<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
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, 2000 Commission file number 1-9965
------------------ ------
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
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(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 (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
----- -----
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 18, 2000 there were outstanding 13,477,874 Common Shares, without
par value (net of shares held in treasury), and 2,163,532 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 $529,873,954 and the aggregate
market value of the Class B Common Shares of the Registrant held by
non-affiliates was $793,546 for a total aggregate market value of all classes of
Common Shares held by non-affiliates of $530,667,500. 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 18, 2000, which was $40.4375. For purposes of this
information, the 374,345 Common Shares and 2,143,908 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 registrant's Proxy Statement for the registrant's Annual Meeting
to Shareholders to be held on February 17, 2001 (the "2001 Annual Meeting") are
incorporated by reference in Part III in this Annual Report on Form 10-K (this
"Annual Report") and are identified under the appropriate items in this Annual
Report.
<PAGE> 2
KEITHLEY INSTRUMENTS, INC.
10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I: PAGE
----
Item 1. Business 1
Item 2. Properties 6
Item 3. Legal Proceedings 6
Item 4. Submission of Matters to a Vote of Security Holders 6
PART II:
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters 8
Item 6. Selected Financial Data 9
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 8. Financial Statements and Supplementary Data 16
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 16
PART III.
Item 10. Directors and Executive Officers of the Registrant 17
Item 11. Executive Compensation 17
Item 12. Security Ownership of Certain Beneficial Owners and
Management 17
Item 13. Certain Relationships and Related Transactions 17
PART IV:
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K 18
<PAGE> 3
PART I.
ITEM 1 - BUSINESS.
--------
GENERAL
Keithley Instruments, Inc. is a corporation that 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.
Keithley's business is to develop, manufacture and sell measurement systems
geared to the specialized needs of electronics manufacturers for
high-performance production testing, process monitoring, product development and
research. The Company's primary products are integrated, computer-based systems
used to source, measure, connect control or communicate. The Company's customers
are engineers, technicians and scientists in manufacturing, product development
and research functions. During fiscal 2000, over one-third of the company's
orders were received from customers involved in the semiconductor industry.
Approximately one-sixth came from the telecommunications customer group, and
approximately 10 percent came from the optoelectronics customer group, with the
remainder coming from various electronic component and sub-assembly
manufacturers, researchers and others. Although the Company's products vary in
capability, sophistication, use, size and price, they generally test, measure
and analyze electrical and physical properties. As such, the Company considers
its business to be in a single industry segment.
STRATEGY OF FOCUS
Several years ago, the Company formulated a strategy to focus its product
and market development efforts toward production test applications in growing
industries including the telecommunications, optoelectronics and semiconductor
industries. In July of fiscal 1998 and November of fiscal 1999, the Company sold
two businesses which no longer fit this core strategy. By pruning the
organization of these non-strategic businesses, the Company was better able to
leverage resources and greatly improve the quality of earnings over the last two
years.
The Company's strategy for sales growth consists of a few key points.
First, the Company has focused its efforts on identifying specific production
test applications within the targeted industries mentioned above. The Company
works closely with customers in these industries not only to determine what
their measurement needs are today, but also what their new emerging needs might
be. A thorough understanding of their applications coupled with the Company's
precision measurement technology enables Keithley to add value to our customers'
processes; improving the quality, throughput and yield of their products.
Forming consultative relationships with customers where the Company can add
value is a key part of the strategy. Additionally, the Company recognizes the
importance of traditional research customers. Whether they are doing basic or
applied research in a university or an industrial
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laboratory, these customers give the Company a first-hand look at new industry
trends and technologies, as well as establish relationships that last a career.
Second, sales growth also requires a steady stream of innovative new
products. These products may be designed for very specific production test
applications driven by the target industry approach discussed above, or may be
used in applications that cross over a variety of industries. The Company refers
to its products as "computer-based solutions" because regardless of the form
factor, they are designed for usage with industry-leading computer hardware and
software. The Company utilizes open-architecture software based-on
Microsoft's(TM) Component Object Model technology, thus drastically decreasing
the start-up time for customers. By continuing to develop new software and
computer-based solutions, the Company believes it can capture a greater share of
purchases from the broader segments of the overall test and measurement market.
Third, with the growth in popularity of the Internet and expanding role of
E-commerce, there is a greater opportunity to offer the Company's production
test applications knowledge to a wider range of its customers and prospects
worldwide. The Company's web site, www.keithley.com, is globally accessible 24
hours a day, and is an excellent, cost effective way to interact with current
and potential customers. Additionally, advances in database management allow the
Company to do a better job of reaching those people who are more likely to
benefit from its product offerings.
PRODUCT OFFERINGS
The Company has more than 1,000 products that basically test, measure, and
analyze electrical and physical properties. The Company offers integrated
systems solutions, along with instruments and PC plug-in boards that can be used
as system components or stand-alone solutions. Prices per product vary.
Parametric test systems used by semiconductor wafer manufacturers generally
range in price from $125,000 to $400,000 dependant upon the configuration
specified by the customer. The Company's new semiconductor characterization
system ranges in price from $30,000 to $75,000 again dependent upon customer
specifications. Bench top instruments generally range in price from $1,000 to
$10,000 on a stand-alone basis and from $15,000 to $25,000 when used as a
system. PC plug-in boards are used for process control and data collection
applications, and machine builders and system integrators in production test.
Selling prices generally ranging from $200 to $4,000.
NEW PRODUCTS DURING FISCAL YEAR 2000
New products may be developed for a specific industry application or for
general purposes to serve a larger customer constituency. New products
introduced during fiscal 2000 included the following:
In February 2000, the Company introduced the Model 2510 Thermoelectric
Cooler Source Meter, and in July 2000 the Company introduced the Model 2500 Dual
Photodiode Meter for the testing of laser diode modules. Both products were
developed in close cooperation with some of the world's leading telecom laser
diode manufacturers as part of a complete Keithley laser diode module LIV test
system. These were the first of several
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products targeted for this industry the Company plans to introduce over the next
12 months. Additionally, the Company continued to expand its testing
applications beyond laser diodes to several other high-growth segments within
the optoelectronics industry, including VCSELS (vertical cavity surface emitting
laser), pump lasers, passive optical components, tunable lasers, LEDs, and EDFA
which stands for erbium dobed fiber amplifiers that are used to increase
transmission distance for optical signals.
The Company continued to expand its product offering for telecommunication
customers with products that broadened its capabilities in microwave broadband
signal management. The Model 7999-4 Microwave Switch and the Model 7999-5
16-Channel Controller add a new dimension to the Company's RF switching
capabilities by addressing applications where a relatively small number of
signals need to be switched and RS232 control is required, for instance in
handset production test. The System 41 RF/Microwave Signal Routing product line
addresses applications where the need to route multiple signals exists, such as
in accelerated burn-in testing of handsets. The Company's microwave offerings
continue to be well received in the marketplace and are part of the strategy to
gain market share by addressing related applications where the Company can add
value for its customers.
In response to process changes incorporating the use of copper and "low-k"
dielectrics, the Company introduced the newest product in its S600 family
parametric test systems, the Model S633, designed for semiconductor processes
using copper interconnects, "low-k" dielectrics, and 300mm wafers. The Company
introduced the Model 4200-SCS Semiconductor Characterization System also
designed for use by customers in the semiconductor industry. The system's
combination of high ease of use, high precision, and sub-femtoamp resolution
helps engineers solve design and production problems faster and introduce new
products to market quicker. A key strength of the 4200 is the transfer of tests
developed in the lab to the S600 family of testers residing on the production
floor. This allows customers to quickly correlate test data taken in the lab to
comparable measurements produced on the factory floor. Although the Model 4200
was specifically designed for semiconductor customers, the Company is also
seeing interest from component manufacturers as they also need to characterize
the performance of their devices.
In November 1999, the Company launched a major new addition to its data
acquisition line with the Model 2700 Multimeter/Data Acquisition System. With
orders exceeding expectations, the 2700 performs instrument-grade measurements
for common data acquisition applications at a lower cost per channel than the
traditional plug-in board solution. Besides allowing the Company to serve new
customers, this product serves new applications for existing customers in the
optoelectronics, telecommunications and semiconductor industries. Additionally,
the 2700 is unique in that its functionality can be changed through the use of
plug-in modules to accommodate different applications for various industries.
The Company views this platform as a key part of penetrating ATE and factory
automation applications.
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GEOGRAPHIC MARKETS AND DISTRIBUTION
During fiscal 2000, all of the Company's products were manufactured in Ohio
and were sold throughout the world in over 80 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, Korea, 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.
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 production test,
engineering research and development, electronic service or repair, and
educational and governmental research. During the fiscal year ended September
30, 2000 no one customer accounted for more than 10% of the Company's sales.
Management believes that the loss of any one of its customers would not
materially affect the sales or net income of the Company.
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BACKLOG
The Company's backlog of unfilled orders amounted to approximately
$32,142,000 as of September 30, 2000 and approximately $19,341,000 as of
September 30, 1999. It is expected that the majority of the orders included in
the 2000 backlog will be delivered during fiscal 2001; however, the Company's
past experience indicates that a small portion of orders included in the backlog
may be canceled.
COMPETITION
The Company competes on the basis of quality, performance, service 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 competitor is Agilent Technologies, 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 $12,387,000 in 2000, $10,745,000 in
1999 and $13,139,000 in 1998, or approximately 8%, 11% and 11% of net sales,
respectively, for each of the last three fiscal years.
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, 2000, the Company employed approximately 626 persons,
129 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.
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FOREIGN OPERATIONS AND EXPORT SALES
Information related to foreign and domestic operations and export sales is
contained in Note K of the Notes to the Consolidated Financial Statements
included in a separate section at the end of this Form 10-K Annual Report.
The Company has significant revenues from outside the United States which
increase the complexity and risk to the Company. These risks include increased
exposure to the risk of foreign currency fluctuations and the potential economic
and political impacts from conducting business in foreign countries. With the
exception of changes in the value of foreign currencies, which is not possible
to predict, the Company believes that its foreign subsidiaries and other larger
international markets are in countries where the economic and political climate
is generally stable.
ITEM 2 - PROPERTIES.
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The Company's principal administrative, sales, marketing, manufacturing and
development activities are conducted at two Company-owned buildings in Solon,
Ohio. The two buildings total approximately 200,000 square feet and sit on
approximately 33 acres of land. The Company also owns another 50,000 square foot
building on 5.5 acres of land adjacent to its executive offices. This facility
is currently being leased to others, but is available for expansion should the
Company require additional space. The Company also maintains a number of sales
and service offices in the United States and overseas. The Company believes that
the facilities it owns and leases are well maintained, adequately insured and
suitable for their present and intended uses.
ITEM 3 - LEGAL PROCEEDINGS.
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The Company is not a party to any material litigation.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
---------------------------------------------------
Not applicable.
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EXECUTIVE OFFICERS OF THE REGISTRANT:
------------------------------------
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
----------------- --- --------------------------
<S> <C> <C>
Joseph P. Keithley 52 Chairman of the Board of Directors since 1991, Chief
Executive Officer since November 1993 and President since
May 1994.
Philip R. Etsler 50 Vice President Human Resources of the Company since 1990.
John M. Gherlein 45 Secretary of the Company since July 1999; Partner in the
law firm of Baker & Hostetler LLP from 1990 to present.
David H. Patricy 51 Vice President and General Manager of Test and Measurement
of the Company since 1997. Previously General Manager of
the Instrument Division from 1994 to 1997.
Mark J. Plush 51 Vice President and Chief Financial Officer of the Company
since October 1998. Previously, Controller since 1982 and
an Officer of the Company since 1989.
Gabriel A. Rosica 60 Senior Vice President and General Manager of Semiconductor
since February 1996. Previously Chief Operating Officer
of Bailey Controls Company from August 1994 to January
1996.
D. Sherman Willows 64 Vice President Worldwide Sales since February 1999.
Previously General Manager of World Wide
Sales from 1997 to 1999 and Eastern Regional
Sales Manager from 1993 to 1997.
</TABLE>
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PART II.
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
-----------------------------------------------------
STOCKHOLDER MATTERS.
-------------------
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 2000 High Low Per Common Share COMMON SHARE
----------- ---- --- ---------------- ------------
<S> <C> <C> <C> <C>
First Quarter $11 3/16 $7 $ .0205 $ .0164
Second Quarter 37 9 7/16 .0275 .0220
Third Quarter 91 1/2 15 3/8 .0275 .0220
Fourth Quarter 107 7/16 42 1/4 .0275 .0220
Fiscal 1999
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First Quarter $4 5/8 $1 7/8 $ .0165 $ .0132
Second Quarter 4 27/32 3 1/4 .0165 .0132
Third Quarter 4 1/2 3 9/32 .0165 .0132
Fourth Quarter 7 15/32 4 3/32 .0205 .0164
</TABLE>
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 19, 2000 was 2,500 and 5, respectively.
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ITEM 6 - SELECTED FINANCIAL DATA.
-----------------------
The following table sets forth consolidated selected financial data for the
Company. The financial data should be read in conjunction with the Financial
Statements and Notes thereto, included in a separate section at the end of this
Annual Report, and with Management's Discussion and Analysis of Financial
Condition and Results of Operations, included in Item 7 of this Annual Report.
<TABLE>
<CAPTION>
For the years ended September 30,
(In thousands, except for per share data) 2000 1999 1998 1997 1996
---------------------------------------------------------------------------------------------------------------
Operating Results
<S> <C> <C> <C> <C> <C>
Net sales $150,561 $100,938 $117,776 $123,295 $118,946
Income (loss) before income taxes 32,471 16,717 8,189 1,211 (6,324)
Net income (loss) 21,045 13,708 5,004 790 (5,440)
Basic earnings (loss) per share (a) 1.43 0.92 0.32 0.05 (0.37)
Diluted earnings (loss) per share (a) 1.30 0.90 0.31 0.05 (0.37)
Common Stock Information (a)
Cash dividends per Common Share 0.103 0.070 0.0625 0.0625 0.0625
Cash dividends per Class B Common Share 0.082 0.056 0.0500 0.0500 0.0500
Weighted average number of shares
outstanding- diluted 16,168 15,315 16,131 15,734 14,720
At fiscal year-end:
Dividend payout ratio (b) 7.2% 7.6% 19.5% 125.0% --
Price/earnings ratio (b) 53.8 7.9 8.2 120.0 --
Shareholders' equity per share 4.77 3.08 2.46 2.13 2.13
Closing market price 70.000 7.094 2.532 6.000 4.438
Balance Sheet Data
Total assets 112,338 74,751 71,017 79,113 73,834
Current ratio 3.0 2.0 1.9 1.9 1.7
Total debt 3,225 3,000 6,099 17,458 13,369
Total debt-to-capital 4.1% 6.4% 13.6% 34.8% 29.6%
Shareholders' equity 75,773 43,781 38,742 32,683 31,756
Other Data
Return on average shareholders' equity 35.2% 33.2% 14.0% 2.5% -15.8%
Return on average total assets 22.5% 18.8% 6.7% 1.0% -7.8%
Return on net sales 14.0% 13.6% 4.2% 0.6% -4.6%
Number of employees 626 526 564 693 716
Sales per employee 261.4 185.2 187.4 175.0 173.0
Cash flow
Noncash charges to income (c) 4,757 3,581 4,709 3,390 7,064
Net cash provided by (used in) operating activities 10,549 9,659 13,033 (1,011) 2,600
Ten-year compound annual growth rate
Net sales 4.1% 1.3% 5.0% 7.9% 9.6%
Net income (b) 20.1% 12.7% -0.8% -13.3% --
</TABLE>
(a) Share data adjusted for a two-for-one stock split in June 2000.
(b) Information is not meaningful in 1996 due to reported net losses.
(c) Noncash charges to income include depreciation, amortization, deferred
compensation, deferred taxes and noncash special charges.
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ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS.
-----------------------------------
The following discussion should be read in conjunction with the Financial
Statements and related Notes included in a separate section at the end of this
Annual Report.
RESULTS OF OPERATIONS (IN THOUSANDS OF DOLLARS EXCEPT FOR PER-SHARE DATA)
Percent of net sales for the years ended September 30, 2000, 1998 and 1997
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Net sales 100.0 100.0 100.0
Cost of goods sold 38.9 39.6 42.7
Selling, general and administrative expenses 32.2 38.5 39.7
Product development expenses 8.2 10.6 11.2
Gain on sale of business (0.6) (5.1) (2.4)
Special charges -- -- 1.0
Net financing (income) expenses (0.3) (0.2) 0.9
----- ----- -----
Income before income taxes 21.6 16.6 6.9
Income taxes 7.6 3.0 2.7
------ ----- -----
Net income 14.0 13.6 4.2
===== ===== =====
</TABLE>
Net income, excluding gains on sales of businesses in all years and a
favorable tax adjustment in 1999, was $20,448, or $1.26 per share on a diluted
basis, in 2000, compared to $8,201, or $.54 per share, in 1999, and $4,679, or
$.29 per share, in 1998. Adjusted net income for 2000 was a new record high. Net
income as reported was $21,045, or $1.30 per share on a diluted basis, $13,708,
or $.90 per share, and $5,004, or $.31 per share, in 2000, 1999 and 1998,
respectively.
Net sales were a new record high at $150,561 in 2000. Excluding net sales
from divested businesses, net sales were $100,321 in 1999 and $96,840 in 1998.
(See Note B.) Net sales increased 50 percent in 2000 from 1999, and 4 percent in
1999 from 1998. Net sales including those from divested businesses were $100,938
in 1999, and $117,776 in 1998. The increase in 2000 from 1999 was due to strong
sales to customers in the Company's targeted industries, including the
telecommunications, optoelectronics, and semiconductor industries. The
semiconductor industry, in particular, is cyclical and in 1999 it began to
recover from a down cycle. The recovery continued throughout 2000. The increase
in sales from current businesses in 1999 from 1998 was due to the semiconductor
industry recovery and general economic recovery in Asian markets, as well as
continued good growth for the Company's products serving the telecommunications
industry. The Company believes it has gained market share in its targeted
industries. Geographically, sales were up in all major areas with the Pacific
Basin region up 76 percent, domestic sales up 52 percent and Europe up 45
percent, in 2000 from 1999. Domestic and export sales from current businesses
increased somewhat in 1999 from 1998, while net sales in Europe were essentially
flat.
Cost of goods sold as a percentage of net sales was 38.9 in 2000, 39.6 in
1999, and 42.7 in 1998. Improved manufacturing efficiencies due to higher sales
lowered cost of goods sold
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as a percentage of net sales in 2000. This more than offset the unfavorable
impact of a 9 percent stronger U.S. dollar in 2000. Foreign currency
fluctuations had no impact in 1999. The decrease in 1999 over 1998 was primarily
due to the absence during 1999 of all or most of the Quantox product line and
the Radiation Measurements Division's (RMD) sales, whose margins were lower.
Foreign exchange hedging had a minimal effect on cost of goods sold in 2000,
1999 and 1998.
Selling, general and administrative expenses of $48,476 increased 25
percent in 2000 from $38,885 in 1999, but decreased as a percentage of net sales
to 32.2% from 38.5%. The increase in dollars was due to higher commissions on
increased sales, higher personnel costs due to increased headcount, higher
incentive costs, and increased promotion and e-business initiatives. Selling,
general and administrative expenses decreased 17 percent in 1999 from $46,756 in
1998. The majority of the decrease in 1999 can be attributed to the absence of
RMD and only one month's cost for Quantox. Lower expenses resulting from the
cost reduction actions taken in 1998 and 1997 also contributed to the decrease
in 1999. Additionally, 1998's expenses include approximately $1,210 pretax, or
$.05 per share after taxes, for personnel cost reductions and officer retirement
expenses.
Product development expenses of $12,387 in 2000 increased 15 percent from
$10,745 in 1999, but decreased as a percentage of net sales to 8.2% from 10.6%.
The increase in dollars is due to higher personnel costs resulting from the
Company's efforts to increase development resources to take advantage of
opportunities existing in its targeted markets, particularly the optoelectronics
industry. During 2000, the Company introduced several significant new products
including the Model 2700 multimeter/data acquisition system and PCI data
acquisition boards designed for multi-industries, the Model 2510 TEC source
meter and Model 2500 dual photodiode meter designed for the optoelectronics
industry, and the Model 4200 semiconductor characterization system and Model
S633 parametric test system designed for semiconductor manufacturers. Product
development expenses decreased $2,394, or 18 percent in 1999 from $13,139, or
11.2 percent of sales, in 1998. The decrease was due to the absence of RMD and
only one month's costs for Quantox in 1999. Excluding costs for these divested
businesses, product development costs were flat in 1999 compared to 1998.
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 $.11 per share,
recorded in the fourth quarter of fiscal 1998. On November 9, 1998, the Company
sold certain assets used in the operation of its Quantox product line to
KLA-Tencor Corporation for $9,147 in cash. The agreement, which was effective
October 31, 1998, included the sale of the Quantox inventory, certain machinery,
equipment and other tangible personal property. The Company retained the
accounts receivable. The sale resulted in a pretax gain of $4,808, or $.20 per
share, recorded in the first quarter of fiscal 1999. During the fourth quarter
of fiscal 1999, and the first and fourth quarters of fiscal 2000, additional
pretax gains of $345, or $.01 per share, $477, or $.02 per share, and $476, or
$.02 per share, respectively, were recorded for the above mentioned sales
11
<PAGE> 14
of these businesses. At the time of the sales of these businesses, the Company
established liabilities for certain items that were to be settled at future
dates. The additional adjustments recorded in fiscal 1999 and 2000 represent the
settlement of certain of these issues. (See Note B.)
An analysis of special charges recorded in 1998 is as follows:
Description:
Write off of goodwill $ 519
Severance, outplacement and
other personnel costs 290
Lease and related costs 280
Impaired inventory and equipment 122
Relocation of facility and employees 25
European operating subleases (64)
------
$1,172
======
The Company did not record any special charges during 1999 or 2000. Due to
continued weakness in the semiconductor capital equipment industry throughout
1998, 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 wafer-level
reliability business, which was part of a 1996 acquisition. 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.
Special charges for 1998 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 on a leased facility the Company would 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 $.04 per
share, include $551 in noncash charges.
The Company generated net financing income of $445 in 2000 compared to $179
in 1999, and expense of $1,040 in 1998. Higher average cash and cash
equivalents, along with higher interest rates on cash and cash equivalents
accounted for the increased income in 2000 and 1999. 1998 resulted in a net
expense due to higher average debt levels and lower cash and cash equivalents in
that year.
The effective tax rate for 2000 was 35.2 percent. The tax rate is lower
than the statutory tax rate for federal, state and local taxes due to foreign
sales corporation benefits. The effective tax rate for 1999 was 18.0 percent as
a result of the combination of several factors: the gain on the sale of
businesses recorded at the statutory rate including state and local taxes, a tax
benefit resulting from the release of certain valuation reserves due to the
settlement of prior years' tax liabilities and improved profitability in the
Company's U.S. operations, which enabled the Company to utilize a number of tax
credits. The effective tax rate for 1998 was 38.9 percent and reflects an
unfavorable adjustment for prior years' taxes. At September 30, 2000, the
Company had no tax credit carryforwards.
12
<PAGE> 15
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 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 2000, net cash provided by operating activities was $10,549, and
proceeds from the sale of Common Shares through the Company's stock option and
stock purchase plans were $5,788. Cash was used to purchase $3,607 of property,
plant and equipment, buy back $3,013, or 304,800 shares, of the Company's common
stock through its stock repurchase program, and pay $1,457 in dividends. Total
cash of $21,408 at September 30, 2000, increased $7,982 from September 30, 1999.
Total debt of $3,225 at September 30, 2000 increased slightly from $3,000 at
September 30, 1999, and the debt-to-capital ratio at year-end was 4.1 percent
versus 6.4 percent at the end of fiscal 1999.
The Company's credit agreement, which expires March 28, 2002, is a $25,000
debt facility ($3,000 outstanding at September 30, 2000) 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
.175% and .25% on the total amount of the commitment. Additionally, the Company
has a number of other credit facilities in various currencies aggregating
$4,812.
At September 30, 2000, the Company had total unused lines of credit with
domestic and foreign banks aggregating $26,587, including short-term and
long-term lines of credit of $4,587 and $22,000, respectively. Under certain
long-term debt agreements, the Company is required to comply with various
financial ratios and covenants. The Company was in compliance with all such debt
covenants during each of the three years ended and at September 30, 2000.
Principal payments on long-term debt are due in 2002.
During 2001, the Company expects to finance capital spending and working
capital requirements with cash on hand and cash provided by operations. Capital
expenditures in fiscal 2001 are expected to be higher than they were in 2000.
Included in the "Deferred income taxes" caption of the Consolidated Balance
Sheets at September 30, 2000 is a $10,518
13
<PAGE> 16
tax asset resulting from the exercise of non-qualified stock options during
2000. The Company expects to recognize this asset as cash tax savings during
fiscal 2001.
FACTORS THAT MAY AFFECT FUTURE RESULTS
Statements included in the Liquidity and Capital Resources section of
Management's Discussion and Analysis of Financial Condition and Results of
Operations or elsewhere in this report 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 targeted for specific industries including the
semiconductor, telecommunications, optoelectronics, and other electronic
industries. Industry forecasts over the next few years look strong; however,
these industries, particularly the semiconductor industry, can be cyclical in
nature. Growth in demand for semiconductors, new technology and pricing drive
the demand for new semiconductor capital equipment. Historically, sales and
order levels for this business have been volatile which can affect revenue and
earnings for the Company.
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's success depends to a significant degree upon the continued
service of its key executive, sales, development, marketing and operational
personnel. The Company also believes its future success will depend upon its
ability to attract and retain additional highly skilled personnel in these
areas. The competition for qualified personnel in the technology area is
intense. Although management believes the Company offers competitive salaries
and benefits, there can be no assurance that it will be successful in retaining
its existing key personnel or attracting and retaining additional key resources.
Failure to attract and retain personnel could have a material adverse effect on
the Company's results of operations.
The Company's products contain large volumes of electronic components and
subassemblies that in some cases are supplied through sole or limited source
third-party suppliers. Although the Company does not anticipate any problems
procuring supplies in the
14
<PAGE> 17
near-term, there can never be any assurance that parts and supplies will be
available in a timely manner and at reasonable prices. Additionally, the
Company's inventory is subject to risk due to changes in market demand for
particular products. The resulting excess and/or obsolete inventory could have
an adverse impact on the Company's results of operations.
The Company's cost structure is comprised of costs that are directly
related to the level of sales, as well as costs that are fixed and do not
fluctuate based on sales levels. The Company's quality of earnings depends on
its ability to control those costs that are fixed or semi-variable.
The Company currently has eleven subsidiaries or sales offices located
outside the United States, and non-U.S. sales made up approximately half of the
Company's revenue during 2000. The Company's future results could be adversely
affected by several factors, including changes in foreign currency exchange
rates, changes in a country's or region's political or economic conditions,
trade protection measures, import or export licensing requirements, unexpected
changes in regulatory requirements and natural disasters.
The Company pays taxes in several jurisdictions throughout the world. The
Company utilizes available tax credits and other tax planning strategies in an
effort to minimize the Company's overall tax liability. The Company's actual tax
rate for fiscal 2001 could change from what is currently anticipated due to
changes in various country's tax laws or changes in the Company's overall tax
planning strategy.
The Company has modified its systems to accommodate the Euro. The cost of
these modifications was immaterial to the Company's results of operations.
Although difficult to predict, any competitive implications and any impact on
existing financial instruments are expected to be immaterial to the Company's
results of operations, financial condition or cash flows of future periods.
ITEM 7(a) - MARKET RISK
-----------
Response to this item is included in "Item 7 - Management's Discussion and
Analysis of Financial Condition and Results of Operations" above.
15
<PAGE> 18
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
-------------------------------------------
The response to this Item 8 is included in a separate section at the end of
this Annual Report.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
-------------------------------------------------
ACCOUNTING AND FINANCIAL DISCLOSURE.
-----------------------------------
None.
16
<PAGE> 19
PART III.
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
--------------------------------------------------
See the table listing the nominees for directors under the caption "Item 2:
Election of Directors" in the Company's Proxy Statement to be used in
conjunction with the February 17, 2001 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 with respect to the executive officers of
the Company is included under the caption "Executive Officers of the Registrant"
of this Form 10-K Annual Report and incorporated herein by reference.
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 17, 2001 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 17, 2001 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, 2000, and is
expected to render services in such capacity to the Company in the future.
17
<PAGE> 20
PART IV.
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
------------------------------------------------------
FORM 8-K.
--------
(a)(1) FINANCIAL STATEMENTS OF THE COMPANY
See Index to Consolidated Financial Statements at page F-1 of this Form
10-K Annual Report and the Financial Statements and Notes thereto which are
included at Pages F-2 to F-27 of this Annual Report.
(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.
18
<PAGE> 21
(a)(3) INDEX TO EXHIBITS
Exhibit
Number Description
------- -----------
3(a) 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(b) 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 Annual Report on Form 10-K for the year ended
September 30, 1999 (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. (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.)
10(b) Keithley Instruments, Inc. Supplemental Deferral Plan as
amended. (Reference is made to Exhibit 10(b) of the
Company's Annual Report on Form 10-K for the year ended
September 30, 1999 (File No. 1-9965), which Exhibit is
incorporated herein by reference.)
10(c) Employment Agreement with Mark J. Plush dated April 7, 1994.
(Reference is made to Exhibit 10(k) of the Company's Annual
Report on Form 10-K for the year ended September 30, 1998
(File No. 1-9965), which Exhibit is incorporated herein by
reference.)
10(d) Employment Agreement, as amended, with Joseph P. Keithley.
(Reference is made to Exhibit 10(d) of the Company's Annual
Report on Form 10-K for the year ended September 30, 1999
(File No. 1-9965), which Exhibit is incorporated herein by
reference.)
19
<PAGE> 22
Exhibit
Number Description
------- -----------
10(e) Supplemental Executive Retirement Plan. (Reference is made
to Exhibit 10(e) of the Company's Annual Report on Form 10-K
for the year ended September 30, 1999 (File No. 1-9965),
which Exhibit is incorporated herein by reference.)
10(f) 1992 Stock Incentive Plan, as amended. (Reference is made to
Exhibit 10(f) of the Company's Annual Report on Form 10-K
for the year ended September 30, 1999 (File No. 1-9965),
which Exhibit is incorporated herein by reference.)
10(g) 1992 Directors' Stock Option Plan. (Reference is made to
Exhibit 10(g) of the Company's Annual Report on Form 10-K
for the year ended September 30, 1999 (File No. 1-9965),
which Exhibit is incorporated herein by reference.)
10(h) 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(i) 1996 Outside Directors Deferred Stock Plan. (Reference is
made to Exhibit 10(x) of the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended March 31, 1996 (File
No. 1-9965), which Exhibit is incorporated herein by
reference.)
10(j) 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(k) 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.
21 Subsidiaries of the Company.
23 Consent of Experts.
20
<PAGE> 23
27 Financial Data Schedule (EDGAR version only).
ITEM 14(b) REPORTS ON FORM 8-K.
No reports on Form 8-K were filed during the quarterly period ended September
30, 2000.
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).
21
<PAGE> 24
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 8, 2000
-----------------------------
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>
<S> <C> <C>
Signature Title Date
--------- ----- ----
/S/ Joseph P. Keithley Chairman of the Board of Directors, President 12/8/00
-------------------------------------
Joseph P. Keithley and Chief Executive Officer
(Principal Executive Officer)
/S/ Brian R. Bachman Director 12/8/00
-------------------------------------
Brian R. Bachman
Director
-------------------------------------
James T. Bartlett
/S/ Arden L. Bement, Jr. Director 12/8/00
-------------------------------------
Dr. Arden L. Bement, Jr.
/S/ James B. Griswold Director 12/8/00
-------------------------------------
James B. Griswold
/S/ Leon J. Hendrix, Jr. Director 12/8/00
-------------------------------------
Leon J. Hendrix, Jr.
/S/ William J. Hudson, Jr. Director 12/8/00
-------------------------------------
William J. Hudson, Jr.
Director
-------------------------------------
R. Elton White
</TABLE>
22
<PAGE> 25
KEITHLEY INSTRUMENTS, INC.
INDEX TO FINANCIAL STATEMENTS
Financial Statements: Page No.
-------------------- --------
Report of Independent Accountants F-2
Consolidated Statements of Income F-3
Consolidated Balance Sheets F-4
Consolidated Statements of Shareholders' Equity F-5
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-7
Financial Statement Schedule:
For the Three Years Ended September 30, 2000
Schedule II - Valuation and Qualifying Accounts F-28
F-1
<PAGE> 26
Report of Independent Accountants
To the Board of Directors and Shareholders
of Keithley Instruments, Inc.:
In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of
Keithley Instruments, Inc. and its subsidiaries at September 30, 2000 and 1999,
and the results of their operations and their cash flows for each of the three
years in the period ended September 30, 2000, in conformity with accounting
principles generally accepted in the United States of America. In addition, in
our opinion, the financial statement schedule listed in the accompanying index
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
These financial statements and financial statement schedule are the
responsibility of the company's management; our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America 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 our opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Cleveland, Ohio
November 1, 2000
F-2
<PAGE> 27
Consolidated Statements of Income
For the years ended September 30, 2000, 1999 and 1998
(In Thousands of Dollars Except for Per-Share Data)
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- -----
<S> <C> <C> <C>
Net sales $150,561 $100,938 $117,776
------- ------- -------
Cost of goods sold 58,625 39,923 50,332
Selling, general and administrative expenses 48,476 38,885 46,756
Product development expenses 12,387 10,745 13,139
Gain on sale of businesses (953) (5,153) (2,852)
Special charges -- -- 1,172
Net financing (income) expenses (445) (179) 1,040
-------- -------- -------
Income before income taxes 32,471 16,717 8,189
Income taxes 11,426 3,009 3,185
-------- -------- -------
Net income $ 21,045 $ 13,708 $ 5,004
======== ======== =======
Basic earnings per share $ 1.43 $ 0.92 $ 0.32
======== ======== =======
Diluted earnings per share $ 1.30 $ 0.90 $ 0.31
======== ======== =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE> 28
Consolidated Balance Sheets
As of September 30, 2000 and 1999
(In Thousands of Dollars Except for Share Data)
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
------- ------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 21,408 $ 13,426
Accounts receivable and other, net of allowances
of $605 and $679 as of September 30, 2000
and 1999, respectively 30,621 19,633
Inventories:
Raw materials 11,376 4,853
Work in process 5,685 4,009
Finished products 3,083 2,187
--------- -------
Total inventories 20,144 11,049
Deferred income taxes 13,935 3,074
Prepaid expenses 506 519
--------- -------
Total current assets 86,614 47,701
--------- -------
Property, plant and equipment, at cost:
Land 1,325 1,325
Buildings and leasehold improvements 15,163 15,090
Manufacturing, laboratory and office equipment 23,321 21,878
--------- -------
39,809 38,293
Less-Accumulated depreciation and amortization 26,590 25,617
--------- -------
Total property, plant and equipment, net 13,219 12,676
--------- -------
Deferred income taxes 5,987 7,801
Other assets 6,518 6,573
--------- -------
Total assets $112,338 $ 74,751
========= =======
Liabilities and Shareholders' Equity
Current liabilities:
Short-term debt $ 225 $ --
Accounts payable 9,321 8,119
Accrued payroll and related expenses 9,041 5,872
Other accrued expenses 6,152 6,046
Income taxes payable 4,096 3,382
--------- -------
Total current liabilities 28,835 23,419
--------- -------
Long-term debt 3,000 3,000
Other long-term liabilities 4,723 4,543
Deferred income taxes 7 8
Shareholders' equity:
Common Shares, stated value $.0125:
Authorized - 30,000,000; issued and outstanding -
13,736,974 in 2000 and 10,515,450 in 1999 172 132
Class B Common Shares, stated value $.0125:
Authorized - 9,000,000; issued and outstanding -
2,163,532 in 2000 and 5,385,056 in 1999 27 67
Capital in excess of stated value 17,160 9,071
Earnings reinvested in the business 62,211 42,623
Accumulated other comprehensive income (819) 112
Unamortized portion of restricted stock plan (196) (239)
Common Shares held in treasury, at cost (2,782) (7,985)
--------- -------
Total shareholders' equity 75,773 43,781
--------- -------
Total liabilities and shareholders' equity $ 112,338 $ 74,751
========= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE> 29
Consolidated Statements of Shareholders' Equity
For the years ended September 30, 2000, 1999 and 1998
(In Thousands of Dollars)
<TABLE>
<CAPTION>
Accumulated other
comprehensive income
--------------------
Capital Earnings Minimum
Class B in excess reinvested pension Cumulative
Common Common of stated in the liability translation
Shares Shares value business adjustment adjustment
---------- ---------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SEPTEMBER 30, 1997 $122 $70 $7,297 $25,773 $-- $250
Comprehensive Income:
Net Income 5,004
Translation adjustment 146
Total comprehensive income
Cash dividends:
Common Shares ($.0625 per (629)
share)
Class B Common Shares ($.05 (278)
per share)
Shares issued under stock plans 5 1,580
Repurchase of Common Shares
Gains from hedging net
investments in foreign
subsidiaries 33
Amortization
---------- ---------- --------- ----------- ----------- -----------
BALANCE SEPTEMBER 30, 1998 127 70 8,877 29,870 -- 429
Comprehensive Income:
Net Income 13,708
Translation adjustment (281)
Minimum pension liability adj. (39)
Total comprehensive income
Cash dividends:
Common Shares ($.07 per
share) (653)
Class B Common Shares
($.056 per share) (302)
Shares issued under stock plans 2 194
Conversion to Common Shares 3 (3)
Repurchase of Common Shares
Gains from hedging net
investments in foreign
subsidiaries 3
Amortization
---------- ---------- --------- ----------- ----------- -----------
BALANCE SEPTEMBER 30, 1999 132 67 9,071 42,623 (39) 151
Comprehensive Income:
Net Income 21,045
Translation adjustment (965)
Minimum pension liability adj. 34
Total comprehensive income
Cash dividends:
Common Shares ($.103 per
share) (1,151)
Class B Common Shares
($.0824 per share) (306)
Shares issued under stock plans 8,089
Conversion to Common Shares 40 (40)
Repurchase of Common Shares
Amortization
---------- ---------- --------- ----------- ----------- -----------
BALANCE SEPTEMBER 30, 2000 $172 $27 $17,160 $62,211 $(5) $(814)
========== ========== ========= =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Unamortized Common
portion of Shares Total
restricted held in shareholders
stock plan treasury equity
------------- ---------- ------------
<S> <C> <C> <C>
BALANCE SEPTEMBER 30, 1997 $(569) $(260) $32,683
Comprehensive Income:
Net Income
Translation adjustment
Total comprehensive income 5,150
Cash dividends:
Common Shares ($.0625 per (629)
share)
Class B Common Shares ($.05 (278)
per share)
Shares issued under stock plans 1,585
Repurchase of Common Shares (88) (88)
Gains from hedging net
investments in foreign
subsidiaries 33
Amortization 286 286
------------- ---------- -------------
BALANCE SEPTEMBER 30, 1998 (283) (348) 38,742
Comprehensive Income:
Net Income
Translation adjustment
Minimum pension liability adj.
Total comprehensive income 13,388
Cash dividends:
Common Shares ($.07 per
share) (653)
Class B Common Shares
($.056 per share) (302)
Shares issued under stock plans 1,077 1,273
Conversion to Common Shares --
Repurchase of Common Shares (8,714) (8,714)
Gains from hedging net
investments in foreign
subsidiaries 3
Amortization 44 44
------------- ---------- -------------
BALANCE SEPTEMBER 30, 1999 (239) (7,985) 43,781
Comprehensive Income:
Net Income
Translation adjustment
Minimum pension liability adj.
Total comprehensive income 20,114
Cash dividends:
Common Shares ($.103 per
share) (1,151)
Class B Common Shares
($.0824 per share) (306)
Shares issued under stock plans 8,436 16,525
Conversion to Common Shares --
Repurchase of Common Shares (3,233) (3,233)
Amortization 43 43
------------- ---------- -------------
BALANCE SEPTEMBER 30, 2000 $(196) $(2,782) $75,773
============= ========== =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE> 30
Consolidated Statements of Cash Flows
For the years ended September 30, 2000, 1999 and 1998
(In Thousands of Dollars)
<TABLE>
<CAPTION>
2000 1999 1998
-------- -------- ------
Cash flows from operating activities:
<S> <C> <C> <C>
Net income $21,045 $13,708 $ 5,004
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 2,920 2,923 3,653
Amortization of intangible assets -- -- 196
Deferred income taxes 1,330 475 (22)
Deferred compensation 507 183 331
Special charges -- -- 551
Gain on sale of businesses (953) (5,153) (2,852)
Change in current assets and liabilities:
Accounts receivable and other (11,772) (2,488) 6,625
Inventories (9,268) (1,581) 3,670
Prepaid expenses (358) 156 (648)
Other current liabilities 6,832 2,205 (3,320)
Other operating activities 266 (769) (155)
------- ------ -------
Net cash provided by operating activities 10,549 9,659 13,033
------- ------ -------
Cash flows from investing activities:
Capital expenditures (3,607) (1,545) (2,753)
Proceeds received from sale of assets -- 9,147 8,683
Cash expenditures for sale of assets -- (1,636) (759)
Other investing activities 55 58 96
------- ------ -------
Net cash (used in) provided by investing activities (3,552) 6,024 5,267
------- ------ -------
Cash flows from financing activities:
Net increase (decrease) in short-term debt 247 -- (16)
Payment of long-term debt -- (3,056) (11,314)
Proceeds from sale of Common Shares 5,788 925 1,458
Purchase of Treasury Shares (3,013) (8,366) --
Cash dividends (1,457) (955) (907)
------- ------ -------
Net cash provided by (used in) financing activities 1,565 (11,452) (10,779)
------- ------ -------
Effect of changes in foreign currency exchange
rates on cash and cash equivalents (580) (126) 73
------- ------ -------
Increase in cash and cash equivalents 7,982 4,105 7,594
Cash and cash equivalents at beginning of period 13,426 9,321 1,727
------- ------ -------
Cash and cash equivalents at end of period $21,408 $13,426 $ 9,321
======= ====== =======
Supplemental disclosures of cash flow information
Cash paid during the year for:
Income taxes $ 7,426 $ 3,641 $ 972
Interest 58 179 891
</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.
F-6
<PAGE> 31
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
telecommunications, semiconductor, optoelectronics, other electronic components
industries, and research and development. 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.
OTHER ACCRUED EXPENSES
Included in the "Other accrued expenses" caption of the Consolidated
Balance Sheets at September 30, 2000 and 1999, were $2,073 and $1,476,
respectively, for commissions payable to outside sales representatives of the
Company.
F-7
<PAGE> 32
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 Sheets at September 30, 2000 and 1999, were shares
repurchased through the Company's share repurchase programs, net of shares
reissued (see Note D), and shares repurchased to settle non-employee Directors'
fees deferred pursuant to the Keithley Instruments, Inc. 1996 Outside Directors
Deferred Stock Plan. The total number of shares held in treasury at September
30, 2000 was 510,292.
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, 2000, 1999 and 1998.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the reported financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
STOCK SPLIT/EARNINGS PER SHARE
On May 5, 2000, the Company's Board of Directors approved a two-for-one
split of its Common Shares and Class B Common Shares. The split was effected in
the form of a stock dividend payable on June 1, 2000, to shareholders of record
on May 18, 2000. All share and per share amounts have been adjusted to reflect
the split on a retroactive basis.
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:
2000 1999 1998
------------- ------------- -------------
Basic 14,698,456 14,894,162 15,599,014
Diluted 16,167,853 15,314,850 16,130,578
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.
F-8
<PAGE> 33
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 a swap instrument to mitigate the risk of
interest rate changes. The amount exchanged under the swap agreement is included
in the "Net financing (income) expenses" caption of the Consolidated Statements
of Income. The estimated fair value of the swap instrument 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.
OTHER ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" (SAB
101). SAB 101 provides guidance for public companies on the recognition,
presentation and disclosure of revenue in their financial statements. It
requires that an entity recognize revenue at the time a product has been
accepted by a customer, as defined by certain criteria. SAB 101 is effective no
later than the Company's fourth quarter of fiscal year 2001, and would have to
be adopted retroactively to the beginning of the fiscal year. The Company does
not believe SAB 101 will have a material impact on its consolidated results or
financial position.
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. In June 1999,
the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133 - an
amendment of FASB Statement No. 133" (SFAS 137). SFAS 137 deferred the effective
date of SFAS 133 for one year, therefore, SFAS 133 will be required to be
adopted in the Company's first quarter of its fiscal year ending September 30,
2001. The Company does not believe SFAS 133 will have a material impact on its
consolidated results or financial position.
F-9
<PAGE> 34
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 $.11 per share,
recorded in the fourth quarter of fiscal 1998.
On November 9, 1998, the Company sold certain assets used in the operation
of its Quantox product line to KLA-Tencor Corporation for $9,147 in cash. The
agreement, which was effective October 31, 1998, included the sale of the
Quantox inventory, certain machinery, equipment and other tangible personal
property. The Company retained the accounts receivable. The sale resulted in a
pretax gain of $4,808, or $.20 per share, recorded in the first quarter of
fiscal 1999.
During the fourth quarter of fiscal 1999, and the first and fourth quarters
of fiscal 2000, additional pretax gains of $345, or $.01 per share, $477, or
$.02 per share, and $476, or $.02 per share, respectively, were recorded for the
above mentioned sales of businesses. At the time of the sales of these
businesses, the Company established liabilities for certain items that were to
be settled at future dates. The additional adjustments recorded in fiscal 1999
and 2000 represent the settlement of certain of these issues.
F-10
<PAGE> 35
NOTE C - SPECIAL CHARGES
An analysis of special charges recorded in the Consolidated Statement of
Income in 1998 is as follows:
Description:
Write off of goodwill $ 519
Severance, outplacement and
other personnel costs 290
Lease and related costs 280
Impaired inventory and equipment 122
Relocation of facility and employees 25
European operating subleases (64)
------
Totals $1,172
======
The Company did not record any special charges during fiscal 1999 and 2000.
Due to continued weakness in the semiconductor capital equipment industry
throughout 1998, 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 wafer-level
reliability business, which was a 1996 acquisition. 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 on a leased facility the Company would 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 $.04 per
share, include $551 in noncash charges.
F-11
<PAGE> 36
NOTE D - SHARE REPURCHASE PROGRAMS
On November 11, 1998, the Company commenced a tender offer to repurchase up
to 4,000,000 of its Common Shares, or approximately 25 percent of the
outstanding Common Shares and Class B 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 $3.50 nor less
than $2.875 per share. The offer expired on December 10, 1998, and resulted in
the purchase of 811,466 Common Shares at $3.50 per share plus expenses of
approximately $.50 per share.
At the conclusion of the Dutch Auction, the Company's Board of Directors
approved a program to repurchase up to 2,000,000 Common Shares on the open
market over a two-year period. The shares repurchased under both the Dutch
Auction and the stock repurchase program are to be held as treasury stock, and
from time to time, have been reissued in settlement of stock options and the
Company's employee stock purchase plan. During fiscal 2000 and 1999, the Company
purchased 304,800 and 1,074,140 Common Shares at average prices of $9.89 and
$4.77 per share including commissions, respectively. Since commencing the tender
offer in November 1998, the Company has purchased under both buy back plans a
total of 2,190,406 Common Shares at an average price of $5.20 per share
including commissions. During fiscal 2000 and 1999, the Company reissued
1,596,202 and 200,854 treasury shares, respectively, in settlement of shares
purchased through the Company's stock option plans and employee stock purchase
plan. At September 30, 2000, 393,350 Common Shares related to the share purchase
programs remained as treasury shares at an average cost of $5.36 per share
including commissions.
F-12
<PAGE> 37
NOTE E - FINANCING ARRANGEMENTS
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------
2000 1999
<S> <C> <C>
Short-term debt:
Revolving loans in local currency with various banks,
principal due monthly with 30-day rollover provision,
September 30, 2000 interest rate of 5.6% $ 225 $ --
====== ======
Long-term debt:
Revolving loans with various banks with interest
due monthly; principal due March 28, 2002:
U.S. dollar denominated loans with an interest
rate of 7.6% and 6.3% based on LIBOR at $3,000 $3,000
September 30, 2000 and 1999, respectively
Less-current installments on long-term debt -- --
====== ======
Total long-term debt $3,000 $3,000
====== ======
</TABLE>
The Company's credit agreement, which expires March 28, 2002, is a $25,000
debt facility ($3,000 outstanding at September 30, 2000) 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
.175% and .25% on the total amount of the commitment. Additionally, the Company
has a number of other credit facilities in various currencies aggregating
$4,812.
At September 30, 2000, the Company had total unused lines of credit with
domestic and foreign banks aggregating $26,587, including short-term and
long-term lines of credit of $4,587 and $22,000, respectively. Under certain
long-term debt agreements, the Company is required to comply with various
financial ratios and covenants. The Company was in compliance with all such debt
covenants during each of the three years ended and at September 30, 2000.
Principal payments on long-term debt are due in 2002.
The three-month LIBOR interest rate was 6.8 and 6.1 percent at September
30, 2000 and 1999, respectively.
The Company has an interest rate swap agreement with a commercial bank to
effectively fix its interest rate on $3,000 of variable rate debt. The agreement
effectively fixes the interest rate on a notional $3,000 of variable LIBOR rate
debt at 6.8 percent, and expires September 19, 2005. The interest differential
to be paid or received on the notional amount of the swap is recognized over the
life of the agreement. At September 30, 2000 interest rate levels, the swap
requires the bank to make payments to the Company. The bank would pay the
Company approximately $26 to terminate the agreement.
Following is an analysis of net financing (income) expenses:
2000 1999 1998
---- ---- ----
Interest expense $ 229 $ 220 $1,137
Investment income (674) (399) (97)
----- ----- ------
$(445) $(179) $1,040
===== ===== =====
F-13
<PAGE> 38
NOTE F - 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 $(367), $40 and $(138) for 2000, 1999 and 1998, respectively.
At September 30, 2000, the Company had obligations under foreign exchange
forward contracts to sell 2,900,000 Euros and 550,000 British pounds at various
dates through December 2000. The total U.S. dollar equivalent amount of these
foreign exchange contracts of $3,410 includes an unrecognized gain of $41 at
September 30, 2000.
F-14
<PAGE> 39
NOTE G - EMPLOYEE BENEFIT PLANS
The Company has noncontributory 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. A summary of the
components of net periodic pension cost is shown below:
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Service cost-benefits earned during the period $ 997 $ 1,011 $ 945
Interest cost on projected benefit obligation 1,517 1,443 1,356
Actual return on assets (1,965) (2,141) (3,791)
Net amortization and deferral (209) 92 2,073
------- ------- ------
Net periodic pension cost $ 340 $ 405 $ 583
======= ====== ======
</TABLE>
The following table sets forth the funded status of the Company's plans and
the related amounts recognized in the Consolidated Balance Sheets at September
30, 2000 and 1999:
<TABLE>
<CAPTION>
Non-U.S.
United States Plan Plan
Overfunded Underfunded*
--------------------- -------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
CHANGE IN PROJECTED BENEFIT OBLIGATIONS:
Benefit obligation at beginning of year $18,035 $16,999 $ 3,744 $ 4,098
Service cost 858 831 139 180
Interest cost 1,317 1,213 200 229
Actuarial loss (gain) 756 (397) 21 (321)
Benefits paid (489) (611) (104) (84)
Plan amendment 399 -- -- --
Foreign currency exchange rate changes -- -- (678) (358)
------- ------- ------- -------
Benefit obligation at year end $20,876 $18,035 $ 3,322 $ 3,744
======= ======= ======= =======
</TABLE>
F-15
<PAGE> 40
<TABLE>
<CAPTION>
Non-U.S.
United States Plan Plan
Overfunded Underfunded*
--------------------- -------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
CHANGE IN PLAN ASSETS:
Fair value of plan assets at beginning
of year $25,176 $23,500 $645 $655
Actual return on pension assets 1,966 2,130 (1) 10
Employer contributions -- 157 38 50
Benefits paid (489) (611) (13) (11)
Foreign currency exchange rate changes -- -- (114) (59)
------ ------- ------ ------
Fair value of plan assets at end of year 26,653 25,176 555 645
------ ------- ------ ------
Funded status - over (under) funded 5,777 7,141 (2,767) (3,099)
Unrecognized actuarial gains (4,545) (5,582) 182 151
Unrecognized prior service cost 1,562 1,329 40 53
Unrecognized initial net (asset) obligation (227) (270) 121 165
------ ------- ------ ------
Prepaid pension assets (pension liability)
recognized in the Consolidated Balance
Sheets $2,567 $2,618 $(2,424) $(2,730)
====== ======= ====== ======
</TABLE>
*The Company has purchased indirect insurance of $2,335 which is expected to be
available to the Company as non-U.S. pension liabilities of $2,424 mature. The
caption, "Other assets," on the Company's Consolidated Balance Sheets includes
$2,335 and $2,634 at September 30, 2000 and 1999, respectively, for this asset.
In accordance with Statement of Financial Accounting Standards No. 87,
"Employers' Accounting for Pensions," this Company asset is not included in the
non-U.S. plan assets.
The significant actuarial assumptions as of the year-end measurement date
were as follows:
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
UNITED STATES PENSION PLAN:
Discount rate 7.0% 7.25% 7.5%
Expected long-term rate of return on plan assets 8.25% 8.25% 8.25%
Rate of increase in compensation levels 5.0% 5.0% 5.0%
NON-U.S. PENSION PLAN:
Discount rate 6.0% 6.0% 6.0%
Expected long-term rate of return on plan assets 7.0% 7.0% 7.0%
Rate of increase in compensation levels 4.5% 4.0% 4.0%
</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.
F-16
<PAGE> 41
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 businesses" 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 $638, $562 and $443 in
2000, 1999 and 1998, respectively. Additionally, the Company has a profit
sharing program in which employee participants at their discretion may opt for a
cash payout or may defer the bonus in the 401(k) plan. Expense for the
additional profit sharing program amounted to $1,475, $370 and $0 in 2000, 1999
and 1998, respectively.
The Company also has an unfunded supplemental executive retirement plan
(SERP) for former key employees which includes retirement, death and disability
benefits. Expense recognized for these benefits was $36, $37 and $12, for 2000,
1999 and 1998, respectively. Liabilities of $226 and $190 were accrued in the
"Other long-term liabilities" caption on the Company's Consolidated Balance
Sheets to meet all SERP obligations at September 30, 2000 and 1999,
respectively.
F-17
<PAGE> 42
NOTE H - STOCK PLANS
STOCK OPTION PLANS
Under the 1984 Stock Option Plan and the 1992 Stock Incentive Plan,
1,350,000 and 5,400,000 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 cannot be
granted with an exercise price 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 400,000
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
10,000 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 120,000 of the Company's
Common Shares to non-employee Directors, with each non-employee Director
automatically granted an option to purchase 1,200 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.
F-18
<PAGE> 43
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, 1997 2,807,064 $ 4.49 1,187,214 $ 3.51
Options granted at fair market value 560,100 2.85
Options granted above fair market value 76,408 5.09
Options granted below fair market value 60,644 2.42
Options exercised (222,456) 2.69
Options forfeited (528,022) 4.73
--------------------------------------------------------------
September 30, 1998 2,753,738 4.22 1,415,688 3.97
Options granted at fair market value 626,400 4.10
Options granted above fair market value 91,316 2.82
Options granted below fair market value 66,368 3.62
Options exercised (315,838) 2.55
Options forfeited (195,354) 3.76
--------------------------------------------------------------
September 30, 1999 3,026,630 4.34 1,570,338 4.71
Options granted at fair market value 649,850 41.16
Options granted above fair market value 4,000 50.13
Options granted below fair market value 2,400 3.33
Options exercised (1,579,908) 4.86
Options forfeited (10,350) 8.60
--------------------------------------------------------------
September 30, 2000 2,092,622 $15.45 530,676 $ 5.33
==============================================================
</TABLE>
The options outstanding at September 30, 2000 have been segregated into
ranges for additional disclosure as follows:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------
Outstanding Exercisable
---------------------------------------------------------------------------------------------------------------
Weighted
Average Weighted Weighted
Range of Exercise Number of Remaining Average Number of Average
Prices Shares Contractual Exercise Shares Exercise
Outstanding Life Price Exercisable Price
------------------------ ----------------- ---------------- ----------------- ----------------- ---------------
<S> <C> <C> <C> <C> <C>
$2.38 - $2.53 438,362 7.70 years $ 2.52 213,012 $ 2.52
$2.59 - $4.13 641,816 8.73 years $ 4.09 12,916 $ 3.58
$4.28 - $32.28 457,594 7.12 years $ 7.63 304,748 $ 7.38
$45.13 - $66.75 554,850 9.84 years $45.25 -- --
---------- ----------
2,092,622 8.46 years $15.45 530,676 $ 5.33
------------------------ ----------------- ---------------- ----------------- ----------------- ---------------
</TABLE>
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
F-19
<PAGE> 44
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 1,500,000 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 2000,
110,705 shares were purchased by employees at a price of $3.88 per share. During
1999, 116,786 shares were purchased at a price of $3.69 per share.
PRO FORMA DISCLOSURE
As of September 30, 2000, 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 2000 and 1999, $49 and $44, 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 option plans
in 2000, 1999 and 1998 was $23.56, $1.76 and $1.14, respectively. The fair value
of options at the date of grant was estimated using the Black-Scholes model with
the following weighted average assumptions:
2000 1999 1998
---- ---- ----
Expected life (years) 4.3 4.6 4.4
Risk-free interest rate 6.2% 5.5% 4.8%
Volatility 66.0% 46.0% 41.5%
Dividend yield 0.2% 1.3% 1.3%
The weighted average fair value of purchase rights granted under the 1993
Employee Stock Purchase Plan in 2000, 1999 and 1998 was $3.12, $1.47 and $1.47,
respectively. The fair value of employees' purchase rights was estimated using
the Black-Scholes model with the following assumptions:
2000 1999 1998
---- ---- ----
Expected life (years) 1.0 1.0 1.0
Risk-free interest rate 5.5% 5.0% 5.1%
Volatility 57.4% 42.7% 41.5%
Dividend yield 0.7% 1.3% 1.3%
F-20
<PAGE> 45
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:
2000 1999 1998
---- ---- ----
Pro forma net income $19,377 $12,706 $4,226
Pro forma earnings per share:
Basic $ 1.32 $ 0.85 $ .27
Diluted $ 1.20 $ 0.83 $ 0.26
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.
F-21
<PAGE> 46
NOTE I - INCOME TAXES
For financial reporting purposes, income before income taxes includes the
following components:
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
United States $27,695 $14,130 $4,923
Non-U.S. 4,776 2,587 3,266
------ ------ -----
$32,471 $16,717 $8,189
====== ====== =====
</TABLE>
The provision (benefit) for income taxes is as follows:
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Current:
Federal $ 6,400 $1,143 $1,416
Non-U.S. 2,424 1,191 1,622
State and local 1,272 200 169
------ ----- -----
Total current 10,096 2,534 3,207
------ ----- -----
Deferred:
Federal 1,249 275 310
Non-U.S. 81 200 (332)
------ ----- -----
Total deferred 1,330 475 (22)
------ ----- -----
Total provision $11,426 $3,009 $3,185
====== ===== =====
</TABLE>
Differences between the statutory United States federal income tax and
the effective income tax rates are as follows:
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Federal income tax at statutory rate $11,365 $5,684 $2,784
State and local income taxes 832 133 111
Tax on non-U.S. income and tax credits (563) (72) (333)
Change in valuation allowance -- (1,928) --
Future rate change (250) -- --
Adjustment for prior years' taxes -- (168) 480
Tax credits -- (685) --
Other 42 45 143
------ ------ ------
Effective income tax $11,426 $3,009 $3,185
====== ====== ======
</TABLE>
F-22
<PAGE> 47
Significant components of the Company's deferred tax assets and liabilities
as of September 30, 2000 and 1999 are as follows:
Deferred Tax Assets: 2000 1999
------------------- ---- ----
Nonqualified stock options $10,518 $ --
Capitalized research and development 4,058 4,824
Inventory 1,805 1,402
Deferred compensation 1,130 784
Depreciation 986 980
Warranty 337 367
Royalty 184 --
Intangibles 170 181
State and local taxes 1,211 1,196
Alternative minimum tax credit carryforwards -- 1,148
General business credit carryforwards -- 68
Other 774 1,123
-------- -------
Total deferred tax assets 21,173 12,073
-------- -------
Deferred Tax Liabilities:
------------------------
Pension contribution 899 890
Other 359 316
-------- -------
Total deferred tax liabilities 1,258 1,206
-------- -------
Net deferred tax assets $19,915 $10,867
======== =======
The net change in the deferred tax assets from September 30, 1999 to
September 30, 2000 is primarily the result of an adjustment for nonqualified
stock option exercises, with such change having a balance sheet impact only.
At September 30, 2000, the Company had no tax credit carryforwards.
F-23
<PAGE> 48
NOTE J - LEASES
The Company leases certain equipment under capital leases. Manufacturing,
laboratory and office equipment includes $495 of leased equipment at September
30, 2000 and 1999. Accumulated depreciation includes $495 and $494 at September
30, 2000 and 1999, 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
$410 in 2000, $211 in 1999 and $95 in 1998) for 2000, 1999 and 1998 was $1,159,
$1,657 and $2,165, respectively. Future minimum lease payments under operating
leases are:
2001 $1,846
2002 1,477
2003 1,186
2004 1,069
2005 1,026
After 2005 1,234
-----
Total minimum operating lease payments $7,838
=====
F-24
<PAGE> 49
NOTE K - SEGMENT AND GEOGRAPHIC INFORMATION
The Company adopted Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information," for the
fiscal year ended September 30, 1999. This statement designated the internal
organization, that is used by management, for making operating decisions and
assessing performance as the source of the Company's reportable segments. It
also required disclosures about products and service, geographic areas and major
customers.
The Company's business is to develop measurement-based solutions to verify
customers' product performance. All the Company's products are computer based
(multi-point) systems operating under software control. The Company's customers
are engineers, technicians and scientists in manufacturing, product development
and research functions within a range of industries. Keithley's advanced
hardware and software is used for process monitoring, production test and basic
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's management determined the Company
operates in a single industry segment. The operations by geographic area are
presented below. The basis for attributing revenues from external customers to a
geographic area is the location of the customer.
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
NET SALES:
United States $ 76,291 $ 50,672 $ 60,653
Europe 46,379 31,986 33,694
Pacific Basin 21,891 12,513 17,253
Other 6,000 5,767 6,176
--------- --------- ---------
$150,561 $100,938 $117,776
======= ======= =======
LONG-LIVED ASSETS:
United States $16,856 $15,898 $17,075
Germany 2,592 3,017 3,136
Other 289 334 392
-------- -------- --------
$19,737 $19,249 $20,603
======= ======= =======
</TABLE>
F-25
<PAGE> 50
NOTE L - 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 consolidated financial position,
results of operations or cash flows.
F-26
<PAGE> 51
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 2000
-----------
Net sales $29,760 $37,271 $40,492 $43,038
Gross profit 18,000 22,811 25,057 26,068
Gain on sale of business 477 -- -- 476
Income before income taxes (1) 5,400 7,524 9,052 10,495
Net income 3,510 4,826 5,783 6,926
Diluted earnings per share (1) .23 .30 .36 .42
Fiscal 1999
-----------
Net sales $20,881 $24,387 $25,947 $29,723
Gross profit 12,075 14,635 15,985 18,320
Gain on sale of business 4,808 -- -- 345
Income before income taxes (1) 5,772 2,756 3,357 4,832
Net income (2) 3,783 1,984 4,612 3,329
Diluted earnings per share (1) (2) .24 .13 .31 .22
</TABLE>
(1) The first and fourth quarters of fiscal 2000 include pretax income of $477,
or $.02 per share, and $476, or $.02 per share, for the gain on the sales
of previously disposed businesses, respectively. The first and fourth
quarters of fiscal 1999 include pretax income of $4,808, or $.20 per share,
and $345, or $.01 per share, for the gain on the sales of businesses,
respectively.
(2) The third quarter of fiscal 1999 includes a favorable adjustment of $2,195,
or $.15 per share, from settlements of prior years' tax liabilities and the
release of certain valuation reserves due to improved profitability from U.
S. operations.
F-27
<PAGE> 52
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, 2000:
Valuation allowance for
deferred tax assets $ -- $ -- $ -- $ --
For the Year Ended
September 30, 1999:
Valuation allowance for
deferred tax assets $3,127 $ -- $3,127 $ --
For the Year Ended
September 30, 1998:
Valuation allowance for
deferred tax assets $3,166 $ 54 $ 93 $3,127
</TABLE>
(1) Represents utilization of tax credits, capital loss carryovers and release
of valuation reserve.
F-28
