Keithley Instruments Reports 25 Percent Sales Growth and Net Income of $4.1 Million for Second Quarter Fiscal 2010

Keithley Instruments, Inc. posted net sales of $29.8 million and net income of $4.1 million, or $0.26 per share, for the quarter ended March 31, 2010. These results compare to net sales of $24.0 million and a net loss of $10.3 million, or $0.66 per share, in the year-ago quarter.

Net sales of $29.8 million for the second quarter of fiscal 2010 increased $5.9 million, or 25 percent from net sales of $24.0 million in last year’s second quarter, and sequentially increased $1.4 million, or five percent from the first quarter of fiscal 2010. Approximately three percentage points of the increase over the year-ago quarter was the result of a weaker U.S. dollar. Net sales outside of the Americas represented over 70 percent of total net sales for the second quarter of fiscal 2010.

During the second quarter of fiscal 2010, the Company reported pre-tax operating income of $4.6 million compared to a pre-tax operating loss of $10.1 million for the second quarter of fiscal 2009. Operating income on a non-GAAP basis was $4.9 million for the second quarter of fiscal 2010 compared to a non-GAAP operating loss of $3.3 million in the prior year’s second quarter. This reflects an $8.2 million increase in non-GAAP operating income on an increase in net sales of $5.9 million. Non-GAAP operating income increased as a result of improved gross profit on higher net sales as well as improved non-GAAP gross profit percentages, which increased to 65.8 percent for the second quarter of fiscal 2010 as compared to 56.6 percent for the second quarter of fiscal 2009. Additionally, product development and selling, general and administrative expenses declined in total by $2.1 million, or 13 percent, from the year-ago quarter. Non-GAAP operating results in fiscal 2010 exclude the reversal of certain previously-recorded restructuring costs and the financial effects of the sale of the RF product line, and non-GAAP results in fiscal 2009 exclude costs associated with the exit of a product line and restructuring costs.

“I am pleased by the results for our current fiscal quarter because, they demonstrate the value of our strategy to focus solely on our core test and measurement business as well as, the sustainable improvements we have made in our cost structure. Our operating income this quarter was well above expectations and annualized return on shareholders’ equity for fiscal 2010 is 42 percent including the gain on the sale of our RF product line, which reflects the excellent operating leverage of our new business model. We now have in place a very solid foundation which will enable us to drive greater earnings as customer demand continues to return. I am especially grateful for the dedication and excellent tactical performance of our employees as we navigated through this transition,” said Joseph P. Keithley, the Company’s Chairman, President and Chief Executive Officer.

Orders of $30.8 million for the second quarter of fiscal 2010 increased $9.1 million, or 42 percent, from orders of $21.7 million for the same period in fiscal 2009. The increase from the second quarter of fiscal 2009, which had the lowest order level since the beginning of the global financial crisis, was driven by a rebound in customer demand as worldwide economic conditions continued to improve. Sequentially, orders increased $3.8 million, or 14 percent from December 31, 2009. As a percentage of total orders, those from semiconductor, research and education, precision electronics and wireless customers represented about 40 percent, 20 percent, 30 percent and five percent, respectively, for the current fiscal quarter. From a geographic perspective, orders increased across all regions in the second quarter of fiscal 2010 compared to the year-ago period, with orders from the Americas rising about 30 percent, Europe increasing 35 percent, while the strongest increase, 65 percent, came from customers in Asia. Included in orders for the second quarter of fiscal 2010 were approximately $4.0 million relating to final purchases of the S600 product line, which are expected to ship during the third and fourth quarters of this fiscal year. Orders from the Company’s core instrumentation and parametric test products which represent the ongoing business, increased 25 percent during the second quarter of fiscal 2010 from the same quarter last year.

Backlog increased to $13.5 million as of March 31, 2010, compared with $10.9 million as of December 31, 2009.

The Company recorded tax expense of $0.5 million for the second quarter of fiscal 2010, resulting in an effective tax rate of 10.3 percent. The effective tax rate is lower than the U.S. statutory rate primarily because the Company’s U.S. taxable income was offset by the use of net operating losses previously incurred. For the second quarter last year, tax expense was $0.2 million.

The Company reported net income of $4.1 million, or $0.26 per share, for the second quarter of fiscal 2010 compared to a net loss of $10.3 million, or $0.66 per share, during last year’s second quarter.

Recent Developments and New Product Update
During March 2010, the Company entered into a letter of intent to sell its Bainbridge Road, Solon, Ohio facility. The transaction is anticipated to close during June or July of 2010, and it is expected to result in estimated net proceeds of $3.5 million and an estimated pre-tax book gain of $1.6 million. Additionally, the Company incurred costs of $0.4 million in the second quarter of fiscal 2010 related to the first quarter fiscal 2010 sale of its RF product line, which resulted in a year to date pre-tax gain of $3.1 million on that transaction.

During the quarter, the Company introduced the Model 4225-PMU Ultra-Fast I-V instrument module, the latest addition to its growing range of instrumentation options for the Model 4200-SCS Semiconductor Characterization System. It integrates ultra-fast voltage waveform generation and current/voltage measurement capabilities into the Model 4200-SCS’s test environment, and allows semiconductor companies and researchers to gain further insight as they work on new materials, shrinking geometries and new devices. Its measurement capabilities make it well-suited for applications that demand both ultra-fast voltage outputs and synchronized current-voltage measurements. Unlike competitive units that require up to three separate test stands, the Model 4225-PMU is able to deliver this measurement performance within a single instrument platform.

Six Month Results

For the six months ending March 31, 2010, net sales were $58.2 million, up six percent from $55.0 million last year. Sales outside the Americas comprised over 70 percent of total sales for the first half of fiscal 2010. The effect of a weaker U.S. dollar positively impacted sales by approximately three percentage points.

During the first six months of fiscal 2010, the Company reported operating income of $11.6 million, compared to an operating loss of $12.4 million for the first six months of fiscal 2009. On a non-GAAP basis, the Company reported operating income of $8.4 million for the first six months of fiscal 2010 compared to a non-GAAP operating loss of $5.6 million for the year-ago period. This reflects an increase of $14.0 million in non-GAAP operating in