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, 2008
 Commission File Number 1-9965
 KEITHLEY INSTRUMENTS, INC.
  Ohio
    
    34-0794417(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 28775 Aurora Road, Solon, Ohio 44139
 Registrants telephone number, including area code: (440) 248-0400
  YES þ NO o
  Large accelerated filero
    
    Accelerated filerþ
    
    Non-accelerated filero
    
    Smaller reporting companyo(Do not check if smaller reporting company.)
  YES o NO þ




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Forward-Looking Statements
      1




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##### 



PART I. FINANCIAL INFORMATION
 ITEM 1 Financial Statements.
 
 December 31, 2008,
    
    
    September 30, 2008,AssetsCurrent assets:Cash and cash equivalents
    
    $
    29,160
    
    
    $
    22,073Short-term investments
    
    
    
    
    
    
    5,700Accounts receivable and other, net
    
    
    14,755
    
    
    
    17,265Inventories:Raw materials
    
    
    11,290
    
    
    
    12,325Work in process
    
    
    1,141
    
    
    
    1,261Finished products
    
    
    5,614
    
    
    
    6,237Total inventories
    
    
    18,045
    
    
    
    19,823Deferred income taxes
    
    
    771
    
    
    
    5,483Prepaid expenses
    
    
    2,471
    
    
    
    2,079Total current assets
    
    
    65,202
    
    
    
    72,423Property, plant and equipment, at cost
    
    
    55,375
    
    
    
    54,326Less-Accumulated depreciation
    
    
    42,054
    
    
    
    41,174Property, plant and equipment, net
    
    
    13,321
    
    
    
    13,152Deferred income taxes
    
    
    861
    
    
    
    26,097Intangible assets
    
    
    1,120
    
    
    
    1,190Other assets
    
    
    18,776
    
    
    
    25,116Total assets
    
    $
    99,280
    
    
    $
    137,978Liabilities and Shareholders EquityCurrent liabilities:Short-term debt
    
    $
    559
    
    
    $
    23Accounts payable
    
    
    5,240
    
    
    
    7,325Accrued payroll and related expenses
    
    
    4,530
    
    
    
    7,073Other accrued expenses
    
    
    6,114
    
    
    
    6,142Income taxes payable
    
    
    813
    
    
    
    1,174Total current liabilities
    
    
    17,256
    
    
    
    21,737Long-term deferred compensation
    
    
    2,088
    
    
    
    2,561Deferred income taxes
    
    
    72
    
    
    
    65Long-term income taxes payable
    
    
    2,823
    
    
    
    2,919Other long-term liabilities
    
    
    7,495
    
    
    
    7,394Shareholders equity:Common Shares, stated value $.0125:Authorized - 80,000,000; issued and outstanding -
14,830,117 at December 31, 2008 and
14,722,585 at September 30, 2008
    
    
    185
    
    
    
    184Class B Common Shares, stated value $.0125:Authorized - 9,000,000; issued and outstanding -
2,150,502 at December 31, 2008 and September 30, 2008
    
    
    27
    
    
    
    27Capital in excess of stated value
    
    
    38,519
    
    
    
    38,930Retained earnings
    
    
    47,831
    
    
    
    80,759Accumulated other comprehensive loss
    
    
    (1,444
    )
    
    
    (1,873
    )Common shares held in treasury, at cost
    
    
    (15,572
    )
    
    
    (14,725
    )Total shareholders equity
    
    
    69,546
    
    
    
    103,302Total liabilities and shareholders equity
    
    $
    99,280
    
    
    $
    137,978
   2




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##### 



For the Three MonthsEnded December 31,2008
    
    
    2007Net sales
    
    $
    31,070
    
    
    $
    38,438Cost of goods sold
    
    
    13,295
    
    
    
    15,734Gross profit
    
    
    17,775
    
    
    
    22,704Selling, general and administrative expenses
    
    
    14,015
    
    
    
    16,061Product development expenses
    
    
    6,053
    
    
    
    6,163Adjustments to severance and related charges
    
    
    (3
    )
    
    
    Operating (loss) income
    
    
    (2,290
    )
    
    
    480Investment income
    
    
    175
    
    
    
    528Interest expense
    
    
    (20
    )
    
    
    (20
    )(Loss) income before income taxes
    
    
    (2,135
    )
    
    
    988Provision for income taxes
    
    
    30,224
    
    
    
    99Net (loss) income
    
    $
    (32,359
    )
    
    $
    889Basic (loss) earnings per share
    
    $
    (2.07
    )
    
    $
    0.06Diluted (loss) earnings per share
    
    $
    (2.07
    )
    
    $
    0.05Cash dividends per Common Share
    
    $
    .0375
    
    
    $
    .0375Cash dividends per Class B
Common Share
    
    $
    .0300
    
    
    $
    .0300
   3




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##### 



For the Three MonthsEnded December 31,2008
    
    
    2007Cash flows from operating activities:Net (loss) income
    
    $
    (32,359
    )
    
    $
    889Adjustments to reconcile net (loss) income to
net cash used in operating activities:Depreciation
    
    
    911
    
    
    
    977Non-cash stock compensation (income) expense
    
    
    (471
    )
    
    
    646Deferred income taxes
    
    
    30,137
    
    
    
    (103
    )Other non-cash items
    
    
    (20
    )
    
    
    27Changes in working capital
    
    
    (1,348
    )
    
    
    (4,485
    )Other operating activities
    
    
    (495
    )
    
    
    124Net cash used in operating activities
    
    
    (3,645
    )
    
    
    (1,925
    )Cash flows from investing activities:Capital expenditures
    
    
    (1,076
    )
    
    
    (1,195
    )Purchase of investments and other
    
    
    
    
    
    
    (8,796
    )Proceeds from maturities and sales of investments
    
    
    12,500
    
    
    
    13,135Net cash provided by investing activities
    
    
    11,424
    
    
    
    3,144Cash flows from financing activities:Net borrowing (payment) of short-term debt
    
    
    536
    
    
    
    (379
    )Proceeds from employee stock option plans
    
    
    
    
    
    
    36Cash dividends
    
    
    (569
    )
    
    
    (584
    )Repurchase of Common Shares
    
    
    (787
    )
    
    
    (2,365
    )Other
    
    
    
    
    
    
    9Net cash used in financing activities
    
    
    (820
    )
    
    
    (3,283
    )Effect of exchange rate changes on cash
    
    
    128
    
    
    
    146Increase (decrease) in cash and cash equivalents
    
    
    7,087
    
    
    
    (1,918
    )Cash and cash equivalents at beginning of period
    
    
    22,073
    
    
    
    12,888Cash and cash equivalents at end of period
    
    $
    29,160
    
    
    $
    10,970
   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 31,2008
    
    
    2007Net (loss) income
    
    $
    (32,359
    )
    
    $
    889Weighted averages shares outstanding
    
    
    15,607,397
    
    
    
    16,057,088Dilutive effect of stock awards
    
    
    
    
    
    
    162,896Assumed purchase of stock under
stock purchase plan
    
    
    
    
    
    
    868Weighted average shares used for
dilutive earnings per share
    
    
    15,607,397
    
    
    
    16,220,852Basic (loss) earnings per share
    
    $
    (2.07
    )
    
    $
    0.06Diluted (loss) earnings per share
    
    $
    (2.07
    )
    
    $
    0.05
   6




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##### 



Stock-based Compensation
  Compensation costs recorded
 2008
    
    
    2007Cost of goods sold
    
    $
    (75
    )
    
    $
    49Selling, general and administrative expenses
    
    
    (248
    )
    
    
    503Product development expenses
    
    
    (148
    )
    
    
    94Stock-based compensation included in operating expenses
    
    
    (471
    )
    
    
    646Estimated tax impact of stock-based compensation
    
    
    
    
    
    
    210Stock-based compensation (income) expense
    
    $
    (471
    )
    
    $
    436
   Stock option activity
  Expected life (years)
    
    
    4.75Risk-free interest rate
    
    
    3.84
    %Volatility
    
    
    38
    %Dividend yield
    
    
    1.64
    %
  7




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##### 



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




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##### 



Financing Arrangements
   Accounting for Derivatives and Hedging Activities
 ,
     9




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##### 



Comprehensive Income
  2008
    
    
    2007Net (loss) income
    
    $
    (32,359
    )
    
    $
    889Unrealized (losses) gains on value of derivative securities
    
    
    (372
    )
    
    
    111Net unrealized investment gains
    
    
    442
    
    
    
    13Foreign currency translation adjustments
    
    
    359
    
    
    
    79Comprehensive (loss) income
    
    $
    (31,930
    )
    
    $
    1,092
 Geographic Segment Information
  For the Three MonthsEnded December,2008
    
    
    2007Net sales:United States
    
    $
    7,190
    
    
    $
    8,304Other Americas
    
    
    457
    
    
    
    661Germany
    
    
    4,877
    
    
    
    6,024Other Europe
    
    
    6,908
    
    
    
    8,328Japan
    
    
    4,004
    
    
    
    3,830China
    
    
    2,902
    
    
    
    4,394Other Asia
    
    
    4,732
    
    
    
    6,897$
    31,070
    
    
    $
    38,438
 At December 31,
    
    
    At September 30,2008
    
    
    2008Long-lived assets:United States
    
    $
    25,431
    
    
    $
    25,568Germany
    
    
    6,612
    
    
    
    6,700Other
    
    
    1,174
    
    
    
    1,070$
    33,217
    
    
    $
    33,338
 Guarantors Disclosure Requirements
 Guarantee of original lease
   10




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##### 



Product Warranties
   2008
    
    
    2007Balance, beginning of period
    
    $
    701
    
    
    $
    722Accruals for warranties issued during the period
    
    
    279
    
    
    
    315Accruals related to pre-existing warranties (including
changes in estimates and expiring warranties)
    
    
    (26
    )
    
    
    (22
    )Settlements made (in cash or kind) during the period
    
    
    (322
    )
    
    
    (235
    )Balance, end of period
    
    $
    632
    
    
    $
    780
 Pension Benefits
  United States Plan
    
    
    German PlanFor the Three Months
    
    
    For the Three MonthsEnded December 31,
    
    
    Ended December 31,2008
    
    
    2007
    
    
    2008
    
    
    2007Service costs-benefits earned during the period
    
    $
    389
    
    
    $
    419
    
    
    $
    44
    
    
    $
    56Interest cost on projected benefit obligation
    
    
    629
    
    
    
    589
    
    
    
    106
    
    
    
    101Expected return on plan assets
    
    
    (961
    )
    
    
    (883
    )
    
    
    (17
    )
    
    
    (19
    )Amortization of net loss
    
    
    
    
    
    
    21
    
    
    
    
    
    
    
    Amortization of transition asset
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6Amortization of prior service cost
    
    
    24
    
    
    
    44
    
    
    
    1
    
    
    
    1Net periodic benefit cost
    
    $
    81
    
    
    $
    190
    
    
    $
    134
    
    
    $
    145
  Income Taxes
   11




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##### 



Severance Charges
  Balance, beginning of period
    
    $
    1,252Adjustment to previously recorded expense
    
    
    (3
    )Payments made during the period
    
    
    (919
    )Balance, end of period
    
    $
    330
   12




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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
   13




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Results of Operations
 First Quarter Fiscal 2009 Compared with First Quarter Fiscal 2008
     .
     14




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##### 



Financial Condition, Liquidity and Capital Resources
 Working Capital
  December 31
    
    
    September 30Current assets:Cash and cash equivalents
    
    $
    29,160
    
    
    $
    22,073Short-term investments
    
    
    
    
    
    
    5,700Accounts receivable and other, net
    
    
    14,755
    
    
    
    17,265Total inventories
    
    
    18,045
    
    
    
    19,823Deferred income taxes
    
    
    771
    
    
    
    5,483Prepaid expenses
    
    
    2,471
    
    
    
    2,079Total current assets
    
    
    65,202
    
    
    
    72,423Current liabilities:Short-term debt
    
    
    559
    
    
    
    23Accounts payable
    
    
    5,240
    
    
    
    7,325Accrued payroll and related expenses
    
    
    4,530
    
    
    
    7,073Other accrued expenses
    
    
    6,114
    
    
    
    6,142Income taxes payable
    
    
    813
    
    
    
    1,174Total current liabilities
    
    
    17,256
    
    
    
    21,737Working capital
    
    $
    47,946
    
    
    $
    50,686
   15




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Sources and Uses of Cash
  For the Three MonthsEnded December 31,2008
    
    
    2007Cash (used in) provided by:Operating activities
    
    $
    (3,645
    )
    
    $
    (1,925
    )Investing activities
    
    
    11,424
    
    
    
    3,144Financing activities
    
    
    (820
    )
    
    
    (3,283
    )
 Operating activities Working Capital
 Investing activities Working
Capital,
 Financing activities
  Outlook
     16




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Recent Accounting Pronouncements
     ITEM 3 Quantitative and Qualitative Disclosures About Market Risk.
    17




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ITEM 4 Controls and Procedures.
   PART II. OTHER INFORMATION
 ITEM 1. Legal Proceedings.
      18




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ITEM 1A. Risk Factors.
  Compliance with NYSE listing standards
   Financial crisis affecting the banking system and financial markets
   19




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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, 2008
    
    
    100,700
    
    
    $
    5.48
    
    
    
    100,700
    
    
    
    1,111,700November 1  30, 2008
    
    
    66,033
    (2)
    
    $
    3.56
    
    
    
    54,300
    
    
    
    1,057,400December 1  31, 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,057,400Total
    
    
    166,733
    (2)
    
    $
    4.72
    
    
    
    155,000
    
    
    
    1,057,400
 (1)
    
    Price includes commissions.(2)
    
    Includes 11,733 shares withheld for payroll taxes upon the issuance of Common Shares for vested
performance award units in November 2008   20




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ITEM 6. Exhibits
 Exhibits
 ExhibitNumber
    
    Exhibit3.1
    
    
    Restated Articles of Incorporation, adopted August 8, 2008.10.1
    
    
    Amendment dated December 31, 2008 to Employment Agreement with Mark J. Plush
dated April 7, 1994.10.2
    
    
    Keithley Instruments, Inc. Amended and Restated 1996 Outside Directors Deferred
Stock Plan.10.3
    
    
    Keithley Instruments, Inc. Amended and Restated 1997 Directors Stock Option Plan.10.4
    
    
    Keithley Instruments, Inc. Amended and Restated 2002 Stock Incentive Plan.10.5
    
    
    Keithley Instruments, Inc. Amended and Restated Annual Incentive Compensation
Plan.10.6
    
    
    Keithley Instruments, Inc. Amended and Restated Supplemental Deferral Plan.10.7
    
    
    Keithley Instruments, Inc. Amended and Restated Deferred Compensation Plan.10.8
    
    
    Keithley Instruments, Inc. 2009 Annual Incentive Compensation Plan (Reference is
made to Exhibit 10.1 of the Companys Current Report on Form 8-K dated October
31, 2008 (File No. 1-9965), which Exhibit is incorporated herein by reference.)10.9
    
    
    Keithley Instruments, Inc. form of management restricted unit award agreement for
use in connection with awards granted to management under the Keithley
Instruments, Inc. Amended and Restated 2002 Stock Incentive Plan.10.10
    
    
    Keithley Instruments, Inc. 2009 Stock Incentive Plan.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.  21




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KEITHLEY INSTRUMENTS, INC.
(Registrant)Date:  February 9, 2009
    /s/  Joseph P. KeithleyJoseph P. KeithleyChairman, President and Chief Executive Officer
(Principal Executive Officer)Date:  February 9, 2009
    /s/  Mark J. PlushMark J. PlushVice President and Chief Financial Officer
(Principal Financial and Accounting Officer)  22




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ExhibitNumber
    
    Exhibit3.1
    
    
    Restated Articles of Incorporation, adopted August 8, 2008.10.1
    
    
    Amendment dated December 31, 2008 to Employment Agreement with Mark J. Plush dated
April 7, 1994.10.2
    
    
    Keithley Instruments, Inc. Amended and Restated 1996 Outside Directors Deferred
Stock Plan.10.3
    
    
    Keithley Instruments, Inc. Amended and Restated 1997 Directors Stock Option Plan.10.4
    
    
    Keithley Instruments, Inc. Amended and Restated 2002 Stock Incentive Plan.10.5
    
    
    Keithley Instruments, Inc. Amended and Restated Annual Incentive Compensation Plan.10.6
    
    
    Keithley Instruments, Inc. Amended and Restated Supplemental Deferral Plan.10.7
    
    
    Keithley Instruments, Inc. Amended and Restated Deferred Compensation Plan.10.8
    
    
    Keithley Instruments, Inc. 2009 Annual Incentive Compensation Plan (Reference is
made to Exhibit 10.1 of the Companys Current Report on Form 8-K dated October 31,
2008 (File No. 1-9965), which Exhibit is incorporated herein by reference.)10.9
    
    
    Keithley Instruments, Inc. form of management restricted unit award agreement for
use in connection with awards granted to management under the Keithley Instruments,
Inc. Amended and Restated 2002 Stock Incentive Plan.10.10
    
    
    Keithley Instruments, Inc. 2009 Stock Incentive Plan.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.  23