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 June 30, 2009
 Commission File Number 1-9965
 KEITHLEY INSTRUMENTS, INC.
  Ohio
(State or other jurisdiction of incorporation or organization)
    
    34-0794417
(I.R.S. Employer Identification No.)
 28775 Aurora Road, Solon, Ohio 44139
 Registrants telephone number, including area code: (440) 248-0400
  YES þ NO o
  YES þ NO o
 Rule 12b-2
 Large accelerated filero
    
    Accelerated filer þ
    
    Non-accelerated filer o
(Do not check if smaller reporting company.)
    
    Smaller reporting company o
  YES o NO þ




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##### 



Forward-Looking Statements
      1




---



##### 



PART I. FINANCIAL INFORMATION
 ITEM 1 Financial Statements.
   
 June 30, 2009
    
    
    September 30, 2008AssetsCurrent assets:Cash and cash equivalents
    
    $
    25,542
    
    
    $
    22,073Restricted cash
    
    
    558
    
    
    
    Short-term investments
    
    
    868
    
    
    
    5,700Accounts receivable and other, net
    
    
    10,926
    
    
    
    17,265Inventories
    
    
    10,389
    
    
    
    19,823Deferred income taxes
    
    
    559
    
    
    
    5,483Prepaid expenses
    
    
    1,761
    
    
    
    2,079Total current assets
    
    
    50,603
    
    
    
    72,423Property, plant and equipment, at cost
    
    
    54,633
    
    
    
    54,326Less-Accumulated depreciation
    
    
    43,049
    
    
    
    41,174Property, plant and equipment, net
    
    
    11,584
    
    
    
    13,152Deferred income taxes
    
    
    996
    
    
    
    26,097Intangible assets
    
    
    980
    
    
    
    1,190Prepaid pension assets
    
    
    6,066
    
    
    
    14,042Other assets
    
    
    4,002
    
    
    
    11,074Total assets
    
    $
    74,231
    
    
    $
    137,978Liabilities and Shareholders EquityCurrent liabilities:Short-term debt
    
    $
    199
    
    
    $
    23Accounts payable
    
    
    3,997
    
    
    
    7,325Accrued payroll and related expenses
    
    
    4,009
    
    
    
    7,073Other accrued expenses
    
    
    4,968
    
    
    
    6,142Income taxes payable
    
    
    1,039
    
    
    
    1,174Total current liabilities
    
    
    14,212
    
    
    
    21,737Long-term deferred compensation
    
    
    1,950
    
    
    
    2,561Deferred income taxes
    
    
    69
    
    
    
    65Long-term income taxes payable
    
    
    2,737
    
    
    
    2,919Pension liability
    
    
    16,889
    
    
    
    6,626Other long-term liabilities
    
    
    791
    
    
    
    768Shareholders equity:Common Shares, stated value $.0125:Authorized  80,000,000; issued and outstanding 
14,911,117 at June 30, 2009 and
14,722,585 at September 30, 2008
    
    
    186
    
    
    
    184Class B Common Shares, stated value $.0125:Authorized  9,000,000; issued and outstanding 
2,150,502 at June 30, 2009 and September 30, 2008
    
    
    27
    
    
    
    27Capital in excess of stated value
    
    
    38,741
    
    
    
    38,930Retained earnings
    
    
    33,263
    
    
    
    80,759Accumulated other comprehensive loss
    
    
    (19,234
    )
    
    
    (1,873
    )Common shares held in treasury, at cost
    
    
    (15,400
    )
    
    
    (14,725
    )Total shareholders equity
    
    
    37,583
    
    
    
    103,302Total liabilities and shareholders equity
    
    $
    74,231
    
    
    $
    137,978
   2




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##### 



For the Three Months
    
    
    For the Nine MonthsEnded June 30,
    
    
    Ended June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Net sales
    
    $
    23,438
    
    
    $
    40,955
    
    
    $
    78,469
    
    
    $
    119,331Cost of goods sold
    
    
    10,953
    
    
    
    17,191
    
    
    
    34,657
    
    
    
    48,588Inventory write-off and accelerated depreciation
for discontinued product line
    
    
    
    
    
    
    
    
    
    
    2,540
    
    
    
    Gross profit
    
    
    12,485
    
    
    
    23,764
    
    
    
    41,272
    
    
    
    70,743Selling, general and administrative expenses
    
    
    11,678
    
    
    
    17,441
    
    
    
    37,952
    
    
    
    49,869Product development expenses
    
    
    3,655
    
    
    
    6,771
    
    
    
    14,341
    
    
    
    19,212Restructuring and other charges (See Note O)
    
    
    
    
    
    
    
    
    
    
    4,202
    
    
    
    Operating (loss) income
    
    
    (2,848
    )
    
    
    (448
    )
    
    
    (15,223
    )
    
    
    1,662Investment income
    
    
    42
    
    
    
    338
    
    
    
    274
    
    
    
    1,321Interest expense
    
    
    (19
    )
    
    
    (15
    )
    
    
    (47
    )
    
    
    (53
    )Impairment of long-term investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (670
    )(Loss) income before income taxes
    
    
    (2,825
    )
    
    
    (125
    )
    
    
    (14,996
    )
    
    
    2,260Income tax provision (benefit)
    
    
    601
    
    
    
    (86
    )
    
    
    31,068
    
    
    
    225Net (loss) income
    
    $
    (3,426
    )
    
    $
    (39
    )
    
    $
    (46,064
    )
    
    $
    2,035Basic (loss) earnings per share
    
    $
    (0.22
    )
    
    $
    (0.00
    )
    
    $
    (2.95
    )
    
    $
    0.13Diluted (loss) earnings per share
    
    $
    (0.22
    )
    
    $
    (0.00
    )
    
    $
    (2.95
    )
    
    $
    0.13Cash dividends per Common Share
    
    $
    .0125
    
    
    $
    .0375
    
    
    $
    .0875
    
    
    $
    .1125Cash dividends per Class B Common Share
    
    $
    .01
    
    
    $
    .03
    
    
    $
    .07
    
    
    $
    .09
   3




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##### 



For the Nine MonthsEnded June 30,2009
    
    
    2008Cash flows from operating activities:Net (loss) income
    
    $
    (46,064
    )
    
    $
    2,035Adjustments to reconcile net (loss) income to net cash used
in operating activities:Depreciation
    
    
    2,642
    
    
    
    3,007Stock-based compensation
    
    
    (303
    )
    
    
    2,075Non-cash restructuring charges and inventory write-down
    
    
    4,498
    
    
    
    Loss on the disposition/impairment of assets
    
    
    92
    
    
    
    746Deferred income taxes
    
    
    29,982
    
    
    
    (1,926
    )Other items not affecting outlay of cash
    
    
    158
    
    
    
    120Changes in working capital
    
    
    3,947
    
    
    
    (7,391
    )Other operating activities
    
    
    623
    
    
    
    (808
    )Net cash used in operating activities
    
    
    (4,425
    )
    
    
    (2,142
    )Cash flows from investing activities:Payments for property, plant and equipment
    
    
    (1,544
    )
    
    
    (2,768
    )Restricted cash
    
    
    (558
    )
    
    
    Purchase of short-term investments
    
    
    (868
    )
    
    
    (13,225
    )Sale of short-term investments
    
    
    12,500
    
    
    
    31,586Net cash provided by investing activities
    
    
    9,530
    
    
    
    15,593Cash flows from financing activities:Net borrowing (payment) of short term debt
    
    
    174
    
    
    
    (606
    )Cash dividends
    
    
    (1,330
    )
    
    
    (1,734
    )Purchase of treasury shares
    
    
    (787
    )
    
    
    (4,700
    )Proceeds from stock purchase and option plans
    
    
    136
    
    
    
    153Excess tax benefits from stock-based compensation arrangements
    
    
    92
    
    
    
    81Net cash used in financing activities
    
    
    (1,715
    )
    
    
    (6,806
    )Effect of exchange rate changes on cash
    
    
    79
    
    
    
    623Increase in cash and cash equivalents
    
    
    3,469
    
    
    
    7,268Cash and cash equivalents at beginning of period
    
    
    22,073
    
    
    
    12,888Cash and cash equivalents at end of period
    
    $
    25,542
    
    
    $
    20,156
   4




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##### 



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (In thousands of dollars, except for share data)
 A.
    
    Nature of Operations
  B.
    
    Summary of Significant Accounting Policies
 Basis of Presentation
    Inventory
  June 30, 2009
    
    
    September 30, 2008Raw materials
    
    $
    5,627
    
    
    $
    12,325Work in process
    
    
    793
    
    
    
    1,261Finished products
    
    
    3,969
    
    
    
    6,237Total inventories
    
    $
    10,389
    
    
    $
    19,823
  5




---



##### 



Reclassifications
  C.
    
    Recent Accounting Pronouncements
       6




---



##### 



7




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##### 



D.
    
    Earnings Per Share
  For the Three Months
    
    
    For the Nine MonthsEnded June 30,
    
    
    Ended June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Net (loss) income
    
    $
    (3,426
    )
    
    $
    (39
    )
    
    $
    (46,064
    )
    
    $
    2,035Weighted averages shares outstanding
    
    
    15,648,996
    
    
    
    15,772,488
    
    
    
    15,625,851
    
    
    
    15,899,263Dilutive effect of stock awards
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    206,252Assumed purchase of stock under
stock purchase plan
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    760Weighted average shares used for
dilutive earnings per share
    
    
    15,648,996
    
    
    
    15,772,488
    
    
    
    15,625,851
    
    
    
    16,106,275Basic (loss) earnings per share
    
    $
    (0.22
    )
    
    $
    (0.00
    )
    
    $
    (2.95
    )
    
    $
    0.13Diluted (loss) earnings per share
    
    $
    (0.22
    )
    
    $
    (0.00
    )
    
    $
    (2.95
    )
    
    $
    0.13
  E.
    
    Stock-based Compensation
   8




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##### 



Compensation costs recorded
  For the Three Months
    
    
    For the Nine MonthsEnded June 30,
    
    
    Ended June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Cost of goods sold
    
    $
    16
    
    
    $
    56
    
    
    $
    (73
    )
    
    $
    161Selling, general and administrative expenses
    
    
    182
    
    
    
    554
    
    
    
    (77
    )
    
    
    1,610Product development expenses
    
    
    35
    
    
    
    105
    
    
    
    (153
    )
    
    
    304Stock-based compensation included in operating expenses
    
    
    233
    
    
    
    715
    
    
    
    (303
    )
    
    
    2,075Estimated tax impact of stock-based compensation
    
    
    
    
    
    
    232
    
    
    
    
    
    
    
    673Stock-based compensation expense (income), net of tax
    
    $
    233
    
    
    $
    483
    
    
    $
    (303
    )
    
    $
    1,402
   Stock option activity
   Nine Months
    
    
    Nine MonthsFiscal 2009
    
    
    Fiscal 2008Expected life (years)
    
    
    4.75
    
    
    
    4.75Risk-free interest rate
    
    
    1.90
    %
    
    
    3.84
    %Volatility
    
    
    49
    %
    
    
    38
    %Dividend yield
    
    
    2.50
    %
    
    
    1.64
    %
 Performance award units
   9




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##### 



Restricted award units
  Directors equity plans
   F.
    
    Repurchase of Common Shares
     10




---



##### 



G.
    
    Financing Arrangements
  H.
    
    Accounting for Derivatives and Hedging Activities
 ,
  June 30, 2009
    
    
    September 30, 2008Assets:Contract value
    
    $
    1,193
    
    
    $
    3,739Fair value
    
    
    1,186
    
    
    
    3,499Total asset
    
    
    7
    
    
    
    240Liabilities:Contract value
    
    
    3,195
    
    
    
    2,353Fair value
    
    
    3,373
    
    
    
    2,392Total liability
    
    
    (178
    )
    
    
    (39
    )Net (liability) asset
    
    $
    (171
    )
    
    $
    201
   11




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##### 



For the Three Months
    
    
    For the Nine MonthsEnded June 30,
    
    
    Ended June 30,Financial Statement Line Item
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Cost of goods sold
    
    $
    157
    
    
    $
    125
    
    
    $
    82
    
    
    $
    446
  I.
    
    Comprehensive Income
  For the Three Months
    
    
    For the Nine MonthsEnded June 30,
    
    
    Ended June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Net (loss) income
    
    $
    (3,426
    )
    
    $
    (39
    )
    
    $
    (46,064
    )
    
    $
    2,035Unrealized (losses) gains on value of
derivative securities, net of tax
    
    
    (43
    )
    
    
    114
    
    
    
    (154
    )
    
    
    48Net unrealized investment (losses) gains,
net of tax
    
    
    
    
    
    
    (4
    )
    
    
    442
    
    
    
    (488
    )Pension liability adjustment (see Note L)
    
    
    
    
    
    
    
    
    
    
    (17,730
    )
    
    
    Foreign currency translation adjustments
    
    
    282
    
    
    
    (30
    )
    
    
    81
    
    
    
    606Comprehensive (loss) income
    
    $
    (3,187
    )
    
    $
    41
    
    
    $
    (63,425
    )
    
    $
    2,201
 J.
    
    Geographic Segment Information
  For the Three Months
    
    
    For the Nine MonthsEnded June 30,
    
    
    Ended June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Net sales:United States
    
    $
    6,308
    
    
    $
    10,141
    
    
    $
    20,065
    
    
    $
    27,542Other Americas
    
    
    424
    
    
    
    1,051
    
    
    
    1,388
    
    
    
    2,311Germany
    
    
    2,804
    
    
    
    4,911
    
    
    
    10,197
    
    
    
    16,825Other Europe
    
    
    4,762
    
    
    
    8,869
    
    
    
    16,814
    
    
    
    24,512Japan
    
    
    1,882
    
    
    
    3,239
    
    
    
    10,462
    
    
    
    13,015China
    
    
    3,750
    
    
    
    6,776
    
    
    
    9,140
    
    
    
    15,826Other Asia
    
    
    3,508
    
    
    
    5,968
    
    
    
    10,403
    
    
    
    19,300$
    23,438
    
    
    $
    40,955
    
    
    $
    78,469
    
    
    $
    119,331
  12




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##### 



At June 30,
    
    
    At September 30,2009
    
    
    2008Long-lived assets:United States
    
    $
    10,159
    
    
    $
    11,749Other
    
    
    1,425
    
    
    
    1,403$
    11,584
    
    
    $
    13,152
 K.
    
    Guarantors Disclosure Requirements
 Product Warranties
   For the Three Months
    
    
    For the Nine MonthsEnded June 30,
    
    
    Ended June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Beginning balance
    
    $
    506
    
    
    $
    784
    
    
    $
    701
    
    
    $
    722Accruals for warranties issued during the period
    
    
    242
    
    
    
    411
    
    
    
    729
    
    
    
    1,085Accruals related to pre-existing warranties
(including changes in estimates and
expiring warranties)
    
    
    (20
    )
    
    
    (27
    )
    
    
    (81
    )
    
    
    (123
    )Settlements made (in cash or in kind)
during the period
    
    
    (222
    )
    
    
    (372
    )
    
    
    (843
    )
    
    
    (888
    )Ending balance
    
    $
    506
    
    
    $
    796
    
    
    $
    506
    
    
    $
    796
 L.
    
    Pension Benefits
   13




---



##### 



Change in projected benefit obligations:Benefit obligation at September 30, 2008
    
    $
    36,594Service cost
    
    
    1,039Interest cost
    
    
    1,677Actuarial loss
    
    
    486Benefits paid
    
    
    (811
    )Curtailment
    
    
    (495
    )Benefit obligation at February 28, 2009
    
    $
    38,490Change in plan assets:Fair value of plan assets at September 30, 2008
    
    $
    44,549Actual return on pension assets
    
    
    (15,298
    )Employer contributions
    
    
    Benefits paid
    
    
    (811
    )Fair value of plan assets at February 28, 2009
    
    $
    28,440Pension liability at February 28, 2009
    
    $
    (10,050
    )Service cost earned during March  June 2009
    
    
    (489
    )Interest cost on project benefit obligation  March  June 2009
    
    
    (867
    )Expected return on plan assets  March  June 2009
    
    
    1,246Pension liability at June 30, 2009
    
    $
    (10,160
    )
  United States Plan
    
    
    German PlanFor the Three Months
    
    
    For the Three MonthsEnded June 30,
    
    
    Ended June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Service costs-benefits earned during the period
    
    $
    367
    
    
    $
    419
    
    
    $
    46
    
    
    $
    61Interest cost on projected benefit obligation
    
    
    650
    
    
    
    589
    
    
    
    110
    
    
    
    108Expected return on plan assets
    
    
    (934
    )
    
    
    (884
    )
    
    
    (19
    )
    
    
    (20
    )Net loss recognition
    
    
    23
    
    
    
    20
    
    
    
    
    
    
    
    Amortization of transition asset
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6Amortization of prior service cost
    
    
    9
    
    
    
    45
    
    
    
    2
    
    
    
    1Net periodic benefit cost
    
    $
    115
    
    
    $
    189
    
    
    $
    139
    
    
    $
    156
 United States Plan
    
    
    German PlanFor the Nine Months
    
    
    For the Nine MonthsEnded June 30,
    
    
    Ended June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Service costs-benefits earned during the period
    
    $
    1,138
    
    
    $
    1,257
    
    
    $
    134
    
    
    $
    174Interest cost on projected benefit obligation
    
    
    1,915
    
    
    
    1,767
    
    
    
    322
    
    
    
    313Expected return on plan assets
    
    
    (2,846
    )
    
    
    (2,650
    )
    
    
    (54
    )
    
    
    (58
    )Net loss recognition
    
    
    31
    
    
    
    62
    
    
    
    
    
    
    
    Amortization of transition asset
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17Amortization of prior service cost
    
    
    49
    
    
    
    134
    
    
    
    4
    
    
    
    4Curtailment expense
    
    
    28
    
    
    
    
    
    
    
    
    
    
    
    Net periodic benefit cost
    
    $
    315
    
    
    $
    570
    
    
    $
    406
    
    
    $
    450
   14




---



##### 



M.
    
    Investments and Notes Receivable
     N.
    
    Income Taxes
    15




---



##### 



O.
    
    Restructuring and Other Charges
    Product line exit costsRestructuring and other charges:Severance and related benefits
    
    $
    1,052Sales demonstration inventory write-off
    
    
    1,579Write-down of fixed assets
    
    
    341Pension plan curtailment charge
    
    
    28Lease termination charge
    
    
    103,010Inventory write-off and accelerated depreciation for
discontinued product line (included in Cost of goods sold)
    
    
    2,540$
    5,550
  Balance at October 1, 2008
    
    $
    1,252Expense booked through the income statement
    
    
    2,242Adjustment to previously recorded expense
    
    
    2Payments made during the period
    
    
    (3,021
    )Balance at June 30, 2009
    
    $
    475
  16




---



##### 



ITEM 2 Managements Discussion and Analysis of Financial Condition and Results of
Operations.
  Business Overview
     17




---



##### 



Critical Accounting Policies and Estimates
  Results of Operations
 Third Quarter Fiscal Year 2009 Compared with Third Quarter Fiscal Year 2008
      18




---



##### 



Nine Months Ended June 30, 2009 Compared with Nine Months Ended June 30, 2008
      19




---



##### 



20




---



##### 



Financial Condition, Liquidity and Capital Resources
 Working Capital
  June 30, 2009
    
    
    September 30, 2008Current assets:Cash and cash equivalents
    
    $
    25,542
    
    
    $
    22,073Restricted cash
    
    
    558
    
    
    
    Short-term investments
    
    
    868
    
    
    
    5,700Accounts receivable and other, net
    
    
    10,926
    
    
    
    17,265Total inventories
    
    
    10,389
    
    
    
    19,823Deferred income taxes
    
    
    559
    
    
    
    5,483Prepaid expenses
    
    
    1,761
    
    
    
    2,079Total current assets
    
    
    50,603
    
    
    
    72,423Current liabilities:Short-term debt
    
    
    199
    
    
    
    23Accounts payable
    
    
    3,997
    
    
    
    7,325Accrued payroll and related expenses
    
    
    4,009
    
    
    
    7,073Other accrued expenses
    
    
    4,968
    
    
    
    6,142Income taxes payable
    
    
    1,039
    
    
    
    1,174Total current liabilities
    
    
    14,212
    
    
    
    21,737Working capital
    
    $
    36,391
    
    
    $
    50,686
  Sources and Uses of Cash
  For the Nine MonthsEnded June 30,2009
    
    
    2008Cash (used in) provided by:Operating activities
    
    $
    (4,425
    )
    
    $
    (2,142
    )Investing activities
    
    
    9,530
    
    
    
    15,593Financing activities
    
    
    (1,715
    )
    
    
    (6,806
    )
  21




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##### 



Operating activities Working Capital
 Investing activities Working Capital
 Financing activities
  Financial Condition
       22




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##### 



Recent Accounting Pronouncements
       23




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##### 



ITEM 3 Quantitative and Qualitative Disclosures About Market Risk.
    24




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##### 



ITEM 4 Controls and Procedures.
   PART II. OTHER INFORMATION
 ITEM 1A.
    
    Risk Factors.
  Compliance with NYSE listing standard
      25




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##### 



Financial crisis affecting the banking system and financial markets
  ITEM 6.
    
    Exhibits.
 (a)
    
    Exhibits. The following exhibits are filed herewith:
 ExhibitNumber
    
    Exhibit31
    (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.  26




---



##### 



KEITHLEY INSTRUMENTS, INC.
(Registrant)Date: August 10, 2009
    /s/ Joseph P. KeithleyJoseph P. KeithleyChairman, President and Chief Executive Officer
(Principal Executive Officer)Date: August 10, 2009
    /s/ Mark J. PlushMark J. PlushVice President and Chief Financial Officer
(Principal Financial and Accounting Officer)  27




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##### 



ExhibitNumber
    
    Exhibit31
    (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.  28