##### Table of Contents



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, 2009
 Commission File Number 1-9965
 KEITHLEY INSTRUMENTS, INC.
  Ohio
    
    34-0794417(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 28775 Aurora Road, Solon, Ohio 44139
 Registrants telephone number, including area code: (440) 248-0400
 YES þ NO o
 YES o NOo
 12b-2
 Large accelerated filero
    
    Accelerated filero
    
    Non-accelerated filerþ
    
    Smaller reporting companyo
 YES o NO þ




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TABLE OF CONTENTS  PART I. FINANCIAL INFORMATIONITEM 1. Financial StatementsCONDENSED CONSOLIDATED BALANCE SHEETSCONDENSED CONSOLIDATED STATEMENTS OF OPERATIONSCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTSITEM 2. Managements Discussion and Analysis of Financial Condition and Results of OperationsITEM 3. Quantitative and Qualitative Disclosure About Market RiskITEM 4. Controls and ProceduresPART II. OTHER INFORMATIONITEM 1. Legal ProceedingsITEM 1A. Risk FactorsITEM 2. Unregistered Sales of Equity Securities and Use of ProceedsITEM 6. ExhibitsSIGNATURESExhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2    Table of Contents  Forward-Looking Statements
      1




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 ITEM 1. Financial Statements.
  
    December 31, 2009
    
    
    September 30, 2009AssetsCurrent assets:Cash and cash equivalents
    
    $
    33,708
    
    
    $
    24,114Restricted cash
    
    
    575
    
    
    
    569Short-term investments
    
    
    1,264
    
    
    
    759Refundable income taxes
    
    
    140
    
    
    
    466Accounts receivable and other, net
    
    
    12,280
    
    
    
    11,738Inventories:Raw materials
    
    
    4,447
    
    
    
    5,760Work in process
    
    
    754
    
    
    
    613Finished products
    
    
    2,675
    
    
    
    3,564Total inventories
    
    
    7,876
    
    
    
    9,937Deferred income taxes
    
    
    293
    
    
    
    303Prepaid expenses
    
    
    2,077
    
    
    
    1,753Total current assets
    
    
    58,213
    
    
    
    49,639Property, plant and equipment, at cost
    
    
    49,145
    
    
    
    54,081Less-Accumulated depreciation
    
    
    40,533
    
    
    
    42,981Property, plant and equipment, net
    
    
    8,612
    
    
    
    11,100Deferred income taxes
    
    
    712
    
    
    
    748Intangible assets
    
    
    
    
    
    
    910Other assets
    
    
    10,661
    
    
    
    10,705Total assets
    
    $
    78,198
    
    
    $
    73,102Liabilities and Shareholders EquityCurrent liabilities:Accounts payable
    
    $
    5,147
    
    
    $
    4,916Accrued payroll and related expenses
    
    
    4,465
    
    
    
    5,648Other accrued expenses
    
    
    4,625
    
    
    
    5,424Income taxes payable
    
    
    1,614
    
    
    
    1,122Total current liabilities
    
    
    15,851
    
    
    
    17,110Long-term deferred compensation
    
    
    2,153
    
    
    
    2,111Long-term income taxes payable
    
    
    3,074
    
    
    
    2,852Other long-term liabilities
    
    
    14,473
    
    
    
    14,419Shareholders equity:Common Shares, stated value $.0125:Authorized  80,000,000; issued and outstanding 
14,979,718 at December 31, 2009 and
14,950,093 at September 30, 2009
    
    
    187
    
    
    
    187Class B Common Shares, stated value $.0125:Authorized
 9,000,000; issued and outstanding  2,150,502 at
December 31, 2009 and September 30, 2009
    
    
    27
    
    
    
    27Capital in excess of stated value
    
    
    39,331
    
    
    
    39,121Retained earnings
    
    
    34,495
    
    
    
    28,629Accumulated other comprehensive loss
    
    
    (15,874
    )
    
    
    (15,900
    )Common shares held in treasury, at cost
    
    
    (15,519
    )
    
    
    (15,454
    )Total shareholders equity
    
    
    42,647
    
    
    
    36,610Total liabilities and shareholders equity
    
    $
    78,198
    
    
    $
    73,102
   2




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For the Three MonthsEnded December 31,2009
    
    
    2008Net sales
    
    $
    28,397
    
    
    $
    31,070Cost of goods sold
    
    
    10,516
    
    
    
    13,295Gross profit
    
    
    17,881
    
    
    
    17,775Selling, general and administrative expenses
    
    
    11,268
    
    
    
    14,015Product development expenses
    
    
    3,130
    
    
    
    6,053Gain on sale of product line
    
    
    (3,493
    )
    
    
    Adjustments to severance and related charges
    
    
    (30
    )
    
    
    (3
    )Operating income (loss)
    
    
    7,006
    
    
    
    (2,290
    )Investment income
    
    
    25
    
    
    
    175Interest expense
    
    
    (2
    )
    
    
    (20
    )Income (loss) before income taxes
    
    
    7,029
    
    
    
    (2,135
    )Provision for income taxes
    
    
    972
    
    
    
    30,224Net income (loss)
    
    $
    6,057
    
    
    $
    (32,359
    )Basic earnings (loss) per share
    
    $
    0.39
    
    
    $
    (2.07
    )Diluted earnings (loss) per share
    
    $
    0.38
    
    
    $
    (2.07
    )Cash dividends per Common Share
    
    $
    .0125
    
    
    $
    .0375Cash dividends per Class B Common Share
    
    $
    .0100
    
    
    $
    .0300
   3




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For the Three MonthsEnded December 31,2009
    
    
    2008Cash flows from operating activities:Net income (loss)
    
    $
    6,057
    
    
    $
    (32,359
    )Adjustments to reconcile net income (loss) to net
cashprovided by (used in) operating activities:Gain on sale of product line
    
    
    (3,493
    )
    
    
    Depreciation and amortization
    
    
    726
    
    
    
    911Non-cash stock compensation
    
    
    159
    
    
    
    (471
    )Deferred income taxes
    
    
    20
    
    
    
    30,137Other non-cash items
    
    
    55
    
    
    
    (20
    )Increases in working capital
    
    
    (2,640
    )
    
    
    (1,348
    )Other operating activities
    
    
    611
    
    
    
    (495
    )Net cash provided by (used in) operating activities
    
    
    1,495
    
    
    
    (3,645
    )Cash flows from investing activities:Capital expenditures
    
    
    (103
    )
    
    
    (1,076
    )Increase in Restricted cash
    
    
    (6
    )
    
    
    Proceeds from sale of product line
    
    
    9,000
    
    
    
    Net purchases of short-term investments
    
    
    (504
    )
    
    
    Proceeds from maturities and sales of investments
    
    
    
    
    
    
    12,500Net cash provided by investing activities
    
    
    8,387
    
    
    
    11,424Cash flows from financing activities:Net borrowings of short-term debt
    
    
    
    
    
    
    536Cash dividends paid
    
    
    (191
    )
    
    
    (569
    )Repurchase of Common Shares
    
    
    (12
    )
    
    
    (787
    )Net cash used in financing activities
    
    
    (203
    )
    
    
    (820
    )Effect of exchange rate changes on cash
    
    
    (85
    )
    
    
    128Increase in cash and cash equivalents
    
    
    9,594
    
    
    
    7,087Cash and cash equivalents at beginning of period
    
    
    24,114
    
    
    
    22,073Cash and cash equivalents at end of period
    
    $
    33,708
    
    
    $
    29,160
   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
  10-K
  Recent Accounting Pronouncements
 Recently Adopted Accounting Guidance
   5




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Accounting Guidance Not Yet Adopted
    Earnings Per Share
  For the Three MonthsEnded December 31,2009
    
    
    2008Net income (loss)
    
    $
    6,057
    
    
    $
    (32,359
    )Weighted averages shares outstanding
    
    
    15,732,679
    
    
    
    15,607,397Dilutive effect of stock awards
    
    
    61,933
    
    
    
    Weighted average shares used for
dilutive earnings per share
    
    
    15,794,672
    
    
    
    15,607,397Basic earnings (loss) per share
    
    $
    0.39
    
    
    $
    (2.07
    )Diluted earnings (loss) per share
    
    $
    0.38
    
    
    $
    (2.07
    )
  Comprehensive Income
  2009
    
    
    2008Net income (loss)
    
    $
    6,057
    
    
    $
    (32,359
    )Unrealized gains (losses) on value of derivative contracts
    
    
    204
    
    
    
    (372
    )Net unrealized investment gains
    
    
    
    
    
    
    442Foreign currency translation adjustments
    
    
    (178
    )
    
    
    359Comprehensive income (loss)
    
    $
    6,083
    
    
    $
    (31,930
    )
  6




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Fair Value Measurements
  Level 1
    
    
    Level 2
    
    
    TotalAssetsCash and cash equivalents (1)
    
    $
    32,435
    
    
    $
    1,273
    
    
    $
    33,708Restricted cash
    
    
    575
    
    
    
    
    
    
    
    575Certificates of deposit (2)
    
    
    
    
    
    
    1,264
    
    
    
    1,264Foreign currency forward contracts (3)
    
    
    
    
    
    
    145
    
    
    
    145$
    33,010
    
    
    $
    2,682
    
    
    $
    35,692
  Level 1
    
    
    Level 2
    
    
    TotalAssetsCash and cash equivalents (1)
    
    $
    22,444
    
    
    $
    1,670
    
    
    $
    24,114Restricted cash
    
    
    569
    
    
    
    
    
    
    
    569Certificates of deposit (2)
    
    
    
    
    
    
    759
    
    
    
    759$
    23,013
    
    
    $
    2,429
    
    
    $
    25,442LiabilitiesForeign currency forward contracts (3)
    
    $
    
    
    
    $
    170
    
    
    $
    170
 (1)
    
    Consists of cash, money market funds and certificates of deposit having
maturities of less than 90 days after September 30, 2009.(2)
    
    Included in Short term investments in the unaudited condensed consolidated
balance sheet.(3)
    
    Included in Prepaid expenses or Other accrued expenses in the unaudited condensed consolidated
balance sheet, with related unrecognized gains and losses being recorded in
Accumulated other comprehensive losses until realized, at which time they are
recorded in Cost of goods sold in the condensed consolidated statement of operations.   7




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Guarantors Disclosure Requirements
 Guarantee of lease
  Product Warranties
  2009
    
    
    2008Balance, beginning of period
    
    $
    466
    
    
    $
    701Accruals for warranties issued during the period
    
    
    252
    
    
    
    279Accruals related to pre-existing warranties (including
changes in estimates and expiring warranties)
    
    
    (46
    )
    
    
    (26
    )Settlements made (in cash or kind) during the period
    
    
    (187
    )
    
    
    (322
    )Currency translation
    
    
    (2
    )
    
    
    Balance, end of period
    
    $
    483
    
    
    $
    632
 Repurchase of Common Shares
     8




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Investments
   Financing Arrangements
  Derivatives and Hedging Activities
   9




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December 31, 2009
    
    
    September 30, 2009Assets:Contract value
    
    $
    4,616
    
    
    $
    371Fair value
    
    
    4,469
    
    
    
    360Total asset
    
    
    147
    
    
    
    11Liabilities:Contract value
    
    
    119
    
    
    
    4,350Fair value
    
    
    121
    
    
    
    4,531Total liability
    
    
    (2
    )
    
    
    (181
    )Net asset (liability)
    
    $
    145
    
    
    $
    (170
    )
   Pension Benefits
   United States Plan
    
    
    German PlanFor the Three Months
    
    
    For the Three MonthsEnded December 31,
    
    
    Ended December 31,2009
    
    
    2008
    
    
    2009
    
    
    2008Service costs-benefits earned during the period
    
    $
    368
    
    
    $
    389
    
    
    $
    34
    
    
    $
    44Interest cost on projected benefit obligation
    
    
    653
    
    
    
    629
    
    
    
    121
    
    
    
    106Expected return on plan assets
    
    
    (925
    )
    
    
    (961
    )
    
    
    (21
    )
    
    
    (17
    )Amortization of net loss (gain)
    
    
    99
    
    
    
    
    
    
    
    (4
    )
    
    
    Amortization of prior service cost
    
    
    8
    
    
    
    24
    
    
    
    1
    
    
    
    1Net periodic benefit cost
    
    $
    203
    
    
    $
    81
    
    
    $
    131
    
    
    $
    134
   10




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Stock-based Compensation
  Compensation costs recorded
  2009
    
    
    2008Cost of goods sold
    
    $
    (1
    )
    
    $
    (75
    )Selling, general and administrative expenses
    
    
    176
    
    
    
    (248
    )Product development expenses
    
    
    (16
    )
    
    
    (148
    )Stock-based compensation included in operating expenses
    
    
    159
    
    
    
    (471
    )Estimated tax effect of stock-based compensation
    
    
    
    
    
    
    Stock-based compensation expense (income)
    
    $
    159
    
    
    $
    (471
    )
   Stock option activity
   Expected life (years)
    
    
    4.75Risk-free interest rate
    
    
    2.12
    %Volatility
    
    
    63
    %Dividend yield
    
    
    1.2
    %
  11




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Performance award unitsFiscal 2010 Grant
  Risk-free interest rate
    
    
    1.25
    %Volatility
    
    
    78
    %Dividend yield
    
    
    1.2
    %
  Performance award unitsGrants prior to Fiscal 2010
     Restricted award units
   12




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Directors equity plans
   Income Taxes
     Gain on Sale of RF Product Line
    13




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Severance and Other Restructuring Charges
    BalanceSeptember 30, 2009
    
    $
    2,000Severance charges associated with sale of RF product line
    
    
    551Cash payments
    
    
    (1,198
    )Adjustments to previously-recorded expense
    
    
    (30
    )BalanceDecember 31, 2009
    
    $
    1,323
 Geographic Segment Information
  For the Three MonthsEnded December,2009
    
    
    2008Net Sales:United States
    
    $
    8,133
    
    
    $
    7,190Other Americas
    
    
    627
    
    
    
    457Germany
    
    
    3,356
    
    
    
    4,877Other Europe
    
    
    5,511
    
    
    
    6,908Japan
    
    
    2,920
    
    
    
    4,004China
    
    
    3,658
    
    
    
    2,902Other Asia
    
    
    4,192
    
    
    
    4,732$
    28,397
    
    
    $
    31,070
 At December 31,
    
    
    At September 30,2009
    
    
    2009Long-lived assets:United States
    
    $
    7,397
    
    
    $
    9,751Other
    
    
    1,215
    
    
    
    1,349$
    8,612
    
    
    $
    11,100
 Subsequent Events
    14




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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
   15




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Results of Operations
 First Quarter Fiscal 2010 Compared with First Quarter Fiscal 2009
     .
   16




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Financial Condition, Liquidity and Capital Resources
 Working Capital
  December 31
    
    
    September 30Current assets:Cash and cash equivalents
    
    $
    33,708
    
    
    $
    24,114Restricted cash
    
    
    575
    
    
    
    569Short-term investments
    
    
    1,264
    
    
    
    759Refundable income taxes
    
    
    140
    
    
    
    466Accounts receivable and other, net
    
    
    12,280
    
    
    
    11,738Total inventories
    
    
    7,876
    
    
    
    9,937Deferred income taxes
    
    
    293
    
    
    
    303Prepaid expenses
    
    
    2,077
    
    
    
    1,753Total current assets
    
    
    58,213
    
    
    
    49,639Current liabilities:Accounts payable
    
    
    5,147
    
    
    
    4,916Accrued payroll and related expenses
    
    
    4,465
    
    
    
    5,648Other accrued expenses
    
    
    4,625
    
    
    
    5,424Income taxes payable
    
    
    1,614
    
    
    
    1,122Total current liabilities
    
    
    15,851
    
    
    
    17,110Working capital
    
    $
    42,362
    
    
    $
    32,529
   17




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Sources and Uses of Cash
  2009
    
    
    2008Cash provided by (used in):Operating activities
    
    $
    1,495
    
    
    $
    (3,645
    )Investing activities
    
    
    8,387
    
    
    
    11,424Financing activities
    
    
    (203
    )
    
    
    (820
    )
 Operating activities Working Capital
 Investing activities Results of Operations,
 Financing activities
  Recent Accounting Pronouncements
 Recently Adopted Accounting Guidance
   18




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Accounting Guidance Not Yet Adopted
    
 ITEM 3. Quantitative and Qualitative Disclosure About Market Risk.
    
 ITEM 4. Controls and Procedures.
   
 PART II. OTHER INFORMATION
 
 ITEM 1. Legal Proceedings.
  
 ITEM 1A. Risk Factors.
   19




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ITEM 2 Unregistered Sales of Equity Securities and Use of Proceeds
  
 ITEM 6. Exhibits
 Exhibits
 ExhibitNumber
    
    Exhibit2.01
    
    
    Purchase and Sale Agreement, dated November 19, 2009, by and between Keithley
Instruments, Inc. and Agilent Technologies, Inc. (Reference is made to Exhibit 2.01 of
the Companys Current Report on Form 8-K dated November 19, 2009 (File No. 1-9965), which
Exhibit is incorporated herein by reference.)10.01
    
    
    Form of Keithley Instruments, Inc. 2002 & 2009 Stock Incentive Plans Performance Award
Agreement (Reference is made to Exhibit 10.01 of the Companys Current Report on Form 8-K
dated December 9, 2009 (File No. 1-9965), which Exhibit is incorporated herein by
reference.)10.02
    
    
    Keithley Instruments, Inc. 2010 Annual Incentive Compensation Plan (Reference is made to
Exhibit 10.01 of the Companys Current Report on
Form 8-K dated November 13, 2009 (File
No. 1-9965), which Exhibit is incorporated herein by reference.)31.1
    
    
    Certification of Joseph P. Keithley pursuant to Rule 13a-14(a)-15d-14(a).31.2
    
    
    Certification of Mark J. Plush pursuant to Rule 13a-14(a)-15d-14(a).32.1
    +
    
    Certification of Joseph P. Keithley pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350.32.2
    +
    
    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.  20




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KEITHLEY INSTRUMENTS, INC.
(Registrant)Date:  February 16, 2010
    /s/  Joseph P. KeithleyJoseph P. KeithleyChairman, President and Chief Executive Officer
(Principal Executive Officer)Date:  February 16, 2010
    /s/  Mark J. PlushMark J. PlushSenior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)  21