##### Table of Contents



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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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Form 10-Q

(Mark One)

For the quarterly period ended March 31, 2002

OR

o    Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934

Commission File Number 1-9965



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

|                                                                    |  |                                                
|------------------------------------------------------------------- |  | -----------------------------------------------
|Ohio
(State or other jurisdiction of
incorporation or organization) |  | 34-0794417
(I.R.S. Employer
Identification No.)

28775 Aurora Road, Solon, Ohio
44139
(Address of principal executive offices) (Zip Code)

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

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

As of May 6, 2002 the Registrant had outstanding 13,596,964 Common
Shares, without par value, and 2,150,502 Class B Common Shares, without par
value.

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TABLE OF CONTENTS



|                                                   |                                                                                                |                                            |  |  |  |  |  | 
|-------------------------------------------------- | ---------------------------------------------------------------------------------------------- | ------------------------------------------ |  |  |  |  |  | 
|Part I. Financial Information                     
|                                                   | ITEM 1. Financial Statements.                                                                 
|                                                   |                                                                                                | CONSOLIDATED BALANCE SHEET                
|                                                   |                                                                                                | CONSOLIDATED STATEMENT OF INCOME          
|                                                   |                                                                                                | CONSOLIDATED STATEMENT OF CASH FLOWS      
|                                                   |                                                                                                | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|                                                   | ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
|                                                   | ITEM 3. Quantitative and Qualitative Disclosure About Market Risk.                            
|PART II. OTHER INFORMATION                        
|                                                   | Item 1. Legal Proceedings.                                                                    
|                                                   | Item 4. Submission of Matters to a Vote of Security Holders.                                  
|                                                   | Item 6. Exhibits and Reports on Form 8-K.                                                     
|SIGNATURES                                        
|EX-11 Statement of Re-Comput. of Per Share Earngs.



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##### Table of Contents






PART I. FINANCIAL INFORMATION




ITEM 1. Financial Statements.

KEITHLEY INSTRUMENTS, INC.




|                                           |                                         |                            |                      |        |           |        |               |        |        |         |         |        |        |        | 
|------------------------------------------ | --------------------------------------- | -------------------------- | -------------------- | ------ | --------- | ------ | ------------- | ------ | ------ | ------- | ------- | ------ | ------ | ------ | 
|                                           |                                         |                            |                      |        | March 31, |        | September 30,
|                                           |                                         |                            |                      |        | 2002      |        | 2001          |        | 2001  
|                                           |                                         |                            |                      |        |           |        |               |        |       
|Assets                                     |                                         |                            |                      |        |           |        |               |        |        |         |         |       
|                                          
|Current assets:                            |                                         |                            |                      |        |           |        |               |        |        |         |         |       
|                                          
|                                          
|                                          
|                                          
|                                           | Cash and cash equivalents               |                            | $                    | 18,237 |           |        | $             | 33,248 |        |         | $       | 30,091 |       
|                                          
|                                          
|                                          
|                                          
|                                           | Short-term investments                  |                            |                      | 26,666 |           |        |               |       |        |         |         | 20,884 |       
|                                          
|                                          
|                                          
|                                          
|                                           | Refundable income taxes                 |                            |                      | 5,680  |           |        |               | 54     |        |         |         | 6,196  |       
|                                          
|                                          
|                                          
|                                          
|                                           | Accounts receivable and other, net      |                            |                      | 12,864 |           |        |               | 29,922 |        |         |         | 14,787 |       
|                                          
|                                          
|                                          
|                                          
|                                           | Inventories:                            |                            |                      |        |           |        |               |        |        |         |         |        |       
|                                          
|                                          
|                                          
|                                          
|                                           |                                         | Raw materials              |                      |        | 9,489     |        |               |        | 13,569 |         |         |        | 11,057 |       
|                                          
|                                          
|                                          
|                                          
|                                           |                                         | Work in process            |                      |        | 1,838     |        |               |        | 4,898  |         |         |        | 2,236  |       
|                                          
|                                          
|                                          
|                                          
|                                           |                                         | Finished products          |                      |        | 2,278     |        |               |        | 2,987  |         |         |        | 2,402  |       
|                                           |                                         |                            |                      |        |           |        |               |        |        |         |         |        |       
|                                           |                                         |                            | Total inventories    |        |           | 13,605 |               |        |        | 21,454  |         |        |        | 15,695 | 
|                                          
|                                          
|                                          
|                                          
|                                           | Deferred income taxes                   |                            |                      | 6,463  |           |        |               | 17,209 |        |         |         | 7,382  |       
|                                          
|                                          
|                                          
|                                          
|                                           | Prepaid expenses                        |                            |                      | 1,278  |           |        |               | 1,029  |        |         |         | 653    |       
|                                           |                                         |                            |                      |        |           |        |               |        |        |         |         |        |       
|                                           |                                         |                            | Total current assets |        |           | 84,793 |               |        |        | 102,916 |         |        |        | 95,688 | 
|                                           |                                         |                            |                      |        |           |        |               |        |        |         |         |        |       
|Property, plant and equipment, at cost     |                                         |                            | 42,346               |        |           |        | 41,457        |        |        |         | 41,207  |       
|                                          
|                                          
|                                          
|                                          
|Less-Accumulated depreciation              |                                         |                            | 28,754               |        |           |        | 27,722        |        |        |         | 27,573  |       
|                                           |                                         |                            |                      |        |           |        |               |        |        |         |         |        |       
|Total property, plant and equipment, net   |                                         |                            | 13,592               |        |           |        | 13,735        |        |        |         | 13,634  |       
|                                           |                                         |                            |                      |        |           |        |               |        |        |         |         |        |       
|Deferred income taxes                      |                                         |                            | 12,913               |        |           |        | 5,485         |        |        |         | 5,681   |       
|                                          
|                                          
|                                          
|                                          
|Other assets                               |                                         |                            | 9,299                |        |           |        | 7,901         |        |        |         | 8,597   |       
|                                           |                                         |                            |                      |        |           |        |               |        |        |         |         |        |       
|Total assets                               |                                         | $                          | 120,597              |        |           | $      | 130,037       |        |        | $       | 123,600 |       
|                                           |                                         |                            |                      |        |           |        |               |        |        |         |         |        |       
|                                          
|Liabilities and
Shareholders Equity      
|                                          
|Current liabilities:                       |                                         |                            |                      |        |           |        |               |        |        |         |         |       
|                                          
|                                          
|                                          
|                                          
|                                           | Accounts payable                        |                            | $                    | 6,081  |           |        | $             | 10,143 |        |         | $       | 5,906  |       
|                                          
|                                          
|                                          
|                                          
|                                           | Accrued payroll and related expenses    |                            |                      | 2,895  |           |        |               | 5,854  |        |         |         | 7,213  |       
|                                          
|                                          
|                                          
|                                          
|                                           | Other accrued expenses                  |                            |                      | 3,768  |           |        |               | 7,085  |        |         |         | 4,826  |       
|                                          
|                                          
|                                          
|                                          
|                                           | Income taxes payable                    |                            |                      | 1,248  |           |        |               | 6,228  |        |         |         | 3,227  |       
|                                           |                                         |                            |                      |        |           |        |               |        |        |         |         |        |       
|                                           |                                         | Total current liabilities  |                      |        | 13,992    |        |               |        | 29,310 |         |         |        | 21,172 |       
|                                           |                                         |                            |                      |        |           |        |               |        |        |         |         |        |       
|Long-term debt                             |                                         |                            | 3,000                |        |           |        | 3,000         |        |        |         | 3,000   |        |       
|                                          
|                                          
|                                          
|                                          
|Other long-term liabilities                |                                         |                            | 6,001                |        |           |        | 5,162         |        |        |         | 5,475   |       
|                                          
|                                          
|                                          
|                                          
|Deferred income taxes                      |                                         |                            | 7                    |        |           |        | 7             |        |        |         | 7       |       
|                                          
|                                          
|                                          
|                                          
|Shareholders equity:                      |                                         |                            |                      |        |           |        |               |        |        |         |         |       
|                                          
|                                          
|                                          
|                                          
|                                           | Paid-in-capital                         |                            |                      | 28,934 |           |        |               | 22,834 |        |         |         | 22,893 |       
|                                          
|                                          
|                                          
|                                          
|                                           | Earnings reinvested in the business     |                            |                      | 73,366 |           |        |               | 73,226 |        |         |         | 77,454 |       
|                                          
|                                          
|                                          
|                                          
|                                           | Accumulated other comprehensive income  |                            |                      | (1,080 | )         |        |               | (960   | )      |         |         | (708   | )     
|                                          
|                                          
|                                          
|                                          
|                                           | Unamortized portion of restricted stock |                            |                      | (130   | )         |        |               | (174   | )      |         |         | (152   | )     
|                                          
|                                          
|                                          
|                                          
|                                           | Common shares held in treasury, at cost |                            |                      | (3,493 | )         |        |               | (2,368 | )      |         |         | (5,541 | )     
|                                           |                                         |                            |                      |        |           |        |               |        |        |         |         |        |       
|                                           |                                         | Total shareholders equity |                      |        | 97,597    |        |               |        | 92,558 |         |         |        | 93,946 |       
|                                           |                                         |                            |                      |        |           |        |               |        |        |         |         |        |       
|Total liabilities and shareholders equity |                                         | $                          | 120,597              |        |           | $      | 130,037       |        |        | $       | 123,600 |       
|                                           |                                         |                            |                      |        |           |        |               |        |        |         |         |        |       

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##### Table of Contents



KEITHLEY INSTRUMENTS, INC.




|                                             |  |                      |        |                    |  |      |        |      |  |   |        |   |  |   |        |  
|-------------------------------------------- |  | -------------------- | ------ | ------------------ |  | ---- | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                             |  | For the Three Months |        | For the Six Months
|                                             |  | Ended March 31,      |        | Ended March 31,   
|                                             |  | 2002                 |        | 2001               |  | 2002 |        | 2001
|                                             |  |                      |        |                    |  |      |        |     
|Net sales                                    |  | $                    | 22,046 |                    |  | $    | 43,168 |      |  | $ | 42,470 |   |  | $ | 87,676 |  
|                                            
|                                            
|                                            
|                                            
|Cost of goods sold                           |  |                      | 9,818  |                    |  |      | 16,826 |      |  |   | 18,999 |   |  |   | 33,360 |  
|                                            
|                                            
|                                            
|                                            
|Selling, general and administrative expenses |  |                      | 11,129 |                    |  |      | 14,630 |      |  |   | 21,519 |   |  |   | 28,064 |  
|                                            
|                                            
|                                            
|                                            
|Product development expenses                 |  |                      | 3,433  |                    |  |      | 4,082  |      |  |   | 7,009  |   |  |   | 7,965  |  
|                                            
|                                            
|                                            
|                                            
|Net financing income                         |  |                      | (246   | )                  |  |      | (334   | )    |  |   | (512   | ) |  |   | (631   | )
|                                             |  |                      |        |                    |  |      |        |      |  |   |        |   |  |   |        |  
|(Loss) income before income taxes            |  |                      | (2,088 | )                  |  |      | 7,964  |      |  |   | (4,545 | ) |  |   | 18,918 |  
|                                            
|                                            
|                                            
|                                            
|Income (benefit) taxes                       |  |                      | (779   | )                  |  |      | 2,852  |      |  |   | (1,602 | ) |  |   | 6,905  |  
|                                             |  |                      |        |                    |  |      |        |      |  |   |        |   |  |   |        |  
|Net (loss) income                            |  | $                    | (1,309 | )                  |  | $    | 5,112  |      |  | $ | (2,943 | ) |  | $ | 12,013 |  
|                                             |  |                      |        |                    |  |      |        |      |  |   |        |   |  |   |        |  
|Basic (loss) earnings per share              |  | $                    | (0.08  | )                  |  | $    | 0.32   |      |  | $ | (0.19  | ) |  | $ | 0.77   |  
|                                             |  |                      |        |                    |  |      |        |      |  |   |        |   |  |   |        |  
|Diluted (loss) earnings per share            |  | $                    | (0.08  | )                  |  | $    | 0.31   |      |  | $ | (0.19  | ) |  | $ | 0.72   |  
|                                             |  |                      |        |                    |  |      |        |      |  |   |        |   |  |   |        |  
|Cash dividends per Common Share              |  | $                    | .0375  |                    |  | $    | .0375  |      |  | $ | .075   |   |  | $ | .065   |  
|                                             |  |                      |        |                    |  |      |        |      |  |   |        |   |  |   |        |  
|Cash
dividends per Class B
    Common Share  |  | $                    | .030   |                    |  | $    | .030   |      |  | $ | .060   |   |  | $ | .052   |  
|                                             |  |                      |        |                    |  |      |        |      |  |   |        |   |  |   |        |  

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##### Table of Contents



KEITHLEY INSTRUMENTS, INC.




|                                                  |                                                     |              |        |                      |      |                    |        |        |       |      |         |        |    |   |        |        |       | 
|------------------------------------------------- | --------------------------------------------------- | ------------ | ------ | -------------------- | ---- | ------------------ | ------ | ------ | ----- | ---- | ------- | ------ | -- | - | ------ | ------ | ----- | 
|                                                  |                                                     |              |        | For the Three Months |      | For the Six Months
|                                                  |                                                     |              |        | Ended March 31,      |      | Ended March 31,   
|                                                  |                                                     |              |        | 2002                 |      | 2001               |        | 2002   |       | 2001
|                                                  |                                                     |              |        |                      |      |                    |        |        |       |     
|Cash flows from operating activities:             |                                                     |              |        |                      |      |                    |        |        |       |      |         |        |    |   |        |       
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Net (loss) income                                   |              | $      | (1,309               | )    |                    | $      | 5,112  |       |      | $       | (2,943 | )  |   | $      | 12,013 |      
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Expenses not requiring outlay of cash               |              |        | 980                  |      |                    |        | 685    |       |      |         | 1,935  |    |   |        | 1,638  |      
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Changes in working capital                          |              |        | (1,788               | )    |                    |        | (758   | )     |      |         | (2,812 | )  |   |        | 1,064  |      
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Other operating activities                          |              |        | (632                 | )    |                    |        | (159   | )     |      |         | (536   | )  |   |        | (79    | )    
|                                                  |                                                     |              |        |                      |      |                    |        |        |       |      |         |        |    |   |        |        |      
|                                                  | Net cash (used in) provided
by operating activities |              |        | (2,749               | )    |                    |        | 4,880  |       |      |         | (4,356 | )  |   |        | 14,636 |      
|                                                  |                                                     |              |        |                      |      |                    |        |        |       |      |         |        |    |   |        |        |      
|Cash flows from investing activities:             |                                                     |              |        |                      |      |                    |        |        |       |      |         |        |    |   |        |       
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Payments for property, plant, and equipment         |              |        | (789                 | )    |                    |        | (1,536 | )     |      |         | (1,758 | )  |   |        | (2,314 | )    
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Purchase of investments                             |              |        | (38                  | )    |                    |        |       |       |      |         | (6,073 | )  |   |        |       |      
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Sale of investments                                 |              |        | 245                  |      |                    |        |       |       |      |         | 245    |    |   |        |       |      
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Other investing activities-net                      |              |        | 17                   |      |                    |        |       |       |      |         | 21     |    |   |        |       |      
|                                                  |                                                     |              |        |                      |      |                    |        |        |       |      |         |        |    |   |        |        |      
|                                                  | Net cash used in investing activities               |              |        | (565                 | )    |                    |        | (1,536 | )     |      |         | (7,565 | )  |   |        | (2,314 | )    
|                                                  |                                                     |              |        |                      |      |                    |        |        |       |      |         |        |    |   |        |        |      
|Cash flows from financing activities:             |                                                     |              |        |                      |      |                    |        |        |       |      |         |        |    |   |        |       
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Net decrease in short term debt                     |              |        |                     |      |                    |        |       |       |      |         |       |    |   |        | (222   | )    
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Cash dividends                                      |              |        | (574                 | )    |                    |        | (580   | )     |      |         | (1,144 | )  |   |        | (998   | )    
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Purchase of treasury stock                          |              |        |                     |      |                    |        | (1,639 | )     |      |         |       |    |   |        | (1,639 | )    
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Proceeds from employee stock purchase plans         |              |        | 1,306                |      |                    |        | 1,634  |       |      |         | 1,360  |    |   |        | 2,229  |      
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Other transactions-net                              |              |        |                     |      |                    |        | 5      |       |      |         | 67     |    |   |        | 114    |      
|                                                  |                                                     |              |        |                      |      |                    |        |        |       |      |         |        |    |   |        |        |      
|                                                  | Net cash provided by (used in)
financing activities |              |        | 732                  |      |                    |        | (580   | )     |      |         | 283    |    |   |        | (516   | )    
|                                                  |                                                     |              |        |                      |      |                    |        |        |       |      |         |        |    |   |        |        |      
|Effect of exchange rate changes on cash           |                                                     |              | (119   | )                    |      |                    | (261   | )      |       |      | (216    | )      |    |   | 34     |       
|                                                  |                                                     |              |        |                      |      |                    |        |        |       |      |         |        |    |   |        |        |      
|(Decrease) increase in cash and cash equivalents  |                                                     |              | (2,701 | )                    |      |                    | 2,503  |        |       |      | (11,854 | )      |    |   | 11,840 |       
|                                                 
|                                                 
|                                                 
|                                                 
|Cash and cash equivalents at beginning of period  |                                                     |              | 20,938 |                      |      |                    | 30,745 |        |       |      | 30,091  |        |    |   | 21,408 |       
|                                                  |                                                     |              |        |                      |      |                    |        |        |       |      |         |        |    |   |        |        |      
|Cash and cash equivalents at end of period        |                                                     | $            | 18,237 |                      |      | $                  | 33,248 |        |       | $    | 18,237  |        |    | $ | 33,248 |       
|                                                  |                                                     |              |        |                      |      |                    |        |        |       |      |         |        |    |   |        |        |      
|                                                 
|Supplemental disclosures of
cash flow information |                                                     |              |        |                      |      |                    |        |        |       |      |         |        |    |   |        |       
|                                                  | Cash (refunded) paid during the period for:         |              |        |                      |      |                    |        |        |       |      |         |        |    |   |        |        |      
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                                                     | Income taxes |        | $                    | (319 | )                  |        | $      | 1,757 |      |         | $      | (3 | ) |        | $      | 2,997 | 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                                                     | Interest     |        |                      | 34   |                    |        |        | 3     |      |         |        | 61 |   |        |        | 30    | 



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.

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##### Table of Contents






NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



A.      Management Representation



| |  | The consolidated financial statements at March 31, 2002 and 2001 and for
the three month periods then ended have not been examined by independent
accountants, but in the opinion of the management of Keithley Instruments,
Inc., all adjustments necessary to a fair statement of the consolidated
balance sheet, consolidated statement of income and consolidated statement
of cash flows for those periods have been included. All adjustments
included are of a normal, recurring nature.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

B.      Earnings per share denominator



| |  | The weighted average number of shares and share equivalents used in
determining basic earnings per share and diluted earnings per share was
15,711,256 for the quarter ended March 31, 2002, and 15,812,575 and
16,599,484 for the quarter ended March 31, 2001, respectively. The weighted
average number of shares and share equivalents used to determine basic
earnings per share and diluted earnings per share was 15,673,199 for the
six months ended March 31, 2002, and 15,700,595 and 16,579,581, for the six
months ended March 31, 2001, respectively. Both Common Shares and Class B
Common Shares are included in calculating the weighted average number of
shares outstanding.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

C.      Stock repurchase program



| |  | On December 11, 2000, the company announced its Board of Directors had
approved an open market stock repurchase program to replace the existing
program, which expired in December 2000. Under the new 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.                                                                                                                                                                                    
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The company did not repurchase shares during the second quarter or the
first half of fiscal 2002. The company did purchase 105,000 shares during
the second quarter of fiscal 2001 at an average cost of $15.61 per share
including commissions. At March 31, 2002, 164,394 Common Shares purchased
under the companys share repurchase programs remained in treasury at an
average cost of $16.11 per share including commissions. Also, included in
the Common shares held in treasury, at cost caption of the consolidated
balance sheets are 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 March 31, 2002 was 286,487.

D.      Accounting for 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.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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##### Table of Contents





| |  | 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
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 designed 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 March 31, 2002, all the companys derivative
instruments were designed 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

E.      Comprehensive income



| |  | Comprehensive income for the three and six month periods ended March 31,
2002 and 2001 is as follows:
| |  | -----------------------------------------------------------------------------------------------------

6



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##### Table of Contents



|                                                   |  |                      |        |                    |  |      |       |      |  |   |        |   |  |   |        |  
|-------------------------------------------------- |  | -------------------- | ------ | ------------------ |  | ---- | ----- | ---- |  | - | ------ | - |  | - | ------ | -
|                                                   |  | For the Three Months |        | For the Six Months
|                                                   |  | Ended March 31,      |        | Ended March 31,   
|                                                   |  | 2002                 |        | 2001               |  | 2002 |       | 2001
|                                                   |  |                      |        |                    |  |      |       |     
|Net (loss) income                                  |  | $                    | (1,309 | )                  |  | $    | 5,112 |      |  | $ | (2,943 | ) |  | $ | 12,013 |  
|                                                  
|                                                  
|                                                  
|                                                  
|Unrealized gains on value of
derivative securities |  |                      | 36     |                    |  |      | 226   |      |  |   | 127    |   |  |   | 14     |  
|                                                  
|                                                  
|                                                  
|                                                  
|Net unrealized investment losses                   |  |                      | (64    | )                  |  |      |      |      |  |   | (172   | ) |  |   |       |  
|                                                  
|                                                  
|                                                  
|                                                  
|Foreign currency translation
adjustments           |  |                      | (139   | )                  |  |      | (614  | )    |  |   | (328   | ) |  |   | (155   | )
|                                                   |  |                      |        |                    |  |      |       |      |  |   |        |   |  |   |        |  
|Comprehensive (loss) income                        |  | $                    | (1,476 | )                  |  | $    | 4,724 |      |  | $ | (3,316 | ) |  | $ | 11,872 |  
|                                                   |  |                      |        |                    |  |      |       |      |  |   |        |   |  |   |        |  

F.      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.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|              |  |                      |        |                    |  |      |        |      |  |   |        |  |  |   |        | 
|------------- |  | -------------------- | ------ | ------------------ |  | ---- | ------ | ---- |  | - | ------ |  |  | - | ------ | 
|              |  | For the Three Months |        | For the Six Months
|              |  | Ended March 31,      |        | Ended March 31,   
|              |  | 2002                 |        | 2001               |  | 2002 |        | 2001
|              |  |                      |        |                    |  |      |        |     
|Net
sales:    |  |                      |        |                    |  |      |        |      |  |   |        |  |  |   |        | 
|United States |  | $                    | 7,989  |                    |  | $    | 17,600 |      |  | $ | 15,469 |  |  | $ | 38,625 | 
|             
|             
|             
|             
|Europe        |  |                      | 8,231  |                    |  |      | 14,938 |      |  |   | 16,476 |  |  |   | 27,122 | 
|             
|             
|             
|             
|Pacific Basin |  |                      | 5,132  |                    |  |      | 8,694  |      |  |   | 8,723  |  |  |   | 16,791 | 
|             
|             
|             
|             
|Other         |  |                      | 694    |                    |  |      | 1,936  |      |  |   | 1,802  |  |  |   | 5,138  | 
|              |  |                      |        |                    |  |      |        |      |  |   |        |  |  |   |        | 
|              |  | $                    | 22,046 |                    |  | $    | 43,168 |      |  | $ | 42,470 |  |  | $ | 87,676 | 
|              |  |                      |        |                    |  |      |        |      |  |   |        |  |  |   |        | 

|                   |  |      |              |      |  |   |        |  |  |  |  |  |  |  |  | 
|------------------ |  | ---- | ------------ | ---- |  | - | ------ |  |  |  |  |  |  |  |  | 
|                   |  |      | At March 31,
|                   |  | 2002 |              | 2001
|                   |  |      |              |     
|Long-lived
assets: |  |      |              |      |  |   |        | 
|                  
|                  
|                  
|                  
|United States      |  | $    | 19,682       |      |  | $ | 18,684 | 
|                  
|                  
|                  
|                  
|Germany            |  |      | 2,770        |      |  |   | 2,554  | 
|                  
|                  
|                  
|                  
|Other              |  |      | 439          |      |  |   | 398    | 
|                   |  |      |              |      |  |   |        | 
|                   |  | $    | 22,891       |      |  | $ | 21,636 | 
|                   |  |      |              |      |  |   |        | 

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

(In Thousands of Dollars)

Critical Accounting Policies and
Estimates

Management has identified the companys critical accounting policies. These
policies have the potential to have a more significant impact on the companys
financial statements, either because of the significance of the financial
statement item to which they relate, or because they require judgment and
estimation due to the uncertainty involved in measuring, at a specific point in
time, events which will be settled in the future.

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.

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 materially
from those estimates.

Inventories are stated at the lower of cost or market. Cost is determined based
on a currently-adjusted standard, which approximates actual cost on a
first-in, first-out basis. The company periodically reviews its recorded
inventory and estimates a reserve for obsolete or slow-moving items. Such
estimates are difficult to make under current economic conditions. If actual
demand and market conditions are less favorable than those projected by
management, additional reserves may be required. If actual market conditions are
more favorable than anticipated, the companys cost of sales will be lower than
expected in that period.

The companys provision for income taxes and the determination of the resulting
deferred tax assets and liabilities involves a significant amount of judgment by
management. The quarterly provision for income taxes is based upon an estimate
of pretax financial accounting income for the full year in each of the
jurisdictions the company operates, and is impacted by various differences
between financial accounting income and taxable income. Judgment is also applied
in determining whether the deferred tax assets will be realized in full or in
part.

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Results of Operations

Second Quarter 2002 Compared with Second Quarter 2001

The company reported a net loss for the second quarter of fiscal 2002 of $1,309,
or $0.08 per share, versus net income of $5,112, or $0.31 per diluted share, in
last years second quarter.

Net sales of $22,046 decreased 49 percent from $43,168 in the prior years
second quarter. Geographically, domestic sales were down 55 percent, Europe was
down 45 percent and the Pacific Basin region was down 41 percent. Sequentially,
sales increased 8 percent from the first quarter; the first sequential increase
since December 2000. Orders of $22,657 for the second quarter increased 13
percent from the first quarter resulting from higher orders from the companys
semiconductor and telecommunications industry customers. Orders from the
optoelectronics industry were flat, while research and education customer orders
decreased from a strong first quarter. When compared to the prior years second
quarter, orders decreased 37 percent from $36,172 last year. Geographically,
orders for the quarter were down 46 percent in the United States, 38 percent in
Europe, and down only 2 percent in the Pacific Basin compared to the same period
a year ago. Order backlog increased slightly during the quarter to $12,245 at
March 31, 2002.

Cost of goods sold as a percentage of net sales increased to 44.5 percent from
39.0 percent in the prior years second quarter. More than three-fourths of the
percentage increase was due to spreading fixed manufacturing costs over lower
sales volumes, with the remaining portion due to a less favorable product mix
and a stronger dollar. The effect of foreign exchange hedging on cost of goods
sold was immaterial in both periods.

Selling, general and administrative expenses of $11,129 decreased 24 percent
from $14,630 in last years second quarter, although increased as a percentage
of net sales to 50.5 percent from 33.9 percent last year. The decrease in
dollars was due to lower commissions and incentive programs as a result of lower
sales, and lower discretionary spending resulting from the companys cost
cutting measures. Selling, general and administrative expenses increased $739,
or 7 percent, sequentially from the first quarter due to additional costs
associated with the start-up of the Japanese organization, higher commissions on
higher sales and higher product promotional expenses.

Product development expenses were $3,433, or 15.6 percent of net sales, down
$649, or 16 percent, from last years $4,082, or 9.5 percent of sales. The
decrease was due to lower discretionary spending. Sequentially, product
development decreased 4 percent from the first quarter.

The company generated net financing income during the second quarter of $246
versus $334 last year. Although cash and short-term investments were higher than
year ago levels, lower interest rates caused financing income to decrease from
the prior year.

The company recorded a tax benefit for the second quarter at a 37.3 percent
rate. Last years second quarter tax rate was 35.8 percent.

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Six Months Ended March 31,
2002 Compared with Six Months Ended March 31, 2001

The net loss for the first half of fiscal 2002 was $2,943, or $0.19 per share,
compared to net income of $12,013, or $0.72 per diluted share, last year.

Net sales of $42,470 decreased 52 percent from $87,676 reported for the six
month period last year. Sales declined in all major geographies with sales down
60 percent in the United States, 39 percent in Europe and 48 percent in the
Pacific Basin region. Orders for the six month period were down 50 percent
versus the prior year. Geographically, orders were down 58 percent in the United
States, 44 percent in Europe, and down 46 percent in the Pacific Basin. For the
first half of fiscal 2002, semiconductor orders comprised approximately 20
percent of the total, telecommunications orders accounted for about 15 percent,
optoelectronics orders made up 5 percent, while research and education comprised
approximately 25 percent of total orders.

Cost of goods sold as a percentage of net sales increased to 44.7 percent from
38.0 percent for the six month period last year. The majority of the percentage
increase was due to spreading fixed manufacturing costs over lower sales
volumes, with the remaining portion due to a less favorable product mix. The
effect of foreign exchange hedging on cost of goods sold was immaterial in both
periods.

Selling, general and administrative expenses of $21,519 decreased 23 percent
from $28,064 in the same period last year, but increased as a percentage of net
sales to 50.7 from 32.0. The decrease in dollars was due to lower commissions
and incentive programs as a result of lower sales, and lower discretionary
spending resulting from the companys cost cutting measures. Additionally, the
company opened a direct sales and support office in Japan on schedule on April
1, 2002. During the first six months of fiscal 2002, the company incurred
approximately $900 of costs associated with the start-up of the Japanese
organization.

Product development expenses for the first half of fiscal 2002 were $7,009, or
16.5 percent of net sales, down $956, or12 percent, from last years $7,965, or
9.1 percent of sales. The decrease was due to lower discretionary spending.

The Company generated net financing income during the first half of fiscal 2002
of $512 versus $631 in the prior year. Although cash and short-term investments
were higher than year ago levels, lower interest rates caused financing income
to decrease from the prior year.

The company recorded a tax benefit for the first half of fiscal 2002 at a 35.3
percent rate. Last years effective tax rate for the first half was 36.5
percent.

Liquidity and Capital Resources

Cash used in operations was $2,749 for the second quarter and $4,356 for the six
months ended March 31, 2002. Additionally, the company used $6,073 to purchase
short-term investments, $1,758 for capital expenditures, and $1,144 to pay
dividends for the first half of fiscal 2002. The company received $1,306 and
$1,360 for the second quarter and first half of fiscal 2002,

10



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##### Table of Contents



respectively, as
proceeds from employee stock purchase plans. The company did not repurchase any
Common Shares during the first half of fiscal 2002. (See Note C.) At March 31,
2002, cash and cash equivalents totaled $18,237, a decrease of $2,701 during the
quarter and $11,854 since September 30, 2001. Short-term investments totaled
$26,666 at March 31, 2002, a decrease of $253 during the quarter, but an
increase of $5,782 since September 30, 2001. Debt totaled $3,000 at March 31,
2002 and the debt-to-capital ratio was 3.0 percent.

The company expects to finance debt service, capital spending, and working
capital requirements with cash and cash equivalents. At March 31, 2002, the
company had available unused lines of credit with domestic and foreign banks
aggregating $12,000, of which $5,000 were short term and $7,000 were long term.

During the normal course of operations, the company enters into both capital and
operating lease commitments for certain office facilities and equipment. The
future minimum payments under these lease commitments are not material to the
consolidated results or financial position.

Outlook

The company is encouraged by the good news it is hearing with regard to the
semiconductor industry, consumer electronics and flat panel displays. While
management expects improvements in some segments of the electronics industry
over the next year, they expect other segments to not improve in the near-term.
The companys sales are order dependent and based on what management is
currently seeing, sales for the June 2002 quarter are estimated to range between
$21,000 and $25,000, with a pretax loss as a percentage of net sales in the
single-digit to low-teens range.

Factors That May Affect Future
Results

Statements included in the Liquidity and Capital Resources section and the
Outlook 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
second quarter 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
industries. 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 further decline in sales as a
result of the current economic

11



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##### Table of Contents



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 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 64
percent of the companys revenue during the first half of fiscal 2002. 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 began
utilizing its own sales force. The companys sales and earnings could be
adversely affected due to a loss of sales during fiscal 2002 because of the
transition, as well as the actual costs incurred to open and maintain the direct
sales office. Additionally, the companys results could be adversely affected if
it is unable to develop an effective sales and support organization in Japan.

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##### Table of Contents



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.




ITEM 3. Quantitative and Qualitative Disclosure 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
percent increase in interest rates would not have a material impact on the
companys results of operations, financial position or cash flows.

13



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##### Table of Contents






PART II. OTHER INFORMATION




Item 1. Legal Proceedings.

See Item 3  Legal Proceedings in the companys annual report on Form
10-K for the fiscal year ended September 30, 2001, for a description of current
legal proceedings. There have been no material changes with respect to these
matters since that report was filed.




Item 4. Submission of Matters to a Vote of Security Holders.

On February 16, 2002, the registrant conducted its Annual Meeting of
Shareholders. The follow matters were brought before the shareholders for vote
at this meeting:

|         |  |     |  | 
|-------- |  | --- |  | 
|PROPOSAL |  | FOR |  | 
|         |  |     |  | 

(a)    Election of Directors:

|                       |  |  |            |  |  |  |           | 
|---------------------- |  |  | ---------- |  |  |  | --------- | 
|Joseph P. Keithley     |  |  | 32,087,680 |  |  |  | 1,304,997 | 
|                      
|                      
|                      
|                      
|Brian R. Bachman       |  |  | 33,255,615 |  |  |  | 137,062   | 
|                      
|                      
|                      
|                      
|James B. Griswold      |  |  | 33,069,005 |  |  |  | 323,672   | 
|                      
|                      
|                      
|                      
|William J. Hudson, Jr. |  |  | 33,252,816 |  |  |  | 139,861   | 
|                      
|                      
|                      
|                      
|Dr. N. Mohan Reddy     |  |  | 33,092,776 |  |  |  | 299,901   | 
|                      
|                      
|                      
|                      
|R. Elton White         |  |  | 33,250,312 |  |  |  | 142,365   | 
|                      
|                      
|                      
|                      
|James T. Bartlett      |  |  | 9,325,638  |  |  |  | 2,582,019 | 
|                      
|                      
|                      
|                      
|Leon J. Hendrix, Jr.   |  |  | 11,766,411 |  |  |  | 141,246   | 



|                                                                                                                                                                     |  |     |            |         |  |         |           |  |  |  |        | 
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --- | ---------- | ------- |  | ------- | --------- |  |  |  | ------ | 
|PROPOSAL                                                                                                                                                             |  | FOR |            | AGAINST |  | ABSTAIN
|                                                                                                                                                                     |  |     |            |         |  |        
|                                                                                                                                                                    
|(b)    A proposal to approve the Keithley
Instruments, Inc. 2002 Stock
      Incentive Plan                                                                          |  |     | 23,716,779 |         |  |         | 5,408,030 |  |  |  | 50,968 | 
|                                                                                                                                                                    
|(c)    A proposal to amend the Keithley
Instruments, Inc. 1997 Directors
      Stock Option Plan to increase the
number of shares subject to
      grant to 850,000 |  |     | 27,171,863 |         |  |         | 1,954,789 |  |  |  | 49,124 | 



| |  | No other matters were brought before shareholders for a vote at the
meeting.
| |  | ----------------------------------------------------------------------------

14



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##### Table of Contents






Item 6. Exhibits and Reports on Form 8-K.

|    |  |           |  |                                           
|--- |  | --------- |  | ------------------------------------------
|(a) |  | Exhibits. |  | The following exhibits are filed herewith:

|        |         |                                               
|------- | ------- | ----------------------------------------------
|Exhibit
|Number  | Exhibit
|        |        
|11      |         | Statement Re Computation of Per Share Earnings

|    |  |                                                                                                          
|--- |  | ---------------------------------------------------------------------------------------------------------
|(b) |  | Reports on Form 8-K.  No reports on Form 8-K were filed during
the quarterly period ended March 31, 2002.




SIGNATURES

Pursuant to the requirements 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)                                                              
|     
|     
|Date: |  | May 7, 2002 |  | /s/ Joseph P. Keithley                                                                               
|      |  |             |  |                                                                                                      
|      |  |             |  | Joseph P.
Keithley
Chairman, President and Chief Executive Officer
(Principal Executive Officer)     
|     
|     
|     
|Date: |  | May 7, 2002 |  | /s/ Mark J. Plush                                                                                    
|      |  |             |  |                                                                                                      
|      |  |             |  | Mark J. Plush
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)

15