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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-9965
KEITHLEY INSTRUMENTS, INC.
(Exact name of registrant as specified in its charter)
OHIO 34-0794417
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
28775 AURORA ROAD, SOLON, OHIO 44139
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (440) 248-0400
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
----- -----
As of February 2, 1998 there were outstanding 5,041,690 Common Shares,
without par value, and 2,785,378 Class B Common Shares, without par value.
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PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements.
KEITHLEY INSTRUMENTS, INC.
CONSOLIDATED BALANCE SHEET
(In Thousands of Dollars)
(Unaudited)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------------ -------------
1997 1996 1997
---- ---- ----
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 2,381 $ 4,938 $ 1,727
Accounts receivable and other, net 18,681 16,592 25,113
Inventories:
Raw materials 7,584 7,756 7,787
Work in process 6,352 4,460 5,671
Finished products 3,566 4,868 3,121
-------- -------- --------
Total inventories 17,502 17,084 16,579
Other current assets 3,490 3,900 3,107
-------- -------- --------
Total current assets 42,054 42,514 46,526
-------- -------- --------
Property, plant and equipment, at cost 42,368 40,482 41,527
Less-Accumulated depreciation 25,001 23,500 24,272
-------- -------- --------
Net property, plant and equipment 17,367 16,982 17,255
-------- -------- --------
Other assets 15,201 13,924 15,332
-------- -------- --------
Total assets $ 74,622 $ 73,420 $ 79,113
======== ======== ========
Liabilities and Shareholders' Equity
Current liabilities:
Short-term debt and current
installments on long-term debt $ -- $ 62 $ 16
Accounts payable 9,202 7,474 11,568
Accrued payroll and related expenses 4,173 4,343 4,698
Other accrued expenses 7,271 8,275 6,951
Income taxes payable 2,031 1,369 1,821
-------- -------- --------
Total current liabilities 22,677 21,523 25,054
-------- -------- --------
Long-term debt 14,337 17,344 17,442
Other long-term liabilities 3,988 3,786 3,934
Shareholders' equity:
Paid-in-capital 7,560 6,274 7,489
Earnings reinvested in the business 26,674 24,807 25,773
Cumulative translation adjustment 198 591 250
Unamortized portion of restricted stock (525) (736) (569)
Common shares held in treasury, at cost (287) (169) (260)
-------- -------- --------
Total shareholders' equity 33,620 30,767 32,683
-------- -------- --------
Total liabilities and shareholders' equity $ 74,622 $ 73,420 $ 79,113
======== ======== ========
</TABLE>
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KEITHLEY INSTRUMENTS, INC.
CONSOLIDATED STATEMENT OF INCOME
(In Thousands of Dollars Except for Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED DECEMBER 31,
1997 1996
---- ----
<S> <C> <C>
Net sales $31,623 $ 27,886
Cost of goods sold 13,039 11,754
Selling, general and administrative expenses 12,706 12,511
Product development expenses 3,927 4,464
Special charges -- 58
Net financing expenses 315 270
------- --------
Income (loss) before income taxes 1,636 (1,171)
Income taxes (benefit) 540 (333)
------- --------
Net income (loss) $ 1,096 $ (838)
======= ========
Net income (loss) per share - basic and diluted $ .14 $ (.11)
======= ========
Cash dividends per Common Share $ .031 $ .031
======= ========
Cash dividends per Class B
Common Share $ .025 $ .025
======= ========
</TABLE>
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KEITHLEY INSTRUMENTS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(In Thousands of Dollars)
(Unaudited)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED DECEMBER 31,
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 1,096 $ (838)
Expenses not requiring outlay of cash 1,158 1,183
Changes in working capital 2,645 (1,348)
Other operating activities 174 828
------- -------
Net cash provided by (used in) operating activities 5,073 (175)
------- -------
Cash flows from investing activities:
Payments for property, plant, and equipment (1,192) (2,702)
Other investing activities-net 12 2
------- -------
Net cash used in investing activities (1,180) (2,700)
------- -------
Cash flows from financing activities:
Net increase (decrease) in short-term debt (16) 1
Borrowing (repayment) of long-term debt (3,044) 4,017
Cash dividends (195) (219)
Other transactions-net 44 20
------- -------
Net cash provided by (used in) financing activities (3,211) 3,819
------- -------
Effect of changes in foreign currency exchange rates (28) (1)
------- -------
Increase in cash and cash equivalents 654 943
Cash and cash equivalents at beginning of period 1,727 3,995
------- -------
Cash and cash equivalents at end of period $ 2,381 $ 4,938
======= =======
Supplemental disclosures of cash flow information
Cash paid during the period for:
Income taxes $ 245 $ 1,176
Interest 281 240
Disclosure of accounting policy
</TABLE>
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.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of dollars, except for share data)
A. The consolidated financial statements at December 31, 1997 and 1996, and
for the three month periods then ended have not been examined by
independents accountants, but in the opinion of the management of Keithley
Instruments, Inc., all adjustments necessary to a fair statement of the
consolidated balance sheet, consolidated statement of income and
consolidated statement of cash flows for those periods have been included.
All adjustments included are of a normal recurring nature.
B. The weighted average number of shares and share equivalents used in
determining basic net income per share and diluted net income per share was
7,667,227 and 7,994,582 for the quarter ended December 31, 1997,
respectively, and 7,472,576 for the quarter ended December 31, 1996. Both
Common Shares and Class B Common Shares are included in calculating the
weighted average number of shares outstanding.
C. During the first quarter of fiscal 1996, $846 of income tax related
accruals were released to income as circumstances giving rise to the
accruals were no longer present. Also during that quarter, and in response
to a tax law change, the company decided to terminate existing corporate
owned life insurance policies and a deferred tax charge of $888 was
recorded, reflecting the tax on the excess of cash surrender value over
premiums paid on the policies. The tax is payable over 4 years.
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ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
(In Thousands of Dollars)
Results of Operations
First Quarter 1998 Compared with First Quarter 1997
Net income for the first quarter of fiscal 1998 was $1,096, or $.14 per share,
compared with a net loss of $838, or $.11 per share, reported in the first
quarter of 1997. The increase in earnings resulted primarily from higher net
sales and a better gross profit margin.
Net sales of $31,623 increased 13 percent from $27,886 in the prior year's first
quarter. Geographically, sales increased in the United States and the Pacific
Basin region, but decreased in Europe. Orders for the first quarter of $34,774
also increased 13 percent from the prior year's quarter. Orders were good in the
company's targeted semiconductor and telecommunications markets compared to last
year's low levels. Geographically, orders were down in the United States due
mainly to a large Navy order in the prior year. Orders were up significantly in
the Pacific Basin region and up also in Europe. Order backlog grew $2,658 during
the quarter to $16,144 at December 31, 1997.
Cost of goods sold as a percentage of net sales decreased to 41.2 percent from
42.1 percent. This was mainly due to improved gross margins for the Quantox(R)
product from those in the early start-up phase last year. The effect of foreign
exchange hedging on cost of goods sold was insignificant in both periods.
Selling, general and administrative expenses increased less than 2 percent from
the prior year's quarter. As a percentage of net sales, selling, general and
administrative expenses decreased to 40.2 percent from 44.9 percent in the prior
year's quarter due to higher sales volume this quarter.
Product development expenses of $3,927 for the quarter decreased $537, or 12
percent, from the prior year's quarter to 12.4 percent of net sales from 16.0
percent. This was due primarily to lower expenses for the S600 parametric tester
that was introduced last year, as well as lower expenses for the company's new
businesses.
Special charges in last year's quarter of $58 relate to the relocation of the
Keithley MetraByte operation to Cleveland from Taunton, Massachusetts. The
relocation was complete last year.
Net financing expenses of $315, increased $45 from $270 last year. This was due
to higher average debt levels during the period.
The effective tax rate was 33.0 percent for the quarter compared with 28.4
percent last year. During the prior year's quarter, $846 of income tax related
accruals were released to income as circumstances giving rise to the accruals
were no longer present. Also during last year's quarter, and in response to a
tax law change, the company decided to terminate existing corporate owned life
insurance policies and a deferred tax charge of $888 was recorded, reflecting
the tax on the
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excess of cash surrender value over premiums paid on the policies. The tax is
payable over 4 years.
Liquidity and Capital Resources
Cash provided by operations for the first quarter was $5,073 and was used to pay
down debt and purchase fixed assets. Total debt of $14,337 at December 31, 1997,
decreased $3,121 during the quarter, and the total debt-to-capital ratio was
30.0 percent at December 31, 1997 compared with 34.8 percent at September 30,
1997.
The company expects to finance debt service, capital spending and working
capital requirements through cash provided by operations. At December 31, 1997,
the company had available unused lines of credit with domestic and foreign banks
aggregating $16,069 of which $5,406 were short term and $10,663 were long term.
Outlook
Over the last three years, the company's earnings have been negatively impacted
by significant investments in new businesses. The company has taken recent
actions to bring the new business losses to near break even levels during the
second half of fiscal 1998. Additionally, softness in the semiconductor capital
equipment industry due in part to the Asian financial situation, combined with
the need to reduce losses in the Quantox business, has necessitated a reduction
in personnel along with other spending cuts. These actions will result in a
charge of $0.03 to $0.04 per share on a diluted basis in the second quarter of
fiscal 1998.
Although order levels were good for the first quarter, the company believes that
future results will be affected by the Asian financial crisis. Fiscal 1997 net
sales to the Pacific Basin region totaled 15 percent of total company sales
which includes 4 percent to Korea.
Additionally, the company expects to continue to decrease debt levels during
1998.
Factors That May Affect Future Results
Information included above in the Outlook section of Management's Discussion and
Analysis of Financial Condition and Results of Operations relating to
expectations as to future financial results, constitute "forward-looking"
statements, as that term is defined in the Private Securities Litigation Reform
Act of 1995. Such statements are subject to certain risks and uncertainties that
could cause actual results to differ materially from those projected. Some of
the factors that may affect future results are discussed below.
Although the company operates in a single industry segment, certain of its
products and product lines including Quantox and the company's line of
parametric testers, are sold into the semiconductor capital equipment industry.
Growth in demand for semiconductors, new technology and pricing drive the demand
for new semiconductor capital equipment. Throughout much of the past year, the
order growth of this industry had contracted which adversely affected
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revenues of the company. Although order growth in this industry has recently
increased, the sustainability of this trend cannot be predicted.
The company's business relies on the development of new high technology products
and services to provide solutions to customer's complex measurement needs. This
requires anticipation of customers' changing needs and emerging technology
trends. The company must make long-term investments and commit significant
resources before knowing whether its expectations will eventually result in
products that achieve market acceptance. The company incurs significant expenses
developing new business opportunities that may or may not result in significant
sources of revenue and earnings in the future.
In many cases the company's products compete directly with those offered by
other manufacturers. If any of the company's competitors were to develop
products or services that are more cost-effective or technically superior,
demand for the company's product offerings could slow.
The company currently has ten subsidiaries or sales offices located outside the
United States, and non-U.S. sales made up 45 percent of the company's revenue in
the first quarter of 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.
8
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PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits. The following exhibits are filed herewith:
Exhibit
Number Exhibit
------ -------
11 Statement Re Computation of Per Share Earnings
27 Financial Data Schedule (EDGAR version only)
(b) No reports on Form 8-K were filed during the quarterly period
ended December 31, 1997.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
KEITHLEY INSTRUMENTS, INC.
(Registrant)
Date: February 13, 1998 /s/ Joseph P. Keithley
-------------------------
Joseph P. Keithley
Chairman, President and Chief Executive Officer
(Principal Executive Officer)
Date: February 13, 1998 /s/ Ronald M. Rebner
-----------------------
Ronald M. Rebner
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
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<PAGE> 1
11. Statement re computation of per share earnings
<TABLE>
<CAPTION>
First quarter First quarter
ended ended
December 31, 1997 December 31, 1996
----------------- -----------------
<S> <C> <C>
Net income (loss) in thousands $ 1,096 $ (838)
========== ===========
Shares outstanding at beginning of period 7,664,253 7,450,878
Net issuance of shares under stock award
plans, weighted average 2,974 21,698
---------- ----------
Weighted average shares outstanding - basic earnings
per share calculation 7,667,227 7,472,576
Effect of dilutive securities:
Assumed exercise of stock options,
weighted average of incremental shares 294,649 --
Assumed purchase of stock under stock
purchase plan, weighted average 32,706 --
---------- ----------
Average shares and common share
equivalents - diluted earnings per share calculation
7,994,582 7,472,576
========== ===========
Basic earning (loss) per share $ .14 $ (.11)
========== ===========
Diluted earnings (loss) per share $ .14 $ (.11)
========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 2,381
<SECURITIES> 0
<RECEIVABLES> 18,681
<ALLOWANCES> 0
<INVENTORY> 17,502
<CURRENT-ASSETS> 42,054
<PP&E> 42,368
<DEPRECIATION> 25,001
<TOTAL-ASSETS> 17,367
<CURRENT-LIABILITIES> 22,677
<BONDS> 14,337
0
0
<COMMON> 192
<OTHER-SE> 33,428
<TOTAL-LIABILITY-AND-EQUITY> 74,622
<SALES> 31,623
<TOTAL-REVENUES> 31,623
<CGS> 13,039
<TOTAL-COSTS> 13,039
<OTHER-EXPENSES> 3,927
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 315
<INCOME-PRETAX> 1,636
<INCOME-TAX> 540
<INCOME-CONTINUING> 1,096
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,096
<EPS-PRIMARY> .14
<EPS-DILUTED> .14
</TABLE>
