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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



Form 10-Q

(Mark One)

[X] Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2002

OR

[   ] 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                            |  | 34-0794417         
|(State or other jurisdiction of |  | (I.R.S. Employer   
|incorporation or organization)  |  | 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 July 31, 2002 the Registrant had outstanding 13,760,558 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 6. Exhibits and Reports on Form 8-K.                                                     
|SIGNATURES                               
|EX-10(J) First Amend. to Credit Agreement
|EX-11  Computation of Per Share Earnings 



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##### Table of Contents






PART I. FINANCIAL INFORMATION




ITEM 1. Financial Statements.

KEITHLEY INSTRUMENTS, INC.




CONSOLIDATED BALANCE SHEET


(In Thousands of Dollars)
(Unaudited)


|                                           |  |   |                                         |                            |   |          |         |               |   |        |         |  |   |        |        | 
|------------------------------------------ |  | - | --------------------------------------- | -------------------------- | - | -------- | ------- | ------------- | - | ------ | ------- |  | - | ------ | ------ | 
|                                           |  |   |                                         |                            |   | June 30, |         | September 30,
|                                           |  |   |                                         |                            |   | 2002     |         | 2001          |   | 2001  
|                                           |  |   |                                         |                            |   |          |         |               |   |       
|Assets                                     |  |   |                                         |                            |   |          |         |               |   |        |         |  |   |       
|Current
assets:                            |  |   |                                         |                            |   |          |         |               |   |        |         |  |   |       
|                                           |  |   | Cash and cash equivalents               |                            | $ | 22,490   |         |               | $ | 42,717 |         |  | $ | 30,091 |       
|                                           |  |   | Short-term investments                  |                            |   | 29,053   |         |               |   |       |         |  |   | 20,884 |       
|                                           |  |   | Refundable income taxes                 |                            |   | 185      |         |               |   | 63     |         |  |   | 6,196  |       
|                                           |  |   | Accounts receivable and other, net      |                            |   | 16,134   |         |               |   | 23,758 |         |  |   | 14,787 |       
|                                           |  |   | Inventories:                            |                            |   |          |         |               |   |        |         |  |   |        |       
|                                           |  |   |                                         | Raw materials              |   |          | 8,182   |               |   |        | 12,893  |  |   |        | 11,057 | 
|                                           |  |   |                                         | Work in process            |   |          | 2,238   |               |   |        | 3,123   |  |   |        | 2,236  | 
|                                           |  |   |                                         | Finished products          |   |          | 1,991   |               |   |        | 3,117   |  |   |        | 2,402  | 
|                                           |  |   |                                         |                            |   |          |         |               |   |        |         | 
|                                           |  |   |                                         | Total inventories          |   |          | 12,411  |               |   |        | 19,133  |  |   |        | 15,695 | 
|                                           |  |   | Deferred income taxes                   |                            |   | 8,607    |         |               |   | 17,145 |         |  |   | 7,382  |       
|                                           |  |   | Other current assets                    |                            |   | 957      |         |               |   | 788    |         |  |   | 653    |       
|                                           |  |   |                                         |                            |   |          |         |               |   |        |         | 
|                                           |  |   |                                         | Total current assets       |   |          | 89,837  |               |   |        | 103,604 |  |   |        | 95,688 | 
|                                           |  |   |                                         |                            |   |          |         |               |   |        |         | 
|Property, plant and equipment, at cost     |  |   | 42,826                                  |                            |   |          | 41,885  |               |   |        | 41,207  | 
|Less-Accumulated depreciation              |  |   | 29,577                                  |                            |   |          | 28,398  |               |   |        | 27,573  | 
|                                           |  |   |                                         |                            |   |          |         |               |   |        |         | 
|Total property, plant and equipment, net   |  |   | 13,249                                  |                            |   |          | 13,487  |               |   |        | 13,634  | 
|                                           |  |   |                                         |                            |   |          |         |               |   |        |         | 
|Deferred income taxes                      |  |   | 13,703                                  |                            |   |          | 5,203   |               |   |        | 5,681   | 
|Other
assets                               |  |   | 9,367                                   |                            |   |          | 7,878   |               |   |        | 8,597   | 
|                                           |  |   |                                         |                            |   |          |         |               |   |        |         | 
|Total
assets                               |  | $ | 126,156                                 |                            |   | $        | 130,172 |               |   | $      | 123,600 | 
|                                           |  |   |                                         |                            |   |          |         |               |   |        |         | 
|Liabilities and Shareholders Equity       |  |   |                                         |                            |   |          |         |               |   |        |         |  |  
|Current liabilities:                       |  |   |                                         |                            |   |          |         |               |   |        |         | 
|                                           |  |   | Accounts payable                        |                            |   | 5,995    |         |               | $ | 6,829  |         |  | $ | 5,906  |       
|                                           |  |   | Accrued payroll and related expenses    |                            |   | 5,132    |         |               |   | 6,915  |         |  |   | 7,213  |       
|                                           |  |   | Other accrued expenses                  |                            |   | 5,091    |         |               |   | 6,577  |         |  |   | 4,826  |       
|                                           |  |   | Income taxes payable                    |                            |   | 4,261    |         |               |   | 6,893  |         |  |   | 3,227  |       
|                                           |  |   |                                         |                            |   |          |         |               |   |        |         | 
|                                           |  |   |                                         | Total
current liabilities  |   |          | 20,479  |               |   |        | 27,214  |  |   |        | 21,172 | 
|                                           |  |   |                                         |                            |   |          |         |               |   |        |         | 
|Long-term
debt                             |  |   | 3,000                                   |                            |   |          | 3,000   |               |   |        | 3,000   | 
|Other long-term liabilities                |  |   | 6,308                                   |                            |   |          | 5,127   |               |   |        | 5,475   | 
|Deferred income taxes                      |  |   | 7                                       |                            |   |          | 7       |               |   |        | 7       | 
|Shareholders equity:                      |  |   |                                         |                            |   |          |         |               |   |        |         | 
|                                           |  |   | Paid-in-capital                         |                            |   | 28,336   |         |               |   | 22,808 |         |  |   | 22,893 |       
|                                           |  |   | Earnings reinvested in the business     |                            |   | 71,902   |         |               |   | 76,736 |         |  |   | 77,454 |       
|                                           |  |   | Accumulated other comprehensive income  |                            |   | (510     | )       |               |   | (1,075 | )       |  |   | (708   | )     
|                                           |  |   | Unamortized portion of restricted stock |                            |   | (119     | )       |               |   | (163   | )       |  |   | (152   | )     
|                                           |  |   | Common shares held in treasury, at cost |                            |   | (3,247   | )       |               |   | (3,482 | )       |  |   | (5,541 | )     
|                                           |  |   |                                         |                            |   |          |         |               |   |        |         | 
|                                           |  |   |                                         | Total shareholders equity |   |          | 96,362  |               |   |        | 94,824  |  |   |        | 93,946 | 
|                                           |  |   |                                         |                            |   |          |         |               |   |        |         | 
|Total liabilities and shareholders equity |  | $ | 126,156                                 |                            |   | $        | 130,172 |               |   | $      | 123,600 | 
|                                           |  |   |                                         |                            |   |          |         |               |   |        |         | 

The accompanying notes are an integral part of the financial statements.

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KEITHLEY INSTRUMENTS, INC.




CONSOLIDATED STATEMENT OF INCOME


(In Thousands of Dollars Except for Per Share Data)
(Unaudited)


|                                             |  |                      |        |                     |  |      |        |      |  |   |        |   |  |   |         |  
|-------------------------------------------- |  | -------------------- | ------ | ------------------- |  | ---- | ------ | ---- |  | - | ------ | - |  | - | ------- | -
|                                             |  | For the Three Months |        | For the Nine Months
|                                             |  | Ended June 30,       |        | Ended June 30,     
|                                             |  | 2002                 |        | 2001                |  | 2002 |        | 2001
|                                             |  |                      |        |                     |  |      |        |     
|Net sales                                    |  | $                    | 26,029 |                     |  | $    | 36,275 |      |  | $ | 68,499 |   |  | $ | 123,951 |  
|Cost of goods sold                           |  |                      | 11,259 |                     |  |      | 14,499 |      |  |   | 30,258 |   |  |   | 47,859  |  
|Selling, general and administrative expenses |  |                      | 11,407 |                     |  |      | 12,465 |      |  |   | 32,926 |   |  |   | 40,529  |  
|Product development expenses                 |  |                      | 3,551  |                     |  |      | 3,718  |      |  |   | 10,560 |   |  |   | 11,683  |  
|Severance charges                            |  |                      | 1,461  |                     |  |      |       |      |  |   | 1,461  |   |  |   |        |  
|Net financing income                         |  |                      | (253   | )                   |  |      | (257   | )    |  |   | (765   | ) |  |   | (888    | )
|                                             |  |                      |        |                     |  |      |        |      |  |   |        |   |  |   |         |  
|(Loss) income before income taxes            |  |                      | (1,396 | )                   |  |      | 5,850  |      |  |   | (5,941 | ) |  |   | 24,768  |  
|Income (benefit) taxes                       |  |                      | (507   | )                   |  |      | 1,764  |      |  |   | (2,109 | ) |  |   | 8,669   |  
|                                             |  |                      |        |                     |  |      |        |      |  |   |        |   |  |   |         |  
|Net (loss) income                            |  | $                    | (889   | )                   |  | $    | 4,086  |      |  | $ | (3,832 | ) |  | $ | 16,099  |  
|                                             |  |                      |        |                     |  |      |        |      |  |   |        |   |  |   |         |  
|Basic (loss) earnings per share              |  | $                    | (0.06  | )                   |  | $    | 0.26   |      |  | $ | (.24   | ) |  | $ | 1.02    |  
|                                             |  |                      |        |                     |  |      |        |      |  |   |        |   |  |   |         |  
|Diluted (loss) earnings per share            |  | $                    | (0.06  | )                   |  | $    | 0.25   |      |  | $ | (.24   | ) |  | $ | 0.97    |  
|                                             |  |                      |        |                     |  |      |        |      |  |   |        |   |  |   |         |  
|Cash dividends per Common Share              |  | $                    | 0.0375 |                     |  | $    | 0.0375 |      |  | $ | 0.1125 |   |  | $ | 0.1025  |  
|                                             |  |                      |        |                     |  |      |        |      |  |   |        |   |  |   |         |  
|Cash dividends per Class B
Common Share      |  | $                    | 0.030  |                     |  | $    | 0.030  |      |  | $ | 0.0900 |   |  | $ | 0.0820  |  
|                                             |  |                      |        |                     |  |      |        |      |  |   |        |   |  |   |         |  

The accompanying notes are an integral part of the financial statements.

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KEITHLEY INSTRUMENTS, INC.




CONSOLIDATED STATEMENT OF CASH FLOWS


(In Thousands of Dollars)
(Unaudited)


|                                                  |                                             |                                                     |              |   |                      |        |                     |   |        |       |        |   |         |        |        |   |        |       | 
|------------------------------------------------- | ------------------------------------------- | --------------------------------------------------- | ------------ | - | -------------------- | ------ | ------------------- | - | ------ | ----- | ------ | - | ------- | ------ | ------ | - | ------ | ----- | 
|                                                  |                                             |                                                     |              |   | For the Three Months |        | For the Nine Months
|                                                  |                                             |                                                     |              |   | Ended June 30,       |        | Ended June 30,     
|                                                  |                                             |                                                     |              |   | 2002                 |        | 2001                |   | 2002   |       | 2001  
|                                                  |                                             |                                                     |              |   |                      |        |                     |   |        |       |       
|Cash flows from operating activities:             |                                             |                                                     |              |   |                      |        |                     |   |        |       |        |   |         |        |        |  
|                                                  |                                             | Net (loss) income                                   |              | $ | (889                 | )      |                     | $ | 4,086  |       |        | $ | (3,832  | )      |        | $ | 16,099 |      
|                                                  |                                             | Expenses not requiring outlay of cash               |              |   | 723                  |        |                     |   | 997    |       |        |   | 2,658   |        |        |   | 2,635  |      
|                                                  |                                             | Changes in working capital                          |              |   | 6,711                |        |                     |   | 6,745  |       |        |   | 3,899   |        |        |   | 7,809  |      
|                                                  |                                             | Other operating activities                          |              |   | 262                  |        |                     |   | 177    |       |        |   | (274    | )      |        |   | 98     |      
|                                                  |                                             |                                                     |              |   |                      |        |                     |   |        |       |        |   |         |        |        |  
|                                                  |                                             | Net cash provided by operating activities           |              |   | 6,807                |        |                     |   | 12,005 |       |        |   | 2,451   |        |        |   | 26,641 |      
|                                                  |                                             |                                                     |              |   |                      |        |                     |   |        |       |        |   |         |        |        |  
|Cash flows from investing activities:             |                                             |                                                     |              |   |                      |        |                     |   |        |       |        |   |         |        |        |  
|                                                  |                                             | Payments for property, plant, and equipment         |              |   | (330                 | )      |                     |   | (670   | )     |        |   | (2,088  | )      |        |   | (2,984 | )    
|                                                  |                                             | Purchase of investments                             |              |   | (4,056               | )      |                     |   |       |       |        |   | (10,129 | )      |        |   |       |      
|                                                  |                                             | Sale of investments                                 |              |   | 1,855                |        |                     |   |       |       |        |   | 2,100   |        |        |   |       |      
|                                                  |                                             | Other investing activities-net                      |              |   | 3                    |        |                     |   | 4      |       |        |   | 24      |        |        |   | 4      |      
|                                                  |                                             |                                                     |              |   |                      |        |                     |   |        |       |        |   |         |        |        |  
|                                                  |                                             | Net cash used in investing activities               |              |   | (2,528               | )      |                     |   | (666   | )     |        |   | (10,093 | )      |        |   | (2,980 | )    
|                                                  |                                             |                                                     |              |   |                      |        |                     |   |        |       |        |   |         |        |        |  
|Cash flows from financing activities:             |                                             |                                                     |              |   |                      |        |                     |   |        |       |        |   |         |        |        |  
|                                                  |                                             | Net decrease in short term debt                     |              |   |                     |        |                     |   |       |       |        |   |        |        |        |   | (222   | )    
|                                                  |                                             | Cash dividends                                      |              |   | (575                 | )      |                     |   | (575   | )     |        |   | (1,719  | )      |        |   | (1,573 | )    
|                                                  |                                             | Repurchase of treasury stock                        |              |   |                     |        |                     |   | (1,209 | )     |        |   |        |        |        |   | (2,848 | )    
|                                                  |                                             | Proceeds from employee stock purchase plans         |              |   | 85                   |        |                     |   | 38     |       |        |   | 1,445   |        |        |   | 2,267  |      
|                                                  |                                             | Other transactions-net                              |              |   |                     |        |                     |   | (7     | )     |        |   | 67      |        |        |   | 107    |      
|                                                  |                                             |                                                     |              |   |                      |        |                     |   |        |       |        |   |         |        |        |  
|                                                  |                                             | Net cash provided by (used in)
financing activities |              |   | (490                 | )      |                     |   | (1,753 | )     |        |   | (207    | )      |        |   | (2,269 | )    
|                                                  |                                             |                                                     |              |   |                      |        |                     |   |        |       |        |   |         |        |        |  
|Effect of exchange rate changes on cash           |                                             |                                                     | 464          |   |                      |        | (117                | ) |        |       | 248    |   |         |        | (83    | )
|                                                  |                                             |                                                     |              |   |                      |        |                     |   |        |       |        |   |         |        |        |  
|Increase (decrease) in cash and cash equivalents  |                                             |                                                     | 4,253        |   |                      |        | 9,469               |   |        |       | (7,601 | ) |         |        | 21,309 |  
|Cash and cash equivalents at beginning of period  |                                             |                                                     | 18,237       |   |                      |        | 33,248              |   |        |       | 30,091 |   |         |        | 21,408 |  
|                                                  |                                             |                                                     |              |   |                      |        |                     |   |        |       |        |   |         |        |        |  
|Cash and cash equivalents at end of period        |                                             | $                                                   | 22,490       |   |                      | $      | 42,717              |   |        | $     | 22,490 |   |         | $      | 42,717 |  
|                                                  |                                             |                                                     |              |   |                      |        |                     |   |        |       |        |   |         |        |        |  
|Supplemental
disclosures of cash flow information |                                             |                                                     |              |   |                      |        |                     |   |        |       |        |   |         |        |        |  
|                                                  | Cash (refunded) paid during the period for: |                                                     |              |   |                      |        |                     |   |        |       |        |   |         |        |        |   |       
|                                                  |                                             |                                                     | Income taxes |   | $                    | (5,590 | )                   |   | $      | 1,625 |        |   | $       | (5,593 | )      |   | $      | 4,622 | 
|                                                  |                                             |                                                     | Interest     |   |                      | 35     |                     |   |        | 18    |        |   |         | 96     |        |   |        | 48    | 

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.


The accompanying notes are an integral part of the financial statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



| | A. |  | Management Representation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |  | The consolidated financial statements at June 30, 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
15,755,241 for the quarter ended June 30, 2002, and 15,784,010 and
16,448,472 for the quarter ended June 30, 2001, respectively. The weighted
average number of shares and share equivalents used to determine basic
earnings per share and diluted earnings per share was 15,698,669 for the
nine months ended June 30, 2002, and 15,723,915 and 16,531,781 for the nine
months ended June 30, 2001, respectively. Both Common Shares and Class B
Common Shares are included in calculating the weighted average number of
shares outstanding.                                                                                                                                                                                                                                                                                                                           
|
| | C. |  | Severance Charges                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |    |  | The company recorded a $1,461 pretax charge, or $0.06 per share after taxes,
for severance at June 30, 2002. Approximately 7 percent of the worldwide
work force, or 44 individuals, were affected by the reduction in force, the
majority of which were in manufacturing. The charges include salaries and
vacation per each individuals severance agreement, payroll taxes, health
insurance and pension costs. At June 30, 2002, $1,461 was included in the
consolidated balance sheet under the caption Accrued payroll and related
expenses for these charges.                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| | D. |  | Amendment to Credit Agreement                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |    |  | The companys current credit agreement, which expires March 30, 2004, is a
$10,000 debt facility ($3,000 outstanding at June 30, 2002) that provides
unsecured, multi-currency revolving credit at various interest rates based
on Prime or LIBOR. Under the agreement, the company is required to comply
with various financial ratios and covenants. At June 30, 2002, the company
would have been in violation of two of these covenants: the Fixed Charge
Coverage Ratio and the Leverage Ratio. The credit agreement was amended on
August 1, 2002, effective as of June 30, 2002. Under the terms of the
amended agreement, the Fixed Charge Coverage Ratio and the Leverage Ratio
were suspended through March 31, 2003 and were replaced with two new
covenants: Working Capital and EBIDA Plus Non-Recurring Expense. The
company is in compliance with the amended credit agreement effective June
30, 2002. (The amended credit agreement is filed as exhibit 10(j) of this
quarterly report on Form 10-Q.)
|
| | E. |  | 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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

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| |    |  | 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 third quarter or the first
nine months of fiscal 2002. The company did purchase 46,000 shares during
the third quarter of fiscal 2001 at an average cost of $26.18 per share
including commissions. For the first nine months of fiscal year 2001, the
company purchased 151,000 Common Shares at an average cost of $18.86 per
share including commissions. At June 30, 2002, 147,644 Common Shares
purchased under the companys share repurchase program 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 June 30, 2002 was 271,354.                                                                                                                                                                                                                                                                                                
|
| | F. |  | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |    |  | 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 June 30, 2002, the forward exchange forward contracts
were designed as cash flow

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| |    |  | hedges. The interest rate swap instrument was
determined to be an ineffective hedge at June 30, 2002, and $238 was
recorded as a charge in the third quarter.                                                                                                                                                                                                                                                                                                                                 
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |    |  | 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.
|
| | G. |  | Comprehensive Income                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    |  | Comprehensive income for the three and nine months ended June 30, 2002 and
2001 is as follows:                                                                                                                                                                                                                                                                                                                                                                                                

|                                                         |  |                      |      |                     |  |      |       |      |  |   |        |   |  |   |        |  
|-------------------------------------------------------- |  | -------------------- | ---- | ------------------- |  | ---- | ----- | ---- |  | - | ------ | - |  | - | ------ | -
|                                                         |  | For the Three Months |      | For the Nine Months
|                                                         |  | Ended June 30,       |      | Ended June 30,     
|                                                         |  | 2002                 |      | 2001                |  | 2002 |       | 2001
|                                                         |  |                      |      |                     |  |      |       |     
|Net (loss) income                                        |  | $                    | (889 | )                   |  | $    | 4,086 |      |  | $ | (3,832 | ) |  | $ | 16,099 |  
|Unrealized (loss) gain on value of
derivative securities |  |                      | (101 | )                   |  |      |      |      |  |   | 25     |   |  |   | 14     |  
|Hedge ineffective on value of
derivative securities      |  |                      | 105  |                     |  |      |      |      |  |   | 105    |   |  |   |       |  
|Net unrealized investment gains (losses)                 |  |                      | 123  |                     |  |      |      |      |  |   | (48    | ) |  |   |       |  
|Foreign currency translation
adjustments                 |  |                      | 444  |                     |  |      | (116  | )    |  |   | 116    |   |  |   | (271   | )
|                                                         |  |                      |      |                     |  |      |       |      |  |   |        |   |  |   |        |  
|Comprehensive (loss) income                              |  | $                    | (318 | )                   |  | $    | 3,970 |      |  | $ | (3,634 | ) |  | $ | 15,842 |  
|                                                         |  |                      |      |                     |  |      |       |      |  |   |        |   |  |   |        |  



| | H. |  | 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 radio
frequency 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.

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##### Table of Contents



|              |  |                      |        |                     |  |      |        |      |  |   |        |  |  |   |         | 
|------------- |  | -------------------- | ------ | ------------------- |  | ---- | ------ | ---- |  | - | ------ |  |  | - | ------- | 
|              |  | For the Three Months |        | For the Nine Months
|              |  | Ended June 30,       |        | Ended June 30,     
|              |  | 2002                 |        | 2001                |  | 2002 |        | 2001
|              |  |                      |        |                     |  |      |        |     
|Net sales:    |  |                      |        |                     |  |      |        |      |  |   |        |  |  |   |         | 
|United States |  | $                    | 11,176 |                     |  | $    | 17,041 |      |  | $ | 26,645 |  |  | $ | 55,666  | 
|Europe        |  |                      | 7,950  |                     |  |      | 12,460 |      |  |   | 24,426 |  |  |   | 39,582  | 
|Pacific Basin |  |                      | 5,715  |                     |  |      | 5,325  |      |  |   | 14,438 |  |  |   | 22,116  | 
|Other         |  |                      | 1,188  |                     |  |      | 1,449  |      |  |   | 2,990  |  |  |   | 6,587   | 
|              |  |                      |        |                     |  |      |        |      |  |   |        |  |  |   |         | 
|              |  | $                    | 26,029 |                     |  | $    | 36,275 |      |  | $ | 68,499 |  |  | $ | 123,951 | 
|              |  |                      |        |                     |  |      |        |      |  |   |        |  |  |   |         | 

|                   |  |             |        |      |  |   |        | 
|------------------ |  | ----------- | ------ | ---- |  | - | ------ | 
|                   |  | At June 30,
|                   |  | 2002        |        | 2001
|                   |  |             |        |     
|Long-lived assets: |  |             |        |      |  |   |        | 
|United States      |  | $           | 18,968 |      |  | $ | 18,522 | 
|Germany            |  |             | 3,063  |      |  |   | 2,455  | 
|Other              |  |             | 585    |      |  |   | 388    | 
|                   |  |             |        |      |  |   |        | 
|                   |  | $           | 22,616 |      |  | $ | 21,365 | 
|                   |  |             |        |      |  |   |        | 




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.

Revenue recognition:

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.


Use of estimates:

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.


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Inventories:

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.


Income taxes:

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.


Results of Operations

Third Quarter 2002 Compared with Third Quarter
2001

The company reported a net loss for the third quarter of fiscal 2002 of $889,
or $0.06 per share. The net loss includes $0.06 per share for severance
charges, which affected approximately 7 percent of the workforce. (See Note
C.) Excluding the severance charges, the company was profitable with pretax
earnings of $65. The company reported net income of $4,086, or $0.25 per share
on a diluted basis, in the third quarter of fiscal 2001.

Net sales of $26,029 for the third quarter of fiscal 2002 decreased 28 percent
from $36,275 last year. Sales decreased 34 percent in the United States and 36
percent in Europe, but increased 7 percent in the Pacific Basin region. Total
export sales excluding Europe decreased 18 percent. Sequentially, sales
increased 18 percent from the second quarter.

Orders of $30,883 for the third quarter increased 36 percent from the second
quarter, and 11 percent from the prior years third quarter; the first
year-over-year increase since December 2000. The increase is due primarily to
higher orders for the companys products serving the semiconductor industry,
and includes a $5,000 order from a single semiconductor industry customer.
When compared to the second quarter, orders from the semiconductor industry
increased 149 percent, wireless industry orders increased 24 percent,
optoelectronics industry orders were up 8 percent, while research and education
customer orders decreased 5 percent. When compared to the prior years third
quarter, geographic orders were up 18 percent in the United States, flat in
Europe, and down 4 percent in the Pacific Basin. Order backlog increased 39
percent during the quarter to $16,971 million at June 30, 2002.

Cost of goods sold as a percentage of net sales increased to 43.3 percent from
40.0 percent in the prior years third quarter. The increase was due mainly to
spreading fixed manufacturing costs over lower sales volumes, and a less
favorable product mix. This was offset somewhat by a 4

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percent weaker dollar. The Companys hedging activities increased cost of good sold as a percentage of
sales for the quarter by 0.5 percentage points versus a decrease of 0.3
percentage points in the prior years quarter.

Selling, general and administrative expenses decreased $1,058, or 8 percent, to
$11,407 for the quarter, although increased as a percentage of net sales to
43.8 percent from 34.4 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 due to the companys cost cutting measures. Selling,
general and administrative expenses increased $278, or 2 percent, sequentially
from the second quarter due to a full quarters operating expenses in Japan,
and a 4 percent weaker dollar.

Product development expenses were $3,551, or 13.6 percent of net sales, down
$167, or 4 percent, from last years $3,718, or 10.2 percent of sales. The
decrease was due to lower discretionary spending. Sequentially, product
development increased 3 percent from the second quarter. The increase was due
primarily to higher pilot production costs incurred during the third quarter
because of the timing of new product introductions.

The company recorded a $1,461 pretax charge, or $0.06 per share after taxes,
for severance at June 30, 2002. Approximately 7 percent of the worldwide work
force, or 44 individuals, were affected by the reduction in force, the majority
of which were in manufacturing. The charges include salaries and vacation per
each individuals severance agreement, payroll taxes, health insurance and
pension costs. (See Note C.)

The Company generated net financing income during the third quarter of $253
versus $257 in the prior year. The benefit of higher average cash and
short-term investments levels was offset by lower interest rates.

The company recorded a tax benefit for the quarter at a 36.3 percent rate.
Last years third quarter tax rate was 30.2 percent.

Nine Months Ended June 30, 2002 Compared
with Nine Months Ended June 30, 2001

The net loss for the 2002 nine-month period was $3,832, or $0.24 per share,
compared to net income of $16,099, or $0.97 per diluted share, last year.

Net sales of $68,499 decreased 45 percent from $123,951 reported for the
nine-month period last year. Sales were down in all major geographies with the
United States down 52 percent, Europe down 38 percent and the Pacific Basin
region down 35 percent from the prior year.

Orders for the nine-month period were down 35 percent versus last year.
Geographically, orders were down 37 percent in the United States, 35 percent in
Europe, and 31 percent in the Pacific Basin region. For the first nine months
of fiscal 2002, semiconductor orders comprised approximately 30 percent of the
total, wireless orders accounted for about 15 percent, optoelectronics orders
made up 5 percent, while research and education comprised approximately 20
percent of total orders.

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Cost of goods sold as a percentage of net sales increased to 44.2 percent
compared with 38.6 percent in the prior years nine-month period. The
percentage increase was due to spreading fixed manufacturing costs over lower
sales volumes, as well as to a less favorable product mix. The effect of
foreign exchange hedging on cost of goods was immaterial in fiscal 2002 and
2001s nine-month periods.

Selling, general and administrative expenses of $32,926 decreased 19 percent
from $40,529 in the same period last year, but increased as a percentage of net
sales to 48.1 percent from 32.7 percent. 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. The
company opened a direct sales and support office in Japan on April 1, 2002.
During the first nine months of fiscal 2002, the company incurred approximately
$1,700 of costs associated with the start-up of the Japanese organization.

Product development expenses for the first nine months of fiscal 2002 were
$10,560, or 15.4 percent of net sales, down 10 percent from of $11,683, or 9.4
percent of net sales, in the prior year. The decrease was due to lower
discretionary spending, as well as lower incentive programs due to lower sales.

The company recorded a $1,461 pretax charge, or $0.06 per share after taxes,
for severance at June 30, 2002. Approximately 7 percent of the worldwide work
force, or 44 individuals, were affected by the reduction in force, the majority
of which were in manufacturing. The charges include salaries and vacation per
each individuals severance agreement, payroll taxes, health insurance and
pension costs. (See Note C.) At June 30, 2002, the company employees 649
people on a worldwide basis, including the 44 individuals above. The majority
of the 44 people were terminated during the first half of July 2002.

The Company generated net financing income of $765 for the current years
nine-month period versus $888 last year. Although cash and short-term
investments were higher than year ago levels, lower interest rates caused net
financing income to decrease from the prior year.

The company recorded a tax benefit for the first nine months of fiscal 2002 at
a 35.5 effective tax rate. Last years effective tax rate for the nine-month
period was 35.0 percent.

Liquidity and Capital Resources

Cash generated from operations was $6,807 for the third quarter and $2,451 for
the nine months ended June 30, 2002, and included $5,545 and $6,060 in income
tax refunds for the quarter and nine-month period, respectively. The company
used $10,129 to purchase short-term investments, $2,088 for capital
expenditures, and $1,719 to pay dividends for the first nine months of fiscal
2002. The company received $1,855 and $2,100 for the third quarter and first
nine months of fiscal 2002, respectively, as proceeds from the sale of
investments. Additionally, the company received $1,445 as proceeds from
employee stock purchase plans during the first nine months of fiscal 2002. The
company did not repurchase any Common Shares during the first nine months of
fiscal 2002. (See Note E.) At June 30, 2002, cash and cash equivalents
totaled $22,490, an increase of $4,253 during the quarter, but a decrease of
$7,601 since

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September 30, 2001. Short-term investments totaled $29,053 at
June 30, 2002, an increase of $2,387 during the quarter and $8,169 since
September 30, 2001. Debt totaled $3,000 at June 30, 2002 and the
debt-to-capital ratio was 3.0 percent.

The company expects to finance capital spending, the stock repurchase program
and working capital requirements with cash and cash equivalents on hand and
cash provided by operations. At June 30, 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.

Outlook

The company is beginning to implement a lean manufacturing initiative. The
expected benefits anticipated from lean manufacturing include shorter lead
times, lower inventory levels and higher inventory turns as the implementation
progresses. The reduction in force in the manufacturing area was consistent
with this initiative. (See Note C.)

Additionally, the company believes the reduction in force will allow it to
maintain investments in areas that will generate future growth, and will
partially offset cost increases that are expected to occur over the next 12
months. Some of the cost increases will be for areas that management believes
will provide long-term benefit to the companys customers and shareholders.
For instance, the company plans to continue to build its Asian operations as
management believes there is a great deal of opportunity for growth in that
region. Other increases are in areas where management has less control, such
as increases in medical, insurance and retirement costs. Managements goal is
to keep total costs relatively flat, except those costs which vary by sales
volume or earnings, while continuing to invest in key strategic initiatives, so
it is reallocating resources accordingly.

As of the date of this filing, the company confirms that it remains comfortable
with the guidance it provided in its July 18, 2002 press release with regard to
sales and pretax return on sales for the fourth quarter of fiscal 2002. The
guidance was as follows: Based on current order activity and orders in
backlog, the company expects net sales for the fourth quarter to range between
$26,000 and $28,000. Given this level of sales, the company expects break-even
results at the lower end of the sales range, and pretax earnings as a
percentage of sales in the low single-digits at the higher end of the range.

Additionally, on July 22, 2002, the company began to repurchase shares under
its stock repurchase program. The purpose of the repurchase program is to
offset the dilutive effect of stock option and stock purchase plans. (See Note
E.)

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 with regard to financing capital spending, the stock
repurchase program and working capital requirements, as well as expectations as
to regard with lean manufacturing, future expense levels,

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and sales and pretax return on sales for the fourth quarter of fiscal 2002 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, wireless, optoelectronics and other markets. During the second
quarter of fiscal year 2001, the company experienced a slowdown in orders,
primarily from its semiconductor, wireless and optoelectronics customers. The
companys results have been and could continue to be adversely affected
depending upon business conditions 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 decline in sales as a result of the current economic
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 reallocate resources to areas that it feels will provide the best long-term
benefit to its customers and shareholders. A failure by the company to
reallocate expenses in a timely manner could adversely affect the companys
future operating results. In addition, notwithstanding such 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.

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The company currently has subsidiaries or sales offices located in
approximately 15 countries outside the United States, and non-U.S. sales
accounted for 61 percent of the companys revenue during the first nine months
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.

The company is beginning to implement a lean manufacturing environment in its
manufacturing facilities, which are located in Cleveland, Ohio. In conjunction
with the lean manufacturing initiative, the company reduced its workforce by 44
people, primarily in manufacturing. The companys results could be adversely
affected if it is unable to meet customer delivery requirements during the
implementation period. Additionally, the company expects to benefit from the
lean manufacturing with shorter lead times, lower inventory levels and higher
inventory turns. The companys ability to effectively implement lean
manufacturing will determine the extent, if any, to which these benefits are
realized.

In March of 2001, the company was 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
13Table of Contentsexchange 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 originally
entered into 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; however, the interest rate swap instrument was
determined to be an ineffective hedge at June 30, 2002, and $238 was recorded
as a charge in the third quarter of fiscal 2002. 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.
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 6. Exhibits and Reports on Form 8-K.(a)
        
        Exhibits. The following exhibits are filed herewith:

|        |  |                                                      
|------- |  | -----------------------------------------------------
|Exhibit |  |                                                      
|Number  |  | Exhibit                                              
|        |  |                                                      
|10(j)   |  | First Amend to Credit Agreement, dated August 1, 2002
|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 June 30, 2002.
|--- |  | -------------------------------------------------------------------------------------------------------

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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: |  | August 12, 2002 |  | /s/ Joseph P. Keithley                                                                 
|      |  |                 |  |                                                                                        
|      |  |                 |  | Joseph P. Keithley                                                                     
|      |  |                 |  | Chairman, President and Chief Executive Officer
(Principal Executive Officer)          
|     
|     
|Date: |  | August 12, 2002 |  | /s/ Mark J. Plush                                                                      
|      |  |                 |  |                                                                                        
|      |  |                 |  | Mark J. Plush                                                                          
|      |  |                 |  | Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)

15