-----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, OzORodUvShBMTVGk+YCzbHwBozzLIN3QCTRdvEWG7Y2aRrNk+omKxAMYq8qOkBhH GR3YPkrJTfqoDPa4UaZpDA== 0000950152-97-008860.txt : 19971230 0000950152-97-008860.hdr.sgml : 19971230 ACCESSION NUMBER: 0000950152-97-008860 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971229 SROS: NONE 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-K405 SEC ACT: SEC FILE NUMBER: 001-09965 FILM NUMBER: 97745183 BUSINESS ADDRESS: STREET 1: 28775 AURORA RD CITY: SOLON STATE: OH ZIP: 44139 BUSINESS PHONE: 2162480400 10-K405 1 KEITHLEY INSTRUMENTS, INC. 10-K405 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, 1997 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 (440) 248-0400 ----------------- Securities registered pursuant to Section 12(b) of the Act: COMMON SHARES, WITHOUT PAR VALUE NEW YORK STOCK EXCHANGE - ----------------------------------- --------------------------------------- (Title of each class) (Name of exchange on which registered) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] As of December 16, 1997 there were outstanding 4,885,655 Common Shares, without par value, and 2,785,378 Class B Common Shares, without par value. At that date, the aggregate market value of the Common Shares of the Registrant held by non-affiliates was $38,348,345 and the aggregate market value of the Class B Common Shares of the Registrant held by non-affiliates was $967,295 for a total aggregate market value of all classes of Common Shares held by non-affiliates of $39,315,640. While the Class B Common Shares are not listed for public trading on any exchange or market system, shares of that class are convertible into Common Shares at any time on a share-for-share basis. The market values indicated were calculated based upon the last sale price of the Common Shares as reported by the New York Stock Exchange on December 16, 1997, which was $8.75. For purposes of this information, the 502,987 Common Shares and 2,674,830 Class B Common Shares which were held by the officers and Directors of the Company were deemed to be voting stock held by affiliates. DOCUMENTS INCORPORATED BY REFERENCE
DOCUMENT PART OF 10-K - -------- ------------ 1. Annual report to shareholders for the fiscal year ended September 30, 1997 Parts I and II (only the portions listed in this report). 2. Proxy statement for the annual meeting of shareholders to be held on February 14, 1998 Part III (only the portions listed in this report).
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 (440) 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 measurement-based solutions to the semiconductor, telecommunications and electronic components manufacturers and other high-growth areas of the electronics industry. Engineers and scientists around the world use Keithley's advanced hardware and software for process monitoring, production test and basis research. Although the Company's products vary in capability, sophistication, use, size and price, they basically test, measure, and analyze electrical and physical properties. As such, the Company considers its business to be in a single industry segment. For each of the last three fiscal years, more than 90% of the Company's revenue was derived from the sale of electronic test and measurement instrumentation and data acquisition and analysis hardware and software, which represents one class of similar products. The product groups of the Company are described below: INSTRUMENTS. The Instruments Business Unit designs, develops, manufactures and markets sensitive electronic instrumentation used in production test and research for measuring a wide range of electrical properties such as voltage, resistance, current, capacitance and charge. The Instruments Business Unit's products generally range in price from $1,000 to $10,000 and include the following product groups: DIGITAL MULTIMETERS. This product line includes a range of instruments that are designed to cover measurements of voltage, resistance, and current for production test, design and development, and research applications. Each digital multimeter has a computer interface for integration into automated test and measurement systems. Typical applications include testing electrical components such as resistor networks and thermistors, and end products which include cellular telephones, computer disk drives, and pace makers. SENSITIVE INSTRUMENTS. This product group includes electrometers, picoammeters, sensitive digital voltmeters, micro-ohmmeters, and certain other instruments which are distinguished by their extreme sensitivity, resolution and accuracy as compared to the capabilities of conventional meters. Sensitive instruments are used by scientists, engineers, and researchers for the study of materials, semiconductors, and 1 4 superconductors. Typical customers are industrial and government research laboratories, educational institutions, and electronics manufacturers. SWITCHES AND SOURCES. Switching instruments are used to route electrical signals in test systems to measurement and source instrumentation. This allows many devices or test points to be measured with a minimum number of instruments. Switch products together with Sensitive, Digital Multimeter, Source, I-V and C-V instruments can be integrated into computer-based systems to provide flexible, automated testing and measurement. The switching product line allows Keithley to provide a complete measurement solution to customers in production test, semi-conductor characterization, and materials research applications. Sources generate the precise voltage and currents needed to test electronic devices and investigate properties of materials. Source products are sold to scientists and engineers in research, semiconductor and electronic manufacturing markets, especially where stable signals of low level current and voltage are needed. These sources can be interfaced with computers as part of an automated test system, or used manually on the laboratory bench. SOURCE MEASURE UNITS. These are programmable instruments capable of sourcing and measuring voltage and current, thus replacing the functionality of four instruments with one reliable, compact unit. These versatile instruments cover a wide dynamic range of voltage and current and their combination of high speed and resolution have made these units ideal for high volume production testing of electronic components for computers, automotive, and wireless telecommunications products. The source measure units also provide the measurement sensitivity needed for materials research and semiconductor characterization applications. C-V (CAPACITANCE VERSUS VOLTAGE). C-V products include high-frequency and quasistatic C-V meters, measurement and analysis software, and computer-based test systems. C-V products are used by scientists and engineers in semiconductor manufacturing facilities, industrial and governmental research laboratories, and educational institutions to research, develop, and characterize semiconductor devices, materials and manufacturing processes. SEMICONDUCTOR BUSINESS UNIT. The Semiconductor Business Unit designs, develops, manufactures and markets automatic parametric test systems and process monitoring solutions used by semiconductor manufacturers to measure various electrical characteristics of semiconductor materials. Its products can be found in semiconductor fabrication facilities throughout the world, and consist of two main groups: APT PRODUCTS. The Company is one of the leading suppliers of these automatic parametric test systems for semiconductor production applications. In production, the systems allow manufacturers to monitor quality control parameters during fabrication of integrated circuits to improve manufacturing yields. In research, the systems are used to analyze the characteristics of semiconductor materials in the development of integrated circuit devices. The systems can also be used to develop 2 5 integrated circuit manufacturing processes. A typical system incorporates Keithley instrumentation and software and computer hardware manufactured by others. The system's major components are integrated, and in most cases, customized to customer specification. Installation and servicing of the equipment and software, and customer training are also provided. Selling prices for these products generally range from $100,000 to $250,000. In February 1996, Keithley purchased the principal assets of Turner Engineering Technology (Turner). Turner developed wafer test structures used for determining the quality of semiconductor wafers at various stages of manufacturing. These test structures will allow the company's APT systems to determine the quality of both the wafer and the manufacturing process much earlier than with previous test methods. OXIDE MONITORING SYSTEM. Quantox(R) is the first product based on the direct wafer measurement or non-contact technology licensed from International Business Machines in May 1994. The measurement data Quantox provides are used to detect and identify the types of charges present on semiconductor wafers. Charge is a critical indicator that tells the semiconductor production engineer whether or not the manufacturing process is "in spec." This measurement is made within minutes using Quantox, replacing a procedure that used to take up to five days. The selling price for a Quantox unit is approximately $500,000 depending upon the options purchased. RADIATION MEASUREMENTS BUSINESS UNIT. The Radiation Measurements Business Unit designs, develops, manufactures, and markets products and systems that accurately measure the radiation emission levels of x-ray machines and nuclear radiation sources and are used to calibrate radiation therapy and x-ray equipment in hospitals and manufacturing processes. Customers include hospitals, diagnostic x-ray equipment manufacturers, radiation researchers and physicists, and field service organizations. Selling prices for standard products range from $500 to $10,500 per instrument. The Radiation Measurements Business Unit is developing and producing personal dosimetry systems using recently acquired laser thermoluminescence dosimetry for the U.S. Navy under contract and plans to commercialize the technology over the next few years. PC MEASUREMENTS BUSINESS UNIT. This Business Unit designs, develops, manufactures and markets a wide range of data acquisition and analysis hardware and software products designed for use with personal computers and workstations. These products are used in thousands of applications worldwide wherever a number of variables must be monitored and analyzed quickly. Selling prices for these products generally range from $100 to $4,000. These products are marketed under the brand names Keithley MetraByte and Acculex and are composed of the following product groups: PLUG-IN DATA ACQUISITION BOARDS provide data acquisition capabilities in the form of a board that is installed into a slot of the computer. The Company offers a wide range of plug-in data acquisition boards in terms of the number of channels, input ranges and sampling rates. They are marketed worldwide to researchers and scientists engaged in laboratory automation and experimentation, as well as to engineers 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 personal computers. ACCULEX products include digital panel meters and panel printers. These products display machine parameters, capture results for permanent storage and enunciate alarms. These products are marketed primarily through direct marketing and catalog mailings. DISTRIBUTED I/O products include Keithley's WORKHORSE and MetraBus product offerings. These products are primarily used in industrial monitoring and control applications. COMMUNICATION products include IEEE-488 bus interfaces and software for interfacing computers with programmable measurement instrumentation. These products are marketed through direct marketing and catalog mailings. DATA ACQUISITION INSTRUMENTS include personal computer-based workstations that collect data from, and provide control over, a variety of test and measurement modules. A typical workstation consists of a standard software package and hardware external to the personal computer that utilizes various plug-in module cards that allow a user to customize the workstation for a specific application, including research, product test and pilot plant process monitoring. PERSONAL COMPUTER INSTRUMENT PRODUCTS (PCIP) are instruments contained entirely on boards that fit into an expansion slot of almost any personal computer. Included in the PCIP offering are a digital multimeter, scanner oscilloscope, function generator and a counter. Applications include bench top engineering and automatic production testing. These products are marketed primarily through direct marketing and catalog mailings. SMARTLINK(TM) is a line of intelligent measurement modules that allow laboratory-grade measurements virtually anywhere due to their small size. The compact modules connect directly to a sensor or signal source creating no need for extra hardware. Each module has on-board signal processing capabilities to provide linearization, date/time stamping alarming that allows them to deliver useful information directly to a monitoring, control or data acquisition system. Selling prices for these products generally range from $500 to $2,500. AGENCY PRODUCTS. The Company markets and distributes certain products manufactured by approximately eight test and measurement companies. These products are 4 7 marketed and distributed primarily by the Company's European operations and are complementary to, but not competitive with, products manufactured by the Company. New Products During Fiscal Year 1997 - ------------------------------------ Several new products were introduced during fiscal 1997 including the following: INSTRUMENTS introduced several new products including the Model 6517A, 2410 and 2420. The Model 6517A Electrometer/High Resistance Meter provides accuracy, sensitivity and speed previously unavailable in this type of instrument. The features of this model make it well-suited for measuring the resistance, resistivity and conductance of insulating materials, finding the voltage coefficient of resistors and characterizing the leakage of diodes and capacitors. The Company expanded its 2400 SourceMeter Series with Model 2410, a high voltage SourceMeter, and Model 2420, a high current SourceMeter. The new instruments can make more than 1000 non-buffered readings per second. Both models simultaneously source, sink and measure voltage and current, proving a complete solution that simplifies and lowers the cost of measurement in a wide range of applications. THE SEMICONDUCTOR BUSINESS UNIT began shipping a new parametric test system, the Model S600. The S600 is designed for both production and applications in the semiconductor industry. This product offers unprecedented measurement speed and sensitivity, higher throughput and lower cost-of-ownership. In the area of oxide charge monitoring, the Quantox process monitoring product became more established. THE RADIATION MEASUREMENTS BUSINESS UNIT introduced software for processing data and reporting results of tests on mammography x-ray machines to the FDA and introduced its improved non-invasive kilovoltage divider used by x-ray manufacturers and field service organizations worldwide. The Unit procured a contract with the U.S. Navy worth $4.1 million for limited run initial production of personnel dosimetry systems based on the newly acquired laser heated thermoluminescence radiation dosimetry. PC MEASUREMENTS BUSINESS UNIT introduced the several additions to the SmartLink(TM) product line. The unique design of the Models KNM-DCV41, -DCV42, - -TC41, and -TC42 provides up to 1500V front-to-back isolation on up to six differential analog input channels. The instruments provide unparalleled accuracy, plus equipment and personnel protection for demanding measurement applications, such as DC volts readings, four-wire resistance tests, and thermocouple temperature measurements. Also introduced was the KNM-DYN12 which can make laboratory grade measurements of force, acceleration, and dynamic pressure in virtually any plant location. Geographic Markets and Distribution - ----------------------------------- During fiscal 1997, substantially all of the Company's products were manufactured in Ohio and were sold throughout the world in many developed countries. The Company's 5 8 principal markets are the United States, Europe and the Pacific Basin. During the year, the Keithley Metrabyte operation was relocated from Taunton, Massachusetts to Solon, Ohio. In the United States, the Company's products are sold by the Company's sales personnel, independent sales representatives and through direct marketing and catalog mailings. United States sales offices are located in Solon, Ohio and Santa Clara, California. The Company markets its products directly in European countries in which it has a wholly owned sales subsidiary and through distributors in other countries. European subsidiaries have sales and service offices located in or near London, Munich, Paris, Amsterdam, Zurich and Milan. The Company also has sales offices in Belgium, China, Taiwan and India. Sales in markets outside the above named locations are made through independent sales representatives and distributors. Sources and Availability of Raw Materials - ----------------------------------------- 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 can not generally be patented in their entirety. Although the Company holds patents with respect to certain of its products, it does not believe that its business is dependent to any material extent upon any single patent or group of patents, because of the rapid rate of technological change in the industry. Seasonal Trends and Working Capital Requirements - ------------------------------------------------ Although the Company is not subject to significant seasonal trends, its business is cyclical and is somewhat dependent upon the semiconductor industry in particular. The Company does not have any unusual working capital requirements. Customers - --------- The Company's customers generally are involved in engineering research and development, product testing, electronic service or repair, and educational and governmental research. During the fiscal year ended September 30, 1997 no one customer accounted for more than 10% of the Company's sales. Management believes that the loss of any one of its customers would not materially affect the sales or net income of the Company. 6 9 Backlog - ------- The Company's backlog of unfilled orders amounted to approximately $13,486,000 as of September 30, 1997 and approximately $9,087,000 as of September 30, 1996. Included in the 1997 backlog is $981,000 related to a U.S. Navy Contract. $451,000 of this was unfunded at September 30, 1997. It is expected that the majority of the orders included in the 1997 backlog will be delivered during fiscal 1998; however, the Company's past experience indicates that a small portion of orders included in the backlog may be canceled. Competitive Conditions - ---------------------- The Company competes on the basis of quality, performance, service, warranty and price, with quality and performance frequently being dominant. There are many firms in the world engaged in the manufacture of electronic measurement instruments, some of which are larger and have greater financial resources than the Company. The Company's competitors vary between product lines and certain manufacturers compete with the Company in multiple product lines. The Company's principal competitors are Hewlett-Packard Company, National Instruments, Inc., Fluke Corporation and Data Translation, Inc. Research And Development - ------------------------ The Company's engineering development activities are directed toward the development of new products that will complement, replace or add to the products currently included in the Company's product line. The Company does not perform basic research, but on an ongoing basis utilizes new component and software technologies in the development of its products. The highly technical nature of the Company's products and the rapid rate of technological change in the industry require a large and continuing commitment to engineering development efforts. Product development expenses were $17,233,000 in 1997, $18,337,000 in 1996 and $15,385,000 in 1995, or approximately 14%, 15% and 14% of net sales, respectively, for each of the last three fiscal years. During 1997, and continuing in 1998, the Company was involved in a design and manufacturing, cost plus fixed fee, contract with the U.S. Navy. All contract related costs were reimbursed by the U.S. Navy and appear in the "Cost of goods sold" caption in the consolidated financial statements as opposed to "Product development expenses." The Company acquired the principal assets of International Sensor Technology (IST) in 1996. IST's activities included a government research and development contract for the Navy which was concluded during 1996. The amount spent by the Company on this contract was accounted for in the manner described for the current contract. Government Regulations - ---------------------- 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, 1997, the Company employed 693 persons, 99 of whom were located outside the United States. None of the Company's employees are covered under the terms of a collective bargaining agreement and the Company believes that relations with its employees are good. Foreign Operations and Export Sales - ----------------------------------- Information related to foreign and domestic operations and export sales is incorporated by reference to Note I of the Notes to the Consolidated Financial Statements on page 29 of the Company's 1997 Annual Report to Shareholders, a copy of which is filed as Exhibit 13 to this report. The Company has significant revenues from outside the United States which increase the complexity and risk to the Company. These risks include increased exposure to the risk of foreign currency fluctuations and the potential economic and political impacts from conducting business in foreign countries. With the exception of changes in the value of foreign currencies, which is not possible to predict, the Company believes that its foreign subsidiaries and other larger international markets are in countries where the economic and political climate is generally stable. 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 76,000 square feet Solon, Ohio Marketing and Administration, 5.5 Acres Space is available for expansion with 50,000 square feet the majority leased to other parties. (4,000 square feet utilized by the Co.)
Lease Type of Square Expiration Leased Properties Facility Footage Date - ----------------- -------- ------- ---- Location -------- Solon, Ohio Engineering, Manufacturing, 40,000 October 13, 2006 Marketing, Sales, Service and Administration Solon, Ohio Manufacturing, and 21,600 March 31, 2002 Administration Santa Clara, Sales and Service 4,355 October 13, 2002 California
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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 5,600 July 24, 2009 Paris, France Sales and Service 3,456 June 30, 1998 Zurich, Sales and Service 3,229 September 30, 1998 Switzerland renewable Amsterdam, Sales and Service 2,906 March 31, 2002 Netherlands Milan, Sales and Service 2,691 August 31, 2001 Italy
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 49 Chairman of the Board of Directors since 1991, Chief Executive Officer since November 1993 and President since May 1994. Philip R. Etsler 47 Vice President Human Resources of the Company since 1990. James B. Griswold 51 Secretary and a Director of the Company since 1988; partner in the law firm of Baker & Hostetler LLP from 1982 to present. Hermann Hamm (1) 58 Vice President of European Operations of the Company since 1986. Frederick R. Hume (1) 54 Senior Vice President Strategic Planning and Technology since November 1996. Previously Senior Vice President Test Instrumentation Group from February 1993 to October 1996. Vice President Test Instrumentation Group from August 1992 to February 1993. Vice President Instrument Division of the Company from May 1988 to August 1992. Mark J. Plush 48 Controller since 1982 and Officer of the Company since 1989. Ronald M. Rebner 53 Vice President and Chief Financial Officer of the Company since 1981.
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Executive Officer Age Recent Business Experience - ----------------- --- -------------------------- Gabriel A. Rosica 57 Senior Vice President since February 1996. Previously Chief Operating Officer of Bailey Controls Company from August 1994 to January 1996 and Senior Vice President of Systems Operations of Bailey Controls Company from January 1992 to July 1994. Terrence E. Sheridan 57 Vice President Radiation Measurements Business Unit since 1978.
(1) Subsequent to September 30, 1997, Mr. Hamm and Mr. Hume resigned from their Executive Officer positions with the Company. 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 31 of the Keithley Instruments, Inc. 1997 Annual Report to Shareholders, a copy of which is filed as Exhibit 13 to this Report. The approximate number of shareholders of record of Common Shares and Class B Common Shares, including those shareholders participating in the Dividend Reinvestment Plan, as of December 16, 1997 was 2,394. ITEM 6 - SELECTED FINANCIAL DATA. ------------------------ The information required by this Item is incorporated herein by reference to the eleven year summary, appearing on pages 32 and 33 of the Keithley Instruments, Inc. 1997 Annual Report to Shareholders, a copy of which is filed as Exhibit 13 to this Report. ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS ----------------------------------------------------------------------- OF OPERATIONS. -------------- The information required by this Item is incorporated herein by reference to pages 21 through 23 of the Keithley Instruments, Inc. 1997 Annual Report to Shareholders, a copy of which is filed as Exhibit 13 to this Report. ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. -------------------------------------------- The Consolidated Financial Statements, appearing on pages 18 through 20 and pages 23 through 29, the Unaudited Quarterly Results of Operations appearing on page 31 of the Keithley Instruments, Inc. 1997 Annual Report to Shareholders, together with the report thereon of Price Waterhouse LLP dated November 17, 1997, appearing on page 30 of the Keithley Instruments, Inc. Annual Report to Shareholders is filed as Exhibit 13 to this Report. ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND --------------------------------------------------------------- FINANCIAL DISCLOSURE. --------------------- None. 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 14, 1998 Annual Meeting of Shareholders and filed with the Securities and Exchange Commission pursuant to Section 14(a) of the Securities Exchange Act of 1934. The information required for an identification of executive officers is included on pages 11 and 12 of this Form 10-K Annual Report. ITEM 11 - EXECUTIVE COMPENSATION. ----------------------- The information required by this item relating to executive compensation is incorporated herein by reference to the information set forth under the caption Executive Compensation and Benefits in the Company's Proxy Statement to be used in conjunction with the February 14, 1998 Annual Meeting of Shareholders and filed with the Securities and Exchange Commission pursuant to Section 14(a) of the Securities Exchange Act of 1934. ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. --------------------------------------------------------------- The information required by this item relating to security ownership of certain beneficial owners and management is incorporated herein by reference to the information set forth under the caption Principal Shareholders in the Company's Proxy Statement to be used in conjunction with the February 14, 1998 Annual Meeting of Shareholders and filed with the Securities and Exchange Commission pursuant to Section 14(a) of the Securities Exchange Act of 1934. ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. ----------------------------------------------- James B. Griswold, a Director and nominee for Director, is a partner in the law firm of Baker & Hostetler LLP. Baker & Hostetler LLP served as general legal counsel to the Company during the fiscal year ended September 30, 1997, and is expected to render services in such capacity to the Company in the future. 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 Sheet as of September 30, 1997 and 1996. 2. Consolidated Statement of Income for the years ended September 30, 1997, 1996 and 1995. 3. Consolidated Statement of Cash Flows for the years ended September 30, 1997, 1996 and 1995. 4. Consolidated Statement of Shareholders' Equity for the years ended September 30, 1997, 1996 and 1995. 5. Notes to Consolidated Financial Statements. 6. Report of Independent Accountants dated November 17, 1997. (a)(2) FINANCIAL STATEMENT SCHEDULES The following additional information should be read in conjunction with the Consolidated Financial Statements of the Company described in Item 14(a)(1): Schedule II Valuation and Qualifying Accounts Schedules other than those listed above are omitted because they are not required or not applicable, or because the information is furnished elsewhere in the consolidated financial statements or the notes thereto. 15 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.) -- 3(c) Amended Articles of Incorporation, as amended on February 10, 1996. (Reference is made to Exhibit 3(c) of the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1996 (File No. 1-9965), which Exhibit is incorporated herein by reference.) -- 4(a) Specimen Share Certificate for the Common Shares, without par value. (Reference is made to Exhibit 4(a) of the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1988 (File No. 1-9965), which Exhibit is incorporated herein by reference.) -- 4(b) Specimen Share Certificate for the Class B Common Shares, without par value. (Reference is made to Exhibit 4(b) of the Company's Form 10 Registration Statement (File No. 0-13648) as declared effective on July 31, 1985, which Exhibit is incorporated herein by reference.) -- *10(a) 1984 Stock Option Plan, adopted in February 1984. -- *10(c) 1984 Deferred Compensation Plan, adopted in February 1984. -- *Reference is made to the appropriate Exhibits of the Company's Form 10 Registration Statement (File No. 0-13648) as declared effected on July 31, 1985, which Exhibits are incorporated herein by reference.
16 19
Page Number Sequential Exhibit Numbering Number Exhibit System ------ ------- ------ 10(k) Employment Agreement with Joseph F. Keithley dated September 26, 1988. (Reference is made to Exhibit 10(k) of the Company's Annual Report on Form 10-K for the year ended September 30, 1988 (File No. 1-9965), which Exhibit is incorporated herein by reference.) -- 10(l) Employment Agreement with Joseph P. Keithley dated September 26, 1988. (Reference is made to Exhibit 10(l) of the Company's Annual Report on Form 10-K for the year ended September 30, 1988 (File No. 1-9965), which Exhibit is incorporated herein by reference.) -- 10(o) Form of Supplemental Executive Retirement Plan, adopted in January 1988. (Reference is made to Exhibit 10(o) of the Company's Annual Report on Form 10-K for the year ended September 30, 1988 (File No. 1-9965), which Exhibit is incorporated herein by reference.) -- 10(q) 1992 Stock Incentive Plan, adopted in December 1991. (Reference is made to Exhibit 10(q) of the Company's Annual Report on form 10-K for the year ended September 30, 1991 (File No. 1-9965) which Exhibit is incorporated herein by reference.) -- 10(r) 1992 Directors' Stock Option Plan, adopted in December 1991. (Reference is made to Exhibit 10(r) of the Company's Annual Report on form 10-K for the year ended September 30, 1991 (File No. 1-9965) which Exhibit is incorporated herein by reference.) -- 10(u) Credit Agreement dated as of May 31, 1994 by and among Keithley Instruments, Inc. and certain borrowing subsidiaries and the Banks named herein, and NBD Bank, N.A., as Agent. (Reference is made to Exhibit 10(u) of the Company's Quarterly Report on form 10-Q for the quarter ended June 30, 1994 (File No. 1-9965) which Exhibit is incorporated herein by reference.) --
17 20
Page Number Sequential Exhibit Numbering Number Exhibit System ------ ------- ------ 10(v) Contactless Testing Technology Licensing Agreement between International Business Machines Corporation and Keithley Instruments, Inc., effective as of May 26, 1994. (Reference is made to Exhibit 10(v) of the Company's Annual Report on form 10-K for the year ended September 30, 1994 (File No. 1-9965) which Exhibit is incorporated herein by reference.) -- 10(x) 1996 Outside Directors Deferred Stock Plan. (Reference is made to Exhibit 10(x) of the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1996 (File No. 1-9965), which Exhibit is incorporated herein by reference.) -- 10(y) First Amendment dated March 28, 1997, to the Credit Agreement dated May 31, 1994. (Reference is made to Exhibit 10(y) of the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1997 (File No. 1-9965), which Exhibit is incorporated herein by reference.) -- 10(z) 1997 Directors' Stock Option Plan, adopted in February 1997. 22-24 11 Statement Re Computation of Per Share Earnings. 25 13 Annual Report to Shareholders for the Fiscal Year Ended September 30, 1997. 26-60 21 Subsidiaries of the Company. 61 23 Consent of Experts. 62 27 Financial Data Schedule (EDGAR version only). --
ITEM 14(B) REPORTS ON FORM 8-K. No reports on Form 8-K were filed during the last quarter of the Company's fiscal year ended September 30, 1997. ITEM 14(C) EXHIBITS: See "Index to Exhibits" at Item 14(a)(3) above. ITEM 14(D) FINANCIAL STATEMENT SCHEDULES: Schedules required to be filed in response to this portion of Item 14 are listed above in Item 14(a)(2). 18 21 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Keithley Instruments, Inc. (Registrant) By: /s/ Joseph P. Keithley ----------------------------- Joseph P. Keithley, (Chairman, President and Chief Executive Officer) Date: December 5, 1997 ----------------------------- Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities on the date indicated.
Signature Title Date - --------- ----- ---- /s/ Joseph P. Keithley Chairman of the Board of Directors, President and 12/5/97 - -------------------------------------------- Chief Executive Officer Joseph P. Keithley (Principal Executive Officer) - -------------------------------------------- Founder and Director 12/5/97 Joseph F. Keithley /s/ Ronald M. Rebner Vice President and Chief Financial Officer (Principal 12/5/97 - -------------------------------------------- Financial and Accounting Officer) and a Director Ronald M. Rebner /s/ Brian R. Bachman Director 12/5/97 - -------------------------------------------- Brian R. Bachman Director 12/5/97 - -------------------------------------------- James T. Bartlett /s/ Arden L. Bement, Jr. Director 12/5/97 - -------------------------------------------- Dr. Arden L. Bement, Jr. /s/ James B. Griswold Director 12/5/97 - -------------------------------------------- James B. Griswold /s/ Leon J. Hendrix, Jr. Director 12/5/97 - -------------------------------------------- Leon J. Hendrix, Jr. /s/ R. Elton White Director 12/5/97 - -------------------------------------------- R. Elton White
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 17, 1997 appearing on page 30 of the 1997 Annual Report to Shareholders of Keithley Instruments, Inc., (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the Financial Statement Schedule listed in Item 14(a)(2) of this Form 10-K. In our opinion, this Financial Statement Schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. PRICE WATERHOUSE LLP Cleveland, Ohio November 17, 1997 20 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 Costs Balance at End Description of Period and Expenses Deductions (1) of Period - ----------- --------- ------------ -------------- --------- For the Year Ended September 30, 1997: Valuation allowance for deferred tax assets $2,994 $172 -- $3,166 For the Year Ended September 30, 1996: Valuation allowance for deferred tax assets $2,606 $467 $79 $2,994 For the Year Ended September 30, 1995: Valuation allowance for deferred tax assets $3,330 $ 80 $ 804 $2,606
(1) Represents utilization of foreign tax credits. 21 EX-10.Z 2 EXHIBIT 10.Z 1 10(z) Material Contracts. KEITHLEY INSTRUMENTS, INC. 1997 DIRECTORS' STOCK OPTION PLAN 1. PURPOSE. The purpose of this 1997 Directors' Stock Option Plan (the "Plan") is to enable Keithley Instruments, Inc. (the "Company") to attract, retain and reward directors of the Company and strengthen the mutuality of interest between such directors and the Company's shareholders by offering such directors options ("Options") to purchase shares of the Company's no par value Common Shares ("Common Shares"). This Plan replaces and supersedes the Keithley Instruments, Inc. 1992 Directors' Stock Option Plan (the "1992 Directors' Option Plan"), effective as of the date this Plan is adopted by the Board of Directors of the Company. 2. GRANT AND ELIGIBILITY. All directors of the Company who are not employees of the Company ("Outside Directors") shall be granted Options under the Plan. From and after the Effective Date, so long as the Plan remains in effect and has Common Shares available for grants hereunder, each individual who qualifies as an Outside Director at the close of any annual meeting of the shareholders of the Company (an "Optionee") shall automatically be granted an Option to purchase five thousand (5,000) Common Shares. In addition to the Options granted at the close of each annual meeting of shareholders, the Board of Directors of the Company, in its sole discretion, may grant additional Options under the Plan to newly-elected Outside Directors, as of the date of their initial election and in such amounts as the Board shall specify. In the event Common Shares are available for grants hereunder, but the number of such Shares is insufficient to provide an Outside Director with an Option to purchase five thousand (5,000) Common Shares, such Outside Director shall receive an Option to purchase the lesser of (i) the number of Common Shares remaining available for grant under the Plan; or (ii) the number of Common Shares being granted to any other Outside Director concurrently entitled to a grant of Options hereunder, so that Options are granted to all such Outside Directors on a PRO RATA basis. The maximum aggregate number of Common Shares available for issuance under the Plan is two hundred thousand (200,000); such Common Shares may be treasury shares or authorized but unissued shares or a combination of the foregoing. If an Option granted under the Plan shall expire, terminate or become forfeited for any reason other than its exercise, the shares subject to, but not delivered under, such Option shall be available for the grant of other Options pursuant to the Plan. 3. TERM OF OPTION, EXERCISE AND TRANSFERABILITY. The term of each Option granted under the Plan shall be ten years. An Optionee who has continuously served as a director of the Company from the date of the grant of an Option through the date of vesting may first exercise such Option after the date of vesting for all or part of the number of Common Shares in accordance with the Plan. For this purpose, the "date of vesting" for any Option granted under the Plan shall be that date which is six months and one day after the later to occur of: (i) the effective date of the Plan; or (ii) the date such Optionee is elected as a director; or (iii) the date such Option is granted. An Outside Director who resigns or is removed before the date of vesting for any Options held by such Director shall forfeit such Options, unless otherwise approved by the Board of Directors. No Option shall be transferable by the Optionee other than by will or the laws of descent and distribution. Options shall be exercisable during the Optionee's lifetime only by an Optionee or by his or her legal guardian or legal representative. Notwithstanding the first and second sentences of this paragraph or the preceding paragraph, if any Optionee dies while holding unexercised Options, any Option held by such Optionee at the time of his or her death shall thereafter be exercised, to the extent such Option was exercisable at the time of death, by the estate of the Optionee (acting through its fiduciary), within a period of one year from the date of such death regardless of the term of the Option remaining at the Optionee's death. 4. OPTION PRICE AND PAYMENT. The option price for each Common Share purchasable under an Option shall be the fair market value of a Common Share on the date such Option is granted in accordance with Section 2; for this purpose, "fair market value" shall be the average of the highest and lowest price for a Common Share, as quoted on the New York Stock Exchange (or if Common Shares are not then traded on such Exchange, on any other exchange on which Common Shares are then traded) on the date preceding the date of grant. The option price shall be payable (i) in cash; (ii) by check acceptable to the Company; (iii) by delivery of shares of the same class of stock subject to such Option; or (iv) a combination of the above, so long as the sum of the fair market value of any such cash, check or Common Shares equals the option price. The Company shall have the right to require an Optionee who is entitled to receive Common Shares pursuant to the exercise of an Option to pay to the Company the amount of any taxes which the Company is required to withhold with respect to such Common Shares. Such amount shall be payable (i) in cash; (ii) by check acceptable to the Company; (iii) by delivery of shares of the same class of stock subject to the Option; or (iv) a combination of the above. 2 5. CHANGE IN CONTROL. (a) IMPACT OF EVENT. In the event of a "Change in Control" as defined in Section 5(b), all Options granted under the Plan shall vest upon the later to occur of (i) such Change in Control; or (ii) six months and one day after the date of grant of such Options. (b) DEFINITION OF CHANGE IN CONTROL. For purposes of Section 5(a), a "Change in Control" shall be deemed to have occurred if: (i) a tender offer shall be made and consummated for the ownership of 25% or more of the outstanding voting securities of the Company; (ii) the Company shall be merged or consolidated with another corporation and, as a result of such merger or consolidation, less than 75% of the outstanding voting securities of the surviving or resulting corporation shall be owned in the aggregate by the former shareholders of the Company as the same shall have existed immediately prior to such merger or consolidation; (iii) the Company shall sell substantially all of its assets to another corporation which is not a wholly owned subsidiary; or (iv) a person, within the meaning of Section 3(a)(9) or of Section 13(d)(3) (as in effect on the date hereof) of the Securities Exchange Act of 1934 (the "Exchange Act"), shall acquire, other than by reason of inheritance, twenty-five percent (25%) or more of the outstanding voting securities of the Company (whether directly, indirectly, beneficially or of record). In making any such determination, transfers made by a person to an affiliate of such person (as determined by the Board of Directors of the Company), whether by gift, devise or otherwise, shall not be taken into account. For purposes of this Plan, ownership of voting securities shall take into account and shall include ownership as determined by applying the provisions of Rule 13d-3(d)(1)(i) as in effect on the date hereof pursuant to the Exchange Act. 6. ADJUSTMENTS. (a) If, at any time subsequent to the date of adoption of the Plan, the number of Common Shares are increased or decreased, or changed into or exchanged for a different number or kind of shares of stock or other securities of the Company or of another corporation (whether as a result of a stock split, stock dividend, combination or exchange of shares, exchange for other securities, reclassification, reorganization, redesignation, merger, consolidation, recapitalization or otherwise): (i) there shall automatically be substituted for each Common Share subject to an unexercised Option (in whole or in part) granted under the Plan, the number and kind of shares of stock or other securities into which each outstanding Common Share shall be changed or for which each such Common Share shall be exchanged; and (ii) the option price per Common Share or unit of securities shall be increased or decreased proportionately so that the aggregate purchase price for the securities subject to an Option shall remain the same as immediately prior to such event. (b) No adjustment pursuant to this Section 6 shall be required unless such adjustment would require an increase or decrease of at least one percent (1%) in such number or price; however, any adjustments which by reason of this Section 6 are not required to be made shall be carried forward. Calculations under this Section 6 shall be made to the nearest cent or to the nearest full share, as the case may be. Anything in this Section 6 to the contrary notwithstanding, the Company shall be entitled to make such reductions in the option price, in addition to those required by this Section 6, as it, in its discretion shall determine to be advisable in order that any stock dividends, subdivisions or splits of shares, distribution of rights to purchase stock or securities, or a distribution of securities convertible into or exchangeable for stock hereafter made by the Company to its shareholders shall not be taxable. 7. OTHER TERMS. Each grant of Options hereunder shall be evidenced by a Shares Option Agreement in substantially the form attached hereto as Exhibit A. When exercisable in accordance with Section 3, Options may be exercised, in whole or in part, by giving written notice of exercise to the Company specifying the number of Common Shares to be purchased. Such notice shall be accompanied by payment of the option price of the Common Shares for which the Option is exercised in accordance with Section 4. 8. AMENDMENT. The Board of Directors of the Company (the "Board") may at any time amend, modify, suspend or terminate this Plan, except with respect to Options already granted. 9. TERMINATION OF PLAN. The Plan shall be terminated and no further Options shall be granted hereunder as of the tenth (10th) anniversary of the date this Plan is adopted by the Board. Options granted prior to such tenth anniversary may extend beyond that date. 10. COMPLIANCE WITH LAW AND APPROVAL OF REGULATORY BODY. No Option shall be exercisable and no Common Shares will be delivered under this Plan except in compliance with all applicable federal and state laws and regulations, including, without limitation, compliance with applicable withholding tax requirements, if any, and with the rules of all domestic stock exchanges on which the Company's stock may be listed. Any stock certificates issued to evidence Common Shares as to which an Option is exercised may bear such legends and statements as the Company shall deem advisable to assure compliance with federal and state laws and -2- 3 regulations; the Company may, if it deems appropriate, condition its grant of any Options hereunder upon receipt of the following investment representation from the Optionee: "I agree that any Common Shares of Keithley Instruments, Inc. which I may acquire by virtue of this Stock Option shall be acquired for investment purposes only and not with a view to distribution or resale, and may not be transferred, sold, assigned, pledged, hypothecated or otherwise disposed of by me unless (i) a registration statement or post-effective amendment to a registration statement under the Securities Act of 1933, as amended, with respect to said Common Shares has become effective so as to permit the sale or other disposition of said shares by me; or (ii) there is presented to Keithley Instruments, Inc. an opinion of counsel satisfactory to Keithley Instruments, Inc. to the effect that the sale or other proposed disposition of said Common Shares by me may lawfully be made otherwise than pursuant to an effective registration statement or post-effective amendment to a registration statement relating to the said shares under the Securities Act of 1933, as amended." No Option shall be exercisable, and no stock will be delivered under this Plan, until the Company has obtained such consent or approval from the regulatory body, federal or state, having jurisdiction over such matters as the Company may deem advisable. In the case of the exercise of an Option by a person or estate acquiring the right to exercise such Option by bequest or inheritance, the Company may require reasonable evidence as to the ownership of such Option and may require such consents and releases of taxing authorities as the Committee may deem advisable. 11. EFFECTIVE DATE. The Plan shall be effective as of February 15, 1997, subject to ratification by a majority vote of the Company's shareholders, taken expressly for that purpose. 12. GOVERNING LAW. The Plan, all options and actions taken thereunder and any agreements relating thereto shall be governed by and controlled in accordance with Ohio law. -3- EX-11 3 EXHIBIT 11 1 11. Statement re computation of per share earnings
Year ended Year ended Year ended September 30, September 30, September 30, 1997 1996 1995 Primary EPS calculation: - ------------------------ Shares outstanding at beginning of period 7,450,878 7,227,972 7,104,876 Net issuance of shares under stock award plans, weighted average 66,545 76,823 22,768 Net issuance of shares under stock purchase plan, weighted average 70,671 55,617 30,038 --------- --------- --------- Weighted average shares outstanding 7,588,094 7,360,412 7,157,682 --------- --------- --------- Assumed exercise of stock options, weighted average of incremental shares 260,895 421,122 281,602 Assumed purchase of stock under stock purchase plan, weighted average 17,761 40,812 36,854 --------- --------- --------- Average shares and common share equivalents - primary EPS calculation 7,866,750 7,822,346 7,476,138 ========= ========= ========= Net income (loss) per share $.10 $ (.70) $ .66 ==== ======= ====== Net income (loss) in thousands $790 $(5,440) $4,914 ==== ======= ====== Fully diluted EPS calculation: - ------------------------------ Weighted average shares outstanding 7,588,094 7,360,412 7,157,682 Assumed exercise of stock options, weighted average of incremental shares 373,884 421,122 508,496 Assumed purchase of stock under stock purchase plan, weighted average 32,903 40,812 53,598 --------- --------- --------- Average shares and common share equivalents - fully diluted EPS calculation 7,994,881 7,822,346 7,719,776 ========= ========= ========= Net income (loss) per share $.10 $ (.70) $ .64 ==== ======= ====== Net income (loss) in thousands $790 $(5,440) $4,914 ==== ======= ======
EX-13 4 EXHIBIT 13 1 13. Annual Report to Shareholders for the Fiscal Year Ended September 30, 1997 Consolidated Statement of Income For the years ended September 30, 1997, 1996 and 1995 (In Thousands of Dollars Except for Per-Share Data)
1997 1996 1995 -------- ------- ------- Net sales $ 123,295 $ 118,946 $ 109,574 --------- --------- --------- Cost of goods sold 51,924 46,140 42,372 Selling, general and administrative expenses 50,789 47,695 43,945 Product development expenses 17,233 18,337 15,385 Special charges 771 11,645 -- Amortization of intangible assets 222 634 464 Net financing expenses 1,145 819 986 --------- --------- --------- Income (loss) before income taxes 1,211 (6,324) 6,422 Income taxes (benefit) 421 (884) 1,508 --------- --------- --------- Net income (loss) $ 790 $ (5,440) $ 4,914 ========= ========= ========= Net income (loss) per share $ .10 $ (.70) $ .66 ========= ========= ========= Fully diluted net income (loss) per share $ .10 $ (.70) $ .64 ========= ========= =========
The accompanying notes are an integral part of the financial statements. 2 Consolidated Balance Sheet September 30, 1997 and 1996 (In Thousands of Dollars Except for Share Data)
1997 1996 -------- -------- Assets Current assets: Cash and cash equivalents $ 1,727 $ 3,995 Accounts receivable and other, net of allowances of $675 in 1997 and $630 in 1996 25,113 18,538 Inventories: Raw materials 7,787 8,255 Work in process 5,671 4,880 Finished products 3,121 4,291 -------- -------- Total inventories 16,579 17,426 Deferred income taxes 2,541 3,082 Prepaid expenses 566 699 -------- -------- Total current assets 46,526 43,740 -------- -------- Property, plant and equipment, at cost: Land 1,325 1,325 Buildings and leasehold improvements 15,917 13,310 Manufacturing, laboratory and office equipment 24,285 23,238 -------- -------- 41,527 37,873 Less-Accumulated depreciation and amortization 24,272 22,531 -------- -------- Total property, plant and equipment, net 17,255 15,342 -------- -------- Intangible assets, net of accumulated amortization of $29,930 in 1997 and $29,708 in 1996 1,825 2,064 Other assets 13,507 12,688 -------- -------- Total assets $ 79,113 $ 73,834 ======== ======== Liabilities and Shareholders' Equity Current liabilities: Current installments on long-term debt $ 16 $ 61 Accounts payable 11,568 8,162 Accrued payroll and related expenses 4,698 4,525 Other accrued expenses 6,951 9,358 Income taxes payable 1,821 2,955 -------- -------- Total current liabilities 25,054 25,061 -------- -------- Long-term debt 17,442 13,308 Other long-term liabilities 3,899 3,655 Deferred income taxes 35 54 Shareholders' equity: Common Shares, stated value $.025: Authorized - 30,000,000; issued and outstanding - 4,877,975 in 1997 and 4,656,600 in 1996 122 116 Class B Common Shares, stated value $.025: Authorized - 9,000,000; issued and outstanding - 2,786,278 in 1997 and 2,794,278 in 1996 70 70 Capital in excess of stated value 7,297 5,293 Earnings reinvested in the business 25,773 25,865 Cumulative translation adjustment 250 562 Unamortized portion of restricted stock plans (569) (14) Common shares held in treasury, at cost (260) (136) -------- -------- Total shareholders' equity 32,683 31,756 -------- -------- Total liabilities and shareholders' equity $ 79,113 $ 73,834 ======== ========
The accompanying notes are an integral part of the financial statements. 3 Consolidated Statement of Shareholders' Equity For the years ended September 30, 1997, 1996 and 1995 (In Thousands of Dollars Except for Share Data)
1997 1996 1995 ---- ---- ---- Shares $ Shares $ Shares $ ---------- ---------- ---------- ---------- ---------- ---------- Common Shares: Beginning balance 4,656,600 116 4,308,976 108 4,156,836 104 Shares issued under stock plans 213,375 6 222,906 5 123,096 3 Conversion of Class B Common Shares 8,000 -- 124,718 3 29,044 1 ---------- ---------- ---------- ---------- ---------- ---------- Ending balance 4,877,975 122 4,656,600 116 4,308,976 108 ========== ---------- ========== ---------- ========== ---------- Class B Common Shares: Beginning balance 2,794,278 70 2,918,996 73 2,948,040 74 Conversion to Common Shares (8,000) -- (124,718) (3) (29,044) (1) ---------- ---------- ---------- ---------- ---------- ---------- Ending balance 2,786,278 70 2,794,278 70 2,918,996 73 ========== ---------- ========== ---------- ========== ---------- Common Shares held in treasury, at cost: Beginning balance (10,155) (136) -- -- -- -- Shares repurchased (12,360) (124) (10,155) (136) -- -- ---------- ---------- ---------- ---------- ---------- ---------- Ending balance (22,515) (260) (10,155) (136) -- -- ========== ---------- ========== ---------- ========== ---------- Capital in excess of stated value: Beginning balance 5,293 3,981 3,469 Shares issued under stock plans 1,742 1,385 512 Other 262 (73) -- ------- ------- ------- Ending balance 7,297 5,293 3,981 ------- ------- ------- Cumulative translation adjustment: Beginning balance 562 589 368 Translation adjustments (550) (76) 324 Gains (losses) from hedging net investments in foreign subsidiaries 238 49 (103) ------- ------- ------- Ending balance 250 562 589 ------- ------- ------- Unamortized portion of restricted stock plan: Beginning balance (14) (6) (12) Shares issued under stock plans (742) (14) -- Amortization 187 6 6 ------- ------- ------- Ending balance (569) (14) (6) ------- ------- ------- Earnings reinvested in the business: Beginning balance 25,865 32,157 27,943 Net income (loss) 790 (5,440) 4,914 Cash dividends: Common Shares ($.125 per share in 1997 and 1996 and $.106 per share in 1995) (603) (568) (450) Class B Common Shares ($.10 per share in 1997 and 1996 and $.085 per share in 1995) (279) (284) (250) ------- ------- ------- Ending balance 25,773 25,865 32,157 ------- ------- ------- Total shareholders' equity 32,683 31,756 36,902 ======= ======= =======
On November 6, 1995, the company's Board of Directors approved a two-for-one split of the company's Common Shares and Class B Common Shares. The split was effected in the form of a stock dividend payable on December 11, 1995, to shareholders of record on November 27, 1995. All amounts have been adjusted to reflect the split. The accompanying notes are an integral part of the financial statements. 4 Consolidated Statement of Cash Flows For the years ended September 30, 1997, 1996 and 1995 (In Thousands of Dollars)
1997 1996 1995 -------- -------- -------- Cash flows from operating activities: Net income (loss) $ 790 $ (5,440) $ 4,914 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation 3,823 3,419 3,106 Amortization of intangible assets 222 634 464 Deferred income taxes (1,140) (3,772) (1,217) Deferred compensation 229 211 220 Special charges (771) 11,452 -- Change in current assets and liabilities: Accounts receivable and other (6,969) 2,317 (6,108) Inventories 486 (5,275) (2,864) Prepaid expenses 29 (57) 289 Other current liabilities 1,427 (143) 4,660 Other operating activities 863 (746) (1,007) -------- -------- -------- Net cash provided by (used in) operating activities (1,011) 2,600 2,457 -------- -------- -------- Cash flows from investing activities: Payments for property, plant and equipment (5,849) (8,539) (2,695) Other investing activities 202 71 69 Acquisitions of businesses -- (1,408) -- -------- -------- -------- Net cash used in investing activities (5,647) (9,876) (2,626) -------- -------- -------- Cash flows from financing activities: Net decrease in short-term debt (45) (10) (35) Borrowing of long-term debt 4,520 7,385 1,367 Proceeds from sale of Common Shares 1,144 974 520 Cash dividends (882) (852) (700) -------- -------- -------- Net cash provided by financing activities 4,737 7,497 1,152 -------- -------- -------- Effect of changes in foreign currency exchange rates on cash and cash equivalents (347) (116) 195 -------- -------- -------- Increase (decrease) in cash and cash equivalents (2,268) 105 1,178 Cash and cash equivalents at beginning of period 3,995 3,890 2,712 -------- -------- -------- Cash and cash equivalents at end of period $ 1,727 $ 3,995 $ 3,890 ======== ======== ======== Supplemental disclosures of cash flow information Cash paid during the year for: Income taxes $ 1,981 $ 2,201 $ 1,419 Interest 1,140 711 814 Supplemental schedule of noncash investing activities The company's acquisitions included the following noncash transactions: Fair value of assets acquired $ -- $ 2,525 $ -- Cash paid -- (1,408) -- Common Shares issued -- (201) -- -------- -------- -------- Liabilities assumed $ -- $ 916 $ -- ======== ======== ========
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. 5 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Percent of net sales for the years ended September 30, 1997, 1996 and 1995.
1997 1996 1995 ---- ---- ---- Net sales 100.0 100.0 100.0 Cost of goods sold 42.1 38.8 38.7 Selling, general and administrative expenses 41.2 40.1 40.1 Product development expenses 14.0 15.4 14.0 Special charges 0.6 9.8 -- Amortization of intangible assets 0.2 0.5 0.4 Net financing expenses 0.9 0.7 0.9 ----- ----- ----- Income (loss) before income taxes 1.0 (5.3) 5.9 Income taxes (benefit) 0.4 (0.7) 1.4 ----- ----- ----- Net income (loss) 0.6 (4.6) 4.5 ===== ===== =====
RESULTS OF OPERATIONS (IN THOUSANDS OF DOLLARS EXCEPT FOR PER-SHARE DATA) - ------------------------------------------------------------------------- Net income was $790, or $.10 per share, in 1997 compared to a net loss of $5,440, or $.70 per share, in 1996, and net income of $4,914, or $.64 per share, in 1995. Excluding special charges totaling $771 pretax, or $.06 per share, in 1997, and $11,645 pretax, or $1.23 per share, in 1996, net income was $1,280, or $.16 per share, in 1997, and $4,185, or $.53 per share, in 1996. The special charges recorded in 1997 and 1996 related primarily to the relocation of the Keithley MetraByte operation from Taunton, Massachusetts to Cleveland, Ohio. 1997's selling, general and administrative expenses also include approximately $512 pretax for non-recurring officer retirement expenses. All three years include expenses to develop the Quantox(R) system, the company's first product based on the technology licensed from IBM in 1994, as well as to explore other new business opportunities. These start-up losses totaled approximately $11,900, $10,800 and $6,900 pretax in 1997, 1996 and 1995, respectively. Earnings before taxes and special charges excluding losses from the company's new businesses were approximately $13,900, $16,100 and $13,300 in 1997, 1996 and 1995, respectively. For the third consecutive year, the company reported record net sales. Net sales were $123,295, $118,946 and $109,574 in 1997, 1996 and 1995, respectively. On a year to year basis, net sales increased 4% and 9% in 1997 and 1996, respectively. Four years ago, the company developed a strategy of targeting selected growth industries (specifically in semiconductor, telecommunications and electronic components) and has 6 been developing application-specific products for these industries. Strong demand for these products, as well as a full year's shipments of Quantox in 1997, has more than offset decreased sales of the company's parametric test equipment due to the weak semiconductor capital equipment industry during the last quarter of fiscal 1996 and through the majority of fiscal 1997. Geographically, domestic and export sales have increased for the last two years. Net sales in Europe decreased from 1996 to 1997 and were flat from 1995 to 1996. Cost of goods sold as a percentage of net sales was 42.1 in 1997, 38.8 percent in 1996 and 38.7 percent in 1995. Foreign exchange hedging had a minimal effect on cost of goods sold in 1997, 1996 and 1995. The increase in 1997 was due to increased sales of Quantox which carries a lower gross margin, higher fixed costs resulting from the expansion of manufacturing facilities and an 8 percent strengthening of the U.S. dollar. The slight increase from 1995 to 1996 resulted from increased sales of lower gross margin products offset by increased manufacturing efficiencies due to higher sales volume. The U.S. dollar strengthened less than 1 percent from 1995 to 1996 and had a minimal effect on changes in costs. Selling, general and administrative expenses have increased 6 percent from 1996 to 1997 and 9 percent from 1995 to 1996. As a percentage of net sales, they were 41.2 in 1997, and 40.1 in both 1996 and 1995. The increases in expenses were due mostly to higher marketing costs associated with new business initiatives and the introduction of new products from existing businesses, and higher commissions due to increased sales. Additionally, 1997's expense includes approximately $512 for non-recurring officer retirement expenses. Product development expenses decreased $1,104, or 6 percent, to 14.0 percent of net sales in 1997 from 15.4 percent in 1996, and increased $2,952, or 19 percent, from 14.0 percent in 1995. The decrease from 1996 to 1997 was due to substantially lower costs for Keithley MetraByte products and the company's Model S600 parametric test system which was substantially complete in 1997. The decreased expenses in 1997 were offset somewhat by increased costs over the last three years for development of new bench-top instrument products and exploration of other new business opportunities. 7 An analysis of special charges recorded in the Consolidated Statement of Income in 1997 and 1996, and the amount accrued in the Consolidated Balance Sheet is as follows:
Accrued at Expense September 30, Description: 1997 1996 1997 1996 - ------------ ---- ---- ---- ---- Write off of Goodwill $ -- $ 5,737 $ -- $ -- Severance, outplacement and other personnel costs (291) 3,433 222 3,239 Lease and related costs (525) 998 3 998 Impaired inventory and equipment 49 835 -- -- Relocation of facility and employees 1,073 -- -- -- Recruiting and consulting costs 187 -- -- -- Manufacturing start-up costs 282 -- -- -- European operating subleases (4) 642 574 642 ------- ------- ------- ------- Totals $ 771 $11,645 $ 799 $ 4,879 ======= ======= ======= =======
Since the acquisition of Keithley MetraByte in 1989, sales have declined for the operation and earnings through 1996 had been poor. In September 1996, it became apparent to management that due to the lack of growth, the business could not support stand-alone operations. Therefore management made the decision to move the Taunton, Massachusetts operation to Cleveland, Ohio. Also included in special charges is an accrual for costs to be incurred over the next 3 to 11 years under two operating subleases at the company's European facilities. Special charges of $771 pretax, or $.06 per share, recorded in 1997 include gross costs of $1,902 primarily for the relocation of the Keithley MetraByte operation from Taunton, Massachusetts to Cleveland, Ohio, net of a reversal of $1,131 of expense (noncash) recorded during 1996 primarily for closing the Taunton facility. The reversal of 1996 expense relates to changes in circumstances which occurred during 1997. $256 of the gross expense represents a noncash charge to reserve for additional impaired inventory. Special charges of $11,645 pretax, or $1.23 per share, recorded in 1996 primarily represent the expected costs of closing the Keithley MetraByte operation in Taunton. Of the special charges, noncash charges in 1996 total $6,572. The relocation of the Keithley MetraByte operation was complete in July 1997, and special charges for the relocation going forward will not be material. At September 30, 1997 and 1996, $249 and $4,538, respectively was accrued in the Consolidated Balance 8 Sheet under the category "Other accrued expenses" and $550 and $341, respectively was accrued under the category "Other long-term liabilities." Amortization expense of $222 in 1997 decreased from $634 in 1996. This is due to the September 1996 write off of the remaining goodwill associated with Keithley MetraByte. Amortization expense in 1996 increased from $464 in 1995 due to the amortization of goodwill associated with the acquisitions of International Sensor Technology in the first quarter of fiscal 1996 and Turner Engineering Technology in the second quarter of fiscal 1996. Neither acquisition had a material effect on net sales or earnings for fiscal 1997 or 1996. Net financing expenses of $1,145 increased $326 from $819 in 1996 due to higher average debt levels during the year. Net financing expenses decreased $167 in 1996 from $986 in 1995. Despite higher average debt levels in 1996, the decrease from 1995 was due to lower interest rates on variable rate debt and absence of certain fees related to the pay-off of a higher interest rate loan in the second quarter of 1995. The effective tax rate for 1997 was 34.7 percent. Foreign sales corporation (FSC) benefits and benefits derived from the remittance of foreign dividends were offset by a deferred tax charge resulting from the company's decision to terminate corporate owned life insurance policies. The company recorded an income tax benefit of $884 in 1996, which resulted from the company's pretax loss. The 1996 effective rate (benefit) of (14.0) percent is less than the statutory rate principally due to the non-deductibility of the Keithley MetraByte goodwill written off, offset by the utilization of foreign tax credits and FSC benefits. The effective income tax rate for 1995 of 23.5 percent is lower than the statutory rate due primarily to utilization of foreign tax credits and FSC benefits. At September 30, 1997, the company had capital loss carryforwards of $123 and tax credit carryforwards of $2,334. The company's financial results are affected by foreign exchange rate fluctuations. Generally, a weakening U.S. dollar causes the price of the company's product to be more attractive in foreign markets and favorably impacts the company's sales and earnings. A strengthening U.S. dollar has an unfavorable effect. This foreign exchange effect cannot be precisely isolated since many other factors affect the company's foreign sales and earnings. These factors include product offerings and 9 pricing policies of the company and its competition, whether competition is foreign or U.S. based, changes in technology and local and worldwide economic conditions. From time to time, the company utilizes hedging techniques designed to mitigate the short-term effect of exchange rate fluctuations on operations and balance sheet positions by entering into forward and option currency contracts and by borrowing in foreign currencies. The company's foreign borrowings are used as a hedge of its net investments or of specified transactions. The company does not speculate in foreign currencies or derivative financial instruments, and hedging techniques do not increase the company's exposure to foreign exchange rate fluctuations. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- In 1997, net cash used in operating activities was $1,011. Total debt of $17,458 at September 30, 1997, increased $4,089 from $13,369 at September 30, 1996 and the debt-to-capital ratio at year-end was 34.8 percent versus 29.6 percent at the end of fiscal 1996. The increase in debt and decrease in cash during the year were used primarily to fund the expansion of the company's Semiconductor and Radiation Measurements facilities. Additionally, accounts receivable levels increased $6,575 primarily due to strong sales in September 1997. On March 28, 1997, the company amended its credit agreement to extend its expiration until March 28, 2002 and generally improve the terms under which the company borrows. The agreement continued to be a $25,000 debt facility ($17,442 outstanding at September 30, 1997), which provides unsecured, multi-currency revolving credit at various interest rates based on U.S. prime, LIBOR or FIBOR. The company is required to pay a facility fee of between .125% to .20% on the total amount of the commitment. Additionally, the company has a number of other credit facilities in various currencies aggregating $5,460. At September 30, 1997, the company had total unused lines of credit with domestic and foreign banks aggregating $13,018, including short-term and long-term lines of credit of $5,460 and $7,558, respectively. Under certain long-term debt agreements, the company is required to comply with various financial ratios and covenants. Principal payments on long-term debt are scheduled as follows: 1998-$16, 2002-$17,442. 10 During 1998, the company expects to finance capital spending and working capital requirements with cash provided by operations. 1998 capital expenditures are expected to approximate the 1997 level. OUTLOOK - ------- The company has spent a substantial amount of its resources over the past three years to develop new products and new businesses. Sales from these new business initiatives are beginning to ramp-up, while expenses as a percentage of net sales are declining. Management's goal is to have each of these new businesses at break-even by the end of 1998, which will substantially improve earnings from 1997's levels. The company's Quantox product will be the most challenging to achieving this goal. Additionally, the company expects to decrease debt levels during 1998. FACTORS THAT MAY AFFECT FUTURE RESULTS - -------------------------------------- Information included in the Letter to Shareholders and in the Outlook section of Management's Discussion and Analysis of Financial Condition and Results of Operations relating to expectations as to revenues, earnings, and expenses or gross profits, constitute "forward-looking" statements, as that term is defined in the Private Securities Litigation Reform Act of 1995. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected. Some of the factors that may affect future results are discussed below. Although the company operates in a single industry segment, certain of its products and product lines including Quantox and the company's line of parametric testers, are sold into the semiconductor capital equipment industry. Growth in demand for semiconductors, new technology and pricing drive the demand for new semiconductor capital equipment. Throughout much of the year, the order growth of this industry had contracted which adversely affected revenues of the company. Although order growth in this industry has recently increased, the sustainability of this trend cannot be predicted. The company's business relies on the development of new high technology products and services to provide solutions to customer's complex measurement needs. This requires anticipation of customers' changing needs and emerging technology trends. The company must make long-term investments and commit significant resources 11 before knowing whether its expectations will eventually result in products that achieve market acceptance. The company incurs significant expenses developing new business opportunities that may or may not result in significant sources of revenue and earnings in the future. In many cases the company's products compete directly with those offered by other manufacturers. If any of the company's competitors were to develop products or services that are more cost-effective or technically superior, demand for the company's product offerings could slow. The company currently has ten subsidiaries or sales offices located outside the United States, and non-U.S. sales made up 45 percent of the company's revenue in fiscal 1997. The company's future results could be adversely affected by several factors, including changes in foreign currency exchange rates, changes in a country's or region's political or economic conditions, trade protection measures, import or export licensing requirements, unexpected changes in regulatory requirements and natural disasters. 12 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In Thousands of Dollars Except for Per-Share Data) NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION - --------------------------- The consolidated financial statements include the accounts of Keithley Instruments, Inc. and its subsidiaries. Intercompany transactions have been eliminated. Certain amounts in prior years have been reclassified to be consistent with the current year's presentation. REVENUE RECOGNITION - ------------------- Sales are recognized at time of shipment for all products. NATURE OF OPERATIONS - -------------------- The company operates in a single industry segment and is engaged in the design, development, manufacture and marketing of complex electronic instruments and systems. Its products provide measurement-based solutions to the semiconductor, telecommunications and electronic conponents industries. Engineers and scientists around the world use the company's advanced hardware and software for process monitoring, production test and basic research. PRODUCT DEVELOPMENT EXPENSES - ---------------------------- Expenditures for product development are charged to expense as incurred. These expenses include the cost of computer software, an integral part of certain products. Costs defined by Statement of Financial Accounting Standards No. 86, "Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed," are immaterial to the financial statements and have been expensed as incurred. The company continually reviews the materiality and financial statement classification of computer software expenditures. INVENTORIES - ----------- Inventories are stated at the lower of cost (determined by the first-in, first-out method) or market. PROPERTY, PLANT AND EQUIPMENT - ----------------------------- Property, plant and equipment are stated at cost. Depreciation is provided over periods approximating the estimated useful lives of the assets. Substantially all manufacturing, laboratory and office equipment is depreciated by the double declining balance method over periods of 3 to 10 years. Buildings are depreciated by the straight-line method over periods of 23 to 45 years. Leasehold improvements are amortized over the shorter of the asset lives or the terms of the leases. 13 INTANGIBLE ASSETS - ----------------- Intangible assets relate to business acquisitions and are amortized on a straight-line basis over their estimated useful lives of 10 years. Management reviews the carrying value of intangible assets using an estimated future cash flow method (undiscounted and without interest charges) whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. At September 30, 1996, the company wrote off the remaining goodwill associated with its 1989 acquisition of Keithley MetraByte. (See Note B.) OTHER ASSETS - ------------ Included in the "Other assets" caption of the Consolidated Balance Sheet at September 30, 1997 and 1996, were $8,814 and $7,152, respectively, in deferred tax assets. Also included in "Other assets" were pension related assets. (See note E.) OTHER ACCRUED EXPENSES - ---------------------- Included in the "Other accrued expenses" caption of the Consolidated Balance Sheet at September 30, 1997 and 1996, were $2,496 and $1,476, respectively, for commissions payable to outside sales representatives of the company. CAPITAL STOCK - ------------- The company has two classes of stock. The Class B Common Shares have ten times the voting power of the Common Shares but are entitled to cash dividends of no more than 80% of the cash dividends on the Common Shares. Holders of Common Shares, voting as a class, elect one-fourth of the company's Board of Directors and participate with holders of Class B Common Shares in electing the balance of the Directors and in voting on all other corporate matters requiring shareholder approval. Additional Class B Common Shares may be issued only to holders of such Shares for stock dividends or stock splits. These Shares are convertible at any time to Common Shares on a one-for-one basis. Included in the "Common shares held in treasury, at cost" caption of the Consolidated Balance Sheet at September 30, 1997 and 1996, were Common Shares repurchased to settle non-employee Directors' fees deferred pursuant to the Keithley Instruments, Inc. 1996 Outside Directors Deferred Stock Plan. INCOME TAXES - ------------ Provision has been made for estimated United States and foreign withholding taxes, less available tax credits, for the undistributed earnings of the non-U.S. subsidiaries as of September 30, 1997. 14 USE OF ESTIMATES - ---------------- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the reported financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. NET INCOME PER SHARE - ---------------- The weighted average number of shares outstanding used in determining net income per share was 7,866,750 (7,994,881 on a fully diluted basis) in 1997, 7,822,346 in 1996 and 7,476,138 (7,719,776 on a fully diluted basis) in 1995. Both Common Shares and Class B Common Shares are included in calculating the weighted average number of shares outstanding. HEDGING AND RELATED FINANCIAL INSTRUMENTS - ----------------------------------------- The company utilizes foreign currency borrowings and foreign exchange forward contracts to hedge foreign exchange risks for sales denominated in foreign currencies and net equity or unremitted foreign earnings. To hedge sales, the company purchases foreign exchange forward contracts or option contracts to sell foreign currencies to fix the exchange rates related to near-term sales and the company's margins. Underlying hedged transactions are recorded at hedged rates, therefore realized and unrealized gains and losses are recorded when the operating revenue and expenses are recorded. To hedge equity or unremitted earnings, the company borrows foreign currencies or purchases foreign exchange forward contracts. Realized and unrealized after-tax gains or losses on the hedging instruments are reflected in the cumulative translation adjustment component of shareholders' equity. The company has entered into swap instruments to mitigate the risk of interest rate changes. The amounts exchanged under the swap agreements are included in the "Net financing expenses" caption of the Consolidated Statement of Income. The estimated fair value of the swap instruments are determined through quotes from the related financial institutions. The company is exposed to credit loss in the event of nonperformance by the counterparties to these financial instruments. Because the counterparties are major financial institutions, the company does not expect such nonperformance. 15 OTHER ACCOUNTING PRONOUNCEMENTS - ------------------------------- In February 1997, the Financial Accounting Standard Board issued Statement of Financial Accounting Standards No. 128, "Earnings per Share." The Statement redefines earnings per share under generally accepted accounting principles, and is effective for the company's quarter ending December 31, 1997. Early adoption is not allowable. Under the new standard, primary earnings per share is replaced by basic earnings per share and fully diluted earnings per share is replaced by diluted earnings per share. The adoption of this standard is not expected to have a significant impact on the company's previously reported earnings per share amounts. In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS 130). This Statement establishes standards for reporting and display of comprehensive income and its components in a full set of general-purpose financial statements displayed with the same prominence as other financial statements. Comprehensive income includes such items as foreign currency translation adjustments and unrealized gains and losses from investing and hedging activities. SFAS 130 is required to be adopted in the company's fiscal year ending September 30, 1999. Also in June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" (SFAS 131). This Statement requires that public companies report financial and descriptive information about its reportable operating segments. Generally, financial information is required to be reported on the basis that is used internally for evaluating segment performance and deciding how to allocate resources to segments. This Statement requires that a public business enterprise report a measure of segment profit or loss, certain specific revenue and expense items, and segment assets. It requires that public companies report information about the revenues derived from the company's products or services, geographic areas, and major customers. SFAS 131 is required to be adopted in the company's fiscal year ending September 30, 1999. In September 1997, the American Institute of Certified Public Accountants issued Statement of Position 97-2, "Software Revenue Recognition" (SOP 97-2). This Statement provides guidance on when revenue should be recognized and in what amounts for licensing, selling, leasing, and otherwise marketing computer software. It applies to all companies that earn such revenue. It does not apply, however, to revenue earned on products or services containing software that is incidental to the products or services as a whole. SOP 97-2 is required to be adopted in the company's fiscal year ending September 30, 1999. The company has not yet determined the financial statement impact of this Statement. 16 NOTE B - SPECIAL CHARGES An analysis of special charges recorded in the Consolidated Statement of Income in 1997 and 1996, and the amount accrued in the Consolidated Balance Sheet is as follows:
Accrued at Expense September 30, Description: 1997 1996 1997 1996 - ------------ ---- ---- ---- ---- Write off of Goodwill $ -- $ 5,737 $ -- $ -- Severance, outplacement and other personnel costs (291) 3,433 222 3,239 Lease and related costs (525) 998 3 998 Impaired inventory and equipment 49 835 -- -- Relocation of facility and employees 1,073 -- -- -- Recruiting and consulting costs 187 -- -- -- Manufacturing start-up costs 282 -- -- -- European operating subleases (4) 642 574 642 ------- ------- ------- ------- Totals $ 771 $11,645 $ 799 $ 4,879 ======= ======= ======= =======
Since the acquisition of Keithley MetraByte in 1989, sales have declined for the operation and earnings had been poor. In September 1996, it became apparent to management that due to the lack of growth, the business could not support stand-alone operations. Therefore management made the decision to move the Taunton, Massachusetts operation to Cleveland, Ohio. Also included in special charges is an accrual for costs to be incurred over the next 3 to 11 years under two operating subleases at the company's European facilities. Special charges of $771 pretax, or $.06 per share, recorded in 1997 include gross costs of $1,902 primarily for the relocation of the Keithley MetraByte operation from Taunton, Massachusetts to Cleveland, Ohio, net of a reversal of $1,131 of expense (noncash) recorded during 1996 primarily for closing the Taunton facility. The reversal of 1996 expense relates to changes in circumstances which occurred during 1997. $256 of the gross expense represents a noncash charge to reserve for additional impaired inventory. Special charges of $11,645 pretax, or $1.23 per share, recorded in 1996 primarily represented the expected costs of closing the Keithley MetraByte operation in Taunton. Of the special charges, noncash charges in 1996 total $6,572. The relocation of the Keithley MetraByte operation was complete in July 1997, and special charges for the relocation going forward will not be material. Approximately 130 employees were terminated in total as a result of the relocation, 40 of which were terminated by September 30, 1996. Total net employment for the Keithley MetraByte operation has been reduced by approximately 70 people. At September 30, 1997 and 1996, $249 and $4,538, respectively was accrued in the Consolidated Balance Sheet under the category "Other accrued expenses" and $550 and $341, respectively, was accrued under the category "Other long-term liabilities." 17 NOTE C - FINANCING ARRANGEMENTS
September 30, ------------- 1997 1996 ---- ---- Long-term debt: Revolving loans with various banks with interest due monthly; principal due March 28, 2002: U.S. dollar denominated loans with an interest rate of 6.0% based on LIBOR $ 14,000 $ 10,000 U.S. dollar denominated loans with an interest rate of 8.5% and 8.25% based on Prime at at September 30, 1997 and 1996, respectively 600 1,000 Deutsche mark denominated loans with an interest rate of 3.75% based on FIBOR 2,842 2,292 Obligations under capital leases 16 77 -------- -------- 17,458 13,369 Less-Current installments on long-term debt 16 61 -------- -------- Total long-term debt $ 17,442 $ 13,308 ======== ========
On March 28, 1997, the company amended its credit agreement to extend its expiration until March 28, 2002 and generally improve the terms under which the company borrows. The agreement continued to be a $25,000 debt facility ($17,442 outstanding at September 30, 1997), which provides unsecured, multi-currency revolving credit at various interest rates based on Prime, LIBOR or FIBOR. The company is required to pay a facility fee of between .125% to .20% on the total amount of the commitment. Additionally, the company has a number of other credit facilities in various currencies aggregating $5,460. At September 30, 1997, the company had total unused lines of credit with domestic and foreign banks aggregating $13,018, including short-term and long-term lines of credit of $5,460 and $7,558, respectively. Under certain long-term debt agreements, the company is required to comply with various financial ratios and covenants. Principal payments on long-term debt are scheduled as follows: 1998-$16, 2002-$17,442. The LIBOR interest rate was 5.7 percent and 5.4 percent at September 30, 1997 and 1996, respectively. The FIBOR interest rate was 3.3 percent at September 30, 1997 and 1996. The company has two interest rate swap agreements with commercial banks to effectively fix its interest rates on $6,000 of variable rate debt. The first agreement effectively fixes the interest rate on a notional $3,000 of variable LIBOR rate debt at 6.7 percent, and expires June 17, 2002. The second agreement effectively fixes the interest rate on another notional $3,000 18 of variable LIBOR rate debt at 6.8 percent, and expires September 18, 2005. The interest differentials to be paid or received on the notional amounts of the swaps are recognized over the lives of the agreements. At September 30, 1997 interest rate levels, the swaps require the company to make payments to the bank and would cost the company approximately $30 to terminate. Following is an analysis of Net financing expenses:
1997 1996 1995 ---- ---- ---- Interest expense $1,315 $ 957 $1,092 Investment income (170) (138) (106) ------ ----- ------ $1,145 $ 819 $ 986 ===== ===== =====
19 NOTE D - FOREIGN CURRENCY The functional currency for the company's foreign subsidiaries is the applicable local currency. Income and expenses are translated into U.S. dollars at average exchange rates for the period. Assets and liabilities are translated at the rates in effect at the end of the period. Translation gains and losses are recognized in the cumulative translation component of shareholders' equity. Certain transactions of the company and its foreign subsidiaries are denominated in currencies other than the functional currency. The Consolidated Statement of Income includes gains (losses) from such foreign exchange transactions of $95, $91 and $(22) for 1997, 1996 and 1995, respectively. At September 30, 1997, the company had obligations under foreign exchange forward contracts to sell 2,100,000 Deutsche marks, 140,000 British pounds, 2,200,000 French francs at various dates through December 1997. The total U.S. dollar equivalent amount of these foreign exchange contracts of $1,744 includes an unrecognized loss of $48 at September 30, 1997. The company has purchased and written currency option contracts that effectively provide minimum and maximum exchange rates that the company would receive for anticipated foreign currency denominated sales. Under the terms of the options, the company has the right to deliver 3,000,000 Deutsche marks at average rates of 1.91 per U.S. dollar and the obligation, if called, to deliver 4,500,000 Deutsche marks at average rates of 1.73 per U.S. dollar. The options expire in October and December 1997 and January 1998. The options had no effect on net income in fiscal 1997, and gains and losses on the options, if any, are recorded as incurred. 20 NOTE E - EMPLOYEE BENEFIT PLANS The company has non-contributory defined benefit pension plans covering all of its eligible employees in the United States and certain non-U.S. employees. Pension benefits are based upon the employee's length of service and a percentage of compensation above certain base levels. Pension expense for these plans is shown below:
1997 1996 1995 ---- ---- ---- Service cost-benefits earned during the period $ 733 $ 652 $ 605 Interest cost on projected benefit obligation 1,192 1,048 945 Actual return on assets (3,470) (2,471) (1,818) Net amortization and deferral 2,115 1,328 884 ------ ------ ------ Net periodic pension cost $ 570 $ 557 $ 616 ====== ====== ======
The following table sets forth the funded status of the company's plans and the related amounts recognized in the Consolidated Balance Sheet at September 30, 1997 and 1996:
Non-U.S. United States Plan Plan Overfunded Underfunded* --------------------- ------------ 1997 1996 1997 1996 ---- ---- ---- ---- Actuarial present value of benefit obligations: Vested benefit obligation $ 11,459 $ 10,439 $ 1,694 $ 1,678 ======== ======== ======== ======== Accumulated benefit obligation $ 12,094 $ 10,890 $ 1,917 $ 1,899 ======== ======== ======== ======== Projected benefit obligation $ 14,763 $ 13,280 $ 2,777 $ 2,732 Plan assets at fair value $ 19,474 $ 16,385 $ 498 $ 498 -------- -------- -------- -------- Projected benefit obligation (in excess of) or less than plan assets $ 4,711 $ 3,105 $ (2,279) $ (2,234) Unrecognized net gain (3,824) (1,972) (331) (567) Unrecognized prior service cost 1,149 1,263 64 79 Unrecognized initial net (asset) obligation (358) (401) 211 265 -------- -------- -------- -------- Prepaid pension assets (pension liability) recognized in the Consolidated Balance Sheet $ 1,678 $ 1,995 $ (2,335) $ (2,457) ======== ======== ======== ======== * The company has purchased indirect insurance of $2,409 which is expected to be available to the company as non-U.S. pension liabilities of $2,335 mature. The caption, "Other assets," on the company's Consolidated Balance Sheet includes $2,409 and $2,514 at September 30, 1997 and 1996, respectively, for this asset. In accordance with
21 Statement of Financial Accounting Standards No. 87, "Employers' Accounting for Pensions," this company asset is not included in the non-U.S. plan assets. The significant actuarial assumptions as of the year-end measurement date were as follows:
1997 1996 1995 ---- ---- ---- United States Pension Plan: Discount rates 7.5% 7.5% 7.5% Expected long-term rate of return on plan assets 8.5% 8.5% 8.5% Rate of increase in compensation levels 5.5% 5.5% 5.5% Non-U.S. Pension Plan: Discount rates 6.25% 6.5% 7.5% Expected long-term rate of return on plan assets 7.0% 7.0% 7.0% Rate of increase in compensation levels 3.5% 3.5% 4.5%
The "Projected Unit Credit" Actuarial Cost Method is used to determine the company's annual expense. For the United States plan, the company uses the "Entry Age Normal" Actuarial Cost Method to determine its annual funding requirements. United States plan assets are invested primarily in common stocks and fixed-income securities. Although there are no requirements for the company to fund the non-U.S. pension plan, the company has made contributions in the past. Non-U.S. plan assets represent employee and company contributions and are invested in a direct insurance contract payable to the individual participants. In addition to the defined benefit pension plan, the company also maintains a retirement plan for substantially all of its employees in the United States under Section 401(k) of the Internal Revenue Code. The company makes contributions to the 401(k) plan, and expense for this plan amounted to $403, $388 and $539 in 1997, 1996 and 1995, respectively. The company also has an unfunded supplemental executive retirement plan (SERP) for an officer and for former key employees which includes retirement, death and disability benefits. The officer took early retirement causing a reversal of previously accrued expense in 1997. Expense (income) recognized for these benefits was $(3) for 1997, $102 for 1996 and $85 for 1995. Liabilities of $489 and $497 were accrued in the "Other long-term liabilities" caption on the company's Consolidated Balance Sheet to meet all SERP obligations at September 30, 1997 and 1996, respectively. 22 NOTE F - STOCK PLANS Stock Option Plans - ------------------ Under the 1984 Stock Option Plan and the 1992 Stock Incentive Plan, 675,000 and 1,900,000 of the company's Common Shares, respectively, were reserved for the granting of options to officers and other key employees. After February 11, 1994, no new grants could be issued from the 1984 Stock Option Plan. The Compensation and Human Resources Committee administers the plans with incentive stock options granted at not less than fair market price at the date of the grant for an exercise period not to exceed ten years from the grant date. Such grants generally become exercisable over a four year period. The option price under a nonqualified stock option is determined by the Committee on the date the option is granted. The 1992 Stock Incentive Plan also provides for restricted stock awards and stock appreciation rights. This plan will expire on February 8, 2002. All options outstanding at the time of termination of either plan shall continue in full force and effect in accordance with their terms. Subject to shareholder approval in February 1998, the Company's Board of Directors adopted the 1997 Directors' Stock Option Plan. This Plan provides for the issuance of 200,000 of the company's Common Shares to non-employee Directors. Under the terms of the plan, each non-employee Director is automatically granted an option to purchase 5,000 Common Shares at the close of each annual shareholders' meeting. The plan will expire on February 15, 2007. All options outstanding at the time of termination of the plan shall continue in full force and effect in accordance with their terms. On February 15, 1997, the company's Board of Directors terminated the 1992 Directors' Stock Option Plan. Prior to its termination, this plan provided for the issuance of 60,000 of the company's Common Shares to non-employee Directors, with each non-employee Director automatically granted an option to purchase 600 Common Shares at the close of each annual shareholders' meeting. The option price for grants under both Plans is the fair market value of a Common Share on the date of grant. The options under both plans are exercisable six months and one day after the date of grant and will expire after ten years. 23 The activity under the option plans, combined, was as follows:
Outstanding Exercisable ----------- ----------- Weighted Weighted Average Average Number Exercise Number Exercise of Shares Price of Shares Price --------- ----- --------- ----- September 30, 1994 848,888 $ 5.23 306,892 $5.73 Options granted at fair market value 237,500 13.44 Options granted below fair market value 1,800 13.52 Options exercised (96,408) 5.09 Options forfeited (5,792) 5.35 ------------------------------------------------------- September 30, 1995 985,988 7.23 303,030 5.74 Options granted at fair market value 359,400 9.93 Options granted below fair market value 14,560 -- Options exercised (149,373) 4.90 Options forfeited (38,586) 8.01 ------------------------------------------------------- September 30, 1996 1,171,989 8.24 400,044 5.45 Options granted at fair market value 310,000 11.18 Options granted above fair market value 1,100 11.54 Options granted below fair market value 82,528 -- Options exercised (124,873) 1.70 Options forfeited (37,212) 9.23 ------------------------------------------------------- September 30, 1997 1,403,532 $ 8.97 593,607 $7.01 =======================================================
The options outstanding at September 30, 1997 have been segregated into ranges for additional disclosure as follows:
Outstanding Exercisable Weighted Average Weighted Weighted Number of Remaining Average Number of Average Range of Exercise Shares Contractual Exercise Shares Exercise Prices Outstanding Life Price Exercisable Price - ------ ----------- ---- ----- ----------- ----- $4.00 - $4.88 297,707 6.30 years $ 4.75 232,957 $ 4.73 $5.00 - $9.06 269,025 4.03 years $ 6.20 253,400 $ 6.26 $9.25 - $9.25 310,500 8.94 years $ 9.25 0 -- $10.00 - $13.52 284,400 9.94 years $11.44 900 $13.52 $13.69 - $15.69 241,900 8.00 years $13.96 106,350 $13.72 ---------- ---------- ------ ------- ------ 1,403,532 7.48 years $ 8.97 593,607 $ 7.01 ========== ========== ====== ======= ======
24 1993 Employee Stock Purchase Plan - --------------------------------- On February 5, 1994, the company's shareholders approved the 1993 Employee Stock Purchase and Dividend Reinvestment Plan. The plan offers eligible employees the opportunity to acquire the company's Common Shares at a discount and without transaction costs. Eligible employees can only participate in the plan on a year-to-year basis, must enroll prior to the commencement of each plan year, and in the case with U.S. employees, must authorize monthly payroll deductions. Foreign employees submit their contribution at the end of the plan year. The purchase price of the Common Shares is 85 percent of the lower market price at the beginning or ending of the calendar plan year. A total of 750,000 Common Shares are available for purchase under the plan. Total shares may be increased with shareholder approval or the plan may be terminated when the shares are fully subscribed. No compensation expense is recorded in connection with the plan. During 1997 and 1996, 94,227 and 74,156 shares had been purchased by employees at prices of $7.86 and $4.25 per share, respectively. Pro Forma Disclosure - -------------------- As of September 30, 1997, the company had various stock-based compensation plans which are described above. The company has elected to continue to account for stock issued to employees according to APB Opinion 25, "Accounting for Stock Issued to Employees" and its related interpretations. Under APB No. 25, no compensation expense is recognized in the company's consolidated financial statements for employee stock options except in certain cases when stock options are granted below the market price of the underlying stock on the date of grant. During 1997, $187 was recognized in compensation expense for such grants. Alternatively, under the fair value method of accounting provided for under Statement of Financial Accounting Standards No 123, "Accounting for Stock-Based Compensation" (SFAS 123), the measurement of compensation expense is based on the fair value of employee stock options or purchase rights at the grant or right date and requires the use of option pricing models to value the options. The weighted average fair value of options granted under stock options plans in 1997 and 1996 was $4.97 and $4.34, respectively. The fair value of options at date of grant was estimated using the Black-Scholes model with the following weighted average assumptions:
1997 1996 ---- ---- Expected life (years) 5.0 4.6 Risk-free interest rate 6.0% 6.4% Volatility 41.5% 41.5% Dividend yield 1.3% 1.3%
25 The weighted average fair value of purchase rights granted under the 1993 Employee Stock Purchase Plan in 1997 and 1996 was $3.05 and $5.49, respectively. The fair value of employees' purchase rights was estimated using the Black-Scholes model with the following assumptions:
1997 1996 ---- ---- Expected life (years) 1.0 1.0 Risk-free interest rate 5.5% 4.9% Volatility 41.5% 41.5% Dividend yield 1.3% 1.3%
The pro forma impact to both net income and net income per share from calculating stock-related compensation expense consistent with the fair value alternative of SFAS 123 is indicated below:
1997 1996 Pro forma net income $214 $(5,704) Pro forma net income per share $.03 $ (.73)
For purposes of the pro forma disclosures, the estimated fair value of the stock-based awards is amortized over the vesting period. The effects of applying SFAS 123 in this pro forma disclosure are not indicative of future amounts, because SFAS 123 is applicable only to awards made after fiscal 1995. 26 NOTE G - INCOME TAXES For financial reporting purposes, income (loss) before income taxes includes the following components:
1997 1996 1995 ---- ---- ---- United States $ (892) $(9,383) $ 1,970 Non-U.S 2,103 3,059 4,452 ------- ------- ------- $ 1,211 $(6,324) $ 6,422 ======= ======= ======= The provision for income taxes is as follows: 1997 1996 1995 ------- ------- ------- Current: Federal $ 275 $ 1,330 $ 720 Non-U.S 1,091 1,513 1,859 State and local 195 45 146 ------- ------- ------- Total current 1,561 2,888 2,725 ------- ------- ------- Deferred: Federal (1,124) (3,800) (1,199) Non-U.S (16) 28 (18) ------- ------- ------- Total deferred (1,140) (3,772) (1,217) ------- ------- ------- Total provision (benefit) $ 421 $ (884) $ 1,508 ======= ======= =======
Differences between the statutory United States federal income tax and the effective income tax rate are as follows:
1997 1996 1995 ---- ---- ---- Federal income tax at statutory rate $ 412 $(2,150) $ 2,183 State and local income taxes 129 30 96 Tax on non-U.S. income and tax credits (945) (884) (881) Non-deductible amortization -- 2,123 158 Terminated life insurance contract 877 -- -- Other (52) (3) (48) ------- ------- ------- Effective income tax (benefit) $ 421 $ (884) $ 1,508 ======= ======= =======
27 Significant components of the company's deferred tax assets and liabilities as of September 30, 1997 and 1996 are as follows:
Deferred tax assets: 1997 1996 - -------------------- ---- ---- Capitalized research and development $ 6,589 $ 5,221 Special charges 184 1,724 Intangibles 832 1,006 State and local taxes 1,471 1,441 Alternative minimum tax credit carryforwards 1,276 1,174 Deferred compensation 558 615 Inventory 1,597 1,124 General business credit carryforwards 1,058 872 Other 1,909 1,252 -------- -------- Total deferred tax assets 15,474 14,429 -------- -------- Valuation allowance for deferred tax assets (3,166) (2,994) -------- -------- 12,308 11,435 -------- -------- Deferred tax liabilities: Pension contribution 818 904 Other 170 351 -------- -------- Total deferred tax liabilities 988 1,255 -------- -------- Net deferred tax assets $ 11,320 $ 10,180 ======== ========
The valuation allowance relates to tax credit carryforwards which will likely not be realized. The current year increase relates primarily to an increase in deferred state tax items. At September 30, 1997, the Company had capital loss and tax credit carryforwards as follows:
Year Expiration Commences --------------- General business credit $1,058 2002 Capital loss 123 1998 Alternative minimum tax credit 1,276 Indefinite
28 NOTE H - LEASES The company leases certain equipment under capital leases. Manufacturing, laboratory and office equipment includes $526 of leased equipment at September 30, 1997 and 1996. Accumulated depreciation includes $510 and $487 at September 30, 1997 and 1996, respectively, related to these leases. The company also leases certain office and manufacturing facilities and office equipment under operating leases. Rent expense under operating leases (net of sublease income of $84 in 1997, $245 in 1996 and $282 in 1995) for 1997, 1996 and 1995 was $2,658, $2,178 and $2,119, respectively. Future minimum lease payments under operating leases are:
1998 $2,063 1999 1,820 2000 1,656 2001 1,198 2002 701 After 2002 2,507 ----- Total minimum operating lease payments $9,945 ======
29 NOTE I - GEOGRAPHIC SEGMENTS The company operates in a single industry segment and is engaged in the design, development, manufacture and marketing of complex electronic instruments and systems. The operations by geographic area are presented below:
1997 1996 1995 ---- ---- ---- NET SALES, INCLUDING INTERCOMPANY SALES: - ---------------------------------------- United States (1) $ 106,217 $ 98,232 $ 88,410 Europe 31,606 37,799 37,659 Intercompany (14,528) (17,085) (16,495) --------- --------- --------- Net sales $ 123,295 $ 118,946 $ 109,574 ========= ========= ========= INCOME (LOSS) BEFORE INCOME TAXES (2): United States $ 1,889 $ (7,372) $ 4,282 Europe 2,236 3,180 4,158 Adjustments/eliminations (219) (34) 77 --------- --------- --------- 3,906 (4,226) 8,517 --------- --------- --------- Corporate expenses (1,550) (1,279) (1,109) Net financing expenses (1,145) (819) (986) --------- --------- --------- Income (loss) before income taxes $ 1,211 $ (6,324) $ 6,422 ========= ========= ========= IDENTIFIABLE ASSETS: United States $ 61,264 $ 54,507 $ 49,087 Europe 9,120 9,720 11,164 Adjustments/eliminations (4,979) (5,651) (5,429) --------- --------- --------- 65,405 58,576 54,822 Corporate assets 13,708 15,258 11,287 --------- --------- --------- Total assets $ 79,113 $ 73,834 $ 66,109 ========= ========= ========= (1) U.S. sales include $24,186, $21,295 and $18,793 in export sales to markets other than Europe in 1997, 1996 and 1995, respectively. (2) 1997 and 1996 income (loss) before income taxes includes special charges (benefit) of $775 and $11,003 in the U.S., and $(4) and $642 in Europe, respectively. (See Note B.)
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. 30 NOTE J - CONTINGENCIES The company is engaged in various legal proceedings arising in the ordinary course of business. The ultimate outcome of these proceedings is not expected to have a material adverse effect on the company's financial position, results of operations or cash flows. 31 Report of Independent Accountants --------------------------------- To the Board of Directors and Shareholders of Keithley Instruments, Inc. In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income and shareholders' equity and of cash flows present fairly, in all material respects, the financial position of Keithley Instruments, Inc. and its subsidiaries at September 30, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 1997, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PRICE WATERHOUSE LLP Cleveland, Ohio November 17, 1997 32 Statement of Management Responsibility -------------------------------------- The consolidated financial statements of Keithley Instruments, Inc. were prepared by management and, accordingly, management is responsible for their accuracy and objectivity. The company utilizes accounting policies which are, in the judgment of management, the most appropriate for the company's circumstances. Certain estimates and judgments are required in the preparation of financial statements. The financial information included in this Annual Report has been prepared using management's best estimates, which were based upon appropriate research and investigation. The company maintains internal accounting control systems that are designed to detect and correct material misstatements of financial information. These systems are regularly modified in response to the company's changing business conditions. Additionally, our independent accountants, Price Waterhouse LLP, obtain a sufficient understanding of the internal control structure in order to plan and complete the annual audit of the company's financial statements. The Audit Committee of the Board of Directors, which consists of three Directors otherwise independent of the company, serves an oversight role in reviewing the internal control monitoring process. The Committee regularly meets with and has direct access to Price Waterhouse LLP. Management acknowledges its responsibility to provide financial information (both audited and unaudited) that is representative of the company's operations and financial position, prepared on a consistent basis and relevant for a meaningful appraisal of the company. Joseph P. Keithley Ronald M. Rebner Chairman, President Vice President and Chief and Chief Executive Officer Financial Officer 33 Stock Market Price and Cash Dividends Since November 28, 1995, the company's Common Shares have traded on the New York Stock Exchange under the symbol KEI. Prior to November 28, 1995, the company's Common Shares traded on the American Stock Exchange under the symbol KEI. The high and low prices shown below are sales prices of the company's Common Shares as reported on the NYSE or the AMEX. There is no established public trading market for the company's Class B Common Shares; however, they are readily convertible on a one-to-one basis for Common Shares.
Cash Dividends Cash Dividends Per Class B Fiscal 1997 High Low Per Common Share Common Share - ----------- ---- --- ---------------- ------------ First Quarter $11 1/8 $7 3/8 $ .031 $ .025 Second Quarter 9 3/8 7 3/4 .031 .025 Third Quarter 12 7 5/8 .031 .025 Fourth Quarter 12 3/8 10 1/8 .031 .025 Fiscal 1996 First Quarter $18 $14 $ .031 $ .025 Second Quarter 16 7/8 12 7/8 .031 .025 Third Quarter 19 1/8 12 5/8 .031 .025 Fourth Quarter 14 1/4 8 3/8 .031 .025
34 Unaudited Quarterly Results of Operations (In Thousands of Dollars Except for Per-Share Data)
First Second Third Fourth ----- ------ ----- ------- Fiscal 1997 - ----------- Net sales $ 27,886 $ 28,148 $ 32,410 $ 34,851 Gross profit 16,132 16,402 18,514 20,323 Income (loss) before income taxes (1) (2) (1,171) (464) 1,088 1,758 Net income (loss) (1) (2) (838) (338) 761 1,205 Net income (loss) per share (primary and fully diluted)(1)(2) (.11) (.04) .10 .15 Fiscal 1996 Net sales $ 29,823 $ 30,019 $ 29,403 $ 29,701 Gross profit 17,988 19,052 18,027 17,739 Income (loss) before income taxes (1) 1,659 2,045 1,006 (11,034) Net income (loss) (1) 1,145 1,485 761 (8,831) Net income (loss) per share (primary and fully diluted) (1) .15 .19 .10 (1.14) (1) Includes special charges as follows: 1997 Special charges pretax $ 58 $ 375 $ 306 $ 32 1997 Special charges per share -- (.03) (.02) -- 1996 Special charges pretax -- -- -- 11,645 1996 Special charges per share -- -- -- (1.23) (2)The fourth quarter includes pretax charges of $512 for non-recurring officer retirement expenses.
35
Eleven Year Summary (In Thousands Of Dollars Except For Per-Share Data) For the year ended September 30, 1997 1996 1995 1994 1993(b) - ---------------------------------------------------------------------------------------------------------------------------------- Operating Results Net sales $123,295 118,946 109,574 89,248 91,146 Income (loss) before income taxes and cumulative effect of accounting change 1,211 (6,324) 6,422 124 5,530 Net income (loss) 790 (5,440) 4,914 907 4,784 Net income (loss) per share (a) 0.10 (0.70) 0.66 0.13 0.68 Fully diluted net income (loss) per share (a) 0.10 (0.70) 0.64 0.13 0.68 Common Stock Information (a) Cash dividends per Common Share $ 0.125 0.125 0.106 0.100 0.100 Cash dividends per Class B Common Share $ 0.100 0.100 0.085 0.080 0.080 Weighted average number of shares outstanding- fully diluted (in thousands) 7,995 7,822 7,720 7,088 7,061 At fiscal year-end: Dividend payout ratio (d) 125.0% -- 16.1% 76.9% 14.7% Price/earnings ratio (d) 120.0 -- 23.3 40.4 7.4 Shareholders' equity per share $ 4.26 4.26 5.11 4.50 4.45 Closing market price $ 12.000 8.875 14.938 5.250 5.000 Balance Sheet Data Total assets $ 79,113 73,834 66,109 54,410 52,413 Current ratio 1.9 1.7 2.0 1.9 2.2 Total debt $ 17,458 13,369 6,113 4,816 6,518 Total debt-to-capital 34.8% 29.6% 14.2% 13.1% 17.2% Shareholders' equity $ 32,683 31,756 36,902 31,946 31,415 Other Data Return on average shareholders' equity 2.5% -15.8% 14.3% 2.9% 16.0% Return on average total assets 1.0% -7.8% 8.2% 1.7% 9.1% Return on net sales 0.6% -4.6% 4.5% 1.0% 5.2% Number of employees 693 716 659 625 625 Sales per employee $ 175.0 173.0 170.7 142.8 139.8 Cash flow Noncash charges to income (c) $ 3,390 7,064 2,573 1,346 1,849 Net cash provided by (used in) operating activities ($ 1,011) 2,600 2,457 6,641 6,289 Ten-year compound annual growth rate Net sales 7.9% 9.6% 8.8% 7.0% 10.0% Net income (d) -13.3% -- 5.7% -14.2% 9.1% Eleven Year Summary (In Thousands Of Dollars Except For Per-Share Data) For the year ended September 30, 1992 1991 1990 1989 1988 1987 - --------------------------------------------------------------------------------------------------------------------------------- Operating Results Net sales 94,666 99,497 100,593 88,728 72,282 57,652 Income (loss) before income taxes and cumulative effect of accounting change (10,420) 6,816 5,675 7,311 8,204 5,209 Net income (loss) (12,453) 4,233 3,378 4,131 5,414 3,280 Net income (loss) per share (a) (1.77) 0.60 0.48 0.59 0.78 0.49 Fully diluted net income (loss) per share (a) (1.77) 0.60 0.48 0.59 0.78 0.49 Common Stock Information (a) Cash dividends per Common Share 0.100 0.094 0.089 0.082 0.058 0.046 Cash dividends per Class B Common Share 0.080 0.075 0.071 0.066 0.046 0.036 Weighted average number of shares outstanding- fully diluted (in thousands) 7,046 7,026 7,014 6,994 6,974 6,790 At fiscal year-end: Dividend payout ratio (d) -- 15.7% 18.5% 13.9% 7.4% 9.4% Price/earnings ratio (d) -- 10.1 8.5 11.0 11.5 17.5 Shareholders' equity per share 4.05 5.85 5.40 4.88 4.37 3.68 Closing market price 4.563 6.063 4.063 6.500 8.938 8.500 Balance Sheet Data Total assets 53,160 66,637 69,205 69,917 46,602 44,268 Current ratio 2.3 2.1 2.3 2.7 2.4 1.9 Total debt 8,978 10,506 16,562 22,419 2,027 5,773 Total debt-to-capital 23.9% 20.3% 30.4% 39.6% 6.2% 18.4% Shareholders' equity 28,530 41,129 37,870 34,216 30,518 25,577 Other Data Return on average shareholders' equity -35.8% 10.7% 9.4% 12.7% 19.0% 14.5% Return on average total assets -20.8% 6.2% 4.9% 7.1% 11.9% 8.5% Return on net sales -13.2% 4.3% 3.4% 4.7% 7.5% 5.7% Number of employees 679 716 750 742 579 523 Sales per employee 135.7 135.7 134.8 134.3 131.2 115.1 Cash flow Noncash charges to income (c) 15,185 4,325 6,649 4,234 3,062 2,516 Net cash provided by (used in) operating activities 4,475 9,399 9,111 4,592 6,812 5,741 Ten-year compound annual growth rate Net sales 11.1% 12.8% 13.7% 16.4% 17.9% 19.2% Net income (d) -- 39.7% 10.4% 12.5% 21.2% 19.8% (a) Share data adjusted for two-for-one stock split in November 1995, three-for-two stock split in 1987 and three-for-one stock split in 1985. (b) Includes a benefit for the cumulative effect of adopting FAS 109 of $1,447 or $.21 per share. (c) Noncash charges to income include depreciation, amortization, deferred compensation, deferred taxes, noncash special charges and the cumulative effect of adopting FAS 109. (d) These ratios are not meaningful in 1992 and 1996 due to reported net losses.
EX-21 5 EXHIBIT 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 NETHERLANDS: Keithley Instruments BV Avenlingen West 49 4202 MS Gorinchem (Amsterdam) SWITZERLAND: Keithley Instruments SA Kriesbachstrasse 4 8600 Dubendorf (Zurich) EX-23 6 EXHIBIT 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 17, 1997 appearing on page 30 of the Annual Report to Shareholders which is incorporated in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report on the Financial Statement Schedule, which appears on page 20 of this Form 10-K. PRICE WATERHOUSE LLP Cleveland, Ohio December 22, 1997 EX-27 7 EXHIBIT 27
5 1,000 YEAR SEP-30-1997 OCT-01-1996 SEP-30-1997 1,727 0 25,788 675 16,579 46,526 41,527 24,272 79,113 25,054 17,442 0 0 192 32,491 79,113 123,295 123,295 51,924 51,924 17,233 0 1,145 1,211 421 790 0 0 0 790 0.10 0.10
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