-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, T8HMFXyiK/8KgVuB1NBXD/n+AzQSbHLkIM6sTAcq4jZdhWYAj5CRDbnnLAD/muMu +jIBXspSHM4c8v8Ecu/xqw== 0000950152-95-003047.txt : 19951226 0000950152-95-003047.hdr.sgml : 19951226 ACCESSION NUMBER: 0000950152-95-003047 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951222 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: KEITHLEY INSTRUMENTS INC CENTRAL INDEX KEY: 0000054991 STANDARD INDUSTRIAL CLASSIFICATION: INSTRUMENTS FOR MEAS & TESTING OF ELECTRICITY & ELEC SIGNALS [3825] IRS NUMBER: 340794417 STATE OF INCORPORATION: OH FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-09965 FILM NUMBER: 95604037 BUSINESS ADDRESS: STREET 1: 28775 AURORA RD CITY: SOLON STATE: OH ZIP: 44139 BUSINESS PHONE: 2162480400 10-K 1 KEITHLEY INSTRUMENTS 10-K 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, 1995 Commission file number 1-9965 ------------------ ------ KEITHLEY INSTRUMENTS, INC. - --------------------------------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) OHIO 34-0794417 - ----------------------------------------- ------------------------------------------- (State of incorporation or organization) (I.R.S. Employer Identification No.) 28775 AURORA ROAD, SOLON, OHIO 44139 - ----------------------------------------- ------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (216) 248-0400 -------------- Securities registered pursuant to Section 12(b) of the Act: COMMON SHARES, WITHOUT PAR VALUE NEW YORK STOCK EXCHANGE - ----------------------------------------- ------------------------------------------- (Title of each class) (Name of exchange on which registered)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes X No -------- -------- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] As of December 12, 1995 there were outstanding 4,364,802 Common Shares, without par value, and 2,893,796 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 $65,792,752 and the aggregate market value of the Class B Common Shares of the Registrant held by non-affiliates was $3,339,943 for a total aggregate market value of all classes of Common Shares held by non-affiliates of $69,112,947. 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 12, 1995, which was $16.375. For purposes of this information, the 346,924 Common Shares and 2,689,830 Class B Common Shares which were held by the officers and Directors of the Company were deemed to be voting stock held by affiliates. DOCUMENTS INCORPORATED BY REFERENCE
DOCUMENT Part of 10-K - -------- ------------ 1. Annual report to shareholders for the fiscal year ended Parts I and II September 30, 1995 (only the portions listed in this report). 2. Proxy statement for the annual meeting of shareholders to be Part III held on February 10, 1996 (only the portions listed in this report).
2 KEITHLEY INSTRUMENTS, INC. 10-K ANNUAL REPORT
TABLE OF CONTENTS PART I: PAGE ---- Item 1. Business................................................. 1 Item 2. Properties............................................... 9 Item 3. Legal Proceedings........................................ 10 Item 4. Submission of Matters to a Vote of Security Holders...... 10 PART II: Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters.................................. 13 Item 6. Selected Financial Data.................................. 13 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.................. 13 Item 8. Financial Statements and Supplementary Data.............. 13 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................. 13 PART III. Item 10. Directors and Executive Officers of the Registrant....... 14 Item 11. Executive Compensation................................... 14 Item 12. Security Ownership of Certain Beneficial Owners and Management........................................... 14 Item 13. Certain Relationships and Related Transactions........... 14 PART IV: Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K............................................. 15
3 PART I. ITEM 1 - BUSINESS. -------- General - ------- Keithley Instruments, Inc. is a corporation which was founded in 1946 and organized under the laws of the State of Ohio on October 1, 1955. Its principal executive offices are located at 28775 Aurora Road, Solon, Ohio 44139; telephone (216) 248-0400. References herein to the "Company" or "Keithley" are to Keithley Instruments, Inc. and its subsidiaries unless the context indicates otherwise. Products - -------- Keithley Instruments, Inc. provides instrumentation to semiconductor manufacturers, medical equipment manufacturers, and growth segments of the electronics industry. Scientists and engineers around the world use Keithley's advanced hardware and software for measurement, test, data acquisition, and control. Although the Company's products vary in capability, sophistication, use, size and price, they basically test, measure, and analyze electrical and physical properties. As such, the Company considers its business to be in a single industry segment. For each of the last three fiscal years, more than 90% of the Company's revenue was derived from the sale of electronic test and measurement instrumentation and data acquisition and analysis hardware and software, which represents one class of similar products. The operating units and product groups of the Company are described below: TEST INSTRUMENTATION GROUP. The Test Instrumentation Group supplies instruments for benchtop and systems applications and automatic parametric test systems (APT). The Company's largest division, it is an internationally recognized leader in sensitive instruments for measuring a wide range of electrical properties such as voltage, resistance, current, capacitance and charge. APT products can be found in semiconductor fabrication facilities throughout the world. The Test Instrumentation Group is comprised of the following major product lines whose models, except for APT products, generally range in price from $1,000 to $10,000: SENSITIVE INSTRUMENTS. This product group includes electrometers, picoammeters, sensitive digital voltmeters, micro-ohmmeters, and certain other instruments which are distinguished by their extreme sensitivity, resolution and accuracy as compared to the capabilities of conventional meters. Sensitive instruments are used by scientists, engineers, and researchers for the study of materials, semiconductors, and superconductors. Typical customers are industrial and government research laboratories, educational institutions, and electronics manufacturers. 1 4 DIGITAL MULTIMETERS. These instruments are used in the measurement of voltage, current and resistance, and other electrical parameters in applications not requiring the extreme sensitivity of scientific products. The digital multimeter product line includes several models of general purpose and specialized multimeters which differ by their resolution, accuracy, sensitivity, physical size and ability to be integrated into a personal computer-based test system. General purpose multimeters are used by engineers and technicians for manual measurements in research and design testing. Specialized multimeters can be used in automated tests requiring rapid or repetitive measurements for design and quality control. SWITCHES AND SOURCES. Switching instruments are used to route electrical signals in test systems to measurement and source instrumentation. This allows many devices or test points to be measured with a minimum number of instruments. Switch products together with Sensitive, Digital Multimeter, Source, I-V and C-V instruments can be integrated into computer-based systems to provide flexible, automated testing and measurement. Switch products are sold to scientists and engineers in research, semiconductor and electronic manufacturing markets. Sources generate the precise voltage and currents needed to test electronic devices and investigate properties of materials. Source products are sold to scientists and engineers in research, semiconductor and electronic manufacturing markets, especially where stable signals of low level current and voltage are needed. These sources can be interfaced with computers as part of an automated test system, or used manually on the laboratory bench. SOURCE MEASURE UNITS. These are programmable instruments capable of sourcing and measuring voltage and current, thus replacing the functionality of four instruments with one reliable, compact unit. These versatile instruments cover a wide dynamic range of voltage and current and their combination of high speed and sensitivity have made these units ideal for engineers and scientists in the research, semiconductor, and electronics manufacturing customer groups. C-V (CAPACITANCE VERSUS VOLTAGE). C-V products include high-frequency and quasistatic C-V meters, measurement and analysis software, and computer-based test systems. C-V products are used by scientists and engineers in semiconductor manufacturing facilities, industrial and governmental research laboratories, and educational institutions to research, develop, and characterize semiconductor devices, materials and manufacturing processes. APT PRODUCTS are computer-based analog parametric testing systems that measure various electrical characteristics of semiconductor materials. The Company is one of the leading suppliers of these systems for semiconductor production applications. In production, the systems allow manufacturers to monitor quality control parameters 2 5 during fabrication of integrated circuits to improve manufacturing yields. In research, the systems are used to analyze the characteristics of semiconductor materials in the development of integrated circuit devices. The systems can also be used to develop integrated circuit manufacturing processes. A typical system incorporates instrumentation and software developed by the Test Instrumentation Group and computer hardware manufactured by others. The APT Group integrates the system's major components and, in most cases, customizes the system to specification, installs and services the equipment and software, and provides customer training. Selling prices for these products generally range from $50,000 to $250,000. PROCESS MONITORING GROUP. The Process Monitoring Group designs, develops, manufactures and markets products based on the direct wafer measurement or non-contact technology purchased from International Business Machines in May, 1994. During fiscal 1995, the division incurred costs to develop and market the Quantox product, the first product in a planned family of products to be developed by Keithley based on the non-contact technology. Revenues from Quantox are expected to begin in the second half of fiscal 1996. RADIATION MEASUREMENTS DIVISION. The Radiation Measurements Division designs, develops, manufactures and markets products and systems that accurately measure the radiation emission levels of x-ray machines and nuclear radiation sources and are used to calibrate radiation therapy and x-ray equipment in hospitals and manufacturing processes. Customers include hospitals, diagnostic x-ray equipment manufacturers, radiation researchers and physicists and field service organizations. Selling prices for standard products range from $500 to $10,500 per instrument, and products designed and manufactured for specific customer applications sell for up to $100,000. KEITHLEY METRABYTE DIVISION. The Keithley MetraByte Division designs, develops, manufactures and markets a wide range of data acquisition and analysis hardware and software products designed for use with personal computers. These products are used in thousands of applications worldwide wherever a number of variables must be monitored and analyzed quickly. Automotive engineering, rocket engine testing, laser labeling systems, high-speed package handling systems, oil drilling and standby power generating systems are among the examples of the applications of the Company's data acquisition products. Selling prices for Keithley MetraByte products generally range from $100 to $3,000. The Division markets its products under the brand names Keithley MetraByte, Keithley Asyst and Acculex and is composed of the following product groups: PLUG-IN DATA ACQUISITION BOARDS provide data acquisition capabilities in the form of a board that is installed into a slot of the computer. The Company offers a wide range of plug-in data acquisition boards in terms of the number of channels, input ranges and sampling rates. They are marketed worldwide to researchers and scientists engaged in laboratory automation and experimentation, as well as to engineers 3 6 involved with process control and data collection applications. These products are marketed primarily through direct marketing and catalog mailings. SOFTWARE products are specialized personal computer-based scientific data acquisition, analysis and graphics software products. Scientists and engineers often combine Keithley software together with data acquisition hardware or test and measurement instrumentation of other manufacturers. The software products are used with IBM and most compatible computers and can run in Microsoft Windows. ACCULEX products include digital panel meters and panel printers. These products display machine parameters, capture results for permanent storage and enunciate alarms. These products are marketed primarily through direct marketing and catalog mailings. DISTRIBUTED I/O products include Keithley's WORKHORSE and MetraBus product offerings. These products are primarily used in industrial monitoring and control applications. COMMUNICATION products include IEEE-488 bus interfaces and software for interfacing computers with programmable measurement instrumentation. These products are marketed through direct marketing and catalog mailings. DATA ACQUISITION INSTRUMENTS include personal computer-based workstations that collect data from, and provide control over, a variety of test and measurement modules. A typical workstation consists of a standard software package and hardware external to the personal computer that utilizes various plug-in module cards that allow a user to customize the workstation for a specific application, including research, product test and pilot plant process monitoring. PERSONAL COMPUTER INSTRUMENT PRODUCTS (PCIP) are instruments contained entirely on boards that fit into an expansion slot of almost any personal computer. Included in the PCIP offering are a digital multimeter, scanner, oscilloscope, function generator and a counter. Applications include bench top engineering and automatic production testing. These products are marketed primarily through direct marketing and catalog mailings. AGENCY PRODUCTS. The Company markets and distributes certain products manufactured by approximately nine test and measurement companies. These products are marketed and distributed primarily by the Company's European operations and are complementary to, but not competitive with, products manufactured by the Company. 4 7 New Products During Fiscal Year 1995 - ------------------------------------ Several new products were introduced during fiscal 1995 including the following: THE TEST INSTRUMENTATION GROUP introduced several new products including the Model 2000 6 1/2-digit digital multimeter (DMM). Ten times faster than any other DMM in its class, the Model 2000 includes multipoint scanning capability not found in any other DMM in its price range of under $1,000. Also introduced was the Model 6517 electrometer/high-resistance meter. The 6517 is used in production test of electrical insulating materials and other products such as polymer coatings and latex gloves where product consistency and quality are critical. THE PROCESS MONITORING GROUP introduced the Quantox oxide characterization system, the first product incorporating the non-contact direct wafer measurement technology purchased from International Business Machines in May, 1994. While Quantox will not contribute to revenues until the second half of fiscal 1996, it has generated a significant amount of customer interest since its introduction at the Semicon-West trade show in July, 1995. THE RADIATION MEASUREMENTS DIVISION introduced the TRIAD Quality Assurance (QA) for Windows software. The TRIAD QA for windows software works with the TRIAD Kit and a personal computer to perform quality assurance testing on diagnostic x-ray generators for all modalities. THE KEITHLEY METRABYTE DIVISIONintroduced several new products including VTX (Visual Test Extension) software. VTX adds significant data acquisition and analysis functions to Visual Basic for Windows allowing greater flexibility and programming speed than the proprietary software currently available. Several new boards were introduced including the DAS-1800AO (Analog Outputs) board. Like all members of the DAS-1800 series, the DAS-1800AO supports continuous, high-speed data acquisition under the familiar Windows environment or DOS. Also introduced during fiscal 1995 was the DASCard-1000 series of PCMCIA data acquisition cards for notebook computers. Providing a cost-effective solution for field applications, the DASCard-1000 can be installed in seconds and permits a wide variety of low to mid-level data acquisition applications, bringing data acquisition and analysis in the field or on the factory floor. Geographic Markets and Distribution - ----------------------------------- Substantially all of the Company's products are manufactured in Ohio and Massachusetts and are sold throughout the world in many developed countries. The Company's principal markets are the United States, Europe and the Pacific Basin. In the United States, the Company's products are sold by the Company's sales personnel, independent sales representatives and through direct marketing and catalog mailings. United States sales offices are located in Solon, Ohio; Santa Clara, California and Taunton, Massachusetts. The Company markets its products directly in European countries in which it has a wholly owned sales subsidiary and through distributors in other countries. European 5 8 subsidiaries have sales and service offices located in or near London, Munich, Paris, Amsterdam, Zurich and Milan. The Company also has a sales office in Beijing, China. Sales in markets outside the United States, Europe and China are made through independent sales representatives and distributors. The Company's Japanese subsidiary supports independent sales representatives and distributors in the Pacific Basin. 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 are generally not patentable 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 engineering, research and development, product testing, electronic service or repair, and educational and governmental research. During the fiscal year ended September 30, 1995 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. 6 9 Backlog - ------- The Company's backlog of unfilled orders amounted to approximately $11,284,000 as of September 30, 1995 and approximately $7,742,000 as of September 30, 1994. It is expected that the majority of the orders included in the 1995 backlog will be delivered during fiscal 1996; however, the Company's past experience indicates that a small portion of orders included in the backlog may be canceled. Competitive Conditions - ---------------------- The Company competes on the basis of quality, performance, service, warranty and price, with quality and performance frequently being dominant. There are many firms in the world engaged in the manufacture of electronic test and measurement instruments, some of which are larger and have greater financial resources than the Company. The Company's competitors vary between product lines and certain manufacturers compete with the Company in multiple product lines. The Company's principal competitors are Hewlett-Packard Company, Fluke Corporation, National Instruments, Inc., Data Translation, Inc. and Advantest Corporation. 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 $15,385,000 in 1995, $11,551,000 in 1994 and $10,304,000 in 1993, or approximately 14%, 13% and 11% of net sales, respectively, for each of the last three fiscal years. Research contracts are not obtained from customers, nor does the Company conduct any research work under government development contracts. During fiscal 1994, the Company expensed $3,300,000 to acquire the right to develop and commercialize direct wafer measurement technology from International Business Machines. 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. 7 10 Employees - --------- As of September 30, 1995, the Company employed 659 persons, 98 of whom were located outside the United States. None of the Company's employees are covered under the terms of a collective bargaining agreement and the Company believes that relations with its employees are good. Foreign Operations and Export Sales - ----------------------------------- Information related to foreign and domestic operations and export sales is incorporated by reference to Note J of the Notes to the Consolidated Financial Statements on page 31 of the Company's 1995 Annual Report to Shareholders, a copy of which is filed as Exhibit 13 to this report. The Company has significant revenues from outside the United States which increase the complexity and risk to the Company. These risks include increased exposure to the risk of foreign currency fluctuations and the potential economic and political impacts from conducting business in foreign countries. With the exception of changes in the value of foreign currencies which is not possible to predict, the Company believes that its foreign subsidiaries and other larger international markets are in countries where the economic and political climate is generally stable. 8 11 ITEM 2 - PROPERTIES. ----------- The Company believes that the facilities owned and leased by it are well maintained, adequately insured and suitable for their present and intended uses. Pertinent information concerning the principal properties of the Company and its subsidiaries is as follows:
Type of Acreage (Land) Owned Properties Facility Square Footage (Building) - ---------------- -------- ------------------------- Location -------- Solon, Ohio Executive offices, Engineering, Manufacturing, 26.1 Acres Marketing and Sales 125,000 square feet Solon, Ohio Engineering, Manufacturing, Marketing, Sales, Service and 7.0 Acres Administration 32,000 square feet Lease Type of Square Expiration Leased Properties Facility Footage Date - ----------------- -------- ------- ---- Location -------- Taunton, Manufacturing, Marketing, Massachusetts Service and Administration 41,000 June 30, 1997 Taunton, Engineering, Sales Massachusetts and Administration 31,000 June 30, 1997 Solon, Ohio Engineering, Manufacturing, 21,600 March 31, 1997 Marketing, Sales, Service and Administration Solon, Ohio Administration 2,700 March 31, 1997 Santa Clara, Sales and Service 4,355 October 15, 1997 California
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Lease Type of Square Expiration Location Facility Footage Date - -------- -------- ------- ---- Munich, Sales, Service and 27,750 March 31, 2001; Germany Administration renewable London, England Sales and Service 8,000 July 24, 2009 Paris, France Sales and Service 3,456 June 30, 1996 Zurich, Sales and Service 3,229 September 30, 1997 Switzerland renewable Amsterdam, Sales and Service 2,906 March 31, 1997 Netherlands Milan, Sales and Service 2,691 August 31, 1995, Italy cancelable with 6 months notice
ITEM 3 - LEGAL PROCEEDINGS. ------------------ The Company is not a party to any material litigation. ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. --------------------------------------------------- Not applicable. 10 13 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.
Executive Officer Age Recent Business Experience ----------------- --- -------------------------- Joseph P. Keithley 47 Chairman of the Board of Directors since 1991, Chief Executive officer since November 1993 and President since May 1994. Vice Chairman of the Board of Directors from 1988 to 1991. Executive Vice President from 1989 to 1991. Joseph F. Keithley 80 Founder of the Company in 1946; President to 1973, Chairman of the Board of Directors from 1955 to 1991. Philip R. Etsler 45 Vice President Human Resources of the Company since 1990. Director of Personnel from 1986 to 1990. James B. Griswold 49 Secretary and a Director of the Company since 1988; partner in the law firm of Baker & Hostetler from 1982 to present. Hermann Hamm 56 Vice President of European Operations of the Company since 1986. Frederick R. Hume 52 Senior Vice President Test Instrumentation Group since February 1993. Vice President Test Instrumentation Group from August 1992 to February 1993. Vice President Instrument Division of the Company from May 1988 to August 1992.
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Executive Officer Age Recent Business Experience ----------------- --- -------------------------- Mark J. Plush 46 Controller since 1982 and Officer of the Company since 1989. Ronald M. Rebner 51 Vice President and Chief Financial Officer of the Company since 1981. Terrence E. Sheridan 55 Vice President Radiation Measurements Division since 1978.
12 15 PART II. ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED ----------------------------------------------------- STOCKHOLDER MATTERS. -------------------- The information required by this Item is incorporated herein by reference under the caption Stock Market Price and Cash Dividends appearing on page 33 of the Keithley Instruments, Inc. 1995 Annual Report to Shareholders, a copy of which is filed as Exhibit 13 to this Report. The approximate number of shareholders of record of Common Shares and Class B Common Shares, including those shareholders participating in the Dividend Reinvestment Plan, as of December 12, 1995 was 1,463. ITEM 6 - SELECTED FINANCIAL DATA. ------------------------ The information required by this Item is incorporated herein by reference to the eleven year summary, appearing on pages 34 and 35 of the Keithley Instruments, Inc. 1995 Annual Report to Shareholders, a copy of which is filed as Exhibit 13 to this Report. ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL ------------------------------------------------- CONDITION AND RESULTS OF OPERATIONS. ----------------------------------- The information required by this Item is incorporated herein by reference to pages 23 and 24 of the Keithley Instruments, Inc. 1995 Annual Report to Shareholders, a copy of which is filed as Exhibit 13 to this Report. ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. ------------------------------------------- The Consolidated Financial Statements, appearing on pages 20 through 22 and pages 25 through 31, the Unaudited Quarterly Results of Operations appearing on page 33 of the Keithley Instruments, Inc. 1995 Annual Report to Shareholders, together with the report thereon of Price Waterhouse LLP dated November 9, 1995, appearing on page 32 of the Keithley Instruments, Inc. Annual Report to Shareholders is filed as Exhibit 13 to this Report. ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ------------------------------------------------ ACCOUNTING AND FINANCIAL DISCLOSURE. ----------------------------------- None. 13 16 PART III. ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. -------------------------------------------------- The information required by this item relating to the Directors is incorporated herein by reference to the information set forth under the caption Election of Directors in the Company's Proxy Statement to be used in conjunction with the February 10, 1996 Annual Meeting of Shareholders and filed with the Securities and Exchange Commission pursuant to Section 14(a) of the Securities Exchange Act of 1934. The information required for an identification of executive officers is included on pages 11 and 12 of this Form 10-K Annual Report. ITEM 11 - EXECUTIVE COMPENSATION. ----------------------- The information required by this item relating to executive compensation is incorporated herein by reference to the information set forth under the caption Executive Compensation and Benefits in the Company's Proxy Statement to be used in conjunction with the February 10, 1996 Annual Meeting of Shareholders and filed with the Securities and Exchange Commission pursuant to Section 14(a) of the Securities Exchange Act of 1934. ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. -------------------------------------------------------------- The information required by this item relating to security ownership of certain beneficial owners and management is incorporated herein by reference to the information set forth under the caption Principal Shareholders in the Company's Proxy Statement to be used in conjunction with the February 10, 1996 Annual Meeting of Shareholders and filed with the Securities and Exchange Commission pursuant to Section 14(a) of the Securities Exchange Act of 1934. ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. ----------------------------------------------- James B. Griswold, a Director and nominee for Director, is a partner in the law firm of Baker & Hostetler. Baker & Hostetler served as general legal counsel to the Company during the fiscal year ended September 30, 1995 and is expected to render services in such capacity to the Company in the future. 14 17 PART IV. ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K --------------------------------------------------------------- (a)(1) FINANCIAL STATEMENTS OF THE COMPANY The following documents are filed as part of this report: 1. Consolidated Balance Sheets as of September 30, 1995 and 1994. 2. Consolidated Statements of Income for each of the three years ended September 30, 1995. 3. Consolidated Statements of Cash Flows for each of the three years ended September 30, 1995. 4. Consolidated Statements of Earnings Reinvested in the Business for each of the three years ended September 30, 1995. 5. Notes to Consolidated Financial Statements. 6. Report of Independent Accountants dated November 9, 1995. (a)(2) FINANCIAL STATEMENT SCHEDULES The following additional information should be read in conjunction with the Consolidated Financial Statements of the Company described in Item 14(a)(1): Schedule II Valuation and Qualifying Accounts Schedules other than those listed above are omitted because they are not required or not applicable, or because the information is furnished elsewhere in the consolidated financial statements or the notes thereto. 15 18 (a)(3) INDEX TO EXHIBITS
Page Number Sequential Exhibit Numbering Number Exhibit System ------ ------- ------ 3(a) Amended Articles of Incorporation, as amended on February 11, 1985. (Reference is made to Exhibit 3(a) of the Company's Form 10 Registration Statement (File No. 0-13648) as declared effective on July 31, 1985, which Exhibit is incorporated herein by reference.) -- 3(b) Code of Regulations, as amended on February 11, 1985. (Reference is made to Exhibit 3(b) of the Company's Form 10 Registration Statement (File No. 0-13648) as declared effective on July 31, 1985, which Exhibit is incorporated herein by reference.) -- 4(a) Specimen Share Certificate for the Common Shares, without par value. (Reference is made to Exhibit 4(a) of the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1988 (File No. 1-9965), which Exhibit is incorporated herein by reference.) -- 4(b) Specimen Share Certificate for the Class B Common Shares, without par value. (Reference is made to Exhibit 4(b) of the Company's Form 10 Registration Statement (File No. 0-13648) as declared effective on July 31, 1985, which Exhibit is incorporated herein by reference.) -- *10(a) 1984 Stock Option Plan, adopted in February 1984. -- *10(b) 1984 Performance Award Plan, adopted in February 1984. -- *10(c) 1984 Deferred Compensation Plan, adopted in February 1984. -- *10(g) Lease for the property located at Solon Place I, 31300 Bainbridge Road, Solon, Ohio 44139. -- 10(k) Employment Agreement with Joseph F. Keithley dated September 26, 1988. (Reference is made to Exhibit 10(k) of the Company's Annual Report on Form 10-K for the year ended September 30, 1988 (File No. 1-9965), which Exhibit is incorporated herein by reference.) --
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Page Number Sequential Exhibit Numbering Number Exhibit System ------ ------- ------ 10(l) Employment Agreement with Joseph P. Keithley dated September 26, 1988. (Reference is made to Exhibit 10(l) of the Company's Annual Report on Form 10-K for the year ended September 30, 1988 (File No. 1-9965), which Exhibit is incorporated herein by reference.) -- 10(m) Employment Agreement with Thomas G. Brick dated May 27, 1988. (Reference is made to Exhibit 28(b) of the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1988 (File No. 1-9965), which Exhibit is incorporated herein by reference.) -- 10(o) Form of Supplemental Executive Retirement Plan, adopted in January 1988. (Reference is made to Exhibit 10(o) of the Company's Annual Report on Form 10-K for the year ended September 30, 1988 (File No. 1-9965), which Exhibit is incorporated herein by reference.) 10(q) 1992 Stock Incentive Plan, adopted in December 1991. (Reference is made to Exhibit 10(q) of the Company's Annual Report on Form 10-K for the year ended September 30, 1991 (File No. 1-9965) which Exhibit is incorporated herein by reference.) -- 10(r) 1992 Directors' Stock Option Plan, adopted in December 1991. (Reference is made to Exhibit 10(r) of the Company's Annual Report on Form 10-K for the year ended September 30, 1991 (File No. 1-9965) which Exhibit is incorporated herein by reference.) -- 10(u) Credit Agreement dated as of May 31, 1994 by and among Keithley Instruments, Inc. and certain borrowing subsidiaries and the Banks named herein, and NBD Bank, N.A., as Agent. (Reference is made to Exhibit 10(u) of the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1994 (File No. 1-9965) which Exhibit is incorporated herein by reference.) -- 10(v) Contactless Testing Technology Licensing Agreement between International Business Machines Corporation and Keithley Instruments, Inc., effective as of May 26, 1994. (Reference is made to exhibit 10(v) of the Company's Annual Report on Form 10-K for the year ended September 30, 1994 (File No. 1-9965) which Exhibit is incorporated herein by reference.) --
17 20
Page Number Sequential Exhibit Numbering Number Exhibit System ------ ------- ------ 10(w) Amendment and Modification of both the Employment Agreement with Thomas G. Brick dated May 27, 1988, and the Form of Supplemental Executive Retirement Plan, adopted in January 1988. (Reference is made to Exhibit 10(w) of the Company's Annual Report on Form 10-K for the year ended September 30, 1994 (File No. 1-9965) which Exhibit is incorporated herein by reference.) -- 11 Statement Re Computation of Per Share Earnings. 24 13 Annual Report to Shareholders for the Fiscal Year Ended September 30, 1995. 25-53 21 Subsidiaries of the Company 54 23 Consent of Experts 55 27 Financial Data Schedule *Reference is made to the appropriate exhibits of the Company's Form 10 Registration Statement (File No. 0-13648) as declared effective on July 31, 1995, which exhibits are incorporated herein by reference.
ITEM 14(B) REPORTS ON FORM 8-K. No reports on Form 8-K were filed during the last quarter of the Company's fiscal year ended September 30, 1995. ITEM 14(C) EXHIBITS: See "Index to Exhibits" at Item 14(a)(3) above. ITEM 14(D) FINANCIAL STATEMENT SCHEDULES: Schedules required to be filed in response to this portion of Item 14 are listed above in Item 14(a)(2). 18 21 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Keithley Instruments, Inc. (Registrant) By: /s/ Joseph P. Keithley -------------------------------------- Joseph P. Keithley, (Chairman, President and Chief Executive Officer) Date: December 9, 1995 -------------------------------------- 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.
Signature Title Date --------- ----- ---- /s/ Joseph P. Keithley Chairman of the Board of Directors, President and 12/9/95 - ------------------------------- Chief Executive Officer Joseph P. Keithley (Principal Executive Officer) /s/ Joseph F. Keithley Founder and Director 12/9/95 - ------------------------------- Joseph F. Keithley /s/ Ronald M. Rebner Vice President and Chief Financial Officer 12/9/95 - ------------------------------- (Principal Financial and Accounting Officer) and Ronald M. Rebner a Director /s/ Director - ------------------------------- Dr. Theodore M. Alfred /s/ James T. Bartlett Director 12/9/95 - ------------------------------- James T. Bartlett /s/ Arden L. Bement, Jr. Director 12/9/95 - ------------------------------- Dr. Arden L. Bement, Jr. /s/ James B. Griswold Director 12/9/95 - ------------------------------- James B. Griswold /s/ Director - ------------------------------- Leon J. Hendrix, Jr. /s/ Gabriel A. Rosica Director 12/9/95 - ------------------------------- Gabriel A. Rosica /s/ R. Elton White Director 12/9/95 - ------------------------------- R. Elton White
19 22 Report of Independent Accountants on Financial Statement Schedule To the Board of Directors of Keithley Instruments, Inc. Our audits of the consolidated financial statements referred to in our report dated November 9, 1995 appearing on page 32 of the 1995 Annual Report to Shareholders of Keithley Instruments, Inc., (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the Financial Statement Schedule listed in Item 14(a)(2) of this Form 10-K. In our opinion, this Financial Statement Schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. As discussed in Notes A and G of the consolidated financial statements appearing in the 1995 Annual Report to Shareholders of Keithley Instruments, Inc., in 1993 the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," effective as of October 1, 1992. PRICE WATERHOUSE LLP Cleveland, Ohio November 9, 1995 20 23 SCHEDULE II KEITHLEY INSTRUMENTS, INC. VALUATION AND QUALIFYING ACCOUNTS (In Thousands of Dollars)
Column A Column B Column C Column D Column E -------- -------- -------- -------- -------- Balance at Charged to Beginning of Costs and Balance at End Description Period Expenses Deductions of Period ----------- ------ --------- ---------- --------- For the Year Ended September 30, 1995: Valuation allowance for deferred tax assets $3,330 $ 80 $ 804 (1) $2,606 For the Year Ended September 30, 1994: Valuation allowance for deferred tax assets $3,314 $ 548 $ 532 (1) $3,330 For the Year Ended September 30, 1993: Valuation allowance for deferred tax assets $ -- $3,314 (2) $ -- $3,314
(1) Represents utilization of foreign tax credits. (2) In connection with the adoption of Statement of Financial Accounting Standards No. 109, "Accounting for Income taxes" (FAS 109), a valuation allowance was recorded for that portion of foreign tax credit carryforwards and other tax credit carryforwards recorded as deferred tax assets, where it is more likely than not these credits will not be utilized. $3,316 was recorded as of October 1, 1992 and represented the cumulative effect of adoption of FAS 109, while $2 was recorded in the 1993 income tax provision as a reversal of previously recorded valuation allowance. 21 EX-11 2 KEITHLEY INSTRUMENTS EX-11 1 11. Statement re computation of per share earnings
Year ended Year ended Year ended September 30, September 30, September 30, 1995 1994(1) 1993(1) Primary EPS calculation: ------------------------ Shares outstanding at beginning of period 7,104,876 7,067,890 7,051,586 Net issuance of shares under stock award plans, weighted average 22,768 19,764 9,252 Net issuance of shares under stock purchase plan, weighted average 30,038 -- -- --------- --------- --------- Weighted average shares outstanding 7,157,682 7,087,654 7,060,838 --------- --------- --------- Assumed exercise of stock options, weighed average of incremental shares 281,602 -- -- Assumed purchase of stock under stock purchase plan, weighed average 36,854 -- -- --------- --------- --------- Average shares and common share equivalents - primary EPS calculation 7,476,138 7,087,654 7,060,838 ========= ========= ========= Net income per share $ .66 $.13 $ .68 ====== ==== ====== Net income (in thousands) $4,914 $907 $4,784 ====== ==== ====== Fully diluted EPS calculation: ------------------------------ Weighted average shares outstanding 7,157,682 7,087,654 7,060,838 Assumed exercise of stock options, weighed average of incremental shares 508,496 -- -- Assumed purchase of stock under stock purchase plan, weighed average 53,598 -- -- --------- --------- --------- Average shares and common share equivalents - primary EPS calculation 7,719,776 7,087,654 7,060,838 ========= ========= ========= Net income per share $ .64 $.13 $ .68 ====== ==== ====== Net income (in thousands) $4,914 $907 $4,784 ====== ==== ====== (1) The impact of common stock equivalents in 1994 and 1993 was negligible.
EX-13 3 KEITHLEY INSTRUMENTS EX-13 1 Exhibit 13 13. Annual report to security-holders Consolidated Statement of Income For the years ended September 30, 1995, 1994 and 1993 (In Thousands of Dollars Except for Per Share Data)
1995 1994 1993 -------- ------- --------- Net sales $109,574 $89,248 $91,146 ------- ------ ------ Cost of goods sold 42,372 35,259 34,498 Selling, general and administrative expenses 43,945 37,765 38,416 Product development expenses 15,385 11,551 10,304 Purchased technology -- 3,300 -- Special charges -- (42) 1,046 Amortization of intangible assets 464 470 535 Financing expenses (net of investment income) 986 821 817 ------- ------ ------- Income before income taxes and cumulative effect of accounting change 6,422 124 5,530 Income taxes (benefit) 1,508 (783) 2,193 ------ ----- ------ Income before cumulative effect of accounting change 4,914 907 3,337 Cumulative effect of accounting change -- -- 1,447 --------- --------- ------ Net income $ 4,914 $ 907 $ 4,784 ======= ======== ====== Income per share before cumulative effect of accounting change $ .66 $ .13 $ .47 Cumulative effect of accounting change -- -- .21 --------- --------- ------- Net income per share $ .66 $ .13 $ .68 ========= ======== ======= Fully diluted income per share before cumulative effect of accounting change $ .64 $ .13 $ .47 Cumulative effect of accounting change -- -- .21 --------- --------- ------- Fully diluted net income per share $ .64 $ .13 $ .68 ========= ======== =======
Per share amounts reflect a two-for-one stock split paid December 11, 1995, to shareholders of record on November 27, 1995. The accompanying notes are an integral part of the financial statements. Consolidated Statement of Earnings Reinvested in the Business For the years ended September 30, 1995, 1994 and 1993 (In Thousands of Dollars Except for Per Share Data)
1995 1994 1993 --------- ------- -------- Earnings reinvested in the business at beginning of year $27,943 $27,685 $23,546 Net income 4,914 907 4,784 Cash dividends-Common Shares ($.106 per share in 1995 and $.10 per share in 1994 and 1993) (450) (410) (402) Cash dividends-Class B Common Shares ($.085 per share in 1995 and $.08 per share in 1994 and 1993) (250) (239) (243) ------- ------- ------- Earnings reinvested in the business at end of year $32,157 $27,943 $27,685 ======== ======= =======
Per share amounts reflect a two-for-one stock split paid December 11, 1995, to shareholders of record on November 27, 1995. The accompanying notes are an integral part of the financial statements. 2 Consolidated Balance Sheet September 30, 1995 and 1994 (In Thousands of Dollars Except for Per Share Data)
1995 1994 ------- -------- Assets Current assets: Cash and cash equivalents $ 3,890 $ 2,712 Accounts receivable and other, net of allowances of $357 in 1995 and $427 in 1994 20,856 14,462 Inventories: Raw materials 4,917 4,137 Work in process 3,981 2,646 Finished products 3,762 2,908 ------- ------- Total inventories 12,660 9,691 Deferred income taxes 1,627 1,203 Prepaid expenses 663 936 ------- ------- Total current assets 39,696 29,004 ------- ------- Property, plant and equipment, at cost: Land 426 426 Buildings and leasehold improvements 9,346 9,169 Manufacturing, laboratory and office equipment 22,755 21,649 ------- ------- 32,527 31,244 Less-Accumulated depreciation and amortization 21,984 20,177 ------- ------- Total property, plant and equipment, net 10,543 11,067 ------- ------- Intangible assets, net of accumulated amortization of $23,337 in 1995 and $22,873 in 1994 6,201 6,665 Other assets 9,669 7,674 ------- ------- Total assets $66,109 $54,410 ======= ======= Liabilities and Shareholders' Equity Current liabilities: Short-term debt and current installments on long- term debt $ 71 $ 217 Accounts payable 6,759 6,366 Accrued payroll and related expenses 6,142 3,389 Other accrued expenses 4,575 3,781 Income taxes payable 2,580 1,545 ------- ------- Total current liabilities 20,127 15,298 ------- Long-term debt 6,042 4,599 Other long-term liabilities 2,992 2,542 Deferred income taxes 46 25 Shareholders' equity: Common Shares, stated value $.025: Authorized-7,000,000; issued and outstanding- 4,308,976 in 1995 and 4,156,836 in 1994 108 104 Class B Common Shares, stated value $.025: Authorized-3,000,000; issued and outstanding- 2,918,996 in 1995 and 2,948,040 in 1994 73 74 Capital in excess of stated value 3,981 3,469 Earnings reinvested in the business 32,157 27,943 Cumulative translation adjustment and other 583 356 ------- ------- Total shareholders' equity 36,902 31,946 ------- ------- Total liabilities and shareholders' equity $66,109 $54,410 ======= =======
Share and per share amounts reflect a two-for-one stock split paid December 11, 1995, to shareholders of record on November 27, 1995. The accompanying notes are an integral part of the financial statements. 3 Consolidated Statement of Cash Flows For the years ended September 30, 1995, 1994 and 1993 (In Thousands of Dollars)
1995 1994 1993 ---------- ---------- --------- Cash flows from operating activities: Net income $ 4,914 $ 907 $ 4,784 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 3,106 2,902 2,710 Amortization of intangible assets 464 470 535 Deferred income taxes (1,217) (2,216) 22 Deferred compensation 220 232 29 Special charges -- (42) 1,046 Cumulative effect of accounting change -- -- (1,447) Change in current assets and liabilities: Accounts receivable and other (6,108) 241 (526) Inventories (2,864) (620) 2,081 Deferred income taxes and prepaid expenses 289 219 (333) Other current liabilities 4,660 3,297 (1,612) Other operating activities (1,007) 1,251 (1,000) -------- -------- -------- Net cash provided by operating activities 2,457 6,641 6,289 -------- -------- -------- Cash flows from investing activities: Payments for property, plant and equipment (2,695) (3,591) (3,054) Other investing activities 69 81 96 -------- -------- -------- Net cash used in investing activities (2,626) (3,510) (2,958) -------- -------- -------- Cash flows from financing activities: Net increase (decrease) in short-term debt (35) (496) 616 Borrowing (repayment) of long-term debt 1,367 (1,124) (2,953) Proceeds from sale of Common Shares 520 85 29 Cash dividends (700) (649) (645) -------- -------- -------- Net cash provided by (used in) financing activities 1,152 (2,184) (2,953) -------- -------- -------- Effect of changes in foreign currency exchange rates on cash 195 113 (559) -------- -------- -------- Increase (decrease) in cash and cash equivalents 1,178 1,060 (181) Cash and cash equivalents at beginning of period 2,712 1,652 1,833 -------- -------- -------- Cash and cash equivalents at end of period $ 3,890 $ 2,712 $ 1,652 ======== ======== ======== Supplemental disclosures of cash flow information Cash paid during the year for: Income taxes $ 1,419 $ 665 $ 1,085 Interest 814 813 1,034
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. 4 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Percent of net sales for the years ended September 30, 1995, 1994 and 1993
1995 1994 1993 ---- ---- ---- Net sales 100.0 100.0 100.0 Cost of goods sold 38.7 39.5 37.9 Selling, general and administrative expenses 40.1 42.3 42.1 Product development expenses 14.0 13.0 11.3 Purchased technology -- 3.7 -- Special charges -- -- 1.1 Amortization of intangible assets 0.4 0.5 0.6 Financing expenses (net of investment income) 0.9 0.9 0.9 -------------------------------- Income before income taxes and cumulative effect of accounting change 5.9 0.1 6.1 Income taxes (benefit) 1.4 (0.9) 2.4 --------------------------------- Income before cumulative effect of accounting change 4.5 1.0 3.7 Cumulative effect of accounting change -- -- 1.5 --------------------------------- Net income 4.5 1.0 5.2 =================================
RESULTS OF OPERATIONS (IN THOUSANDS OF DOLLARS EXCEPT FOR PER SHARE DATA) 1995 COMPARED WITH 1994 Net income in 1995 was $4,914, or $.64 per share on a fully diluted basis, compared with $907, or $.13 per share, in 1994. Net income per share reflects a two-for-one stock split to shareholders of record on November 27, 1995, approved by the company's board of directors on November 6, 1995. Net income in 1995 included approximately $6,900 pretax in spending to develop our direct wafer measurement technology purchased from International Business Machines (IBM) in 1994 and explore other new growth opportunities. 1994's pretax income included costs of $3,300 to purchase the technology, approximately $1,400 in development costs and $925 in other non-recurring charges. Record net sales of $109,574 increased 23 percent from $89,248 in 1994. Increased demand from customers because of their own growth, particularly those in the semiconductor industry, accounted for the increase. Although net sales benefited from an 11 percent weakening of the U.S. dollar against European currencies, this benefit 5 was offset by increased sales discounts due mainly to sales mix. Geographically, net sales increased domestically by $7,606 or 17 percent, export sales increased $5,168 or 38 percent, mainly in the Pacific Basin, and European sales increased $7,552 or 25 percent, due in part to the weakening U.S. dollar. Cost of goods sold decreased to 38.7 percent of net sales compared to 39.5 percent in 1994. The decrease was due mainly to an 11 percent weakening of the U.S. dollar. The effect of foreign exchange hedging on cost of goods sold was to increase cost of goods sold as a percentage of net sales by 0.2 percentage points in 1995. Selling, general and administrative expenses increased $6,180 or 16 percent to $43,945 from $37,765 in 1994, but decreased as a percentage of net sales to 40.1 percent from 42.3 percent. The increase in expense was due mostly to higher marketing costs associated with new business initiatives and the introduction of new products from existing businesses, higher commissions due to increased sales and an 11 percent weakening of the U.S. dollar. Product development expenses increased $3,834 or 33 percent to 14.0 percent of net sales compared to 13.0 percent of net sales in 1994. Almost two-thirds of the increase was due to additional spending to develop the direct wafer measurement technology into our Quantox(TM) product. We introduced Quantox in July at SEMICON-West, a major semiconductor capital equipment trade show. Initial customer reception has been positive, and we expect Quantox revenues beginning in the second half of fiscal 1996. The remainder of the increase in product development expenses was primarily spent developing products for our semiconductor customers. Financing expenses (net of investment income) increased $165 to $986 from $821 in 1994, due mainly to higher average debt levels during 1995. The effective income tax rate was 23.5 percent for 1995. The lower than statutory rate was due primarily to utilization of foreign tax credits and foreign sales corporation (FSC) benefits. The tax benefit recorded in 1994 also resulted from the utilization of foreign tax credits and FSC benefits. At September 30, 1995, the company had capital loss carryforwards of $277 and tax credit carryforwards of $1,849. 6 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 foreign sales and earnings. A strengthening U.S. dollar has an unfavorable effect. This foreign exchange effect cannot be accurately estimated 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. From time to time, the company utilizes hedging techniques designed to mitigate the effect of exchange rate fluctuations on operations and balance sheet position by entering into forward and option currency contracts and by borrowing in foreign currencies. The company's use of forward and option contracts limits exchange rate exposure and fixes exchange rates for its foreign businesses. The company's foreign borrowings are a hedge of its net investments. 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 1995, net cash provided by operating activities of $2,457 was used principally for investments in capital equipment of $2,695. The company's total debt at the end of 1995 increased by $1,297 to $6,113, compared to $4,816 at the end of 1994. Total debt-to-capital at year-end was 14.2 percent, compared to 13.1 percent last year. Due to timing factors, cash at September 30, 1995 was $3,890, an increase of $1,178 during the year. At September 30, 1995, the company had total unused lines of credit with domestic and foreign banks aggregating $25,588, of which $6,539 were short-term and $19,049 were available for long-term borrowings. During 1996, the company expects to finance capital spending and working capital requirements with cash provided by operations and long-term borrowings. 1996 expenditures for capital equipment additions are expected to be higher than the 1995 level as additional property, plant and equipment may be necessary to support future growth from new products and new business initiatives. 7 1994 COMPARED WITH 1993 Net income was $907, or $.13 per share, in 1994, compared with $4,784, or $.68 per share, in 1993. Net income per share reflects a two-for-one stock split to shareholders of record on November 27, 1995. 1994's net income includes $3,300 pretax for the purchase of direct wafer measurement technology from IBM, as well as approximately $1,000 in incremental costs to begin to develop the technology. 1994's costs also include $925 in "Selling, general and administrative expenses," relating to the retirement of the company's former president. 1993's net income includes the cumulative effect of adopting Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," (FAS 109) of $1,447, or $.21 per share. Also included in fiscal 1993 are special charges of $1,046 pretax for severance and other costs related to the August 1993 workforce reduction. Net sales of $89,248 were two percent below $91,146 in 1993. Sales volume was down slightly from year to year. A two percent strengthening of the U.S. dollar against European currencies and higher discounts caused the decrease. Geographically, an increase in sales of $3,159, or 48 percent to the Pacific Basin, almost half of which was due to sales to the semiconductor industry of automatic parametric test systems, was more than offset by lower sales domestically and in Europe. Lower domestic sales can be attributed to higher than average sales volume for automatic parametric test systems in 1993, lower 1994 sales in the personal computer based data acquisition products, and uncertainty in health care which caused a sales decline in the Radiation Measurements Division. The decline in Europe is due mainly to the strengthening of the U.S. dollar versus foreign currencies. Cost of goods sold increased to 39.5 percent of net sales compared to 37.9 percent in 1993. The increase was due primarily to lower gross margins in Europe due to the two percent strengthening of the U.S. dollar and higher sales of lower margin products worldwide. The effect of foreign exchange hedging on cost of goods sold was not material in 1994. Selling, general and administrative expenses decreased $651 or two percent to $37,765 from $38,416 in 1993. The decrease is due to lower costs in 1994 as a result of the August 1993 workforce reduction, partially offset by $925 in expenses related to the retirement of the company's former president. 8 Product development expenses increased $1,247 or 12 percent to 13.0 percent of net sales compared to 11.3 percent of net sales. Approximately $1,000 of the increase is due to additional spending to develop the direct wafer measurement technology acquired during the third quarter of fiscal 1994. Purchased technology of $3,300 represents the direct wafer technology rights acquired from IBM. Per the provisions of the purchase agreement with IBM, the company will also pay future royalties based on specified sales levels. There is no minimum royalty payment required; however, $3,000 must be paid by May 26, 2000 to retain exclusive rights to the technology. Special charges of $(42) recorded in 1994 represent the reversal of 1993's accrual for expenses related to the August 1993 workforce reduction. $1,046 was recorded in fiscal 1993 for this workforce reduction. At September 30, 1994, the accrual recorded on the company's balance sheet was $0. Financing expenses (net of investment income) were flat in 1994 versus 1993. Reduced interest costs due to the lower debt levels were offset by lower interest income and higher interest expense for the company's corporate-owned life insurance. The company recorded an income tax benefit in 1994. The tax benefit resulted from the utilization of foreign tax credits and FSC benefits. The higher than statutory rate for 1993, 39.7 percent versus 34.0 percent, resulted from the company's inability to utilize certain tax credits and the non-deductibility of goodwill amortization. 9 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 items have been reclassified to conform to the 1995 presentation. REVENUE RECOGNITION Sales are recognized at time of shipment for all products. 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 terms of the leases. 10 INTANGIBLE ASSETS Intangible assets relate to business acquisitions and are amortized on a straight-line basis over their estimated useful lives, ranging from 2 to 20 years. Management reviews the carrying value of intangible assets using an estimated future cash flow method (undiscounted and without interest charges) whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. Prior to 1995, the company used a discounted cash flow method. OTHER ASSETS Included in the "Other assets" caption of the Consolidated Balance Sheet at September 30, 1995 and 1994, were $4,827 and $4,013, respectively, in deferred tax assets. Also included in "Other assets" were pension related assets. (See note E.) The "Net cash provided by operating activities" caption of the Consolidated Statement of Cash Flows at September 30, 1994 included proceeds of $2,503 from redeeming cash surrender value from the company's corporate-owned life insurance program. The remaining cash surrender value is classified in "Other assets." OTHER ACCRUED EXPENSES Included in the "Other accrued expenses" caption of the Consolidated Balance Sheet at September 30, 1995 and 1994, were $1,522 and $1,187, respectively, for commissions payable to outside sales representatives of the company. INCOME TAXES In the fourth quarter of 1993, the company adopted the provisions of Statement of Financial Accounting Standards, No. 109 "Accounting for Income Taxes," effective October 1, 1992. The statement requires that deferred taxes be established for all temporary differences between the book and tax bases of assets and liabilities, measured using enacted tax rates and laws that will be in effect when the differences are expected to reverse. 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, 1995. 11 STOCK SPLIT/NET INCOME PER SHARE On November 6, 1995, the company's board of directors approved a two-for-one split of the company's Common Shares and Class B Common Shares. The split was effected in the form of a stock dividend payable on December 11, 1995, to shareholders of record on November 27, 1995. All share and per share amounts have been adjusted to reflect the stock split on a retroactive basis. The weighted average number of shares outstanding used in determining net income per share restated for the stock split was 7,476,138 (7,719,776 on a fully diluted basis) in 1995, 7,087,654 in 1994 and 7,060,838 in 1993. Both Common Shares and Class B Common Shares are included in calculating the weighted average number of shares outstanding. Net income per share on a fully diluted basis was not materially different than net income per share in 1994 and 1993. HEDGING AND RELATED FINANCIAL INSTRUMENTS The company utilizes foreign currency borrowings and foreign exchange contracts to hedge foreign exchange risks for sales denominated in foreign currencies and net equity or unremitted foreign earnings. To hedge sales, the company purchases foreign exchange contracts to sell foreign currencies to fix the exchange rates related to near-term sales and the company's margins. Underlying hedged transactions are recorded at hedged rates, therefore realized and unrealized gains and losses are recorded when the operating revenue and expenses are recorded. To hedge equity or unremitted earnings, the company borrows foreign currencies or purchases foreign exchange contracts. Realized and unrealized after-tax gains or losses on the hedging instruments are reflected in the cumulative translation adjustment component of shareholders' equity. The company has entered into swap instruments to mitigate the risk of interest rate changes. The amounts exchanged under the swap agreements are included in the "Financing expenses (net of investment income)" caption of the Consolidated Statement of Income. The 12 estimated fair value of the swap instruments are determined through quotes from the related financial institution. 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. NOTE B - PURCHASED TECHNOLOGY AND SPECIAL CHARGES In 1994, the company expensed $3,300 to acquire the right to develop and commercialize direct wafer measurement technology from IBM. Per the provisions of the purchase agreement with IBM, the company will also pay future royalties based on specified sales levels. There is no minimum royalty payment required; however, $3,000 must be paid by May 26, 2000 to retain exclusive rights to the technology. The Consolidated Statement of Income includes "Special charges" for fiscal 1994 of $(42) pretax. This credit represents the reversal of charges no longer necessary for which a provision was recorded in 1993. The company recorded special charges of $1,046 pretax in fiscal 1993. The special charges are comprised of $1,196 for estimated severance and other related benefits resulting from the workforce reduction which took place during the fourth quarter of 1993. This amount was reduced by $150 relating to the adjustment of a previously recorded accrual, resulting in a net charge of $1,046. 13 NOTE C - FINANCING ARRANGEMENTS
September 30, ------------- 1995 1994 ---- ---- Long-term debt: Revolving loans with various banks at interest rates of 4.625% to 8.75% based on LIBOR, FIBOR or U.S. prime, with interest due monthly; principal due May 31, 1998 $ 5,951 $ 3,631 Note payable -- 909 Obligations under capital leases at interest rates of 8.75% to 11.76% 162 276 ------- -------- 6,113 4,816 Less-Current installments on long-term debt 71 217 -------- -------- Total long-term debt $ 6,042 $ 4,599 ======= =======
The company has a $25,000 debt facility ($5,951 outstanding at September 30, 1995) that expires May 31, 1998, which provides unsecured, multi-currency revolving credit at various interest rates based on U.S. prime, LIBOR or FIBOR. Commitment fees of 1/4% are required on the unused portion of the first $15,000 of the revolving credit facility and of 1/8% on the remaining $10,000 of the facility. At September 30, 1995, the company had total unused lines of credit with domestic and foreign banks aggregating $25,588, including short-term and long-term lines of credit of $6,539 and $19,049, respectively. Under certain long-term debt agreements, the company is required to comply with various financial ratios and covenants. Principal payments on long-term debt during the next five years are scheduled as follows: 1996-$71; 1997-$69; 1998-$5,973; 1999-$0; 2000-$0. 14 The LIBOR interest rate was 5.875 percent and 5.0569 percent at September 30, 1995 and 1994, respectively. During 1995, the company entered into two interest rate swap agreements with commercial banks to effectively fix its long-term interest rates at under seven percent for $6,000 of variable rate debt. The first agreement effectively fixes the interest rate on a notional $3,000 of variable LIBOR rate debt at 6.84 percent, and expires June 17, 2002. The second agreement effectively fixes the interest rate on another notional $3,000 of variable LIBOR rate debt at 6.915 percent, and expires September 18, 2005. The interest differentials to be paid or received on the notional amounts of the swaps are recognized over the lives of the agreements. At current interest rates, the swaps require the company to make payments to the bank. The fair value of the swaps was insignificant at September 30, 1995. Following is an analysis of financing expenses, net of investment income:
1995 1994 1993 ---- ---- ---- Interest expense $1,092 $ 939 $1,069 Investment income (106) (118) (252) ------ ------ ------ $ 986 $ 821 $ 817 ===== ====== ======
NOTE D - FOREIGN CURRENCY The functional currency for the company's foreign subsidiaries is the applicable local currency. Income and expenses are translated into U.S. dollars at average exchange rates for the period. Assets and liabilities are translated at the rates in effect at the end of the period. Translation gains and losses are recognized in the cumulative translation component of shareholders' equity. 15 Following is an analysis of the cumulative translation component of shareholders' equity:
1995 1994 1993 ---- ---- ---- Balance at beginning of year $ 368 $ 188 $1,471 Adjustments to financial statements for translation of foreign currency 324 232 (1,343) Gains (losses) from hedging net invest- ments in foreign subsidiaries net of income taxes (benefit) of $(53) in 1995, $27 in 1994 and $(98) in 1993. (103) (52) 60 ------- ------- ------ Balance at end of year $ 589 $ 368 $ 188 ======= ======= ======
Certain transactions of the company and its foreign subsidiaries are denominated in currencies other than the functional currency. The Consolidated Statement of Income includes foreign exchange gains (losses) from such foreign exchange transactions of $(22), $78 and $(109) for 1995, 1994 and 1993, respectively. At September 30, 1995, the company had obligations under forward exchange contracts to sell 3,700,000 Deutsche marks, 360,000 British pounds, 5,100,000 French francs and 650,000,000 Italian lira at various dates through January 1996. The foreign exchange contracts' amounts of $4,600 had a fair value of approximately $4,518 at September 30, 1995. The company has purchased and written currency option contracts with a commercial bank that effectively provide minimum and maximum exchange rates that the company would receive for anticipated foreign currency denominated sales. Under the terms of the options, the company has the right to deliver 4,500,000 Deutsche marks at a rate of 1.50 per U.S. dollar and the obligation, if called, to deliver 4,018,000 Deutsche marks at a rate of 1.34 per U.S. dollar. The 16 options expire in equal amounts in February, March and April, 1996. The options had no effect on net income in fiscal 1995, and gains and losses on the options, if any, are recorded as incurred. NOTE E - EMPLOYEE BENEFIT PLANS The company has non-contributory defined benefit pension plans covering approximately three-fourths of its employees in the United States and certain non-U.S. employees. Pension benefits are based upon the employee's length of service and a percentage of compensation above certain base levels. Pension expense for these plans is shown below:
1995 1994 1993 ---- ---- ---- Service cost-benefits earned during the period $ 605 $ 675 $ 651 Interest cost on projected benefit obligation 945 879 838 Actual return on assets (1,818) (18) (1,062) Net amortization and deferral 884 (890) 316 ------- ------- ------- Net periodic pension cost $ 616 $ 646 $ 743 ======= ======= =======
17 The following table sets forth the funded status of the company's plans and the related amounts recognized in the Consolidated Balance Sheet at September 30, 1995 and 1994:
Non-U.S. United States Plan Plan Overfunded Underfunded* --------------------- ------------ 1995 1994 1995 1994 ---- ---- ---- ---- Actuarial present value of benefit obligations: Vested benefit obligation $ 9,028 $ 8,200 $ 1,380 $ 1,142 ======== ======== ======= ======= Accumulated benefit obligation $ 9,189 $ 8,341 $ 1,573 $ 1,338 ======== ======== ======= ======= Projected benefit obligation $ 11,201 $ 10,099 $ 2,358 $ 2,200 Plan assets at fair value $ 13,707 $ 11,382 $ 455 $ 358 -------- ------- ------- ------- Projected benefit obligation (in excess of) or less than plan assets $ 2,506 $ 1,283 $(1,903) $(1,842) Unrecognized net gain (1,671) (960) (788) (460) Unrecognized prior service cost 1,293 1,401 -- -- Unrecognized initial net (asset) obligation (444) (488) 307 304 -------- -------- ------- ------- Prepaid pension assets (pension liability) recognized in the Consolidated Balance Sheet $ 1,684 $ 1,236 $(2,384) $(1,998) ======== ======== ======= =======
* The company has purchased indirect insurance of $2,338 which is expected to be available to the company as non-U.S. pension liabilities of $2,384 mature. The caption, "Other assets," on the company's Consolidated Balance Sheet includes $2,338 and $1,915 at September 30, 1995 and 1994, 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. 18 The significant actuarial assumptions as of the year-end measurement date were as follows:
1995 1994 1993 ---- ---- ---- United States Pension Plan: Discount rates 7.5% 7.5% 7.5% Expected long-term rate of return on plan assets 8.5% 8.5% 8.5% Rates of increase in compensation levels 5.5% 5.5% 6.0% Non-U.S. Pension Plan: Discount rates 7.5% 8.0% 7.5% Expected long-term rate of return on plan assets 7.0% 7.5% 7.0% Rates of increase in compensation levels 4.5% 5.0% 5.0%
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. This actuarial method currently results in funding amounts significantly greater than the amounts expensed. United States plan assets are invested primarily in common stocks and fixed-income securities. There are no requirements for the company to fund the non-U.S. pension plan. Non-U.S. plan assets represent employee contributions and are invested in a direct insurance contract payable to the individual participants. In addition to the defined benefit pension plan, the company also maintains a retirement plan for substantially all of its employees in the United States under Section 401(k) of the Internal Revenue Code. The company may, at its discretion, make contributions to the 401(k) plan. Expense for this retirement plan amounted to $539, $324 and $244 in 1995, 1994 and 1993, respectively. 19 The company also has unfunded supplemental executive retirement plans (SERP) for certain key officers which includes retirement, death and disability benefits. Expense for these benefits was $85 for 1995, $165 for 1994, and $200 for 1993. During the third quarter of 1994 and in connection with the retirement of its former president, the company settled a portion of its SERP obligation through a lump-sum distribution of $1,236, resulting in a net charge to earnings of $343. Liabilities of $355 and $270 were accrued in the "Other long-term liabilities" caption on the company's Consolidated Balance Sheet to meet all SERP obligations at September 30, 1995 and 1994, respectively. NOTE F - STOCK PLANS The company has employee stock options outstanding under two plans and directors' stock options outstanding under one plan. All incentive options have been granted at or above fair market value at the date of grant. The company also has an employee stock purchase plan. All share and per share amounts have been adjusted to reflect the two-for-one stock split on a retroactive basis. Employee Stock Option Plans: - --------------------------- Under the 1984 Stock Option Plan and the 1992 Stock Incentive Plan, 675,000 and 700,000 of the company's Common Shares, respectively, were reserved for the granting of options to officers and other key employees. After February 11, 1994, no new grants could be issued from the 1984 Stock Option Plan. The Compensation and Human Resources Committee administers the plans with incentive stock options granted at not less than fair market price at the date of the grant for a period not to exceed ten years from the grant date. The option price under a nonqualified stock option is determined by the Committee on the date the option is granted. The 1992 Stock Incentive Plan also provides for restricted stock awards and stock appreciation rights. This plan will expire on February 8, 2002. All options outstanding at the time of termination of either plan shall continue in full force and effect in accordance with their terms. 20 The following table summarizes the changes in the number of Common Shares under option for both employee stock option plans (retroactively restated for the two-for-one stock split):
Option Price Shares subject to option at Range September 30, 1992 590,650 $ 3.50 to $9.28 ------- Options granted 154,110 $ 4.63 to $5.57 Options exercised (21,002) $ 3.50 to $5.46 Options forfeited (54,578) $ 4.06 to $9.28 ------- Shares subject to option at September 30, 1993 669,180 $ 3.50 to $8.44 ------- Options granted 391,400 $ 4.75 to $5.38 Options exercised (86,352) $ 3.50 to $4.31 Options forfeited (137,340) $ 4.13 to $8.44 ------- Shares subject to option at September 30, 1994 836,888 $ 4.00 to $8.44 ------- Options granted 235,100 $ 5.19 to $13.69 Options exercised (94,608) $ 4.00 to $ 8.44 Options forfeited (5,792) $ 4.75 to $6.06 ------- Shares subject to option at September 30, 1995 971,588 $ 4.00 to $13.69 ======= Exercisable options at September 30, 1995 288,630 $ 4.00 to $8.44 ======= Exercisable options at September 30, 1994 294,892 $ 4.00 to $8.44 =======
In fiscal 1993, 5,000 shares were issued as restricted stock awards, which vest over a five-year period. 21 1992 Directors' Stock Option Plan: - --------------------------------- The 1992 Directors' Stock Option Plan provides for the issuance of 60,000 of the company's Common Shares to nonemployee Directors. Under the terms of the plan, each non-employee Director is automatically granted an option to purchase 600 Common Shares at the close of each annual shareholders' meeting. The option price shall be the fair market value of a Common Share on the date of grant. The option is exercisable six months and one day after the date of grant and will expire after ten years. The plan provides for the granting of stock options through December 7, 2002. During fiscal years 1995, 1994 and 1993, 4,200, 4,800 and 3,600 options were granted at option prices of $5.19, $5.00 and $6.19, respectively. During 1995, 1,800 options were exercised at prices ranging from $5.00 to $7.50. As of September 30, 1995 and 1994, 14,400 and 12,000 shares were exercisable, respectively. Options available for future grants were 43,800 and 48,000 at September 30, 1995 and 1994, respectively. 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 costs. Eligible employees can only participate in the plan on a year-to-year basis, must enroll prior to the commencement of each plan year and must authorize monthly payroll deductions. The purchase price of the Common Shares is 85 percent of the lower market price at the beginning or ending of the plan year, which is on a calendar year basis. A total of 250,000 Common Shares are available for purchase under the plan. Total shares can be increased with shareholder approval or the plan can be terminated when the 250,000 shares are fully subscribed. During 1995, 40,050 shares were issued under the plan at a price of $4.14 per share. 22 NOTE G - INCOME TAXES The Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," (FAS 109) effective October 1, 1992. The adoption of FAS 109 changes the Company's method of accounting for income taxes from the deferred method (APB 11) to an asset and liability approach. The asset and liability approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting amounts and the tax bases of assets and liabilities. The cumulative effect of adopting FAS 109 as of October 1, 1992 was to increase net income for fiscal year 1993 by $1,447, or $.21 per share. For financial reporting purposes, income (loss) before income taxes and cumulative effect of accounting change includes the following components:
1995 1994 1993 ---- ---- ---- United States $1,970 $(2,211) $3,566 Non-U.S. 4,452 2,335 1,964 ------ ------- ------ $6,422 $ 124 $5,530 ====== ======= ====== The provision for income taxes is as follows: 1995 1994 1993 ---- ---- ---- Current: Federal $ 720 $ 318 $1,328 Non-U.S. 1,859 1,009 805 State and local 146 106 38 ------ ------- ------ Total current 2,725 1,433 2,171 ------ ------- ------ Deferred: Federal (1,199) (2,154) 54 Non-U.S. (18) (62) (32) ------ ------ ------- Total deferred (1,217) (2,216) 22 ------ ------- ------- Total provision $ 1,508 $ (783) $2,193 ======= ======= =======
23 Differences between the statutory United States federal income tax and the effective income tax rate are as follows:
1995 1994 1993 ---- ---- ---- Federal income tax at statutory rate $2,183 $ 42 $1,880 State and local income taxes 96 70 25 Tax on non-U.S. income and tax credits (881) (1,193) 182 Non-deductible amortization 158 158 158 Other (48) 140 (52) ------ -------- ------ Effective income tax $1,508 $ (783) $2,193 ====== ======== ======
24 Significant components of the company's deferred tax assets and liabilities as of September 30, 1995 and 1994 are as follows:
Deferred tax assets: 1995 1994 - ------------------- ----- ----- Foreign tax credit carryforwards $ 79 $ 882 Capitalized research and development 2,905 2,282 Intangibles 1,274 1,641 State and local taxes 1,089 1,163 Alternative minimum tax credit carryforwards 1,282 992 Deferred compensation 949 555 Inventory 971 1,039 General business credit carryforwards 488 398 Other 1,131 728 ------- ------- Total deferred tax assets 10,168 9,680 ------- ------- Valuation allowance for deferred tax assets (2,606) (3,330) ------- ------- 7,562 6,350 ------- ------- Deferred tax liabilities: - ------------------------ Pension contribution 771 699 Other 383 460 ------- ------- Total deferred tax liabilities 1,154 1,159 ------- ------- Net deferred tax assets $6,408 $5,191 ======= =======
The valuation allowance relates to tax credit carryforwards which more likely than not will not be realized. The current year decrease in the valuation allowance relates primarily to the utilization of foreign tax credit carryforwards. 25 At September 30, 1995, the Company had capital loss and tax credit carryforwards as follows:
Year Expiration Commences --------------- General business credit $488 2002 Foreign tax credit 79 1997 Capital loss 277 1997 Alternative minimum tax credit 1,282 Indefinite
26 NOTE H - STOCK AND RELATED ACCOUNTS On November 6, 1995, the company's board of directors approved a two-for-one split of the company's Common Shares and Class B Common Shares. The split was effected in the form of a stock dividend payable on December 11, 1995, to shareholders of record on November 27, 1995. All per share amounts have been adjusted to reflect the stock split on a retroactive basis. 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. Following is an analysis of changes in stock and related accounts:
Capital in Class B Excess of Common Shares Common Shares Stated Value ------------- ------------- ------------ $ Shares $ Shares - ------ - ------ Balance, September 30, 1992 $100 3,994,336 $ 76 3,057,250 $3,337 Shares issued under stock plans, 16,304 net of 9,698 Shares tendered -- -- -- 50 Conversion of Class B Common Shares to Common Shares 1 23,170 -- (23,170) -- ------- ---------- -------- ---------- -------- Balance, September 30, 1993 101 4,033,810 76 3,034,080 3,387 Shares issued under stock plans, net of 49,36 Shares tendered 1 36,986 -- -- 82 Conversion of Class B Common Shares to Common Shares 2 86,040 (2) (86,040) -- ------ ---------- ----- ---------- -------- Balance, September 30, 1994 104 4,156,836 74 2,948,040 3,469 Shares issued under stock plans, net of 13,362 Shares tendered 3 123,096 -- -- 512 Conversion of Class B Common Shares to Common Shares 1 29,044 (1) (29,044) -- ------ ---------- ----- --------- -------- Balance, September 30, 1995 $108 4,308,976 $ 73 2,918,996 $3,981 ==== ========== ===== ========= ========
27 NOTE I - LEASES The company leases certain equipment under capital leases. Manufacturing, laboratory and office equipment includes $592 and $621 of leased equipment at September 30, 1995 and 1994, respectively. Accumulated depreciation includes $517 and $479 at September 30, 1995 and 1994, 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 for 1995, 1994 and 1993 was $2,119, $2,046 and $2,308, respectively. Future minimum lease payments under operating leases are: 1996 $2,126 1997 1,671 1998 1,146 1999 1,075 2000 1,050 After 2000 2,072 ----- Total minimum operating lease payments $9,140 =====
NOTE J - BUSINESS SEGMENTS The company operates in a single industry segment and is engaged in the design, development, manufacture and marketing of complex electronic instruments and systems. The company's operations by geographic area are presented below:
1995 1994 1993 ---- ---- ---- NET SALES, INCLUDING INTERCOMPANY SALES: - --------------------- United States * $ 88,410 $ 72,337 $ 74,258 Europe 37,659 30,107 30,759 Intercompany (16,495) (13,196) (13,871) ------- ------ ------ Net sales $109,574 $ 89,248 $ 91,146 ======= ======= =======
28
1995 1994 1993 ---- ---- ---- INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE: - ----------------------------------------- United States $ 4,282 $ 922 $ 5,869 Europe 4,158 2,280 1,764 Adjustments/eliminations 77 92 271 --------- ---------- --------- 8,517 3,294 7,904 --------- ---------- --------- Corporate expenses (1,109) (2,349) (1,557) Financing expenses (net of investment income) (986) (821) (817) --------- ---------- --------- Income before income taxes and cumulative effect of accounting change $ 6,422 $ 124 $ 5,530 ========= ========== ========= IDENTIFIABLE ASSETS: - -------------------- United States $ 49,087 $ 40,378 $ 40,224 Europe 11,164 10,109 10,626 Adjustments/eliminations (5,429) (5,195) (4,382) --------- ---------- --------- 54,822 45,292 46,468 Corporate assets 11,287 9,118 5,945 --------- ---------- --------- Total assets $ 66,109 $ 54,410 $ 52,413 ========= ========== =========
* U.S. sales include $18,793, $13,625 and $10,475 in export sales to markets other than Europe in 1995, 1994 and 1993, respectively. Intercompany sales were at cost plus a negotiated markup. Assets of geographic areas are identified with the operations of each area. Corporate assets consist of cash and cash equivalents, other receivables, prepaid expenses and deferred income taxes. NOTE K - CONTINGENCIES The company is engaged in various legal proceedings arising in the ordinary course of business. The ultimate outcome of these proceedings is not expected to have a material adverse effect on the company's financial position, results of operations or cash flows. 29 NOTE L - SUBSEQUENT EVENT On November 6, 1995, the company's board of directors approved a two-for-one split of the company's Common Shares and Class B Common Shares. The split was effected in the form of a stock dividend, payable on December 11, 1995, to shareholders of record on November 27, 1995. All share and per share amounts have been adjusted to reflect the stock split on a retroactive basis. On November 28, 1995, the company's Common Shares began trading on the New York Stock Exchange under the symbol KEI. 30 Report of Independent Accountants - --------------------------------- To the Board of Directors and Shareholders of Keithley Instruments, Inc. In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of income, of earnings reinvested in the business and of cash flows present fairly, in all material respects, the financial position of Keithley Instruments, Inc. and its subsidiaries at September 30, 1995 and 1994, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 1995, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. As discussed in Notes A and G to the consolidated financial statements, in 1993 the company adopted Statement of Financial Accounting Standard No. 109, "Accounting for Income Taxes," effective as of October 1, 1992. PRICE WATERHOUSE LLP Cleveland, Ohio November 9, 1995 31 Statement of Management Responsibility - --------- -- ---------- -------------- The consolidated financial statements of Keithley Instruments, Inc. were prepared by management and, accordingly, management is responsible for their accuracy and objectivity. The company utilizes accounting policies which are, in the judgment of management, the most appropriate for the company's circumstances. Certain estimates and judgments are required in the preparation of financial statements. The financial information included in this Annual Report has been prepared using management's best estimates, which were based upon appropriate research and investigation. The company maintains internal accounting control systems that are designed to detect and correct material misstatements of financial information. These systems are regularly modified in response to the company's changing business conditions. Additionally, our independent accountants, Price Waterhouse LLP, obtain a sufficient understanding of the internal control structure in order to plan and complete the annual audit of the company's financial statements. The Audit Committee of the Board of Directors, which consists of three directors otherwise independent of the company, serves an oversight role in reviewing the internal control monitoring process. The Committee regularly meets with and has direct access to Price Waterhouse LLP. Management acknowledges its responsibility to provide financial information (both audited and unaudited) that is representative of the company's operations and financial position, prepared on a consistent basis and relevant for a meaningful appraisal of the company. Joseph P. Keithley Ronald M. Rebner Chairman, President Vice President and Chief and Chief Executive Officer Financial Officer 32 Stock Market Price and Cash Dividends Prior to November 28, 1995, the company's Common Shares traded on the American Stock Exchange under the symbol KEI. The high and low prices shown below are sales prices of the company's Common Shares as reported on the AMEX. Beginning November 28, 1995, the company's Common Shares trade on the New York Stock Exchange under the symbol KEI. There is no established public trading market for the company's Class B Common Shares; however, they are readily convertible on a one-to-one basis for Common Shares.
Cash Dividends Cash Dividends Per Class B Fiscal 1995 High Low Per Common Share Common Share ----------- ---- --- ---------------- ------------ First Quarter $ 5 1/4 $ 4 1/2 $ .025 $ .020 Second Quarter 6 7/16 4 13/16 .025 .020 Third Quarter 11 6 9/16 .025 .020 Fourth Quarter 15 15/16 10 1/4 .031 .025
Cash Dividends Cash Dividends Per Class B Fiscal 1994 High Low Per Common Share Common Share ----------- ---- --- ---------------- ------------ First Quarter $ 6 1/8 $ 4 13/16 $ .025 $ .020 Second Quarter 5 1/4 4 7/8 .025 .020 Third Quarter 5 1/2 4 3/4 .025 .020 Fourth Quarter 5 5/16 4 5/8 .025 .020
Share and per share amounts reflect a two-for-one stock split paid December 11, 1995, to shareholders of record on November 27, 1995. 33 Unaudited Quarterly Results of Operations (In Thousands of Dollars Except for Per Share Data)
1995 First Second Third Fourth ---- ----- ------ ----- ------ Net sales $23,525 $27,850 $28,975 $29,224 Cost of goods sold 9,097 10,842 11,135 11,298 Income before income taxes 481 1,738 1,992 2,211 Net income 346 1,318 1,494 1,756 Net income per share .05 .18 .20 .23 Fully diluted net income per share .05 .18 .20 .23 1994 ---- Net sales $21,649 $22,253 $21,913 $23,433 Cost of goods sold 8,600 8,874 8,650 9,135 Income (loss) before income taxes 1,198 1,117 (3,309) 1,118 Net income (loss) 815 852 (1,835) 1,075 Net income (loss) per share .12 .12 (.26) .15 Fully diluted net income (loss) per share .12 .12 (.26) .15
Per share amounts reflect a two-for-one stock split paid December 11, 1995, to shareholders of record on November 27, 1995. 34 Eleven Year Summary (In Thousands Of Dollars Except For Per Share Data)
For the year ended September 30, 1995 1994 1993(b) 1992 1991 1990 Operating Results Net sales $109,574 89,248 91,146 94,666 99,497 100,593 Income (loss) before income taxes and cumulative effect of accounting change $6,422 124 5,530 (10,420) 6,816 5,675 Net income (loss) $4,914 907 4,784 (12,453) 4,233 3,378 Net income (loss) per share (a) $0.66 0.13 0.68 (1.77) 0.60 0.48 Fully diluted net income (loss) per share (a) $0.64 0.13 0.68 (1.77) 0.60 0.48 Common Stock Information (a) Cash dividends per Common Share $0.106 0.100 0.100 0.100 0.094 0.089 Cash dividends per Class B Common Share $0.085 0.080 0.080 0.080 0.075 0.071 Weighted average number of shares outstanding-fully diluted (in thousands) 7,720 7,088 7,061 7,046 7,026 7,014 At fiscal year-end: Number of shareholders of record 535 567 587 618 664 686 Dividend payout ratio (e) 16.1% 76.9% 14.7% -- 15.7% 18.5% Price/earnings ratio (e) 23.3 40.4 7.4 -- 10.1 8.5 Shareholders' equity per share $5.11 4.50 4.45 4.05 5.85 5.40 Closing market price $14.938 5.250 5.000 4.563 6.063 4.063 Balance Sheet Data Total assets $66,109 54,410 52,413 53,160 66,637 69,205 Current ratio 2.0 1.9 2.2 2.3 2.1 2.3 Total debt $6,113 4,816 6,518 8,978 10,506 16,562 Total debt-to-capital 14.2% 13.1% 17.2% 23.9% 20.3% 30.4% Shareholders' equity $36,902 31,946 31,415 28,530 41,129 37,870 Other Data Return on average shareholders' equity 14.3% 2.9% 16.0% -35.8% 10.7% 9.4% Return on average total assets 8.2% 1.7% 9.1% -20.8% 6.2% 4.9% Return on net sales 4.5% 1.0% 5.2% -13.2% 4.3% 3.4% Number of employees 659 625 625 679 716 750 Sales per employee $170.7 142.8 139.8 135.7 135.7 134.8 Cash flow (c) Noncash charges to income $2,573 1,346 1,849 15,185 4,325 6,649 Net cash provided by operating activities $2,457 6,641 6,289 4,475 9,399 9,111 Ten-year compound annual growth rate Net sales 8.8% 7.0% 10.0% 11.1% 12.8% 13.7% Net income (e) 5.7% -14.2% 9.1% -- 39.7% 10.4% For the year ended September 30, 1989 1988 1987 1986(d) 1985 Operating Results Net sales 88,728 72,282 57,652 47,681 47,087 Income (loss) before income taxes and cumulative effect of accounting change 7,311 8,204 5,209 4,323 4,101 Net income (loss) 4,131 5,414 3,280 2,909 2,821 Net income (loss) per share (a) 0.59 0.78 0.49 0.44 0.43 Fully diluted net income (loss) per share (a) 0.59 0.78 0.49 0.44 0.43 Common Stock Information (a) Cash dividends per Common Share 0.082 0.058 0.046 0.041 0.037 Cash dividends per Class B Common Share 0.066 0.046 0.036 0.033 0.024 Weighted average number of shares outstanding- fully diluted (in thousands) 6,994 6,974 6,790 6,696 6,654 At fiscal year-end: Number of shareholders of record 699 711 357 313 294 Dividend payout ratio (e) 13.9% 7.4% 9.4% 9.4% 8.6% Price/earnings ratio (e) 11.0 11.5 17.5 13.8 12.9 Shareholders' equity per share 4.88 4.37 3.68 3.08 2.59 Closing market price 6.500 8.938 8.500 6.000 5.500 Balance Sheet Data Total assets 69,917 46,602 44,268 33,065 28,869 Current ratio 2.7 2.4 1.9 2.8 2.6 Total debt 22,419 2,027 5,773 2,684 3,188 Total debt-to-capital 39.6% 6.2% 18.4% 11.5% 15.6% Shareholders' equity 34,216 30,518 25,577 20,644 17,298 Other Data Return on average shareholders' equity 12.7% 19.0% 14.5% 15.6% 17.9% Return on average total assets 7.1% 11.9% 8.5% 9.4% 19.5% Return on net sales 4.7% 7.5% 5.7% 6.1% 6.0% Number of employees 742 579 523 479 483 Sales per employee 134.3 131.2 115.1 99.1 95.4 Cash flow (c) Noncash charges to income 4,234 3,062 2,516 2,086 2,305 Net cash provided by operating activities 4,592 6,812 5,741 4,248 5,540 Ten-year compound annual growth rate Net sales 16.4% 17.9% 19.2% 19.3% 18.1% Net income (e) 12.5% 21.2% 19.8% 27.7% 23.9% (a) Share data adjusted for two-for-one stock split in November 1995, three-for-two stock split in 1987 and three-for-one stock split in 1985. (b) Includes a benefit for the cumulative effect of adopting FAS 109 of $1,447 or $.21 per share. (c) Noncash charges to income include depreciation, amortization, deferred compensation, deferred taxes, noncash special charges and the cumulative effect of adopting FAS 109. (d) In 1987, the Company adopted Statement of Financial Standards No.87, "Employers' Accounting for Pensions"; prior years have not been restated. (e) These ratios are not meaningful in 1992 due to the reported net loss.
EX-21 4 KEITHLEY INSTRUMENTS EX-21 1 21. Subsidiaries of the registrant WHOLLY OWNED SUBSIDIARIES ------------------------- Keithley International Investment Corporation 28775 Aurora Road, Cleveland, Ohio 44139, U.S.A. Keithley Foreign Sales Corporation 5 Norre Gade, Charlotte Amalie St. Thomas, U.S. Virgin Islands 00801 FRANCE: Keithley Instruments SARL BP 60, 3 allee des Garays 91122 Palaiseau Cedex GERMANY: Keithley Instruments GmbH Landsberger Strasse 65 82110 Germering (Munich) GREAT BRITAIN: Keithley Instruments Ltd. The Minister, 58 Portman Road Reading (London), Berkshire RG30 1EA ITALY: Keithley Instruments SRL Viale San Gimignano 38 20146 Milano JAPAN: Keithley Instruments Far East KK Aibido Building 7-20-2 Nishishinjuku Shinjuku-ku, Tokyo 160 NETHERLANDS: Keithley Instruments BV Avenlingen West 49 4202 MS Gorinchem (Amsterdam) SWITZERLAND: Keithley Instruments SA Kriesbachstrasse 4 8600 Dubendorf (Zurich) EX-23 5 KEITHLEY INSTRUMENTS EX-23 1 23. Consent of experts CONSENT OF INDEPENDENT ACCOUNTANTS ---------------------------------- We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 33-2496) of Keithley Instruments, Inc. of our report dated November 9, 1995 appearing on page 32 of the Annual Report to Shareholders which is incorporated in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report on the Financial Statement Schedule, which appears on page 20 of this Form 10-K. PRICE WATERHOUSE LLP Cleveland, Ohio December 19, 1995 EX-27 6 KEITHLEY INSTRUMENTS EX-27
5 1,000 U.S. Dollars YEAR SEP-30-1995 OCT-01-1994 SEP-30-1995 1 3,890 0 20,856 0 12,660 39,696 32,527 21,984 66,109 20,127 6,042 181 0 0 36,721 66,109 109,574 109,574 42,372 42,372 15,385 0 986 6,422 1,508 4,914 0 0 0 4,914 0.66 0.64
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