foreign exchange effect cannot be precisely isolated
since many other factors affect the Companys foreign sales and earnings.
These factors include product offerings and pricing policies of the Company and
its competition, whether competition is foreign or U.S. based, changes in
technology and local and worldwide economic conditions.

The Company utilizes hedging techniques designed to mitigate the
short-term effect of exchange rate fluctuations on operations and balance sheet
positions by entering into forward and option currency contracts and by
borrowing in foreign currencies. The Companys foreign borrowings are used as
a hedge of its net investments and for specified transactions. The Company
does not speculate in foreign currencies or derivative financial instruments,
and hedging techniques do not increase the Companys exposure to foreign
exchange rate fluctuations.

Liquidity and Capital Resources

In 2001, net cash provided by operating activities was $38,273. Cash was
used to purchase $20,884 of short-term investments, $3,438 of property, plant
and equipment, buy back $5,546, or 337,500 shares, of the Companys common
stock through its stock repurchase program, and pay $2,149 in dividends. Total
cash of $30,091 at September 30, 2001 increased $8,683 from September 30, 2000.
Total debt of $3,000 at September 30, 2001 decreased slightly from $3,225 at
September 30, 2000, and the debt-to-capital ratio at year-end was 3.1 percent
versus 4.1 percent at the end of fiscal 2000.

The Companys credit agreement, which expires on March 30, 2004, is a
$10,000 debt facility ($3,000 outstanding at September 30, 2001) that provides
unsecured, multi-currency revolving credit at various interest rates based on
Prime or LIBOR. The Company is required to pay a facility fee of between .20%
and .25% on the total amount of the commitment. Additionally, the Company has
a number of other credit facilities in various currencies aggregating $5,000.

At September 30, 2001, the Company had total unused lines of credit with
domestic and foreign banks aggregating $12,000, including short-term and
long-term lines of credit of $5,000 and $7,000, respectively. Under certain
long-term debt agreements, the Company is required to comply with various
financial ratios and covenants. The Company was in compliance with all such
debt covenants during each of the three years ended and at September 30, 2001.
Principal payments on long-term debt are due in 2004.

During 2002, the Company expects to finance capital spending and working
capital requirements with cash on hand and cash provided by operations.
Capital expenditures in

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##### Table of Contents



fiscal 2002 are expected to be comparable to what they were in 2001. Included in the Deferred income taxes caption of the
Consolidated Balance Sheets at September 30, 2001 is a $3,128 tax asset
resulting from the exercise of non-qualified stock options during 2001. The
Company expects to recognize this asset as cash tax savings during fiscal 2002.
Additionally, the Company is expecting to receive income tax refunds in 2002
totaling $6,196.

Factors That May Affect Future Results

Statements included in the Liquidity and Capital Resources section of
Managements Discussion and Analysis of Financial Condition and Results of
Operations or elsewhere in this report constitute forward-looking statements,
as that term is defined in the Private Securities Litigation Reform Act of
1995. Such statements are subject to certain risks and uncertainties that
could cause actual results to differ materially from those projected. Some of
the factors that may affect future results are discussed below.

The Company is subject to global economic and market conditions, including
the current conditions affecting the results of the Companys customers in the
semiconductor, telecommunications, optoelectronics and other markets. During
the latter half of fiscal year 2001, the Company experienced a slowdown in
orders, primarily from its semiconductor, telecommunications and
optoelectronics customers. The Companys results have been and could continue
to be adversely affected depending on the length and severity of the current
downturn in these as well as the overall broadband industry. In addition,
orders are cancelable by customers and consequently orders outstanding at the
end of a reporting period may not result in realized sales in the future. The
Company may experience a decline in sales as a result of the current economic
conditions and the lack of visibility relating to future orders. In response
to the current economic conditions, the Company is managing its cost structure
to reduce spending where appropriate. A failure by the Company to reduce
expenses in a timely manner could adversely affect the Companys future
operating results. In addition, notwithstanding such cost control measures, a
continuing decline in the economy that adversely affects the Companys
customers would likely adversely affect the Company.

The Companys business relies on the development of new high technology
products and services to provide solutions to customers complex measurement
needs. This requires anticipation of customers changing needs and emerging
technology trends. The Company must make long-term investments and commit
significant resources before knowing whether its expectations will eventually
result in products that achieve market acceptance. The Company incurs
significant expenses developing new products that may or may not result in
significant sources of revenue and earnings in the future.

In many cases the Companys products compete directly with those offered
by other manufacturers. If any of the Companys competitors were to develop
products or services that are more cost-effective or technically superior,
demand for the Companys product offerings could slow.

The Companys success depends to a significant degree upon the continued
service of its key executive, sales, development, marketing and operational
personnel. Although management believes the Company offers competitive
salaries and benefits, there can be no

13



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assurance that it will be successful in retaining its existing key personnel. Failure to retain key personnel could
have a material adverse effect on the Companys results of operations.

The Companys products contain large volumes of electronic components and
subassemblies that in some cases are supplied through sole or limited source
third-party suppliers. Although the Company does not anticipate any problems
procuring supplies in the near-term, there can never be any assurance that
parts and supplies will be available in a timely manner and at reasonable
prices. Additionally, the Companys inventory is subject to risk due to
changes in market demand for particular products. The resulting excess and/or
obsolete inventory could have an adverse impact on the Companys results of
operations.

The Company currently has subsidiaries or sales offices located in
approximately 15 countries outside the United States, and non-U.S. sales
accounted for 55 percent of the Companys revenue during fiscal 2001. The
Companys future results could be adversely affected by several factors,
including changes in foreign currency exchange rates, changes in a countrys or
regions political or economic conditions, trade protection measures, import or
export licensing requirements, unexpected changes in regulatory requirements
and natural disasters.

For over 40 years, the Company has been distributing its products in Japan
utilizing sales representatives. Beginning on April 1, 2002, the Company will
utilize its own sales force. The Companys sales and earnings could be
adversely affected due to the loss of sales during the fiscal 2002 first half
transition period, as well as the actual costs incurred to open direct sales
offices. Additionally, the Companys results could be adversely affected if it
is unable to develop an effective sales and support organization in Japan.

The Company pays taxes in several jurisdictions throughout the world. The
Company utilizes available tax credits and other tax planning strategies in an
effort to minimize the Companys overall tax liability. The Companys
estimated tax rate for fiscal 2002 could change from what is currently
anticipated due to changes in tax laws of various countries or changes in the
Companys overall tax planning strategy.

The Company has been notified of the commencement of purported class
action litigation alleging violations of federal securities laws by the
Company. The actions were consolidated and recaptioned In re: Keithley
Instruments, Inc., Securities Litigation. While the Company believes the
litigation is without merit, the Companys defense of this litigation could
result in substantial costs and a diversion of managements attention and
resources which could adversely affect the business, results of operations and
financial condition.

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ITEM 7(a)  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to a variety of risks, including foreign currency
fluctuations, interest rate fluctuations and changes in the market value of its
short-term investments. In the normal course of business, the Company employs
established policies and procedures to manage its exposure to fluctuations in
foreign currency values and interest rates.

The Company is exposed to foreign currency exchange rate risk primarily
through transactions denominated in foreign currencies. The Company currently
utilizes foreign exchange forward contracts or option contracts to sell foreign
currencies to fix the exchange rates related to near-term sales and effectively
fix the Companys margins. Generally, these contracts have maturities of three
months or less. The Companys policy is to only enter into derivative
transactions when the Company has an identifiable exposure to risk, thus not
creating additional foreign currency exchange rate risk. In managements
opinion, a 10 percent adverse change in foreign currency exchange rates would
not have a material effect on these instruments and therefore the Companys
results of operations, financial position or cash flows.

The Company currently utilizes an interest rate swap instrument to
mitigate the risk of interest rate changes related to long-term debt. The
agreement effectively fixes the interest rate on a notional $3,000 of variable
rate debt. The instrument expires September 19, 2005. In managements
opinion, a 10 percent adverse change in interest rates would
not have a material effect on these instruments and therefore the Companys
results of operations, financial position or cash flows.

The Company maintains a short-term investment portfolio consisting of U.S.
government backed notes and bonds, corporate notes and bonds, and mutual funds
consisting primarily of government notes and bonds. An increase in interest
rates would decrease the value of certain of these investments. However, a 10%
increase in interest rates would not have a material impact on the Companys
results of operations, financial position or cash flows.




ITEM 8  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The response to this Item 8 is included in a separate section at the end
of this Annual Report.




ITEM 9  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

None.

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PART III.




ITEM 10  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

See the table listing the nominees for directors under the caption Item
2: Election of Directors in the Companys Proxy Statement to be used in
conjunction with the February 16, 2002 Annual Meeting of Shareholders and filed
with the Securities and Exchange Commission pursuant to Section 14(a) of the
Securities Exchange Act of 1934, which table is incorporated herein by this
reference. The information required with respect to the executive officers of
the Company is included under the caption Executive Officers of the
Registrant of this Form 10-K Annual Report and incorporated herein by
reference.




ITEM 11  EXECUTIVE COMPENSATION.

See the caption Executive Compensation and Benefits in the Companys
Proxy Statement to be used in conjunction with the February 16, 2002 Annual
Meeting of Shareholders and filed with the Securities and Exchange Commission
pursuant to Section 14(a) of the Securities Exchange Act of 1934, which section
is incorporated herein by this reference.




ITEM 12  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

See the caption Principal Shareholders in the Companys Proxy Statement
to be used in conjunction with the February 16, 2002 Annual Meeting of
Shareholders and filed with the Securities and Exchange Commission pursuant to
Section 14(a) of the Securities Exchange Act of 1934, which section is
incorporated herein by this reference.




ITEM 13  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

James B. Griswold, a Director and nominee for Director, is a partner in
the law firm of Baker & Hostetler LLP. Baker & Hostetler LLP served as general
legal counsel to the Company during the fiscal year ended September 30, 2001,
and is expected to render services in such capacity to the Company in the
future. N. Mohan Reddy, PhD, a Director and nominee for Director, provided
consulting services to the Company during fiscal 2001 in the amount of
$140,000. He is not expected to provide such services in such capacity to the
Company in the future.

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##### Table of Contents






PART IV.




ITEM 14  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

(a)(1) Financial Statements of the Company

See Index to Consolidated Financial Statements at page F-1 of this Form
10-K Annual Report and the Financial Statements and Notes thereto which are
included at Pages F-2 to F-27 of this Annual Report.

(a)(2) Financial Statement Schedules

The following additional information should be read in conjunction with the
Consolidated Financial Statements of the Company described in Item 14(a)(1):

Schedule II Valuation and Qualifying Accounts

Schedules other than those listed above are omitted because they are not
required or not applicable, or because the information is furnished elsewhere
in the consolidated financial statements or the notes thereto.

17



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##### Table of Contents



(a)(3) Index to Exhibits

|        |  |                                                                                                                                                                                                                                                                               
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                               
|Number  |  | Description                                                                                                                                                                                                                                                                   
|        |  |                                                                                                                                                                                                                                                                               
|3(a)    |  | Code of Regulations, as amended on February 11, 1985. (Reference
is made to Exhibit 3(b) of the Companys Form 10 Registration
Statement (File No. 0-13648) as declared effective on July 31,
1985, 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.)              
|       
|4(b)    |  | Specimen Share Certificate for the Class B Common Shares, without
par value. (Reference is made to Exhibit 4(b) of the Companys
Form 10 Registration Statement (File No. 0-13648) as declared
effective on July 31, 1985, 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)   |  | Employment Agreement, as amended, with Joseph P. Keithley.
(Reference is made to Exhibit 10(d) 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)   |  | 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.)                                          

18



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##### Table of Contents



|        |  |                                                                                                                                                                                                                                                                                                                                                       
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                                                                       
|Number  |  | Description                                                                                                                                                                                                                                                                                                                                           
|        |  |                                                                                                                                                                                                                                                                                                                                                       
|10(e)   |  | 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(f)   |  | 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(g)   |  | 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(h)   |  | 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(i)   |  | 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.)                                                                                      
|       
|11      |  | Statement Re Computation of Per Share Earnings.                                                                                                                                                                                                                                                                                                       
|       
|21      |  | Subsidiaries of the Company.                                                                                                                                                                                                                                                                                                                          
|       
|23      |  | Consent of Experts.                                                                                                                                                                                                                                                                                                                                   

Item 14(b) Reports on Form 8-K.

No reports on Form 8-K were filed during the quarterly period ended September
30, 2001.

Item 14(c) Exhibits:See Index to Exhibits at Item 14(a)(3) above.

Item 14(d) Financial Statement Schedules:Schedules required to be filed in
response to this portion of Item 14 are listed above in Item 14(a)(2).

19



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##### Table of Contents






SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.



|                                        |  |                                                                                            
|--------------------------------------- |  | -------------------------------------------------------------------------------------------
|Keithley Instruments, Inc.
(Registrant)
|                                       
|By:                                     |  | /s/ Joseph P. KeithleyJoseph P. Keithley, (Chairman, President and Chief Executive Officer)
|                                       
|Date:                                   |  | December 7, 2001                                                                           

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities on the date indicated.

|                                                 |  |                                                                                                         |  |        
|------------------------------------------------ |  | ------------------------------------------------------------------------------------------------------- |  | -------
|Signature                                        |  | Title                                                                                                   |  | Date   
|                                                 |  |                                                                                                         |  |        
|/s/ Joseph P. KeithleyJoseph P. Keithley         |  | Chairman of the Board of
Directors, President and
Chief Executive Officer
(Principal Executive Officer) |  | 12/7/01
|                                                
|/s/ Brian R. BachmanBrian R. Bachman             |  | Director                                                                                                |  | 12/7/01
|                                                
|/s/ James T. BartlettJames T. Bartlett           |  | Director                                                                                                |  | 12/7/01
|                                                
|/s/ James B. GriswoldJames B. Griswold           |  | Director                                                                                                |  | 12/7/01
|                                                
|/s/ Leon J. Hendrix, Jr.Leon J. Hendrix, Jr.     |  | Director                                                                                                |  | 12/7/01
|                                                
|/s/ William J. Hudson, Jr.William J. Hudson, Jr. |  | Director                                                                                                |  | 12/7/01
|                                                
|/s/ N. Mohan ReddyN. Mohan Reddy                 |  | Director                                                                                                |  | 12/7/01
|                                                
|/s/ R. Elton WhiteR. Elton White                 |  | Director                                                                                                |  | 12/7/01

20



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##### Table of Contents



Keithley Instruments, Inc.
Index to Financial Statements

|                                                |  |         
|----------------------------------------------- |  | --------
|Financial Statements:                           |  | Page No.
|                                                |  |         
|Report of Independent Accountants               |  | F-2     
|Consolidated Statements of Income               |  | F-3     
|Consolidated Balance Sheets                     |  | F-4     
|Consolidated Statements of Shareholders Equity |  | F-5     
|Consolidated Statements of Cash Flows           |  | F-6     
|Notes to Consolidated Financial Statements      |  | F-7     
|                                               
|Financial Statement Schedule:                   |  |         
|For the Three Years Ended September 30, 2001    |  |         
|Schedule II  Valuation and Qualifying Accounts |  | F-24    

F-1



---



##### Table of Contents



Report of Independent Accountants

To the Board of Directors and Shareholders
of Keithley Instruments, Inc.:

In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Keithley Instruments, Inc. and its subsidiaries at September 30,
2001 and 2000, and the results of their operations and their cash flows for
each of the three years in the period ended September 30, 2001 in conformity
with accounting principles generally accepted in the United States of America.
In addition, in our opinion, the financial statement schedule listed in the
accompanying index presents fairly, in all material respects, the information
set forth therein when read in conjunction with the related consolidated
financial statements. These financial statements and financial statement
schedule are the responsibility of the Companys management; our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits. We conducted our audits of
these statements in accordance with auditing standards generally accepted in
the United States of America, which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP

Cleveland, Ohio
November 2, 2001

F-2



---



##### Table of Contents



Consolidated Statements of Income
For the years ended September 30, 2001, 2000 and 1999
(In Thousands of Dollars Except for Per-Share Data)

|                                             |  |      |         |      |  |      |         |   |  |   |         |  
|-------------------------------------------- |  | ---- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | -
|                                             |  | 2001 |         | 2000 |  | 1999
|                                             |  |      |         |      |  |     
|Net sales                                    |  | $    | 149,692 |      |  | $    | 150,561 |   |  | $ | 100,938 |  
|                                             |  |      |         |      |  |      |         |   |  |   |         |  
|Cost of goods sold                           |  |      | 59,699  |      |  |      | 58,625  |   |  |   | 39,923  |  
|                                            
|                                            
|                                            
|                                            
|Selling, general and administrative expenses |  |      | 50,384  |      |  |      | 48,476  |   |  |   | 38,885  |  
|                                            
|                                            
|                                            
|                                            
|Product development expenses                 |  |      | 14,667  |      |  |      | 12,387  |   |  |   | 10,745  |  
|                                            
|                                            
|                                            
|                                            
|Gain on sale of businesses                   |  |      |        |      |  |      | (953    | ) |  |   | (5,153  | )
|                                            
|                                            
|                                            
|                                            
|Net financing income                         |  |      | (1,257  | )    |  |      | (445    | ) |  |   | (179    | )
|                                             |  |      |         |      |  |      |         |   |  |   |         |  
|Income before income taxes                   |  |      | 26,199  |      |  |      | 32,471  |   |  |   | 16,717  |  
|                                            
|                                            
|                                            
|                                            
|Income taxes                                 |  |      | 8,807   |      |  |      | 11,426  |   |  |   | 3,009   |  
|                                             |  |      |         |      |  |      |         |   |  |   |         |  
|Net income                                   |  | $    | 17,392  |      |  | $    | 21,045  |   |  | $ | 13,708  |  
|                                             |  |      |         |      |  |      |         |   |  |   |         |  
|Basic earnings per share                     |  | $    | 1.06    |      |  | $    | 1.43    |   |  | $ | 0.92    |  
|                                             |  |      |         |      |  |      |         |   |  |   |         |  
|Diluted earnings per share                   |  | $    | 1.05    |      |  | $    | 1.30    |   |  | $ | 0.90    |  
|                                             |  |      |         |      |  |      |         |   |  |   |         |  

The accompanying notes are an integral part of the financial statements.

F-3



---



##### Table of Contents



Consolidated Balance Sheets
As of September 30, 2001 and 2000
(In Thousands of Dollars Except for Share Data)

|                                                          |                                                                                                                   |                                                                                             |                   |                                          |        |        |         |        |        |        |        | 
|--------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------- | ----------------- | ---------------------------------------- | ------ | ------ | ------- | ------ | ------ | ------ | ------ | 
|                                                          |                                                                                                                   |                                                                                             |                   |                                          |        | 2001   |         | 2000  
|                                                          |                                                                                                                   |                                                                                             |                   |                                          |        |        |         |       
|Assets
Current assets:                                    |                                                                                                                   |                                                                                             |                   |                                          |        |        |         |       
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Cash and cash equivalents                                                                                         |                                                                                             | $                 | 30,091                                   |        |        | $       | 21,408 |       
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Short-term investments                                                                                            |                                                                                             |                   | 20,884                                   |        |        |         |       |       
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Refundable income taxes                                                                                           |                                                                                             |                   | 6,196                                    |        |        |         | 120    |       
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Accounts receivable and other, net of allowances
of $858 and $605 as of September 30, 2001
and 2000, respectively |                                                                                             |                   | 14,787                                   |        |        |         | 30,501 |       
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Inventories:                                                                                                      |                                                                                             |                   |                                          |        |        |         |        |       
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                                                                                                   |                                                                                             | Raw materials     |                                          |        | 11,057 |         |        |        | 11,376 |       
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                                                                                                   |                                                                                             | Work in process   |                                          |        | 2,236  |         |        |        | 5,685  |       
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                                                                                                   |                                                                                             | Finished products |                                          |        | 2,402  |         |        |        | 3,083  |       
|                                                          |                                                                                                                   |                                                                                             |                   |                                          |        |        |         |       
|                                                          |                                                                                                                   |                                                                                             |                   | Total inventories                        |        |        | 15,695  |        |        |        | 20,144 | 
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Deferred income taxes                                                                                             |                                                                                             |                   | 7,382                                    |        |        |         | 13,935 |       
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Prepaid expenses                                                                                                  |                                                                                             |                   | 653                                      |        |        |         | 506    |       
|                                                          |                                                                                                                   |                                                                                             |                   |                                          |        |        |         |       
|                                                          |                                                                                                                   |                                                                                             |                   | Total current assets                     |        |        | 95,688  |        |        |        | 86,614 | 
|                                                          |                                                                                                                   |                                                                                             |                   |                                          |        |        |         |       
|Property, plant and equipment, at cost:                   |                                                                                                                   |                                                                                             |                   |                                          |        |        |         |       
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Land                                                                                                              |                                                                                             |                   | 1,325                                    |        |        |         | 1,325  |       
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Buildings and leasehold improvements                                                                              |                                                                                             |                   | 15,350                                   |        |        |         | 15,163 |       
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Manufacturing, laboratory and office equipment                                                                    |                                                                                             |                   | 24,532                                   |        |        |         | 23,321 |       
|                                                          |                                                                                                                   |                                                                                             |                   |                                          |        |        |         |       
|                                                          |                                                                                                                   |                                                                                             | 41,207            |                                          |        |        | 39,809  |       
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                                                                                                   | Less-Accumulated depreciation and amortization                                              |                   |                                          | 27,573 |        |         |        | 26,590 |       
|                                                          |                                                                                                                   |                                                                                             |                   |                                          |        |        |         |       
|                                                          |                                                                                                                   |                                                                                             |                   | Total property, plant and equipment, net |        |        | 13,634  |        |        |        | 13,219 | 
|                                                          |                                                                                                                   |                                                                                             |                   |                                          |        |        |         |       
|Deferred income taxes                                     |                                                                                                                   |                                                                                             | 5,681             |                                          |        |        | 5,987   |       
|                                                         
|                                                         
|                                                         
|                                                         
|Other assets                                              |                                                                                                                   |                                                                                             | 8,597             |                                          |        |        | 6,518   |       
|                                                          |                                                                                                                   |                                                                                             |                   |                                          |        |        |         |       
|Total assets                                              |                                                                                                                   | $                                                                                           | 123,600           |                                          |        | $      | 112,338 |       
|                                                          |                                                                                                                   |                                                                                             |                   |                                          |        |        |         |       
|Liabilities
and Shareholders Equity
Current liabilities: |                                                                                                                   |                                                                                             |                   |                                          |        |        |         |       
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Short-term debt                                                                                                   |                                                                                             | $                 |                                         |        |        | $       | 225    |       
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Accounts payable                                                                                                  |                                                                                             |                   | 5,906                                    |        |        |         | 9,321  |       
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Accrued payroll and related expenses                                                                              |                                                                                             |                   | 7,213                                    |        |        |         | 9,041  |       
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Other accrued expenses                                                                                            |                                                                                             |                   | 4,826                                    |        |        |         | 6,152  |       
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Income taxes payable                                                                                              |                                                                                             |                   | 3,227                                    |        |        |         | 4,096  |       
|                                                          |                                                                                                                   |                                                                                             |                   |                                          |        |        |         |       
|                                                          |                                                                                                                   |                                                                                             |                   | Total current liabilities                |        |        | 21,172  |        |        |        | 28,835 | 
|                                                          |                                                                                                                   |                                                                                             |                   |                                          |        |        |         |       
|Long-term debt                                            |                                                                                                                   |                                                                                             | 3,000             |                                          |        |        | 3,000   |       
|                                                         
|                                                         
|                                                         
|                                                         
|Other long-term liabilities                               |                                                                                                                   |                                                                                             | 5,475             |                                          |        |        | 4,723   |       
|                                                         
|                                                         
|                                                         
|                                                         
|Deferred income taxes                                     |                                                                                                                   |                                                                                             | 7                 |                                          |        |        | 7       |       
|                                                         
|                                                         
|                                                         
|                                                         
|Shareholders equity:                                     |                                                                                                                   |                                                                                             |                   |                                          |        |        |         |       
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Common Shares, stated value $.0125:                                                                               |                                                                                             |                   |                                          |        |        |         |        |       
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                                                                                                   | Authorized - 80,000,000; issued and outstanding -
13,760,558 in 2001 and 13,736,974 in 2000 |                   |                                          | 172    |        |         |        | 172    |       
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Class B Common Shares, stated value $.0125:                                                                       |                                                                                             |                   |                                          |        |        |         |        |       
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                                                                                                   | Authorized - 9,000,000; issued and outstanding -
2,150,502 in 2001 and 2,163,532 in 2000    |                   |                                          | 27     |        |         |        | 27     |       
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Capital in excess of stated value                                                                                 |                                                                                             |                   | 22,694                                   |        |        |         | 17,160 |       
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Earnings reinvested in the business                                                                               |                                                                                             |                   | 77,454                                   |        |        |         | 62,211 |       
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Accumulated other comprehensive income                                                                            |                                                                                             |                   | (708                                     | )      |        |         | (819   | )     
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Unamortized portion of restricted stock plan                                                                      |                                                                                             |                   | (152                                     | )      |        |         | (196   | )     
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Common Shares held in treasury, at cost                                                                           |                                                                                             |                   | (5,541                                   | )      |        |         | (2,782 | )     
|                                                          |                                                                                                                   |                                                                                             |                   |                                          |        |        |         |       
|                                                          |                                                                                                                   |                                                                                             |                   | Total shareholders equity               |        |        | 93,946  |        |        |        | 75,773 | 
|                                                          |                                                                                                                   |                                                                                             |                   |                                          |        |        |         |       
|Total liabilities and shareholders equity                |                                                                                                                   | $                                                                                           | 123,600           |                                          |        | $      | 112,338 |       
|                                                          |                                                                                                                   |                                                                                             |                   |                                          |        |        |         |       

The accompanying notes are an integral part of the financial statements.

F-4



---



##### Table of Contents



Consolidated Statements of Shareholders Equity
For the years ended September 30, 2001, 2000 and 1999
(In Thousands of Dollars)

|                                                                  |                                          |   |        |  |        |   |           |   |           |   |               |  |            |   |             |        |              |   |        |      |   |   |      |   |  |   |        |   |  |   |        |        |  
|----------------------------------------------------------------- | ---------------------------------------- | - | ------ |  | ------ | - | --------- | - | --------- | - | ------------- |  | ---------- | - | ----------- | ------ | ------------ | - | ------ | ---- | - | - | ---- | - |  | - | ------ | - |  | - | ------ | ------ | -
|                                                                  |                                          |   |        |  |        |   |           |   |           |   | Capital       |  | Earnings   |   | Accumulated |        | Unamortized  |   | Common |      |   |   |     
|                                                                  |                                          |   |        |  |        |   | Class B   |   | in excess |   | reinvested    |  | other      |   | portion of  |        | Shares       |   | Total 
|                                                                  |                                          |   | Common |  | Common |   | of stated |   | in the    |   | comprehensive |  | restricted |   | held in     |        | shareholders
|                                                                  |                                          |   | Shares |  | Shares |   | value     |   | business  |   | income (loss) |  | stock plan |   | treasury    |        | equity      
|                                                                  |                                          |   |        |  |        |   |           |   |           |   |               |  |            |   |             |        |             
|Balance September 30, 1998                                        |                                          |   | 127    |  |        |   | 70        |   |           |   | 8,877         |  |            |   | 29,870      |        |              |   | 429    |      |   |   | (283 | ) |  |   | (348   | ) |  |   | 38,742 |       
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Comprehensive Income:                                             |                                          |   |        |  |        |   |           |   |           |   |               |  |            |   |             |        |              |   |        |      |   |   |      |   |  |   |        |   |  |   |        |       
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Net Income                               |   |        |  |        |   |           |   |           |   |               |  |            |   |             | 13,708 |              |   |        |      |   |   |      |   |  |   |        |   |  |   |        |        |  
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Translation adjustment                   |   |        |  |        |   |           |   |           |   |               |  |            |   |             |        |              |   |        | (281 | ) |   |      |   |  |   |        |   |  |   |        |        |  
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Minimum pension liability adj.           |   |        |  |        |   |           |   |           |   |               |  |            |   |             |        |              |   |        | (39  | ) |   |      |   |  |   |        |   |  |   |        |        |  
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Total comprehensive income                                        |                                          |   |        |  |        |   |           |   |           |   |               |  |            |   |             |        |              |   |        |      |   |   |      |   |  |   |        |   |  |   | 13,388 |       
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Cash dividends:                                                   |                                          |   |        |  |        |   |           |   |           |   |               |  |            |   |             |        |              |   |        |      |   |   |      |   |  |   |        |   |  |   |        |       
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Common Shares ($.07 per
share)           |   |        |  |        |   |           |   |           |   |               |  |            |   |             | (653   | )            |   |        |      |   |   |      |   |  |   |        |   |  |   |        | (653   | )
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Class B Common Shares
($.056 per share)  |   |        |  |        |   |           |   |           |   |               |  |            |   |             | (302   | )            |   |        |      |   |   |      |   |  |   |        |   |  |   |        | (302   | )
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Shares issued under stock plans                                   |                                          |   | 2      |  |        |   |           |   |           |   | 194           |  |            |   |             |        |              |   |        |      |   |   |      |   |  |   | 1,077  |   |  |   | 1,273  |       
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Conversion to Common Shares                                       |                                          |   | 3      |  |        |   | (3        | ) |           |   |               |  |            |   |             |        |              |   |        |      |   |   |      |   |  |   |        |   |  |   |       |       
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Repurchase of Common Shares                                       |                                          |   |        |  |        |   |           |   |           |   |               |  |            |   |             |        |              |   |        |      |   |   |      |   |  |   | (8,366 | ) |  |   | (8,366 | )     
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Common Shares acquired for
settlement of deferred Directors
fees |                                          |   |        |  |        |   |           |   |           |   |               |  |            |   |             |        |              |   |        |      |   |   |      |   |  |   | (348   | ) |  |   | (348   | )     
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Gains from hedging net
investments in foreign
subsidiaries        |                                          |   |        |  |        |   |           |   |           |   |               |  |            |   |             |        |              |   | 3      |      |   |   |      |   |  |   |        |   |  |   | 3      |       
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Amortization                                                      |                                          |   |        |  |        |   |           |   |           |   |               |  |            |   |             |        |              |   |        |      |   |   | 44   |   |  |   |        |   |  |   | 44     |       
|                                                                  |                                          |   |        |  |        |   |           |   |           |   |               |  |            |   |             |        |              |   |        |      |   |   |      |   |  |   |        |   |  |   |        |       
|Balance September 30, 1999                                        |                                          |   | 132    |  |        |   | 67        |   |           |   | 9,071         |  |            |   | 42,623      |        |              |   | 112    |      |   |   | (239 | ) |  |   | (7,985 | ) |  |   | 43,781 |       
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Comprehensive Income:                                             |                                          |   |        |  |        |   |           |   |           |   |               |  |            |   |             |        |              |   |        |      |   |   |      |   |  |   |        |   |  |   |        |       
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Net Income                               |   |        |  |        |   |           |   |           |   |               |  |            |   |             | 21,045 |              |   |        |      |   |   |      |   |  |   |        |   |  |   |        |        |  
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Translation adjustment                   |   |        |  |        |   |           |   |           |   |               |  |            |   |             |        |              |   |        | (965 | ) |   |      |   |  |   |        |   |  |   |        |        |  
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Minimum pension liability adj            |   |        |  |        |   |           |   |           |   |               |  |            |   |             |        |              |   |        | 34   |   |   |      |   |  |   |        |   |  |   |        |        |  
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Total comprehensive income                                        |                                          |   |        |  |        |   |           |   |           |   |               |  |            |   |             |        |              |   |        |      |   |   |      |   |  |   |        |   |  |   | 20,114 |       
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Cash dividends:                                                   |                                          |   |        |  |        |   |           |   |           |   |               |  |            |   |             |        |              |   |        |      |   |   |      |   |  |   |        |   |  |   |        |       
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Common Shares ($.103 per
share)          |   |        |  |        |   |           |   |           |   |               |  |            |   |             | (1,151 | )            |   |        |      |   |   |      |   |  |   |        |   |  |   |        | (1,151 | )
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Class B Common Shares
($.0824 per share) |   |        |  |        |   |           |   |           |   |               |  |            |   |             | (306   | )            |   |        |      |   |   |      |   |  |   |        |   |  |   |        | (306   | )
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Shares issued under stock plans                                   |                                          |   |        |  |        |   |           |   |           |   | 8,089         |  |            |   |             |        |              |   |        |      |   |   |      |   |  |   | 8,436  |   |  |   | 16,525 |       
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Conversion to Common Shares                                       |                                          |   | 40     |  |        |   | (40       | ) |           |   |               |  |            |   |             |        |              |   |        |      |   |   |      |   |  |   |        |   |  |   |       |       
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Repurchase of Common Shares                                       |                                          |   |        |  |        |   |           |   |           |   |               |  |            |   |             |        |              |   |        |      |   |   |      |   |  |   | (3,013 | ) |  |   | (3,013 | )     
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Common Shares acquired for
settlement of deferred Directors
fees |                                          |   |        |  |        |   |           |   |           |   |               |  |            |   |             |        |              |   |        |      |   |   |      |   |  |   | (220   | ) |  |   | (220   | )     
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Amortization                                                      |                                          |   |        |  |        |   |           |   |           |   |               |  |            |   |             |        |              |   |        |      |   |   | 43   |   |  |   |        |   |  |   | 43     |       
|                                                                  |                                          |   |        |  |        |   |           |   |           |   |               |  |            |   |             |        |              |   |        |      |   |   |      |   |  |   |        |   |  |   |        |       
|Balance September 30, 2000                                        |                                          |   | 172    |  |        |   | 27        |   |           |   | 17,160        |  |            |   | 62,211      |        |              |   | (819   | )    |   |   | (196 | ) |  |   | (2,782 | ) |  |   | 75,773 |       
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Comprehensive Income:                                             |                                          |   |        |  |        |   |           |   |           |   |               |  |            |   |             |        |              |   |        |      |   |   |      |   |  |   |        |   |  |   |        |       
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Net Income                               |   |        |  |        |   |           |   |           |   |               |  |            |   |             | 17,392 |              |   |        |      |   |   |      |   |  |   |        |   |  |   |        |        |  
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Translation adjustment                   |   |        |  |        |   |           |   |           |   |               |  |            |   |             |        |              |   |        | 237  |   |   |      |   |  |   |        |   |  |   |        |        |  
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Minimum pension liability adj.           |   |        |  |        |   |           |   |           |   |               |  |            |   |             |        |              |   |        | (44  | ) |   |      |   |  |   |        |   |  |   |        |        |  
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Net loss on derivative securities        |   |        |  |        |   |           |   |           |   |               |  |            |   |             |        |              |   |        | (209 | ) |   |      |   |  |   |        |   |  |   |        |        |  
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Net unrealized investment gains          |   |        |  |        |   |           |   |           |   |               |  |            |   |             |        |              |   |        | 127  |   |   |      |   |  |   |        |   |  |   |        |        |  
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Total comprehensive income                                        |                                          |   |        |  |        |   |           |   |           |   |               |  |            |   |             |        |              |   |        |      |   |   |      |   |  |   |        |   |  |   | 17,503 |       
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Cash dividends:                                                   |                                          |   |        |  |        |   |           |   |           |   |               |  |            |   |             |        |              |   |        |      |   |   |      |   |  |   |        |   |  |   |        |       
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Common Shares ($.14 per
share)           |   |        |  |        |   |           |   |           |   |               |  |            |   |             | (1,908 | )            |   |        |      |   |   |      |   |  |   |        |   |  |   |        | (1,908 | )
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Class B Common Shares
($.112 per share)  |   |        |  |        |   |           |   |           |   |               |  |            |   |             | (241   | )            |   |        |      |   |   |      |   |  |   |        |   |  |   |        | (241   | )
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Shares issued under stock plans                                   |                                          |   |        |  |        |   |           |   |           |   | 5,534         |  |            |   |             |        |              |   |        |      |   |   |      |   |  |   | 2,925  |   |  |   | 8,459  |       
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Repurchase of Common Shares                                       |                                          |   |        |  |        |   |           |   |           |   |               |  |            |   |             |        |              |   |        |      |   |   |      |   |  |   | (5,546 | ) |  |   | (5,546 | )     
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Common Shares acquired for
settlement of deferred Directors
fees |                                          |   |        |  |        |   |           |   |           |   |               |  |            |   |             |        |              |   |        |      |   |   |      |   |  |   | (138   | ) |  |   | (138   | )     
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Amortization                                                      |                                          |   |        |  |        |   |           |   |           |   |               |  |            |   |             |        |              |   |        |      |   |   | 44   |   |  |   |        |   |  |   | 44     |       
|                                                                  |                                          |   |        |  |        |   |           |   |           |   |               |  |            |   |             |        |              |   |        |      |   |   |      |   |  |   |        |   |  |   |        |       
|Balance September 30, 2001                                        |                                          | $ | 172    |  |        | $ | 27        |   |           | $ | 22,694        |  |            | $ | 77,454      |        |              | $ | (708   | )    |   | $ | (152 | ) |  | $ | (5,541 | ) |  | $ | 93,946 |       
|                                                                  |                                          |   |        |  |        |   |           |   |           |   |               |  |            |   |             |        |              |   |        |      |   |   |      |   |  |   |        |   |  |   |        |       

The accompanying notes are an integral part of the financial statements.

F-5



---



##### Table of Contents



Consolidated Statements of Cash Flows
For the years ended September 30, 2001, 2000 and 1999
(In Thousands of Dollars)

|                                                                                  |                                                                                   |                                            |         |                               |        |      |        |        |        |      |         |        |        |   |        |  
|--------------------------------------------------------------------------------- | --------------------------------------------------------------------------------- | ------------------------------------------ | ------- | ----------------------------- | ------ | ---- | ------ | ------ | ------ | ---- | ------- | ------ | ------ | - | ------ | -
|                                                                                  |                                                                                   |                                            |         |                               |        | 2001 |        | 2000   |        | 1999
|                                                                                  |                                                                                   |                                            |         |                               |        |      |        |        |        |     
|Cash flows from operating activities:                                             |                                                                                   |                                            |         |                               |        |      |        |        |        |      |         |       
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  | Net income                                                                        |                                            | $       | 17,392                        |        |      | $      | 21,045 |        |      | $       | 13,708 |       
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  | Adjustments to reconcile net income to
net cash provided by operating activities: |                                            |         |                               |        |      |        |        |        |      |         |        |       
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  |                                                                                   |                                            |         | Depreciation                  |        |      | 3,038  |        |        |      | 2,920   |        |        |   | 2,923  |  
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  |                                                                                   |                                            |         | Deferred income taxes         |        |      | 1,516  |        |        |      | 1,330   |        |        |   | 475    |  
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  |                                                                                   |                                            |         | Deferred compensation         |        |      | 158    |        |        |      | 507     |        |        |   | 183    |  
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  |                                                                                   |                                            |         | Gain on sale of businesses    |        |      |       |        |        |      | (953    | )      |        |   | (5,153 | )
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  | Change in current assets and liabilities:                                         |                                            |         |                               |        |      |        |        |        |      |         |        |       
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  |                                                                                   |                                            |         | Refundable income taxes       |        |      | 4,813  |        |        |      | 756     |        |        |   | (397   | )
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  |                                                                                   |                                            |         | Accounts receivable and other |        |      | 15,795 |        |        |      | (12,528 | )      |        |   | (2,091 | )
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  |                                                                                   |                                            |         | Inventories                   |        |      | 4,474  |        |        |      | (9,268  | )      |        |   | (1,581 | )
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  |                                                                                   |                                            |         | Prepaid expenses              |        |      | 998    |        |        |      | (358    | )      |        |   | 156    |  
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  |                                                                                   |                                            |         | Other current liabilities     |        |      | (7,600 | )      |        |      | 6,832   |        |        |   | 2,205  |  
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  | Other operating activities                                                        |                                            |         | (2,311                        | )      |      |        | 266    |        |      |         | (769   | )     
|                                                                                  |                                                                                   |                                            |         |                               |        |      |        |        |        |      |         |       
|Net cash provided by operating activities                                         |                                                                                   |                                            | 38,273  |                               |        |      | 10,549 |        |        |      | 9,659   |       
|                                                                                  |                                                                                   |                                            |         |                               |        |      |        |        |        |      |         |       
|Cash flows from investing activities:                                             |                                                                                   |                                            |         |                               |        |      |        |        |        |      |         |       
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  | Capital expenditures                                                              |                                            |         | (3,438                        | )      |      |        | (3,607 | )      |      |         | (1,545 | )     
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  | Proceeds received from sale of assets                                             |                                            |         |                              |        |      |        |       |        |      |         | 9,147  |       
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  | Purchase of investments                                                           |                                            |         | (20,884                       | )      |      |        |       |        |      |         |       |       
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  | Cash expenditures for sale of assets                                              |                                            |         |                              |        |      |        |       |        |      |         | (1,636 | )     
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  | Other investing activities                                                        |                                            |         | 4                             |        |      |        | 55     |        |      |         | 58     |       
|                                                                                  |                                                                                   |                                            |         |                               |        |      |        |        |        |      |         |       
|Net cash (used in) provided by investing activities                               |                                                                                   |                                            | (24,318 | )                             |        |      | (3,552 | )      |        |      | 6,024   |       
|                                                                                  |                                                                                   |                                            |         |                               |        |      |        |        |        |      |         |       
|Cash flows from financing activities:                                             |                                                                                   |                                            |         |                               |        |      |        |        |        |      |         |       
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  |                                                                                   | Net increase (decrease) in short-term debt |         |                               | (222   | )    |        |        | 247    |      |         |        |       |  
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  |                                                                                   | Payment of long-term debt                  |         |                               |       |      |        |        |       |      |         |        | (3,056 | )
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  |                                                                                   | Proceeds from sale of Common Shares        |         |                               | 2,443  |      |        |        | 5,788  |      |         |        | 925    |  
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  |                                                                                   | Purchase of Treasury Shares                |         |                               | (5,546 | )    |        |        | (3,013 | )    |         |        | (8,366 | )
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  |                                                                                   | Cash dividends                             |         |                               | (2,149 | )    |        |        | (1,457 | )    |         |        | (955   | )
|                                                                                  |                                                                                   |                                            |         |                               |        |      |        |        |        |      |         |       
|Net cash (used in) provided by financing activities                               |                                                                                   |                                            | (5,474  | )                             |        |      | 1,565  |        |        |      | (11,452 | )     
|                                                                                  |                                                                                   |                                            |         |                               |        |      |        |        |        |      |         |       
|Effect of changes in foreign currency exchange
rates on cash and cash equivalents |                                                                                   |                                            | 202     |                               |        |      | (580   | )      |        |      | (126    | )     
|                                                                                  |                                                                                   |                                            |         |                               |        |      |        |        |        |      |         |       
|Increase in cash and cash equivalents                                             |                                                                                   |                                            | 8,683   |                               |        |      | 7,982  |        |        |      | 4,105   |       
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|Cash and cash equivalents at beginning of period                                  |                                                                                   |                                            | 21,408  |                               |        |      | 13,426 |        |        |      | 9,321   |       
|                                                                                  |                                                                                   |                                            |         |                               |        |      |        |        |        |      |         |       
|Cash and cash equivalents at end of period                                        |                                                                                   | $                                          | 30,091  |                               |        | $    | 21,408 |        |        | $    | 13,426  |       
|                                                                                  |                                                                                   |                                            |         |                               |        |      |        |        |        |      |         |       
|Supplemental disclosures of cash flow information
Cash paid during the year for:  |                                                                                   |                                            |         |                               |        |      |        |        |        |      |         |       
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  |                                                                                   |                                            |         | Income taxes                  |        | $    | 4,973  |        |        | $    | 7,426   |        |        | $ | 3,641  |  
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  |                                                                                   |                                            |         | Interest                      |        |      | 78     |        |        |      | 58      |        |        |   | 179    |  

Disclosure of accounting policy



| |  | For purposes of this statement, the Company considers all highly liquid
investments with maturities of three months or less when purchased to be
cash equivalents. Cash flows resulting from hedging transactions are
classified in the same category as the cash flows from the item being
hedged.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The accompanying notes are an integral part of the financial statements.

F-6



---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands of Dollars Except for Per-Share Data)

Note A  Summary of Significant Accounting Policies

Principles of consolidation

The consolidated financial statements include the accounts of Keithley
Instruments, Inc. and its subsidiaries. Intercompany transactions have been
eliminated. Certain amounts in prior years have been reclassified to be
consistent with the current years presentation.

Revenue recognition

The Company recognizes revenue when persuasive evidence of an arrangement
exists, delivery has occurred, the sales price is fixed or determinable and
collectability is reasonably assured. Generally, these criteria are met at the
time the product is shipped. Upon shipment, the Company also provides for
estimated costs that may be incurred for product warranties and sales returns.

Nature of operations

The Company operates in a single industry segment and is engaged in the
design, development, manufacture and marketing of complex electronic
instruments and systems. Its products provide electrical, optical or RF
measurement-based solutions to the telecommunications, semiconductor,
optoelectronics, research and development and other electronic components
industries. Engineers and scientists around the world use the Companys
advanced hardware and software for process monitoring, production test and
basic research.

Product development expenses

Expenditures for product development are charged to expense as incurred.
These expenses include the cost of computer software, an integral part of
certain products. Costs defined by Statement of Financial Accounting Standards
No. 86, Accounting for the Costs of Computer Software to Be Sold, Leased, or
Otherwise Marketed, are immaterial to the financial statements and have been
expensed as incurred. The Company continually reviews the materiality and
financial statement classification of computer software expenditures.

Inventories

Inventories are stated at the lower of cost (determined by the first-in,
first-out method) or market.

Property, plant and equipment

Property, plant and equipment are stated at cost. Depreciation is
provided over periods approximating the estimated useful lives of the assets.
Substantially all manufacturing, laboratory and office equipment is depreciated
by the double declining balance method over periods of 3 to 10 years.
Buildings are depreciated by the straight-line method over periods of 23 to 45
years. Leasehold improvements are amortized over the shorter of the asset
lives or the terms of the leases.

Other accrued expenses

Included in the Other accrued expenses caption of the Consolidated
Balance Sheets at September 30, 2001 and 2000, were $787 and $2,073,
respectively, for commissions payable to outside sales representatives of the
Company.

F-7



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##### Table of Contents



Capital stock

The Company has two classes of stock. The Class B Common Shares have ten
times the voting power of the Common Shares, but are entitled to cash dividends
of no more than 80% of the cash dividends on the Common Shares. Holders of
Common Shares, voting as a class, elect one-fourth of the Companys Board of
Directors and participate with holders of Class B Common Shares in electing the
balance of the Directors and in voting on all other corporate matters requiring
shareholder approval. Additional Class B Common Shares may be issued only to
holders of such shares for stock dividends or stock splits. These shares are
convertible at any time to Common Shares on a one-for-one basis.

Included in the Common Shares held in treasury, at cost caption of the
Consolidated Balance Sheets at September 30, 2001 and 2000, were shares
repurchased through the Companys share repurchase programs, net of shares
reissued (see Note C), and shares repurchased to settle non-employee Directors
fees deferred pursuant to the Keithley Instruments, Inc. 1996 Outside Directors
Deferred Stock Plan. The total number of shares held in treasury at September
30, 2001 and 2000 was 416,597 and 510,292, respectively.

Income taxes

Provision has been made for estimated United States and foreign
withholding taxes, less available tax credits, for the undistributed earnings
of the non-U.S. subsidiaries as of September 30, 2001, 2000 and
1999.

Use of estimates

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the reported financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.

Earnings per share

Both Common Shares and Class B Common Shares are included in calculating
earnings per share. The weighted average number of shares outstanding used in
the calculation is set forth below:

|        |  |      |            |      |  |      |            |  |  |  |            | 
|------- |  | ---- | ---------- | ---- |  | ---- | ---------- |  |  |  | ---------- | 
|        |  | 2001 |            | 2000 |  | 1999
|        |  |      |            |      |  |     
|Basic   |  |      | 15,724,423 |      |  |      | 14,698,456 |  |  |  | 14,894,162 | 
|       
|       
|       
|       
|Diluted |  |      | 16,583,026 |      |  |      | 16,167,853 |  |  |  | 15,314,850 | 

Derivatives and Hedging Activities

The Company adopted Statement of Financial Accounting Standards No. 133,
Accounting for Derivative Instruments and Hedging Activities (SFAS 133) on
October 1, 2000. The transition amount recorded upon adoption of SFAS 133 was
not material to the consolidated financial results or financial position of the
Company.

In accordance with the provisions of SFAS 133, all of the Companys derivative
instruments are recognized on the balance sheet at their fair value. To hedge
sales, the Company currently utilizes foreign exchange forward contracts or
option contracts to sell foreign currencies to fix the exchange rates related
to near-term sales and effectively fix the Companys margins. Underlying
hedged transactions are recorded at hedged rates, therefore realized and
unrealized gains and losses are recorded when the operating revenues and
expenses are recorded. The Company also currently

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utilizes an interest rate
swap instrument to mitigate the risk of interest rate changes. The estimated
fair value of the swap instrument is determined through quotes from the related
financial institutions.

On the date the derivative contract is entered into, the Company designates its
derivative as either a hedge of the fair value of a recognized asset or
liability (fair value hedge), as a hedge of the variability of cash flows to
be received (cash flow hedge) or as a foreign-currency cash flow hedge
(foreign currency hedge). Changes in the fair value of a derivative that is
highly effective as, and that is designated and qualifies as, a fair value
hedge, along with the gain or loss on the hedged asset or liability that is
attributable to the hedged risk are recorded in current-period earnings.
Changes in the fair value of a derivative that is highly effective and that is
designated and qualifies as a cash flow hedge are recorded in other comprehensive
income until earnings are affected by the transaction in the underlying asset.
Changes in the fair value of derivatives that are highly effective and that
qualify as foreign currency hedges are recorded in either current period income
or other comprehensive income, depending on whether the hedge transaction is a
fair value hedge or a cash flow hedge. At September 30, 2001, all the
Companys derivative instruments were designated as cash flow hedges.

The Company documents all relationships between hedging instruments and hedged
items, as well as its risk-management objective and strategy for undertaking
various hedge transactions. The Company also assesses whether the derivatives
that are used in hedging transactions are highly effective in offsetting
changes in cash flows of hedged items. When it is determined that a derivative
is not highly effective as a hedge, the Company discontinues hedge accounting
prospectively.

Other accounting pronouncements

The Company adopted the Securities and Exchange Commissions Staff
Accounting Bulletin No. 101, Revenue Recognition in Financial Statements (SAB
101) in fiscal 2001. SAB 101 provides guidance for public companies on the
recognition, presentation and disclosure of revenue in their financial
statements. It requires that an entity recognize revenue at the time a product
has been accepted by a customer, as defined by certain criteria. The adoption
of SAB 101 did not have a material impact on the Companys consolidated results
or financial position.

In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 141, Business Combinations (SFAS 141)
and Statement of Financial Accounting Standards No. 142, Goodwill and Other
Intangible Assets (SFAS 142). SFAS 141 requires business combinations
initiated after June 30, 2001 to be accounted for using the purchase method of
accounting. It also specifies the types of acquired intangible assets that are
required to be recognized and reported separately from goodwill. SFAS 142 will
require that goodwill and certain intangibles no longer be amortized, but
instead tested for impairment at least annually. SFAS 142 is required to be
applied starting with fiscal years beginning after December 15, 2001. The
Company does not believe the adoption of these standards will have a material
impact on its consolidated results or financial position.

In August 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets (SFAS 144). This Statement supercedes FASB
Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of and APB Opinion No. 30, Reporting the
Results of Operations, Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events. SFAS
144 was issued to establish a single accounting model to address the financial
accounting and reporting for the impairment or disposal of long-lived assets.
This statement is required to be applied starting with

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fiscal years beginning
after December 15, 2001. The Company does not believe SFAS 144 will have a
material impact on its consolidated results or financial position.

Note B  Sale of Assets

On November 9, 1998, the Company sold certain assets used in the operation
of its Quantox product line to KLA-Tencor Corporation for $9,147 in cash. The
agreement, which was effective October 31, 1998, included the sale of the
Quantox inventory, certain machinery, equipment and other tangible personal
property. The Company retained the accounts receivable. The sale resulted in
a pretax gain of $4,808, or $.20 per share, recorded in the first quarter of
fiscal 1999.

During the fourth quarter of fiscal 1999, and the first and fourth
quarters of fiscal 2000, additional pretax gains of $345, or $.01 per share,
$477, or $.02 per share, and $476, or $.02 per share, respectively, were
recorded for the above mentioned sale of business. At the time of the sale of
this business, the Company established liabilities for certain items that were
to be settled at future dates. The additional adjustments recorded in fiscal
1999 and 2000 represent the settlement of certain of these issues.

Note C  Repurchase of Common Shares

On December 11, 2000, the Company announced its Board of Directors had
approved an open market stock repurchase program to replace a previous program,
which expired in December 2000. Under the program, the Company may purchase up
to 2,000,000 Common Shares, or approximately 13 percent of the then outstanding
shares, over a three-year period. The purpose of the repurchase program is to
offset the dilutive effect of stock option and stock purchase plans. Common
Shares held in treasury may be reissued in settlement of awards granted and
stock purchased under these plans. During fiscal 2001 and 2000, the Company
repurchased 337,500 and 304,800 Common Shares at average costs of $16.43 and
$9.89 per share including commissions, respectively.

Note D  Short-term Investments

Short-term investments at September 30, 2001 were comprised of the
following:

|                                      |  |   |        | 
|------------------------------------- |  | - | ------ | 
|U.S. government and agency securities |  | $ | 8,173  | 
|                                     
|                                     
|                                     
|                                     
|Corporate notes and bonds             |  |   | 8,535  | 
|                                     
|                                     
|                                     
|                                     
|Mutual funds                          |  |   | 4,176  | 
|                                      |  |   |        | 
|Total short-term investments          |  | $ | 20,884 | 
|                                      |  |   |        | 

The mutual funds are comprised of investment-grade debt securities. The
funds may invest in corporate, mortgage, asset-backed, municipal and U.S.
government and agency securities. The securities, notes and bonds have
maturity dates ranging from March 31, 2003 through August 1, 2019. The Company
classifies these investments as available-for-sale, therefore, they are
considered current assets on the Companys Consolidated Balance Sheets.

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The short-term investments are reported at fair market value. At
September 30, 2001, $127 of net unrealized gains had been recorded in
Accumulated other comprehensive income on the Companys Consolidated Balance
Sheets.

Note E  Financing Arrangements

|                                                                                                            |                                                     |                                                                                                                                  |       |               |       |      |       |     |       | 
|----------------------------------------------------------------------------------------------------------- | --------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------- | ----- | ------------- | ----- | ---- | ----- | --- | ----- | 
|                                                                                                            |                                                     |                                                                                                                                  |       | September 30,
|                                                                                                            |                                                     |                                                                                                                                  |       |              
|                                                                                                            |                                                     |                                                                                                                                  |       | 2001          |       | 2000
|Short-term debt:                                                                                            |                                                     |                                                                                                                                  |       |               |       |      |       |    
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|Revolving loans in local currency with various banks,
principal due monthly with 30-day rollover provision, |                                                     |                                                                                                                                  |       |               |       |      |       |    
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | with an interest rate of 5.6% at September 30, 2000 |                                                                                                                                  | $     |              |       |      | $     | 225 |      
|                                                                                                            |                                                     |                                                                                                                                  |       |               |       |      |       |    
|Long-term debt:                                                                                             |                                                     |                                                                                                                                  |       |               |       |      |       |    
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|Revolving loans with various banks with interest
due monthly; principal due March 30, 2004:                 |                                                     |                                                                                                                                  |       |               |       |      |       |    
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            |                                                     | U.S. dollar denominated loans with an interest
rate of 6.1% and 7.6% based on LIBOR at September
30, 2001 and 2000, respectively |       |               | 3,000 |      |       |     | 3,000 | 
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|Less-current installments on long-term debt                                                                 |                                                     |                                                                                                                                  |      |               |       |      |      |    
|                                                                                                            |                                                     |                                                                                                                                  |       |               |       |      |       |    
|Total long-term debt                                                                                        |                                                     | $                                                                                                                                | 3,000 |               |       | $    | 3,000 |    
|                                                                                                            |                                                     |                                                                                                                                  |       |               |       |      |       |    

The Companys credit agreement, which expires March 30, 2004, is a $10,000
debt facility ($3,000 outstanding at September 30, 2001) that provides
unsecured, multi-currency revolving credit at various interest rates based on
Prime or LIBOR. The Company is required to pay a facility fee of between .20%
and .25% on the total amount of the commitment. Additionally, the Company has
a number of other credit facilities in various currencies aggregating $5,000.

At September 30, 2001, the Company had total unused lines of credit with
domestic and foreign banks aggregating $12,000, including short-term and
long-term lines of credit of $5,000 and $7,000, respectively. Under certain
long-term debt agreements, the Company is required to comply with various
financial ratios and covenants. The Company was in compliance with all such
debt covenants during each of the three years ended and at September 30, 2001.
Principal payments on long-term debt are due in 2004.

The three-month LIBOR interest rate was 2.6 and 6.8 percent at September
30, 2001 and 2000, respectively.

The Company has an interest rate swap agreement with a commercial bank to
effectively fix its interest rate on $3,000 of variable rate debt. The
agreement effectively fixes the interest rate on a notional $3,000 of variable
LIBOR rate debt at 6.7 percent, and expires September 19, 2005. The interest
differential to be paid or received on the notional amount of the swap is
recognized over the life of the agreement. At September 30, 2001 interest rate
levels, the swap requires the Company to make payments to the bank. The
Company would pay the bank approximately $251 to terminate the agreement. In
accordance with the provisions of SFAS 133, the interest rate swap is recorded
on the Companys Consolidated Balance Sheets at fair market value at September
30, 2001.

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Following is an analysis of net financing income:

|                  |  |      |       |      |  |      |      |   |  |   |      |  
|----------------- |  | ---- | ----- | ---- |  | ---- | ---- | - |  | - | ---- | -
|                  |  | 2001 |       | 2000 |  | 1999
|                  |  |      |       |      |  |     
|Interest expense  |  | $    | (331  | )    |  | $    | (229 | ) |  | $ | (220 | )
|                 
|                 
|                 
|                 
|Investment income |  |      | 1,588 |      |  |      | 674  |   |  |   | 399  |  
|                  |  |      |       |      |  |      |      |   |  |   |      |  
|                  |  | $    | 1,257 |      |  | $    | 445  |   |  | $ | 179  |  
|                  |  |      |       |      |  |      |      |   |  |   |      |  

Note F  Foreign Currency

The functional currency for the Companys foreign subsidiaries is the
applicable local currency. Income and expenses are translated into U.S.
dollars at average exchange rates for the period. Assets and liabilities are
translated at the rates in effect at the end of the period. Translation gains
and losses are recognized in the accumulated other comprehensive income
component of shareholders equity.

Certain transactions of the Company and its foreign subsidiaries are
denominated in currencies other than the functional currency. The Consolidated
Statement of Income includes gains (losses) from such foreign exchange
transactions of $(296), $(367) and $40 for 2001, 2000 and 1999, respectively.

At September 30, 2001, the Company had obligations under foreign exchange
forward contracts to sell 2,350,000 Euros and 700,000 British pounds at various
dates through December 2001. In accordance with the provisions of SFAS 133,
the foreign exchange forward contracts are recorded on the Companys
Consolidated Balance Sheets. At September 30, 2001, the fair market value of
the contracts represents a liability to the Company of $70.

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Note G  Employee Benefit Plans

The Company has noncontributory defined benefit pension plans covering all
of its eligible employees in the United States and certain non-U.S. employees.
Pension benefits are based upon the employees length of service and a
percentage of compensation above certain base levels. A summary of the
components of net periodic pension cost is shown below:

|                                               |  |      |        |      |  |      |        |   |  |   |        |  
|---------------------------------------------- |  | ---- | ------ | ---- |  | ---- | ------ | - |  | - | ------ | -
|                                               |  | 2001 |        | 2000 |  | 1999
|                                               |  |      |        |      |  |     
|Service cost-benefits earned during the period |  | $    | 953    |      |  | $    | 997    |   |  | $ | 1,011  |  
|                                              
|                                              
|                                              
|                                              
|Interest cost on projected benefit obligation  |  |      | 1,640  |      |  |      | 1,517  |   |  |   | 1,443  |  
|                                              
|                                              
|                                              
|                                              
|Actual (return) loss on assets                 |  |      | 1,003  |      |  |      | (1,965 | ) |  |   | (2,141 | )
|                                              
|                                              
|                                              
|                                              
|Net amortization and deferral                  |  |      | (3,219 | )    |  |      | (209   | ) |  |   | 92     |  
|                                               |  |      |        |      |  |      |        |   |  |   |        |  
|Net periodic pension cost                      |  | $    | 377    |      |  | $    | 340    |   |  | $ | 405    |  
|                                               |  |      |        |      |  |      |        |   |  |   |        |  

The following table sets forth the funded status of the Companys plans
and the related amounts recognized in the Consolidated Balance Sheets at
September 30, 2001 and 2000:

|                                         |  |                    |        |              |  |      |        |      |  |          |       |   |  |   |       |  
|---------------------------------------- |  | ------------------ | ------ | ------------ |  | ---- | ------ | ---- |  | -------- | ----- | - |  | - | ----- | -
|                                         |  |                    |        |              |  |      |        |      |  | Non-U.S.
|                                         |  | United States Plan |        | Plan        
|                                         |  | Overfunded         |        | Underfunded*
|                                         |  |                    |        |             
|                                         |  | 2001               |        | 2000         |  | 2001 |        | 2000
|                                         |  |                    |        |              |  |      |        |     
|Change in projected benefit obligations: |  |                    |        |              |  |      |        |      |  |          |       |   |  |   |       |  
|                                        
|                                        
|                                        
|                                        
|Benefit obligation at beginning of year  |  | $                  | 20,876 |              |  | $    | 18,035 |      |  | $        | 3,322 |   |  | $ | 3,744 |  
|                                        
|                                        
|                                        
|                                        
|Service cost                             |  |                    | 816    |              |  |      | 858    |      |  |          | 137   |   |  |   | 139   |  
|                                        
|                                        
|                                        
|                                        
|Interest cost                            |  |                    | 1,442  |              |  |      | 1,317  |      |  |          | 198   |   |  |   | 200   |  
|                                        
|                                        
|                                        
|                                        
|Actuarial loss                           |  |                    | 429    |              |  |      | 756    |      |  |          | 26    |   |  |   | 21    |  
|                                        
|                                        
|                                        
|                                        
|Benefits paid                            |  |                    | (560   | )            |  |      | (489   | )    |  |          | (97   | ) |  |   | (104  | )
|                                        
|                                        
|                                        
|                                        
|Plan amendment                           |  |                    | 143    |              |  |      | 399    |      |  |          |      |   |  |   |      |  
|                                        
|                                        
|                                        
|                                        
|Foreign currency exchange rate changes   |  |                    |       |              |  |      |       |      |  |          | 118   |   |  |   | (678  | )
|                                         |  |                    |        |              |  |      |        |      |  |          |       |   |  |   |       |  
|Benefit obligation at year end           |  | $                  | 23,146 |              |  | $    | 20,876 |      |  | $        | 3,704 |   |  | $ | 3,322 |  
|                                         |  |                    |        |              |  |      |        |      |  |          |       |   |  |   |       |  

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|                                                                                         |  |                    |        |              |  |      |        |      |  |          |        |   |  |   |        |  
|---------------------------------------------------------------------------------------- |  | ------------------ | ------ | ------------ |  | ---- | ------ | ---- |  | -------- | ------ | - |  | - | ------ | -
|                                                                                         |  |                    |        |              |  |      |        |      |  | Non-U.S.
|                                                                                         |  | United States Plan |        | Plan        
|                                                                                         |  | Overfunded         |        | Underfunded*
|                                                                                         |  |                    |        |             
|                                                                                         |  | 2001               |        | 2000         |  | 2001 |        | 2000
|                                                                                         |  |                    |        |              |  |      |        |     
|Change in plan assets:                                                                   |  |                    |        |              |  |      |        |      |  |          |        |   |  |   |        |  
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|Fair value of plan assets at beginning
of year                                           |  | $                  | 26,653 |              |  | $    | 25,176 |      |  | $        | 555    |   |  | $ | 645    |  
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|Actual return (loss) on pension assets                                                   |  |                    | (1,073 | )            |  |      | 1,966  |      |  |          | 70     |   |  |   | (1     | )
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|Employer contributions                                                                   |  |                    | 1,000  |              |  |      |       |      |  |          | 40     |   |  |   | 38     |  
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|Benefits paid                                                                            |  |                    | (560   | )            |  |      | (489   | )    |  |          | (14    | ) |  |   | (13    | )
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|Foreign currency exchange rate changes                                                   |  |                    |       |              |  |      |       |      |  |          | 21     |   |  |   | (114   | )
|                                                                                         |  |                    |        |              |  |      |        |      |  |          |        |   |  |   |        |  
|Fair value of plan assets at end of year                                                 |  |                    | 26,020 |              |  |      | 26,653 |      |  |          | 672    |   |  |   | 555    |  
|                                                                                         |  |                    |        |              |  |      |        |      |  |          |        |   |  |   |        |  
|Funded status  over (under) funded                                                      |  |                    | 2,874  |              |  |      | 5,777  |      |  |          | (3,032 | ) |  |   | (2,767 | )
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|Unrecognized actuarial (gain) loss                                                       |  |                    | (756   | )            |  |      | (4,545 | )    |  |          | 183    |   |  |   | 182    |  
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|Additional employer contributions                                                        |  |                    | 500    |              |  |      |       |      |  |          |       |   |  |   |       |  
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|Unrecognized prior service cost                                                          |  |                    | 1,539  |              |  |      | 1,562  |      |  |          | 39     |   |  |   | 40     |  
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|Unrecognized initial net (asset) obligation                                              |  |                    | (184   | )            |  |      | (227   | )    |  |          | 109    |   |  |   | 121    |  
|                                                                                         |  |                    |        |              |  |      |        |      |  |          |        |   |  |   |        |  
|Prepaid pension assets (pension liability)
recognized in the Consolidated Balance
Sheets |  | $                  | 3,973  |              |  | $    | 2,567  |      |  | $        | (2,701 | ) |  | $ | (2,424 | )
|                                                                                         |  |                    |        |              |  |      |        |      |  |          |        |   |  |   |        |  

*The Company has purchased indirect insurance of $2,569 which is expected to be
available to the Company as non-U.S. pension liabilities of $2,701 mature. The
caption, Other assets, on the Companys Consolidated Balance Sheets includes
$2,569 and $2,335 at September 30, 2001 and 2000, respectively, for this asset.
In accordance with Statement of Financial Accounting Standards No. 87,
Employers Accounting for Pensions, this Company asset is not included in the
non-U.S. plan assets.

The significant actuarial assumptions as of the year-end measurement date
were as follows:

|                                                 |  |      |      |      |  |      |      |   |  |  |      |  
|------------------------------------------------ |  | ---- | ---- | ---- |  | ---- | ---- | - |  |  | ---- | -
|                                                 |  | 2001 |      | 2000 |  | 1999
|                                                 |  |      |      |      |  |     
|United States Pension Plan:                      |  |      |      |      |  |      |      |   |  |  |      |  
|                                                
|                                                
|                                                
|                                                
|Discount rate                                    |  |      | 7.0  | %    |  |      | 7.0  | % |  |  | 7.25 | %
|                                                
|                                                
|                                                
|                                                
|Expected long-term rate of return on plan assets |  |      | 8.25 | %    |  |      | 8.25 | % |  |  | 8.25 | %
|                                                
|                                                
|                                                
|                                                
|Rate of increase in compensation levels          |  |      | 5.0  | %    |  |      | 5.0  | % |  |  | 5.0  | %
|                                                
|                                                
|                                                
|                                                
|Non-U.S. Pension Plan:                           |  |      |      |      |  |      |      |   |  |  |      |  
|                                                
|                                                
|                                                
|                                                
|Discount rate                                    |  |      | 6.0  | %    |  |      | 6.0  | % |  |  | 6.0  | %
|                                                
|                                                
|                                                
|                                                
|Expected long-term rate of return on plan assets |  |      | 7.0  | %    |  |      | 7.0  | % |  |  | 7.0  | %
|                                                
|                                                
|                                                
|                                                
|Rate of increase in compensation levels          |  |      | 4.5  | %    |  |      | 4.5  | % |  |  | 4.0  | %

The Projected Unit Credit Actuarial Cost Method is used to determine the
Companys annual expense.

For the United States plan, the Company uses the Entry Age Normal
Actuarial Cost Method to determine its annual funding requirements. United
States plan assets are invested primarily in common stocks and fixed-income
securities.

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Although there are no requirements for the Company to fund the non-U.S.
pension plan, the Company has made contributions in the past. Non-U.S. plan
assets represent employee and Company contributions and are invested in a
direct insurance contract payable to the individual participants.

In addition to the defined benefit pension plan, the Company also
maintains a retirement plan for all of its eligible employees in the United
States under Section 401(k) of the Internal Revenue Code. The Company makes
contributions to the 401(k) plan, and expense for this plan amounted to $718,
$638 and $562 in 2001, 2000 and 1999, respectively. Additionally, the Company
has a profit sharing program in which employee participants at their discretion
may opt for a cash payout or may defer the bonus in the 401(k) plan. Expense
for the additional profit sharing program amounted to $906, $1,475 and $370 in
2001, 2000 and 1999, respectively.

The Company also has an unfunded supplemental executive retirement plan
(SERP) for former key employees which includes retirement, death and disability
benefits. Expense recognized for these benefits was $15, $36 and $37 for 2001,
2000 and 1999, respectively. Liabilities of $211 and $226 were accrued in the
Other long-term liabilities caption on the Companys Consolidated Balance
Sheets to meet all SERP obligations at September 30, 2001 and 2000,
respectively.

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Note H  Stock Plans

Stock Option Plans

Under the 1984 Stock Option Plan and the 1992 Stock Incentive Plan,
1,350,000 and 5,400,000 of the Companys Common Shares, respectively, were
reserved for the granting of options to officers and other key employees.
After February 11, 1994, no new grants could be issued from the 1984 Stock
Option Plan. The Compensation and Human Resources Committee of the Board of
Directors administers the plans. Incentive stock options granted under the
plans cannot be granted with an exercise price less than the fair market price
at the date of the grant with an exercise period not to exceed ten years. Such
grants generally become exercisable over a four year period. The option price
under nonqualified stock options is determined by the Committee on the date the
option is granted. The 1992 Stock Incentive Plan also provides for restricted
stock awards and stock appreciation rights. This plan will expire on February
8, 2002. All options outstanding at the time of termination of either plan
shall continue in full force and effect in accordance with their terms.

The 1997 Directors Stock Option Plan provides for the issuance of 400,000
of the Companys Common Shares to non-employee Directors. Under the terms of
the plan, each non-employee Director is automatically granted an option to
purchase 10,000 Common Shares at the close of each annual shareholders
meeting. The plan will expire on February 15, 2007. On February 15, 1997, the
Companys Board of Directors terminated the 1992 Directors Stock Option Plan.
Prior to its termination, this plan provided for the issuance of 120,000 of the
Companys Common Shares to non-employee Directors, with each non-employee
Director automatically granted an option to purchase 1,200 Common Shares at the
close of each annual shareholders meeting. All options outstanding at the
time of termination of the plans shall continue in full force and effect in
accordance with their terms. The option price for grants under both plans is
the fair market value of a Common Share on the date of grant. The options
under both plans are exercisable six months and one day after the date of grant
and will expire after ten years.

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The activity under all option plans was as follows:

|                   |                                         |  |             |            |             |   |           |       |          |  |           |  |          |   |      |  | 
|------------------ | --------------------------------------- |  | ----------- | ---------- | ----------- | - | --------- | ----- | -------- |  | --------- |  | -------- | - | ---- |  | 
|                   |                                         |  | Outstanding |            | Exercisable
|                   |                                         |  |             |            |            
|                   |                                         |  |             |            |             |   | Weighted  |       |          |  |           |  | Weighted
|                   |                                         |  |             |            |             |   | Average   |       |          |  |           |  | Average 
|                   |                                         |  | Number      |            | Exercise    |   | Number    |       | Exercise
|                   |                                         |  | of Shares   |            | Price       |   | of Shares |       | Price   
|                   |                                         |  |             |            |             |   |           |       |         
|September 30, 1998 |                                         |  | 2,753,738   |            |             | $ | 4.22      |       |          |  | 1,415,688 |  |          | $ | 3.97 | 
|                   | Options granted at fair market value    |  |             | 626,400    |             |   |           | 4.10  |          |  |           |  |          |   |      |  | 
|                   | Options granted above fair market value |  |             | 91,316     |             |   |           | 2.82  |          |  |           |  |          |   |      |  | 
|                   | Options granted below fair market value |  |             | 66,368     |             |   |           | 3.62  |          |  |           |  |          |   |      |  | 
|                   | Options exercised                       |  |             | (315,838   | )           |   |           | 2.55  |          |  |           |  |          |   |      |  | 
|                   | Options forfeited                       |  |             | (195,354   | )           |   |           | 3.76  |          |  |           |  |          |   |      |  | 
|                   |                                         |  |             |            |             |   |           |       |          |  |           |  |          |   |      | 
|September 30, 1999 |                                         |  | 3,026,630   |            |             |   | 4.34      |       |          |  | 1,570,338 |  |          |   | 4.71 | 
|                   | Options granted at fair market value    |  |             | 649,850    |             |   |           | 41.16 |          |  |           |  |          |   |      |  | 
|                   | Options granted above fair market value |  |             | 4,000      |             |   |           | 50.13 |          |  |           |  |          |   |      |  | 
|                   | Options granted below fair market value |  |             | 2,400      |             |   |           | 3.33  |          |  |           |  |          |   |      |  | 
|                   | Options exercised                       |  |             | (1,579,908 | )           |   |           | 4.86  |          |  |           |  |          |   |      |  | 
|                   | Options forfeited                       |  |             | (10,350    | )           |   |           | 8.60  |          |  |           |  |          |   |      |  | 
|                   |                                         |  |             |            |             |   |           |       |          |  |           |  |          |   |      | 
|September 30, 2000 |                                         |  | 2,092,622   |            |             |   | 15.45     |       |          |  | 530,676   |  |          |   | 5.33 | 
|                   | Options granted at fair market value    |  |             | 667,500    |             |   |           | 20.53 |          |  |           |  |          |   |      |  | 
|                   | Options granted above fair market value |  |             | 5,000      |             |   |           | 13.47 |          |  |           |  |          |   |      |  | 
|                   | Options exercised                       |  |             | (343,246   | )           |   |           | 4.34  |          |  |           |  |          |   |      |  | 
|                   | Options forfeited                       |  |             | (26,450    | )           |   |           | 7.70  |          |  |           |  |          |   |      |  | 
|                   |                                         |  |             |            |             |   |           |       |          |  |           |  |          |   |      | 
|September 30, 2001 |                                         |  | 2,395,426   |            |             | $ | 18.54     |       |          |  | 804,952   |  |          | $ | 7.65 | 
|                   |                                         |  |             |            |             |   |           |       |          |  |           |  |          |   |      | 

The options outstanding at September 30, 2001 have been segregated into
ranges for additional disclosure as follows:

|                  |  |             |           |              |  |          |      |             |  |          |       |  |  |          |         |  |  |   |       | 
|----------------- |  | ----------- | --------- | ------------ |  | -------- | ---- | ----------- |  | -------- | ----- |  |  | -------- | ------- |  |  | - | ----- | 
|                  |  | Outstanding |           | Exercisable 
|                  |  |             |           |             
|                  |  |             |           |              |  | Weighted |      |             |  |          |       |  |  |          |         |  |  |  
|                  |  |             |           |              |  | Average  |      | Weighted    |  |          |       |  |  | Weighted
|                  |  | Number of   |           | Remaining    |  | Average  |      | Number of   |  | Average 
|Range of Exercise |  | Shares      |           | Contractual  |  | Exercise |      | Shares      |  | Exercise
|Prices            |  | Outstanding |           | Life (years) |  | Price    |      | Exercisable |  | Price   
|                  |  |             |           |              |  |          |      |             |  |         
|$2.38 - $4.00     |  |             | 330,212   |              |  |          | 6.81 |             |  | $        | 2.70  |  |  |          | 206,188 |  |  | $ | 2.68  | 
|$4.13             |  |             | 556,470   |              |  |          | 7.79 |             |  | $        | 4.13  |  |  |          | 279,870 |  |  | $ | 4.13  | 
|$4.28 - $17.78    |  |             | 283,394   |              |  |          | 6.39 |             |  | $        | 8.22  |  |  |          | 248,894 |  |  | $ | 7.53  | 
|$18.41            |  |             | 585,000   |              |  |          | 9.30 |             |  | $        | 18.41 |  |  |          |        |  |  |   |      | 
|$18.72 - $66.75   |  |             | 640,350   |              |  |          | 8.89 |             |  | $        | 43.92 |  |  |          | 70,000  |  |  | $ | 36.85 | 
|                  |  |             |           |              |  |          |      |             |  |          |       |  |  |          |         |  |  |   |       | 
|                  |  |             | 2,395,426 |              |  |          | 8.15 |             |  | $        | 18.54 |  |  |          | 804,952 |  |  | $ | 7.65  | 
|                  |  |             |           |              |  |          |      |             |  |          |       |  |  |          |         |  |  |   |       | 

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1993 Employee Stock Purchase Plan

On February 5, 1994, the Companys shareholders approved the 1993 Employee
Stock Purchase and Dividend Reinvestment Plan. The plan offers eligible
employees the opportunity to acquire the Companys Common Shares at a discount
and without transaction costs. Eligible employees can only participate in the
plan on a year-to-year basis, must enroll prior to the commencement of each
plan year, and in the case with U.S. employees, must authorize monthly payroll
deductions. Non-U.S. employees submit their contribution at the end of the
plan year. The purchase price of the Common Shares is 85 percent of the lower
market price at the beginning or ending of the calendar plan year. A mid-year
enrollment option is also available for new employees. The purchase price for
the mid-year enrollees is 85 percent of the lower market price at the beginning
of the mid-year period or ending of the calendar plan year. A total of
1,500,000 Common Shares are available for purchase under the plan. Total
shares may be increased with shareholder approval or the plan may be terminated
when the shares are fully subscribed. No compensation expense is recorded in
connection with the plan. During 2001, 104,754 shares were purchased by
employees at a price of $8.66 per share. During 2000, 110,705 shares were
purchased at a price of $3.88 per share.

Pro Forma Disclosure

As of September 30, 2001, the Company had various stock-based compensation
plans that are described above. The Company has elected to continue to account
for stock issued to employees according to APB Opinion 25, Accounting for
Stock Issued to Employees and its related interpretations. Under APB No. 25,
no compensation expense is recognized in the Companys consolidated financial
statements for employee stock options except in certain cases when stock
options are granted below the market price of the underlying stock on the date
of grant. During 2001 and 2000, $44 and $49, respectively, were recognized in
compensation expense for such grants. Alternatively, under the fair value
method of accounting provided for under Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation (SFAS 123), the
measurement of compensation expense is based on the fair value of employee
stock options or purchase rights at the grant or right date and requires the
use of option pricing models to value the options.

The weighted average fair value of options granted under stock option
plans in 2001, 2000 and 1999 was $10.37, $23.56 and $1.76, respectively. The
fair value of options at the date of grant was estimated using the
Black-Scholes model with the following weighted average assumptions:

|                        |  |      |      |      |  |      |      |   |  |  |      |  
|----------------------- |  | ---- | ---- | ---- |  | ---- | ---- | - |  |  | ---- | -
|                        |  | 2001 |      | 2000 |  | 1999
|                        |  |      |      |      |  |     
|Expected life (years)   |  |      | 4.2  |      |  |      | 4.3  |   |  |  | 4.6  |  
|Risk-free interest rate |  |      | 4.6  | %    |  |      | 6.2  | % |  |  | 5.5  | %
|Volatility              |  |      | 66.0 | %    |  |      | 66.0 | % |  |  | 46.0 | %
|Dividend yield          |  |      | 0.8  | %    |  |      | 0.2  | % |  |  | 1.3  | %

The weighted average fair value of purchase rights granted under the 1993
Employee Stock Purchase Plan in 2001, 2000 and 1999 was $8.08, $3.12 and $1.47,
respectively. The fair value of employees purchase rights was estimated using
the Black-Scholes model with the following assumptions:

|                        |  |      |      |      |  |      |      |   |  |  |      |  
|----------------------- |  | ---- | ---- | ---- |  | ---- | ---- | - |  |  | ---- | -
|                        |  | 2001 |      | 2000 |  | 1999
|                        |  |      |      |      |  |     
|Expected life (years)   |  |      | 1.0  |      |  |      | 1.0  |   |  |  | 1.0  |  
|Risk-free interest rate |  |      | 5.8  | %    |  |      | 5.5  | % |  |  | 5.0  | %
|Volatility              |  |      | 66.0 | %    |  |      | 57.4 | % |  |  | 42.7 | %
|Dividend yield          |  |      | 0.2  | %    |  |      | 0.7  | % |  |  | 1.3  | %

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The pro forma impact to both net income and earnings per share from
calculating stock-related compensation expense consistent with the fair value
alternative of SFAS 123 is indicated below:

|                              |         |   |        |      |      |   |        |      |  |   |        |      | 
|----------------------------- | ------- | - | ------ | ---- | ---- | - | ------ | ---- |  | - | ------ | ---- | 
|                              |         |   | 2001   |      | 2000 |   | 1999  
|                              |         |   |        |      |      |   |       
|Pro forma net income          |         | $ | 13,142 |      |      | $ | 19,377 |      |  | $ | 12,706 |     
|Pro forma earnings per share: |         |   |        |      |      |   |        |      |  |   |        |     
|                              | Basic   |   | $      | 0.84 |      |   | $      | 1.32 |  |   | $      | 0.85 | 
|                              | Diluted |   | $      | 0.79 |      |   | $      | 1.20 |  |   | $      | 0.83 | 

For purposes of the pro forma disclosures, the estimated fair value of the
stock-based awards is amortized over the vesting period. The effects of
applying SFAS 123 in this pro forma disclosure are not indicative of future
amounts. SFAS 123 is applicable only to awards made after fiscal 1995.

Note I  Income Taxes

For financial reporting purposes, income before income taxes includes the
following components:

|              |  |      |        |      |  |      |        |  |  |   |        | 
|------------- |  | ---- | ------ | ---- |  | ---- | ------ |  |  | - | ------ | 
|              |  | 2001 |        | 2000 |  | 1999
|              |  |      |        |      |  |     
|United States |  | $    | 21,486 |      |  | $    | 27,695 |  |  | $ | 14,130 | 
|Non-U.S       |  |      | 4,713  |      |  |      | 4,776  |  |  |   | 2,587  | 
|              |  |      |        |      |  |      |        |  |  |   |        | 
|              |  | $    | 26,199 |      |  | $    | 32,471 |  |  | $ | 16,717 | 
|              |  |      |        |      |  |      |        |  |  |   |        | 

The provision for income taxes is as follows:

|          |                 |  |      |       |      |  |      |        |  |  |   |       | 
|--------- | --------------- |  | ---- | ----- | ---- |  | ---- | ------ |  |  | - | ----- | 
|          |                 |  | 2001 |       | 2000 |  | 1999
|          |                 |  |      |       |      |  |     
|Current:  |                 |  |      |       |      |  |      |        |  |  |   |      
|          | Federal         |  | $    | 4,873 |      |  | $    | 6,400  |  |  | $ | 1,143 | 
|          | Non-U.S         |  |      | 1,844 |      |  |      | 2,424  |  |  |   | 1,191 | 
|          | State and local |  |      | 574   |      |  |      | 1,272  |  |  |   | 200   | 
|          |                 |  |      |       |      |  |      |        |  |  |   |      
|          | Total current   |  |      | 7,291 |      |  |      | 10,096 |  |  |   | 2,534 | 
|          |                 |  |      |       |      |  |      |        |  |  |   |      
|Deferred: |                 |  |      |       |      |  |      |        |  |  |   |      
|          | Federal         |  |      | 1,343 |      |  |      | 1,249  |  |  |   | 275   | 
|          | Non-U.S         |  |      | 173   |      |  |      | 81     |  |  |   | 200   | 
|          |                 |  |      |       |      |  |      |        |  |  |   |      
|          | Total deferred  |  |      | 1,516 |      |  |      | 1,330  |  |  |   | 475   | 
|          |                 |  |      |       |      |  |      |        |  |  |   |      
|          | Total provision |  | $    | 8,807 |      |  | $    | 11,426 |  |  | $ | 3,009 | 
|          |                 |  |      |       |      |  |      |        |  |  |   |      

Differences between the statutory United States federal income tax and the
effective income tax rates are as follows:

|                                       |  |      |       |      |  |      |        |   |  |   |        |  
|-------------------------------------- |  | ---- | ----- | ---- |  | ---- | ------ | - |  | - | ------ | -
|                                       |  | 2001 |       | 2000 |  | 1999
|                                       |  |      |       |      |  |     
|Federal income tax at statutory rate   |  | $    | 9,140 |      |  | $    | 11,365 |   |  | $ | 5,684  |  
|State and local income taxes           |  |      | 506   |      |  |      | 832    |   |  |   | 133    |  
|Tax on non-U.S. income and tax credits |  |      | (664  | )    |  |      | (563   | ) |  |   | (72    | )
|Change in valuation allowance          |  |      |      |      |  |      |       |   |  |   | (1,928 | )
|Future rate change                     |  |      |      |      |  |      | (250   | ) |  |   |       |  
|Adjustment for prior years taxes      |  |      |      |      |  |      |       |   |  |   | (168   | )
|Tax credits                            |  |      | (125  | )    |  |      |       |   |  |   | (685   | )
|Other                                  |  |      | (50   | )    |  |      | 42     |   |  |   | 45     |  
|                                       |  |      |       |      |  |      |        |   |  |   |        |  
|Effective income tax                   |  | $    | 8,807 |      |  | $    | 11,426 |   |  | $ | 3,009  |  
|                                       |  |      |       |      |  |      |        |   |  |   |        |  

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Significant components of the Companys deferred tax assets and
liabilities as of September 30, 2001 and 2000 are as follows:

|                                     |  |      |        |      |  |   |        | 
|------------------------------------ |  | ---- | ------ | ---- |  | - | ------ | 
|                                     |  | 2001 |        | 2000
|                                     |  |      |        |     
|Deferred tax assets:                 |  |      |        |      |  |   |        | 
|Nonqualified stock options           |  | $    | 3,128  |      |  | $ | 10,518 | 
|Capitalized research and development |  |      | 3,149  |      |  |   | 4,058  | 
|Inventory                            |  |      | 2,593  |      |  |   | 1,805  | 
|Deferred compensation                |  |      | 1,038  |      |  |   | 1,130  | 
|Tax credit carryforward              |  |      | 1,552  |      |  |   |       | 
|Depreciation                         |  |      | 870    |      |  |   | 986    | 
|Warranty                             |  |      | 368    |      |  |   | 337    | 
|Royalty                              |  |      | 97     |      |  |   | 184    | 
|Intangibles                          |  |      | 154    |      |  |   | 170    | 
|State and local taxes                |  |      | 1,525  |      |  |   | 1,211  | 
|Other                                |  |      | 772    |      |  |   | 774    | 
|                                     |  |      |        |      |  |   |        | 
|Total deferred tax assets            |  |      | 15,246 |      |  |   | 21,173 | 
|                                     |  |      |        |      |  |   |        | 
|Deferred tax liabilities:            |  |      |        |      |  |   |        | 
|Pension contribution                 |  |      | 1,565  |      |  |   | 899    | 
|Other                                |  |      | 625    |      |  |   | 359    | 
|                                     |  |      |        |      |  |   |        | 
|Total deferred tax liabilities       |  |      | 2,190  |      |  |   | 1,258  | 
|                                     |  |      |        |      |  |   |        | 
|Net deferred tax assets              |  | $    | 13,056 |      |  | $ | 19,915 | 
|                                     |  |      |        |      |  |   |        | 

The net change from
the deferred tax assets as of September 30, 2000 and
net deferred tax assets as of September 30, 2001 is primarily the result of tax
credit carryforwards and an adjustment for nonqualified stock options, with
such change having a balance sheet impact only.

The tax credit carryforwards are the result of net operating loss
carryback claims to September 30, 1999 and September 30, 2000, as a result of
the exercise of nonqualified stock options.

Note J  Leases

The Company leases certain equipment under capital leases. Manufacturing,
laboratory and office equipment includes $495 of leased equipment at September
30, 2001 and 2000. Accumulated depreciation includes $495 at September 30,
2001 and 2000 related to these leases. The Company also leases certain office
and manufacturing facilities and office equipment under operating leases. Rent
expense under operating leases (net of sublease income of $350 in 2001, $410 in
2000 and $211 in 1999) for 2001, 2000 and 1999 was $1,291, $1,159 and $1,657,
respectively. Future minimum lease payments under operating leases are:

|                                       |            |   |       |       | 
|-------------------------------------- | ---------- | - | ----- | ----- | 
|                                       | 2002       |   |       | 1,370 | 
|                                       | 2003       |   |       | 880   | 
|                                       | 2004       |   |       | 730   | 
|                                       | 2005       |   |       | 633   | 
|                                       | 2006       |   |       | 486   | 
|                                       | After 2006 |   |       | 910   | 
|                                       |            |   |       |      
|Total minimum operating lease payments |            | $ | 5,009 |      
|                                       |            |   |       |      

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Note K  Segment and Geographic Information

The Companys business is to develop test and measurement-based solutions
to verify customers product performance or aid in their product development
process. The Companys customers are engineers, technicians and scientists in
manufacturing, product development and research functions within a range of
industries. Although the Companys products vary in capability,
sophistication, use, size and price, they basically test, measure and analyze
electrical and physical properties, and in some cases RF or light. As such,
the Companys management has determined that the Company operates in a single
industry segment. The operations by geographic area are presented below. The
basis for attributing revenues from external customers to a geographic area is
the location of the customer.

|                   |  |      |         |      |  |      |         |  |  |   |         | 
|------------------ |  | ---- | ------- | ---- |  | ---- | ------- |  |  | - | ------- | 
|                   |  | 2001 |         | 2000 |  | 1999
|                   |  |      |         |      |  |     
|Net sales:         |  |      |         |      |  |      |         |  |  |   |         | 
|United States      |  | $    | 67,567  |      |  | $    | 76,291  |  |  | $ | 50,672  | 
|Europe             |  |      | 46,514  |      |  |      | 46,379  |  |  |   | 31,986  | 
|Pacific Basin      |  |      | 27,887  |      |  |      | 21,891  |  |  |   | 12,513  | 
|Other              |  |      | 7,724   |      |  |      | 6,000   |  |  |   | 5,767   | 
|                   |  |      |         |      |  |      |         |  |  |   |         | 
|                   |  | $    | 149,692 |      |  | $    | 150,561 |  |  | $ | 100,938 | 
|                   |  |      |         |      |  |      |         |  |  |   |         | 
|Long-lived assets: |  |      |         |      |  |      |         |  |  |   |         | 
|United States      |  | $    | 19,037  |      |  | $    | 16,856  |  |  | $ | 15,898  | 
|Germany            |  |      | 2,797   |      |  |      | 2,592   |  |  |   | 3,017   | 
|Other              |  |      | 397     |      |  |      | 289     |  |  |   | 334     | 
|                   |  |      |         |      |  |      |         |  |  |   |         | 
|                   |  | $    | 22,231  |      |  | $    | 19,737  |  |  | $ | 19,249  | 
|                   |  |      |         |      |  |      |         |  |  |   |         | 

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Note L  Contingencies

On March 26, 2001, a purported class action complaint (the Complaint)
was filed in the United States District Court for the Northern District of Ohio
against the Company and Joseph P. Keithley, the Companys chairman, president
and chief executive officer, alleging violations of Section 10(b) and Section
20(a) of the Securities Exchange Act of 1934, as amended. The purported class
action was filed on behalf of all those who purchased Keithley stock between
January 18, 2001 and March 9, 2001 (the Class Period). According to the
plaintiffs, the Company, with the knowledge and assistance of the individual
defendant, made certain false and misleading statements concerning the
Companys business condition and prospects for the second quarter of fiscal
2001, the three months ending March 31, 2001, during the Class Period. The
plaintiffs are seeking unspecified amounts as damages, interest costs and other
ancillary relief. The Company and Mr. Keithley have been served with six
additional complaints that are identical to the Complaint described above.
These complaints were filed in the United States District Court for the
Northern District of Ohio on March 28, 2001, March 29, 2001, March 30, 2001,
April 5, 2001, April 12, 2001 and May 4, 2001. On July 23, 2001, the actions
were consolidated and recaptioned In re: Keithley Instruments, Inc., Securities
Litigation. On August 29, 2001, plaintiffs filed an Amended Complaint that
included additional factual allegations. The Company will respond to all the
allegations at the appropriate time.

Management believes that these lawsuits are without merit, and management
and the Company intend to defend them vigorously.

The Company is engaged in various other legal proceedings arising in the
ordinary course of business. The ultimate outcome of these proceedings is not
expected to have a material adverse effect on the Companys consolidated
financial position, results of operations or cash flows.

F-22



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##### Table of Contents



Unaudited Quarterly Results of Operations
(In Thousands of Dollars Except for Per-Share Data)

|                               |  |       |        |        |  |       |        |        |  |   |        |  |  |   |        | 
|------------------------------ |  | ----- | ------ | ------ |  | ----- | ------ | ------ |  | - | ------ |  |  | - | ------ | 
|                               |  | First |        | Second |  | Third |        | Fourth
|                               |  |       |        |        |  |       |        |       
|Fiscal 2001                    |  |       |        |        |  |       |        |        |  |   |        |  |  |   |        | 
|Net sales                      |  | $     | 44,508 |        |  | $     | 43,168 |        |  | $ | 36,275 |  |  | $ | 25,741 | 
|Gross profit                   |  |       | 27,974 |        |  |       | 26,342 |        |  |   | 21,776 |  |  |   | 13,901 | 
|Income before income taxes     |  |       | 10,954 |        |  |       | 7,964  |        |  |   | 5,850  |  |  |   | 1,431  | 
|Net income                     |  |       | 6,901  |        |  |       | 5,112  |        |  |   | 4,086  |  |  |   | 1,293  | 
|Diluted earnings per share     |  |       | .42    |        |  |       | .31    |        |  |   | .25    |  |  |   | .08    | 
|                              
|Fiscal 2000                    |  |       |        |        |  |       |        |        |  |   |        |  |  |   |        | 
|Net sales                      |  | $     | 29,760 |        |  | $     | 37,271 |        |  | $ | 40,492 |  |  | $ | 43,038 | 
|Gross profit                   |  |       | 18,000 |        |  |       | 22,811 |        |  |   | 25,057 |  |  |   | 26,068 | 
|Gain on sale of business       |  |       | 477    |        |  |       |       |        |  |   |       |  |  |   | 476    | 
|Income before income taxes (1) |  |       | 5,400  |        |  |       | 7,524  |        |  |   | 9,052  |  |  |   | 10,495 | 
|Net income                     |  |       | 3,510  |        |  |       | 4,826  |        |  |   | 5,783  |  |  |   | 6,926  | 
|Diluted earnings per share (1) |  |       | .23    |        |  |       | .30    |        |  |   | .36    |  |  |   | .42    | 



---

|(1) |  | The first and fourth quarters of fiscal 2000 include pretax income of
$477, or $.02 per share, and $476, or $.02 per share, for the gain on the
sales of previously disposed businesses, respectively.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-23



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##### Table of Contents



SCHEDULE II

KEITHLEY INSTRUMENTS, INC.
VALUATION AND QUALIFYING ACCOUNTS
(In Thousands of Dollars)

|                                            |  |                     |       |                  |  |                |   |           |  |                |       |  |  |   |   | 
|------------------------------------------- |  | ------------------- | ----- | ---------------- |  | -------------- | - | --------- |  | -------------- | ----- |  |  | - | - | 
|Column A                                    |  | Column B            |       | Column C         |  | Column D       |   | Column E 
|                                            |  |                     |       |                  |  |                |   |          
|                                            |  | Balance at          |       | Charged to Costs |  |                |   |           |  | Balance at End
|Description                                 |  | Beginning of Period |       | and Expenses     |  | Deductions (1) |   | of Period
|                                            |  |                     |       |                  |  |                |   |          
|For the Year Ended
September 30, 2001:      |  |                     |       |                  |  |                |   |           |  |                |       |  |  |   |   | 
|Valuation allowance
for deferred tax
assets |  | $                   |      |                  |  | $              |  |           |  | $              |      |  |  | $ |  | 
|For the Year Ended
September 30, 2000:      |  |                     |       |                  |  |                |   |           |  |                |       |  |  |   |   | 
|Valuation allowance
for deferred tax
assets |  | $                   |      |                  |  | $              |  |           |  | $              |      |  |  | $ |  | 
|For the Year Ended
September 30, 1999:      |  |                     |       |                  |  |                |   |           |  |                |       |  |  |   |   | 
|Valuation allowance
for deferred tax
assets |  | $                   | 3,127 |                  |  | $              |  |           |  | $              | 3,127 |  |  | $ |  | 



|(1) |  | Represents utilization of tax credits, capital loss carryovers and
release of valuation reserve.
|--- |  | ------------------------------------------------------------------------------------------------

F-24