##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 Form 10-Q
 þ
    
    Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
 For the quarterly period ended March 31, 2008
 Commission File Number 1-9965
 KEITHLEY INSTRUMENTS, INC.
  Ohio
    
    34-0794417(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 28775 Aurora Road, Solon, Ohio 44139
 Registrants telephone number, including area code: (440) 248-0400
  YES þ NO o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer   o
(Do not check if a smaller reporting company)
    
    Smaller Reporting Company o
  YES o NO þ




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TABLE OF CONTENTS  PART I. FINANCIAL INFORMATIONITEM 1. Financial StatementsITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.ITEM 3. Quantitative and Qualitative Disclosures About Market RiskITEM 4. Controls and ProceduresPART II. OTHER INFORMATIONITEM 1. Legal ProceedingsITEM 1A. Risk FactorsITEM 2. Unregistered Sales of Equity Securities and Use of ProceedsItem 4. Submission of Matters to a Vote of Security HoldersItem 6. ExhibitsSIGNATURESEX-3(A)EX-31.1EX-31.2EX-32.1EX-32.2    Table of Contents  Forward-Looking Statements
     1




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 ITEM 1 Financial Statements.
 
 March 31, 2008
    
    
    September 30, 2007AssetsCurrent assets:Cash and cash equivalents
    
    $
    18,604
    
    
    $
    12,888Short-term investments
    
    
    11,707
    
    
    
    32,340Refundable income taxes
    
    
    678
    
    
    
    136Accounts receivable and other, net
    
    
    22,494
    
    
    
    19,510Inventories:Raw materials
    
    
    11,693
    
    
    
    9,599Work in process
    
    
    2,071
    
    
    
    984Finished products
    
    
    6,014
    
    
    
    4,092Total inventories
    
    
    19,778
    
    
    
    14,675Deferred income taxes
    
    
    3,920
    
    
    
    3,961Prepaid expenses
    
    
    2,373
    
    
    
    2,026Total current assets
    
    
    79,554
    
    
    
    85,536Property, plant and equipment, at cost
    
    
    53,951
    
    
    
    51,955Less-Accumulated depreciation
    
    
    40,134
    
    
    
    38,256Property, plant and equipment, net
    
    
    13,817
    
    
    
    13,699Deferred income taxes
    
    
    27,743
    
    
    
    23,823Intangible assets
    
    
    1,330
    
    
    
    1,400Long-term investments
    
    
    7,698
    
    
    
    1,324Other assets
    
    
    21,042
    
    
    
    20,624Total assets
    
    $
    151,184
    
    
    $
    146,406Liabilities and Shareholders EquityCurrent liabilities:Short-term debt
    
    $
    26
    
    
    $
    799Accounts payable
    
    
    9,659
    
    
    
    8,018Accrued payroll and related expenses
    
    
    6,196
    
    
    
    4,799Other accrued expenses
    
    
    4,834
    
    
    
    4,753Income taxes payable
    
    
    3,211
    
    
    
    3,911Total current liabilities
    
    
    23,926
    
    
    
    22,280Long-term deferred compensation
    
    
    2,923
    
    
    
    3,924Deferred income taxes
    
    
    79
    
    
    
    74Long-term income taxes payable
    
    
    4,998
    
    
    
    Other long-term liabilities
    
    
    7,973
    
    
    
    7,104Shareholders equity:Common Shares, stated value $.0125:Authorized - 80,000,000; issued and outstanding -
14,679,979 at March 31, 2008, and
14,580,978 at September 30, 2007
    
    
    183
    
    
    
    182Class B Common Shares, stated value $.0125:Authorized - 9,000,000; issued and outstanding -
2,150,502 at March 31, 2008 and September 30, 2007
    
    
    27
    
    
    
    27Capital in excess of stated value
    
    
    38,019
    
    
    
    36,436Retained earnings
    
    
    86,573
    
    
    
    85,676Accumulated other comprehensive loss
    
    
    (860
    )
    
    
    (946
    )Common shares held in treasury, at cost
    
    
    (12,657
    )
    
    
    (8,351
    )Total shareholders equity
    
    
    111,285
    
    
    
    113,024Total liabilities and shareholders equity
    
    $
    151,184
    
    
    $
    146,406
  2




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For the Three Months
    
    
    For the Six MonthsEnded March 31,
    
    
    Ended March 31,2008
    
    
    2007
    
    
    2008
    
    
    2007Net sales
    
    $
    39,938
    
    
    $
    32,930
    
    
    $
    78,376
    
    
    $
    73,956Cost of goods sold
    
    
    15,663
    
    
    
    13,290
    
    
    
    31,397
    
    
    
    29,402Gross profit
    
    
    24,275
    
    
    
    19,640
    
    
    
    46,979
    
    
    
    44,554Selling, general and administrative expenses
    
    
    16,367
    
    
    
    16,324
    
    
    
    32,428
    
    
    
    32,967Product development expenses
    
    
    6,278
    
    
    
    6,501
    
    
    
    12,441
    
    
    
    12,247Operating income (loss)
    
    
    1,630
    
    
    
    (3,185
    )
    
    
    2,110
    
    
    
    (660
    )Investment income
    
    
    455
    
    
    
    555
    
    
    
    983
    
    
    
    1,133Interest expense
    
    

    (18
    )
    
    
    (9
    )
    
    
    (38
    )
    
    
    (27
    )Impairment of long-term investments
    
    
    (670
    )
    
    
    
    
    
    
    (670
    )
    
    
    Income (loss) before income taxes
    
    
    1,397
    
    
    
    (2,639
    )
    
    
    2,385
    
    
    
    446Income tax provision (benefit)
    
    
    212
    
    
    
    (566
    )
    
    
    311
    
    
    
    (556
    )Net income (loss)
    
    $
    1,185
    
    
    $
    (2,073
    )
    
    $
    2,074
    
    
    $
    1,002Basic earnings (loss) per share
    
    $
    0.07
    
    
    $
    (0.13
    )
    
    $
    0.13
    
    
    $
    0.06Diluted earnings (loss) per share
    
    $
    0.07
    
    
    $
    (0.13
    )
    
    $
    0.13
    
    
    $
    0.06Cash dividends per Common Share
    
    $
    .0375
    
    
    $
    .0375
    
    
    $
    .075
    
    
    $
    .075Cash dividends per Class B
Common Share
    
    $
    .030
    
    
    $
    .030
    
    
    $
    .060
    
    
    $
    .060
  3




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For the Six MonthsEnded March 31,2008
    
    
    2007Cash flows from operating activities:Net income
    
    $
    2,074
    
    
    $
    1,002Adjustments to reconcile net income to net cash provided
by operating activities:Depreciation
    
    
    1,994
    
    
    
    2,057Stock-based compensation
    
    
    1,360
    
    
    
    1,041Loss on the disposition/impairment of assets
    
    
    708
    
    
    
    105Other items not effecting outlay of cash
    
    
    (478
    )
    
    
    265Changes in working capital
    
    
    (5,273
    )
    
    
    5,820Other operating activities
    
    
    (79
    )
    
    
    (1,854
    )Net cash provided by operating activities
    
    
    306
    
    
    
    8,436Cash flows from investing activities:Payments for property, plant and equipment
    
    
    (2,062
    )
    
    
    (2,270
    )Purchase of short-term investments
    
    
    (10,725
    )
    
    
    (14,496
    )Sale of short-term investments
    
    
    23,561
    
    
    
    17,348Net cash provided by investing activities
    
    
    10,774
    
    
    
    582Cash flows from financing activities:Net payment of short term debt
    
    
    (863
    )
    
    
    (302
    )Cash dividends
    
    
    (1,160
    )
    
    
    (1,183
    )Repurchase of Common Shares
    
    
    (4,216
    )
    
    
    Proceeds from stock purchase and option plans
    
    
    96
    
    
    
    296Excess tax benefits from stock-based compensation arrangements
    
    
    37
    
    
    
    270Net cash used in financing activities
    
    
    (6,106
    )
    
    
    (919
    )Effect of exchange rate changes on cash
    
    
    742
    
    
    
    385Increase in cash and cash equivalents
    
    
    5,716
    
    
    
    8,484Cash and cash equivalents at beginning of period
    
    
    12,888
    
    
    
    10,501Cash and cash equivalents at end of period
    
    $
    18,604
    
    
    $
    18,985
  4




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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (In thousands of dollars, except for share data)
 Nature of Operations
  Summary of Significant Accounting Policies
 Basis of Presentation
    Recent Accounting Pronouncements
  5




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Earnings Per Share
  For the Three Months
    
    
    For the Six MonthsEnded March 31,
    
    
    Ended March 31,2008
    
    
    2007
    
    
    2008
    
    
    2007Net income (loss)
    
    $
    1,185
    
    
    $
    (2,073
    )
    
    $
    2,074
    
    
    $
    1,002Weighted averages shares outstanding
    
    
    15,845,978
    
    
    
    16,202,313
    
    
    
    15,953,492
    
    
    
    16,182,142Dilutive effect of stock awards
    
    
    200,213
    
    
    
    
    
    
    
    181,431
    
    
    
    210,922Assumed purchase of stock under
stock purchase plan
    
    
    593
    
    
    
    
    
    
    
    722
    
    
    
    Weighted average shares used for
dilutive earnings per share
    
    
    16,046,784
    
    
    
    16,202,313
    
    
    
    16,135,645
    
    
    
    16,393,064Basic earnings (loss) per share
    
    $
    0.07
    
    
    $
    (0.13
    )
    
    $
    0.13
    
    
    $
    0.06Diluted earnings (loss) per share
    
    $
    0.07
    
    
    $
    (0.13
    )
    
    $
    0.13
    
    
    $
    0.06
  Stock-based Compensation
  Compensation costs recorded
  6




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For the Three Months
    
    
    For the Six MonthsEnded March 31,
    
    
    Ended March 31,2008
    
    
    2007
    
    
    2008
    
    
    2007Cost of goods sold
    
    $
    56
    
    
    $
    39
    
    
    $
    105
    
    
    $
    57Selling, general and administrative expenses
    
    
    553
    
    
    
    494
    
    
    
    1,056
    
    
    
    842Product development expenses
    
    
    105
    
    
    
    92
    
    
    
    199
    
    
    
    142Stock-based compensation included in operating expenses
    
    
    714
    
    
    
    625
    
    
    
    1,360
    
    
    
    1,041Estimated tax impact of stock-based compensation
    
    
    232
    
    
    
    204
    
    
    
    442
    
    
    
    341Stock-based compensation expense, net of tax
    
    $
    482
    
    
    $
    421
    
    
    $
    918
    
    
    $
    700
   Stock option activity
   First Quarter
    
    Second QuarterFiscal Year 2008
    
    Fiscal Year 2007Expected life (years)
    
    
    4.75
    
    
    
    4.75Risk-free interest rate
    
    
    3.84
    %
    
    
    4.79
    %Volatility
    
    
    38
    %
    
    
    42
    %Dividend yield
    
    
    1.64
    %
    
    
    1.07
    %
 Performance award units
  7




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Restricted award units
  Directors equity plans
   Repurchase of Common Shares
    Financing Arrangements
  8




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Accounting for Derivatives and Hedging Activities
 ,
    Comprehensive Income
  For the Three Months
    
    
    For the Six MonthsEnded March 31,
    
    
    Ended March 31,2008
    
    
    2007
    
    
    2008
    
    
    2007Net income (loss)
    
    $
    1,185
    
    
    $
    (2,073
    )
    
    $
    2,074
    
    
    $
    1,002Unrealized losses on value of
derivative securities, net of tax
    
    
    (177
    )
    
    
    (35
    )
    
    
    (66
    )
    
    
    (86
    )Net unrealized investment (losses) gains,
net of tax
    
    
    (497
    )
    
    
    27
    
    
    
    (484
    )
    
    
    48Foreign currency translation adjustments
    
    
    557
    
    
    
    151
    
    
    
    636
    
    
    
    403Comprehensive income (loss)
    
    $
    1,068
    
    
    $
    (1,930
    )
    
    $
    2,160
    
    
    $
    1,367
 9




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Geographic Segment Information
  For the Three Months
    
    
    For the Six MonthsEnded March 31,
    
    
    Ended March 31,2008
    
    
    2007
    
    
    2008
    
    
    2007Net sales:United States
    
    $
    9,097
    
    
    $
    7,637
    
    
    $
    17,401
    
    
    $
    17,318Other Americas
    
    
    599
    
    
    
    1,003
    
    
    
    1,260
    
    
    
    2,546Germany
    
    
    5,890
    
    
    
    3,593
    
    
    
    11,914
    
    
    
    10,009Other Europe
    
    
    7,315
    
    
    
    6,651
    
    
    
    15,643
    
    
    
    14,836Japan
    
    
    5,946
    
    
    
    5,514
    
    
    
    9,776
    
    
    
    10,028China
    
    
    4,655
    
    
    
    3,826
    
    
    
    9,050
    
    
    
    8,028Other Asia
    
    
    6,436
    
    
    
    4,706
    
    
    
    13,332
    
    
    
    11,191$
    39,938
    
    
    $
    32,930
    
    
    $
    78,376
    
    
    $
    73,956
 At March 31,
    
    
    At September 30,2008
    
    
    2007Long-lived assets:United States
    
    $
    36,399
    
    
    $
    29,557Germany
    
    
    7,146
    
    
    
    6,369Other
    
    
    1,122
    
    
    
    1,121$
    44,667
    
    
    $
    37,047
 Guarantors Disclosure Requirements
 Guarantee of original lease
  Product Warranties
  10




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For the Three Months
    
    
    For the Six MonthsEnded March 31,
    
    
    Ended March 31,2008
    
    
    2007
    
    
    2008
    
    
    2007Beginning balance
    
    $
    780
    
    
    $
    1,009
    
    
    $
    722
    
    
    $
    992Accruals for warranties issued during the period
    
    
    359
    
    
    
    241
    
    
    
    674
    
    
    
    630Accruals related to pre-existing warranties
(including changes in estimates and
expiring warranties)
    
    
    (74
    )
    
    
    (29
    )
    
    
    (96
    )
    
    
    (32
    )Settlements made (in cash or in kind)
during the period
    
    
    (281
    )
    
    
    (352
    )
    
    
    (516
    )
    
    
    (721
    )Ending balance
    
    $
    784
    
    
    $
    869
    
    
    $
    784
    
    
    $
    869
 Pension Benefits
  United States Plan
    
    
    German PlanFor the Three Months
    
    
    For the Three MonthsEnded March 31,
    
    
    Ended March 31,2008
    
    
    2007
    
    
    2008
    
    
    2007Service costs-benefits earned during the period
    
    $
    419
    
    
    $
    355
    
    
    $
    57
    
    
    $
    59Interest cost on projected benefit obligation
    
    
    589
    
    
    
    551
    
    
    
    104
    
    
    
    81Expected return on plan assets
    
    
    (883
    )
    
    
    (783
    )
    
    
    (19
    )
    
    
    (16
    )Net loss recognition
    
    
    21
    
    
    
    17
    
    
    
    
    
    
    
    Amortization of transition asset
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    7Amortization of prior service cost
    
    
    45
    
    
    
    45
    
    
    
    2
    
    
    
    1Net periodic benefit cost
    
    $
    191
    
    
    $
    185
    
    
    $
    149
    
    
    $
    132
 United States Plan
    
    
    German PlanFor the Six Months
    
    
    For the Six MonthsEnded March 31,
    
    
    Ended March 31,2008
    
    
    2007
    
    
    2008
    
    
    2007Service costs-benefits earned during the period
    
    $
    838
    
    
    $
    710
    
    
    $
    113
    
    
    $
    118Interest cost on projected benefit obligation
    
    
    1,178
    
    
    
    1,102
    
    
    
    205
    
    
    
    162Expected return on plan assets
    
    
    (1,766
    )
    
    
    (1,565
    )
    
    
    (38
    )
    
    
    (32
    )Net loss recognition
    
    
    42
    
    
    
    33
    
    
    
    
    
    
    
    1Amortization of transition asset
    
    
    
    
    
    
    
    
    
    
    11
    
    
    
    12Amortization of prior service cost
    
    
    89
    
    
    
    89
    
    
    
    3
    
    
    
    2Net periodic benefit cost
    
    $
    381
    
    
    $
    369
    
    
    $
    294
    
    
    $
    263
 11




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Investments
    Income Taxes
    12




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ITEM 2 Managements Discussion and Analysis of Financial Condition and Results of
Operations.
  Business Overview
     13




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Critical Accounting Policies and Estimates
  Results of Operations
 Second Quarter Fiscal Year 2008 Compared with Second Quarter Fiscal Year 2007
      14




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Six Months Ended March 31, 2008 Compared with Six Months Ended March 31, 2007
      15




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16




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Financial Condition, Liquidity and Capital Resources
 Working Capital
  March 31
    
    
    September 30Current assets:Cash and cash equivalents
    
    $
    18,604
    
    
    $
    12,888Short-term investments
    
    
    11,707
    
    
    
    32,340Refundable income taxes
    
    
    678
    
    
    
    136Accounts receivable and other, net
    
    
    22,494
    
    
    
    19,510Total inventories
    
    
    19,778
    
    
    
    14,675Deferred income taxes
    
    
    3,920
    
    
    
    3,961Prepaid expenses
    
    
    2,373
    
    
    
    2,026Total current assets
    
    
    79,554
    
    
    
    85,536Current liabilities:Short-term debt
    
    
    26
    
    
    
    799Accounts payable
    
    
    9,659
    
    
    
    8,018Accrued payroll and related expenses
    
    
    6,196
    
    
    
    4,799Other accrued expenses
    
    
    4,834
    
    
    
    4,753Income taxes payable
    
    
    3,211
    
    
    
    3,911Total current liabilities
    
    
    23,926
    
    
    
    22,280Working capital
    
    $
    55,628
    
    
    $
    63,256
   17




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Sources and Uses of Cash
  For the Six MonthsEnded March 31,2008
    
    2007Cash provided by (used in):Operating activities
    
    $
    306
    
    
    $
    8,436Investing activities
    
    
    10,774
    
    
    
    582Financing activities
    
    
    (6,106
    )
    
    
    (919
    )
 Operating activities
 Investing activities
 Financing activities
  Outlook
  Recent Accounting Pronouncements
  18




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ITEM 3 Quantitative and Qualitative Disclosures About Market Risk.
    
 ITEM 4 Controls and Procedures.
   19




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PART II. OTHER INFORMATION
 
 ITEM 1. Legal Proceedings.
     
 ITEM 1A. Risk Factors.
  Uncertain Financial Markets
  20




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##### Table of Contents



ITEM 2 Unregistered Sales of Equity Securities and Use of Proceeds
 Issuer Purchases of Equity Securities
  Total number of
    
    Maximum number ofshares purchased as
    
    shares that may yetpart of publicly
    
    be purchased underTotal number of
    
    Average price paid
    
    announced plans or
    
    the plans orPeriod
    
    shares purchased
    
    per share (1)
    
    programs
    
    programsJanuary 1  31, 2008
    
    
    92,100
    
    
    $
    9.27
    
    
    
    92,100
    
    
    
    1,515,500February 1  29, 2008
    
    
    65,900
    
    
    $
    10.20
    
    
    
    65,900
    
    
    
    1,449,600March 1  31, 2008
    
    
    35,000
    
    
    $
    9.27
    
    
    
    35,000
    
    
    
    1,414,600Total
    
    
    193,000
    
    
    $
    9.59
    
    
    
    193,000
    
    
    
    1,414,600
 
   
 Submission of Matters to a Vote of Security Holders
  Proposal 1 - Election of Directors:
    
    FOR
    
    WITHHELDJoseph P. Keithley
    
    
    32,542,146
    
    
    
    594,077Brian R. Bachman*
    
    
    11,215,963
    
    
    
    589,480James T. Bartlett
    
    
    32,527,459
    
    
    
    608,764James B. Griswold
    
    
    32,532,739
    
    
    
    603,484Leon J. Hendrix, Jr.
    
    
    32,558,173
    
    
    
    578,050Brian J. Jackman*
    
    
    11,535,681
    
    
    
    269,762Dr. N. Mohan Reddy*
    
    
    11,569,179
    
    
    
    236,264Thomas A. Saponas
    
    
    32,899,936
    
    
    
    236,287Barbara V. Scherer
    
    
    32,528,504
    
    
    
    607,719R. Elton White
    
    
    32,474,181
    
    
    
    662,042
 
 *
    
    Elected by holders of Common Shares only. 21




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Proposal 2  Approve the amendments to the Amended Code of Regulations of Keithley
Instruments, Inc. relating to:
 FOR
    
    AGAINST
    
    ABSTAIN(a) Modernization and clarification of
existing Code
    
    
    33,015,035
    
    
    
    92,814
    
    
    
    28,373
 FOR
    
    AGAINST
    
    ABSTAIN(b) Notice of shareholder proposals
    
    
    32,968,368
    
    
    
    143,320
    
    
    
    24,534
 FOR
    
    AGAINST
    
    ABSTAIN(c) Permitting the Board to fix the number of
directors and to amend the Code to the extent
permitted by law
    
    
    32,411,200
    
    
    
    705,553
    
    
    
    19,468
 FOR
    
    AGAINST
    
    ABSTAIN(d) A new NYSE requirement regarding
uncertified shares
    
    
    33,025,748
    
    
    
    87,160
    
    
    
    23,313
  
 Exhibits
 Exhibits
 ExhibitNumber
    
    Exhibit3(a)
    
    Code of Regulations of Keithley Instruments, Inc. Amended February 9, 200831(a)
    
    Certification of Joseph P. Keithley pursuant to Rule 13a-14(a)-15d-14(a).31(b)
    
    Certification of Mark J. Plush pursuant to Rule 13a-14(a)-15d-14(a).32(a)+
    
    Certification of Joseph P. Keithley pursuant to Rule 13a-14(b) and 18 U.S.C. Section
1350.32(b)+
    
    Certification of Mark J. Plush pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350.
 
 +
    
    The certifications furnished pursuant to this item will not be deemed filed for
purposes of Section 18 of the Exchange Act (15 U.S.C. 78r), or otherwise subject to the
liability of that section. Such certification will not be deemed to be incorporated by
reference into any filing under the Securities Act or the Exchange Act, except to the
extent that the registrant specifically incorporates it by reference. 22




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##### Table of Contents



KEITHLEY INSTRUMENTS, INC.
(Registrant)Date:  May 12, 2008
    /s/ Joseph P. KeithleyJoseph P. KeithleyChairman, President and Chief Executive Officer
           (Principal Executive Officer) Date:  May 12, 2008
    /s/ Mark J. PlushMark J. PlushVice President and Chief Financial Officer
           (Principal Financial and Accounting Officer) 23