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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 Form 10-Q
 (Mark One)
 þ
    
    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarterly period ended December 31, 2007
 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.
  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
  Large accelerated filer   o
    
    Accelerated filer   þ
    
    Non-accelerated filer   o
    
    Smaller reporting company   o(Do not check if a smaller reporting company)
  YES o NO þ




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Forward-Looking Statements
     1




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TABLE OF CONTENTS  PART I. FINANCIAL INFORMATIONITEM 1. Financial StatementsITEM 2. Managements Discussion and Analysis of Financial Condition and Results of OperationsITEM 3. Quantitative and Qualitative Disclosures About Market RiskITEM 4. Controls and ProceduresPART II. OTHER INFORMATIONITEM 1A. Risk FactorsITEM 2. Unregistered Sales of Equity Securities and Use of ProceedsITEM 6. ExhibitsSIGNATURESEX-31(A)EX-31(B)EX-32(A)EX-32(B)    Table of Contents  
 PART I. FINANCIAL INFORMATION
 
 ITEM 1 Financial Statements.
 
 DECEMBER 31,
    
    
    SEPTEMBER 30,2007
    
    
    2006
    
    
    2007AssetsCurrent assets:Cash and cash equivalents
    
    $
    10,970
    
    
    $
    13,564
    
    
    $
    12,888Short-term investments
    
    
    28,019
    
    
    
    35,764
    
    
    
    32,340Refundable income taxes
    
    
    643
    
    
    
    331
    
    
    
    136Accounts receivable and other, net
    
    
    21,794
    
    
    
    24,216
    
    
    
    19,510Inventories:Raw materials
    
    
    10,189
    
    
    
    9,652
    
    
    
    9,599Work in process
    
    
    1,142
    
    
    
    1,478
    
    
    
    984Finished products
    
    
    4,336
    
    
    
    4,181
    
    
    
    4,092Total inventories
    
    
    15,667
    
    
    
    15,311
    
    
    
    14,675Deferred income taxes
    
    
    3,910
    
    
    
    4,124
    
    
    
    3,961Prepaid expenses
    
    
    2,665
    
    
    
    2,449
    
    
    
    2,026Total current assets
    
    
    83,668
    
    
    
    95,759
    
    
    
    85,536Property, plant and equipment, at cost
    
    
    53,146
    
    
    
    51,031
    
    
    
    51,955Less-Accumulated depreciation
    
    
    39,237
    
    
    
    36,535
    
    
    
    38,256Property, plant and equipment, net
    
    
    13,909
    
    
    
    14,496
    
    
    
    13,699Deferred income taxes
    
    
    26,476
    
    
    
    18,054
    
    
    
    23,823Intangible assets
    
    
    1,400
    
    
    
    
    
    
    
    1,400Other assets
    
    
    22,035
    
    
    
    22,526
    
    
    
    21,948Total assets
    
    $
    147,488
    
    
    $
    150,835
    
    
    $
    146,406Liabilities and Shareholders EquityCurrent liabilities:Short-term debt
    
    $
    449
    
    
    $
    609
    
    
    $
    799Accounts payable
    
    
    8,567
    
    
    
    8,106
    
    
    
    8,018Accrued payroll and related expenses
    
    
    4,324
    
    
    
    5,140
    
    
    
    4,799Other accrued expenses
    
    
    4,485
    
    
    
    4,609
    
    
    
    4,753Income taxes payable
    
    
    2,040
    
    
    
    2,357
    
    
    
    3,911Total current liabilities
    
    
    19,865
    
    
    
    20,821
    
    
    
    22,280Long-term deferred compensation
    
    
    3,382
    
    
    
    3,850
    
    
    
    3,924Deferred income taxes
    
    
    75
    
    
    
    
    
    
    
    74Long-term income taxes payable
    
    
    4,998
    
    
    
    
    
    
    
    Other long-term liabilities
    
    
    7,327
    
    
    
    6,560
    
    
    
    7,104Shareholders equity:Common Shares, stated value $.0125:Authorized - 80,000,000; issued and outstanding -
14,603,036 at December 31, 2007, 14,410,245 at
December 31, 2006 and 14,580,978 at September 30, 2007
    
    
    182
    
    
    
    180
    
    
    
    182Class B Common Shares, stated value $.0125:Authorized - 9,000,000; issued and outstanding -
2,150,502 at December 31, 2007, December 31, 2006 and
September 30, 2007
    
    
    27
    
    
    
    27
    
    
    
    27Capital in excess of stated value
    
    
    37,180
    
    
    
    34,097
    
    
    
    36,436Retained earnings
    
    
    85,964
    
    
    
    90,878
    
    
    
    85,676Accumulated other comprehensive (loss) income
    
    
    (743
    )
    
    
    837
    
    
    
    (946
    )Common shares held in treasury, at cost
    
    
    (10,769
    )
    
    
    (6,415
    )
    
    
    (8,351
    )Total shareholders equity
    
    
    111,841
    
    
    
    119,604
    
    
    
    113,024Total liabilities and shareholders equity
    
    $
    147,488
    
    
    $
    150,835
    
    
    $
    146,406
  2




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For the Three MonthsEnded December 31,2007
    
    
    2006Net sales
    
    $
    38,438
    
    
    $
    41,026Cost of goods sold
    
    
    15,734
    
    
    
    16,112Gross profit
    
    
    22,704
    
    
    
    24,914Selling, general and administrative expenses
    
    
    16,061
    
    
    
    16,643Product development expenses
    
    
    6,163
    
    
    
    5,746Operating income
    
    
    480
    
    
    
    2,525Investment income
    
    
    528
    
    
    
    578Interest expense
    
    
    (20
    )
    
    
    (18
    )Income before income taxes
    
    
    988
    
    
    
    3,085Income tax provision
    
    
    99
    
    
    
    10Net income
    
    $
    889
    
    
    $
    3,075Basic earnings per share
    
    $
    0.06
    
    
    $
    0.19Diluted earnings per share
    
    $
    0.05
    
    
    $
    0.19Cash dividends per Common Share
    
    $
    .0375
    
    
    $
    .0375Cash dividends per Class B
Common Share
    
    $
    .0300
    
    
    $
    .0300
  3




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For the Three MonthsEnded December 31,2007
    
    
    2006Cash flows from operating activities:Net income
    
    $
    889
    
    
    $
    3,075Adjustments to reconcile net income to net cash
(used in) provided by operating activities:Depreciation
    
    
    977
    
    
    
    1,014Non-cash stock compensation
    
    
    646
    
    
    
    416Other non-cash items
    
    
    (76
    )
    
    
    220Changes in working capital
    
    
    (4,485
    )
    
    
    (105
    )Other operating activities
    
    
    124
    
    
    
    (353
    )Net cash (used in) provided by operating activities
    
    
    (1,925
    )
    
    
    4,267Cash flows from investing activities:Capital expenditures
    
    
    (1,195
    )
    
    
    (1,075
    )Purchase of investments and other
    
    
    (8,796
    )
    
    
    (4,501
    )Proceeds from maturities and sales of investments
    
    
    13,135
    
    
    
    4,973Net cash provided by (used in) investing activities
    
    
    3,144
    
    
    
    (603
    )Cash flows from financing activities:Net payment of short-term debt
    
    
    (379
    )
    
    
    (262
    )Proceeds from employee stock option plans
    
    
    36
    
    
    
    Cash dividends
    
    
    (584
    )
    
    
    (590
    )Repurchase of Common Shares
    
    
    (2,365
    )
    
    
    Other
    
    
    9
    
    
    
    4Net cash used in financing activities
    
    
    (3,283
    )
    
    
    (848
    )Effect of exchange rate changes on cash
    
    
    146
    
    
    
    247(Decrease) increase in cash and cash equivalents
    
    
    (1,918
    )
    
    
    3,063Cash and cash equivalents at beginning of period
    
    
    12,888
    
    
    
    10,501Cash and cash equivalents at end of period
    
    $
    10,970
    
    
    $
    13,564
  4




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




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Earnings Per Share
  For the Three MonthsEnded December 31,2007
    
    2006Net income
    
    $
    889
    
    
    $
    3,075Weighted averages shares outstanding
    
    
    16,057,088
    
    
    
    16,155,247Dilutive effect of stock awards
    
    
    162,896
    
    
    
    188,989Assumed purchase of stock under
stock purchase plan
    
    
    868
    
    
    
    303Weighted average shares used for
dilutive earnings per share
    
    
    16,220,852
    
    
    
    16,344,539Basic earnings per share
    
    $
    0.06
    
    
    $
    0.19Diluted earnings per share
    
    $
    0.05
    
    
    $
    0.19
 Stock-based Compensation
  Compensation costs recorded
  2007
    
    
    2006Cost of goods sold
    
    $
    49
    
    
    $
    18Selling, general and administrative expenses
    
    
    503
    
    
    
    348Product development expenses
    
    
    94
    
    
    
    50Stock-based compensation included in operating expenses
    
    
    646
    
    
    
    416Estimated tax impact of stock-based compensation
    
    
    210
    
    
    
    137Stock-based compensation expense, net of tax
    
    $
    436
    
    
    $
    279
  6




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Stock option activity
   Expected life (years)
    
    
    4.75Risk-free interest rate
    
    
    3.84
    %Volatility
    
    
    38
    %Dividend yield
    
    
    1.64
    %
 Performance award units
  Restricted award units
  Directors equity plans
   7




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Repurchase of Common Shares
    Financing Arrangements
   Accounting for Derivatives and Hedging Activities
 ,
  8




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Comprehensive Income
  2007
    
    
    2006Net income
    
    $
    889
    
    
    $
    3,075Unrealized gains (losses) on value of derivative securities
    
    
    111
    
    
    
    (51
    )Net unrealized investment gains
    
    
    13
    
    
    
    21Foreign currency translation adjustments
    
    
    79
    
    
    
    252Comprehensive income
    
    $
    1,092
    
    
    $
    3,297
 Geographic Segment Information
  For the Three MonthsEnded December,2007
    
    
    2006Net sales:United States
    
    $
    8,304
    
    
    $
    9,681Other Americas
    
    
    661
    
    
    
    1,543Germany
    
    
    6,024
    
    
    
    6,416Other Europe
    
    
    8,328
    
    
    
    8,185Japan
    
    
    3,830
    
    
    
    4,514China
    
    
    4,394
    
    
    
    4,202Other Asia
    
    
    6,897
    
    
    
    6,485$
    38,438
    
    
    $
    41,026
 At December 31,
    
    
    At September 30,2007
    
    
    2006
    
    
    2007Long-lived assets:United States
    
    $
    29,668
    
    
    $
    30,386
    
    
    $
    29,557Germany
    
    
    6,615
    
    
    
    5,592
    
    
    
    6,369Other
    
    
    1,061
    
    
    
    1,044
    
    
    
    1,121$
    37,344
    
    
    $
    37,022
    
    
    $
    37,047
 9




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Guarantors Disclosure Requirements
 Guarantee of original lease
  Product Warranties
   2007
    
    
    2006Balance, beginning of period
    
    $
    722
    
    
    $
    992Accruals for warranties issued during the period
    
    
    315
    
    
    
    389Accruals related to pre-existing warranties (including
changes in estimates and expiring warranties)
    
    
    (22
    )
    
    
    (3
    )Settlements made (in cash or kind) during the period
    
    
    (235
    )
    
    
    (369
    )Balance, end of period
    
    $
    780
    
    
    $
    1,009
 Pension Benefits
  United States Plan
    
    
    German PlanFor the Three Months
    
    
    For the Three MonthsEnded December 31,
    
    
    Ended December 31,2007
    
    
    2006
    
    
    2007
    
    
    2006Service costs-benefits earned during the period
    
    $
    419
    
    
    $
    355
    
    
    $
    56
    
    
    $
    59Interest cost on projected benefit obligation
    
    
    589
    
    
    
    551
    
    
    
    101
    
    
    
    81Expected return on plan assets
    
    
    (883
    )
    
    
    (782
    )
    
    
    (19
    )
    
    
    (16
    )Amortization of net loss
    
    
    21
    
    
    
    16
    
    
    
    
    
    
    
    1Amortization of transition asset
    
    
    
    
    
    
    
    
    
    
    6
    
    
    
    5Amortization of prior service cost
    
    
    44
    
    
    
    44
    
    
    
    1
    
    
    
    1Net periodic benefit cost
    
    $
    190
    
    
    $
    184
    
    
    $
    145
    
    
    $
    131
 10




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Income Taxes
      11




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ITEM 2 Managements Discussion and Analysis of Financial Condition and Results of
Operations.
  Business Overview
     Critical Accounting Policies and Estimates
  12




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Results of Operations
 First Quarter Fiscal 2008 Compared with First Quarter Fiscal 2007
     .
    13




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Financial Condition, Liquidity and Capital Resources
 Working Capital
  December 31
    
    
    September 30Current assets:Cash and cash equivalents
    
    $
    10,970
    
    
    $
    12,888Short-term investments
    
    
    28,019
    
    
    
    32,340Refundable income taxes
    
    
    643
    
    
    
    136Accounts receivable and other, net
    
    
    21,794
    
    
    
    19,510Total inventories
    
    
    15,667
    
    
    
    14,675Deferred income taxes
    
    
    3,910
    
    
    
    3,961Prepaid expenses
    
    
    2,665
    
    
    
    2,026Total current assets
    
    
    83,668
    
    
    
    85,536Current liabilities:Short-term debt
    
    
    449
    
    
    
    799Accounts payable
    
    
    8,567
    
    
    
    8,018Accrued payroll and related expenses
    
    
    4,324
    
    
    
    4,799Other accrued expenses
    
    
    4,485
    
    
    
    4,753Income taxes payable
    
    
    2,040
    
    
    
    3,911Total current liabilities
    
    
    19,865
    
    
    
    22,280Working capital
    
    $
    63,803
    
    
    $
    63,256
  14




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Sources and Uses of Cash
  For the Three MonthsEnded December 31,2007
    
    2006Cash (used in) provided by:Operating activities
    
    $
    (1,925
    )
    
    $
    4,267Investing activities
    
    
    3,144
    
    
    
    (603
    )Financing activities
    
    
    (3,283
    )
    
    
    (848
    )
 Operating activities
 Investing activities
 Financing activities
  Outlook
   Recent Accounting Pronouncements
  15




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ITEM 3 Quantitative and Qualitative Disclosures About Market Risk.
    
 ITEM 4 Controls and Procedures.
   
 PART II. OTHER INFORMATION
 
 ITEM 1A. Risk Factors.
 Form 10-K.
 16




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ITEM 2 Unregistered Sales of Equity Securities and Use of Proceeds
 Issuer Purchases of Equity Securities
  Total number of
    
    Maximum number ofshares purchased as
    
    shares that may yetpart of publicly
    
    be purchased underTotal number of
    
    Average price paid
    
    announced plans or
    
    the plans orPeriod
    
    shares purchased
    
    per share (1)
    
    programs
    
    programsOctober 1 - 31, 2007
    
    
    53,200
    
    
    $
    10.84
    
    
    
    53,200
    
    
    
    1,795,800November 1 - 30, 2007
    
    
    97,700
    
    
    $
    9.49
    
    
    
    97,700
    
    
    
    1,698,100December 1 - 31, 2007
    
    
    90,500
    
    
    $
    9.52
    
    
    
    90,500
    
    
    
    1,607,600Total
    
    
    241,400
    
    
    $
    9.80
    
    
    
    241,400
    
    
    
    1,607,600
 
 (1)
    
    Price includes commissions.  
 ITEM 6. Exhibits
 Exhibits
 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. 17




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KEITHLEY INSTRUMENTS, INC.(Registrant)Date: February 8, 2008
    
    /s/ Joseph P. KeithleyJoseph P. KeithleyChairman, President and Chief Executive Officer(Principal Executive Officer)Date: February 8, 2008
    
    /s/ Mark J. PlushMark J. PlushVice President and Chief Financial Officer(Principal Financial and Accounting Officer)
 18