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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, 1998 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
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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 15, 1998 there were outstanding 4,784,812 Common Shares, without
par value, and 2,692,528 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 $34,434,157 and the aggregate market value of the Class B
Common Shares of the Registrant held by non-affiliates was $332,801 for a total
aggregate market value of all classes of Common Shares held by non-affiliates of
$34,766,957. 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 15, 1998, which was $7.75.
For purposes of this information, the 341,695 Common Shares and 2,649,586 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
Portions of the following documents are incorporated by reference into the
designated parts of this Form 10-K:
DOCUMENT Part of 10-K
1. Annual report to shareholders for the fiscal Parts I and II
year ended September 30, 1998
2. Proxy statement for the annual meeting of shareholders Part III
to be held on February 13, 1999
With the exception of the information specifically incorporated by reference,
neither the Company's proxy statement nor the 1998 annual report to shareholders
is deemed to be filed as part of this Form 10-K.
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KEITHLEY INSTRUMENTS, INC.
10-K ANNUAL REPORT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I: PAGE
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<S> <C> <C>
Item 1. Business 1
Item 2. Properties 8
Item 3. Legal Proceedings 9
Item 4. Submission of Matters to a Vote of Security Holders 9
PART II:
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters 11
Item 6. Selected Financial Data 11
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Item 8. Financial Statements and Supplementary Data 11
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 11
PART III.
Item 10. Directors and Executive Officers of the Registrant 12
Item 11. Executive Compensation 12
Item 12. Security Ownership of Certain Beneficial Owners and
Management 12
Item 13. Certain Relationships and Related Transactions 12
PART IV:
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K 13
</TABLE>
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PART I.
ITEM 1 - BUSINESS.
GENERAL
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.
RECENT EVENTS
On August 10, 1998, the Company sold the principal assets used in the
operation of its Radiation Measurements Division to Inovision Radiation
Measurements, L.L.C for $8.7 million in cash. The agreement was effective July
31, 1998. Prior to its sale, the Radiation Measurements Division developed,
manufactured and marketed products and systems that accurately measure the
radiation emission levels of x-ray machines and nuclear radiation sources and
were used to calibrate radiation therapy and x-ray equipment in hospitals and
manufacturing processes. The Division accounted for approximately eight percent
of the Company's fiscal 1998 net sales.
SUBSEQUENT EVENTS
On November 9, 1998, the Company sold the principal assets used in the
operation of its Quantox oxide monitoring product line to KLA-Tencor Corporation
for $9.1 million in cash. The agreement was effective October 31, 1998. The
Quantox product line had been sold to semiconductor manufacturers and
represented approximately ten percent of the Company's fiscal 1998 net sales.
On November 11, 1998, the Company commenced a tender offer to
repurchase up to 2,000,000 of its Common Shares, or approximately 40 percent of
Common Shares outstanding (25 percent of Class B and Common Shares combined).
The offer was conducted through a procedure commonly known as a "Dutch Auction"
in which shareholders could tender their shares at prices not in excess of $7.00
nor less than $5.75 per share. The offer expired on December 10, 1998, at which
time the Company accepted for purchase and purchased 405,757 Common Shares, or
approximately eight percent of the outstanding Common Shares (five percent of
Class B and Common Shares combined), for $7.00 per share.
PRODUCTS
Keithley Instruments, Inc. provides electrical measurement solutions to
wireless communications, semiconductor and electronic component manufacturers,
other high-growth areas of the electronics industry and research laboratories.
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
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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:
TEST AND MEASUREMENT. Test and Measurement designs, develops,
manufactures and markets sensitive electronic benchtop instrumentation and PC
board-level products used in production test, research and data acquisition and
analysis. These products measure a wide range of electrical properties such as
voltage, resistance, current, capacitance and charge. Benchtop instruments
generally range in price from $1,000 to $10,000 and PC board-level products
generally range in price from $100 to $4,000. Test and Measurements is composed
of 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 resistors and thermistors, and end
products which include cellular telephones, computer disk drives,
and pace makers. These products are marketed primarily through
direct marketing and personal selling.
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 superconductors. Typical customers
are industrial and government research laboratories, educational
institutions, and electronics manufacturers. These products are
marketed primarily through direct marketing and catalog mailings.
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.
Switches and Sources are marketed primarily through personal
selling.
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SOURCE MEASURE UNITS. These are programmable instruments capable of
sourcing and measuring voltage, current and resistance, 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 communications products. The source
measure units also provide the measurement sensitivity needed for
materials research and semiconductor characterization applications.
These products are marketed primarily through personal selling.
PLUG-IN BOARDS. The qualities of these boards include data
acquisition capabilities in the form of a board that is installed
into a slot of the computer, boards that essentially contain an
instrument allowing benchtop engineering and automatic production
testing through an expansion slot of almost any personal computer,
and IEEE-488 bus interfaces and software for interfacing computers
with programmable measurement instrumentation. The boards are
marketed worldwide to researchers and scientists engaged in
laboratory automation and experimentation, engineers involved with
process control and data collection applications, and machine
builders and systems integrators involved in production test
applications. These products are marketed primarily through direct
marketing, catalog mailings, and personal selling.
EXTERNAL SYSTEMS. These products include Keithley's MetraBus and
SmartLink product offerings. Essentially, external systems are
personal computer-based workstations that collect data from, and
provide control over, a variety of test and measurement modules, as
well as a line of intelligent measurement modules that allow
laboratory-grade measurements virtually anywhere due to their small
size. These products are primarily used in industrial monitoring
and control applications, research, product test and pilot plant
process monitoring. These products are marketed primarily through
personal selling.
ACCULEX. These products include digital panel meters and panel
printers. They display machine parameters, capture results for
permanent storage and enunciate alarms. These products are marketed
primarily through direct marketing and catalog mailings.
AGENCY PRODUCTS. The Company markets and distributes certain
hardware and software products manufactured by several test and
measurement companies. Software products are specialized personal
computer-based scientific data acquisition, analysis and graphics
software products. Scientists and engineers often combine the
software together with data acquisition hardware or test and
measurement instrumentation of Keithley or other manufacturers. The
agency products are complementary to, but not competitive with,
products manufactured by the Company.
SEMICONDUCTOR. The Company's Semiconductor business unit designs,
develops, manufactures and markets automated parametric test systems and C-V
systems used by semiconductor manufacturers to measure various electrical
characteristics of semiconductor materials. These products are generally sold
through personal selling and can be found in semiconductor fabrication
facilities throughout the world. They consist of two main groups:
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APT PRODUCTS. The Company is one of the leading suppliers of these
automated 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 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. The systems can also
incorporate wafer test structures used for determining the
reliability of semiconductor devices at various stages of
manufacturing. These test structures 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.
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 $350,000.
C-V (CAPACITANCE VERSUS VOLTAGE). C-V systems 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 development and
manufacturing facilities, industrial and governmental research
laboratories, and educational institutions to research, develop,
and characterize semiconductor devices, materials and manufacturing
processes.
NEW PRODUCTS DURING FISCAL YEAR 1998
Several new products were introduced during fiscal 1998 including the
following:
THE MODEL 2303 HIGH SPEED PRECISION POWER SUPPLY is optimized for
automated testing of portable wireless communication devices such as cellular
phones, cordless phones, pagers and mobile radios. Its fast response to load
changes is designed to simulate the current drive capacity of a battery. The
Model 2303 has features that allow easy verification of power consumption
specifications under different operating conditions. This is a valuable feature
for verifying performance of a cellular phone's standby mode, which requires the
processing of random-interval, control pulse transmissions from base stations.
THE MODEL 2182 NANOVOLTMETER is designed for use in applications
requiring low voltage measurements. Priced lower than earlier models, it
eliminates the need for a computer controller when making precision I-V
measurements by providing the ability to control an external source. The Model
2182 is used by researchers, metrology labs and component test engineers.
THE MODEL 2000-20 SCANNING MULTIMETER, designed for production test,
switch, and measure applications, is a 6 1/2-digit multimeter with a 20-channel
scanner card installed in its option slot that can be controlled from the front
panel or via the RS-232 or IEEE-488 interface. The Model 2000-20, with 20
channel switching, offers performance at approximately half the cost/channel of
a previous 10-channel system. The Model 2000-20 builds upon the standard
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Model 2000's high-performance, cost-effective design, combining a broad range of
functions with excellent accuracy specifications.
THE KPCI-422/4R SERIAL INTERFACE BOARD permits the easy connection of
up to four standard RS-422A communication ports to a single short slot of a
PCI-equipped PC. The KPCI-422/4r is useful for applications requiring more
serial ports than are available in a standard PC, enabling serial communications
with multiple modems, printers, and terminals under Windows(R) 95/98/NT
operating systems. Easy to configure and use because of its true plug-and-play
capability, the KPCI-422/4r allows users to take advantage of the superior
performance of PCs equipped with a 32-bit PCI bus.
GEOGRAPHIC MARKETS AND DISTRIBUTION
During fiscal 1998, all of the Company's products were manufactured in
Ohio and were sold throughout the world in many developed countries. The
Company's principal markets are the United States, Europe and the Pacific Basin.
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
countries in which it has a sales office 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
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
Electronic instruments of the nature the Company designs, develops and
manufactures cannot 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.
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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
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, 1998 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.
BACKLOG
The Company's backlog of unfilled orders amounted to approximately
$9,049,000 as of September 30, 1998 and approximately $13,486,000 as of
September 30, 1997. Included in the backlog at September 30, 1998 and 1997 is
$3,015,000 and $6,983,000, respectively, for Quantox products for which the
business was sold subsequent to September 30, 1998. It is expected that the
majority of the orders included in the 1998 backlog, except the Quantox
products, will be delivered during fiscal 1999; however, the Company's past
experience indicates that a small portion of orders included in the backlog may
be canceled.
COMPETITIVE CONDITIONS
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 and National
Instruments, Inc.
RESEARCH AND DEVELOPMENT
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 $13,139,000 in 1998,
$17,233,000 in 1997 and $18,337,000 in 1996, or approximately 11%, 14% and 15%
of net sales, respectively, for each of the last three fiscal years.
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GOVERNMENT REGULATIONS
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.
EMPLOYEES
As of September 30, 1998, the Company employed 564 persons, 103 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
Information related to foreign and domestic operations and export sales
is contained in Note J of the Notes to the Consolidated Financial Statements on
page 30 of the Company's 1998 Annual Report to Shareholders, which page is
incorporated herein by reference.
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.
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>
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Type of Acreage (Land)
Owned Properties Facility Square Footage (Building)
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Location
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 This space is available for expansion. 5.5 Acres
It is currently leased to other parties. 50,000 square feet
</TABLE>
<TABLE>
<CAPTION>
Lease
Type of Square Expiration
Leased Properties Facility Footage Date
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Location
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<S> <C> <C> <C>
Solon, Ohio This space was occupied by the 40,000 October 13, 2006
Radiation Measurements Division that was sold
during 1998. The space is being sublet to the
buyer; however, the Company remains responsible
for the lease at the current time.
Solon, Ohio This space was used for manufacturing
and administration. Currently, the
Company is not occupying any of the
space and plans to sublet it. 21,600 March 31, 2002
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, 2004
Zurich, Sales and Service 3,229 September 30, 1999
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.
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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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<S> <C> <C>
Joseph P. Keithley 50 Chairman of the Board of Directors since 1991, Chief
Executive Officer since November 1993 and President since
May 1994.
Philip R. Etsler 48 Vice President Human Resources of the Company since 1990.
James B. Griswold 52 Secretary and a Director of the Company since 1988;
partner in the law firm of Baker & Hostetler LLP from 1982
to present.
David H. Patricy 49 Vice President of Test and Measurement of the Company
since 1997. Previously General Manager of the Instrument
Division from 1994 to 1997 and Director of Manufacturing
from 1984 to 1994.
Mark J. Plush 49 Vice President and Chief Financial Officer of the Company
since October 1998. Previously, Controller since 1982 and
an Officer of the Company since 1989.
Ronald M. Rebner (1) 54 Vice President and Chief Financial Officer of the Company
from 1981 to October 1998.
Gabriel A. Rosica 58 Senior Vice President of Semiconductor 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.
</TABLE>
(1) On October 1,1998, Mr. Rebner retired from his Executive Officer
position with the Company.
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PART II.
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
-----------------------------------------------------
STOCKHOLDER MATTERS.
--------------------
See the table under the caption Stock Market Price and Cash Dividends
appearing on page 33 of the Keithley Instruments, Inc. 1998 Annual Report to
Shareholders, which table and information are incorporated herein by this
reference.
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 15, 1998 was 2,460.
ITEM 6 - SELECTED FINANCIAL DATA.
-------------------------
See the eleven year summary, appearing on pages 34 and 35 of the
Keithley Instruments, Inc. 1998 Annual Report to Shareholders, which pages are
incorporated herein by this reference.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS.
-----------------------------------
See pages 19 through 21 of the Keithley Instruments, Inc. 1998 Annual
Report to Shareholders, which pages are incorporated herein by this reference.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
--------------------------------------------
See pages 16 through 18, pages 22 through 31, and page 33 of the
Keithley Instruments, Inc. 1998 Annual Report to Shareholders, together with the
report thereon of PricewaterhouseCoopers LLP dated November 23, 1998, appearing
on page 32 of the Keithley Instruments, Inc. 1998 Annual Report to Shareholders,
which pages are incorporated herein by this reference.
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.
----------------------------------------------------
See the table listing the nominees for directors under the caption
"Election of Directors" in the Company's Proxy Statement to be used in
conjunction with the February 13, 1999 Annual Meeting of Shareholders and filed
with the Securities and Exchange Commission pursuant to Section 14(a) of the
Securities Exchange Act of 1934, which table is incorporated herein by this
reference. The information required for an identification of executive officers
is included on page 10 of this Form 10-K Annual Report.
ITEM 11 - EXECUTIVE COMPENSATION.
------------------------
See the caption "Executive Compensation and Benefits" in the Company's
Proxy Statement to be used in conjunction with the February 13, 1999 Annual
Meeting of Shareholders and filed with the Securities and Exchange Commission
pursuant to Section 14(a) of the Securities Exchange Act of 1934, which section
is incorporated herein by this reference.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
---------------------------------------------------------------
See the caption "Principal Shareholders" in the Company's Proxy
Statement to be used in conjunction with the February 13, 1999 Annual Meeting of
Shareholders and filed with the Securities and Exchange Commission pursuant to
Section 14(a) of the Securities Exchange Act of 1934, which section is
incorporated herein by this reference.
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, 1998,
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 included in the Keithley Instruments, Inc. 1998
Annual Report to Shareholders, are incorporated herein by reference:
1. Consolidated Balance Sheet as of September 30, 1998 and 1997.
2. Consolidated Statement of Income for the years ended September 30,
1998, 1997 and 1996.
3. Consolidated Statement of Cash Flows for the years ended September 30,
1998, 1997 and 1996.
4. Consolidated Statement of Shareholders' Equity for the years ended
September 30, 1998, 1997 and 1996.
5. Notes to Consolidated Financial Statements.
6. Report of Independent Accountants dated November 23, 1998.
(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.
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<TABLE>
<CAPTION>
(A)(3) INDEX TO EXHIBITS
Page Number
Sequential
Exhibit Numbering
Number Exhibit System
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<S> <C> <C>
2(a) Asset Purchase Agreement by and between Keithley
Instruments, Inc. and Inovision Radiation Measurements,
LLC dated July 31, 1998. (Reference is made to Exhibit
2(a) of the Company's Current Report on Form 8-K dated
July 31, 1998 (File No. 1-9965), which Exhibit is
incorporated herein by reference.)
--
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. --
*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>
14
<PAGE> 17
<TABLE>
<CAPTION>
Page Number
Sequential
Exhibit Numbering
Number Exhibit System
------ ------- ------
<S> <C> <C>
10(k) Employment Agreement with Mark J. Plush dated April 7, 1994. 22 - 27
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.)
--
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.) --
</TABLE>
15
<PAGE> 18
<TABLE>
<CAPTION>
Page Number
Sequential
Exhibit Numbering
Number Exhibit System
------ ------- ------
<S> <C> <C>
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. (Reference is made to Exhibit 10(z) of the
Company's Annual Report on form 10-K for the fiscal year
ended September 30, 1997 (File No. 1-9965), which
Exhibit is incorporated herein by reference.)
--
11 Statement Re Computation of Per Share Earnings. 28
13 Annual Report to Shareholders for the Fiscal Year Ended
September 30, 1998. 29-67
21 Subsidiaries of the Company. 68
23 Consent of Experts. 69
27 Financial Data Schedule (EDGAR version only). --
</TABLE>
ITEM 14(B) REPORTS ON FORM 8-K.
During the fourth quarter ended September 30, 1998, the Company filed a Current
Report on Form 8-K under Item 2 - Acquisition or Disposition of Assets for the
sale of certain assets of its Radiation Measurements Division. The Form 8-K,
dated July 31, 1998, included an Unaudited Pro forma Consolidated Balance Sheet
as of June 30, 1998, Unaudited Pro forma Consolidated Statements of Income for
the fiscal year ended September 30, 1997 and the nine months ended June 30,
1998, and Notes thereto.
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).
16
<PAGE> 19
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 21, 1998
------------------------------------------
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, 12/21/98
- -------------------------------------------- President and Chief Executive Officer
Joseph P. Keithley (Principal Executive Officer)
/s/ Brian R. Bachman Director 12/21/98
- -------------------------------------------
Brian R. Bachman
/s/ James T. Bartlett Director 12/21/98
- -------------------------------------------
James T. Bartlett
/s/ Arden L. Bement, Jr. Director 12/21/98
- -------------------------------------------
Dr. Arden L. Bement, Jr.
/s/ James B. Griswold Director 12/21/98
- -------------------------------------------
James B. Griswold
/s/ Leon J. Hendrix, Jr. Director 12/21/98
- -------------------------------------------
Leon J. Hendrix, Jr.
/s/ R. Elton White Director 12/21/98
- -------------------------------------------
R. Elton White
</TABLE>
17
<PAGE> 20
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 23, 1998 appearing on page 32 of the 1998 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.
PricewaterhouseCoopers LLP
Cleveland, Ohio
November 23, 1998
18
<PAGE> 21
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
Beginning of Charged to Costs Balance at End
Description Period and Expenses Deductions (1) of Period
- ----------- ------ ------------ -------------- ---------
<S> <C> <C> <C> <C>
For the Year Ended
September 30, 1998:
Valuation allowance for
deferred tax assets $3,166 $ 54 $ 93 $3,127
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
</TABLE>
(1) Represents utilization of tax credits and capital loss carryovers.
19
<PAGE> 1
Exhibit 10(k)
10(k) Employment Agreement with Mark J. Plush
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT dated this 7th day of April 1994 between Keithley
Instruments, Inc., an Ohio corporation, (hereinafter called the "Company"), and
Mark J. Plush (hereinafter called the "Employee").
WHEREAS, the "Company" considers the establishment and maintenance of
sound and vital management to be essential to protecting and enhancing the best
interest of the Company and its shareholders; and
WHEREAS, the Company wishes to assure itself of the Employee's
full-time employment during the period specified herein; and
WHEREAS, the Employee is prepared to enter into an employment agreement
with the Company and to give the Company the assurances it desires;
NOW, THEREFORE, in consideration of the foregoing premises and of the
mutual agreements herein set forth, the parties hereto have agreed and do hereby
mutually agree as follows:
I) TERM OF AGREEMENT
A) GENERAL. The term of this Agreement shall commence on the date first
above written, and shall continue for three years, through and
including April 7, 1997, unless sooner terminated pursuant to Section
VI or XII hereinbelow. After the original three year term, the
Agreement is renewable automatically for successive one year terms
unless either party gives the other party written notice of
non-renewal at least thirty (30) days before the end of the term of
the Agreement.
B) CHANGE IN CONTROL. In the event that Joseph P. Keithley & Trusts of
which he is a Partner ceases to have more than fifty percent (50%)
voting power of the Company's voting stock ("Change of Control")
during the term of this Agreement, as set forth above, this Agreement
will continue for the balance of said term. If the balance of said
term is less than eighteen months, the term of this Agreement shall be
extended so that the term shall not end prior to eighteen months
following the date of the Change of Control.
II) RESPONSIBILITY
It is agreed that the Employee is hereby employed by the Company with
responsibility to perform such duties, consistent with his position, as
shall be assigned to him by the Chief Executive Officer or Board of
Directors of the Company.
III) ACCOUNTABILITY
It is agreed that in exercising his responsibilities, the Employee will be
accountable to the Company's Board of Directors and its Chief Executive
Officer. The employee agrees to: (i) devote his business time and efforts
full-time to the affairs of the Company and its affiliates, and (ii) use
his best efforts to promote the interests of the Company and its
affiliates.
<PAGE> 2
IV) REMUNERATION
A) BASE SALARY. The Employee will be employed during the term of this
Agreement at an annual base salary of not less than $109,800, paid on
a monthly basis. This base salary maybe increased, but not decreased
without the Employee's consent, at the discretion of the Compensation
Committee of the Board of Directors of the Company.
B) ADDITIONAL COMPENSATION. The Employee shall be eligible to participate
in incentive, stock option, profit-sharing, annual cash bonus,
deferred compensation and similar plans maintained by the Company for
the benefit of its executives.
V) OTHER EMPLOYEE FRINGE BENEFITS
The Employee shall be included to the extent eligible thereunder (at the
expense of the Company, if provided at Company expense for other executives
of the Company with a comparable level of responsibility) under any and all
existing plans or arrangements (and any plans or arrangements which may be
adopted) providing benefits for its employees, including but not limited to
group life insurance, hospitalization, medical, pension, automobile,
financial services and any and all other similar or comparable benefits as
may be in effect for other executives of the Company with a comparable
level of responsibility from time to time during the term of this
Agreement. Additional or improved fringe benefits are to be calculated for
and awarded to the Employee in at least as beneficial a manner as they are
calculated for and awarded to such other executive.
Nothing in this Agreement shall adversely affect the rights of the Employee
or his beneficiaries under the present of any future retirement,
profit-sharing, insurance, or other fringe benefit or compensation plans or
arrangements which the Company now has or may adopt for its employees, and
no rights or the Employee thereunder shall be forfeited by any action set
forth in this Agreement unless so provided in such plans or arrangements.
VI) TERMINATION OF EMPLOYMENT
A) DEATH. If the Employee shall die during the term of this Agreement,
the duties of the Company and the Employee, one to the other, under
this Agreement shall terminate as of the date of the Employee's death.
Notwithstanding the sentence immediately preceding, the death of the
Employee shall not adversely affect the rights of this beneficiaries
to any benefits under the Company's employee benefit plans or
arrangements in which he may be a participant, in accordance with the
terms thereof, including but not limited to those referred to in
Section VI, F hereof.
B) DISABILITY. If the Employee shall become disabled for purposes of the
Company's long-term disability program during the term of this
Agreement the duties of the Company and the Employee, one to the
other, under this Agreement shall terminate as of the date the
Employee is determined to be disabled. Notwithstanding the sentence
immediately preceding, the disability of the Employee shall not
adversely affect his rights to any benefits under the Company's
employee benefit plans or arrangements in which he may be a
participant, in accordance with the provisions thereof, including but
not limited to those referred to in Section VI, F hereof.
C) RESIGNATION. If the Employee voluntarily leaves the employ of the
Company during the term of this Agreement for any reason, the duties
of the Company and the Employee, one to the other, under this
Agreement shall terminate as of the date of the Employee's termination
of employment. Notwithstanding the sentence immediately preceding,
such voluntary termination of employment by the Employee shall not
adversely affect his rights to any benefits under the Company's
employee benefit plans or arrangements in
<PAGE> 3
which he may be a participant, in accordance with the provisions
thereof, including but not limited to those referred to in Section VI,
F hereof.
D) TERMINATION BY COMPANY. The Company may terminate the Employee's
employment at any time, without cause, subject to providing the
benefits hereinafter specified in accordance with the terms hereof.
The Company may terminate the Employee's employment at any time "For
Cause". In the event the Company shall terminate the Employee's
employment For Cause, the duties of the Company and the Employee, one
to the other, under this Agreement shall terminate as of the date of
the Employee's termination of employment. Notwithstanding the sentence
immediately preceding, such termination of employment of the Employee
by the Company For Cause shall not adversely affect his rights to any
benefits under the Company's employee benefit plans or arrangements in
which he may be a participant, in accordance with the provisions
thereof, including but not limited to those referred to in Section VI,
F hereof.
As used herein the words "For Cause" shall be deemed to mean and include (i) the
Employee's conviction of either a felony involving moral turpitude or any crime
in connection with his employment by the Company which causes the Company or any
affiliated company a substantial detriment; or (ii) the Employee's refusal to
submit to a medical examination if directed to do so by the Board to determine
whether the Employee is disabled under subsection VI(B) hereof; or (iii) the
Employee's willful failure to take actions permitted by law and necessary to
implement policies of the Board which the Board has communicated to him in
writing, provided that minutes of a Board meeting attended in its entirety by
the Employee shall be deemed communicated to the Employee; or (iv) the
Employee's continued failure to perform his duties as an executive officer of
the Company as set forth in the attached job description (provided that the
Employee's competence in such performance shall be irrelevant); or (v) any
condition which either resulted from the Employee's habitual drunkenness or
addiction to narcotics, or resulted from any intentionally self-inflicted
injury; or (vi) acting in breach or contravention of any material obligation,
covenant or agreement of the Employee contained in this Agreement, expressly
including without limitation, the non-competition and non-solicitation covenants
set forth in Section VIII hereof or the provision of the "Employee Agreement" or
any similar agreement regarding confidentiality.
E) NOTICE OF TERMINATION. Any termination of the Employee's employment by
the Company or by the Employee shall be communicated by written Notice
of Termination to the other party hereto which notice shall set forth
the effective date of such termination which shall not be earlier than
the date of mailing, or delivery by other means, of the notice.
F) CONTINUATION OF EMPLOYEE BENEFITS. The death, disability or
termination of employment of the Employee, whether or not voluntary
and whether or not For Cause shall not result in the loss by the
Employee or his beneficiaries of any benefits under any life
insurance, death benefit, pension, profit sharing, stock option,
medical, deferred compensation or other employee benefit plan or
arrangement except as provided for in such plan or arrangement.
VII) COMPENSATION UPON INVOLUNTARY TERMINATION OTHER THAN FOR CAUSE
If the Employee's employment with the Company shall be terminated, during
the term of this Agreement, by the Company other than For Cause, then the
Employee shall be entitled to the benefits provided below:
i) the Company shall pay the Employee, on a monthly basis, his full
monthly base salary determined as of the date of his termination of
employment, for six
<PAGE> 4
months following his termination of employment, or one month following
his termination of employment for each full year of his service with
the Company, whichever is greater, up to a maximum of eighteen (18)
months;
ii) full participation in the annual Extra Compensation Plan if his
termination of employment is on or subsequent to June 30 of the
respective fiscal year;
iii) full participation in any performance award if the performance
measuring period ends within six months follow his termination of
employment;
iv) the choice of exercising all vested stock options up to thirty days
after his termination of employment, provided this provision shall not
extend the term of his options beyond their terms as initially
granted, and the Company agrees to request the Compensation Committee
of its Board of Directors to permit such exercise pursuant to Section
6(g) of the Keithley Instruments, Inc. 1984 Stock Option Plan or the
comparable provision of any future plan;
v) the Employee shall be deemed to have vested in his stock, if any,
acquired under the Company's restricted stock plan at a rate of 20%
per year of service subsequent to the date of sale of such stock to
the Employee;
vi) the Company shall maintain in full force and effect, following his
termination of the Employee's employment for six months following such
termination of employment for each full year of his service with the
Company, whichever is greater, up to a maximum of eighteen (18)
months, all employee fringe benefit plans and arrangement in which he
was entitled to participate immediately prior to the date of the
Notice of Termination, provided that if such continued coverage would
jeopardize the tax qualified status of such plan or arrangement with
respect to any other employee or the Company the Company may elect to
provide the said benefit on an individual basis or provide cash
compensation equivalent to the benefit which otherwise would have been
provided so that the Employee shall suffer no financial loss
whatsoever due to such substitution;
vii) in addition to the retirement benefits to which the Employee is
entitled under the Company's Employees' Pension Plan, as amended from
time to time (the "Pension Plan"), the Company shall pay a
supplemental retirement benefit hereunder, which benefit (except as
provided below) shall be determined in accordance with, and payable in
the same form and at the same times provided in, the Pension Plan.
Such benefit shall equals (a) minus (b) below where:
(a) equals the benefit to which the Employee would be entitled under
the Pension Plan if:
I. he were fully vested;
II. his "compensation", as that word is defined in the Pension
Plan, were, at all times while he was a participant in said
Pension Plan, equal to the annual amount of such
compensation for that Company fiscal year from among the
final three (3) Company fiscal years ending prior to his
termination of employment for which said compensation was
the highest;
III. his "1977 monthly compensation", "1983 monthly
compensation" and any similar updated monthly compensation
were calculated by dividing his "compensation", as defined
in Section VII, (vii), (a) II. above, by twelve (12); and
<PAGE> 5
IV. he was credited with his actual years of "credited
service" as determined under the Pension Plan; and
b) equals the Employee's actual benefit payable under the Pension
Plan; and
viii) reimbursement of fees for outplacement services actually used to
the extent approved by the Chief Executive Officer in his sole
discretion, but not in excess of $10,000.
Nothing in this Agreement shall be construed as amending any
compensation or fringe benefit plan or arrangement of the Company. All
rights of the Employee under any such plan or arrangement upon his
termination of employment must be determined under the terms of such
plans or arrangements at the time of the Employee's termination of
employment.
VIII) COVENANT NOT TO COMPETE
-----------------------
The Employee agrees that during his employment with the Company, and after
his termination of employment for as long as payments hereunder are made by
the Company, the Employee shall remain in full compliance with the
following conditions:
i) He must not accept employment either directly or indirectly, with
any competitor of the Company.
ii) He must not allow the use of his name by or in any competitive
business.
iii) He must keep himself at all times reasonably available for
consultation by the officers and directors of the Company; provided
that no such consultation shall be required after the Employee attains
age sixty-five (65). In the event he is called upon to render any such
substantial consulting services, he shall receive additional
compensation in a reasonable amount, and any travel or other expenses
which may be required in connection with such services shall be paid
by the Company.
The Company shall make payments under this Agreement only so long as
the Employee complies with the above conditions except to the extent
expressly waived in writing by the Board of Directors. In the event
that the Employee shall be determined to be guilty of violation of any
of the foregoing conditions by agreement or by the reasonable
determination of the Board of Directors and the Employee does not
correct such violation within a reasonable time, as determined by the
Board after notice to him in writing, the Company may thereafter
suspend or terminate in whole or in part any further payments under
this Agreement.
This Agreement shall not be deemed to modify in any way any agreement
between the Company and the Employee concerning the protection of
Company secrets.
IX) DISSOLUTION, MERGER OR CONSOLIDATION
If the Company shall at any time be merged or consolidated into or with
any other corporation or corporations or if substantially all the
assets of the Company are sold or otherwise transferred to another
corporation or party, the provisions of this Agreement shall be binding
upon and inure to the benefit of the corporation surviving or resulting
from such merger or consolidation or to which such assets shall be sold
or transferred, and this provision shall apply in the event of any
subsequent sale, merger, consolidation or transfer.
<PAGE> 6
X) NON-ASSIGNABILITY
This Agreement shall be binding upon and inure to the benefit of the
Parties hereto and to their successors. The Employee may not assign,
pledge or otherwise encumber any rights or interest hereunder without
the written consent of the Company. The Company may not assign this
Agreement other than as set forth in IX above.
XI) ENTIRE AGREEMENT OF THE PARTIES
This Agreement expresses the entire agreement of the parties, and all
promises, representations, understandings, arrangement and prior
agreements are merged herein and superseded hereby.
XII) AMENDMENTS, TERMINATION
Except as herein provided, this Agreement cannot be terminated by
unilateral action of either party. However, this Agreement can be
changed, modified or terminated by mutual written agreement. No person,
other than pursuant to a resolution of the Board of Directors of the
Company, shall have any authority on behalf of the Company to agree to
modify, change or terminate this Agreement or anything in reference
thereto, and any such modification, change or termination must be in
writing and signed by both parties.
XIII) LAWS GOVERNING
This Agreement has been entered into in the State of Ohio, and shall be
construed, interpreted and governed in accordance with the laws of the
State of Ohio.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its
officers thereunto duly authorized, and the Employee has hereunto set his hand,
as of the day and year first above written.
KEITHLEY INSTRUMENTS, INC.
("Company")
By /s/ Joseph P. Keithley
-------------------------------------
(Chairman, Board of Directors and CEO)
And /s/ RONALD M. REBNER
------------------------------------
(CFO)
/s/ MARK J. PLUSH
----------------------------------------
("Employee")
<PAGE> 1
Exhibit 11
11. Statement re computation of per share earnings
<TABLE>
<CAPTION>
Year ended Year ended Year ended
September 30, September 30, September 30,
1998 1997 1996
<S> <C> <C> <C>
Net income (loss) in thousands $5,004 $790 $(5,440)
Weighted average shares outstanding 7,799,507 7,588,094 7,360,412
Assumed exercise of stock options,
weighted average of incremental shares 171,758 260,895 --
Assumed purchase of stock under stock
purchase plan, weighted average 94,024 17,761 --
Diluted shares-adjusted weighted-
average shares and assumed conversions 8,065,289 7,866,750 7,360,412
Basic earnings (loss per share $.64 $.10 $ (.74)
Diluted earnings (loss) per share $.62 $.10 $ (.74)
</TABLE>
<PAGE> 1
Exhibit 13
13. Annual Report to Shareholders for the Fiscal Year Ended September 30, 1998
Consolidated Statement of Income
For the years ended September 30, 1998, 1997 and 1996
(In Thousands of Dollars Except for Per-Share Data)
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Net sales $ 117,776 $ 123,295 $ 118,946
--------- --------- ---------
Cost of goods sold 50,332 51,924 46,140
Selling, general and administrative expenses 46,756 51,011 48,329
Product development expenses 13,139 17,233 18,337
Gain on sale of business (2,852) -- --
Special charges 1,172 771 11,645
Net financing expenses 1,040 1,145 819
--------- --------- ---------
Income (loss) before income taxes 8,189 1,211 (6,324)
Income taxes (benefit) 3,185 421 (884)
--------- --------- ---------
Net income (loss) $ 5,004 $ 790 $ (5,440)
========= ========= =========
Basic earnings (loss) per share $ .64 $ .10 $ (.74)
========= ========= =========
Diluted earnings (loss) per share $ .62 $ .10 $ (.74)
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 2
Consolidated Balance Sheet
September 30, 1998 and 1997
(In Thousands of Dollars Except for Share Data)
<TABLE>
<CAPTION>
1998 1997
------- ------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 9,321 $ 1,727
Accounts receivable and other, net of allowances
of $704 in 1998 and $675 in 1997 17,586 25,113
Inventories:
Raw materials 5,997 7,787
Work in process 3,163 5,671
Finished products 2,490 3,121
-------- --------
Total inventories 11,650 16,579
Deferred income taxes 3,267 2,541
Prepaid expenses 503 566
-------- --------
Total current assets 42,327 46,526
-------- --------
Property, plant and equipment, at cost:
Land 1,325 1,325
Buildings and leasehold improvements 14,984 15,917
Manufacturing, laboratory and office equipment 23,025 24,285
-------- --------
39,334 41,527
Less-Accumulated depreciation and amortization 24,723 24,272
-------- --------
Total property, plant and equipment, net 14,611 17,255
-------- --------
Intangible assets, net of accumulated amortization
of $31,755 in 1998 and $29,930 in 1997 -- 1,825
Deferred income taxes 8,087 8,814
Other assets 5,992 4,693
-------- --------
Total assets $ 71,017 $ 79,113
======== ========
Liabilities and Shareholders' Equity
Current liabilities:
Current installments on long-term debt $ -- $ 16
Accounts payable 6,191 11,568
Accrued payroll and related expenses 4,203 4,698
Other accrued expenses 6,902 6,951
Income taxes payable 4,591 1,821
-------- --------
Total current liabilities 21,887 25,054
-------- --------
Long-term debt 6,099 17,442
Other long-term liabilities 4,277 3,899
Deferred income taxes 12 35
Shareholders' equity:
Common Shares, stated value $.025:
Authorized - 30,000,000; issued and outstanding -
5,092,903 in 1998 and 4,877,975 in 1997 127 122
Class B Common Shares, stated value $.025:
Authorized - 9,000,000; issued and outstanding -
2,785,378 in 1998 and 2,786,278 in 1997 70 70
Capital in excess of stated value 8,877 7,297
Earnings reinvested in the business 29,870 25,773
Cumulative translation adjustment 429 250
Unamortized portion of restricted stock plan (283) (569)
Common Shares held in treasury, at cost (348) (260)
-------- --------
Total shareholders' equity 38,742 32,683
-------- --------
Total liabilities and shareholders' equity $ 71,017 $ 79,113
======== ========
</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,
1998, 1997 and 1996 (In Thousands of Dollars Except for Share Data)
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
SHARES $ SHARES $ SHARES $
----------- ------ ----------- --------- ----------- -
<S> <C> <C> <C> <C> <C> <C>
Common Shares:
Beginning balance 4,877,975 122 4,656,600 116 4,308,976 108
Shares issued under stock plans 214,028 5 213,375 6 222,906 5
Conversion of Class B Common Shares 900 -- 8,000 -- 124,718 3
--------- ------ --------- ------ --------- ---
Ending balance 5,092,903 127 4,877,975 122 4,656,600 116
========= ------ ========= ------ ========= --------
Class B Common Shares:
Beginning balance 2,786,278 70 2,794,278 70 2,918,996 73
Conversion to Common Shares (900) -- (8,000) -- (124,718) (3)
--------- ------ --------- ------ --------- ---
Ending balance 2,785,378 70 2,786,278 70 2,794,278 70
========= ------- ========= ------- ========= --------
Common Shares held in treasury, at cost:
Beginning balance (22,515) (260) (10,155) (136) -- --
Shares repurchased (14,960) (88) (12,360) (124) (10,155) (136)
--------- ------ --------- ------ --------- ---
Ending balance (37,475) (348) (22,515) (260) (10,155) (136)
========== ------ ========= ------ ========= ------
Capital in excess of stated value:
Beginning balance 7,297 5,293 3,981
Shares issued under stock plans 1,473 1,742 1,385
Other 107 262 (73)
-------- -------- --------
Ending balance 8,877 7,297 5,293
-------- -------- -------
Cumulative translation adjustment:
Beginning balance 250 562 589
Translation adjustments 146 (550) (76)
Gains from hedging net investments
in foreign subsidiaries 33 238 49
--------- ------- --------
Ending balance 429 250 562
-------- ------- -------
Unamortized portion of restricted stock plan:
Beginning balance (569) (14) (6)
Shares issued under stock plans -- (742) (14)
Amortization 286 187 6
---------- ---------- ---------
Ending balance (283) (569) (14)
---------- ---------- ---------
Earnings reinvested in the business:
Beginning balance 25,773 25,865 32,157
Net income (loss) 5,004 790 (5,440)
Cash dividends:
Common Shares ($.125 per share in 1998,
1997 and 1996) (629) (603) (568)
Class B Common Shares ($.10 per share in
1998, 1997 and 1996) (278) (279) (284)
------- ------- --------
Ending balance 29,870 25,773 25,865
------ ------ ------
Total shareholders' equity 38,742 32,683 31,756
====== ====== ======
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 4
<TABLE>
<CAPTION>
Consolidated Statement of Cash Flows
For the years ended September 30, 1998,
1997 and 1996 (In Thousands of Dollars)
1998 1997 1996
-------- -------- ------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 5,004 $ 790 $ (5,440)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Depreciation 3,653 3,823 3,419
Amortization of intangible assets 196 222 634
Deferred income taxes (22) (1,140) (3,772)
Deferred compensation 331 229 211
Special charges 551 (771) 11,452
Gain on sale of business (2,852) -- --
Change in current assets and liabilities:
Accounts receivable and other 6,625 (6,969) 2,317
Inventories 3,670 486 (5,275)
Prepaid expenses (648) 29 (57)
Other current liabilities (3,320) 1,427 (143)
Other operating activities (155) 863 (746)
-------- -------- --------
Net cash provided by (used in) operating activities 13,033 (1,011) 2,600
-------- -------- --------
Cash flows from investing activities:
Payments for property, plant and equipment (2,753) (5,849) (8,539)
Sale (acquisition) of assets 8,683 -- (1,408)
Payments made for sale of assets (759) -- --
Other investing activities 96 202 71
-------- -------- --------
Net cash provided by (used in) investing activities 5,267 (5,647) (9,876)
-------- -------- --------
Cash flows from financing activities:
Net decrease in short-term debt (16) (45) (10)
Borrowing (payment) of long-term debt (11,314) 4,520 7,385
Proceeds from sale of Common Shares 1,458 1,144 974
Cash dividends (907) (882) (852)
-------- -------- --------
Net cash provided by (used in) financing activities (10,779) 4,737 7,497
-------- -------- --------
Effect of changes in foreign currency exchange
rates on cash and cash equivalents 73 (347) (116)
-------- -------- --------
Increase (decrease) in cash and cash equivalents 7,594 (2,268) 105
Cash and cash equivalents at beginning of period 1,727 3,995 3,890
-------- -------- --------
Cash and cash equivalents at end of period $ 9,321 $ 1,727 $ 3,995
======== ======== ========
Supplemental disclosures of cash flow information
Cash paid during the year for:
Income taxes $ 972 $ 1,981 $ 2,201
Interest 891 1,140 711
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, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net sales 100.0 100.0 100.0
Cost of goods sold 42.7 42.1 38.8
Selling, general and administrative expenses 39.7 41.4 40.6
Product development expenses 11.2 14.0 15.4
Gain on sale of business (2.4) -- --
Special charges 1.0 0.6 9.8
Net financing expenses 0.9 0.9 0.7
----- ----- -----
Income (loss) before income taxes 6.9 1.0 (5.3)
Income taxes (benefit) 2.7 0.4 (0.7)
----- ----- -----
Net income (loss) 4.2 0.6 (4.6)
===== ===== =====
</TABLE>
RESULTS OF OPERATIONS (IN THOUSANDS OF DOLLARS EXCEPT FOR PER-SHARE DATA)
Net income was $5,004, or $.62 per share on a diluted basis, in 1998 compared to
$790, or $.10 per share, in 1997, and a net loss of $5,440, or $.74 per share,
in 1996. Excluding the gain on sale of a business of $2,852 pretax, or $.22 per
share, special charges and other personnel cost reductions in all years of $.18
per share in 1998, $.10 per share in 1997, and $1.27 per share in 1996, net
income was $4,679, or $.58 per share in 1998, $1,614, or $.20 per share in 1997,
and $4,185, or $.53 per share in 1996. Additionally, 1997 and 1996 results
included substantial start-up losses for new business opportunities the company
was exploring, compared with much smaller start-up losses in 1998.
Net sales were $117,776 in 1998, down 4 percent from record sales of $123,295 in
1997. 1997's sales increased 4 percent from $118,946 in 1996. Net sales for 1998
without the Radiation Measurements Division and the Quantox product line were
$96,840. (See Notes B and L.) Five years ago, the company developed a strategy
of targeting selected growth industries (specifically in semiconductor, wireless
communications and electronic components) and has been developing
application-specific products for these industries. While shipments continued to
ramp up for the company's Quantox oxide monitoring system, continued weakness in
the semiconductor capital equipment industry and the Asian financial situation
caused sales for the company's parametric test equipment to continue to decline.
Additionally, sales of the company's board level products also continued to
decline. The increase in sales in 1997 over 1996 was due to very strong demand
for the company's products targeted for the wireless communications industry
<PAGE> 6
and the first full year's shipments of Quantox, offset somewhat by the decrease
in sales of products serving the semiconductor industry and board level
products. Geographically, domestic and export sales decreased in 1998 from 1997,
but were up in 1997 from 1996. Net sales in Europe increased in 1998 from 1997,
but decreased in 1997 from 1996.
Cost of goods sold as a percentage of net sales was 42.7 in 1998, 42.1 in 1997
and 38.8 in 1996. The increase during this period has been due to increased
sales of Quantox that carry a lower gross margin than the company's other
products, higher fixed costs resulting from the 1996 expansion of manufacturing
facilities and a continuing strengthening of the U.S. dollar by 5 percent in
1998 and 8 percent in 1997. Foreign exchange hedging had a minimal effect on
cost of goods sold in 1998, 1997 and 1996.
Selling, general and administrative expenses decreased 8 percent to 39.7 percent
of sales in 1998 from 41.4 percent of sales in 1997. The decrease was due mainly
to lower expenses resulting from the cost reduction actions taken during the
year and lower commissions due to lower net sales. Selling, general and
administrative expenses increased 6 percent from 1996 to 1997. The increase in
expenses was due mostly to higher marketing costs associated with new business
initiatives, the introduction of new products from existing businesses, and
higher commissions due to increased sales. Additionally, 1998 and 1997 expenses
include approximately $1,210 pretax, or $.09 per share, and $512 pretax, or $.04
per share, respectively, for personnel cost reductions and officer retirement
expenses.
Product development expenses decreased $4,094, or 24 percent, in 1998 from 1997
and $1,104, or 6 percent, in 1997 from 1996. As a percentage of sales, they were
11.2, 14.0 and 15.4 in 1998, 1997 and 1996, respectively. The decrease in 1998
from 1997 was due primarily to the completion of the company's new business
development efforts for the Quantox product line and the company's SmartLink
product line. The decrease in 1997 from 1996 was due to substantially lower
costs for the company's board level products and the company's Model S600
parametric test system which was substantially complete in 1997, offset somewhat
by increased costs for development of new benchtop instrument products and
exploration of new business opportunities.
On August 10, 1998, the company sold certain assets used in the operation of its
Radiation Measurements Division to Inovision Radiation Measurements, L.L.C. The
sale
<PAGE> 7
was effective July 31, 1998, and resulted in a gain of $2,852 pretax, or
$.22 per share. (See Note B.)
An analysis of special charges is as follows:
<TABLE>
<CAPTION>
Accrued at
Expense September 30,
DESCRIPTION: 1998 1997 1996 1998 1997
- ----------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Write off of goodwill $ 519 $ -- $ 5,737 $ -- $ --
Severance, outplacement and
other personnel costs 290 (291) 3,433 24 222
Lease and related costs 280 (525) 998 248 3
Impaired inventory and equipment 122 49 835 -- --
Relocation of facility and employees 25 1,073 -- -- --
Recruiting and consulting costs -- 187 -- -- --
Manufacturing start-up costs -- 282 -- -- --
European operating subleases (64) (4) 642 540 574
------- ------- ------- ------- -------
Totals $ 1,172 $ 771 $11,645 $ 812 $ 799
======= ======= ======= ======= =======
</TABLE>
Due to continued weakness in the semiconductor capital equipment
industry, the company incurred special charges in 1998 for cost reduction
actions taken in the second quarter relative to its semiconductor business.
Also, the company decided to change the methodology of pursuing its WLR
business, which was part of the 1996 acquisition of Turner Engineering
Technology. As a result of this decision, the company reviewed the carrying
value of the goodwill using the estimated future cash flow method and determined
that the goodwill was impaired. 1998 special charges include $519 for the
write-off of the remaining balance of the goodwill. Additionally, the company
decided to further consolidate its manufacturing operations. As a result,
special charges in 1998 include lease costs accrued for one year on a leased
facility the company will no longer occupy. The reversal of European operating
subleases represents a change in circumstances in 1998. The special charges
recorded during 1998 of $1,172 pretax, or $.09 per share, include $551 in
noncash charges. 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 that occurred during 1997. $256 of the gross expense represents a
noncash charge to reserve for additional impaired inventory. In September 1996,
management made the decision to relocate the Keithley MetraByte operation to its
Cleveland, Ohio facility due
<PAGE> 8
to a lack of growth in sales and poor earnings. The relocation was completed in
July 1997, and during 1998, the Keithley MetraByte operation was combined with
the company's Instruments group to form the Test and Measurement business unit.
Special charges of $11,645 pretax, or $1.27 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. Approximately 130 employees were terminated in total as a result of the
relocation, 40 of which were terminated by September 30, 1996. Also included in
special charges recorded in 1996 is an accrual for costs to be incurred over the
next 11 years under two operating subleases at the company's European
facilities. At September 30, 1998 and 1997, $272 and $249, respectively, were
accrued in the Consolidated Balance Sheet under the category "Other accrued
expenses" and $540 and $550, respectively, were accrued under the category
"Other long-term liabilities."
Net financing expenses of $1,040 decreased $105 from $1,145 in 1997. 1997's
expense increased $326 from $819 in 1996. The fluctuations are due to changes in
average debt levels during the periods.
The effective tax rate for 1998 was 38.9 percent and reflects an adjustment for
prior years' taxes. The effective tax rate for 1997 was 34.7 percent. In 1997,
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. At September 30, 1998, the
company had tax credit carryforwards of $2,164.
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 pricing policies of the company
<PAGE> 9
and its competition, whether competition is foreign or U.S. based, changes in
technology and local and worldwide economic conditions.
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 and for 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 1998, net cash provided by operating activities was $13,033 and cash received
from the sale of a business was $8,683. Cash was used to pay down debt by
$11,330, purchase $2,753 of property, plant and equipment and pay $907 in
dividends. Total cash of $9,321 at September 30, 1998, increased $7,594 from
September 30, 1997. The company plans to use the cash, as well as the proceeds
received from the sale of its Quantox product line in November 1998, to fund a
stock repurchase program also announced in November 1998. (See Note L.) Total
debt of $6,099 at September 30, 1998 decreased substantially from $17,458 at
September 30, 1997, and the debt-to-capital ratio at year-end was 13.6 percent
versus 34.8 percent at the end of fiscal 1997. Additionally, working capital
decreased due to lower sales volume and improved inventory turns.
The company's credit agreement, which expires March 28, 2002, is a $25,000 debt
facility ($6,099 outstanding at September 30, 1998) that 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% and
.20% on the total amount of the commitment. Additionally, the company has a
number of other credit facilities in various currencies aggregating $5,616.
At September 30, 1998, the company had total unused lines of credit with
domestic and foreign banks aggregating $24,517, including short-term and
long-term lines of credit of $5,616 and $18,901, 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 due in
2002.
<PAGE> 10
During 1999, the company expects to finance capital spending, working capital
requirements and the stock repurchase program with cash on hand, cash provided
by operations and proceeds from the sale of the Quantox product line. 1999
capital expenditures are expected to approximate the 1998 levels.
OUTLOOK
Over the past several years the company has spent a substantial amount of
resources to develop new products and businesses. The goal management set and
met during 1998 was to bring each of these businesses to break-even levels. With
the sale of the Radiation Measurements Division in August 1998 and the Quantox
product line in the first quarter of fiscal 1999, the company is now able to
focus on serving targeted high growth industries with measurement based
solutions composed of products and applications staff that are highly
interrelated. With a more concentrated portfolio, the company believes it will
be able to leverage technology and resources across applications and product
lines. This strategy is driving the company toward a business model that
requires less spending and higher profits while measuring success by some growth
in sales, but greater growth in earnings. However, due to the softness in
current order rates and the continuing recession in the semiconductor capital
equipment markets, management is cautious over the short term.
During the first quarter of fiscal 1999, the company expects to recognize $.35
to $.40 per share, before giving effect to the stock repurchase tender offer,
for the sale of the Quantox product line. (See Note L.)
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 financial performance, 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 are sold into the semiconductor industry. Growth in
demand for semiconductors, new technology and pricing drive the demand for new
semiconductor
<PAGE> 11
capital equipment. Throughout much of the past two years, the order growth of
this industry has contracted which adversely affected revenues of the company.
If this trend continues, future revenues could also be adversely affected.
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 before knowing whether its expectations will eventually result in
products that achieve market acceptance. The company incurs significant expenses
developing new products that may or may not result in significant sources of
revenue and earnings in the future.
In many cases the company's products compete directly with those offered by
other manufacturers. If any of the company's competitors were to develop
products or services that are more cost-effective or technically superior,
demand for the company's product offerings could slow.
The company currently has ten subsidiaries or sales offices located outside the
United States, and non-U.S. sales made up almost half of the company's revenue
in fiscal 1998. The company's future results could be adversely affected by
several factors, including the length and severity of the Asian financial
crisis, 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.
The company recognizes the need to ensure that Year 2000 hardware and software
issues will not adversely impact its operations. With regard to the company's
own information systems, a substantial portion of Year 2000 information
technology compliance will be achieved in connection with the company's ongoing
program to upgrade its key information and operational systems. The company
believes that all key systems that are not already Year 2000 compliant will be
modified, upgraded or replaced prior to the year 2000, and that any related
costs will not have a material impact on the results of operations, financial
condition or cash flows of future periods. Certain of the company's hardware and
software products purchased by customers or currently being sold to customers
will require upgrade or other remediation to become Year 2000 compliant. Based
on an internal assessment of these products, the company does not believe that
the
<PAGE> 12
cost to modify these products for Year 2000 compliance will have a material
effect on the results of operations, financial condition or cash flows of future
periods. Lastly, the company is seeking to determine if the information systems
of its major suppliers (insofar as they relate to the company's business) comply
with Year 2000 requirements. The company has not yet fully determined the extent
to which its business may be impacted by third parties whose products and
services may not be ready for the year 2000. If it is determined that any third
party may not be ready, the company will develop a contingency plan. While
management does not expect that the failure of any third party to be fully
compliant by 2000 would significantly affect results of operations, financial
condition or cash flows of future periods, there can be no assurance that any
such failure will not have an adverse effect on the company's operations.
The company is in the process of modifying its systems to accommodate the Euro
currency by January 1, 1999. The cost of these modifications is immaterial to
the company's results of operations. Although difficult to predict, any
competitive implications and any impact on existing financial instruments are
also expected to be immaterial to the company's results of operations, financial
condition or cash flows of future periods.
<PAGE> 13
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 electrical measurement-based solutions to the
wireless communications, semiconductor and electronic components 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> 14
INTANGIBLE ASSETS
Intangible assets relate to business acquisitions and are amortized on a
straight-line basis over their estimated useful lives. 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. During 1998, the company wrote off the remaining goodwill
associated with its 1996 acquisition of Turner Engineering Technology. (See note
C.) At September 30, 1998, there were no intangible assets remaining on the
Consolidated Balance Sheet.
OTHER ACCRUED EXPENSES
Included in the "Other accrued expenses" caption of the Consolidated
Balance Sheet at September 30, 1998 and 1997, were $1,599 and $2,496,
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, 1998 and 1997, were Common Shares
repurchased to settle non-employee Directors' fees deferred pursuant to the
Keithley Instruments, Inc. 1996 Outside Directors Deferred Stock Plan.
On November 11, 1998, the company announced it would commence a tender
offer to purchase up to 2,000,000 of its Common Shares. (See Note L.)
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, 1998, 1997 and 1996.
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
<PAGE> 15
the reported financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share." The
Company adopted this standard in 1998. All per share amounts have been restated
in accordance with the new standard.
Both Common Shares and Class B Common Shares are included in calculating
earnings per share. The weighted average number of shares outstanding used in
the calculation is set forth below:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Basic 7,799,507 7,588,094 7,360,412
Diluted 8,065,289 7,866,750 7,360,412
</TABLE>
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 revenues 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 is 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> 16
OTHER ACCOUNTING PRONOUNCEMENTS
In March 1998, the Accounting Standards Executive Committee issued
Statement of Position 98-1 "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use" (SOP 98-1). This Statement requires
expenses incurred during the application development stage of a software
implementation project to be capitalized and amortized over the useful life of
the project. SOP 98-1 is required to be adopted in the company's fiscal year
ending September 30, 2000. Application of this standard is not expected to have
a material impact on the results of the company.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (SFAS 133). This Statement requires that an entity
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. SFAS 133 is
required to be adopted in the company's first quarter of its fiscal year ending
September 30, 2000. The company has not yet determined the financial statement
impact of this Statement.
<PAGE> 17
NOTE B - SALE OF ASSETS
On August 10, 1998, the company sold certain assets used in the
operation of its Radiation Measurements Division (RMD) to Inovision Radiation
Measurements, L.L.C. for $8,215 in cash. Additionally, the company received $468
for certain liabilities incurred in the operation of RMD that were not assumed
by the buyer. The agreement, which was effective July 31, 1998, included the
sale of RMD's inventory, accounts receivable, machinery, equipment and other
tangible personal property, and intangible assets including patents and
technology. The sale resulted in a pretax gain of $2,852, or $.22 per share.
<PAGE> 18
NOTE C - SPECIAL CHARGES
An analysis of special charges recorded in the Consolidated Statement
of Income in 1998, 1997 and 1996, and the amount accrued in the Consolidated
Balance Sheet at September 30, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
Accrued at
Expense September 30,
DESCRIPTION: 1998 1997 1996 1998 1997
- ----------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Write off of goodwill $ 519 $ -- $ 5,737 $ -- $ --
Severance, outplacement and
other personnel costs 290 (291) 3,433 24 222
Lease and related costs 280 (525) 998 248 3
Impaired inventory and equipment 122 49 835 -- --
Relocation of facility and employees 25 1,073 -- -- --
Recruiting and consulting costs -- 187 -- -- --
Manufacturing start-up costs -- 282 -- -- --
European operating subleases (64) (4) 642 540 574
------- ------- ------- ------- -------
Totals $ 1,172 $ 771 $11,645 $ 812 $ 799
======= ======= ======= ======= =======
</TABLE>
Due to continued weakness in the semiconductor capital equipment
industry, the company incurred special charges in 1998 for cost reduction
actions taken in the second quarter relative to its semiconductor business.
Also, the company decided to change the methodology of pursuing its WLR
business, which was part of the 1996 acquisition of Turner Engineering
Technology. As a result of this decision, the company reviewed the carrying
value of the goodwill using the estimated future cash flow method and determined
that the goodwill was impaired. 1998 special charges include $519 for the
write-off of the remaining balance of the goodwill. Additionally, the company
decided to further consolidate its manufacturing operations. As a result,
special charges in 1998 include lease costs accrued for one year on a leased
facility the company will no longer occupy. The reversal of European operating
subleases represents a change in circumstances in 1998. The special charges
recorded during 1998 of $1,172 pretax, or $.09 per share, include $551 in
noncash charges.
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 that occurred during 1997. $256 of the gross expense represents a
noncash charge to reserve for additional impaired inventory. In September 1996,
management made the decision to relocate the Keithley MetraByte operation to its
Cleveland, Ohio facility due to a lack of growth in sales and poor earnings. The
relocation was completed in July 1997, and during 1998, the Keithley MetraByte
operation was combined with the company's Instruments group to form the Test and
Measurement business unit.
<PAGE> 19
Special charges of $11,645 pretax, or $1.27 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. Approximately 130 employees were terminated in total as a result of the
relocation, 40 of which were terminated by September 30, 1996. Also included in
special charges recorded in 1996 is an accrual for costs to be incurred over the
next 11 years under two operating subleases at the company's European
facilities.
At September 30, 1998 and 1997, $272 and $249, respectively, were
accrued in the Consolidated Balance Sheet under the category "Other accrued
expenses" and $540 and $550, respectively, were accrued under the category
"Other long-term liabilities."
<PAGE> 20
NOTE D - FINANCING ARRANGEMENTS
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------
1998 1997
---- ----
Long-term debt:
Revolving loans with various banks with interest
due monthly; principal due March 28, 2002:
<S> <C> <C>
U.S. dollar denominated loans with an interest
rate of 6.4% and 6.0% based on LIBOR
September 30, 1998 and 1997, respectively $ 5,500 $ 14,000
U.S. dollar denominated loans with an interest
rate of 8.25% and 8.5% based on Prime at
September 30, 1998 and 1997, respectively -- 600
Deutsche mark denominated loans with an interest
rate of 3.8% based on FIBOR 599 2,842
Obligations under capital leases -- 16
----------- --------
6,099 17,458
Less-Current installments on long-term debt -- 16
----------- ---------
Total long-term debt $ 6,099 $ 17,442
======== =======
</TABLE>
The company's credit agreement, which expires March 28, 2002, is a $25,000
debt facility ($6,099 outstanding at September 30, 1998) that 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% and .20% on the total amount of the commitment. Additionally, the company
has a number of other credit facilities in various currencies aggregating
$5,616.
At September 30, 1998, the company had total unused lines of credit with
domestic and foreign banks aggregating $24,517, including short-term and
long-term lines of credit of $5,616 and $18,901, 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 due in
2002.
The LIBOR interest rate was 5.7 percent at September 30, 1998 and 1997.
The FIBOR interest rate was 3.5 percent and 3.3 percent at September 30, 1998
and 1997, respectively.
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 6.6 percent, and expires June
<PAGE> 21
17, 2002. The second agreement effectively fixes the interest rate on another
notional $3,000 of variable LIBOR rate debt at 6.7 percent, and expires
September 19, 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, 1998 interest rate levels, the swaps require the company to
make payments to the bank and would cost the company approximately $405 to
terminate.
Following is an analysis of net financing expenses:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Interest expense $ 1,137 $ 1,315 $ 957
Investment income (97) (170) (138)
------- ------- -------
$ 1,040 $ 1,145 $ 819
======= ======= =======
</TABLE>
<PAGE> 22
NOTE E - 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 $(138), $95 and $91 for 1998, 1997 and 1996, respectively.
At September 30, 1998, the company had obligations under foreign exchange
forward contracts to sell 2,100,000 Deutsche marks, 170,000 British pounds,
2,200,000 French francs at various dates through December 1998. The total U.S.
dollar equivalent amount of these foreign exchange contracts of $1,849 includes
an unrecognized loss of $91 at September 30, 1998.
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 1,500,000 Deutsche marks at a
rate of 1.87 per U.S. dollar and the obligation, if called, to deliver 1,500,000
Deutsche marks at a rate of 1.736 per U.S. dollar. The options expire in
November 1998. At September 30, 1998, the option amounts were in excess of the
anticipated revenue they were intended to hedge, and therefore, the Consolidated
Statement of Income includes a loss of $34 related to the value of the options.
<PAGE> 23
NOTE F - 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>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Service cost-benefits earned during the period $ 945 $ 733 $ 652
Interest cost on projected benefit obligation 1,356 1,192 1,048
Actual return on assets (3,791) (3,470) (2,471)
Net amortization and deferral 2,073 2,115 1,328
------- ------- -------
Net periodic pension cost $ 583 $ 570 $ 557
======= ======= =======
</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, 1998 and 1997:
<TABLE>
<CAPTION>
Non-U.S.
United States Plan Plan
Overfunded Underfunded*
--------------------- ------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation $ 13,105 $ 11,459 $ 3,181 $ 1,694
======== ======== ======== ========
Accumulated benefit obligation $ 14,480 $ 12,094 $ 3,307 $ 1,917
======== ======== ======== ========
Projected benefit obligation $ 16,999 $ 14,763 $ 4,098 $ 2,777
Plan assets at fair value $ 23,500 $ 19,474 $ 655 $ 498
-------- -------- -------- --------
Projected benefit obligation (in excess of)
or less than plan assets $ 6,501 $ 4,711 $ (3,443) $ (2,279)
Unrecognized net (gain) loss (5,146) (3,824) 474 (331)
Unrecognized prior service cost 1,470 1,149 63 64
Unrecognized initial net (asset) obligation (314) (358) 201 211
-------- -------- -------- --------
Prepaid pension assets (pension liability)
recognized in the Consolidated Balance
Sheet $ 2,511 $ 1,678 $ (2,705) $ (2,335)
======== ======== ======== ========
</TABLE>
* The company has purchased indirect insurance of $2,776 which is expected
to be available to the company as non-U.S. pension liabilities of $2,705
mature. The caption, "Other assets," on the company's Consolidated Balance
Sheet includes $2,776 and $2,409 at September 30, 1998 and 1997,
respectively, for this asset. In accordance with Statement of
<PAGE> 24
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>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
United States Pension Plan:
Discount rates 7.25% 7.5% 7.5%
Expected long-term rate of return on plan assets 8.25% 8.5% 8.5%
Rate of increase in compensation levels 5.0% 5.5% 5.5%
Non-U.S. Pension Plan:
Discount rates 6.0% 6.25% 6.5%
Expected long-term rate of return on plan assets 7.0% 7.0% 7.0%
Rate of increase in compensation levels 4.0% 3.5% 3.5%
</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.
The sale of the Radiation Measurements Division's assets resulted in the
termination of essentially all the Division's employees. As a result, the
company recognized a gain for pension curtailment of $410 in 1998. The gain is
included in the "Gain on sale of business" caption on the company's Consolidated
Statement of Income. (See Note B.)
In addition to the defined benefit pension plan, the company also
maintains a retirement plan for all of its eligible 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 $443,
$403 and $388 in 1998, 1997 and 1996, respectively.
The company also has an unfunded supplemental executive retirement plan
(SERP) for former key employees which includes retirement, death and disability
benefits. Expense (income) recognized for these benefits was $12, $(3) and $102,
for 1998, 1997 and 1996, respectively. The income recognized during 1997 was due
to an officer taking early retirement
<PAGE> 25
causing a reversal of previously accrued expense. Liabilities of $345 and $489
were accrued in the "Other long-term liabilities" caption on the company's
Consolidated Balance Sheet to meet all SERP obligations at September 30, 1998
and 1997, respectively.
<PAGE> 26
NOTE G - 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 of the Board of Directors
administers the plans. Incentive stock options granted under the plans can not
be less than the fair market price at the date of the grant with an exercise
period not to exceed ten years. Such grants generally become exercisable over a
four year period. The option price under nonqualified stock options 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.
The 1997 Directors' Stock Option 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. 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. All options outstanding at the time
of termination of the plans shall continue in full force and effect in
accordance with their terms. 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> 27
The activity under all option plans 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, 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
Options granted at fair market value 280,050 5.70
Options granted above fair market value 38,204 10.18
Options granted below fair market value 30,322 4.83
Options exercised (111,228) 5.37
Options forfeited (264,011) 9.47
--------------------------------------------------------------
September 30, 1998 1,376,869 $ 8.44 707,844 $ 7.93
==============================================================
</TABLE>
The options outstanding at September 30, 1998 have been segregated into
ranges for additional disclosure as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------- ----------------------------------
Outstanding Exercisable
- ----------------------- ----------------- ---------------- ----------------- ---------------- -----------------
Weighted Average
Remaining Weighted Average Weighted Average
Range of Exercise Number of Shares Contractual Exercise Number of Shares Exercise
Prices Outstanding Life Price Exercisable Price
- ----------------------- ----------------- ---------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C> <C>
$4.00 - $5.00 224,449 4.93 years $ 4.75 224,449 $ 4.75
$5.06 286,682 8.99 years $ 5.06 51,532 $ 5.06
$5.19 - $9.06 156,238 4.44 years $ 6.97 155,088 $ 6.97
$9.25 257,700 7.40 years $9.25 139,100 $ 9.25
$9.88 - $12.75 264,100 8.96 years $11.35 1,500 $12.75
$13.69 - $15.69 187,700 6.73 years $14.02 136,175 $13.93
- ----------------------- ----------------- ---------------- ----------------- ---------------- -----------------
1,376,869 7.20 years $ 8.44 707,844 $ 7.93
- ----------------------- ----------------- ---------------- ----------------- ---------------- -----------------
</TABLE>
<PAGE> 28
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.
Non-U.S. 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 1998 and 1997, 108,602 and 94,227 shares had been purchased by
employees at prices of $7.38 and $7.86 per share, respectively.
PRO FORMA DISCLOSURE
As of September 30, 1998, the company had various stock-based
compensation plans that 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 1998 and 1997, $260 and $187, respectively,
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 1998, 1997 and 1996 was $2.29, $4.97 and $4.34, respectively. The fair
value of options at the date of grant was estimated using the Black-Scholes
model with the following weighted average assumptions:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Expected life (years) 4.4 5.0 4.6
Risk-free interest rate 4.8% 6.0% 6.4%
Volatility 41.5% 41.5% 41.5%
Dividend yield 1.3% 1.3% 1.3%
</TABLE>
<PAGE> 29
The weighted average fair value of purchase rights granted under the 1993
Employee Stock Purchase Plan in 1998, 1997 and 1996 was $2.95, $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>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Expected life (years) 1.0 1.0 1.0
Risk-free interest rate 5.1% 5.5% 4.9%
Volatility 41.5% 41.5% 41.5%
Dividend yield 1.3% 1.3% 1.3%
</TABLE>
The pro forma impact to both net income and earnings per share from
calculating stock-related compensation expense consistent with the fair value
alternative of SFAS 123 is indicated below:
<TABLE>
<CAPTION>
1998 1997 1996
------- ---- -------
<S> <C> <C> <C>
Pro forma net income (loss) $4,226 $214 $(5,704)
Pro forma earnings (loss) per share:
Basic $0.54 $.03 $(0.77)
Diluted $0.52 $.03 $(0.77)
</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. SFAS
123 is applicable only to awards made after fiscal 1995.
<PAGE> 30
NOTE H - INCOME TAXES
For financial reporting purposes, income (loss) before income taxes
includes the following components:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
United States $4,923 $ (892) $(9,383)
Non-U.S. 3,266 2,103 3,059
------ ------ -------
$8,189 $1,211 $(6,324)
====== ====== =======
The provision (benefit) for income taxes is as follows:
1998 1997 1996
---- ---- ----
Current:
Federal $1,416 $ 275 $ 1,330
Non-U.S. 1,622 1,091 1,513
State and local 169 195 45
------ ------ -------
Total current 3,207 1,561 2,888
------ ------ -------
Deferred:
Federal 310 (1,124) (3,800)
Non-U.S. (332) (16) 28
------ ------ -------
Total deferred (22) (1,140) (3,772)
------ ------ -------
Total provision (benefit) $3,185 $ 421 $ (884)
====== ====== =======
</TABLE>
Differences between the statutory United States federal income tax and the
effective income tax rates are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Federal income tax at statutory rate $2,784 $ 412 $(2,150)
State and local income taxes 111 129 30
Tax on non-U.S. income and tax credits (333) (945) (884)
Non-deductible amortization -- -- 2,123
Terminated life insurance contract -- 877 --
Adjustment for prior years' taxes 480 -- --
Other 143 (52) (3)
------ ------ -------
Effective income tax (benefit) $3,185 $ 421 $ (884)
====== ====== =======
</TABLE>
<PAGE> 31
Significant components of the company's deferred tax assets and
liabilities as of September 30, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
DEFERRED TAX ASSETS: 1998 1997
- -------------------- ---- ----
<S> <C> <C>
Capitalized research and development $5,707 $6,589
Depreciation 949 680
Warranty 627 494
Intangibles 965 832
State and local taxes 1,685 1,471
Alternative minimum tax credit carryforwards 1,151 1,276
Deferred compensation 693 558
Inventory 1,673 1,597
General business credit carryforwards 1,013 1,058
Other 1,203 919
------ ------
Total deferred tax assets 15,666 15,474
------ ------
Valuation allowance for deferred tax assets (3,127) (3,166)
------ ------
12,539 12,308
------ ------
DEFERRED TAX LIABILITIES:
Pension contribution 768 818
Other 429 170
------ --------
Total deferred tax liabilities 1,197 988
------ --------
Net deferred tax assets $11,342 $ 11,320
======= ========
</TABLE>
The valuation allowance relates to tax credit carryforwards and certain
state tax benefits which will likely not be realized. The current year decrease
relates primarily to tax credits and capital loss carryovers.
At September 30, 1998, the Company had tax credit carryforwards as
follows:
<TABLE>
<CAPTION>
Year Expiration
Commences
---------------
<S> <C> <C>
General business credit $1,013 2005
Alternative minimum tax credit 1,151 Indefinite
</TABLE>
<PAGE> 32
NOTE I - LEASES
The company leases certain equipment under capital leases. Manufacturing,
laboratory and office equipment includes $495 and $526 of leased equipment at
September 30, 1998 and 1997, respectively. Accumulated depreciation includes
$483 and $510 at September 30, 1998 and 1997, 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 $95 in 1998, $84 in 1997 and $245 in 1996) for 1998,
1997 and 1996 was $2,165, $2,658 and $2,178, respectively. Future minimum lease
payments under operating leases are:
<TABLE>
<S> <C> <C>
1999 $1,971
2000 1,763
2001 1,313
2002 775
2003 551
After 2003 2,103
------
Total minimum operating lease payments $8,476
======
</TABLE>
<PAGE> 33
NOTE J - 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>
1998 1997 1996
---- ---- ----
NET SALES, INCLUDING INTERCOMPANY SALES:
<S> <C> <C> <C>
United States (1) $100,818 $106,217 $ 98,232
Europe 33,694 31,606 37,799
Intercompany (16,736) (14,528) (17,085)
-------- -------- --------
Net sales $117,776 $123,295 $118,946
======== ======== ========
INCOME (LOSS) BEFORE INCOME TAXES (2):
United States $ 7,024 $ 1,889 $ (7,372)
Europe 3,415 2,236 3,180
Adjustments/eliminations (64) (219) (34)
-------- -------- --------
10,375 3,906 (4,226)
-------- -------- --------
Corporate expenses (1,146) (1,550) (1,279)
Net financing expenses (1,040) (1,145) (819)
-------- -------- --------
Income (loss) before income taxes $ 8,189 $ 1,211 $ (6,324)
======== ======== ========
IDENTIFIABLE ASSETS:
United States $ 40,798 $ 61,264 $ 54,507
Europe 10,529 9,120 9,720
Adjustments/eliminations (1,955) (4,979) (5,651)
-------- -------- --------
49,372 65,405 58,576
Corporate assets 21,645 13,708 15,258
-------- -------- --------
Total assets $ 71,017 $ 79,113 $ 73,834
======== ======== ========
</TABLE>
(1) U.S. sales include $23,429, $24,186 and $21,295 in export sales to markets
other than Europe in 1998, 1997 and 1996, respectively.
(2) 1998 income before income taxes includes $2,852 in the U.S. for the gain on
the sale of a business. 1998, 1997 and 1996 income (loss) before income taxes
includes special charges (benefit) of $1,236, $775 and $11,003 in the U.S., and
$(64), $(4) and $642 in Europe, respectively. (See Note C.)
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> 34
NOTE K - 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.
NOTE L - SUBSEQUENT EVENTS
On November 9, 1998, the company sold certain assets used in the operation
of its Quantox oxide monitoring product line to KLA-Tencor Corporation. The
asset categories include inventory, machinery, equipment and other tangible
personal property. The sale was effective as of October 31, 1998. The Quantox
product line accounted for approximately 10 percent of the company's fiscal 1998
net sales. The gain on the sale, which will be recorded in the company's first
quarter of fiscal 1999, is expected to be $0.35 to $0.40 per share, before
giving effect to the stock repurchase tender offer discussed below.
On November 12, 1998, the company commenced a tender offer to purchase
up to 2,000,000 of its Common Shares, or approximately 40 percent of Common
Shares outstanding (25 percent of Class B and Common Shares). The offer was
conducted through a procedure commonly known as a "Dutch Auction" in which
shareholders could tender their shares at prices not in excess of $7.00 nor less
than $5.75 per share. The offer will expire on December 10, 1998, unless
extended by the company. Additionally, the company intends to implement an
ongoing open market stock repurchase program.
<PAGE> 35
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, 1998 and 1997,
and the results of their operations and their cash flows for each of the three
years in the period ended September 30, 1998, 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.
PricewaterhouseCoopers LLP
Cleveland, Ohio
November 23, 1998
<PAGE> 36
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,
PricewaterhouseCoopers 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 PricewaterhouseCoopers 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 Mark J. Plush
Chairman, President Vice President and Chief
and Chief Executive Officer Financial Officer
<PAGE> 37
Stock Market Price and Cash Dividends
The company's Common Shares trade on the New York 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. There is no established public
trading market for the company's Class B Common Shares; however, they are
readily convertible on a one-for-one basis into Common Shares.
<TABLE>
<CAPTION>
Cash Dividends
Cash Dividends Per Class B
Fiscal 1998 High Low Per Common Share Common Share
- ----------- ---- --- ---------------- ------------
<S> <C> <C> <C> <C>
First Quarter $12 3/8 $8 1/8 $ .031 $ .025
Second Quarter 9 1/2 7 1/2 .031 .025
Third Quarter 8 9/16 7 5/16 .031 .025
Fourth Quarter 7 6/16 5 .031 .025
Fiscal 1997
- -----------
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
</TABLE>
<PAGE> 38
Unaudited Quarterly Results of Operations
(In Thousands of Dollars Except for Per-Share Data)
<TABLE>
<CAPTION>
First Second Third Fourth
----- ------ ----- ------
<S> <C> <C> <C> <C>
Fiscal 1998
- -----------
Net sales $ 31,623 $ 29,696 $ 28,578 $ 27,879
Gross profit 18,584 16,688 16,443 15,729
Gain on sale of business -- -- -- 2,852
Income before income taxes (1) (2) 1,636 1,162 996 4,395
Net income (1) (2) (3) 1,096 779 667 2,462
Diluted earnings per share (1) (2) (3) .14 .10 .08 .31
FISCAL 1997
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
Diluted earnings (loss) per share (1) (2) (.11) (.04) .10 .15
(1) Includes special charges as follows:
1998 Special charges pretax $ -- $ 335 $ -- $ 837
1998 Special charges per share -- .03 -- .06
1997 Special charges pretax 58 375 306 32
1997 Special charges per share -- .03 .02 --
</TABLE>
(2) The third and fourth quarter of fiscal 1998 include pretax charges of
$663, or $.06 per share, and $547, or $.03 per share, respectively, for
severance and other officer retirement expenses. The fourth quarter of
fiscal 1998 includes pretax income of $2,852, or $.22 per share, for the
gain on the sale of a business. The fourth quarter of fiscal 1997 includes
pretax charges of $512, or $.04 per share, for officer retirement
expenses.
(3) The fourth quarter of fiscal 1998 includes a charge for prior years' taxes
of $480, or $.06 per share.
<PAGE> 39
Eleven Year Summary
(In Thousands Of Dollars Except For Per-Share Data)
<TABLE>
<CAPTION>
For the year ended September 30, 1998 1997 1996 1995 1994 1993(c)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Operating Results
Net sales $ 117,776 123,295 118,946 109,574 89,248 91,146
Income (loss) before income taxes and
cumulative effect of accounting change 8,189 1,211 (6,324) 6,422 124 5,530
Net income (loss) 5,004 790 (5,440) 4,914 907 4,784
Basic earnings (loss) per share (a) 0.64 0.10 (0.74) 0.68 0.13 0.68
Diluted earnings (loss) per share (a) (b) 0.62 0.10 (0.74) 0.66
Common Stock Information (a)
Cash dividends per Common Share 0.125 0.125 0.125 0.106 0.100 0.100
Cash dividends per Class B Common Share 0.100 0.100 0.100 0.085 0.080 0.080
Weighted average number of shares
outstanding- diluted (in thousands) (b) 8,065 7,867 7,360 7,476 7,088 7,061
At fiscal year-end:
Dividend payout ratio (e) 19.5% 125.0% -- 15.6% 76.9% 14.7%
Price/earnings ratio (e) 8.2 120.0 -- 23.3 40.4 7.4
Shareholders' equity per share $ 4.92 4.26 4.26 5.11 4.50 4.45
Closing market price $ 5.063 12.000 8.875 14.938 5.250 5.000
Balance Sheet Data
Total assets $ 71,017 79,113 73,834 66,109 54,410 52,413
Current ratio 1.9 1.9 1.7 2.0 1.9 2.2
Total debt $ 6,099 17,458 13,369 6,113 4,816 6,518
Total debt-to-capital 13.6% 34.8% 29.6% 14.2% 13.1% 17.2%
Shareholders' equity $ 38,742 32,683 31,756 36,902 31,946 31,415
Other Data
Return on average shareholders' equity 14.0% 2.5% -15.8% 14.3% 2.9% 16.0%
Return on average total assets 6.7% 1.0% -7.8% 8.2% 1.7% 9.1%
Return on net sales 4.2% 0.6% -4.6% 4.5% 1.0% 5.2%
Number of employees 564 693 716 659 625 625
Sales per employee $ 187.4 175.0 173.0 170.7 142.8 139.8
Cash flow
Noncash charges to income (d) $ 4,709 3,390 7,064 2,573 1,346 1,849
Net cash provided by (used in) operating activities $ 13,033 (1,011) 2,600 2,457 6,641 6,289
Ten-year compound annual growth rate
Net sales 5.0% 7.9% 9.6% 8.8% 7.0% 10.0%
Net income (e) -0.8% -13.3% -- 5.7% -14.2% 9.1%
<CAPTION>
For the year ended September 30, 1992 1991 1990 1989 1988
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating Results
Net sales 94,666 99,497 100,593 88,728 72,282
Income (loss) before income taxes and
cumulative effect of accounting change (10,420) 6,816 5,675 7,311 8,204
Net income (loss) (12,453) 4,233 3,378 4,131 5,414
Basic earnings (loss) per share (a) (1.77) 0.60 0.48 0.59 0.78
Diluted earnings (loss) per share (a) (b)
Common Stock Information (a)
Cash dividends per Common Share 0.100 0.094 0.089 0.082 0.058
Cash dividends per Class B Common Share 0.080 0.075 0.071 0.066 0.046
Weighted average number of shares
outstanding- diluted (in thousands) (b) 7,046 7,026 7,014 6,994 6,974
At fiscal year-end:
Dividend payout ratio (e) -- 15.7% 18.5% 13.9% 7.4%
Price/earnings ratio (e) -- 10.1 8.5 11.0 11.5
Shareholders' equity per share 4.05 5.85 5.40 4.88 4.37
Closing market price 4.563 6.063 4.063 6.500 8.938
Balance Sheet Data
Total assets 53,160 66,637 69,205 69,917 46,602
Current ratio 2.3 2.1 2.3 2.7 2.4
Total debt 8,978 10,506 16,562 22,419 2,027
Total debt-to-capital 23.9% 20.3% 30.4% 39.6% 6.2%
Shareholders' equity 28,530 41,129 37,870 34,216 30,518
Other Data
Return on average shareholders' equity -35.8% 10.7% 9.4% 12.7% 19.0%
Return on average total assets -20.8% 6.2% 4.9% 7.1% 11.9%
Return on net sales -13.2% 4.3% 3.4% 4.7% 7.5%
Number of employees 679 716 750 742 579
Sales per employee 135.7 135.7 134.8 134.3 131.2
Cash flow
Noncash charges to income (d) 15,185 4,325 6,649 4,234 3,062
Net cash provided by (used in) operating activities 4,475 9,399 9,111 4,592 6,812
Ten-year compound annual growth rate
Net sales 11.1% 12.8% 13.7% 16.4% 17.9%
Net income (e) -- 39.7% 10.4% 12.5% 21.2%
</TABLE>
(a) Share data adjusted for two-for-one stock split in November 1995.
(b) Represents diluted shares for 1995 - 1998 and basic shares prior to 1995.
(c) Includes a benefit for the cumulative effect of adopting FAS 109 of $1,447
or $.21 per share.
(d) Noncash charges to income include depreciation, amortization, deferred
compensation, deferred taxes, noncash special charges and the cumulative
effect of adopting FAS 109.
(e) These ratios are not meaningful in 1992 and 1996 due to reported net
losses.
<PAGE> 1
Exhibit 21
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
3 Allee des Garays, BP 60
91122 Palaiseau Cedex
GERMANY: Keithley Instruments GmbH
Landsberger Strasse 65
D-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
Exhibit 23
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 23, 1998 appearing on page 32 of the Annual Report to
Shareholders which is incorporated by reference 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 18 of this Form 10-K.
PricewaterhouseCoopers LLP
Cleveland, Ohio
December 21, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 9,321
<SECURITIES> 0
<RECEIVABLES> 18,290
<ALLOWANCES> 704
<INVENTORY> 11,650
<CURRENT-ASSETS> 42,327
<PP&E> 39,334
<DEPRECIATION> 24,723
<TOTAL-ASSETS> 71,017
<CURRENT-LIABILITIES> 21,887
<BONDS> 6,099
0
0
<COMMON> 197
<OTHER-SE> 38,545
<TOTAL-LIABILITY-AND-EQUITY> 71,017
<SALES> 117,776
<TOTAL-REVENUES> 117,776
<CGS> 50,332
<TOTAL-COSTS> 50,332
<OTHER-EXPENSES> 13,139
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,040
<INCOME-PRETAX> 8,189
<INCOME-TAX> 3,185
<INCOME-CONTINUING> 5,004
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,004
<EPS-PRIMARY> 0.64
<EPS-DILUTED> 0.62
</TABLE>
