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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 [FEE REQUIRED].
For fiscal year ended, SEPTEMBER 30, 1997 Commission file number 1-9965
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KEITHLEY INSTRUMENTS, INC.
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(Exact name of registrant as specified in its charter)
OHIO 34-0794417
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(State of incorporation or organization) (I.R.S. Employer Identification No.)
28775 AURORA ROAD, SOLON, OHIO 44139
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (440) 248-0400
-----------------
Securities registered pursuant to Section 12(b) of the Act:
COMMON SHARES, WITHOUT PAR VALUE NEW YORK STOCK EXCHANGE
- ----------------------------------- ---------------------------------------
(Title of each class) (Name of exchange on which registered)
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, and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
As of December 16, 1997 there were outstanding 4,885,655 Common Shares, without
par value, and 2,785,378 Class B Common Shares, without par value. At that date,
the aggregate market value of the Common Shares of the Registrant held by
non-affiliates was $38,348,345 and the aggregate market value of the Class B
Common Shares of the Registrant held by non-affiliates was $967,295 for a total
aggregate market value of all classes of Common Shares held by non-affiliates of
$39,315,640. While the Class B Common Shares are not listed for public trading
on any exchange or market system, shares of that class are convertible into
Common Shares at any time on a share-for-share basis. The market values
indicated were calculated based upon the last sale price of the Common Shares as
reported by the New York Stock Exchange on December 16, 1997, which was $8.75.
For purposes of this information, the 502,987 Common Shares and 2,674,830 Class
B Common Shares which were held by the officers and Directors of the Company
were deemed to be voting stock held by affiliates.
DOCUMENTS INCORPORATED BY REFERENCE
<TABLE>
<CAPTION>
DOCUMENT PART OF 10-K
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<S> <C> <C>
1. Annual report to shareholders for the fiscal year ended September 30, 1997 Parts I and II
(only the portions listed in this report).
2. Proxy statement for the annual meeting of shareholders to be held on February 14, 1998 Part III
(only the portions listed in this report).
</TABLE>
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KEITHLEY INSTRUMENTS, INC.
10-K ANNUAL REPORT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I: PAGE
----
<S <C> <C>
Item 1. Business 1
Item 2. Properties 9
Item 3. Legal Proceedings 10
Item 4. Submission of Matters to a Vote of Security Holders 10
PART II:
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters 13
Item 6. Selected Financial Data 13
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
Item 8. Financial Statements and Supplementary Data 13
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 13
PART III.
Item 10. Directors and Executive Officers of the Registrant 14
Item 11. Executive Compensation 14
Item 12. Security Ownership of Certain Beneficial Owners and
Management 14
Item 13. Certain Relationships and Related Transactions 14
PART IV:
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K 15
</TABLE>
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PART I.
ITEM 1 - BUSINESS.
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General
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Keithley Instruments, Inc. is a corporation which was founded in 1946
and organized under the laws of the State of Ohio on October 1, 1955. Its
principal executive offices are located at 28775 Aurora Road, Solon, Ohio 44139;
telephone (440) 248-0400. References herein to the "Company" or "Keithley" are
to Keithley Instruments, Inc. and its subsidiaries unless the context indicates
otherwise.
Products
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Keithley Instruments, Inc. provides measurement-based solutions to the
semiconductor, telecommunications and electronic components manufacturers and
other high-growth areas of the electronics industry. Engineers and scientists
around the world use Keithley's advanced hardware and software for process
monitoring, production test and basis research. Although the Company's products
vary in capability, sophistication, use, size and price, they basically test,
measure, and analyze electrical and physical properties. As such, the Company
considers its business to be in a single industry segment. For each of the last
three fiscal years, more than 90% of the Company's revenue was derived from the
sale of electronic test and measurement instrumentation and data acquisition and
analysis hardware and software, which represents one class of similar products.
The product groups of the Company are described below:
INSTRUMENTS. The Instruments Business Unit designs, develops,
manufactures and markets sensitive electronic instrumentation used in production
test and research for measuring a wide range of electrical properties such as
voltage, resistance, current, capacitance and charge. The Instruments Business
Unit's products generally range in price from $1,000 to $10,000 and include the
following product groups:
DIGITAL MULTIMETERS. This product line includes a range of
instruments that are designed to cover measurements of voltage,
resistance, and current for production test, design and
development, and research applications. Each digital multimeter has
a computer interface for integration into automated test and
measurement systems. Typical applications include testing
electrical components such as resistor networks and thermistors,
and end products which include cellular telephones, computer disk
drives, and pace makers.
SENSITIVE INSTRUMENTS. This product group includes electrometers,
picoammeters, sensitive digital voltmeters, micro-ohmmeters, and
certain other instruments which are distinguished by their extreme
sensitivity, resolution and accuracy as compared to the
capabilities of conventional meters. Sensitive instruments are used
by scientists, engineers, and researchers for the study of
materials, semiconductors, and
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superconductors. Typical customers are industrial and government
research laboratories, educational institutions, and electronics
manufacturers.
SWITCHES AND SOURCES. Switching instruments are used to route
electrical signals in test systems to measurement and source
instrumentation. This allows many devices or test points to be
measured with a minimum number of instruments. Switch products
together with Sensitive, Digital Multimeter, Source, I-V and C-V
instruments can be integrated into computer-based systems to
provide flexible, automated testing and measurement. The switching
product line allows Keithley to provide a complete measurement
solution to customers in production test, semi-conductor
characterization, and materials research applications.
Sources generate the precise voltage and currents needed to test
electronic devices and investigate properties of materials. Source
products are sold to scientists and engineers in research,
semiconductor and electronic manufacturing markets, especially
where stable signals of low level current and voltage are needed.
These sources can be interfaced with computers as part of an
automated test system, or used manually on the laboratory bench.
SOURCE MEASURE UNITS. These are programmable instruments capable of
sourcing and measuring voltage and current, thus replacing the
functionality of four instruments with one reliable, compact unit.
These versatile instruments cover a wide dynamic range of voltage
and current and their combination of high speed and resolution have
made these units ideal for high volume production testing of
electronic components for computers, automotive, and wireless
telecommunications products. The source measure units also provide
the measurement sensitivity needed for materials research and
semiconductor characterization applications.
C-V (CAPACITANCE VERSUS VOLTAGE). C-V products include
high-frequency and quasistatic C-V meters, measurement and analysis
software, and computer-based test systems. C-V products are used by
scientists and engineers in semiconductor manufacturing facilities,
industrial and governmental research laboratories, and educational
institutions to research, develop, and characterize semiconductor
devices, materials and manufacturing processes.
SEMICONDUCTOR BUSINESS UNIT. The Semiconductor Business Unit designs,
develops, manufactures and markets automatic parametric test systems and process
monitoring solutions used by semiconductor manufacturers to measure various
electrical characteristics of semiconductor materials. Its products can be found
in semiconductor fabrication facilities throughout the world, and consist of two
main groups:
APT PRODUCTS. The Company is one of the leading suppliers of these
automatic parametric test systems for semiconductor production
applications. In production, the systems allow manufacturers to
monitor quality control parameters during fabrication of integrated
circuits to improve manufacturing yields. In research, the systems
are used to analyze the characteristics of semiconductor materials
in the development of integrated circuit devices. The systems can
also be used to develop
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integrated circuit manufacturing processes. A typical system
incorporates Keithley instrumentation and software and computer
hardware manufactured by others. The system's major components are
integrated, and in most cases, customized to customer
specification. Installation and servicing of the equipment and
software, and customer training are also provided. Selling prices
for these products generally range from $100,000 to $250,000. In
February 1996, Keithley purchased the principal assets of Turner
Engineering Technology (Turner). Turner developed wafer test
structures used for determining the quality of semiconductor wafers
at various stages of manufacturing. These test structures will
allow the company's APT systems to determine the quality of both
the wafer and the manufacturing process much earlier than with
previous test methods.
OXIDE MONITORING SYSTEM. Quantox(R) is the first product based on
the direct wafer measurement or non-contact technology licensed
from International Business Machines in May 1994. The measurement
data Quantox provides are used to detect and identify the types of
charges present on semiconductor wafers. Charge is a critical
indicator that tells the semiconductor production engineer whether
or not the manufacturing process is "in spec." This measurement is
made within minutes using Quantox, replacing a procedure that used
to take up to five days. The selling price for a Quantox unit is
approximately $500,000 depending upon the options purchased.
RADIATION MEASUREMENTS BUSINESS UNIT. The Radiation Measurements
Business Unit designs, develops, manufactures, and markets products and systems
that accurately measure the radiation emission levels of x-ray machines and
nuclear radiation sources and are used to calibrate radiation therapy and x-ray
equipment in hospitals and manufacturing processes. Customers include hospitals,
diagnostic x-ray equipment manufacturers, radiation researchers and physicists,
and field service organizations. Selling prices for standard products range from
$500 to $10,500 per instrument. The Radiation Measurements Business Unit is
developing and producing personal dosimetry systems using recently acquired
laser thermoluminescence dosimetry for the U.S. Navy under contract and plans to
commercialize the technology over the next few years.
PC MEASUREMENTS BUSINESS UNIT. This Business Unit designs, develops,
manufactures and markets a wide range of data acquisition and analysis hardware
and software products designed for use with personal computers and workstations.
These products are used in thousands of applications worldwide wherever a number
of variables must be monitored and analyzed quickly. Selling prices for these
products generally range from $100 to $4,000.
These products are marketed under the brand names Keithley MetraByte
and Acculex and are composed of the following product groups:
PLUG-IN DATA ACQUISITION BOARDS provide data acquisition
capabilities in the form of a board that is installed into a slot
of the computer. The Company offers a wide range of plug-in data
acquisition boards in terms of the number of channels, input ranges
and sampling rates. They are marketed worldwide to researchers and
scientists engaged in laboratory automation and experimentation, as
well as to engineers
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involved with process control and data collection applications.
These products are marketed primarily through direct marketing and
catalog mailings.
SOFTWARE products are specialized personal computer-based
scientific data acquisition, analysis and graphics software
products. Scientists and engineers often combine Keithley software
together with data acquisition hardware or test and measurement
instrumentation of other manufacturers. The software products are
used with personal computers.
ACCULEX products include digital panel meters and panel printers.
These products display machine parameters, capture results for
permanent storage and enunciate alarms. These products are marketed
primarily through direct marketing and catalog mailings.
DISTRIBUTED I/O products include Keithley's WORKHORSE and MetraBus
product offerings. These products are primarily used in industrial
monitoring and control applications.
COMMUNICATION products include IEEE-488 bus interfaces and software
for interfacing computers with programmable measurement
instrumentation. These products are marketed through direct
marketing and catalog mailings.
DATA ACQUISITION INSTRUMENTS include personal computer-based
workstations that collect data from, and provide control over, a
variety of test and measurement modules. A typical workstation
consists of a standard software package and hardware external to
the personal computer that utilizes various plug-in module cards
that allow a user to customize the workstation for a specific
application, including research, product test and pilot plant
process monitoring.
PERSONAL COMPUTER INSTRUMENT PRODUCTS (PCIP) are instruments
contained entirely on boards that fit into an expansion slot of
almost any personal computer. Included in the PCIP offering are a
digital multimeter, scanner oscilloscope, function generator and a
counter. Applications include bench top engineering and automatic
production testing. These products are marketed primarily through
direct marketing and catalog mailings.
SMARTLINK(TM) is a line of intelligent measurement modules that
allow laboratory-grade measurements virtually anywhere due to their
small size. The compact modules connect directly to a sensor or
signal source creating no need for extra hardware. Each module has
on-board signal processing capabilities to provide linearization,
date/time stamping alarming that allows them to deliver useful
information directly to a monitoring, control or data acquisition
system. Selling prices for these products generally range from $500
to $2,500.
AGENCY PRODUCTS. The Company markets and distributes certain products
manufactured by approximately eight test and measurement companies. These
products are
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marketed and distributed primarily by the Company's European operations and are
complementary to, but not competitive with, products manufactured by the
Company.
New Products During Fiscal Year 1997
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Several new products were introduced during fiscal 1997 including the
following:
INSTRUMENTS introduced several new products including the Model 6517A,
2410 and 2420. The Model 6517A Electrometer/High Resistance Meter provides
accuracy, sensitivity and speed previously unavailable in this type of
instrument. The features of this model make it well-suited for measuring the
resistance, resistivity and conductance of insulating materials, finding the
voltage coefficient of resistors and characterizing the leakage of diodes and
capacitors. The Company expanded its 2400 SourceMeter Series with Model 2410, a
high voltage SourceMeter, and Model 2420, a high current SourceMeter. The new
instruments can make more than 1000 non-buffered readings per second. Both
models simultaneously source, sink and measure voltage and current, proving a
complete solution that simplifies and lowers the cost of measurement in a wide
range of applications.
THE SEMICONDUCTOR BUSINESS UNIT began shipping a new parametric test
system, the Model S600. The S600 is designed for both production and
applications in the semiconductor industry. This product offers unprecedented
measurement speed and sensitivity, higher throughput and lower
cost-of-ownership. In the area of oxide charge monitoring, the Quantox process
monitoring product became more established.
THE RADIATION MEASUREMENTS BUSINESS UNIT introduced software for
processing data and reporting results of tests on mammography x-ray machines to
the FDA and introduced its improved non-invasive kilovoltage divider used by
x-ray manufacturers and field service organizations worldwide. The Unit procured
a contract with the U.S. Navy worth $4.1 million for limited run initial
production of personnel dosimetry systems based on the newly acquired laser
heated thermoluminescence radiation dosimetry.
PC MEASUREMENTS BUSINESS UNIT introduced the several additions to the
SmartLink(TM) product line. The unique design of the Models KNM-DCV41, -DCV42,
- -TC41, and -TC42 provides up to 1500V front-to-back isolation on up to six
differential analog input channels. The instruments provide unparalleled
accuracy, plus equipment and personnel protection for demanding measurement
applications, such as DC volts readings, four-wire resistance tests, and
thermocouple temperature measurements. Also introduced was the KNM-DYN12 which
can make laboratory grade measurements of force, acceleration, and dynamic
pressure in virtually any plant location.
Geographic Markets and Distribution
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During fiscal 1997, substantially all of the Company's products were
manufactured in Ohio and were sold throughout the world in many developed
countries. The Company's
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principal markets are the United States, Europe and the Pacific Basin. During
the year, the Keithley Metrabyte operation was relocated from Taunton,
Massachusetts to Solon, Ohio.
In the United States, the Company's products are sold by the Company's
sales personnel, independent sales representatives and through direct marketing
and catalog mailings. United States sales offices are located in Solon, Ohio and
Santa Clara, California. The Company markets its products directly in European
countries in which it has a wholly owned sales subsidiary and through
distributors in other countries. European subsidiaries have sales and service
offices located in or near London, Munich, Paris, Amsterdam, Zurich and Milan.
The Company also has sales offices in Belgium, China, Taiwan and India. Sales in
markets outside the above named locations are made through independent sales
representatives and distributors.
Sources and Availability of Raw Materials
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The Company's products require a wide variety of electronic and
mechanical components, most of which are purchased. The Company has multiple
sources for the vast majority of the components and materials it uses; however,
there are some instances where the components are obtained from a sole-source
supplier. If a sole-source supplier ceased to deliver, the Company could
experience a temporary adverse impact on its operations; however, management
believes alternative sources could be developed quickly. Although shortages of
purchased materials and components have been experienced from time to time,
these items have generally been available to the Company as needed.
Patents
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Electronic instruments of the nature the Company designs, develops and
manufactures can not generally be patented in their entirety. Although the
Company holds patents with respect to certain of its products, it does not
believe that its business is dependent to any material extent upon any single
patent or group of patents, because of the rapid rate of technological change in
the industry.
Seasonal Trends and Working Capital Requirements
- ------------------------------------------------
Although the Company is not subject to significant seasonal trends, its
business is cyclical and is somewhat dependent upon the semiconductor industry
in particular. The Company does not have any unusual working capital
requirements.
Customers
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The Company's customers generally are involved in engineering research
and development, product testing, electronic service or repair, and educational
and governmental research. During the fiscal year ended September 30, 1997 no
one customer accounted for more than 10% of the Company's sales. Management
believes that the loss of any one of its customers would not materially affect
the sales or net income of the Company.
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Backlog
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The Company's backlog of unfilled orders amounted to approximately
$13,486,000 as of September 30, 1997 and approximately $9,087,000 as of
September 30, 1996. Included in the 1997 backlog is $981,000 related to a U.S.
Navy Contract. $451,000 of this was unfunded at September 30, 1997. It is
expected that the majority of the orders included in the 1997 backlog will be
delivered during fiscal 1998; however, the Company's past experience indicates
that a small portion of orders included in the backlog may be canceled.
Competitive Conditions
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The Company competes on the basis of quality, performance, service,
warranty and price, with quality and performance frequently being dominant.
There are many firms in the world engaged in the manufacture of electronic
measurement instruments, some of which are larger and have greater financial
resources than the Company. The Company's competitors vary between product lines
and certain manufacturers compete with the Company in multiple product lines.
The Company's principal competitors are Hewlett-Packard Company, National
Instruments, Inc., Fluke Corporation and Data Translation, Inc.
Research And Development
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The Company's engineering development activities are directed toward
the development of new products that will complement, replace or add to the
products currently included in the Company's product line. The Company does not
perform basic research, but on an ongoing basis utilizes new component and
software technologies in the development of its products. The highly technical
nature of the Company's products and the rapid rate of technological change in
the industry require a large and continuing commitment to engineering
development efforts. Product development expenses were $17,233,000 in 1997,
$18,337,000 in 1996 and $15,385,000 in 1995, or approximately 14%, 15% and 14%
of net sales, respectively, for each of the last three fiscal years. During
1997, and continuing in 1998, the Company was involved in a design and
manufacturing, cost plus fixed fee, contract with the U.S. Navy. All contract
related costs were reimbursed by the U.S. Navy and appear in the "Cost of goods
sold" caption in the consolidated financial statements as opposed to "Product
development expenses." The Company acquired the principal assets of
International Sensor Technology (IST) in 1996. IST's activities included a
government research and development contract for the Navy which was concluded
during 1996. The amount spent by the Company on this contract was accounted for
in the manner described for the current contract.
Government Regulations
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The Company believes that its current operations and its current uses
of property, plant and equipment conform in all material respects to applicable
laws and regulations. The Company has not experienced, nor does it anticipate,
any material claim or material capital expenditure in connection with
environmental laws and other regulations.
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Employees
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As of September 30, 1997, the Company employed 693 persons, 99 of whom
were located outside the United States. None of the Company's employees are
covered under the terms of a collective bargaining agreement and the Company
believes that relations with its employees are good.
Foreign Operations and Export Sales
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Information related to foreign and domestic operations and export sales
is incorporated by reference to Note I of the Notes to the Consolidated
Financial Statements on page 29 of the Company's 1997 Annual Report to
Shareholders, a copy of which is filed as Exhibit 13 to this report.
The Company has significant revenues from outside the United States
which increase the complexity and risk to the Company. These risks include
increased exposure to the risk of foreign currency fluctuations and the
potential economic and political impacts from conducting business in foreign
countries. With the exception of changes in the value of foreign currencies,
which is not possible to predict, the Company believes that its foreign
subsidiaries and other larger international markets are in countries where the
economic and political climate is generally stable.
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ITEM 2 - PROPERTIES.
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The Company believes that the facilities owned and leased by it are
well maintained, adequately insured and suitable for their present and intended
uses. Pertinent information concerning the principal properties of the Company
and its subsidiaries is as follows:
<TABLE>
<CAPTION>
Type of Acreage (Land)
Owned Properties Facility Square Footage (Building)
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Location
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Solon, Ohio Executive offices,
Engineering, Manufacturing, 26.1 Acres
Marketing and Sales 125,000 square feet
Solon, Ohio Engineering, Manufacturing,
Marketing, Sales, Service and 7.0 Acres
Administration 76,000 square feet
Solon, Ohio Marketing and Administration, 5.5 Acres
Space is available for expansion with 50,000 square feet
the majority leased to other parties. (4,000 square feet
utilized by the Co.)
</TABLE>
<TABLE>
<CAPTION>
Lease
Type of Square Expiration
Leased Properties Facility Footage Date
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<S> <C> <C> <C>
Location
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Solon, Ohio Engineering, Manufacturing, 40,000 October 13, 2006
Marketing, Sales, Service
and Administration
Solon, Ohio Manufacturing, and 21,600 March 31, 2002
Administration
Santa Clara, Sales and Service 4,355 October 13, 2002
California
</TABLE>
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<TABLE>
<CAPTION>
Lease
Type of Square Expiration
Location Facility Footage Date
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<S> <C> <C> <C>
Munich, Sales, Service and 27,750 March 31, 2001;
Germany Administration renewable
London, England Sales and Service 5,600 July 24, 2009
Paris, France Sales and Service 3,456 June 30, 1998
Zurich, Sales and Service 3,229 September 30, 1998
Switzerland renewable
Amsterdam, Sales and Service 2,906 March 31, 2002
Netherlands
Milan, Sales and Service 2,691 August 31, 2001
Italy
</TABLE>
ITEM 3 - LEGAL PROCEEDINGS.
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The Company is not a party to any material litigation.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
----------------------------------------------------
Not applicable.
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EXECUTIVE OFFICERS OF THE REGISTRANT:
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The description of executive officers is included pursuant to
Instruction 3 to Section (b) of Item 401 of Regulation S-K under the Securities
and Exchange Act of 1934.
The following table sets forth the names of all executive officers of
the Company and certain other information relating to their position held with
the Company and other business experience.
<TABLE>
<CAPTION>
Executive Officer Age Recent Business Experience
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Joseph P. Keithley 49 Chairman of the Board of Directors since 1991, Chief
Executive Officer since November 1993 and President since
May 1994.
Philip R. Etsler 47 Vice President Human Resources of the Company since 1990.
James B. Griswold 51 Secretary and a Director of the Company since 1988;
partner in the law firm of Baker & Hostetler LLP from 1982
to present.
Hermann Hamm (1) 58 Vice President of European Operations of the Company since
1986.
Frederick R. Hume (1) 54 Senior Vice President Strategic Planning and Technology
since November 1996. Previously Senior Vice President
Test Instrumentation Group from February 1993 to October
1996. Vice President Test Instrumentation Group from
August 1992 to February 1993. Vice President Instrument
Division of the Company from May 1988 to August 1992.
Mark J. Plush 48 Controller since 1982 and Officer of the Company since
1989.
Ronald M. Rebner 53 Vice President and Chief Financial Officer of the Company
since 1981.
</TABLE>
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<TABLE>
<CAPTION>
Executive Officer Age Recent Business Experience
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<S> <C> <C>
Gabriel A. Rosica 57 Senior Vice President since February 1996. Previously
Chief Operating Officer of Bailey Controls Company from
August 1994 to January 1996 and Senior Vice President of
Systems Operations of Bailey Controls Company from January
1992 to July 1994.
Terrence E. Sheridan 57 Vice President Radiation Measurements Business Unit since
1978.
</TABLE>
(1) Subsequent to September 30, 1997, Mr. Hamm and Mr. Hume resigned from their
Executive Officer positions with the Company.
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PART II.
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
-----------------------------------------------------------------
MATTERS.
--------
The information required by this Item is incorporated herein by
reference under the caption Stock Market Price and Cash Dividends appearing on
page 31 of the Keithley Instruments, Inc. 1997 Annual Report to Shareholders, a
copy of which is filed as Exhibit 13 to this Report.
The approximate number of shareholders of record of Common Shares and
Class B Common Shares, including those shareholders participating in the
Dividend Reinvestment Plan, as of December 16, 1997 was 2,394.
ITEM 6 - SELECTED FINANCIAL DATA.
------------------------
The information required by this Item is incorporated herein by
reference to the eleven year summary, appearing on pages 32 and 33 of the
Keithley Instruments, Inc. 1997 Annual Report to Shareholders, a copy of which
is filed as Exhibit 13 to this Report.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
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OF OPERATIONS.
--------------
The information required by this Item is incorporated herein by
reference to pages 21 through 23 of the Keithley Instruments, Inc. 1997 Annual
Report to Shareholders, a copy of which is filed as Exhibit 13 to this Report.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
--------------------------------------------
The Consolidated Financial Statements, appearing on pages 18 through 20
and pages 23 through 29, the Unaudited Quarterly Results of Operations appearing
on page 31 of the Keithley Instruments, Inc. 1997 Annual Report to Shareholders,
together with the report thereon of Price Waterhouse LLP dated November 17,
1997, appearing on page 30 of the Keithley Instruments, Inc. Annual Report to
Shareholders is filed as Exhibit 13 to this Report.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
---------------------------------------------------------------
FINANCIAL DISCLOSURE.
---------------------
None.
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PART III.
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
---------------------------------------------------
The information required by this item relating to the Directors is
incorporated herein by reference to the information set forth under the caption
Election of Directors in the Company's Proxy Statement to be used in conjunction
with the February 14, 1998 Annual Meeting of Shareholders and filed with the
Securities and Exchange Commission pursuant to Section 14(a) of the Securities
Exchange Act of 1934. The information required for an identification of
executive officers is included on pages 11 and 12 of this Form 10-K Annual
Report.
ITEM 11 - EXECUTIVE COMPENSATION.
-----------------------
The information required by this item relating to executive
compensation is incorporated herein by reference to the information set forth
under the caption Executive Compensation and Benefits in the Company's Proxy
Statement to be used in conjunction with the February 14, 1998 Annual Meeting of
Shareholders and filed with the Securities and Exchange Commission pursuant to
Section 14(a) of the Securities Exchange Act of 1934.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
---------------------------------------------------------------
The information required by this item relating to security ownership of
certain beneficial owners and management is incorporated herein by reference to
the information set forth under the caption Principal Shareholders in the
Company's Proxy Statement to be used in conjunction with the February 14, 1998
Annual Meeting of Shareholders and filed with the Securities and Exchange
Commission pursuant to Section 14(a) of the Securities Exchange Act of 1934.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
-----------------------------------------------
James B. Griswold, a Director and nominee for Director, is a partner in
the law firm of Baker & Hostetler LLP. Baker & Hostetler LLP served as general
legal counsel to the Company during the fiscal year ended September 30, 1997,
and is expected to render services in such capacity to the Company in the
future.
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PART IV.
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
----------------------------------------------------------------
(a)(1) FINANCIAL STATEMENTS OF THE COMPANY
The following documents are filed as part of this report:
1. Consolidated Balance Sheet as of September 30, 1997 and 1996.
2. Consolidated Statement of Income for the years ended September 30, 1997, 1996
and 1995.
3. Consolidated Statement of Cash Flows for the years ended September 30, 1997,
1996 and 1995.
4. Consolidated Statement of Shareholders' Equity for the years ended September
30, 1997, 1996 and 1995.
5. Notes to Consolidated Financial Statements.
6. Report of Independent Accountants dated November 17, 1997.
(a)(2) FINANCIAL STATEMENT SCHEDULES
The following additional information should be read in conjunction with the
Consolidated Financial Statements of the Company described in Item 14(a)(1):
Schedule II Valuation and Qualifying Accounts
Schedules other than those listed above are omitted because they are not
required or not applicable, or because the information is furnished elsewhere in
the consolidated financial statements or the notes thereto.
15
<PAGE> 18
(a)(3) INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Page Number
Sequential
Exhibit Numbering
Number Exhibit System
------ ------- ------
<S> <C> <C>
3(a) Amended Articles of Incorporation, as amended on February 11, 1985.
(Reference is made to Exhibit 3(a) of the Company's Form 10 Registration
Statement (File No. 0-13648) as declared effective on July 31, 1985, which
Exhibit is incorporated herein by reference.)
--
3(b) Code of Regulations, as amended on February 11, 1985. (Reference is made to
Exhibit 3(b) of the Company's Form 10 Registration Statement (File No. 0-13648) as
declared effective on July 31, 1985, which Exhibit is incorporated herein by
reference.) --
3(c) Amended Articles of Incorporation, as amended on February 10, 1996. (Reference is
made to Exhibit 3(c) of the Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended March 31, 1996 (File No. 1-9965), which Exhibit is incorporated
herein by reference.) --
4(a) Specimen Share Certificate for the Common Shares, without par value. (Reference
is made to Exhibit 4(a) of the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended June 30, 1988 (File No. 1-9965), which Exhibit is
incorporated herein by reference.) --
4(b) Specimen Share Certificate for the Class B Common Shares, without par value.
(Reference is made to Exhibit 4(b) of the Company's Form 10 Registration Statement
(File No. 0-13648) as declared effective on July 31, 1985, which Exhibit is
incorporated herein by reference.) --
*10(a) 1984 Stock Option Plan, adopted in February 1984. --
*10(c) 1984 Deferred Compensation Plan, adopted in February 1984. --
<FN>
*Reference is made to the appropriate Exhibits of the Company's Form 10
Registration Statement (File No. 0-13648) as declared effected on July 31, 1985,
which Exhibits are incorporated herein by reference.
</TABLE>
16
<PAGE> 19
<TABLE>
<CAPTION>
Page Number
Sequential
Exhibit Numbering
Number Exhibit System
------ ------- ------
<S> <C> <C>
10(k) Employment Agreement with Joseph F. Keithley dated September 26, 1988.
(Reference is made to Exhibit 10(k) of the Company's Annual Report on Form
10-K for the year ended September 30, 1988 (File No. 1-9965), which
Exhibit is incorporated herein by reference.) --
10(l) Employment Agreement with Joseph P. Keithley dated September 26, 1988.
(Reference is made to Exhibit 10(l) of the Company's Annual Report on Form
10-K for the year ended September 30, 1988 (File No. 1-9965), which
Exhibit is incorporated herein by reference.) --
10(o) Form of Supplemental Executive Retirement Plan, adopted in January 1988.
(Reference is made to Exhibit 10(o) of the Company's Annual Report on
Form 10-K for the year ended September 30, 1988 (File No. 1-9965), which
Exhibit is incorporated herein by reference.) --
10(q) 1992 Stock Incentive Plan, adopted in December 1991. (Reference is made to
Exhibit 10(q) of the Company's Annual Report on form 10-K for the year ended
September 30, 1991 (File No. 1-9965) which Exhibit is incorporated herein by
reference.) --
10(r) 1992 Directors' Stock Option Plan, adopted in December 1991. (Reference is made
to Exhibit 10(r) of the Company's Annual Report on form 10-K for the year ended
September 30, 1991 (File No. 1-9965) which Exhibit is incorporated herein by
reference.) --
10(u) Credit Agreement dated as of May 31, 1994 by and among Keithley Instruments, Inc.
and certain borrowing subsidiaries and the Banks named herein, and NBD Bank,
N.A., as Agent. (Reference is made to Exhibit 10(u) of the Company's Quarterly
Report on form 10-Q for the quarter ended June 30, 1994 (File No. 1-9965) which
Exhibit is incorporated herein by reference.) --
</TABLE>
17
<PAGE> 20
<TABLE>
<CAPTION>
Page Number
Sequential
Exhibit Numbering
Number Exhibit System
------ ------- ------
<S> <C> <C>
10(v) Contactless Testing Technology Licensing Agreement between International
Business Machines Corporation and Keithley Instruments, Inc., effective as
of May 26, 1994. (Reference is made to Exhibit 10(v) of the Company's Annual
Report on form 10-K for the year ended September 30, 1994 (File No. 1-9965)
which Exhibit is incorporated herein by reference.) --
10(x) 1996 Outside Directors Deferred Stock Plan. (Reference is made to Exhibit 10(x)
of the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended
March 31, 1996 (File No. 1-9965), which Exhibit is incorporated herein by
reference.) --
10(y) First Amendment dated March 28, 1997, to the Credit Agreement dated May 31, 1994.
(Reference is made to Exhibit 10(y) of the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended March 31, 1997 (File No. 1-9965), which Exhibit
is incorporated herein by reference.)
--
10(z) 1997 Directors' Stock Option Plan, adopted in February 1997. 22-24
11 Statement Re Computation of Per Share Earnings. 25
13 Annual Report to Shareholders for the Fiscal Year Ended September 30, 1997.
26-60
21 Subsidiaries of the Company. 61
23 Consent of Experts. 62
27 Financial Data Schedule (EDGAR version only). --
</TABLE>
ITEM 14(B) REPORTS ON FORM 8-K.
No reports on Form 8-K were filed during the last quarter of the Company's
fiscal year ended September 30, 1997.
ITEM 14(C) EXHIBITS: See "Index to Exhibits" at Item 14(a)(3) above.
ITEM 14(D) FINANCIAL STATEMENT SCHEDULES: Schedules required to be filed in
response to this portion of Item 14 are listed above in Item 14(a)(2).
18
<PAGE> 21
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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)
By: /s/ Joseph P. Keithley
-----------------------------
Joseph P. Keithley, (Chairman, President and Chief Executive Officer)
Date: December 5, 1997
-----------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Joseph P. Keithley Chairman of the Board of Directors, President and 12/5/97
- -------------------------------------------- Chief Executive Officer
Joseph P. Keithley (Principal Executive Officer)
- -------------------------------------------- Founder and Director 12/5/97
Joseph F. Keithley
/s/ Ronald M. Rebner Vice President and Chief Financial Officer (Principal 12/5/97
- -------------------------------------------- Financial and Accounting Officer) and a Director
Ronald M. Rebner
/s/ Brian R. Bachman Director 12/5/97
- --------------------------------------------
Brian R. Bachman
Director 12/5/97
- --------------------------------------------
James T. Bartlett
/s/ Arden L. Bement, Jr. Director 12/5/97
- --------------------------------------------
Dr. Arden L. Bement, Jr.
/s/ James B. Griswold Director 12/5/97
- --------------------------------------------
James B. Griswold
/s/ Leon J. Hendrix, Jr. Director 12/5/97
- --------------------------------------------
Leon J. Hendrix, Jr.
/s/ R. Elton White Director 12/5/97
- --------------------------------------------
R. Elton White
</TABLE>
19
<PAGE> 22
Report of Independent Accountants on
Financial Statement Schedule
To the Board of Directors of
Keithley Instruments, Inc.
Our audits of the consolidated financial statements referred to in our report
dated November 17, 1997 appearing on page 30 of the 1997 Annual Report to
Shareholders of Keithley Instruments, Inc., (which report and consolidated
financial statements are incorporated by reference in this Annual Report on Form
10-K) also included an audit of the Financial Statement Schedule listed in Item
14(a)(2) of this Form 10-K. In our opinion, this Financial Statement Schedule
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
PRICE WATERHOUSE LLP
Cleveland, Ohio
November 17, 1997
20
<PAGE> 23
SCHEDULE II
KEITHLEY INSTRUMENTS, INC.
VALUATION AND QUALIFYING ACCOUNTS
(In Thousands of Dollars)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- -------- -------- -------- -------- --------
Balance at Charged to
Beginning Costs Balance at End
Description of Period and Expenses Deductions (1) of Period
- ----------- --------- ------------ -------------- ---------
<S> <C> <C> <C> <C>
For the Year Ended
September 30, 1997:
Valuation allowance for
deferred tax assets $2,994 $172 -- $3,166
For the Year Ended September
30, 1996:
Valuation allowance for
deferred tax assets $2,606 $467 $79 $2,994
For the Year Ended September
30, 1995:
Valuation allowance for
deferred tax assets $3,330 $ 80 $ 804 $2,606
</TABLE>
(1) Represents utilization of foreign tax credits.
21
<PAGE> 1
10(z) Material Contracts.
KEITHLEY INSTRUMENTS, INC.
1997 DIRECTORS' STOCK OPTION PLAN
1. PURPOSE. The purpose of this 1997 Directors' Stock Option
Plan (the "Plan") is to enable Keithley Instruments, Inc. (the "Company") to
attract, retain and reward directors of the Company and strengthen the mutuality
of interest between such directors and the Company's shareholders by offering
such directors options ("Options") to purchase shares of the Company's no par
value Common Shares ("Common Shares"). This Plan replaces and supersedes the
Keithley Instruments, Inc. 1992 Directors' Stock Option Plan (the "1992
Directors' Option Plan"), effective as of the date this Plan is adopted by the
Board of Directors of the Company.
2. GRANT AND ELIGIBILITY. All directors of the Company who are
not employees of the Company ("Outside Directors") shall be granted Options
under the Plan. From and after the Effective Date, so long as the Plan remains
in effect and has Common Shares available for grants hereunder, each individual
who qualifies as an Outside Director at the close of any annual meeting of the
shareholders of the Company (an "Optionee") shall automatically be granted an
Option to purchase five thousand (5,000) Common Shares. In addition to the
Options granted at the close of each annual meeting of shareholders, the Board
of Directors of the Company, in its sole discretion, may grant additional
Options under the Plan to newly-elected Outside Directors, as of the date of
their initial election and in such amounts as the Board shall specify. In the
event Common Shares are available for grants hereunder, but the number of such
Shares is insufficient to provide an Outside Director with an Option to purchase
five thousand (5,000) Common Shares, such Outside Director shall receive an
Option to purchase the lesser of (i) the number of Common Shares remaining
available for grant under the Plan; or (ii) the number of Common Shares being
granted to any other Outside Director concurrently entitled to a grant of
Options hereunder, so that Options are granted to all such Outside Directors on
a PRO RATA basis. The maximum aggregate number of Common Shares available for
issuance under the Plan is two hundred thousand (200,000); such Common Shares
may be treasury shares or authorized but unissued shares or a combination of the
foregoing. If an Option granted under the Plan shall expire, terminate or become
forfeited for any reason other than its exercise, the shares subject to, but not
delivered under, such Option shall be available for the grant of other Options
pursuant to the Plan.
3. TERM OF OPTION, EXERCISE AND TRANSFERABILITY. The term of
each Option granted under the Plan shall be ten years. An Optionee who has
continuously served as a director of the Company from the date of the grant of
an Option through the date of vesting may first exercise such Option after the
date of vesting for all or part of the number of Common Shares in accordance
with the Plan. For this purpose, the "date of vesting" for any Option granted
under the Plan shall be that date which is six months and one day after the
later to occur of: (i) the effective date of the Plan; or (ii) the date such
Optionee is elected as a director; or (iii) the date such Option is granted. An
Outside Director who resigns or is removed before the date of vesting for any
Options held by such Director shall forfeit such Options, unless otherwise
approved by the Board of Directors.
No Option shall be transferable by the Optionee other than by will or the laws
of descent and distribution. Options shall be exercisable during the Optionee's
lifetime only by an Optionee or by his or her legal guardian or legal
representative. Notwithstanding the first and second sentences of this paragraph
or the preceding paragraph, if any Optionee dies while holding unexercised
Options, any Option held by such Optionee at the time of his or her death shall
thereafter be exercised, to the extent such Option was exercisable at the time
of death, by the estate of the Optionee (acting through its fiduciary), within a
period of one year from the date of such death regardless of the term of the
Option remaining at the Optionee's death.
4. OPTION PRICE AND PAYMENT. The option price for each Common
Share purchasable under an Option shall be the fair market value of a Common
Share on the date such Option is granted in accordance with Section 2; for this
purpose, "fair market value" shall be the average of the highest and lowest
price for a Common Share, as quoted on the New York Stock Exchange (or if Common
Shares are not then traded on such Exchange, on any other exchange on which
Common Shares are then traded) on the date preceding the date of grant. The
option price shall be payable (i) in cash; (ii) by check acceptable to the
Company; (iii) by delivery of shares of the same class of stock subject to such
Option; or (iv) a combination of the above, so long as the sum of the fair
market value of any such cash, check or Common Shares equals the option price.
The Company shall have the right to require an Optionee who is entitled to
receive Common Shares pursuant to the exercise of an Option to pay to the
Company the amount of any taxes which the Company is required to withhold with
respect to such Common Shares. Such amount shall be payable (i) in cash; (ii) by
check acceptable to the Company; (iii) by delivery of shares of the same class
of stock subject to the Option; or (iv) a combination of the above.
<PAGE> 2
5. CHANGE IN CONTROL.
(a) IMPACT OF EVENT. In the event of a "Change in Control" as
defined in Section 5(b), all Options granted under the Plan shall vest upon the
later to occur of (i) such Change in Control; or (ii) six months and one day
after the date of grant of such Options.
(b) DEFINITION OF CHANGE IN CONTROL. For purposes of Section
5(a), a "Change in Control" shall be deemed to have occurred if: (i) a tender
offer shall be made and consummated for the ownership of 25% or more of the
outstanding voting securities of the Company; (ii) the Company shall be merged
or consolidated with another corporation and, as a result of such merger or
consolidation, less than 75% of the outstanding voting securities of the
surviving or resulting corporation shall be owned in the aggregate by the former
shareholders of the Company as the same shall have existed immediately prior to
such merger or consolidation; (iii) the Company shall sell substantially all of
its assets to another corporation which is not a wholly owned subsidiary; or
(iv) a person, within the meaning of Section 3(a)(9) or of Section 13(d)(3) (as
in effect on the date hereof) of the Securities Exchange Act of 1934 (the
"Exchange Act"), shall acquire, other than by reason of inheritance, twenty-five
percent (25%) or more of the outstanding voting securities of the Company
(whether directly, indirectly, beneficially or of record). In making any such
determination, transfers made by a person to an affiliate of such person (as
determined by the Board of Directors of the Company), whether by gift, devise or
otherwise, shall not be taken into account. For purposes of this Plan, ownership
of voting securities shall take into account and shall include ownership as
determined by applying the provisions of Rule 13d-3(d)(1)(i) as in effect on the
date hereof pursuant to the Exchange Act.
6. ADJUSTMENTS. (a) If, at any time subsequent to the date of
adoption of the Plan, the number of Common Shares are increased or decreased, or
changed into or exchanged for a different number or kind of shares of stock or
other securities of the Company or of another corporation (whether as a result
of a stock split, stock dividend, combination or exchange of shares, exchange
for other securities, reclassification, reorganization, redesignation, merger,
consolidation, recapitalization or otherwise): (i) there shall automatically be
substituted for each Common Share subject to an unexercised Option (in whole or
in part) granted under the Plan, the number and kind of shares of stock or other
securities into which each outstanding Common Share shall be changed or for
which each such Common Share shall be exchanged; and (ii) the option price per
Common Share or unit of securities shall be increased or decreased
proportionately so that the aggregate purchase price for the securities subject
to an Option shall remain the same as immediately prior to such event.
(b) No adjustment pursuant to this Section 6 shall be required
unless such adjustment would require an increase or decrease of at least one
percent (1%) in such number or price; however, any adjustments which by reason
of this Section 6 are not required to be made shall be carried forward.
Calculations under this Section 6 shall be made to the nearest cent or to the
nearest full share, as the case may be. Anything in this Section 6 to the
contrary notwithstanding, the Company shall be entitled to make such reductions
in the option price, in addition to those required by this Section 6, as it, in
its discretion shall determine to be advisable in order that any stock
dividends, subdivisions or splits of shares, distribution of rights to purchase
stock or securities, or a distribution of securities convertible into or
exchangeable for stock hereafter made by the Company to its shareholders shall
not be taxable.
7. OTHER TERMS. Each grant of Options hereunder shall be
evidenced by a Shares Option Agreement in substantially the form attached hereto
as Exhibit A. When exercisable in accordance with Section 3, Options may be
exercised, in whole or in part, by giving written notice of exercise to the
Company specifying the number of Common Shares to be purchased. Such notice
shall be accompanied by payment of the option price of the Common Shares for
which the Option is exercised in accordance with Section 4.
8. AMENDMENT. The Board of Directors of the Company (the
"Board") may at any time amend, modify, suspend or terminate this Plan, except
with respect to Options already granted.
9. TERMINATION OF PLAN. The Plan shall be terminated and no
further Options shall be granted hereunder as of the tenth (10th) anniversary of
the date this Plan is adopted by the Board. Options granted prior to such tenth
anniversary may extend beyond that date.
10. COMPLIANCE WITH LAW AND APPROVAL OF REGULATORY BODY. No
Option shall be exercisable and no Common Shares will be delivered under this
Plan except in compliance with all applicable federal and state laws and
regulations, including, without limitation, compliance with applicable
withholding tax requirements, if any, and with the rules of all domestic stock
exchanges on which the Company's stock may be listed. Any stock certificates
issued to evidence Common Shares as to which an Option is exercised may bear
such legends and statements as the Company shall deem advisable to assure
compliance with federal and state laws and
-2-
<PAGE> 3
regulations; the Company may, if it deems appropriate, condition its grant of
any Options hereunder upon receipt of the following investment representation
from the Optionee:
"I agree that any Common Shares of Keithley Instruments, Inc. which I
may acquire by virtue of this Stock Option shall be acquired for
investment purposes only and not with a view to distribution or resale,
and may not be transferred, sold, assigned, pledged, hypothecated or
otherwise disposed of by me unless (i) a registration statement or
post-effective amendment to a registration statement under the
Securities Act of 1933, as amended, with respect to said Common Shares
has become effective so as to permit the sale or other disposition of
said shares by me; or (ii) there is presented to Keithley Instruments,
Inc. an opinion of counsel satisfactory to Keithley Instruments, Inc.
to the effect that the sale or other proposed disposition of said
Common Shares by me may lawfully be made otherwise than pursuant to an
effective registration statement or post-effective amendment to a
registration statement relating to the said shares under the Securities
Act of 1933, as amended."
No Option shall be exercisable, and no stock will be delivered under this Plan,
until the Company has obtained such consent or approval from the regulatory
body, federal or state, having jurisdiction over such matters as the Company may
deem advisable. In the case of the exercise of an Option by a person or estate
acquiring the right to exercise such Option by bequest or inheritance, the
Company may require reasonable evidence as to the ownership of such Option and
may require such consents and releases of taxing authorities as the Committee
may deem advisable.
11. EFFECTIVE DATE. The Plan shall be effective as of February
15, 1997, subject to ratification by a majority vote of the Company's
shareholders, taken expressly for that purpose.
12. GOVERNING LAW. The Plan, all options and actions taken
thereunder and any agreements relating thereto shall be governed by and
controlled in accordance with Ohio law.
-3-
<PAGE> 1
11. Statement re computation of per share earnings
<TABLE>
<CAPTION>
Year ended Year ended Year ended
September 30, September 30, September 30,
1997 1996 1995
<S> <C> <C> <C>
Primary EPS calculation:
- ------------------------
Shares outstanding at beginning of period 7,450,878 7,227,972 7,104,876
Net issuance of shares under stock award
plans, weighted average 66,545 76,823 22,768
Net issuance of shares under stock
purchase plan, weighted average 70,671 55,617 30,038
--------- --------- ---------
Weighted average shares outstanding 7,588,094 7,360,412 7,157,682
--------- --------- ---------
Assumed exercise of stock options,
weighted average of incremental shares 260,895 421,122 281,602
Assumed purchase of stock under stock
purchase plan, weighted average 17,761 40,812 36,854
--------- --------- ---------
Average shares and common share
equivalents - primary EPS calculation 7,866,750 7,822,346 7,476,138
========= ========= =========
Net income (loss) per share $.10 $ (.70) $ .66
==== ======= ======
Net income (loss) in thousands $790 $(5,440) $4,914
==== ======= ======
Fully diluted EPS calculation:
- ------------------------------
Weighted average shares outstanding 7,588,094 7,360,412 7,157,682
Assumed exercise of stock options,
weighted average of incremental shares 373,884 421,122 508,496
Assumed purchase of stock under stock
purchase plan, weighted average 32,903 40,812 53,598
--------- --------- ---------
Average shares and common share
equivalents - fully diluted EPS calculation 7,994,881 7,822,346 7,719,776
========= ========= =========
Net income (loss) per share $.10 $ (.70) $ .64
==== ======= ======
Net income (loss) in thousands $790 $(5,440) $4,914
==== ======= ======
</TABLE>
<PAGE> 1
13. Annual Report to Shareholders for the Fiscal Year Ended September 30, 1997
Consolidated Statement of Income
For the years ended September 30, 1997, 1996 and 1995
(In Thousands of Dollars Except for Per-Share Data)
<TABLE>
<CAPTION>
1997 1996 1995
-------- ------- -------
<S> <C> <C> <C>
Net sales $ 123,295 $ 118,946 $ 109,574
--------- --------- ---------
Cost of goods sold 51,924 46,140 42,372
Selling, general and administrative expenses 50,789 47,695 43,945
Product development expenses 17,233 18,337 15,385
Special charges 771 11,645 --
Amortization of intangible assets 222 634 464
Net financing expenses 1,145 819 986
--------- --------- ---------
Income (loss) before income taxes 1,211 (6,324) 6,422
Income taxes (benefit) 421 (884) 1,508
--------- --------- ---------
Net income (loss) $ 790 $ (5,440) $ 4,914
========= ========= =========
Net income (loss) per share $ .10 $ (.70) $ .66
========= ========= =========
Fully diluted net income (loss) per share $ .10 $ (.70) $ .64
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 2
Consolidated Balance Sheet
September 30, 1997 and 1996
(In Thousands of Dollars Except for Share Data)
<TABLE>
<CAPTION>
1997 1996
-------- --------
Assets
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 1,727 $ 3,995
Accounts receivable and other, net of allowances
of $675 in 1997 and $630 in 1996 25,113 18,538
Inventories:
Raw materials 7,787 8,255
Work in process 5,671 4,880
Finished products 3,121 4,291
-------- --------
Total inventories 16,579 17,426
Deferred income taxes 2,541 3,082
Prepaid expenses 566 699
-------- --------
Total current assets 46,526 43,740
-------- --------
Property, plant and equipment, at cost:
Land 1,325 1,325
Buildings and leasehold improvements 15,917 13,310
Manufacturing, laboratory and office equipment 24,285 23,238
-------- --------
41,527 37,873
Less-Accumulated depreciation and amortization 24,272 22,531
-------- --------
Total property, plant and equipment, net 17,255 15,342
-------- --------
Intangible assets, net of accumulated amortization
of $29,930 in 1997 and $29,708 in 1996 1,825 2,064
Other assets 13,507 12,688
-------- --------
Total assets $ 79,113 $ 73,834
======== ========
Liabilities and Shareholders' Equity
Current liabilities:
Current installments on long-term debt $ 16 $ 61
Accounts payable 11,568 8,162
Accrued payroll and related expenses 4,698 4,525
Other accrued expenses 6,951 9,358
Income taxes payable 1,821 2,955
-------- --------
Total current liabilities 25,054 25,061
-------- --------
Long-term debt 17,442 13,308
Other long-term liabilities 3,899 3,655
Deferred income taxes 35 54
Shareholders' equity:
Common Shares, stated value $.025:
Authorized - 30,000,000; issued and outstanding -
4,877,975 in 1997 and 4,656,600 in 1996 122 116
Class B Common Shares, stated value $.025:
Authorized - 9,000,000; issued and outstanding -
2,786,278 in 1997 and 2,794,278 in 1996 70 70
Capital in excess of stated value 7,297 5,293
Earnings reinvested in the business 25,773 25,865
Cumulative translation adjustment 250 562
Unamortized portion of restricted stock plans (569) (14)
Common shares held in treasury, at cost (260) (136)
-------- --------
Total shareholders' equity 32,683 31,756
-------- --------
Total liabilities and shareholders' equity $ 79,113 $ 73,834
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 3
Consolidated Statement of Shareholders' Equity
For the years ended September 30, 1997, 1996 and 1995
(In Thousands of Dollars Except for Share Data)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
Shares $ Shares $ Shares $
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Common Shares:
Beginning balance 4,656,600 116 4,308,976 108 4,156,836 104
Shares issued under stock plans 213,375 6 222,906 5 123,096 3
Conversion of Class B Common Shares 8,000 -- 124,718 3 29,044 1
---------- ---------- ---------- ---------- ---------- ----------
Ending balance 4,877,975 122 4,656,600 116 4,308,976 108
========== ---------- ========== ---------- ========== ----------
Class B Common Shares:
Beginning balance 2,794,278 70 2,918,996 73 2,948,040 74
Conversion to Common Shares (8,000) -- (124,718) (3) (29,044) (1)
---------- ---------- ---------- ---------- ---------- ----------
Ending balance 2,786,278 70 2,794,278 70 2,918,996 73
========== ---------- ========== ---------- ========== ----------
Common Shares held in treasury, at cost:
Beginning balance (10,155) (136) -- -- -- --
Shares repurchased (12,360) (124) (10,155) (136) -- --
---------- ---------- ---------- ---------- ---------- ----------
Ending balance (22,515) (260) (10,155) (136) -- --
========== ---------- ========== ---------- ========== ----------
Capital in excess of stated value:
Beginning balance 5,293 3,981 3,469
Shares issued under stock plans 1,742 1,385 512
Other 262 (73) --
------- ------- -------
Ending balance 7,297 5,293 3,981
------- ------- -------
Cumulative translation adjustment:
Beginning balance 562 589 368
Translation adjustments (550) (76) 324
Gains (losses) from hedging net investments
in foreign subsidiaries 238 49 (103)
------- ------- -------
Ending balance 250 562 589
------- ------- -------
Unamortized portion of restricted stock plan:
Beginning balance (14) (6) (12)
Shares issued under stock plans (742) (14) --
Amortization 187 6 6
------- ------- -------
Ending balance (569) (14) (6)
------- ------- -------
Earnings reinvested in the business:
Beginning balance 25,865 32,157 27,943
Net income (loss) 790 (5,440) 4,914
Cash dividends:
Common Shares ($.125 per share in 1997
and 1996 and $.106 per share in 1995) (603) (568) (450)
Class B Common Shares ($.10 per share in
1997 and 1996 and $.085 per share in 1995) (279) (284) (250)
------- ------- -------
Ending balance 25,773 25,865 32,157
------- ------- -------
Total shareholders' equity 32,683 31,756 36,902
======= ======= =======
</TABLE>
On November 6, 1995, the company's Board of Directors approved a two-for-one
split of the company's Common Shares and Class B Common Shares. The split was
effected in the form of a stock dividend payable on December 11, 1995, to
shareholders of record on November 27, 1995. All amounts have been adjusted to
reflect the split.
The accompanying notes are an integral part of the financial statements.
<PAGE> 4
Consolidated Statement of Cash Flows
For the years ended September 30, 1997, 1996 and 1995
(In Thousands of Dollars)
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 790 $ (5,440) $ 4,914
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Depreciation 3,823 3,419 3,106
Amortization of intangible assets 222 634 464
Deferred income taxes (1,140) (3,772) (1,217)
Deferred compensation 229 211 220
Special charges (771) 11,452 --
Change in current assets and liabilities:
Accounts receivable and other (6,969) 2,317 (6,108)
Inventories 486 (5,275) (2,864)
Prepaid expenses 29 (57) 289
Other current liabilities 1,427 (143) 4,660
Other operating activities 863 (746) (1,007)
-------- -------- --------
Net cash provided by (used in) operating activities (1,011) 2,600 2,457
-------- -------- --------
Cash flows from investing activities:
Payments for property, plant and equipment (5,849) (8,539) (2,695)
Other investing activities 202 71 69
Acquisitions of businesses -- (1,408) --
-------- -------- --------
Net cash used in investing activities (5,647) (9,876) (2,626)
-------- -------- --------
Cash flows from financing activities:
Net decrease in short-term debt (45) (10) (35)
Borrowing of long-term debt 4,520 7,385 1,367
Proceeds from sale of Common Shares 1,144 974 520
Cash dividends (882) (852) (700)
-------- -------- --------
Net cash provided by financing activities 4,737 7,497 1,152
-------- -------- --------
Effect of changes in foreign currency exchange
rates on cash and cash equivalents (347) (116) 195
-------- -------- --------
Increase (decrease) in cash and cash equivalents (2,268) 105 1,178
Cash and cash equivalents at beginning of period 3,995 3,890 2,712
-------- -------- --------
Cash and cash equivalents at end of period $ 1,727 $ 3,995 $ 3,890
======== ======== ========
Supplemental disclosures of cash flow information
Cash paid during the year for:
Income taxes $ 1,981 $ 2,201 $ 1,419
Interest 1,140 711 814
Supplemental schedule of noncash investing activities
The company's acquisitions included the following
noncash transactions:
Fair value of assets acquired $ -- $ 2,525 $ --
Cash paid -- (1,408) --
Common Shares issued -- (201) --
-------- -------- --------
Liabilities assumed $ -- $ 916 $ --
======== ======== ========
</TABLE>
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. Cash flows resulting from hedging transactions are
classified in the same category as the cash flows from the item being
hedged.
The accompanying notes are an integral part of the financial statements.
<PAGE> 5
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Percent of net sales for the years ended September 30, 1997, 1996 and 1995.
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net sales 100.0 100.0 100.0
Cost of goods sold 42.1 38.8 38.7
Selling, general and administrative expenses 41.2 40.1 40.1
Product development expenses 14.0 15.4 14.0
Special charges 0.6 9.8 --
Amortization of intangible assets 0.2 0.5 0.4
Net financing expenses 0.9 0.7 0.9
----- ----- -----
Income (loss) before income taxes 1.0 (5.3) 5.9
Income taxes (benefit) 0.4 (0.7) 1.4
----- ----- -----
Net income (loss) 0.6 (4.6) 4.5
===== ===== =====
</TABLE>
RESULTS OF OPERATIONS (IN THOUSANDS OF DOLLARS EXCEPT FOR PER-SHARE DATA)
- -------------------------------------------------------------------------
Net income was $790, or $.10 per share, in 1997 compared to a net loss of
$5,440, or $.70 per share, in 1996, and net income of $4,914, or $.64 per share,
in 1995. Excluding special charges totaling $771 pretax, or $.06 per share, in
1997, and $11,645 pretax, or $1.23 per share, in 1996, net income was $1,280, or
$.16 per share, in 1997, and $4,185, or $.53 per share, in 1996. The special
charges recorded in 1997 and 1996 related primarily to the relocation of the
Keithley MetraByte operation from Taunton, Massachusetts to Cleveland, Ohio.
1997's selling, general and administrative expenses also include approximately
$512 pretax for non-recurring officer retirement expenses. All three years
include expenses to develop the Quantox(R) system, the company's first product
based on the technology licensed from IBM in 1994, as well as to explore other
new business opportunities. These start-up losses totaled approximately $11,900,
$10,800 and $6,900 pretax in 1997, 1996 and 1995, respectively. Earnings before
taxes and special charges excluding losses from the company's new businesses
were approximately $13,900, $16,100 and $13,300 in 1997, 1996 and 1995,
respectively.
For the third consecutive year, the company reported record net sales. Net sales
were $123,295, $118,946 and $109,574 in 1997, 1996 and 1995, respectively. On a
year to year basis, net sales increased 4% and 9% in 1997 and 1996,
respectively. Four years ago, the company developed a strategy of targeting
selected growth industries (specifically in semiconductor, telecommunications
and electronic components) and has
<PAGE> 6
been developing application-specific products for these industries. Strong
demand for these products, as well as a full year's shipments of Quantox in
1997, has more than offset decreased sales of the company's parametric test
equipment due to the weak semiconductor capital equipment industry during the
last quarter of fiscal 1996 and through the majority of fiscal 1997.
Geographically, domestic and export sales have increased for the last two years.
Net sales in Europe decreased from 1996 to 1997 and were flat from 1995 to 1996.
Cost of goods sold as a percentage of net sales was 42.1 in 1997, 38.8 percent
in 1996 and 38.7 percent in 1995. Foreign exchange hedging had a minimal effect
on cost of goods sold in 1997, 1996 and 1995. The increase in 1997 was due to
increased sales of Quantox which carries a lower gross margin, higher fixed
costs resulting from the expansion of manufacturing facilities and an 8 percent
strengthening of the U.S. dollar. The slight increase from 1995 to 1996 resulted
from increased sales of lower gross margin products offset by increased
manufacturing efficiencies due to higher sales volume. The U.S. dollar
strengthened less than 1 percent from 1995 to 1996 and had a minimal effect on
changes in costs.
Selling, general and administrative expenses have increased 6 percent from 1996
to 1997 and 9 percent from 1995 to 1996. As a percentage of net sales, they were
41.2 in 1997, and 40.1 in both 1996 and 1995. The increases in expenses were due
mostly to higher marketing costs associated with new business initiatives and
the introduction of new products from existing businesses, and higher
commissions due to increased sales. Additionally, 1997's expense includes
approximately $512 for non-recurring officer retirement expenses.
Product development expenses decreased $1,104, or 6 percent, to 14.0 percent of
net sales in 1997 from 15.4 percent in 1996, and increased $2,952, or 19
percent, from 14.0 percent in 1995. The decrease from 1996 to 1997 was due to
substantially lower costs for Keithley MetraByte products and the company's
Model S600 parametric test system which was substantially complete in 1997. The
decreased expenses in 1997 were offset somewhat by increased costs over the last
three years for development of new bench-top instrument products and exploration
of other new business opportunities.
<PAGE> 7
An analysis of special charges recorded in the Consolidated Statement of Income
in 1997 and 1996, and the amount accrued in the Consolidated Balance Sheet is as
follows:
<TABLE>
<CAPTION>
Accrued at
Expense September 30,
Description: 1997 1996 1997 1996
- ------------ ---- ---- ---- ----
<S> <C> <C> <C> <C>
Write off of Goodwill $ -- $ 5,737 $ -- $ --
Severance, outplacement and
other personnel costs (291) 3,433 222 3,239
Lease and related costs (525) 998 3 998
Impaired inventory and equipment 49 835 -- --
Relocation of facility and employees 1,073 -- -- --
Recruiting and consulting costs 187 -- -- --
Manufacturing start-up costs 282 -- -- --
European operating subleases (4) 642 574 642
------- ------- ------- -------
Totals $ 771 $11,645 $ 799 $ 4,879
======= ======= ======= =======
</TABLE>
Since the acquisition of Keithley MetraByte in 1989, sales have declined for the
operation and earnings through 1996 had been poor. In September 1996, it became
apparent to management that due to the lack of growth, the business could not
support stand-alone operations. Therefore management made the decision to move
the Taunton, Massachusetts operation to Cleveland, Ohio. Also included in
special charges is an accrual for costs to be incurred over the next 3 to 11
years under two operating subleases at the company's European facilities.
Special charges of $771 pretax, or $.06 per share, recorded in 1997 include
gross costs of $1,902 primarily for the relocation of the Keithley MetraByte
operation from Taunton, Massachusetts to Cleveland, Ohio, net of a reversal of
$1,131 of expense (noncash) recorded during 1996 primarily for closing the
Taunton facility. The reversal of 1996 expense relates to changes in
circumstances which occurred during 1997. $256 of the gross expense represents a
noncash charge to reserve for additional impaired inventory. Special charges of
$11,645 pretax, or $1.23 per share, recorded in 1996 primarily represent the
expected costs of closing the Keithley MetraByte operation in Taunton. Of the
special charges, noncash charges in 1996 total $6,572. The relocation of the
Keithley MetraByte operation was complete in July 1997, and special charges for
the relocation going forward will not be material. At September 30, 1997 and
1996, $249 and $4,538, respectively was accrued in the Consolidated Balance
<PAGE> 8
Sheet under the category "Other accrued expenses" and $550 and $341,
respectively was accrued under the category "Other long-term liabilities."
Amortization expense of $222 in 1997 decreased from $634 in 1996. This is due to
the September 1996 write off of the remaining goodwill associated with Keithley
MetraByte. Amortization expense in 1996 increased from $464 in 1995 due to the
amortization of goodwill associated with the acquisitions of International
Sensor Technology in the first quarter of fiscal 1996 and Turner Engineering
Technology in the second quarter of fiscal 1996. Neither acquisition had a
material effect on net sales or earnings for fiscal 1997 or 1996.
Net financing expenses of $1,145 increased $326 from $819 in 1996 due to higher
average debt levels during the year. Net financing expenses decreased $167 in
1996 from $986 in 1995. Despite higher average debt levels in 1996, the decrease
from 1995 was due to lower interest rates on variable rate debt and absence of
certain fees related to the pay-off of a higher interest rate loan in the second
quarter of 1995.
The effective tax rate for 1997 was 34.7 percent. Foreign sales corporation
(FSC) benefits and benefits derived from the remittance of foreign dividends
were offset by a deferred tax charge resulting from the company's decision to
terminate corporate owned life insurance policies. The company recorded an
income tax benefit of $884 in 1996, which resulted from the company's pretax
loss. The 1996 effective rate (benefit) of (14.0) percent is less than the
statutory rate principally due to the non-deductibility of the Keithley
MetraByte goodwill written off, offset by the utilization of foreign tax credits
and FSC benefits. The effective income tax rate for 1995 of 23.5 percent is
lower than the statutory rate due primarily to utilization of foreign tax
credits and FSC benefits. At September 30, 1997, the company had capital loss
carryforwards of $123 and tax credit carryforwards of $2,334.
The company's financial results are affected by foreign exchange rate
fluctuations. Generally, a weakening U.S. dollar causes the price of the
company's product to be more attractive in foreign markets and favorably impacts
the company's sales and earnings. A strengthening U.S. dollar has an unfavorable
effect. This foreign exchange effect cannot be precisely isolated since many
other factors affect the company's foreign sales and earnings. These factors
include product offerings and
<PAGE> 9
pricing policies of the company and its competition, whether competition is
foreign or U.S. based, changes in technology and local and worldwide economic
conditions.
From time to time, the company utilizes hedging techniques designed to mitigate
the short-term effect of exchange rate fluctuations on operations and balance
sheet positions by entering into forward and option currency contracts and by
borrowing in foreign currencies. The company's foreign borrowings are used as a
hedge of its net investments or of specified transactions. The company does not
speculate in foreign currencies or derivative financial instruments, and hedging
techniques do not increase the company's exposure to foreign exchange rate
fluctuations.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
In 1997, net cash used in operating activities was $1,011. Total debt of $17,458
at September 30, 1997, increased $4,089 from $13,369 at September 30, 1996 and
the debt-to-capital ratio at year-end was 34.8 percent versus 29.6 percent at
the end of fiscal 1996. The increase in debt and decrease in cash during the
year were used primarily to fund the expansion of the company's Semiconductor
and Radiation Measurements facilities. Additionally, accounts receivable levels
increased $6,575 primarily due to strong sales in September 1997.
On March 28, 1997, the company amended its credit agreement to extend its
expiration until March 28, 2002 and generally improve the terms under which the
company borrows. The agreement continued to be a $25,000 debt facility ($17,442
outstanding at September 30, 1997), which provides unsecured, multi-currency
revolving credit at various interest rates based on U.S. prime, LIBOR or FIBOR.
The company is required to pay a facility fee of between .125% to .20% on the
total amount of the commitment. Additionally, the company has a number of other
credit facilities in various currencies aggregating $5,460.
At September 30, 1997, the company had total unused lines of credit with
domestic and foreign banks aggregating $13,018, including short-term and
long-term lines of credit of $5,460 and $7,558, respectively. Under certain
long-term debt agreements, the company is required to comply with various
financial ratios and covenants. Principal payments on long-term debt are
scheduled as follows: 1998-$16, 2002-$17,442.
<PAGE> 10
During 1998, the company expects to finance capital spending and working capital
requirements with cash provided by operations. 1998 capital expenditures are
expected to approximate the 1997 level.
OUTLOOK
- -------
The company has spent a substantial amount of its resources over the past three
years to develop new products and new businesses. Sales from these new business
initiatives are beginning to ramp-up, while expenses as a percentage of net
sales are declining. Management's goal is to have each of these new businesses
at break-even by the end of 1998, which will substantially improve earnings from
1997's levels. The company's Quantox product will be the most challenging to
achieving this goal.
Additionally, the company expects to decrease debt levels during 1998.
FACTORS THAT MAY AFFECT FUTURE RESULTS
- --------------------------------------
Information included in the Letter to Shareholders and in the Outlook section of
Management's Discussion and Analysis of Financial Condition and Results of
Operations relating to expectations as to revenues, earnings, and expenses or
gross profits, 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.
Although the company operates in a single industry segment, certain of its
products and product lines including Quantox and the company's line of
parametric testers, are sold into the semiconductor capital equipment industry.
Growth in demand for semiconductors, new technology and pricing drive the demand
for new semiconductor capital equipment. Throughout much of the year, the order
growth of this industry had contracted which adversely affected revenues of the
company. Although order growth in this industry has recently increased, the
sustainability of this trend cannot be predicted.
The company's business relies on the development of new high technology products
and services to provide solutions to customer's 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
<PAGE> 11
before knowing whether its expectations will eventually result in products that
achieve market acceptance. The company incurs significant expenses developing
new business opportunities 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 currently has ten subsidiaries or sales offices located outside the
United States, and non-U.S. sales made up 45 percent of the company's revenue in
fiscal 1997. 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.
<PAGE> 12
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(In Thousands of Dollars Except for Per-Share Data)
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
- ---------------------------
The consolidated financial statements include the accounts of Keithley
Instruments, Inc. and its subsidiaries. Intercompany transactions have been
eliminated. Certain amounts in prior years have been reclassified to be
consistent with the current year's presentation.
REVENUE RECOGNITION
- -------------------
Sales are recognized at time of shipment for all products.
NATURE OF OPERATIONS
- --------------------
The company operates in a single industry segment and is engaged in the
design, development, manufacture and marketing of complex electronic instruments
and systems. Its products provide measurement-based solutions to the
semiconductor, telecommunications and electronic conponents industries.
Engineers and scientists around the world use the company's advanced hardware
and software for process monitoring, production test and basic research.
PRODUCT DEVELOPMENT EXPENSES
- ----------------------------
Expenditures for product development are charged to expense as
incurred. These expenses include the cost of computer software, an integral part
of certain products. Costs defined by Statement of Financial Accounting
Standards No. 86, "Accounting for the Costs of Computer Software to Be Sold,
Leased, or Otherwise Marketed," are immaterial to the financial statements and
have been expensed as incurred. The company continually reviews the materiality
and financial statement classification of computer software expenditures.
INVENTORIES
- -----------
Inventories are stated at the lower of cost (determined by the
first-in, first-out method) or market.
PROPERTY, PLANT AND EQUIPMENT
- -----------------------------
Property, plant and equipment are stated at cost. Depreciation is
provided over periods approximating the estimated useful lives of the assets.
Substantially all manufacturing, laboratory and office equipment is depreciated
by the double declining balance method over periods of 3 to 10 years. Buildings
are depreciated by the straight-line method over periods of 23 to 45 years.
Leasehold improvements are amortized over the shorter of the asset lives or the
terms of the leases.
<PAGE> 13
INTANGIBLE ASSETS
- -----------------
Intangible assets relate to business acquisitions and are amortized on a
straight-line basis over their estimated useful lives of 10 years. Management
reviews the carrying value of intangible assets using an estimated future cash
flow method (undiscounted and without interest charges) whenever events or
changes in circumstances indicate that the carrying amount of the assets may not
be recoverable. At September 30, 1996, the company wrote off the remaining
goodwill associated with its 1989 acquisition of Keithley MetraByte. (See Note
B.)
OTHER ASSETS
- ------------
Included in the "Other assets" caption of the Consolidated Balance Sheet
at September 30, 1997 and 1996, were $8,814 and $7,152, respectively, in
deferred tax assets. Also included in "Other assets" were pension related
assets. (See note E.)
OTHER ACCRUED EXPENSES
- ----------------------
Included in the "Other accrued expenses" caption of the Consolidated
Balance Sheet at September 30, 1997 and 1996, were $2,496 and $1,476,
respectively, for commissions payable to outside sales representatives of the
company.
CAPITAL STOCK
- -------------
The company has two classes of stock. The Class B Common Shares have ten
times the voting power of the Common Shares but are entitled to cash dividends
of no more than 80% of the cash dividends on the Common Shares. Holders of
Common Shares, voting as a class, elect one-fourth of the company's Board of
Directors and participate with holders of Class B Common Shares in electing the
balance of the Directors and in voting on all other corporate matters requiring
shareholder approval. Additional Class B Common Shares may be issued only to
holders of such Shares for stock dividends or stock splits. These Shares are
convertible at any time to Common Shares on a one-for-one basis.
Included in the "Common shares held in treasury, at cost" caption of the
Consolidated Balance Sheet at September 30, 1997 and 1996, were Common Shares
repurchased to settle non-employee Directors' fees deferred pursuant to the
Keithley Instruments, Inc. 1996 Outside Directors Deferred Stock Plan.
INCOME TAXES
- ------------
Provision has been made for estimated United States and foreign
withholding taxes, less available tax credits, for the undistributed earnings of
the non-U.S. subsidiaries as of September 30, 1997.
<PAGE> 14
USE OF ESTIMATES
- ----------------
The preparation of financial statements in conformity with generally
accepted accounting principles 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 from those estimates. NET
INCOME PER SHARE
- ----------------
The weighted average number of shares outstanding used in determining net
income per share was 7,866,750 (7,994,881 on a fully diluted basis) in 1997,
7,822,346 in 1996 and 7,476,138 (7,719,776 on a fully diluted basis) in 1995.
Both Common Shares and Class B Common Shares are included in calculating the
weighted average number of shares outstanding.
HEDGING AND RELATED FINANCIAL INSTRUMENTS
- -----------------------------------------
The company utilizes foreign currency borrowings and foreign exchange
forward contracts to hedge foreign exchange risks for sales denominated in
foreign currencies and net equity or unremitted foreign earnings.
To hedge sales, the company purchases foreign exchange forward contracts
or option contracts to sell foreign currencies to fix the exchange rates related
to near-term sales and the company's margins. Underlying hedged transactions are
recorded at hedged rates, therefore realized and unrealized gains and losses are
recorded when the operating revenue and expenses are recorded.
To hedge equity or unremitted earnings, the company borrows foreign
currencies or purchases foreign exchange forward contracts. Realized and
unrealized after-tax gains or losses on the hedging instruments are reflected in
the cumulative translation adjustment component of shareholders' equity.
The company has entered into swap instruments to mitigate the risk of
interest rate changes. The amounts exchanged under the swap agreements are
included in the "Net financing expenses" caption of the Consolidated Statement
of Income. The estimated fair value of the swap instruments are determined
through quotes from the related financial institutions.
The company is exposed to credit loss in the event of nonperformance by
the counterparties to these financial instruments. Because the counterparties
are major financial institutions, the company does not expect such
nonperformance.
<PAGE> 15
OTHER ACCOUNTING PRONOUNCEMENTS
- -------------------------------
In February 1997, the Financial Accounting Standard Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share." The Statement
redefines earnings per share under generally accepted accounting principles, and
is effective for the company's quarter ending December 31, 1997. Early adoption
is not allowable. Under the new standard, primary earnings per share is replaced
by basic earnings per share and fully diluted earnings per share is replaced by
diluted earnings per share. The adoption of this standard is not expected to
have a significant impact on the company's previously reported earnings per
share amounts.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS
130). This Statement establishes standards for reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements displayed with the same prominence as other financial
statements. Comprehensive income includes such items as foreign currency
translation adjustments and unrealized gains and losses from investing and
hedging activities. SFAS 130 is required to be adopted in the company's fiscal
year ending September 30, 1999.
Also in June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 131, "Disclosures about Segments
of an Enterprise and Related Information" (SFAS 131). This Statement requires
that public companies report financial and descriptive information about its
reportable operating segments. Generally, financial information is required to
be reported on the basis that is used internally for evaluating segment
performance and deciding how to allocate resources to segments. This Statement
requires that a public business enterprise report a measure of segment profit or
loss, certain specific revenue and expense items, and segment assets. It
requires that public companies report information about the revenues derived
from the company's products or services, geographic areas, and major customers.
SFAS 131 is required to be adopted in the company's fiscal year ending September
30, 1999.
In September 1997, the American Institute of Certified Public Accountants
issued Statement of Position 97-2, "Software Revenue Recognition" (SOP 97-2).
This Statement provides guidance on when revenue should be recognized and in
what amounts for licensing, selling, leasing, and otherwise marketing computer
software. It applies to all companies that earn such revenue. It does not apply,
however, to revenue earned on products or services containing software that is
incidental to the products or services as a whole. SOP 97-2 is required to be
adopted in the company's fiscal year ending September 30, 1999. The company has
not yet determined the financial statement impact of this Statement.
<PAGE> 16
NOTE B - SPECIAL CHARGES
An analysis of special charges recorded in the Consolidated Statement
of Income in 1997 and 1996, and the amount accrued in the Consolidated Balance
Sheet is as follows:
<TABLE>
<CAPTION>
Accrued at
Expense September 30,
Description: 1997 1996 1997 1996
- ------------ ---- ---- ---- ----
<S> <C> <C> <C> <C>
Write off of Goodwill $ -- $ 5,737 $ -- $ --
Severance, outplacement and
other personnel costs (291) 3,433 222 3,239
Lease and related costs (525) 998 3 998
Impaired inventory and equipment 49 835 -- --
Relocation of facility and employees 1,073 -- -- --
Recruiting and consulting costs 187 -- -- --
Manufacturing start-up costs 282 -- -- --
European operating subleases (4) 642 574 642
------- ------- ------- -------
Totals $ 771 $11,645 $ 799 $ 4,879
======= ======= ======= =======
</TABLE>
Since the acquisition of Keithley MetraByte in 1989, sales have
declined for the operation and earnings had been poor. In September 1996, it
became apparent to management that due to the lack of growth, the business could
not support stand-alone operations. Therefore management made the decision to
move the Taunton, Massachusetts operation to Cleveland, Ohio. Also included in
special charges is an accrual for costs to be incurred over the next 3 to 11
years under two operating subleases at the company's European facilities.
Special charges of $771 pretax, or $.06 per share, recorded in 1997
include gross costs of $1,902 primarily for the relocation of the Keithley
MetraByte operation from Taunton, Massachusetts to Cleveland, Ohio, net of a
reversal of $1,131 of expense (noncash) recorded during 1996 primarily for
closing the Taunton facility. The reversal of 1996 expense relates to changes in
circumstances which occurred during 1997. $256 of the gross expense represents a
noncash charge to reserve for additional impaired inventory. Special charges of
$11,645 pretax, or $1.23 per share, recorded in 1996 primarily represented the
expected costs of closing the Keithley MetraByte operation in Taunton. Of the
special charges, noncash charges in 1996 total $6,572. The relocation of the
Keithley MetraByte operation was complete in July 1997, and special charges for
the relocation going forward will not be material. Approximately 130 employees
were terminated in total as a result of the relocation, 40 of which were
terminated by September 30, 1996. Total net employment for the Keithley
MetraByte operation has been reduced by approximately 70 people. At September
30, 1997 and 1996, $249 and $4,538, respectively was accrued in the Consolidated
Balance Sheet under the category "Other accrued expenses" and $550 and $341,
respectively, was accrued under the category "Other long-term liabilities."
<PAGE> 17
NOTE C - FINANCING ARRANGEMENTS
<TABLE>
<CAPTION>
September 30,
-------------
1997 1996
---- ----
<S> <C> <C>
Long-term debt:
Revolving loans with various banks with interest due monthly; principal due
March 28, 2002:
U.S. dollar denominated loans with an interest
rate of 6.0% based on LIBOR $ 14,000 $ 10,000
U.S. dollar denominated loans with an interest
rate of 8.5% and 8.25% based on Prime at
at September 30, 1997 and 1996, respectively 600 1,000
Deutsche mark denominated loans with an interest
rate of 3.75% based on FIBOR 2,842 2,292
Obligations under capital leases 16 77
-------- --------
17,458 13,369
Less-Current installments on long-term debt 16 61
-------- --------
Total long-term debt $ 17,442 $ 13,308
======== ========
</TABLE>
On March 28, 1997, the company amended its credit agreement to extend its
expiration until March 28, 2002 and generally improve the terms under which the
company borrows. The agreement continued to be a $25,000 debt facility ($17,442
outstanding at September 30, 1997), which provides unsecured, multi-currency
revolving credit at various interest rates based on Prime, LIBOR or FIBOR. The
company is required to pay a facility fee of between .125% to .20% on the total
amount of the commitment. Additionally, the company has a number of other credit
facilities in various currencies aggregating $5,460.
At September 30, 1997, the company had total unused lines of credit with
domestic and foreign banks aggregating $13,018, including short-term and
long-term lines of credit of $5,460 and $7,558, respectively. Under certain
long-term debt agreements, the company is required to comply with various
financial ratios and covenants. Principal payments on long-term debt are
scheduled as follows: 1998-$16, 2002-$17,442.
The LIBOR interest rate was 5.7 percent and 5.4 percent at September 30,
1997 and 1996, respectively. The FIBOR interest rate was 3.3 percent at
September 30, 1997 and 1996.
The company has two interest rate swap agreements with commercial banks to
effectively fix its interest rates on $6,000 of variable rate debt. The first
agreement effectively fixes the interest rate on a notional $3,000 of variable
LIBOR rate debt at 6.7 percent, and expires June 17, 2002. The second agreement
effectively fixes the interest rate on another notional $3,000
<PAGE> 18
of variable LIBOR rate debt at 6.8 percent, and expires September 18, 2005. The
interest differentials to be paid or received on the notional amounts of the
swaps are recognized over the lives of the agreements. At September 30, 1997
interest rate levels, the swaps require the company to make payments to the bank
and would cost the company approximately $30 to terminate.
Following is an analysis of Net financing expenses:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Interest expense $1,315 $ 957 $1,092
Investment income (170) (138) (106)
------ ----- ------
$1,145 $ 819 $ 986
===== ===== =====
</TABLE>
<PAGE> 19
NOTE D - FOREIGN CURRENCY
The functional currency for the company's foreign subsidiaries is the
applicable local currency. Income and expenses are translated into U.S. dollars
at average exchange rates for the period. Assets and liabilities are translated
at the rates in effect at the end of the period. Translation gains and losses
are recognized in the cumulative translation component of shareholders' equity.
Certain transactions of the company and its foreign subsidiaries are
denominated in currencies other than the functional currency. The Consolidated
Statement of Income includes gains (losses) from such foreign exchange
transactions of $95, $91 and $(22) for 1997, 1996 and 1995, respectively.
At September 30, 1997, the company had obligations under foreign exchange
forward contracts to sell 2,100,000 Deutsche marks, 140,000 British pounds,
2,200,000 French francs at various dates through December 1997. The total U.S.
dollar equivalent amount of these foreign exchange contracts of $1,744 includes
an unrecognized loss of $48 at September 30, 1997.
The company has purchased and written currency option contracts that
effectively provide minimum and maximum exchange rates that the company would
receive for anticipated foreign currency denominated sales. Under the terms of
the options, the company has the right to deliver 3,000,000 Deutsche marks at
average rates of 1.91 per U.S. dollar and the obligation, if called, to deliver
4,500,000 Deutsche marks at average rates of 1.73 per U.S. dollar. The options
expire in October and December 1997 and January 1998. The options had no effect
on net income in fiscal 1997, and gains and losses on the options, if any, are
recorded as incurred.
<PAGE> 20
NOTE E - EMPLOYEE BENEFIT PLANS
The company has non-contributory defined benefit pension plans covering
all of its eligible employees in the United States and certain non-U.S.
employees. Pension benefits are based upon the employee's length of service and
a percentage of compensation above certain base levels. Pension expense for
these plans is shown below:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Service cost-benefits earned during the period $ 733 $ 652 $ 605
Interest cost on projected benefit obligation 1,192 1,048 945
Actual return on assets (3,470) (2,471) (1,818)
Net amortization and deferral 2,115 1,328 884
------ ------ ------
Net periodic pension cost $ 570 $ 557 $ 616
====== ====== ======
</TABLE>
The following table sets forth the funded status of the company's plans
and the related amounts recognized in the Consolidated Balance Sheet at
September 30, 1997 and 1996:
<TABLE>
<CAPTION>
Non-U.S.
United States Plan Plan
Overfunded Underfunded*
--------------------- ------------
1997 1996 1997 1996
---- ---- ---- ----
Actuarial present value of benefit obligations:
<S> <C> <C> <C> <C>
Vested benefit obligation $ 11,459 $ 10,439 $ 1,694 $ 1,678
======== ======== ======== ========
Accumulated benefit obligation $ 12,094 $ 10,890 $ 1,917 $ 1,899
======== ======== ======== ========
Projected benefit obligation $ 14,763 $ 13,280 $ 2,777 $ 2,732
Plan assets at fair value $ 19,474 $ 16,385 $ 498 $ 498
-------- -------- -------- --------
Projected benefit obligation (in excess of)
or less than plan assets $ 4,711 $ 3,105 $ (2,279) $ (2,234)
Unrecognized net gain (3,824) (1,972) (331) (567)
Unrecognized prior service cost 1,149 1,263 64 79
Unrecognized initial net (asset) obligation (358) (401) 211 265
-------- -------- -------- --------
Prepaid pension assets (pension liability)
recognized in the Consolidated Balance
Sheet $ 1,678 $ 1,995 $ (2,335) $ (2,457)
======== ======== ======== ========
<FN>
* The company has purchased indirect insurance of $2,409 which is expected to be available to the
company as non-U.S. pension liabilities of $2,335 mature. The caption, "Other assets," on the
company's Consolidated Balance Sheet includes $2,409 and $2,514 at September 30, 1997 and 1996,
respectively, for this asset. In accordance with
</TABLE>
<PAGE> 21
Statement of Financial Accounting Standards No. 87, "Employers' Accounting
for Pensions," this company asset is not included in the non-U.S. plan
assets.
The significant actuarial assumptions as of the year-end measurement date
were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
United States Pension Plan:
Discount rates 7.5% 7.5% 7.5%
Expected long-term rate of return on plan assets 8.5% 8.5% 8.5%
Rate of increase in compensation levels 5.5% 5.5% 5.5%
Non-U.S. Pension Plan:
Discount rates 6.25% 6.5% 7.5%
Expected long-term rate of return on plan assets 7.0% 7.0% 7.0%
Rate of increase in compensation levels 3.5% 3.5% 4.5%
</TABLE>
The "Projected Unit Credit" Actuarial Cost Method is used to determine the
company's annual expense.
For the United States plan, the company uses the "Entry Age Normal"
Actuarial Cost Method to determine its annual funding requirements. United
States plan assets are invested primarily in common stocks and fixed-income
securities.
Although there are no requirements for the company to fund the non-U.S.
pension plan, the company has made contributions in the past. Non-U.S. plan
assets represent employee and company contributions and are invested in a direct
insurance contract payable to the individual participants.
In addition to the defined benefit pension plan, the company also
maintains a retirement plan for substantially all of its employees in the United
States under Section 401(k) of the Internal Revenue Code. The company makes
contributions to the 401(k) plan, and expense for this plan amounted to $403,
$388 and $539 in 1997, 1996 and 1995, respectively.
The company also has an unfunded supplemental executive retirement plan
(SERP) for an officer and for former key employees which includes retirement,
death and disability benefits. The officer took early retirement causing a
reversal of previously accrued expense in 1997. Expense (income) recognized for
these benefits was $(3) for 1997, $102 for 1996 and $85 for 1995. Liabilities of
$489 and $497 were accrued in the "Other long-term liabilities" caption on the
company's Consolidated Balance Sheet to meet all SERP obligations at September
30, 1997 and 1996, respectively.
<PAGE> 22
NOTE F - STOCK PLANS
Stock Option Plans
- ------------------
Under the 1984 Stock Option Plan and the 1992 Stock Incentive Plan,
675,000 and 1,900,000 of the company's Common Shares, respectively, were
reserved for the granting of options to officers and other key employees. After
February 11, 1994, no new grants could be issued from the 1984 Stock Option
Plan. The Compensation and Human Resources Committee administers the plans with
incentive stock options granted at not less than fair market price at the date
of the grant for an exercise period not to exceed ten years from the grant date.
Such grants generally become exercisable over a four year period. The option
price under a nonqualified stock option is determined by the Committee on the
date the option is granted. The 1992 Stock Incentive Plan also provides for
restricted stock awards and stock appreciation rights. This plan will expire on
February 8, 2002. All options outstanding at the time of termination of either
plan shall continue in full force and effect in accordance with their terms.
Subject to shareholder approval in February 1998, the Company's Board of
Directors adopted the 1997 Directors' Stock Option Plan. This Plan provides for
the issuance of 200,000 of the company's Common Shares to non-employee
Directors. Under the terms of the plan, each non-employee Director is
automatically granted an option to purchase 5,000 Common Shares at the close of
each annual shareholders' meeting. The plan will expire on February 15, 2007.
All options outstanding at the time of termination of the plan shall continue in
full force and effect in accordance with their terms. On February 15, 1997, the
company's Board of Directors terminated the 1992 Directors' Stock Option Plan.
Prior to its termination, this plan provided for the issuance of 60,000 of the
company's Common Shares to non-employee Directors, with each non-employee
Director automatically granted an option to purchase 600 Common Shares at the
close of each annual shareholders' meeting. The option price for grants under
both Plans is the fair market value of a Common Share on the date of grant. The
options under both plans are exercisable six months and one day after the date
of grant and will expire after ten years.
<PAGE> 23
The activity under the option plans, combined, was as follows:
<TABLE>
<CAPTION>
Outstanding Exercisable
----------- -----------
Weighted Weighted
Average Average
Number Exercise Number Exercise
of Shares Price of Shares Price
--------- ----- --------- -----
<S> <C> <C> <C> <C>
September 30, 1994 848,888 $ 5.23 306,892 $5.73
Options granted at fair market value 237,500 13.44
Options granted below fair market value 1,800 13.52
Options exercised (96,408) 5.09
Options forfeited (5,792) 5.35
-------------------------------------------------------
September 30, 1995 985,988 7.23 303,030 5.74
Options granted at fair market value 359,400 9.93
Options granted below fair market value 14,560 --
Options exercised (149,373) 4.90
Options forfeited (38,586) 8.01
-------------------------------------------------------
September 30, 1996 1,171,989 8.24 400,044 5.45
Options granted at fair market value 310,000 11.18
Options granted above fair market value 1,100 11.54
Options granted below fair market value 82,528 --
Options exercised (124,873) 1.70
Options forfeited (37,212) 9.23
-------------------------------------------------------
September 30, 1997 1,403,532 $ 8.97 593,607 $7.01
=======================================================
</TABLE>
The options outstanding at September 30, 1997 have been segregated into
ranges for additional disclosure as follows:
<TABLE>
<CAPTION>
Outstanding Exercisable
Weighted
Average Weighted Weighted
Number of Remaining Average Number of Average
Range of Exercise Shares Contractual Exercise Shares Exercise
Prices Outstanding Life Price Exercisable Price
- ------ ----------- ---- ----- ----------- -----
<S> <C> <C> <C> <C> <C>
$4.00 - $4.88 297,707 6.30 years $ 4.75 232,957 $ 4.73
$5.00 - $9.06 269,025 4.03 years $ 6.20 253,400 $ 6.26
$9.25 - $9.25 310,500 8.94 years $ 9.25 0 --
$10.00 - $13.52 284,400 9.94 years $11.44 900 $13.52
$13.69 - $15.69 241,900 8.00 years $13.96 106,350 $13.72
---------- ---------- ------ ------- ------
1,403,532 7.48 years $ 8.97 593,607 $ 7.01
========== ========== ====== ======= ======
</TABLE>
<PAGE> 24
1993 Employee Stock Purchase Plan
- ---------------------------------
On February 5, 1994, the company's shareholders approved the 1993 Employee Stock
Purchase and Dividend Reinvestment Plan. The plan offers eligible employees the
opportunity to acquire the company's Common Shares at a discount and without
transaction costs. Eligible employees can only participate in the plan on a
year-to-year basis, must enroll prior to the commencement of each plan year, and
in the case with U.S. employees, must authorize monthly payroll deductions.
Foreign employees submit their contribution at the end of the plan year. The
purchase price of the Common Shares is 85 percent of the lower market price at
the beginning or ending of the calendar plan year. A total of 750,000 Common
Shares are available for purchase under the plan. Total shares may be increased
with shareholder approval or the plan may be terminated when the shares are
fully subscribed. No compensation expense is recorded in connection with the
plan. During 1997 and 1996, 94,227 and 74,156 shares had been purchased by
employees at prices of $7.86 and $4.25 per share, respectively.
Pro Forma Disclosure
- --------------------
As of September 30, 1997, the company had various stock-based
compensation plans which are described above. The company has elected to
continue to account for stock issued to employees according to APB Opinion 25,
"Accounting for Stock Issued to Employees" and its related interpretations.
Under APB No. 25, no compensation expense is recognized in the company's
consolidated financial statements for employee stock options except in certain
cases when stock options are granted below the market price of the underlying
stock on the date of grant. During 1997, $187 was recognized in compensation
expense for such grants. Alternatively, under the fair value method of
accounting provided for under Statement of Financial Accounting Standards No
123, "Accounting for Stock-Based Compensation" (SFAS 123), the measurement of
compensation expense is based on the fair value of employee stock options or
purchase rights at the grant or right date and requires the use of option
pricing models to value the options.
The weighted average fair value of options granted under stock options
plans in 1997 and 1996 was $4.97 and $4.34, respectively. The fair value of
options at date of grant was estimated using the Black-Scholes model with the
following weighted average assumptions:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Expected life (years) 5.0 4.6
Risk-free interest rate 6.0% 6.4%
Volatility 41.5% 41.5%
Dividend yield 1.3% 1.3%
</TABLE>
<PAGE> 25
The weighted average fair value of purchase rights granted under the 1993
Employee Stock Purchase Plan in 1997 and 1996 was $3.05 and $5.49, respectively.
The fair value of employees' purchase rights was estimated using the
Black-Scholes model with the following assumptions:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Expected life (years) 1.0 1.0
Risk-free interest rate 5.5% 4.9%
Volatility 41.5% 41.5%
Dividend yield 1.3% 1.3%
</TABLE>
The pro forma impact to both net income and net income per share from
calculating stock-related compensation expense consistent with the fair value
alternative of SFAS 123 is indicated below:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Pro forma net income $214 $(5,704)
Pro forma net income per share $.03 $ (.73)
</TABLE>
For purposes of the pro forma disclosures, the estimated fair value of
the stock-based awards is amortized over the vesting period. The effects of
applying SFAS 123 in this pro forma disclosure are not indicative of future
amounts, because SFAS 123 is applicable only to awards made after fiscal 1995.
<PAGE> 26
NOTE G - INCOME TAXES
For financial reporting purposes, income (loss) before income taxes
includes the following components:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
United States $ (892) $(9,383) $ 1,970
Non-U.S 2,103 3,059 4,452
------- ------- -------
$ 1,211 $(6,324) $ 6,422
======= ======= =======
The provision for income taxes is as follows:
1997 1996 1995
------- ------- -------
Current:
Federal $ 275 $ 1,330 $ 720
Non-U.S 1,091 1,513 1,859
State and local 195 45 146
------- ------- -------
Total current 1,561 2,888 2,725
------- ------- -------
Deferred:
Federal (1,124) (3,800) (1,199)
Non-U.S (16) 28 (18)
------- ------- -------
Total deferred (1,140) (3,772) (1,217)
------- ------- -------
Total provision (benefit) $ 421 $ (884) $ 1,508
======= ======= =======
</TABLE>
Differences between the statutory United States federal income tax and the
effective income tax rate are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Federal income tax at statutory rate $ 412 $(2,150) $ 2,183
State and local income taxes 129 30 96
Tax on non-U.S. income and tax credits (945) (884) (881)
Non-deductible amortization -- 2,123 158
Terminated life insurance contract 877 -- --
Other (52) (3) (48)
------- ------- -------
Effective income tax (benefit) $ 421 $ (884) $ 1,508
======= ======= =======
</TABLE>
<PAGE> 27
Significant components of the company's deferred tax assets and
liabilities as of September 30, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
Deferred tax assets: 1997 1996
- -------------------- ---- ----
<S> <C> <C>
Capitalized research and development $ 6,589 $ 5,221
Special charges 184 1,724
Intangibles 832 1,006
State and local taxes 1,471 1,441
Alternative minimum tax credit carryforwards 1,276 1,174
Deferred compensation 558 615
Inventory 1,597 1,124
General business credit carryforwards 1,058 872
Other 1,909 1,252
-------- --------
Total deferred tax assets 15,474 14,429
-------- --------
Valuation allowance for deferred tax assets (3,166) (2,994)
-------- --------
12,308 11,435
-------- --------
Deferred tax liabilities:
Pension contribution 818 904
Other 170 351
-------- --------
Total deferred tax liabilities 988 1,255
-------- --------
Net deferred tax assets $ 11,320 $ 10,180
======== ========
</TABLE>
The valuation allowance relates to tax credit carryforwards which will
likely not be realized. The current year increase relates primarily to an
increase in deferred state tax items.
At September 30, 1997, the Company had capital loss and tax credit
carryforwards as follows:
<TABLE>
<CAPTION>
Year Expiration
Commences
---------------
<S> <C> <C>
General business credit $1,058 2002
Capital loss 123 1998
Alternative minimum tax credit 1,276 Indefinite
</TABLE>
<PAGE> 28
NOTE H - LEASES
The company leases certain equipment under capital leases. Manufacturing,
laboratory and office equipment includes $526 of leased equipment at September
30, 1997 and 1996. Accumulated depreciation includes $510 and $487 at September
30, 1997 and 1996, respectively, related to these leases. The company also
leases certain office and manufacturing facilities and office equipment under
operating leases. Rent expense under operating leases (net of sublease income of
$84 in 1997, $245 in 1996 and $282 in 1995) for 1997, 1996 and 1995 was $2,658,
$2,178 and $2,119, respectively. Future minimum lease payments under operating
leases are:
<TABLE>
<CAPTION>
<S> <C> <C>
1998 $2,063
1999 1,820
2000 1,656
2001 1,198
2002 701
After 2002 2,507
-----
Total minimum operating lease payments $9,945
======
</TABLE>
<PAGE> 29
NOTE I - GEOGRAPHIC SEGMENTS
The company operates in a single industry segment and is engaged in the
design, development, manufacture and marketing of complex electronic instruments
and systems. The operations by geographic area are presented below:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
NET SALES, INCLUDING INTERCOMPANY SALES:
- ----------------------------------------
<S> <C> <C> <C>
United States (1) $ 106,217 $ 98,232 $ 88,410
Europe 31,606 37,799 37,659
Intercompany (14,528) (17,085) (16,495)
--------- --------- ---------
Net sales $ 123,295 $ 118,946 $ 109,574
========= ========= =========
INCOME (LOSS) BEFORE INCOME TAXES (2):
United States $ 1,889 $ (7,372) $ 4,282
Europe 2,236 3,180 4,158
Adjustments/eliminations (219) (34) 77
--------- --------- ---------
3,906 (4,226) 8,517
--------- --------- ---------
Corporate expenses (1,550) (1,279) (1,109)
Net financing expenses (1,145) (819) (986)
--------- --------- ---------
Income (loss) before income taxes $ 1,211 $ (6,324) $ 6,422
========= ========= =========
IDENTIFIABLE ASSETS:
United States $ 61,264 $ 54,507 $ 49,087
Europe 9,120 9,720 11,164
Adjustments/eliminations (4,979) (5,651) (5,429)
--------- --------- ---------
65,405 58,576 54,822
Corporate assets 13,708 15,258 11,287
--------- --------- ---------
Total assets $ 79,113 $ 73,834 $ 66,109
========= ========= =========
<FN>
(1) U.S. sales include $24,186, $21,295 and $18,793 in export sales to markets other than Europe in
1997, 1996 and 1995, respectively.
(2) 1997 and 1996 income (loss) before income taxes includes special charges (benefit) of $775 and
$11,003 in the U.S., and $(4) and $642 in Europe, respectively. (See Note B.)
</TABLE>
Intercompany sales were at cost plus a negotiated markup. Assets of
geographic areas are identified with the operations of each area. Corporate
assets consist of cash and cash equivalents, other receivables, prepaid expenses
and deferred income taxes.
<PAGE> 30
NOTE J - CONTINGENCIES
The company is engaged in various legal proceedings arising in the
ordinary course of business. The ultimate outcome of these proceedings is not
expected to have a material adverse effect on the company's financial position,
results of operations or cash flows.
<PAGE> 31
Report of Independent Accountants
---------------------------------
To the Board of Directors and Shareholders of
Keithley Instruments, Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income and shareholders' equity and of cash
flows present fairly, in all material respects, the financial position of
Keithley Instruments, Inc. and its subsidiaries at September 30, 1997 and 1996,
and the results of their operations and their cash flows for each of the three
years in the period ended September 30, 1997, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Cleveland, Ohio
November 17, 1997
<PAGE> 32
Statement of Management Responsibility
--------------------------------------
The consolidated financial statements of Keithley Instruments, Inc. were
prepared by management and, accordingly, management is responsible for their
accuracy and objectivity. The company utilizes accounting policies which are, in
the judgment of management, the most appropriate for the company's
circumstances. Certain estimates and judgments are required in the preparation
of financial statements. The financial information included in this Annual
Report has been prepared using management's best estimates, which were based
upon appropriate research and investigation.
The company maintains internal accounting control systems that are
designed to detect and correct material misstatements of financial information.
These systems are regularly modified in response to the company's changing
business conditions. Additionally, our independent accountants, Price Waterhouse
LLP, obtain a sufficient understanding of the internal control structure in
order to plan and complete the annual audit of the company's financial
statements.
The Audit Committee of the Board of Directors, which consists of three
Directors otherwise independent of the company, serves an oversight role in
reviewing the internal control monitoring process. The Committee regularly meets
with and has direct access to Price Waterhouse LLP.
Management acknowledges its responsibility to provide financial
information (both audited and unaudited) that is representative of the company's
operations and financial position, prepared on a consistent basis and relevant
for a meaningful appraisal of the company.
Joseph P. Keithley Ronald M. Rebner
Chairman, President Vice President and Chief
and Chief Executive Officer Financial Officer
<PAGE> 33
Stock Market Price and Cash Dividends
Since November 28, 1995, the company's Common Shares have traded on the
New York Stock Exchange under the symbol KEI. Prior to November 28, 1995, the
company's Common Shares traded on the American Stock Exchange under the symbol
KEI. The high and low prices shown below are sales prices of the company's
Common Shares as reported on the NYSE or the AMEX. There is no established
public trading market for the company's Class B Common Shares; however, they are
readily convertible on a one-to-one basis for Common Shares.
<TABLE>
<CAPTION>
Cash Dividends
Cash Dividends Per Class B
Fiscal 1997 High Low Per Common Share Common Share
- ----------- ---- --- ---------------- ------------
<S> <C> <C> <C> <C>
First Quarter $11 1/8 $7 3/8 $ .031 $ .025
Second Quarter 9 3/8 7 3/4 .031 .025
Third Quarter 12 7 5/8 .031 .025
Fourth Quarter 12 3/8 10 1/8 .031 .025
Fiscal 1996
First Quarter $18 $14 $ .031 $ .025
Second Quarter 16 7/8 12 7/8 .031 .025
Third Quarter 19 1/8 12 5/8 .031 .025
Fourth Quarter 14 1/4 8 3/8 .031 .025
</TABLE>
<PAGE> 34
Unaudited Quarterly Results of Operations
(In Thousands of Dollars Except for Per-Share Data)
<TABLE>
<CAPTION>
First Second Third Fourth
----- ------ ----- -------
Fiscal 1997
- -----------
<S> <C> <C> <C> <C>
Net sales $ 27,886 $ 28,148 $ 32,410 $ 34,851
Gross profit 16,132 16,402 18,514 20,323
Income (loss) before income taxes (1) (2) (1,171) (464) 1,088 1,758
Net income (loss) (1) (2) (838) (338) 761 1,205
Net income (loss) per share (primary and fully diluted)(1)(2)
(.11) (.04) .10 .15
Fiscal 1996
Net sales $ 29,823 $ 30,019 $ 29,403 $ 29,701
Gross profit 17,988 19,052 18,027 17,739
Income (loss) before income taxes (1) 1,659 2,045 1,006 (11,034)
Net income (loss) (1) 1,145 1,485 761 (8,831)
Net income (loss) per share (primary and fully diluted) (1)
.15 .19 .10 (1.14)
<FN>
(1) Includes special charges as follows:
1997 Special charges pretax $ 58 $ 375 $ 306 $ 32
1997 Special charges per share -- (.03) (.02) --
1996 Special charges pretax -- -- -- 11,645
1996 Special charges per share -- -- -- (1.23)
(2)The fourth quarter includes pretax charges of $512 for non-recurring
officer retirement expenses.
</TABLE>
<PAGE> 35
<TABLE>
<CAPTION>
Eleven Year Summary
(In Thousands Of Dollars Except For Per-Share Data)
For the year ended September 30, 1997 1996 1995 1994 1993(b)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating Results
Net sales $123,295 118,946 109,574 89,248 91,146
Income (loss) before income taxes and
cumulative effect of accounting change 1,211 (6,324) 6,422 124 5,530
Net income (loss) 790 (5,440) 4,914 907 4,784
Net income (loss) per share (a) 0.10 (0.70) 0.66 0.13 0.68
Fully diluted net income (loss) per share (a) 0.10 (0.70) 0.64 0.13 0.68
Common Stock Information (a)
Cash dividends per Common Share $ 0.125 0.125 0.106 0.100 0.100
Cash dividends per Class B Common Share $ 0.100 0.100 0.085 0.080 0.080
Weighted average number of shares
outstanding- fully diluted (in thousands) 7,995 7,822 7,720 7,088 7,061
At fiscal year-end:
Dividend payout ratio (d) 125.0% -- 16.1% 76.9% 14.7%
Price/earnings ratio (d) 120.0 -- 23.3 40.4 7.4
Shareholders' equity per share $ 4.26 4.26 5.11 4.50 4.45
Closing market price $ 12.000 8.875 14.938 5.250 5.000
Balance Sheet Data
Total assets $ 79,113 73,834 66,109 54,410 52,413
Current ratio 1.9 1.7 2.0 1.9 2.2
Total debt $ 17,458 13,369 6,113 4,816 6,518
Total debt-to-capital 34.8% 29.6% 14.2% 13.1% 17.2%
Shareholders' equity $ 32,683 31,756 36,902 31,946 31,415
Other Data
Return on average shareholders' equity 2.5% -15.8% 14.3% 2.9% 16.0%
Return on average total assets 1.0% -7.8% 8.2% 1.7% 9.1%
Return on net sales 0.6% -4.6% 4.5% 1.0% 5.2%
Number of employees 693 716 659 625 625
Sales per employee $ 175.0 173.0 170.7 142.8 139.8
Cash flow
Noncash charges to income (c) $ 3,390 7,064 2,573 1,346 1,849
Net cash provided by (used in) operating activities ($ 1,011) 2,600 2,457 6,641 6,289
Ten-year compound annual growth rate
Net sales 7.9% 9.6% 8.8% 7.0% 10.0%
Net income (d) -13.3% -- 5.7% -14.2% 9.1%
Eleven Year Summary
(In Thousands Of Dollars Except For Per-Share Data)
For the year ended September 30, 1992 1991 1990 1989 1988 1987
- ---------------------------------------------------------------------------------------------------------------------------------
Operating Results
Net sales 94,666 99,497 100,593 88,728 72,282 57,652
Income (loss) before income taxes and
cumulative effect of accounting change (10,420) 6,816 5,675 7,311 8,204 5,209
Net income (loss) (12,453) 4,233 3,378 4,131 5,414 3,280
Net income (loss) per share (a) (1.77) 0.60 0.48 0.59 0.78 0.49
Fully diluted net income (loss) per share (a) (1.77) 0.60 0.48 0.59 0.78 0.49
Common Stock Information (a)
Cash dividends per Common Share 0.100 0.094 0.089 0.082 0.058 0.046
Cash dividends per Class B Common Share 0.080 0.075 0.071 0.066 0.046 0.036
Weighted average number of shares
outstanding- fully diluted (in thousands) 7,046 7,026 7,014 6,994 6,974 6,790
At fiscal year-end:
Dividend payout ratio (d) -- 15.7% 18.5% 13.9% 7.4% 9.4%
Price/earnings ratio (d) -- 10.1 8.5 11.0 11.5 17.5
Shareholders' equity per share 4.05 5.85 5.40 4.88 4.37 3.68
Closing market price 4.563 6.063 4.063 6.500 8.938 8.500
Balance Sheet Data
Total assets 53,160 66,637 69,205 69,917 46,602 44,268
Current ratio 2.3 2.1 2.3 2.7 2.4 1.9
Total debt 8,978 10,506 16,562 22,419 2,027 5,773
Total debt-to-capital 23.9% 20.3% 30.4% 39.6% 6.2% 18.4%
Shareholders' equity 28,530 41,129 37,870 34,216 30,518 25,577
Other Data
Return on average shareholders' equity -35.8% 10.7% 9.4% 12.7% 19.0% 14.5%
Return on average total assets -20.8% 6.2% 4.9% 7.1% 11.9% 8.5%
Return on net sales -13.2% 4.3% 3.4% 4.7% 7.5% 5.7%
Number of employees 679 716 750 742 579 523
Sales per employee 135.7 135.7 134.8 134.3 131.2 115.1
Cash flow
Noncash charges to income (c) 15,185 4,325 6,649 4,234 3,062 2,516
Net cash provided by (used in) operating activities 4,475 9,399 9,111 4,592 6,812 5,741
Ten-year compound annual growth rate
Net sales 11.1% 12.8% 13.7% 16.4% 17.9% 19.2%
Net income (d) -- 39.7% 10.4% 12.5% 21.2% 19.8%
<FN>
(a) Share data adjusted for two-for-one stock split in November 1995, three-for-two stock split in 1987 and three-for-one stock
split in 1985.
(b) Includes a benefit for the cumulative effect of adopting FAS 109 of $1,447 or $.21 per share.
(c) Noncash charges to income include depreciation, amortization, deferred compensation, deferred taxes, noncash special charges
and the cumulative effect of adopting FAS 109.
(d) These ratios are not meaningful in 1992 and 1996 due to reported net losses.
</TABLE>
<PAGE> 1
21. Subsidiaries of the registrant
WHOLLY OWNED SUBSIDIARIES
-------------------------
Keithley International Investment Corporation
28775 Aurora Road, Cleveland, Ohio 44139, U.S.A.
Keithley Foreign Sales Corporation
5 Norre Gade, Charlotte Amalie
St. Thomas, U.S. Virgin Islands 00801
FRANCE: Keithley Instruments SARL
BP 60, 3 allee des Garays
91122 Palaiseau Cedex
GERMANY: Keithley Instruments GmbH
Landsberger Strasse 65
82110 Germering (Munich)
GREAT BRITAIN: Keithley Instruments Ltd.
The Minister, 58 Portman Road
Reading (London), Berkshire RG30 1EA
ITALY: Keithley Instruments SRL
Viale San Gimignano 38
20146 Milano
NETHERLANDS: Keithley Instruments BV
Avenlingen West 49
4202 MS Gorinchem (Amsterdam)
SWITZERLAND: Keithley Instruments SA
Kriesbachstrasse 4
8600 Dubendorf (Zurich)
<PAGE> 1
23. Consent of experts
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 33-2496) of Keithley Instruments, Inc. of our report
dated November 17, 1997 appearing on page 30 of the Annual Report to
Shareholders which is incorporated in this Annual Report on Form 10-K. We also
consent to the incorporation by reference of our report on the Financial
Statement Schedule, which appears on page 20 of this Form 10-K.
PRICE WATERHOUSE LLP
Cleveland, Ohio
December 22, 1997
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<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<CASH> 1,727
<SECURITIES> 0
<RECEIVABLES> 25,788
<ALLOWANCES> 675
<INVENTORY> 16,579
<CURRENT-ASSETS> 46,526
<PP&E> 41,527
<DEPRECIATION> 24,272
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<CURRENT-LIABILITIES> 25,054
<BONDS> 17,442
0
0
<COMMON> 192
<OTHER-SE> 32,491
<TOTAL-LIABILITY-AND-EQUITY> 79,113
<SALES> 123,295
<TOTAL-REVENUES> 123,295
<CGS> 51,924
<TOTAL-COSTS> 51,924
<OTHER-EXPENSES> 17,233
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,145
<INCOME-PRETAX> 1,211
<INCOME-TAX> 421
<INCOME-CONTINUING> 790
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 790
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