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Excrept from filing document 2024-06-30

The aggregate market value of the common stock held by non affiliates as of December 29 2023 the last business day of the Registrant s most recently completed second fiscal quarter was 662 7 million based on 98 4 of common stock held by non affiliates
As used herein the terms Company Kimball Electronics we us or our refer to Kimball Electronics Inc the Registrant and its subsidiaries Reference to a year relates to a fiscal year ended June 30 of the year indicated rather than a calendar year unless the context indicates otherwise Additionally references to the first second third and fourth quarters refer to those respective quarters of the fiscal year indicated
This document contains certain forward looking statements These are statements made by management using their best business judgment based upon facts known at the time of the statements or reasonable estimates about future results plans or future performance and business of the Company Such statements involve risk and uncertainty and their ultimate validity is affected by a number of factors both specific and general They should not be construed as a guarantee that such results or events will in fact occur or be realized as actual results may differ materially from those expressed in these forward looking statements The statements may be identified by the use of words such as believes anticipates expects intends plans projects estimates forecasts seeks likely future may might should would could will potentially can goal predict and similar expressions It is not possible to foresee or identify all factors that could cause actual results to differ from expected or historical results We make no commitment to update these factors or to revise any forward looking statements for events or circumstances occurring after the statement is issued except as required by law
of this report could cause our results to differ materially from those expressed in forward looking statements There may be other risks and uncertainties that we are unable to predict at this time or that we currently do not expect to have a material adverse effect on our business Any such risks could cause our results to differ materially from those expressed in forward looking statements
At any time when we make forward looking statements we desire to take advantage of the safe harbor which is afforded such statements under the Private Securities Litigation Reform Act of 1995 where factors could cause actual results to differ materially from forward looking statements
Kimball Electronics was founded in 1961 and incorporated in 1998 We deliver a package of value that begins with our core competency of producing durable electronics and further offer contract manufacturing services for non electronic components medical disposables drug delivery solutions and precision molded plastics Our design and manufacturing expertise coupled with robust processes and procedures help us ensure that we deliver the highest levels of quality and reliability throughout the entire life cycle of our customers products We deliver award winning service across our global footprint with an operations platform driven by highly integrated procedures standardization and teamwork Our Customer Relationship Management CRM model is key to providing our customers convenient access to our global footprint and all of our services throughout the entire product life cycle Because they operate in industries that demand rigorous engineering controls and that commonly require long product life cycles our customers rely on our track record of quality international standard certifications financial stability social responsibility and commitment to long term relationships
For over 35 years we have manufactured safety critical electronic assemblies for automotive customers developing invaluable expertise that extends beyond the automotive industry to benefit our medical and industrial customers as well By harnessing our experience and expertise in design and process validation traceability process and control change as well as lean manufacturing we have achieved substantial growth and diversification
Many of our customers are multinational companies operating across multiple global regions and they maximize their supplier relationship by partnering with us for engineering manufacturing and supply chain services and support across multiple locations and regions We leverage key supply chain advantages and streamline our operations enabling cost effective manufacturing of both electronic and non electronic products within a single production facility for customers from all three end market verticals Coupled with our CRM model and our global systems procedures processes and teamwork our strategic approach to expanding our global footprint aligns with our customers preferences in our three end market verticals This positions us strongly to support their global growth initiatives
Our customers benefit from consistent supply chain processes across all regions thanks to our global component sourcing procurement quoting and customer pricing operations Our central sourcing organization employs global procurement strategies that ensure consistent component availability and a uniform pricing approach by leveraging the purchasing volume of our entire organization Our unified global quoting model allows us to seamlessly respond to our customers production needs anywhere across our global footprint
We combine cross functional teams from multiple facilities in quality operational excellence quoting and design engineering global support with our business development team members located in region with our global customers Clear roles and responsibilities combined with diverse skill sets establish a robust conduit critical for executing our customers objectives and building strong customer relationships Our robust customer scorecard process provides valuable feedback to all levels of our company driving continuous improvement initiatives strengthening our award winning service and fostering deep customer loyalty Our customers trust and value our people our deep rooted Guiding Principles and our sustainability policies
Our corporate headquarters is located at 1205 Kimball Boulevard Jasper Indiana We manufacture products for our customers at facilities located in the United States China Mexico Poland Romania and Thailand As discussed in the Our Business Strategy section below we completed the divestiture of our automation test and measurement business on July 31 2024 prior to which those subsidiaries manufactured products in China and Vietnam and maintained operations in India and Japan
We take pride in our attentive approach to understanding and adapting to our customers ever changing needs and preferences We continuously seek opportunities to grow and diversify our business and the value we deliver to customers while enhancing our global presence
Operating segments are defined as components of an enterprise for which separate financial information is available that is evaluated regularly by the chief operating decision maker or decision making group in deciding how to allocate resources and assessing performance Each of our business units qualifies as an operating segment with its results regularly reviewed by our chief operating decision maker the Chief Executive Officer Our operating segments meet the aggregation criteria under the accounting guidance for segment reporting As of June 30 2024 all of our operating segments provided contract manufacturing services including engineering and supply chain support for the production of electronic assemblies and other products including medical devices medical disposables precision molded plastics and automation test and inspection equipment primarily in automotive medical and industrial applications to the specifications and designs of our customers The nature of the products the production process the type of customers and the methods used to distribute the products have similar characteristics across all our operating segments Each of our operating segments serves customers in multiple markets and many of our customers programs are manufactured and serviced by multiple operating segments We leverage global processes such as component procurement and customer pricing that provide commonality and consistency among the various regions in which we operate All of our operating segments have similar long term economic characteristics and as such have been aggregated into one reportable segment
We intend to achieve sustained profitable growth in the markets we serve by supporting the global growth initiatives of our customers as a multifaceted manufacturing solutions company Key elements of executing our strategy include
Leveraging Our Global Footprint responding to customer demand through our presence in key regions with existing facilities which we focus on expanding and our consideration of potential new geographic regions
Expanding Our Package of Value enhancing our core contract manufacturing services strengths and expanding our package of value in areas such as complex system assembly specialized processes and precision molded plastics with particular emphasis on Kimball medical solutions
In the third quarter of fiscal year 2024 we made the decision to divest GES our automation test and measurement business unit and committed to a plan to sell the business allowing for increased focus and support for the Company s core operations We completed the divestiture of the GES business to Averna Technologies Inc on July 31 2024 See
We offer electronics manufacturing services including engineering and supply chain support to customers in the automotive medical and industrial end market verticals We further offer contract manufacturing services for non electronic components medical disposables and precision molded plastics Our services support the complete product life cycle of our customers products and our processes and capabilities cover a range of products from high volume low mix to high mix low volume We bring innovative complete design solutions to our customers We offer Design for Excellence input to our customers as a part of our standard package of value We use sophisticated software tools to integrate the supply chain in a way that provides our customers with the flexibility their business requires Our robust new product introduction process and our extensive manufacturing capabilities give us the ability to execute to the various quality and reliability expectations of our customers in each of our end market verticals We are committed to protecting the planet by combating climate change including contributing to a lower carbon future in our operations our value chains and in the services we offer to our customers Our strategies include actions to optimize our manufacturing facilities and processes for sustainability increase clean energy in our purchased power mix collaborate with our customers and supply chain to address upstream and downstream carbon emissions invest in clean energy solutions for climate protection and offer low carbon and clean technology products technologies and services
We value our customers and their unique needs and expectations Our customer focus and dedication to unparalleled excellence in engineering and manufacturing has resulted in proven success in the contract manufacturing industry Personal relationships are important to us and we strive to build long term global partnerships Our commitment to support our customers is backed by our history and demonstrated performance for over the past 60 years
Manufacturing services including engineering and supply chain support are marketed by our business development team We use a CRM model to provide our customers with convenient access to both our global footprint and all of our services throughout the entire product life cycle
Key competitive factors in the markets we serve include quality and reliability engineering design services production flexibility on time delivery customer lead time test capability competitive pricing and global presence Numerous contract manufacturing service providers compete globally for business from existing and potential customers We also face competition from our customers own capacity and capabilities to in source production The proliferation of electronic components in today s advanced products and the continuing trend by original equipment manufacturers in the electronics industry to subcontract the assembly process to companies with a core competency in this area drive growth in our industry The nature of the EMS industry is such that the start up of new customers and new programs to replace expiring programs occurs frequently New customers and program start ups generally cause margin dilution early in the life of a program which is often recovered as the program becomes established and matures Our continuing success depends upon our ability to replace expiring customers programs with new customers programs
We and the industry in general have special conditions affecting working capital that are significant for understanding our business including fluctuating inventory levels which may increase in conjunction with the start up of new programs and component availability Additionally the nature of the contract manufacturing business is such that customers may be required to make advance payments for certain inventory purchases and share in the risk of excess and obsolete inventory
We derive our competitive strengths from our experience of producing safety critical electronic assemblies for automotive customers for over 35 years and leveraging this experience to create valuable and innovative solutions for customers in different industries Our strengths include
Fully integrated engineering manufacturing and supply chain services as the contract manufacturing organization CMO for our customers non electronic components medical disposables and precision molded plastics
Numerous manufacturers in the EMS industry compete for business from existing and potential customers Our competition includes EMS companies such as Benchmark Electronics Inc Flex Ltd Jabil Inc Plexus Corp and Sanmina Corporation We do not have a significant share of the EMS market and were ranked the 18th largest global EMS provider for calendar year 2023 by
As of August 23 2024 we have nine manufacturing facilities with two located in Indiana one in China two in Mexico and one located in each of Florida Poland Romania and Thailand Prior to the divestiture of our automation test and measurement business GES on July 31 2024 we also operated manufacturing facilities in Vietnam and China performed software design services primarily at a location in India and provided other support engineering services at locations in California and Japan We continually assess our capacity needs and evaluate our operations to optimize our service levels for supporting our customers needs around the globe and we have recently expanded our facilities in Thailand Mexico and Poland See
While the total electronic assemblies market has broad applications our customers are concentrated in the automotive medical and industrial end markets Beginning in fiscal year 2024 the Company changed its presentation of revenue for miscellaneous sales previously included in Other to include in the respective customers end market verticals Prior year periods have been recast to conform to the current year presentation
The nature of the contract manufacturing business is such that start up of new programs to replace expiring programs occurs frequently Our agreements with customers are often not for a definitive term and are amended and extended but generally continue for the relevant product s life cycle which can be difficult to predict at the beginning of a program Typically our customer agreements do not commit the customer to purchase our services until a short time before we begin performing those services Our customers generally have the right to cancel a particular program subject to contractual provisions governing termination the final product runs excess or obsolete inventory and end of life pricing which reduce the additional costs that we incur when a manufacturing services agreement is terminated
Raw materials utilized in the manufacture of contract electronic products are generally readily available from both domestic and foreign sources although from time to time the industry experiences shortages of certain components due to supply and demand forces combined with rapid product life cycles of certain components In addition unforeseen events such as natural disasters and global events like pandemics can and have disrupted portions of the supply chain We believe that maintaining close communication with suppliers helps minimize potential disruption in our supply chain
The EMS industry has experienced component shortages component allocations and shipping delays particularly with semiconductors in recent fiscal years Further component shortages or allocations could increase component costs and potentially interrupt our operations and negatively impact our ability to meet commitments to customers We take various actions to attempt to mitigate the risk and minimize the impact to our customers as well as the adverse effect component shortages component allocations or shipping delays could have on our results Through contractual pricing arrangements and negotiations with our customers we attempt to mitigate the adverse effect that cost increases could have on our results
Raw materials are normally acquired for specific customer orders and often are not interchangeable among products Inherent risks associated with rapid technological changes within this our industry are mitigated by procuring raw materials for the most part based on firm orders In certain instances such as when lead times dictate we enter into contractual agreements for material in excess of the levels required to fulfill customer orders In turn material authorization agreements with customers cover a portion of the exposure for material that we must purchase prior to having a firm order We may also purchase additional inventory to support new product introductions transfers of production between manufacturing facilities and to mitigate the potential impact from component shortages
Our primary intellectual property is our proprietary manufacturing technology and processes that allow us to provide competitive contract manufacturing and design services to our customers As such this intellectual property is complex and normally contained within our facilities To protect our trade secrets our manufacturing technology and processes and other proprietary rights we rely primarily on a combination of intellectual property laws pertaining to trade secrets and copyrights non disclosure agreements with our customers employees and suppliers and our internal security procedures and systems We feel that relying on trade secret or copyright protections is a superior strategy because there is no disclosure of the information to outside parties and protections do not expire after a length of time We also maintain trademark rights including registrations for Kimball Electronics and other wordmarks and trademarks that we use in our business in the United States and around the world We have policies and procedures to identify and protect our own intellectual property and that of our customers and suppliers
We are committed to responsible sustainable environmental social and governance philosophies and practices which have been a part of our fabric since our founding in 1961 To showcase how our employees around the world share a strong sense of responsibility to protect the environment sustain a safety focus at our facilities and give back in meaningful ways to the communities where we live and work we issued our latest annual Guiding Principles Report in March 2024 The Report highlights the long term environmental social and governance principles and practices designed to support the Company s commitment to sustaining lasting relationships and achieving global success with its stakeholders wherever Kimball Electronics touch is felt throughout the world The Report reflects several long standing Guiding Principles of the Company our customer is our business our people are the company the environment is our home we strive to help our communities be great places to live profitability and financial resources give us the freedom to shape our future and achieve our vision The Report is posted on our website at https www kimballelectronics com sustainability The Company s website and the information contained therein or incorporated therein are not intended to be incorporated into this Annual Report on Form 10 K
We are committed to the use of a socially responsible supply chain to reduce the risk of human rights violations and the use of conflict minerals tin tungsten tantalum and gold or 3TG from the Democratic Republic of Congo and certain adjoining countries Our efforts include requiring our suppliers to undertake reasonable due diligence within their supply chain to ensure that the 3TG in the materials we source from them do not directly or indirectly contribute to significant adverse human rights impacts as well as conducting due diligence before allowing a potential supplier to become one of our preferred suppliers We request the return of reporting forms related to conflict minerals from our suppliers under the Responsible Minerals Initiative or RMI Conflict Minerals Survey Further we seek to remove any suppliers that continue to fail to meet our supplier and conflict minerals policies after being provided the opportunity to remedy non compliance via implementation of a corrective action plan We also conduct recurring annual training for all employees and certain select contractors on export compliance anti corruption and anti slavery and insider trading In addition Kimball Electronics is a member of the RMI which is evaluating the supply chain risks of conflict minerals and other minerals e g cobalt mica and studying how to mitigate those risks
As reflected in our Vision and Guiding Principles Kimball Electronics is committed to the highest standards of conduct in its business dealings We are a human centered company that fully supports human rights For us human rights are more than just being compliant they are about doing the right thing Our Guiding Principles outline the critical role Kimball plays as a corporate citizen for our customers our people our partners our environment our Share Owners and our communities Our human rights beliefs are deeply rooted in our Guiding Principles and expressed in our Global Human Rights Policy which is supported by annual review that explains some of the practical actions that we take each year to implement our Policy
Kimball has been built upon the tradition of pride in craftsmanship mutual trust personal integrity respect for dignity of the individual a spirit of cooperation and a sense of family and good humor We seek to enhance this culture as we grow We believe that no company should prosper while violating the basic human rights of others whether through unlawful slavery servitude forced or compulsory labor or otherwise exploitative means We believe in upholding principles of human rights fair remuneration and economic inclusion fair labor practices worker safety and observing fair labor practices within our organization and our supply chain
We value and work to promote a diverse equitable and inclusive work environment We are committed to holding ourselves accountable taking action to continuously improve our policies and practices and to uphold the principles that encompass diversity equity inclusion and belonging as outlined in our Diversity Equity Inclusion and Belonging DEI B statement Our strategy is to achieve excellence in customer service employee relations and business objectives through creativity responsiveness and innovation as a result of increased well being sense of belonging and meaningful work for our employees We actively promote DEI B and incorporate DEI B into our culture values and strategies We provide a report on the diversity of our employees to our Board in our Guiding Principles Report and in our 2023 Talent Attraction Retention report on our website at https www kimballelectronics com sustainability
One of our Guiding Principles is to strive to help our communities be great places to live We live this Guiding Principle and further the goals of our Human Rights Policy and our Global Policy on Philanthropic Contributions and Non Commercial Sponsorships when we contribute and encourage our employees to contribute to our local communities Our contributions are intended to support the communities in which we operate those who may not be in a position to directly benefit from employment with us or from our primary business activities or those who can benefit from the value derived from our support or collaboration See the Giving section of our Guiding Principles Report for more information about the ways that we supported a wide range of charitable and non commercial causes through donations of time talent and treasure that align with our Guiding Principles
Our operations are subject to various foreign federal state and local laws and regulations with respect to environmental and ecological matters We believe that we are in substantial compliance with present laws and regulations and that there are no material liabilities related to such items
We are dedicated to excellence leadership and stewardship in protecting the environment and communities in which we have operations We believe that continued compliance with foreign federal state and local laws and regulations which have been enacted relating to the protection of the environment will not have a material effect on our capital expenditures earnings or competitive position Management believes capital expenditures for environmental control equipment will not represent a material portion of total capital expenditures
Our operations require significant amounts of energy including natural gas and electricity Federal foreign and state regulations may control the allocation of fuels available to us but to date we have experienced no interruption of production due to such regulations
Kimball Electronics participates in the Carbon Disclosure Project CDP climate change and water security questionnaires to quantify our environmental practices provide transparency on our progress and assist in the reduction of our contributions to climate change Additionally we publish disclosures in our annual Guiding Principles report that are written in accordance with the Global Reporting Initiative GRI Standards and are aligned to the United Nations UN Sustainability Development Goals SDG and Global Compact UNGC the Sustainable Accounting Standards Board SASB Electronic Manufacturing Services Original Design Manufacturing Standard and the Task Force on Climate related Financial Disclosures TCFD framework We are members of the Responsible Minerals Initiative We publish our sustainability report and our responses to the CDP climate change and water security questionnaires annually on our website at kimballelectronics com sustainability We publish this information because our Guiding Principles remind us that the environment is our home and that we will be leaders in not only protecting but enhancing our world The contents of the sustainability reports and CDP questionnaire responses are not incorporated by reference into this Annual Report on Form 10 K or in any other report or document we file with the SEC
for further details of the legal and regulatory initiatives related to environmental matters including climate change that could adversely affect our business results of operations and financial condition
We believe our people are the company We believe in creating quality for life We believe lasting relationships create our global success We believe our people are the competitive edge for our service quality and value Kimball Electronics has been built upon the tradition of pride in craftsmanship mutual trust personal integrity respect for dignity of the individual a spirit of cooperation and a sense of family and good humor We seek to enhance this culture as we grow We believe in the inherent value of all individuals
To raise awareness of our commitment to human rights and to foster compliance with our Global Human Rights Policy we have incorporated it as an integral part of our Code of Conduct train all of our employees worldwide on human rights issues and require our suppliers vendors contractors and partners to meet the same standards To this end through our Guiding Principles we champion transparency and accountability for ourselves
Because our people are the reason for our success central to our long term strategy is attracting developing and retaining the best talent globally and strengthening collaboration We are committed to pay equity and apply the principle of equal pay for work of equal value in all regions where we operate As of June 30 2024 Kimball Electronics employed approximately 7 000 people worldwide with approximately 1 200 located in the United States and approximately 5 800 located in foreign countries Currently three of our seven independent members of the Board of Directors are female along with four of our seven executive leadership team members and over 50 of our global workforce We continue to execute on our commitment to diversity equity inclusion and belonging and exhibit our commitment to gender racial and ethnic diversity by striving toward the corporate goals we outline in both our Global Human Rights Policy and Diversity Equity Inclusion and Belonging statement including by
Maintaining an enterprise wide target and expectation that 100 of the candidate slates for Board of Directors executive and director level employee positions include candidates from underrepresented groups
Guiding Principles by asking them to anonymously rate us on a scale from 1 low to 10 high We currently have a score of 8 16 across our enterprise We believe this is evidence that we truly operate our business as our people are the company We consistently have a participation rate in our Guiding Principles survey of approximately 87 Upon completion of this survey every year each local management team receives qualitative and quantitative feedback and are responsible for crafting improvement plans based on our people s inputs
Our U S operations are not subject to collective bargaining arrangements Certain foreign operations are subject to collective bargaining arrangements many mandated by government regulation or customs of the particular countries We believe that our employee relations are good
The Company makes available free of charge through its website https investors kimballelectronics com its annual reports on Form 10 K quarterly reports on Form 10 Q current reports on Form 8 K proxy statements and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission SEC All reports the Company files with the SEC are also available via the SEC website http www sec gov The Company s website and the information contained therein or incorporated therein are not intended to be incorporated into this Annual Report on Form 10 K
The following important risk factors among others could affect future results and events causing results and events to differ materially from those expressed or implied in forward looking statements made in this report and presented elsewhere by management from time to time Such factors among others may have a material adverse effect on our business financial condition and results of operations and should be carefully considered Additional risks and uncertainties that we do not currently know about we currently believe are immaterial or we have not predicted may also affect our business financial condition or results of operations Because of these and other factors past performance should not be considered an indication of future performance
Losses of key customers within specific industries or significant volume reductions from key customers are both risks Our continuing success is dependent upon replacing expiring contract customers programs with new customers programs See Customers in
for disclosure of the net sales as a percentage of consolidated net sales for each of our significant customers during fiscal years 2024 2023 and 2022 Regardless of whether our agreements with our customers including our significant customers have a definite term our customers typically do not commit to firm production schedules for more than one quarter Our customers generally have the right to cancel a particular product subject to contractual provisions governing the final product runs excess or obsolete inventory recovery of dedicated investments and end of life pricing As many of our costs and operating expenses are relatively fixed a reduction in customer demand particularly a reduction in demand for a product that represents a significant amount of revenue can harm our gross profit margins and results of operations
Significant declines in the level of purchases by key customers or the loss of a significant number of customers could have a material adverse effect on our business As many of our costs and operating expenses are relatively fixed a reduction in customer demand particularly a reduction in demand for a product that represents a significant amount of revenue can harm our gross profit margins and results of operations
Consolidation among our customers exposes us to increased risks including reduced revenue and dependence on a smaller number of customers Consolidation in industries that utilize our services may occur as companies combine to achieve further economies of scale and other synergies which could result in an increase in excess manufacturing capacity as companies seek to divest manufacturing operations or eliminate duplicative product lines Excess manufacturing capacity may increase pricing and competitive pressures for our industry as a whole and for us in particular In addition the nature of the contract manufacturing industry is such that the start up of new customers and new programs to replace expiring programs occurs frequently and new customers and program start ups generally cause margin dilution early in the life of a program
Regardless of whether our agreements with our customers including our significant customers have a definite term our customers typically do not commit to firm production schedules for more than one quarter Our customers generally have the right to cancel a particular product subject to contractual provisions governing the final product runs excess or obsolete inventory recovery of dedicated investments and end of life pricing Accordingly our relative ability or inability to forecast customer demand levels can make it difficult to schedule production and maximize the efficient use of our manufacturing capacity and supply chain capabilities
Many factors outside of our control impact our customers and their ordering behavior including global pandemics recessions in end markets changing technologies and industry standards commercial acceptance for products shifting market demand product obsolescence changing sourcing strategies and our customers loss of business New customer relationships also present risk because we do not have an extensive product or customer relationship history
We cannot assure you that our current or future customers will not terminate their manufacturing service arrangements with us or significantly change reduce cancel or delay the amount of services ordered Such changes delays and cancellations have led to and may lead in the future to declines in our production increases in excess or obsolete inventory that we may not be able to sell to customers or third parties and reductions in the efficient use of our manufacturing facilities In the past we have also been required to increase staffing and other expenses in order to meet anticipated demand On occasion customers have required rapid increases in production for one or more of their products which stresses our resources and may have an adverse effect on our financial position results of operations or cash flows
Supply chain disruptions could increase our inventory costs interrupt our operations or prevent us from purchasing sufficient materials parts and components necessary to meet customer demand at competitive prices in a timely manner or at all
We depend on suppliers globally to provide timely delivery of materials parts and components for use in our products We have experienced and may again experience in the future shortages of some of the materials parts and components that we use particularly with semiconductors These shortages can result from strong demand for those components or from problems experienced by suppliers such as shortages of raw materials and shipping delays for such components with common carriers These unanticipated component shortages have and when they occur may continue to result in curtailed production or delays in production which prevent us from making scheduled shipments to customers
Our integrated supply chain solutions for purchasing components and materials is a competitive strength and key to our strategy as a CMO Inflation and prices from suppliers have increased and may continue to rise When prices rise for these or other similar reasons they impact our margins and results of operations if we are not able to pass the increases through to our customers or otherwise offset them through cost savings Many of our customer contracts permit periodic prospective adjustments to pricing based on decreases and increases in component prices and other factors however we could bear the risk of component price increases that occur between any such re pricing or if such re pricing is not permitted or accepted by customers during the balance of the term of the particular customer contract There can be no assurance that we will continue to be able to purchase the components and materials needed to manufacture customer products at favorable prices Accordingly certain component price increases could adversely affect our gross profit margins and results of operations
We have also experienced and may again experience in the future such shortages due to the effects of and responses to industry wide conditions pandemics natural disasters and other events outside our control including macroeconomic events trade restrictions political crises social unrest terrorism and conflicts including the Russian invasion of and ongoing war in Ukraine We cannot reasonably predict the full extent to which these events may impact our supply chain because any impacts will depend on future developments that are highly uncertain and continuously evolving including new information that may emerge concerning new or existing pandemics further actions by governmental entities or others in response to the types of events described above and how quickly and to what extent normal economic and operating conditions can resume
Suppliers adjust their capacity as demand fluctuates and component shortages and or component allocations could occur in addition to longer lead times Certain components we purchase are primarily manufactured in select regions of the world and issues in those regions could cause manufacturing delays Maintaining strong relationships with key suppliers of components critical to the manufacturing process is essential Our production of a customer s product has and could again be negatively impacted by any quality reliability or availability issues with any of our component suppliers Component shortages may also increase our cost of goods sold because we may be required to pay higher prices for components in short supply and redesign or reconfigure products to accommodate substitute components These and other price increases including increased tariffs could have an adverse impact on our profitability if we cannot offset such increases with other cost reductions or by price increases to customers If a component shortage is threatened or anticipated we have and may in the future purchase such components in greater quantities and over longer lead times to avoid a delay or interruption in our operations Purchasing additional components in this way may cause us to incur additional inventory carrying costs and may cause us to experience inventory obsolescence both of which may not be recoverable from our customers and could adversely affect our gross profit margins and results of operations If suppliers fail to meet commitments to us in terms of price delivery or quality or if the supply chain is unable to react timely to increases in demand it could interrupt our operations and negatively impact our ability to meet commitments to customers
We continue to expand our global operations by increasing our product and service offerings and scaling our infrastructure at certain facilities to support our business This expansion increases the complexity of our business and places significant strain on our management personnel operations systems technical performance financial resources and internal financial control and reporting functions We may not be able to manage these expansions effectively which could damage our reputation limit our growth and negatively affect our operating results
Start ups of new customer programs require the coordination of the design and manufacturing processes as well as substantial investments in resources and equipment The design and engineering required for certain new programs can take an extended period of time and further time may be required to achieve customer acceptance Accordingly the launch of any particular program may be delayed less successful than we originally anticipated or not successful at all Additionally even after acceptance most of our customers do not commit to long term production schedules and we are unable to forecast the level of customer orders with certainty over a given period of time If our customers do not purchase anticipated levels of products we
may not recover our up front investments may not realize profits and may not effectively utilize expanded fixed manufacturing capacities All of these types of manufacturing inefficiencies could have an adverse impact on our financial position operating margins results of operations or cash flows
We derive a substantial majority of our revenues from our operations outside the United States primarily in China Mexico Poland Romania and Thailand Our international operations are subject to a number of risks which may include the following
foreign currency fluctuations including currency controls and inflation which may adversely affect our ability to do business in certain markets and reduce the U S dollar value of revenues profits or cash flows we generate in non U S markets
These risks could have an adverse effect on our financial position results of operations or cash flows Certain foreign jurisdictions restrict the amount of cash that can be transferred to the United States or impose taxes and penalties on such transfers of cash To the extent we have excess cash in foreign locations that could be used in or is needed by our operations in the United States we may incur significant penalties and or taxes to repatriate these funds
For example the Russian invasion of Ukraine and the ongoing war there has impacted the global economy as the United States the UK the EU and other countries have imposed broad export controls and financial and economic sanctions against Russia a large exporter of commodities Belarus and specific areas of Ukraine and may continue to impose additional sanctions or other measures Russia may impose its own counteractive measures Companies worldwide have interrupted or stopped production in Ukraine Russia and neighboring countries We do not procure materials directly from Ukraine or Russia or have facilities there but impacts like these wherever they may occur can further exacerbate the ongoing supply chain disruptions that are occurring across the globe particularly in the automotive industry Our European operations are located in Poland and Romania and both of these countries are part of NATO which is actively taking and could take in the future certain measures in response to Russia s invasion of Ukraine
The extent of the war s effect on the global economy and the duration scope and impacts of the conflict are unknown and highly unpredictable and the consequences from future actions such as increased sanctions and retaliatory measures taken by the United States NATO or other countries cannot be predicted but could have an adverse impact on our business operations particularly our European operations
Numerous manufacturers within the contract manufacturing industry compete globally for business from existing and potential customers Some of our competitors have greater resources and more geographically diversified international operations than we do We also face competition from the manufacturing operations of our customers who are continually evaluating the merits of manufacturing products internally against the advantages of outsourcing to contract manufacturing service providers In the past some of our customers have decided to in source a portion of their manufacturing from us in order to utilize their excess internal manufacturing capacity The competition may further intensify as more companies enter the markets in which we operate as existing competitors expand capacity and as the industry consolidates
In relation to customer pricing pressures if we cannot achieve the proportionate reductions in costs profit margins may suffer The high level of competition in the industry impacts our ability to implement price increases or in some cases even maintain prices which also could lower profit margins In addition as end markets dictate we are continually assessing excess capacity and developing plans to better utilize manufacturing operations including consolidating and shifting manufacturing capacity to lower cost venues as necessary
We make substantial investments of capital and operating expenses to implement comprehensive company wide quality systems certifications and controls in our operations in an effort to ensure sustained compliance with various product and quality system regulations and requirements and to meet the needs of our customers However in the event we fail to adhere to these requirements we become subject to costs associated with product defects interruptions in production and reputational harm Our failure to comply with applicable quality system standards could in turn adversely affect our customers through failures to supply product to them Quality or noncompliance failures could have an adverse effect on our reputation in addition to an adverse impact on our financial position results of operations or cash flows While we maintain product liability and other insurance coverage that we believe to be generally in accordance with industry practices our insurance coverage may not be adequate to protect us fully against substantial claims and costs that may arise from warranty and other liabilities related to product defects
Our business may be harmed due to failure to successfully implement information technology solutions or a lack of reasonable safeguards to maintain data security including adherence to data privacy laws and physical security measures
The operation of our business depends on effective information technology systems including data management analytics and emerging machine learning and artificial intelligence platforms and applications These systems are subject to the risk of security breach or cybersecurity threat including misappropriation of assets or other sensitive information such as confidential business information and personally identifiable data relating to employees customers and other business partners or data corruption which could cause operational disruption The unpredictability of AI machine learning and similar systems that automate certain operational tasks bring the potential for unintended consequences and unexpected disruptions in business operations financial losses and reputational damage As we could be the target of cyber and other security threats which are becoming increasingly sophisticated we must continuously monitor and develop our information technology networks and infrastructure to prevent detect address and mitigate the risk of unauthorized access misuse computer viruses and other events that could have a security impact Information systems require an ongoing commitment of significant resources to research new technologies and processes maintain and enhance existing systems and develop new systems in order to keep pace with changes in information processing technology and evolving industry standards as well as to protect against cyber risks and security breaches While we provide employee awareness training around phishing malware and other cyber threats to help protect against these cyber and security risks we cannot ensure the measures we take to protect our information technology systems will be sufficient
Implementation delays poor execution or a breach of information technology systems could disrupt our operations damage our reputation or increase costs related to the mitigation of response to or litigation arising from any such issue Similar risks exist with our third party vendors Any problems caused by these third parties including those resulting from disruption in communications services cyber attacks or security breaches have the potential to hinder our ability to conduct business In addition data privacy laws and regulations such as the European Union General Data Protection Regulation GDPR the UK GDPR ePrivacy Directive the California Privacy Rights Act CPRA and similar legislation in jurisdictions in which we operate pose increasingly complex compliance challenges and potentially elevate costs and any failure to comply with these laws and regulations could result in significant penalties
Our success depends to a large extent on our ability to attract and retain highly qualified and diverse executive officers key employees and skilled personnel and to continue to implement our succession plans for managers and other key employees These employees are not generally bound by employment or non competition agreements and we cannot assure you that we will retain them The labor market for these employees is intensely competitive and compensation and benefit costs continue to increase significantly in the current economic environment In particular the high demand for manufacturing labor in certain geographic areas in which we operate makes recruiting new production employees and retaining experienced production employees difficult
Our success also depends on keeping pace with technological advancements including Industry 4 0 and adapting services to provide manufacturing capabilities which meet customers changing needs Therefore we must retain our qualified engineering and technical personnel and successfully anticipate and respond to technological changes in a cost effective and timely manner
Shortages of workers could adversely impact our ability to operate our business effectively and timely serve our customers needs which could adversely affect our relations with customers result in reductions in orders from customers or cause us to lose customers Turnover in personnel could result in additional training and inefficiencies that could adversely impact our operating results Our culture and guiding principles focus on continuous training motivating and development of employees
and we strive to attract motivate and retain qualified personnel To aid in managing our growth and strengthening our pool of qualified personnel we will need to internally develop recruit and retain diverse qualified personnel If we are not able to do so our business and our ability to continue to grow could be harmed
Competing effectively depends to a significant extent on maintaining the proprietary nature of our intellectual property We attempt to protect our intellectual property rights worldwide through a combination of keeping our proprietary information secret and utilizing trademark copyright and trade secret laws as well as licensing agreements and third party non disclosure and assignment agreements Because of the differences in foreign laws concerning proprietary rights our intellectual property rights do not generally receive the same degree of protection in foreign countries as they do in the United States and therefore in some parts of the world we have limited protections if any for our intellectual property If we are unable to adequately protect our intellectual property embodied in our solutions designs processes and products the competitive advantages of our proprietary technology could be reduced or eliminated which would harm our business and could have a material adverse effect on our results of operations and financial position
Certain provisions of our Amended and Restated Articles of Incorporation and the Amended and Restated By Laws may delay or prevent a merger or acquisition that a Share Owner may consider favorable For example the Amended and Restated Articles of Incorporation authorizes our Board of Directors to issue one or more series of preferred stock prevents Share Owners from acting by written consent without unanimous consent and requires a supermajority Share Owner approval for certain business combinations with related persons These provisions may discourage acquisition proposals or delay or prevent a change in control which could harm our stock price Indiana law also imposes some restrictions on potential acquirers
We make substantial investments of capital and operating expenses to implement comprehensive company wide quality systems certifications and controls in our operations in an effort to ensure sustained compliance with various product and quality system regulations and requirements and to meet the needs of our customers However in the event we fail to adhere to these requirements we become subject to potential investigations and fines and penalties Our failure to comply with applicable regulations and quality system standards could in turn adversely affect our customers through failures to supply product to them or delays in their ability to obtain and maintain product approvals As a medical device manufacturer we also have additional compliance requirements The U S Food and Drug Administration FDA extensively regulates all aspects of product and manufacturing quality for medical products under its current Good Manufacturing Practices cGMP regulations Outside the U S our operations and our customers products are subject to similar regulatory requirements notably by the European Medicines Agency and the Safe Food and Drug Administration in China For instance we are required to register with the FDA and are subject to periodic inspection by the FDA for compliance with the FDA s Quality System Regulation QSR requirements which require manufacturers of medical devices to adhere to certain regulations including testing quality control and documentation procedures Any determination by the FDA or other regulatory authorities of manufacturing or other deficiencies could adversely affect our business Failure or noncompliance could have an adverse effect on our reputation in addition to an adverse impact on our financial position results of operations or cash flows
There is increasing concern that a gradual increase in global average temperatures due to increased concentration of carbon dioxide and other greenhouse gases in the atmosphere will cause significant changes in weather patterns around the globe and an increase in the frequency and severity of natural disasters or extreme weather conditions such as hurricanes earthquakes droughts wildfires cyclones or floods Physical climate risks and the operation of facilities in areas subject to increased water stress could impair our production capabilities disrupt the operations of our supply chain and infrastructure and impact our customers and their demand for our services
The past and present operation and ownership by Kimball Electronics of manufacturing plants and real property are subject to extensive and changing federal state local and foreign environmental laws and regulations including those relating to discharges in air water and land the handling and disposal of solid and hazardous waste the use of certain hazardous materials in the production of select products and the remediation of contamination associated with releases of hazardous substances
In addition as regulators and investors increasingly focus on climate change and other sustainability issues we are subject to new disclosure frameworks and regulations For example the European Parliament adopted the Corporate Sustainability Reporting Directive CSRD and the resulting adoption of EU sustainability reporting standards to be developed by the European Financial Reporting Advisory Group with such standards to be tailored to EU policies building on and contributing to international standardization initiatives will apply not only to local operations in the EU but under certain circumstances to entire global companies like Kimball Electronics that have EU operations The CSRD will not apply to our operations in calendar year 2024 but we are assessing our obligations under the CSRD and we expect that compliance with the CSRD could require significant effort in future years The SEC and the State of California have also proposed new climate change disclosure requirements and compliance with such rules if and when they are finalized could also require significant effort
We cannot predict what environmental legislation or regulations will be enacted in the future how existing or future laws or regulations will be administered or interpreted or what environmental conditions may be found to exist Compliance with more stringent laws or regulations or stricter interpretation of existing laws may require additional expenditures some of which could be material In addition any investigations or remedial efforts relating to environmental matters could involve material costs or otherwise result in material liabilities
The long term effects of climate change on the global economy and our industry in particular are unclear Changes in climate where we our customers and our supply chain operate could have a long term adverse impact on our business results of operations and financial condition In addition we have committed to cut our greenhouse gas emissions water usage electrical usage and air emissions significantly by 2025 as part of our long term sustainability strategy and we may take additional voluntary steps to mitigate our impact on the environment Climate transition risks related to shifts to a low carbon economy and the associated costs of retrofitting or constructing facilities with green technology in addition to investments in renewable energy and energy efficiency could involve material costs or otherwise impact our customers and their demand for our services
Environmental regulations or changes in the supply demand or available sources of energy water or other resources may affect the availability or cost of goods and services including natural resources necessary to run our business The cost of energy is a critical component of freight expense and the cost of operating manufacturing facilities Increases in the cost of energy in particular could reduce our profitability Given the political significance and uncertainty around these issues we cannot predict how climate change and the legal and regulatory initiatives related to climate change will affect our operations and financial condition
Legislation and regulations promulgated by the U S federal and foreign governments could significantly impact our profitability by burdening us with forced cost choices that either cannot be recovered by increased pricing or if we increase our pricing could negatively impact demand for our products For example
Changes in policies by the U S or other governments could negatively affect our operating results due to changes in duties tariffs or taxes or limitations on currency or fund transfers as well as government imposed restrictions on producing certain products in or shipping them to specific countries For example our facility in Mexico operates under the Mexican Maquiladora IMMEX program This program provides for reduced tariffs and eased import regulations We could be adversely affected by changes in the IMMEX program or our failure to comply with its requirements As another example the U S government has imposed tariffs on certain products imported from China China has imposed tariffs on certain U S products in retaliation These tariffs could force our customers or us to consider various strategic options including but not limited to looking for different suppliers shifting production to facilities in different geographic regions absorbing the additional costs or passing the cost on to customers Ultimately these tariffs could adversely affect the competitiveness of our domestic operations which could lead to the reduction or exit of certain U S manufacturing capacity Depending on the types of changes made demand for our foreign manufacturing facilities could be reduced or operating costs in our manufacturing facilities could be increased which could negatively impact our financial performance Moreover any retaliatory actions by other countries where we operate could also negatively impact our financial performance
The Dodd Frank Wall Street Reform and Consumer Protection Act contains provisions to improve transparency and accountability concerning the supply of certain minerals known as conflict minerals originating from the Democratic Republic of Congo DRC and adjoining countries These rules could adversely affect the sourcing supply and pricing of materials used in our products as the number of suppliers who provide conflict free minerals may be limited We may also suffer reputational harm if we determine that certain of our products contain minerals not determined to be conflict free or if we are unable to modify our products to avoid the use of such materials We may also face challenges in satisfying customers who may require that our products be certified as containing conflict free minerals or that we adopt more stringent guidelines like those fostered by the Responsible Materials Initiative RMI
We are subject to a variety of federal state local and foreign environmental health and safety product stewardship and producer responsibility laws and regulations including those arising from global pandemics or relating to the use generation storage discharge and disposal of hazardous chemicals used during our manufacturing process those governing worker health and safety those requiring design changes supply chain investigation or conformity assessments and those relating to the recycling or reuse of products we manufacture These include EU regulations and directives such as the Restrictions on Hazardous Substances RoHS the Waste Electrical and Electronic Equipment WEEE directives and the Registration Evaluation Authorization and Restriction of Chemicals REACH regulation and similar regulations in China the Management Methods for Controlling Pollution for Electronic Information Products or China RoHS In addition new technical classifications of e Waste being discussed in the Basel Convention technical working group could affect both our customers abilities and obligations in electronics repair and refurbishment If we fail to comply with any present or future regulations or timely obtain any needed permits we could become subject to liabilities and we could face fines or penalties the suspension of production or prohibitions on sales of products we manufacture In addition such regulations could restrict our ability to expand our facilities or could require us to acquire costly equipment or to incur other significant expenses including expenses associated with the recall of any non compliant product or with changes in our operational procurement and inventory management activities
Customers consumers investors and other stakeholders particularly in the EMS industry are increasingly focusing on environmental issues including climate change water use deforestation waste and other sustainability concerns Along with our stakeholders and our broader industry we have increased our focus on sustainability and measurement of our progress against sustainability criteria but we cannot guarantee that we will be able to achieve relevant criteria with our current focus Our ability to successfully execute relevant initiatives and accurately report our progress presents numerous operational financial legal reputational and other risks many of which are outside our control and all of which could have a material negative impact on our business
New disclosures along with the evolving global regulatory landscape may present increased compliance costs and regulatory or enforcement risks as well as increased competition from market participants who may adopt more robust sustainability ESG reporting and sustainable business practices If our sustainability initiatives fail to satisfy investors current or potential customers consumers and our other stakeholders our reputation our ability to sell products and services to customers our ability to attract or retain employees and our attractiveness as an investment or business partner could be negatively impacted Similarly our failure or perceived failure to pursue or fulfill our goals targets and objectives or to satisfy various reporting standards within the timelines we announce or at all could also have similar negative impacts and expose us to government enforcement actions and private litigation
In addition our customers have adopted and may continue to adopt procurement policies that require us to comply with governance social and environmental responsibility provisions Our customers have also adopted and may continue to adopt goals and policies that serve to increase their demand for goods or services that do not produce significant greenhouse gas emissions and are not related to carbon based energy sources Furthermore an increasing number of investors have adopted and may continue to adopt ESG policies for their portfolio companies and various voluntarily sustainability initiatives and organizations have promulgated different social and environmental responsibility and sustainability guidelines These practices policies provisions and initiatives are under active development subject to change can be unpredictable and conflicting and may prove difficult and expensive for us to comply with and could negatively affect our reputation business or financial condition
The instability of market conditions drives an elevated risk of potential bankruptcy of customers resulting in a greater risk of uncollectible outstanding accounts receivable Accordingly we intensely monitor our receivables and related credit risks The realization of these risks could have a negative impact on our profitability
We closely monitor inventory and receivable efficiencies and continuously strive to improve these measures of working capital but customer financial difficulties cancellation or delay of customer orders shifts in customer payment practices transfers of production among our manufacturing facilities additional inventory purchases to mitigate potential impact from component shortages or manufacturing delays could adversely affect our cash flow from operations
As business conditions change we must continually evaluate and work toward the optimum asset base It is possible that certain assets such as but not limited to facilities equipment intangible assets or goodwill could be impaired at some point in the future depending on changing business conditions Such impairment could have an adverse impact on our financial position and results of operations
Our effective tax rate is highly dependent upon the geographic mix of earnings across the jurisdictions where we operate Changes in tax laws or tax rates in those jurisdictions could have a material impact on our operating results Judgment is required in determining the worldwide provision for income taxes other tax liabilities interest and penalties We base our tax position upon the anticipated nature and conduct of our business and upon our understanding of the tax laws of the various countries in which we have assets or conduct activities Our tax position however is subject to review and possible challenge by taxing authorities and to possible changes in law including adverse changes to the manner in which the United States and other countries tax multinational companies or interpret their tax laws We cannot determine in advance the extent to which some jurisdictions may assess additional tax or interest and penalties on such additional taxes In addition our effective tax rate may be increased by changes in the valuation of deferred tax assets and liabilities changes in our cash management strategies changes in local tax rates or countries adopting more aggressive interpretations of tax laws
Several countries where we operate provide tax incentives to attract and retain business We have obtained incentives where available and practicable Our taxes could increase if certain incentives were retracted they were not renewed upon expiration we no longer qualify for such programs or tax rates applicable to us in such jurisdictions were otherwise increased In addition our growth may cause our effective tax rate to increase depending on the jurisdictions in which we expand our business or acquire operations Given the scope of our international operations and our international tax arrangements changes in tax rates and the manner in which multinational companies are taxed in the United States and other countries could have a material impact on our financial results and competitiveness
Certain of our subsidiaries provide financing products and services to and may undertake certain significant transactions with other subsidiaries in different jurisdictions Moreover several jurisdictions in which we operate have tax laws with detailed transfer pricing rules which require that all transactions with non resident related parties be priced using arm s length pricing principles and that contemporaneous documentation must exist to support such pricing Due to inconsistencies among jurisdictions in the application of the arm s length standard our transfer pricing methods may be challenged and if not upheld could increase our income tax expense In addition the Organization for Economic Cooperation and Development continues to issue guidelines and proposals related to transfer pricing and profit shifting that may result in legislative changes that could reshape international tax rules in numerous countries and negatively impact our effective tax rate
In 2022 the relative value of the U S dollar reached its highest levels since 2000 and has appreciated sharply against many foreign currencies Fluctuations in exchange rates could impact our operating results Our risk management strategy includes the use of derivative financial instruments to hedge certain foreign currency exposures Any hedging techniques we implement contain risks and may not be entirely effective Exchange rate fluctuations could also make our products more expensive than competitors products not subject to these fluctuations which could adversely affect our revenues and profitability in international markets
Our primary credit facility requires us to comply with certain financial covenants We believe the most significant covenants under our credit facilities are the ratio of consolidated total indebtedness minus unencumbered U S cash on hand in the United States in excess of 15 million to adjusted consolidated EBITDA as defined in our primary credit facility and the interest coverage ratio More detail on these financial covenants is discussed in
As of June 30 2024 we had 294 8 million in borrowings under our credit facilities and had total cash and cash equivalents of 78 0 million In the future a default on the financial covenants under our credit facilities could cause an increase in the borrowing rates or make it more difficult for us to secure future financing which could adversely affect our financial condition
High levels of inflation in the U S and other countries where we operate have and may continue to increase our costs and may impact pricing and customer demand both of which may impact our revenues and earnings We have exposure to interest rate risk on our borrowings under our credit facilities The interest rates of these borrowings are based on a spread plus applicable base rate including the Secured Overnight Financing Rate SOFR the Euro Interbank Offered Rate EURIBOR the prime rate of a reference bank or the federal funds rate An adverse change in the base rates upon which our interest rates are determined could have a material adverse effect on our financial position results of operations or cash flows Rising interest rates have increased our costs of borrowing Additionally volatility in capital markets could present challenges to us if we need to raise funds in the equity market This in turn may cause us to adopt strategies that may be less capital intensive Volatility in the credit markets including due to the recent bank failures as well as the U S Federal Reserve Bank s actions and pace of interest rate increases to combat inflation in the U S may have an adverse effect on our ability to obtain debt financing
We plan to expand our business to new customers new commercial applications and new commercial markets including those where we may have limited operating experience through organic growth and acquisitions Accordingly we may be subject to increased business technology and economic risks that could materially affect our business In recent periods we have increased our focus on organic growth and customer acquisition In the future we may increasingly focus on this organic growth and we may identify inorganic growth opportunities through acquisitions and customer divestitures Expanding in the verticals in which we are already operating will continue to require significant resources and there is no guarantee that such efforts will be successful or beneficial to us Historically sales to new customers have often led to additional sales to the same customers or similarly situated customers As we expand into and within new and emerging markets for our services we will likely face additional regulatory scrutiny risks and business challenges from our customers governments and other stakeholders in those markets While this approach to growth within new and existing commercial markets and verticals has proven successful in the past it is uncertain we will achieve the same penetration and organic growth or identify suitable inorganic growth opportunities in the future and our reputation business financial condition and results of operations could be negatively impacted
We prepare our financial statements in conformity with U S GAAP These principles are subject to interpretation by the Financial Accounting Standards Board FASB the American Institute of Certified Public Accountants the SEC and various bodies formed to interpret and create appropriate accounting policies A change in these policies can have a significant effect on our reported results and may affect our reporting of transactions that are completed before a change is announced Changes to those rules or questions as to how we interpret or implement them may have a material adverse effect on our reported financial results or on the way we conduct business See
We are or may become party to various claims and legal proceedings in the ordinary course of our business These claims and legal proceedings may include lawsuits or claims relating to contracts intellectual property product recalls product liability employment matters environmental matters regulatory compliance or other aspects of our business Even when not merited the defense of these claims and legal proceedings may divert our management s attention and we may incur significant expenses in defending these claims and proceedings In addition we may be required to pay damage awards or settlements or become subject to injunctions or other equitable remedies which could have a material adverse effect on our financial position cash flows or results of operations The outcome of litigation is often difficult to predict and the outcome of pending or future claims and legal proceedings may have a material adverse effect on our financial position cash flows or results of operations We evaluate these claims and legal proceedings to assess the likelihood of unfavorable outcomes and to estimate if possible the amount of potential losses Based on these assessments and estimates we establish reserves or disclose the relevant litigation claims or legal proceedings as appropriate These assessments and estimates are based on the information available to management at the time and involve a significant amount of management judgment Actual outcomes or losses may differ materially from our current assessments and estimates If actual outcomes or losses differ materially from our current assessments and estimates or additional claims or legal proceedings are initiated we could be exposed to significant liabilities
Natural disasters pandemics or other catastrophic events including severe weather including cyclones hurricanes and floods as well as terrorist attacks power interruptions fires and pandemics could disrupt operations and likewise our ability to produce or deliver products Our manufacturing operations require significant amounts of energy including natural gas and oil and governmental regulations may control the allocation of such fuels to Kimball Electronics Employees are an integral part of our business and events such as a pandemic could reduce the availability of employees reporting for work In the event we experience a temporary or permanent interruption in our ability to produce or deliver product revenues could be reduced and business could be materially adversely affected In addition catastrophic events or the threat thereof can adversely affect U S and world economies and could result in reduced demand for our customers products and delayed or lost revenue for our services Further any disruption in our IT systems could adversely affect the ability to receive and process customer orders manufacture products and ship products on a timely basis and could adversely affect relations with customers potentially resulting in reduction in orders from customers or loss of customers We maintain insurance to help protect us from costs relating to some of these matters but it may not be sufficient or paid in a timely manner to us in the event of such an interruption
We depend on information systems and technology in substantially all aspects of our business including communications among our employees and with suppliers and customers We recognize the significance of developing implementing and maintaining cybersecurity measures to safeguard our information systems and products and protect the confidentiality integrity and availability of our data
We have designed our cybersecurity risk management program and strategy to protect the confidentiality integrity and availability of our critical information technology systems and information Our program is integrated into and among the risks evaluated and considered by our broader enterprise risk management program through which we identify assess prioritize and mitigate risks across the Company to support the achievement of our strategic objectives
Cybersecurity is a critical part of our enterprise risk management To address cybersecurity threats we leverage a multi layer approach with our Audit Committee providing oversight and direction and our Chief Information Officer CIO leading a team that is responsible for forming our enterprise wide information security strategy training policy standards architecture and processes to protect us against cybersecurity risks Our program includes protocols for preventing detecting and responding to cybersecurity incidents and cross functional coordination and governance of business continuity and disaster recovery plans Components of our program include
a continuous four phase Enterprise Risk Management ERM process of risk program development risk assessment and prioritization risk response and risk validation and monitoring designed to help identify cybersecurity threats to our critical IT systems information and our broader enterprise IT environment
the periodic engagement of independent security firms and other third party experts where appropriate to assess test and certify components of our cybersecurity program such as penetration pen testing and to otherwise assist with aspects of our cybersecurity processes and controls
focused annual and mandatory risk management education for our employees and leaders including cybersecurity awareness training multiple cybersecurity and phishing awareness campaigns throughout each year and tabletop exercises
a risk management process for third party service providers and vendors not under our direct control that includes pre selection due diligence and validation and post selection periodic monitoring to manage cybersecurity risks and monitor adherence to applicable cybersecurity standards
We utilize ISO 27001 to identify assess and manage information security risk and maintain a compliant Information Security Management System ISMS Our global information security management program is ISO 27001 2013 certified
We engage a range of external experts including cybersecurity consultants and auditors to support evaluate and test our cybersecurity risk management systems We engage a managed security service provider MSSP that provides continuous threat intelligence by monitoring our network and connected devices to detect attacks and indicators of potential attacks
Our collaboration with other third parties includes regular audits of our ISO 27001 compliance penetration testing threat assessments and consultation on security enhancements These partnerships provide expert knowledge and insights which are designed to ensure our cybersecurity strategies and processes are appropriate
The Board is responsible for overseeing overall risk management for the Company including annual or more frequent review and approval of the Enterprise Risk Management approach and processes implemented by management to identify assess manage and mitigate risk The Board has delegated certain responsibilities for oversight of the Company s cybersecurity and information security framework data protection cybersecurity and risk management to the Audit Committee of the Board Our Board recognizes that cybersecurity protection is vital to maintaining our operations and the trust of our business and supply chain partners and of our Share Owners
At each of their respective meetings the Board and or Audit Committee receive and provide feedback on reports on relevant data protection and cybersecurity matters Additionally two regular Board meetings each year and each Audit Committee meeting include additional in depth technology and cybersecurity briefings from senior members of our information technology department internal audit function and legal department The topics covered by these reports and briefings include risk management strategies data protection ongoing risk mitigation activities cybersecurity strategy governance structure and the results of security breach simulations
Our cybersecurity risk management program is led by our Chief Information Officer CIO who reports to our CEO and manages our security team principally responsible for managing our cybersecurity risk assessment processes our security controls and our detection and response to cybersecurity incidents The CIO meets regularly with the CEO and his direct reports to discuss cybersecurity risk and ensure appropriate resources are prioritized to address risks We continue to secure our own manufacturing and information technology infrastructure to train our employees throughout each year about malware viruses hacking phishing and other information security risks including how to avoid and mitigate them and to protect our sensitive data from failures breaches or cyber incidents We periodically more than annually perform tabletop exercises to test our incident response procedures identify gaps and improvement opportunities and exercise team preparedness
The Company s Chief Information Officer has formal education in information technology and extensive experience over 20 years working in and leading information systems and technology functions Our Chief Information Officer receives regular updates on cybersecurity matters results of mitigation efforts and cybersecurity incident response and remediation
The Company s team responsible for developing and executing our cybersecurity policies together with our CIO including our Director of Cybersecurity and Director of IT Infrastructure and Operations are individuals with formal education and degrees in information technology or cybersecurity experience working in information technology and cybersecurity including relevant industry experience in security related industries or a combination of both education and experience Additionally leaders in the Company s information technology function receive periodic training and education on cybersecurity related topics The CIO is responsible for providing quarterly updates to the Board s Audit Committee regarding the effectiveness of the Company s cybersecurity program and any material cybersecurity incidents that may arise
The Company s Kimball Electronics Support Center KESC serves as the central point for all cybersecurity incidents and reporting including incidents that directly target employees or our information systems and incidents originating from third parties The KESC monitors detects alerts and responds to cybersecurity incidents evaluating each incident pursuant to our Cybersecurity Incident Response Plan The KESC escalates incidents with significant impact and pervasiveness to the Company s Cybersecurity Incident Response Team CIRT for further action Depending on the nature of the attack or indicator our MSSP will collaborate with us in response to incidents to contain mitigate respond to investigate and eliminate threats Where appropriate the CIRT will escalate incidents to the Audit Committee and the Board for additional consideration action and potential disclosure
The KESC our cybersecurity leaders and or our CIRT evaluate each incident as appropriate in terms of its impact on our operations our ability to conduct business with customers and suppliers our brand reputation and health safety and the speed and degree to which the incident has been contained These teams are also responsible for activating containment and resolution efforts and interfacing with third party service providers like our MSSP where appropriate to support the Company through the resolution of the incident After initial identification the KESC monitors all cybersecurity incidents for changes in degree of impact or pervasiveness and communicates with our leaders including the CIO and CIRT about the same
As part of our overall risk mitigation strategy we maintain insurance coverage for certain aspects of cybersecurity risks however such insurance may not be sufficient either in type or amount to cover us against claims related to cybersecurity breaches cyberattacks and other related breaches
As of the date of this report we do not believe that any risks from cybersecurity threats including those resulting from any previous cybersecurity incidents have materially affected or are reasonably likely to materially affect our Company including our business strategy results of operations or financial condition Despite our security measures however there can be no assurance that we or third parties with which we interact will not experience a cybersecurity incident in the future that will materially affect us For more information on our cybersecurity related risks see
Our business may be harmed due to failure to successfully implement information technology solutions or a lack of reasonable safeguards to maintain data security including adherence to data privacy laws and physical security measures
We have nine manufacturing facilities with two located in Indiana one in China two in Mexico and one located in each of Florida Poland Romania and Thailand These facilities occupy approximately 1 649 000 square feet in aggregate substantially all of which are owned In addition we own a 42 000 square foot building to house our headquarters located in Jasper Indiana
Generally our manufacturing facilities are utilized at normal capacity levels on a multiple shift basis At times certain facilities utilize reduced shifts due to demand and sales fluctuations We continually assess our capacity needs and evaluate our operations to optimize our service levels by geographic region See
We and our subsidiaries are not parties to any pending legal proceedings other than ordinary routine litigation and claims incidental to the business The outcome of current routine pending litigation and claims individually and in the aggregate is not expected to have a material adverse impact on our business or financial condition
Mr Phillips was appointed Chief Executive Officer and Director effective March 1 2023 Mr Phillips was most recently the President and Chief Executive Officer from 2019 until 2022 for Elkay Manufacturing Company Previously Mr Phillips served as the President Chief Executive Officer and Board member from 2017 through 2019 for Essendant Inc Mr Phillips currently serves on the Board of Greenheck Group
Mr Baumann was appointed Chief Accounting Officer effective July 1 2023 He joined Kimball Electronics in April 2019 as Assistant Corporate Controller and served as our Corporate Controller since March 2021 Mr Baumann was previously employed by Vectren Corporation from 2009 to 2019
Ms Croom is our Chief Financial Officer effective July 1 2021 Ms Croom joined Kimball Electronics in January 2021 in the role of Vice President Finance Prior to joining Kimball Electronics she held the position of Vice President Financial Planning and Analysis for NiSource Inc since August 2019 Previously at NiSource Inc she served as Director of Operations Planning since March 2017 and Director of Regulatory Affairs since April 2014 Ms Croom currently serves on the Board of First Energy Corp
Mr Hass was appointed Chief Legal and Compliance Officer and Secretary effective January 1 2022 He joined Kimball Electronics in August 2020 as Associate General Counsel and Assistant Secretary Prior to Kimball Electronics Mr Hass served as General Counsel and Secretary of Lifeway Foods from 2016 through 2020 Mr Hass currently serves on the Board of Columbus Insurance Ltd
Mr Korn was appointed to the role of Chief Operating Officer effective July 1 2023 Previously Mr Korn was our President Global Electronics Manufacturing Services Operations since July 2020 and Vice President North American Operations since 2007
Ms Thomson was appointed to the role of Chief Commercial Officer effective July 1 2023 Previously Ms Thomson was our Vice President Global Business Development and Design Services since August 2018 Prior to joining Kimball Electronics she held the position of Vice President of Business Development for Creation Technologies since 2012
Ms Wells joined Kimball Electronics in April 2022 as Chief Information Officer Prior to Kimball Electronics Ms Wells held the position of Vice President of IT at Avery Dennison since June 2019 From 2011 to 2019 Ms Wells was Senior Director of IT at Avery Dennison
Since inception we have not paid any dividends on our common stock and we currently do not have plans to pay dividends in fiscal year 2025 Our Board of Directors the Board regularly reviews our capital allocation strategy
On October 21 2015 our Board approved an 18 month stock repurchase plan the Plan authorizing the repurchase of up to 20 million worth of our common stock Then separately on each of September 29 2016 August 23 2017 November 8 2018 and November 10 2020 the Board extended and increased the Plan to allow the repurchase of up to an additional 20 million worth of common stock with no expiration date which brought the total authorized stock repurchases under the Plan to 100 million
During fiscal year 2024 the Company repurchased 3 0 million of common stock under the Plan The following table contains information about our purchases of equity securities during the three months ended June 30 2024
The following performance graph is not deemed to be soliciting material or to be filed with the SEC or subject to Regulation 14A or 14C under the Exchange Act or to the liabilities of Section 18 of the Exchange Act and will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act except to the extent the Company specifically incorporates it by reference into such a filing
The graph below compares the cumulative total return to Share Owners of the Company s common stock for the five year period commencing June 30 2019 and ending June 30 2024 to the cumulative total return of the Nasdaq Stock Market U S and the Russell 2000 Electronic Components subindex for the same period of time We are currently a member of the Russell 2000 Electronics Components subindex and believe that this market capitalization weighted index reflects issuers with broadly similar market capitalizations that operate in our industry We believe this subindex provides a more meaningful comparison of the cumulative return of our stock than any other lines of business or published industry index or peer groups
The graph assumes 100 is invested in the Company s stock and each of the two indexes at the closing market quotations on June 30 2019 and that dividends if any are reinvested The performances shown on the graph are not necessarily indicative of future price performance
Certain statements contained within this document are considered forward looking under the Private Securities Litigation Reform Act of 1995 The statements may be identified by the use of words such as believes anticipates expects intends plans projects estimates forecasts seeks likely future may might should would could will potentially can goal predict and similar expressions These forward looking statements are subject to risks and uncertainties including but not limited to global economic conditions geopolitical environment and conflicts such as the war in Ukraine global health emergencies availability or cost of raw materials and components foreign exchange fluctuations and our ability to convert new business opportunities into customers and revenue Additional cautionary statements regarding other risk factors that could have an effect on the future performance of Kimball Electronics are located within
We are a global multifaceted manufacturing solutions provider We provide electronics manufacturing services EMS including engineering and supply chain support to customers in the automotive medical and industrial end markets Our core competency is producing durable electronics and we further offer contract manufacturing services for non electronic components medical disposables drug delivery solutions and precision molded plastics Our manufacturing services including engineering and supply chain support utilize common production and support capabilities globally We are well recognized by our customers and the industry for our excellent quality reliability and innovative service CIRCUITS ASSEMBLY a leading brand and technical publication for electronics manufacturers worldwide has previously recognized us four times for achieving the Highest Overall Customer Rating in their Service Excellence Awards and most recently we received Highest Overall Customer Ratings in four of the seven categories in 2023
The contract manufacturing services industry is very competitive As a mid sized player we can expect to be challenged by the agility and flexibility of the smaller regional players and we can expect to be challenged by the scale and price competitiveness of the larger global players We enjoy a unique market position between these extremes which allows us to compete with the larger scale players for high volume projects but also maintain our competitive position in the generally lower volume durable electronics market space We expect to continue to effectively operate in this market space however one significant challenge will be maintaining our profit margins while we continue our revenue growth Pricing is competitive in the market as production efficiencies and material pricing advantages for most projects drive costs and prices down over the life of the projects This characteristic of the contract electronics marketplace is expected to continue
a comprehensive study on the worldwide EMS market published by New Venture Research NVR provided worldwide forecast trends through 2028 NVR projects the worldwide assembly market for electronics products to grow at a compound annual growth rate CAGR of 4 6 over the next five years with the EMS industry projected to grow at a CAGR of 4 6
We continue to monitor the current economic and industry conditions for uncertainties that may pose a threat to our future growth or cause disruption in business strategy execution and timing in the markets in which we compete
The EMS industry is experiencing the impacts of softening demand from global macroeconomic headwinds especially in the current fiscal year The financial impact on our future results cannot be reasonably estimated but could be material Such headwinds include pressure from elevated levels of inflation higher interest rates and geopolitical uncertainty
Net sales in fiscal year 2024 decreased 6 from the prior fiscal year with decreases in each of our end market verticals The decrease in sales to customers in the automotive market were largely driven by decreased demand In the medical market sales decreased due to decreased sales with a large medical customer first impacting our results in late fiscal year 2023 who is remediating a recall The cause of the recall is unrelated to the products we provided In the industrial market sales decreased in large part due to a program at our automation test and measurement business in fiscal year 2023 not recurring this fiscal year We expect consolidated net sales to decrease again in 2025 with the continued softness in demand and the loss of a major automotive program by our customer that was unrelated to any issues with our workmanship quality or ability to produce the product in addition to the expected consolidated net sales decrease from the divestiture of our GES business discussed further in this section
We have a strong focus on cost control balanced with managing the future growth prospects of our business We expect to make investments that will strengthen or add new capabilities to our package of value as a multifaceted manufacturing solutions company including through our recently completed capacity expansions Managing working capital in conjunction with fluctuating demand levels is likewise key In addition a long standing component of our profit sharing incentive bonus plan is its link to our financial performance which results in varying amounts of compensation expense as profits change
To support our renewed strategic focus in the third quarter of fiscal year 2024 we made the decision to divest of GES our automation test and measurement business unit and committed to a plan to sell the business This will allow us to increase focus and support our EMS operations As a result the disposal group has met the criteria to be classified as held for sale and is reported at the lower of its carrying value or fair value less costs to sell at June 30 2024 We completed the divestiture of our GES business on July 31 2024 In addition to the decision to divest of GES we undertook restructuring efforts to align our cost structure with reduced end market demand levels
We continue to maintain a strong balance sheet as of the end of fiscal year 2024 which included a current ratio of 2 3 a debt to equity ratio of 0 5 and Share Owners equity of 540 million Recently we have invested to support our expansions and growth in Mexico Thailand and Poland We expect our balance sheet to continue to normalize as we negotiate with customers on excess inventory and as certain component shortages subside Refer to the Future Liquidity section of Liquidity and Capital Resources below for further discussion of our liquidity
The continuing success of our business is dependent upon our ability to replace expiring customers programs with new customers programs We monitor our success in this area by tracking the number of customers and the percentage of our net sales generated from them by years of service as depicted in the table below While variation in the size of program awards makes it difficult to directly correlate this data to our sales trends we believe it does provide useful information regarding our customer loyalty and new business growth
A discussion regarding our financial condition and results of operations for fiscal year 2024 compared to fiscal year 2023 is presented below A discussion regarding our financial condition and results of operations for fiscal year 2023 compared to fiscal year 2022 can be found under captions entitled Results of Operations Fiscal Year 2023 Compared with Fiscal Year 2022 and Liquidity and Capital Resources in the section entitled Item 7 Management s Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10 K for the year ended June 30 2023 filed with the SEC on August 24 2023 which is available free of charge through the SEC s website at http www sec gov or the Company s website https investors kimballelectronics com The Company s website and the information contained therein or incorporated therein are not intended to be incorporated into this Annual Report on Form 10 K
Net sales in fiscal year 2024 decreased by 6 compared to net sales in fiscal year 2023 The impact from foreign currency fluctuations on net sales was negligible in fiscal year 2024 compared to fiscal year 2023 Beginning in fiscal year 2024 we changed our presentation of revenue for miscellaneous sales previously included in Other to include in the respective customers end market verticals Prior year periods have been recast to conform to the current year presentation By end market vertical our market verticals fluctuated as follows
Sales to customers in the automotive market were down slightly in the current fiscal year when compared to the prior fiscal year due to the overall decrease in demand across most of our major customers
Sales to customers in the medical market decreased when compared to the prior fiscal year This decrease is primarily due to decreased sales with a large medical customer who is remediating a recall The cause of the recall is unrelated to the products we provided Partially offsetting this decrease in sales was a ramp up of certain programs and new product launches
Sales to customers in the industrial market were down slightly in the current fiscal year when compared to the prior fiscal year The decrease is largely due to lower demand with our climate control customers as well as a program at our automation test and measurement business from fiscal year 2023 not recurring this year
For fiscal year 2024 selling and administrative expenses remained relatively flat as a percent of net sales but decreased in absolute dollars when compared to fiscal year 2023 The absolute dollar decrease was driven by decreased profit sharing bonus expense and supplier financing charges due to decreased sales
Other General Income in fiscal years 2024 and 2023 consisted of 0 9 million and 0 2 million respectively resulting from payments received related to class action lawsuits in which Kimball Electronics was a class member These lawsuits alleged that certain suppliers to the EMS industry conspired over a number of years to raise and fix the prices of electronic components resulting in overcharges to purchasers of those components
For fiscal year 2024 we recorded pre tax restructuring expense of 2 4 million for employee related costs as we undertook restructuring efforts to align our cost structure with reduced end market demand levels
In the third quarter of fiscal year 2024 we made the decision to divest our automation test and measurement business unit and committed to a plan to sell the business As a result the disposal group has met the criteria to be classified as held for sale and we have reported the business unit at the lower of its carrying value or fair value less costs to sell The carrying value exceeded the fair value less costs to sell and we recorded pre tax impairment charges of 5 8 million and 17 0 million on goodwill and assets held for sale respectively in fiscal year 2024 See
Interest expense has increased in the year ended June 30 2024 compared to the year ended June 30 2023 due to higher interest rates and higher borrowings on credit facilities The Foreign Currency Derivative Gain Loss resulted from net foreign currency exchange rate movements during the periods The loss in fiscal year 2024 and the gain in fiscal year 2023 were driven by the respective weakening and strengthening of the U S dollar versus foreign currencies that we have exposure to in our business The revaluation of the fair value of the supplemental employee retirement plan SERP investments recorded in Other Income Expense is offset by the revaluation of the SERP liability recorded in Selling and Administrative Expenses and thus there is no effect on net income
The consolidated effective tax rate for fiscal year 2024 was lower due to the impact of the GES impairment charges partially offset by the valuation allowance The domestic unfavorable tax rate was also distorted by the impairment charges
The consolidated effective tax rate for fiscal year 2023 was unfavorably impacted by the mix of taxable earnings within our various tax jurisdictions and foreign exchange rate movements The domestic favorable tax rate was favorably impacted by our loss before taxes and the research and development tax credit
Open orders were down 11 as of June 30 2024 compared to June 30 2023 The decrease in open orders from June 30 2023 is primarily driven by reduced orders from a large medical customer who is remediating a recall Open orders are the aggregate sales price of production pursuant to unfulfilled customer orders which may be delayed or canceled by the customer subject to contractual termination provisions The majority of open orders as of June 30 2024 are expected to be filled within the next twelve months Open orders at a point in time may not be indicative of future sales trends due to the contract nature of our business and the variability of order lead times among our customers
Working capital at June 30 2024 was 471 7 million compared to working capital of 454 3 million at June 30 2023 The current ratio was 2 3 at June 30 2024 and 2 0 at June 30 2023 respectively The debt to equity ratio was 0 5 at both June 30 2024 and June 30 2023 Our short term liquidity available represented as cash and cash equivalents plus the unused amount of our credit facilities some of which are uncommitted totaled 220 1 million at June 30 2024 and 149 1 million at June 30 2023
Cash Conversion Days CCD are calculated as the sum of Days Sales Outstanding DSO plus Contract Asset Days CAD plus Production Days Supply on Hand PDSOH less Accounts Payable Days APD and less Advances from Customers Days ACD CCD or a similar metric is used in our industry and by our management to measure the efficiency of managing working capital The following table summarizes our CCD for the quarterly periods indicated
We define Days Sales Outstanding as the average of monthly trade accounts and notes receivable divided by an average day s net sales Contract Asset Days as the average monthly contract assets divided by an average day s net sales Production Days Supply on Hand as the average of monthly gross inventory divided by an average day s cost of sales Accounts Payable Days as the average of monthly accounts payable divided by an average day s cost of sales and Advances from Customers Days as the the average of monthly customer deposits divided by an average day s cost of sales Over the past several quarters we have supported our customers through strategic inventory builds to mitigate parts shortages which adversely impacted our PDSOH and CCD metrics Additionally in fiscal year 2024 we have experienced customers push out deliveries due to softening
consumer demand As lead times dictate the ordering of components these push outs negatively impact our cash conversion days and working capital In these situations we negotiate with our customers for inventory deposits or consignment arrangements to limit the impact to our balance sheet We expect inventory levels and working capital to continue to normalize as we seek relief through customer negotiations
Net cash provided by operating activities for the fiscal year ended June 30 2024 was driven by net income adjusted for non cash items partially offset by changes in operating assets and liabilities Net cash used for operating activities for the fiscal year ended June 30 2023 was driven by changes in operating assets and liabilities partially offset by net income adjusted for non cash items Net income and non cash adjustments provided cash of 82 6 million while changes in operating assets and liabilities used 9 4 million of cash in the fiscal year ended June 30 2024 For the fiscal year ended June 30 2023 cash used by changes in operating assets and liabilities was 107 3 million while net income and non cash adjustments provided cash of 93 5 million
Net income adjusted for non cash items provided cash of 82 6 million in fiscal year 2024 Partially offsetting this was cash used of 9 4 million from changes in operating assets and liabilities in fiscal year 2024 largely due to the decrease in accounts payable which used cash of 102 6 million driven by decreased inventory purchases due to lower sales Partially offsetting cash used by accounts payable was a decrease in inventory which provided cash of 64 2 million driven by decreased inventory purchases due to lower sales and an increase in advances from customers which provided cash of 34 9 million
The cash used of 107 3 million from changes in operating assets and liabilities in fiscal year 2023 was largely due to an increase in accounts receivable which used cash of 82 4 million primarily resulting from increased sales volumes and an increase in inventory which used cash of 50 2 million driven by investment to support our expansions Partially offsetting cash used by inventory was an increase in accounts payable which provided cash of 20 4 million largely resulting from increased inventory purchases and an increase in advances from customers which provided cash of 7 9 million
Net cash used for investing activities during fiscal year 2024 includes 47 0 million cash used for capital investments The capital investments were primarily to support new business awards replacement of older machinery and equipment and facility expansions
Net cash used for investing activities during fiscal year 2023 includes 90 7 million cash used for capital investments The capital investments were primarily for expansions at our Mexico Thailand and Poland facilities and to support new business awards
Net cash provided by financing activities for the fiscal year ended June 30 2024 resulted largely from net borrowings on our credit facilities of 13 5 million primarily for working capital purposes and capital expenditures
Net cash provided by financing activities for the fiscal year ended June 30 2023 resulted largely from net borrowings on our credit facilities of 100 7 million primarily for working capital purposes and capital investments supporting expansions
The Company maintains a U S primary credit facility the primary credit facility scheduled to mature on May 4 2027 The primary credit facility provides for 300 million in borrowings with an option to increase the amount available for borrowing to 450 million at the Company s request subject to the consent of each lender participating in such increase The Company also maintains a 364 day multi currency revolving credit facility the secondary credit facility which allows for borrowings up to 100 million and has a maturity date of January 3 2025 The proceeds of the loans on the primary credit facility and the secondary credit facility are to be used for working capital and general corporate purposes of the Company We were in compliance with the financial covenants of the primary and secondary credit facilities during the fiscal year ended June 30 2024 As noted in the Future Liquidity section below we amended our secondary credit facility on January 5 2024 to increase the borrowings to 100 million
We also maintain foreign credit facilities for working capital and general corporate purposes at specific foreign locations rather than utilizing funding from intercompany sources These foreign credit facilities can be canceled at any time by either the bank or us and generally include renewal clauses As of June 30 2024 we maintained foreign credit facilities at our Thailand operation our EMS operation in China our Netherlands subsidiary our Poland operation and our Vietnam operation
We participate in our customers supply chain financing arrangements in order to extend terms for the customer without negatively impacting our cash flow These arrangements in all cases do not contain recourse provisions which would obligate us in the event of our customers failure to pay Receivables are considered sold when they are transferred beyond the reach of Kimball Electronics and its creditors the purchaser has the right to pledge or exchange the receivables and we have surrendered control over the transferred receivables During the fiscal years ended June 30 2024 and 2023 we sold without recourse 410 0 million and 485 4 million of accounts receivable respectively See
We believe our principal sources of liquidity from available funds on hand cash generated from operations proceeds from the sale of GES and the availability of borrowing under our credit facilities will be sufficient to meet our working capital and other operating needs for at least the next 12 months The unused borrowings in USD equivalent under all of our credit facilities totaled 142 1 million at June 30 2024 including the 100 million secondary credit facility We amended our secondary credit facility on January 5 2024 to increase the borrowing limit to 100 million from 50 million and change the maturity date to January 3 2025 The increased borrowing limit will provide us with more liquidity at the enterprise level to meet working capital and other operating needs Additionally accounts receivable factoring arrangements could provide flexible access to cash as needed While our primary credit facility includes a covenant that limits the amount of sold receivables outstanding at any time currently and historically we have been considerably below this limit
We expect to continue to prudently invest in capital expenditures including for capacity expansions and potential acquisitions that would help us continue our growth as a multifaceted manufacturing solutions company We recently completed our Thailand facility expansion in the third quarter of fiscal year 2022 our Mexico facility expansion in the first quarter of fiscal year 2023 and our Poland expansion in the fourth quarter of fiscal year 2023
At June 30 2024 our capital expenditure commitments were approximately 14 million consisting primarily of capital related to new program wins and replacement of older machinery and equipment We anticipate our available liquidity will be sufficient to fund these capital expenditures
We have purchase obligations that arise in the normal course of business for items such as raw materials services and software acquisitions license commitments In certain instances such as when lead times dictate we enter into contractual agreements for material in excess of the levels required to fulfill customer orders In turn material authorization agreements with customers cover a portion of the exposure for material that we must purchase prior to having a firm order
At June 30 2024 our foreign operations held cash totaling 77 9 million The Company continually evaluates its global cash needs The aggregate unremitted earnings of the Company s foreign subsidiaries which are currently permanently reinvested were approximately 482 million as of June 30 2024 If such funds were repatriated or we determined that all or a portion of such foreign earnings are no longer permanently reinvested we may be subject to applicable non U S income and withholding taxes Determination of the amount of any potential future unrecognized deferred tax liability on such unremitted earnings is not practicable and is recorded in the period that the funds are repatriated
The Company s Repurchase Plan allows the repurchase of up to 100 million of our common stock Purchases may be made under various programs including in open market transactions block transactions on or off an exchange or in privately negotiated transactions all in accordance with applicable securities laws and regulations The Repurchase Plan has no expiration date but may be suspended or discontinued at any time The extent to which the Company repurchases its shares and the timing of such repurchases will depend upon a variety of factors including market conditions regulatory requirements and other corporate considerations as determined by the Company s management team The Company expects to finance the purchases with existing liquidity The Company has repurchased 91 8 million of common stock under the Repurchase Plan through June 30 2024
Our ability to generate cash from operations to meet our liquidity obligations could be adversely affected in the future by factors such as general economic and market conditions lack of availability of raw material components in the supply chain a decline in demand for our services loss of key contract customers unsuccessful integration of acquisitions and new operations global health emergencies and the related uncertainties around the financial impact and other unforeseen circumstances In particular should demand for our customers products and in turn our services decrease significantly over the next 12 months the available cash provided by operations could be adversely impacted
During fiscal year 2024 no level 1 or level 2 financial instruments were affected by a lack of market liquidity For level 1 financial assets readily available market pricing was used to value the financial instruments Our foreign currency derivative assets and liabilities which were classified as level 2 were independently valued using observable market inputs such as forward interest rate yield curves current spot rates and time value calculations To verify the reasonableness of the independently determined fair values these derivative fair values were compared to fair values calculated by the counterparty banks Our own credit risk and counterparty credit risk had an immaterial impact on the valuation of the foreign currency derivatives See
Kimball Electronics Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America These principles require the use of estimates and assumptions that affect amounts reported and disclosed in the Consolidated Financial Statements and related notes Actual results could differ from these estimates and assumptions Management uses its best judgment in the assumptions used to value these estimates which are based on current facts and circumstances prior experience and other assumptions that are believed to be reasonable Management believes the following critical accounting policies reflect the more significant judgments and estimates used in preparation of our Consolidated Financial Statements and are the policies that are most critical in the portrayal of our financial position and results of operations Management has discussed these critical accounting policies and estimates with the Audit Committee of the Company s Board of Directors and with the Company s independent registered public accounting firm
Kimball Electronics recognizes revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those services and products The majority of our revenue is recognized over time as manufacturing services are performed where we manufacture a product with no alternative use and have an enforceable right to payment for performance completed to date The remaining revenue is recognized when the customer obtains control of the manufactured product We have elected to account for shipping and handling activities related to contracts with customers as costs to fulfill our promise to transfer the associated products Accordingly we record customer payments of shipping and handling costs as a component of net sales and classify such costs as a component of cost of sales We recognize sales net of applicable sales or value add taxes Based on estimated product returns and price concessions a reserve for returns and allowances is recorded at the time revenue is recognized resulting in a reduction of revenue
Goodwill 6 2 million and 12 0 million as of June 30 2024 and 2023 respectively represents the difference between the purchase price and the related underlying tangible and intangible net asset fair values resulting from business acquisitions Annually or if conditions indicate an earlier review is necessary goodwill is tested at the reporting unit level If the estimated fair value of the reporting unit is less than the carrying value goodwill is written down to its estimated fair value Our decision to divest GES our former automation test and measurement business and the disposal group meeting the criteria to be classified as held for sale resulted in goodwill impairment of 5 8 million pre tax in fiscal year 2024 No impairment charges were recorded in fiscal year 2024 or 2023 resulting from our annual impairment tests for all other reporting units
Other Intangible Assets 3 0 million and 12 3 million as of June 30 2024 and 2023 respectively are reported on the Consolidated Balance Sheets and consist of capitalized software customer relationships technology and trade name Intangible assets are reviewed for impairment and their remaining useful lives evaluated for revision when events or circumstances indicate that the carrying value may not be recoverable over the remaining lives of the assets Our decision to divest of our automation test and measurement business resulted in the associated intangible assets being classified as held for sale
Deferred income tax assets and liabilities are recognized for the estimated future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases These assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the temporary differences are expected to reverse We evaluate the recoverability of our deferred tax assets each quarter by assessing the likelihood of future taxable income and available tax planning strategies that could be implemented to realize our deferred tax assets If recovery is not likely we provide a valuation allowance based on our best estimate of future taxable income in the various taxing jurisdictions and the amount of deferred taxes ultimately realizable Future events could change management s assessment
We operate within multiple taxing jurisdictions and are subject to tax audits in these jurisdictions These audits can involve complex issues which may require an extended period of time to resolve However we believe we have made adequate provision for income and other taxes for all years that are subject to audit As tax positions are effectively settled the tax provision will be adjusted accordingly The liability for uncertain income tax and other tax positions including accrued interest and penalties on those positions was 1 6 million and 1 8 million at June 30 2024 and June 30 2023 respectively
Numerous foreign jurisdictions in which the company operates have adopted the Organization for Economic Cooperation and Development s global framework implementing a 15 corporate minimum tax commonly referred to as Pillar Two The Company will be subject to Pillar Two beginning in fiscal year 2025 Based on current legislation and available guidance we do not anticipate Pillar Two will have a material impact to our financial condition results of operation cash flows or effective tax rate We will continue to monitor additional guidance as it is released
Kimball Electronics operates internationally and thus is subject to potentially adverse movements in foreign currency rate changes Our principal foreign currency exposures include the Euro Polish zloty Romanian leu Chinese renminbi Thai baht and Mexican peso In fiscal year 2024 our principal foreign currency exposures also included the Vietnamese dong Our risk management strategy includes the use of derivative financial instruments to hedge certain foreign currency exposures Derivatives are used only to manage underlying exposures and are not used in a speculative manner Further information on derivative financial instruments is provided in
of Notes to Consolidated Financial Statements We estimate that a hypothetical 10 adverse change in foreign currency exchange rates from levels at June 30 2024 relative to non functional currency balances of monetary instruments to the extent not hedged by derivative instruments would not have a material impact on profitability in an annual period Actual future gains and losses could have a material impact in an annual period depending on changes or differences in market rates and interrelationships hedging instruments timing and other factors
of Notes to Consolidated Financial Statements as the interest rates paid for borrowings are determined at the time of borrowing based on market indices Therefore although we can elect to fix the interest rate at the time of borrowing the facility does expose us to market risk for changes in interest rates We estimate that a hypothetical 10 change in interest rates on borrowing levels at June 30 2024 would not have a material impact of profitability in an annual period The interest rate on certain borrowings under our credit facilities including our primary credit facility are based on the Secured Overnight Financing Rate SOFR
The management of Kimball Electronics Inc is responsible for establishing and maintaining adequate internal control over financial reporting and for the preparation and integrity of the accompanying financial statements and other related information in this report The consolidated financial statements of the Company and its subsidiaries including the footnotes were prepared in accordance with accounting principles generally accepted in the United States of America and include judgments and estimates which in the opinion of management are applied on an appropriately conservative basis We maintain a system of internal and disclosure controls intended to provide reasonable assurance that assets are safeguarded from loss or material misuse transactions are authorized and recorded properly and that the accounting records may be relied upon for the preparation of the financial statements This system is tested and evaluated regularly for adherence and effectiveness by employees who work within the internal control processes and by our staff of internal auditors
The Audit Committee of the Board of Directors which is comprised of directors who are not employees of the Company meets regularly with management our internal auditors and the independent registered public accounting firm to review our financial policies and procedures our internal control structure the objectivity of our financial reporting and the independence of the independent registered public accounting firm The internal auditors and the independent registered public accounting firm have free and direct access to the Audit Committee and they meet periodically without management present to discuss appropriate matters
Because of inherent limitations a system of internal control over financial reporting may not prevent or detect misstatements and even when determined to be effective can only provide reasonable assurance with respect to financial statement preparation and presentation
These consolidated financial statements are subject to an evaluation of internal control over financial reporting conducted under the supervision and with the participation of management including the Chief Executive Officer and Chief Financial Officer Based on that evaluation conducted under the criteria established in
We have audited the accompanying consolidated balance sheets of Kimball Electronics Inc and subsidiaries the Company as of June 30 2024 and 2023 the related consolidated statements of income comprehensive income share owners equity and cash flows for each of the three years in the period ended June 30 2024 and the related notes and the schedule listed in the Index at Item 15 collectively referred to as the financial statements We have also audited the Company s internal control over financial reporting as of June 30 2024 based on the criteria established in
In our opinion the financial statements referred to above present fairly in all material respects the financial position of the Company as of June 30 2024 and 2023 and the results of its operations and its cash flows for each of the three years in the period ended June 30 2024 in conformity with accounting principles generally accepted in the United States of America Also in our opinion the Company maintained in all material respects effective internal control over financial reporting as of June 30 2024 based on criteria established in
The Company s management is responsible for these financial statements for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying management s report on internal control over financial reporting Our responsibility is to express an opinion on these financial statements and an opinion on the Company s internal control over financial reporting based on our audits We are a public accounting firm registered with the Public Company Accounting Oversight Board United States PCAOB and are required to be independent with respect to the Company in accordance with the U S federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB
We conducted our audits in accordance with the standards of the PCAOB Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement whether due to error or fraud and whether effective internal control over financial reporting was maintained in all material respects
Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements whether due to error or fraud and performing procedures to respond to those risks Such procedures included examining on a test basis evidence regarding the amounts and disclosures in the financial statements Our audits also included evaluating the accounting principles used and significant estimates made by management as well as evaluating the overall presentation of the financial statements Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting assessing the risk that a material weakness exists and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk Our audits also included performing such other procedures as we considered necessary in the circumstances We believe that our audits provide a reasonable basis for our opinions
A company s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles A company s internal control over financial reporting includes those policies and procedures that 1 pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company 2 provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company and 3 provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition use or disposition of the company s assets that could have a material effect on the financial statements
Because of its inherent limitations internal control over financial reporting may not prevent or detect misstatements Also projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that 1 relates to accounts or disclosures that are material to the financial statements and 2 involved our especially challenging subjective or complex judgments The communication of critical audit matters does not alter in any way our opinion on the financial statements taken as a whole and we are not by communicating the critical audit matter below providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates
The majority of the Company s revenue is recognized over time as manufacturing services are performed when the Company manufactures a product to customer specifications with no alternative use and for which the Company has an enforceable right to payment for performance completed to date The Company generally recognizes revenue over time to depict the Company s progress towards meeting its performance obligations using costs based input methods in which judgment is required to evaluate assumptions including the anticipated margins to estimate the corresponding amount of revenue to recognize
The timing differences of revenue recognition billings to the Company s customers and cash collections from the Company s customers result in billed accounts receivable and unbilled accounts receivable Contract assets on the consolidated balance sheets relate to unbilled accounts receivable and occur when revenue is recognized over time as manufacturing services are provided and the billing to the customer has not yet occurred as of the balance sheet date which are generally transferred to receivables in the next fiscal quarter due to the short term nature of the manufacturing cycle
We identified the Company s revenue recognition over time for contracts with customers as a critical audit matter because of the judgments required to evaluate assumptions including the anticipated margins to estimate the corresponding amount of revenue to recognize and contract assets to record This required an increased extent of audit effort due to the significant number of contracts on which the Company recognizes revenue over time and a high degree of auditor judgment when performing procedures to audit management s estimate of anticipated margins used to recognize revenue over time and evaluating the results of those procedures
We tested the effectiveness of controls over the Company s recognition of revenue over time and the related contract asset balance including management s process for estimating the anticipated margins for products manufactured to customer specifications for which the Company has an enforceable right to payment for performance completed to date
Evaluated whether the contracts with customers were properly included or excluded in management s calculation of over time contract revenue based on the terms and conditions of each contract including whether the Company determined the product has no alternative use and that the Company has an enforceable right to payment for performance completed to date
Tested the accuracy and completeness of the costs incurred to date for the respective performance obligations by comparing the quantities on hand and standard cost per the calculation to the Company s perpetual inventory information and testing any manufacturing variances and purchase price adjustments
The following table reconciles cash and cash equivalents in the consolidated balance sheets to cash cash equivalents and restricted cash per the consolidated statements of cash flows The restricted cash included in Prepaid expenses and other current assets on the consolidated balance sheet represents funds held by the Company for a foreign subsidiary s employee savings plan
Kimball Electronics Inc also referred to herein as Kimball Electronics the Company we us or our is a global multifaceted manufacturing solutions provider We provide electronics manufacturing services EMS including engineering and supply chain support to customers in the automotive medical and industrial end markets We deliver a package of value that begins with our core competency of producing durable electronics and we further offer contract manufacturing services for non electronic components medical disposables precision molded plastics and production automation test and inspection equipment Our design and manufacturing expertise coupled with robust processes and procedures help us ensure that we deliver the highest levels of quality reliability and service throughout the entire life cycle of our customers products We deliver award winning service across our highly integrated global footprint which is enabled by our largely common operating system procedures and standardization We are well recognized by customers and industry trade publications for our excellent quality reliability and innovative service
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America U S GAAP requires management to make estimates and assumptions that affect the reported amounts included in the Consolidated Financial Statements and related note disclosures While efforts are made to assure estimates used are reasonably accurate based on management s knowledge of current events actual results could differ from those estimates
Kimball Electronics has business units located in the United States China Mexico Poland Romania and Thailand and each of these business units qualify as operating segments In addition GES has operations located in the United States China India Japan and Vietnam The GES operations qualify as a single operating segment with its group results regularly reviewed by our chief operating decision maker which is our Chief Executive Officer
Our operating segments meet the aggregation criteria under the current accounting guidance for segment reporting As of June 30 2024 all of our operating segments provide contract manufacturing services including engineering and supply chain support for the production of electronic assemblies and other products including medical devices medical disposables precision molded plastics and automation test and inspection equipment primarily in automotive medical and industrial applications to the specifications and designs of our customers The nature of the products the production process the type of customers and the methods used to distribute the products have similar characteristics across all our operating segments Each of our operating segments service customers in multiple markets and many of our customers programs are manufactured and serviced by multiple operating segments We leverage global processes such as component procurement and customer pricing that provide commonality and consistency among the various regions in which we operate All of our operating segments have similar long term economic characteristics and as such have been aggregated into one reportable segment
We recognize revenue in accordance with the standard issued by the Financial Accounting Standards Board FASB Revenue from Contracts with Customers and all the related amendments Our revenue from contracts with customers is generated primarily from manufacturing services provided for the production of electronic assemblies components medical devices medical disposables precision molded plastics and automation test and inspection equipment built to customers specifications Our customer agreements are generally not for a definitive term but continue for the relevant product s life cycle Typically our customer agreements do not commit the customer to purchase our services until a purchase order is provided which is generally short term in nature Customer purchase orders primarily have a single performance obligation Generally the prices stated in the customer purchase orders are agreed upon prices for the manufactured product and do not vary over the
term of the order and therefore the majority of our contracts do not contain variable consideration In limited circumstances we may enter into a contract which contains minimum quantity thresholds to cover our capital costs and we may offer our customer a rebate for specific volume thresholds or other incentives in these cases the rebates or incentives are accounted for as variable consideration
The majority of our revenue is recognized over time as manufacturing services are performed as we manufacture a product to customer specifications with no alternative use and we have an enforceable right to payment for performance completed to date The remaining revenue for manufacturing services is recognized when the customer obtains control of the product typically either upon shipment or delivery of the product dependent on the terms of the contract and the customer is able to direct the use of and obtain substantially all of the remaining benefits from the asset We generally recognize revenue over time using costs based input methods in which judgment is required to evaluate assumptions including anticipated margins to estimate the corresponding amount of revenue to recognize Costs used as a basis for estimating anticipated margins include material direct and indirect labor and appropriate applied overheads Anticipated margins are determined based on historical or quoted customer pricing Costs based input methods are considered a faithful depiction of our efforts and progress toward satisfying our performance obligations for manufacturing services and for which we believe we are entitled to payment for performance completed to date The cumulative effect of revisions to estimates related to net contract revenues or costs are recorded in the period in which the revisions to estimates are identified and the amounts can be reasonably estimated
We have elected to account for shipping and handling activities related to contracts with customers as costs to fulfill our promise to transfer the associated services and products Accordingly we record customer payments of shipping and handling costs as a component of net sales and classify such costs as a component of cost of sales We recognize sales net of applicable sales or value add taxes Based on estimated product returns and price concessions a reserve for returns and allowances is recorded at the time revenue is recognized resulting in a reduction of net revenue
Direct incremental costs to obtain and fulfill a contract are capitalized as a contract asset only if they are material expected to be recovered and are not accounted for in accordance with other guidance Incidental items that are immaterial in the context of the contract are recognized as expense in the period incurred
Cash equivalents consist primarily of highly liquid investments with original maturities of three months or less at the time of acquisition Cash and cash equivalents consist of bank accounts and money market funds Bank accounts are stated at cost which approximates fair value and money market funds are stated at fair value
The Company s trade accounts receivable are recorded per the terms of the agreement or sale and accrued interest is recognized when earned Our policy for estimating the allowance for credit losses on trade accounts receivable includes analysis of such items as aging credit worthiness payment history and historical bad debt experience Management uses these specific analyses in conjunction with an evaluation of the general economic and market conditions to estimate expected credit losses Management believes that historical loss information generally provides a basis for its assessment of expected credit losses Trade accounts receivable are written off after exhaustive collection efforts occur and the receivable is deemed uncollectible Adjustments to the allowance for credit losses are recorded in Selling and Administrative Expenses on our Consolidated Statements of Income
In the ordinary course of business customers periodically negotiate extended payment terms on trade accounts receivable Customary terms require payment within 30 to 45 days with any terms beyond 45 days being considered extended payment terms We participate in our customers supply chain financing arrangements for certain of our accounts receivables in order to extend terms for the customer without negatively impacting our cash flow These arrangements in all cases do not contain recourse provisions which would obligate us in the event of our customers failure to pay Receivables are considered sold when they are transferred beyond the reach of Kimball Electronics and its creditors the purchaser has the right to pledge or exchange the receivables and we have surrendered control over the transferred receivables During fiscal years 2024 2023 and 2022 we sold without recourse 410 0 million 485 4 million and 303 4 million of accounts receivable respectively Factoring fees were 3 4 million 4 8 million and 1 6 million during fiscal years 2024 2023 and 2022 respectively and were included in Selling and Administrative Expenses on the Consolidated Statements of Income
During fiscal year 2024 changes to the expected timing of payments from and risk of default for a customer resulted in the recording of an allowance for credit losses of 2 0 million in Selling and Administrative Expenses on our Consolidated Statements of Income Although the customer is not in bankruptcy and we will continue to pursue full recovery an allowance was deemed necessary in consideration of the expected timing of payments and risk of default The amount expected to be collected after twelve months is included in Other Assets net on the Consolidated Balance Sheet At June 30 2024 the noncurrent receivable associated with this customer in Other Assets net totaled 2 5 million which is net of the 2 0 million allowance for expected credit losses The current portion of receivables from this customer is 3 4 million at June 30 2024
Inventories are stated at the lower of cost and net realizable value Cost includes material labor and applicable manufacturing overhead Costs associated with underutilization of capacity are expensed as incurred Inventories are valued using the first in first out FIFO method Inventories are adjusted for excess and obsolete inventory Evaluation of excess inventory includes such factors as anticipated usage inventory turnover inventory levels and product demand levels Factors considered when evaluating obsolescence include the age of on hand inventory and reduction in value due to damage design changes or cessation of product lines Evaluation of both excess inventory and obsolescence also considers whether customer agreements specify customer obligation to pay for such inventory
Property and equipment are stated at cost less accumulated depreciation and depreciated over the estimated useful life of the assets using the straight line method Generally maintenance and repairs are expensed as incurred Depreciation and expenses for maintenance and repairs are included in both Cost of Sales and Selling and Administrative Expense on the Consolidated Statements of Income
We perform reviews for impairment of long lived assets whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable Impairment is recognized when estimated future cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying amount When an impairment is identified the carrying amount of the asset is reduced to its estimated fair value Assets to be disposed of are recorded at the lower of net book value or fair market value less cost to sell at the date management commits to a plan of disposal In fiscal year 2024 we recognized 17 0 million of impairment with the decision to divest of GES See
Goodwill represents the difference between the purchase price and the related underlying tangible and intangible net asset fair values resulting from business acquisitions Annually or if conditions indicate an earlier review is necessary goodwill is assessed or tested at the reporting unit level If the estimated fair value of the reporting unit is less than the carrying value goodwill is written down to its estimated fair value
To test for goodwill impairment we use a combination of the Income Approach and the Market Approach The discounted cash flow method Income Approach uses forecasted information based on management s strategic plans and projections Discount rates are developed using a weighted average cost of capital WACC methodology The WACC represents the blended average required rate of return for equity and debt capital based on observed market return data and company specific risk factors In the Market Approach fair value is determined using transactional evidence for similar publicly traded equity
During fiscal year 2024 the Company made the decision to divest of GES our automation test and measurement business unit and committed to a plan to sell the business As a result the business unit met the criteria to be classified as held for sale and goodwill and asset impairment were recorded during the quarter See
Other Intangible Assets reported on the Consolidated Balance Sheets consist of capitalized software customer relationships technology and trade name Intangible assets are reviewed for impairment and their remaining useful lives evaluated for revision when events or circumstances indicate that the carrying value may not be recoverable over the remaining lives of the assets Internal use software is stated at cost less accumulated amortization and is amortized using the straight line method During the software application development stage capitalized costs include external consulting costs cost of software licenses and could include internal payroll and payroll related costs for employees who are directly associated with a software project Upgrades and enhancements are capitalized if they result in added functionality which enable the software to perform tasks it was previously incapable of performing Software maintenance training data conversion and business process reengineering costs are expensed in the period in which they are incurred
The Company leases certain office facilities warehouse facilities and equipment under operating leases in addition to land on which certain office and manufacturing facilities reside These operating leases expire from fiscal year 2025 to 2057 Operating lease costs and cash payments for operating leases are immaterial to the Consolidated Balance Sheets Consolidated Statements of Income and our Consolidated Statements of Cash Flows
The costs of research and development are expensed as incurred and are included in Cost of Sales on the Consolidated Statements of Income Research and development costs were approximately 18 3 million 24 4 million and 23 7 million in fiscal years 2024 2023 and 2022 respectively
We are self insured up to certain limits for general liability workers compensation and certain domestic employee health benefits including medical short term disability and dental with the related liabilities included in the accompanying financial statements Our policy is to estimate reserves based upon a number of factors including known claims estimated incurred but not reported claims and other analyses which are based on historical information along with certain assumptions about future events Approximately 15 of the workforce is covered under self insured medical and short term disability plans At June 30 2024 and 2023 accrued liabilities for self insurance exposure were 2 2 million and 2 7 million respectively
The remainder of our workforce not covered by self insured plans have medical and disability coverage through either our external plans or government plans Insurance benefits are not provided to retired employees
Deferred income tax assets and liabilities recorded in Other Assets and Other long term liabilities respectively in the Consolidated Balance Sheets are recognized for the estimated future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases These assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the temporary differences are expected to reverse We evaluate the recoverability of deferred tax assets each quarter by assessing the likelihood of future taxable income and available tax planning strategies that could be implemented to realize our deferred tax assets If recovery is not likely we provide a valuation allowance based on our best estimate of future taxable income in the various taxing jurisdictions and the amount of deferred taxes ultimately realizable Future events could change management s assessment
We operate within multiple taxing jurisdictions and are subject to tax audits in these jurisdictions These audits can involve complex uncertain tax positions which may require an extended period of time to resolve A tax benefit from an uncertain tax position may be recognized only if it is more likely than not that the tax position will be sustained on examination by taxing authorities based on the technical merits of the position We maintain a liability for uncertain income tax and other tax positions including accrued interest and penalties on those positions As tax positions are effectively settled the tax liability is adjusted accordingly We recognize interest and penalties related to unrecognized tax benefits in Provision for Income Taxes on the Consolidated Statements of Income See
We have business and credit risks associated with our customers The Company monitors credit quality and associated risks of receivables on an individual basis based on criteria such as financial stability of the party and collection experience in conjunction with general economic and market conditions
Other General Income in fiscal years 2024 2023 and 2022 consisted of 0 9 million 0 2 million and 1 4 million respectively resulting from payments received related to class action lawsuits in which Kimball Electronics was a class member These lawsuits alleged that certain suppliers to the EMS industry conspired over a number of years to raise and fix the prices of electronic components resulting in overcharges to purchasers of those components
We recorded restructuring expenses of 2 4 million in fiscal year 2024 for employee related costs as we undertook restructuring efforts to align our cost structure with reduced end market demand levels including resizing our workforce and taking specific cost actions We expect to continue executing the restructuring efforts and estimate between 3 0 million and 4 0 million of additional pre tax restructuring charges most of which we expect in the first half of fiscal year 2025 There were no restructuring charges in fiscal year 2023 or fiscal year 2022
Non operating income expense net includes the impact of such items as foreign currency rate movements and related derivative gain or loss fair value adjustments on supplemental employee retirement plan SERP investments government subsidies credit facility fees bank charges and other miscellaneous non operating income and expense items that are not directly related to operations The gain loss on SERP investments is offset by a change in the SERP liability that is recognized in Selling and Administrative Expense
The Company uses the U S dollar and Euro as its functional currencies Foreign currency assets and liabilities are remeasured into functional currencies at end of period exchange rates except for nonmonetary assets and equity which are remeasured at historical exchange rates Revenue and expenses are remeasured at the weighted average exchange rate during the fiscal year except for expenses related to nonmonetary assets which are remeasured at historical exchange rates Gains and losses from foreign currency remeasurement are reported in Non operating income or expense on the Consolidated Statements of Income
For business units whose functional currency is other than the U S dollar the translation of functional currency statements to U S dollar statements uses end of period exchange rates for assets and liabilities weighted average exchange rates for revenue and expenses and historical rates for equity The resulting currency translation adjustment is recorded in Accumulated Other Comprehensive Income Loss as a component of Share Owners Equity
Derivative financial instruments are recognized on the balance sheet as assets and liabilities and are measured at fair value Changes in the fair value of derivatives are recorded each period in earnings or Accumulated Other Comprehensive Income Loss depending on whether a derivative is designated and effective as part of a hedge transaction and if it is the type of hedge transaction Hedge accounting is utilized when a derivative is expected to be highly effective upon execution and continues to be highly effective over the duration of the hedge transaction Hedge accounting permits gains and losses on derivative instruments to be deferred in Accumulated Other Comprehensive Income Loss and subsequently included in earnings in the periods in which earnings are affected by the hedged item For transactions and balances denominated in currencies other than functional currencies we use forward purchases to manage exposure to the variability of cash flows and foreign exchange contracts to hedge intercompany balances and other balance sheet positions Cash receipts and cash payments related to derivative instruments are recorded in the same category as the cash flows from the items being hedged on the Consolidated Statements of Cash Flows See
of Notes to Consolidated Financial Statements the Company maintains the 2023 Equity Incentive Plan which allows for the issuance of incentive stock options stock appreciation rights restricted shares unrestricted shares restricted share units or performance shares and performance units for grant to officers and other key employees and to members of the Board of Directors who are not employees The Company also maintains the Kimball Electronics Inc Non Employee Directors Stock Compensation Deferral Plan the Deferral Plan which allows Non Employee Directors to elect to defer all or a portion of their retainer fees in stock We recognize the cost resulting from share based payment transactions using a fair value based method on a majority of our transactions The estimated fair value of outstanding performance shares is based on the stock price at the date of the grant Stock based compensation expense is recognized for the portion of the award for which performance targets have been established and is expected to vest The Company has elected to account for forfeitures by reversing the compensation costs at the time a forfeiture occurs
In November 2023 the Financial Accounting Standards Board FASB issued guidance on Improvements to Reportable Segment Disclosures requiring additional more detailed information about a reportable segment The guidance is effective for fiscal years beginning after December 15 2023 and for interim periods beginning after December 15 2024 Early adoption is permitted We are currently evaluating the impact of the adoption of this guidance on our consolidated financial statements
In December 2023 the FASB issued guidance on Improvements to Income Tax Disclosures intended to enhance the transparency and decision usefulness of income tax disclosures The guidance is effective for fiscal years beginning after December 15 2024 Early adoption is permitted We are currently evaluating the impact of the adoption of this guidance on our consolidated financial statements
Our revenue from contracts with customers is generated primarily from manufacturing services provided for the production of electronic assemblies electronic and non electronic components medical devices medical disposables precision molded plastics and automation test and inspection equipment in automotive medical and industrial applications to the specifications and designs of our customers Beginning in fiscal year 2023 the Company changed its presentation of revenue for the industrial and public safety end market verticals by combining them into the industrial end market vertical Beginning in fiscal year 2024 the Company changed its presentation of revenue for miscellaneous sales previously included in Other to include in the respective customers end market verticals Prior year periods have been recast to conform to the current year presentation
For fiscal years 2024 2023 and 2022 approximately 96 95 and 95 of our net sales respectively were recognized over time as manufacturing services were performed under a customer contract on a product with no alternative use and we have an enforceable right to payment for performance completed to date The remaining sales revenues were recognized at a point in time when the customer obtained control of the products
The timing differences of revenue recognition billings to our customers and cash collections from our customers result in billed accounts receivable and unbilled accounts receivable Contract assets on the Consolidated Balance Sheets relate to unbilled accounts receivable and occur when revenue is recognized over time as manufacturing services are provided and the billing to the customer has not yet occurred as of the balance sheet date which are generally transferred to receivables in the next fiscal quarter due to the short term nature of the manufacturing cycle Contract assets were 76 3 million and 78 8 million as of June 30 2024 and 2023 respectively
The Company may receive payments from customers in advance of the satisfaction of performance obligations primarily for material price variances inventory purchases tooling or other miscellaneous services or costs These payments are recognized as contract liabilities until the performance obligations are completed and are included in Advances from customers if inventory related and Accrued expenses if not inventory related on the Consolidated Balance Sheets which amounted to 43 1 million and 45 6 million as of June 30 2024 and 2023 respectively Our performance obligations are short term in nature and therefore our contract liabilities are all expected to be settled within twelve months We also have deposits associated with inventory purchases classified as long term See
During fiscal year 2024 the Company made the decision to divest GES our automation test and measurement business unit disposal group and committed to a plan to sell the business allowing for increased focus and support for the Company s EMS operations As a result the disposal group business has met the criteria to be classified as held for sale Accordingly the Company classified the assets and liabilities of the disposal group as held for sale during the third quarter of fiscal year 2024 The disposal group did not qualify as discontinued operations as it did not represent a strategic shift that will have a major effect on our operations and financial results
Once the disposal group was classified as held for sale it was reported at the lower of its carrying value or fair value less costs to sell during the fiscal year ended June 30 2024 The carrying value exceeded the fair value less costs to sell and the Company recognized impairment charges of 5 8 million and 17 0 million on goodwill and assets held for sale respectively The Company ceased recording depreciation and amortization on the applicable assets of the disposal group
We assess goodwill for impairment at the reporting unit level annually or when conditions indicate an earlier review is necessary In connection with the preparation of our financial statements for the quarter ended March 31 2024 we completed an impairment analysis for the goodwill recorded in the reporting unit due to the more likely than not expectation of selling the reporting unit We determined the reporting unit s carrying value was more than its fair value by an amount greater than the 5 8 million carrying amount of goodwill and thus was fully impaired See
Following approval by our Board of Directors on July 31 2024 we entered into a definitive agreement and closed on the sale of 100 of the equity interests in GES to Averna Test Systems Inc for net cash proceeds of 21 million subject to customary purchase price adjustments in fiscal year 2025 As a result of impairment already recognized in fiscal year 2024 we do not expect a material gain or loss from the transaction At June 30 2024 GES included approximately 400 employees and operations in California China India Japan and Vietnam
Inventories were valued using the lower of first in first out FIFO cost and net realizable value Inventory components were as follows at June 30 amounts as of June 30 2024 exclude the amounts classified as held for sale
Additionally we have raw materials inventory totaling 42 8 million classified as long term included in Other Assets net in our Consolidated Balance Sheets This inventory is associated with a customer who is remediating a recall and we do not expect the inventory to be consumed within the next twelve months We have received deposits totaling 38 7 million from this customer related to this inventory which is included in Other long term liabilities in our Consolidated Balance Sheets At June 30 2023 we had no inventory or customer deposits classified as long term
During fiscal years 2024 2023 and 2022 amortization expense of other intangible assets was in millions 2 3 3 5 and 3 4 respectively Amortization expense in future periods is expected to be in millions 0 9 0 6 0 4 0 3 and 0 2 in the five years ending June 30 2029 and 0 6 thereafter The estimated useful life of internal use software ranges from 3 to 10 years The amortization period for the customer relationships technology and trade name intangible assets is 15 years 5 years and 10 years respectively We ceased amortization on the intangible assets upon meeting the held for sale classification See
Intangible assets are reviewed for impairment and their remaining useful lives evaluated for revision when events or circumstances indicate that the carrying value may not be recoverable over the remaining lives of the assets
As of June 30 2024 and 2023 we had no guarantees issued which were contingent on the future performance of another entity Standby letters of credit may be issued to third party suppliers and insurance institutions and can only be drawn upon in the event of the Company s failure to pay its obligations to the beneficiary We had a maximum financial exposure from unused standby letters of credit totaling 0 4 million as of both June 30 2024 and 2023 We do not expect circumstances to arise that would require us to perform under any of these arrangements and believe that the resolution of any claims that might arise in the future either individually or in the aggregate would not materially affect our consolidated financial statements Accordingly no liability has been recorded as of June 30 2024 and 2023 with respect to the standby letters of credit We also may enter into commercial letters of credit to facilitate payments to vendors and from customers
The Company provides only assurance type warranties for a limited time period which cover primarily workmanship and assure that products comply with specifications provided by or agreed upon with the customer We maintain a provision for limited warranty repair or replacement of products manufactured and sold pursuant to specific manufacturing contract agreements that require such provisions We estimate this product warranty liability at the time of sale based on historical repair or replacement cost trends in conjunction with the length of the warranty offered Management refines this warranty liability periodically based on changes in historical cost trends and in certain cases where specific warranty issues become known This product warranty liability and expense were immaterial during fiscal years 2024 2023 and 2022
1 The Company maintains a U S primary credit facility the primary credit facility among the Company the lenders party thereto and JPMorgan Chase Bank N A as Administrative Agent and Bank of America N A as Documentation Agent scheduled to mature May 4 2027 The primary credit facility provides for 300 million in borrowings with an option to increase the amount available for borrowing to 450 million at the Company s request subject to the consent of each lender participating in such increase This facility is maintained for working capital and general corporate purposes of the Company A commitment fee is payable on the unused portion of the credit facility which was immaterial to our operating results in fiscal years 2024 2023 and 2022 The commitment fee on the unused portion of principal amount of the credit facility is payable at a rate that ranges from 10 0 to 25 0 basis points per annum as determined by the Company s ratio of consolidated total indebtedness to adjusted consolidated EBITDA as defined in the primary credit facility Types of borrowings available on the primary credit facility include revolving loans multi currency term loans and swingline loans
any Term Benchmark borrowing denominated in U S Dollars will utilize the Secured Overnight Financing Rate SOFR which is a rate per annum equal to the secured overnight financing rate for such business day published by the SOFR Administrator the Federal Reserve Bank of New York on the immediately succeeding business day plus the Revolving Commitment Term Benchmark spread which can range from 100 0 to 175 0 basis points based on the Company s ratio of consolidated total indebtedness to adjusted consolidated EBITDA
any Term Benchmark borrowing denominated in Euros will utilize the Euro Interbank Offered Rate EURIBOR in effect two target days prior to the advance adjusted upwards to reflect bank reserve costs for such interest period as defined in the agreement plus the Revolving Commitment Term Benchmark spread which can range from 100 0 to 175 0 basis points based on the Company s ratio of consolidated total indebtedness to adjusted consolidated EBITDA or
a ratio of consolidated total indebtedness minus unencumbered U S cash on hand in the United States in excess of 15 million to adjusted consolidated EBITDA determined as of the end of each of its fiscal quarters for the then most recently ended four fiscal quarters to not be greater than 3 0 to 1 0 provided however that for each fiscal quarter end during the four quarter period following a material permitted acquisition as defined in the Credit Agreement the Company will not permit this financial covenant to be greater than 3 5 to 1 0 for each such fiscal quarter end and
an interest coverage ratio defined as that ratio of consolidated EBITDA for such period to cash interest expense for such period for any period of four consecutive fiscal quarters to not be less than 3 5 to 1 0
2 The Company amended its 364 day multi currency revolving credit facility agreement on January 5 2024 the secondary credit facility which allows for borrowings up to 100 0 million among the Company as borrower certain subsidiaries of the Company as guarantors the lenders party thereto JPMorgan Chase Bank N A as Administrative Agent and Bank of America N A as Documentation Agent The secondary credit facility has a maturity date of January 3 2025 The proceeds of the loans are to be used for working capital and general corporate purposes of the Company A commitment fee on the unused portion of principal amount of this secondary credit facility is payable at 30 0 basis points per annum
any Term Benchmark borrowing denominated in U S Dollars will utilize the Secured Overnight Financing Rate SOFR which is a rate per annum equal to the secured overnight financing rate for such business day published by the SOFR Administrator the Federal Reserve Bank of New York on the immediately succeeding business day plus a Revolving Commitment Term Benchmark spread of 175 0 basis points
any Term Benchmark borrowing denominated in Euros will utilize the Euro Interbank Offered Rate EURIBOR in effect two target days prior to the advance adjusted upwards to reflect bank reserve costs for such interest period as defined in the agreement plus a Revolving Commitment Term Benchmark spread of 175 0 basis points or
3 The Company also maintains foreign credit facilities for working capital and general corporate purposes at specific foreign locations rather than utilizing funding from intercompany sources These foreign credit facilities can be canceled at any time by either the bank or us and generally include renewal clauses Interest on borrowing under these facilities is charged at a rate as defined under the respective foreign credit facility
5 The Company entered into a foreign credit facility for its EMS operation in China with a new lender during the current fiscal year which allows for borrowings up to 50 million RMB approximately 6 9 million at June 30 2024 exchange rates and canceled the prior credit facility which allowed for borrowings up to 7 5 million
6 The Company also maintains an uncommitted revolving credit facility for our Netherlands subsidiary The Netherlands credit facility allows for borrowings of up to 9 2 million Euro approximately 9 9 million at June 30 2024 exchange rates which borrowings can be made in Euro U S dollars or other optional currency Interest on borrowing under this facility is charged at a rate of interest dependent on the denomination of the currency borrowed
9 The amount of Long term debt under credit facilities less current maturities reflects the borrowings on the primary credit facility that the Company intends and has the ability to refinance for a period longer than twelve months The primary credit facility matures on May 4 2027
The weighted average interest rate on borrowings outstanding under the credit facilities at both June 30 2024 and June 30 2023 were 6 8 Capitalized interest expense was immaterial during fiscal years 2024 2023 and 2022
The Company maintains a trusteed defined contribution retirement plan which is in effect for substantially all domestic employees meeting the eligibility requirements The Company matches 50 of eligible employee contributions up to 6 The Company also provides a discretionary contribution determined annually by the Talent Culture and Compensation Committee of the Company s Board of Directors Total expense related to employer contributions to the domestic retirement plans was in millions 4 8 6 1 and 4 2 for fiscal years 2024 2023 and 2022 respectively
The Company also maintains a supplemental employee retirement plan SERP for executives and other key employees which enables them to defer cash compensation on a pre tax basis and restore amounts that would be otherwise payable under our tax qualified retirement plans if the IRS did not have limits on includable compensation and maximum benefits The SERP is structured as a rabbi trust and therefore assets in the SERP portfolio are subject to creditor claims in the event of bankruptcy We recognize SERP investment assets on the balance sheet at current fair value A SERP liability of the same amount is recorded on the balance sheet representing an obligation to distribute SERP funds to participants As of June 30 2024 both total investments and obligations under SERP were 5 4 million of which 2 0 million were short term and 3 4 million were long term As of June 30 2023 both total investments and obligations under SERP were 8 7 million of which 2 7 million were short term and 6 0 million were long term The SERP investment assets are classified as trading and accordingly realized and unrealized gains and losses are recognized in the Other Income Expense category on our Consolidated Statements of Income Adjustments made to revalue the SERP liability are also recognized in income as selling and administrative expenses and offset valuation adjustments on SERP investment assets The change in net unrealized holding gains for the fiscal years ended June 30 2024 2023 and 2022 was approximately 0 5 million 0 2 million and 2 2 million respectively
The Company established and maintains severance plans for all domestic employees and other postemployment plans for certain foreign subsidiaries There are no statutory requirements for us to contribute to the plans nor do employees contribute to the plans The plans hold no assets Benefits are paid using available cash on hand when eligible employees meet plan qualifications for payment As of June 30 2024 total obligations under these plans were 7 0 million of which 6 2 million were long term and 0 8 million were short term As of June 30 2023 total obligations under these plans were 6 6 million of which 5 6 million were long term and 1 0 million were short term Net periodic benefit costs were not material for the twelve months ended June 30 2024 and 2023
A stock compensation plan was created and adopted by the Company s Board of Directors the Board on September 20 2023 and approved by our Share Owners at our 2023 Annual Meeting on November 17 2023 The 2023 Plan allows for the issuance of up to 2 million shares and replaced our former 2014 plan The shares under the 2023 Plan may be granted in the form of incentive stock options non qualified stock options stock appreciation rights restricted awards performance share awards cash awards and other equity awards The Plan is a ten year plan that terminates automatically on November 17 2033 No award shall be granted pursuant to the Plan after such date but awards theretofore granted may extend beyond that date
On October 20 2016 the Board approved a nonqualified deferred stock compensation plan the Kimball Electronics Inc Non Employee Directors Stock Compensation Deferral Plan the Deferral Plan which allows Non Employee Directors to elect to defer all or a portion of their retainer fees in stock until retirement or termination from the Board or death The Deferral Plan allows for issuance of up to 1 0 million shares of the Company s common stock
Pre tax stock compensation charged against income in fiscal years 2024 2023 and 2022 was 7 2 million 6 9 million and 6 2 million respectively These costs are included in Selling and Administrative Expenses
We made long term performance share grants to officers and other key employees The Talent Culture and Compensation Committee of the Board approved these annual performance share grants Grants cliff vest at the third anniversary of the award date
Under these grants a number of shares will be awarded to each participant based upon a combination of the Company s profitability based on its operating income over the performance period as defined in the Company s operating business plans for the applicable fiscal years and the Company s growth based on a comparison of its three year revenue compounded annual growth rate CAGR with the Electronics Manufacturing Services Industry s three year revenue CAGR The number of shares issued will be less than the targeted shares issuable if the Company does not reach 100 of one or both of the above
mentioned performance metrics and could be zero if the Company does not reach the required minimum thresholds of either metric The number of shares issued will exceed the number of targeted issuable shares granted up to a maximum of 125 if the Company exceeds 100 of one or both of the above mentioned incentive metrics The Company recognizes expense based on management s expectation of achievement of the specific performance metrics monitored throughout the service period of the awards
The Talent Culture and Compensation Committee of the Board approved an additional long term performance share grant of 35 033 shares to a key employee in the second quarter of fiscal year 2024 Any awards will vest over a 5 year performance cycle with one third of the interest in the shares vesting after fiscal year 2026 another one third after fiscal year 2027 and the final one third after fiscal year 2028 The vesting of the performance share awards could range from 0 to 100 of the targeted issuable shares granted dependent on the achievement of specific non financial performance metrics
If a participant is not employed on the date shares are issued the performance share award is forfeited except in the case of a Qualifying Termination a termination of service due to death Disability or Retirement as defined by the Plan
As of June 30 2024 there was approximately 6 4 million of unrecognized compensation cost related to performance shares based on the latest estimated attainment of performance goals That cost is expected to be recognized over performance periods ending August 2024 through August 2028 with a weighted average vesting period of 1 5 years The fair value of performance shares is based on the stock price at the date of grant During fiscal years 2024 2023 and 2022 respectively 82 744 225 142 and 214 099 performance shares vested at a fair value of 1 6 million 4 3 million and 3 3 million The performance shares vested represent the total number of shares vested prior to the reduction of shares withheld to satisfy tax withholding obligations
Separate from the performance shares described above total shareholder return TSR performance shares were granted to our CEO during fiscal year 2023 This grant was approved by the Talent Culture and Compensation Committee of the Board The participant will earn from 0 to 100 of the grant based on the total shareholder return ranking of the Company compared to the performance peer group at the end of the three year performance period TSR performance shares are expensed over the contractual vesting period as earned The shares will vest on March 1 2026 If the employment of a holder of TSR performance shares terminates before the TSR performance shares have vested for any reason other than death retirement or total permanent disability the TSR performance shares will be forfeited During fiscal year 2023 the Company granted 42 626 TSR performance shares at an average grant date fair value of 16 88 for a total fair value of 0 7 million The grant date fair value of the TSR performance share grants was calculated using a Monte Carlo simulation with the assistance of a third party valuation specialist No TSR performance shares were awarded during fiscal year 2024
Unrestricted shares were granted to key employees and non employee members of the Board as consideration for services rendered Unrestricted share grants do not have vesting periods holding periods restrictions on sale or other restrictions The fair value of unrestricted shares is based on the stock price at the date of the award During fiscal years 2024 2023 and 2022 respectively the Company granted a total of 18 128 13 950 and 6 777 unrestricted shares at an average grant date fair value of 25 24 23 30 and 23 10 for a total fair value of 0 5 million 0 3 million and 0 2 million Unrestricted shares are awarded to non employee members of the Board as compensation for director s fees including fees that directors elected to receive as unrestricted shares in lieu of cash payment Directors fees are expensed over the period that directors earn the compensation Unrestricted shares that are awarded to key employees are expensed immediately
Restricted shares were granted to employees as consideration for services rendered The contractual life of the restricted shares is three years with one third of the interest in the restricted shares vested after year one of the grant another one third after year two of the grant and the final one third after year three of the grant Additional restricted share grants were approved by the Talent Culture and Compensation Committee of the Board and 23 356 shares were granted to a key employee in the second quarter of fiscal year 2024 The awards will vest over a 5 year service period with one third of the interest in the shares vesting after fiscal year 2026 another one third after fiscal year 2027 and the final one third after fiscal year 2028
Restricted shares are expensed over the contractual vesting period as earned If a participant is not employed on the date shares are issued the restricted share award is forfeited except in the case of a Qualifying Termination a termination of service due to death Disability or Retirement as defined by the Plan During fiscal years 2024 and 2023 the Company granted restricted shares to officers and other key employees for a total fair value of 2 8 million and 1 9 million
As of June 30 2024 there was approximately 1 9 million of unrecognized compensation cost related to restricted shares The cost is expected to be recognized over vesting periods ending August 2024 through August 2028 with a weighted average vesting period of 1 4 years The fair value of the restricted shares is based on the stock price at the date of grant During fiscal years 2024 and 2023 respectively 20 768 and 6 458 restricted shares vested The restricted shares vested represent the total number of shares vested prior to the reduction of shares withheld to satisfy tax withholding obligations
Deferred share units may be granted to non employee members of the Board under the Deferral Plan as compensation for the portion of their annual retainer fees resulting from their election to receive deferred share units in lieu of cash payment or unrestricted shares Directors fees are expensed over the period that directors earn the compensation Deferred share units are participating securities and are payable in common stock in a lump sum or installments in accordance with deferral elections upon a director s death retirement or termination of service with the Board During fiscal years 2024 2023 and 2022 respectively 26 347 39 032 and 34 480 deferred share units were granted to non employee members of the Board at an average grant date fair value of 25 24 23 07 and 24 87 for a total fair value of 0 7 million 0 9 million and 0 9 million During fiscal year 2024 no shares of common stock were issued under the Deferral Plan
The U S Tax Cuts and Jobs Act Tax Reform was enacted into law on December 22 2017 making broad and complex changes to the U S tax code Tax Reform required a one time transition tax on certain unremitted earnings of foreign subsidiaries that is payable over an eight year period As of June 30 2024 and 2023 the remaining provision recorded for the one time deemed repatriation tax were 5 9 million and 7 8 million respectively payable through fiscal year 2026 with the long term portion recorded in Long term income taxes payable on the Consolidated Balance Sheets As of June 30 2024 and 2023 2 6 million and 1 9 million of the remaining deemed repatriation tax is short term and is recorded in Accrued expenses on the Consolidated Balance Sheet
Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes
The components of the deferred tax assets and liabilities as of June 30 2024 and 2023 were as follows amounts as of June 30 2024 exclude 11 1 million of deferred tax assets and 1 2 million of deferred tax liabilities classified as held for sale
During fiscal year 2024 the Company has capitalized research and development expenses that are required to be capitalized as an amortizable asset under Section 174 of the Internal Revenue Code and amortized over a period of five years This requirement is based on the implementation of Tax Reform effective in tax years beginning as of January 1 2022 As of June 30 2024 and 2023 the Company has a net deferred tax asset from capitalized research and development expenses of 5 7 million and 3 5 million respectively
Income tax benefits associated with the net operating loss carryforwards expire from fiscal year 2026 to 2044 Income tax benefits associated with tax credit carryforwards primarily expire from fiscal year 2025 to 2033 A valuation allowance was provided as of June 30 2024 and 2023 for deferred tax assets related to certain state credits of 5 8 million and 4 3 million respectively Additionally in fiscal year 2024 we recorded a full 3 4 million valuation allowance on the business interest carryforward deferred tax asset following a determination that it is more likely than not that it will not be realized Except as reserved for in the valuation allowance we believe our deferred income taxes are more likely than not to be realized in the future
The Company currently operates international jurisdictions which expose the Company to taxation in various regions The Company continually evaluates its global cash needs The aggregate unremitted earnings of the Company s foreign subsidiaries which are currently permanently reinvested were approximately 482 million as of June 30 2024 If such funds were repatriated or we determined that all or a portion of such foreign earnings are no longer permanently reinvested we may be subject to applicable non U S income and withholding taxes Determination of the amount of any potential future unrecognized deferred tax liability on such unremitted earnings is not practicable and is recorded in the period that the funds are repatriated
In fiscal year 2024 the tax effects of recording deferred tax assets resulting from the impairment recorded following the held for sale classification of GES are included in asset impairment in the above table
We do not expect the change in the amount of unrecognized tax benefits in the next 12 months to have a significant impact on our results of operations or financial position We recognize interest and penalties related to unrecognized tax benefits in Provision for Income Taxes on the Consolidated Statements of Income
Interest and penalties accrued for unrecognized tax benefits were 0 6 million at each of June 30 2024 2023 and 2022 Expenses related to interest and penalties in fiscal years 2024 2023 and 2022 were not material
The Company or its wholly owned subsidiaries file U S federal income tax returns and income tax returns in various state local and foreign jurisdictions We are no longer subject to any significant U S federal tax examinations by tax authorities for years before fiscal year 2018 We are subject to income tax examinations by various state local and foreign jurisdiction tax authorities for years after June 30 2018
The Company has a Board authorized stock repurchase plan the repurchase plan allowing the purchase of up to 100 million of our common stock Purchases may be made under various programs including in open market transactions block transactions on or off an exchange or in privately negotiated transactions all in accordance with applicable securities laws and regulations The Repurchase Plan has no expiration date but may be suspended or discontinued at any time
During fiscal year 2024 the Company repurchased 3 0 million of common stock under the Repurchase Plan at an average price of 22 12 per share The Company did not repurchase any shares during fiscal year 2023 During fiscal year 2022 the Company repurchased 9 1 million of common stock under the Repurchase Plan at an average price of 18 82 per share which was recorded as Treasury stock at cost in the Consolidated Balance Sheets Since the inception of the Repurchase Plan the Company has repurchased 91 8 million of common stock at an average cost of 15 43 per share
The Company categorizes assets and liabilities measured at fair value into three levels based upon the assumptions inputs used to price the assets or liabilities Level 1 provides the most reliable measure of fair value whereas level 3 generally requires significant management judgment The three levels are defined as follows
Level 2 Observable inputs other than those included in level 1 For example quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets or liabilities in inactive markets
The nonqualified supplemental employee retirement plan SERP assets consist primarily of equity funds balanced funds bond funds and a money market fund The SERP investment assets are offset by a SERP liability which represents the Company s obligation to distribute SERP funds to participants See
During fiscal year 2024 the automation test and measurement business unit met the criteria to be classified as held for sale and as a result a valuation allowance of 17 0 million was established to reflect the fair value less cost to sell of the disposal group which was based on expected proceeds and the estimated carrying value of the net assets to be disposed We utilized level 3 inputs based on management s best estimates and assumptions to estimate the fair value See
We operate internationally and are therefore exposed to foreign currency exchange rate fluctuations in the normal course of business Our primary means of managing this exposure is to utilize natural hedges such as aligning currencies used in the supply chain with the sale currency To the extent natural hedging techniques do not fully offset currency risk we use derivative instruments with the objective of reducing the residual exposure to certain foreign currency rate movements Factors considered in the decision to hedge an underlying market exposure include the materiality of the risk the volatility of the market the duration of the hedge the degree to which the underlying exposure is committed to and the availability effectiveness and cost of derivative instruments Derivative instruments are only utilized for risk management purposes and are not used for speculative or trading purposes
We use forward contracts designated as cash flow hedges to protect against foreign currency exchange rate risks inherent in forecasted transactions denominated in a foreign currency Non designated foreign exchange contracts are also used to hedge against foreign currency exchange rate risks related to intercompany balances and other balance sheet positions denominated in currencies other than the functional currencies As of June 30 2024 we had outstanding foreign exchange contracts to hedge currencies against the U S dollar in the aggregate notional amount of 32 9 million and to hedge currencies against the Euro in the aggregate notional amount of 65 0 million Euro The notional amounts are indicators of the volume of derivative activities but may not be indicators of the potential gain or loss on the derivatives
In limited cases due to unexpected changes in forecasted transactions cash flow hedges may cease to meet the criteria to be designated as cash flow hedges Depending on the type of exposure hedged we may either purchase a derivative contract in the opposite position of the undesignated hedge or may retain the hedge until it matures if the hedge continues to provide an adequate offset in earnings against the currency revaluation impact of foreign currency denominated liabilities
The fair value of outstanding derivative instruments is recognized on the Consolidated Balance Sheets as a derivative asset or liability and presented with Prepaid expenses and other current assets and Accrued expenses respectively When derivatives are settled with the counterparty the derivative asset or liability is relieved and cash flow is impacted for the net settlement For derivative instruments that meet the criteria of hedging instruments under FASB guidance the gain or loss on the derivative instrument is initially recorded net of related tax effect in Accumulated Other Comprehensive Income Loss a component of Share Owners Equity and is subsequently reclassified into earnings in the period or periods during which the hedged transaction is recognized in earnings The gain or loss associated with derivative instruments that are not designated as hedging instruments or that cease to meet the criteria for hedging under FASB guidance is reported immediately in Non operating income expense net on the Consolidated Statements of Income
Based on fair values as of June 30 2024 we estimate that approximately 1 6 million of pre tax derivative loss deferred in Accumulated Other Comprehensive Loss will be reclassified into earnings along with the earnings effects of related forecasted transactions within the next twelve months Losses on foreign exchange contracts are generally offset by gains in operating income in the income statement when the underlying hedged transaction is recognized in earnings Because gains or losses on foreign exchange contracts fluctuate partially based on currency spot rates the future effect on earnings of the cash flow hedges alone is not determinable but in conjunction with the underlying hedged transactions the result is expected to be a decline in currency risk The maximum length of time we had hedged our exposure to the variability in future cash flows was 12 months as of both June 30 2024 and June 30 2023
The following geographic area data includes net sales based on the country location of the Company s business unit providing the manufacturing or other service and long lived assets based on physical location Long lived assets include property and equipment and capitalized software and amounts as of June 30 2024 exclude the amounts classified as held for sale
Kimball Electronics maintains controls and procedures designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934 is recorded processed summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission and that such information is accumulated and communicated to the Company s management including its Chief Executive Officer and Chief Financial Officer as appropriate to allow timely decisions regarding required disclosure Based upon their evaluation of those controls and procedures performed the Chief Executive Officer and Chief Financial Officer of the Company concluded that its disclosure controls and procedures were effective as of June 30 2024
Pursuant to Section 404 of the Sarbanes Oxley Act of 2002 and the rules and regulations adopted pursuant thereto the Company included a report of management s assessment of the effectiveness of its internal control over financial reporting as part of this report The effectiveness of the Company s internal control over financial reporting as of June 30 2024 has been audited by the Company s independent registered public accounting firm Management s report and the independent registered public accounting firm s attestation report are included in the Company s Consolidated Financial Statements under the caption entitled
There have been no changes in our internal control over financial reporting that occurred during the quarter ended June 30 2024 that have materially affected or that are reasonably likely to materially affect our internal control over financial reporting
During the three months ended June 30 2024 no officers or directors adopted or terminated any contract instruction or written plan for the purchase or sale of the Company s securities that was intended to satisfy the affirmative defense conditions of Rule 10b5 1 c or any non Rule 10b5 1 trading arrangement
The information required by this Item 10 with respect to Directors will be included in our definitive Proxy Statement to be filed no later than 120 days after the end of the Company s fiscal year covered by this Annual Report on Form 10 K and is incorporated herein by reference
The information required by this Item 10 with respect to the Audit Committee and its financial expert and with respect to the Nominating and ESG Committee s responsibility for establishing procedures by which Share Owners may recommend nominees to the Board of Directors will be included in our definitive Proxy Statement to be filed no later than 120 days after the end of the Company s fiscal year covered by this Annual Report on Form 10 K and is incorporated herein by reference
The information required by this Item 10 with respect to Executive Officers of the Registrant is included at the end of Part I of this Annual Report on Form 10 K and is incorporated herein by reference Additional information about our Executive Officers will also appear in our definitive Proxy Statement to be filed no later than 120 days after the end of the Company s fiscal year covered by this Annual Report on Form 10 K
The information required by this Item 10 with respect to compliance with Section 16 a of the Securities Exchange Act of 1934 will be included in our definitive Proxy Statement to be filed no later than 120 days after the end of the Company s fiscal year covered by this Annual Report on Form 10 K and is incorporated herein by reference
Kimball Electronics has a code of ethics its Code of Conduct that applies to all of its employees including the Chief Executive Officer the Chief Financial Officer and the Chief Accounting Officer functioning as Principal Accounting Officer The code of ethics is posted on the Company s website at https investors kimballelectronics com under Governance Documents The Company s website and the information contained therein or incorporated therein are not intended to be incorporated into this Annual Report on Form 10 K We will provide without charge upon request a copy of the Code of Conduct Anyone wishing to obtain a copy should write to ATTN Code of Conduct Requests Secretary Kimball Electronics 1205 Kimball Boulevard Jasper IN 47546 It is our intention to disclose any amendments to the code of ethics on this website In addition any waivers of the code of ethics for directors or executive officers of the Company will be disclosed in a Current Report on Form 8 K
Kimball Electronics has adopted insider trading policies and procedures governing the purchase sale and or other dispositions of the Company s securities by directors officers and employees that are reasonably designed to promote compliance with insider trading laws rules and regulations and any listing standards applicable to us Our insider trading policy has been filed as Exhibit 19 to this Annual Report on Form 10 K
The information required by this Item 11 will be included in our definitive Proxy Statement to be filed no later than 120 days after the end of the Company s fiscal year covered by this Annual Report on Form 10 K and is incorporated herein by reference
The information required by this Item 12 will be included in our definitive Proxy Statement to be filed no later than 120 days after the end of the Company s fiscal year covered by this Annual Report on Form 10 K and is incorporated herein by reference
The information required by this Item 12 will be included in our definitive Proxy Statement to be filed no later than 120 days after the end of the Company s fiscal year covered by this Annual Report on Form 10 K and is incorporated herein by reference
The information required by this Item 13 will be included in our definitive Proxy Statement to be filed no later than 120 days after the end of the Company s fiscal year covered by this Annual Report on Form 10 K and is incorporated herein by reference
The information required by this Item 13 will be included in our definitive Proxy Statement to be filed no later than 120 days after the end of the Company s fiscal year covered by this Annual Report on Form 10 K and is incorporated herein by reference
The information required by this Item 14 will be included in our definitive Proxy Statement to be filed no later than 120 days after the end of the Company s fiscal year covered by this Annual Report on Form 10 K and is incorporated herein by reference
Stock Purchase Agreement By and Among Kimball Electronics Inc Seller The Sole Stockholder of Kimball Electronics Indiana Inc Company and Averna Test Systems Inc Buyer and Company Dated as of July 31 2024
Amended and Restated Credit Agreement dated as of May 4 2022 among Kimball Electronics Inc the lenders party thereto and JPMorgan Chase Bank N A as Administrative Agent and Bank of America N A as Documentation Agent
First Amendment to Amended and Restated Credit Agreement dated as of February 3 2023 among Kimball Electronics Inc the lenders party thereto and JPMorgan Chase Bank N A as Administrative Agent and Bank of America N A as Documentation Agent
First Amendment to Credit Agreement dated as of January 5 2024 among Kimball Electronics Inc the lenders party thereto and JPMorgan Chase Bank N A as Administrative Agent and Bank of America N A as Documentation Agent
In accordance with Item 601 b 32 ii of Regulation S K the certifications furnished in Exhibit 32 1 and 32 2 will not be deemed filed for purposes of Section 18 of the Exchange Act Such certifications will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act except to the extent that the registrant specifically incorporates it by reference
Certain schedules and exhibits have been omitted pursuant to Item 601 a 5 of Regulation S K The Registrant will supplementally furnish any of the omitted schedules or exhibits to the Securities and Exchange Commission upon request
Certain information contained in Exhibit 2 2 and Exhibit 10 12 has been excluded pursuant to Regulation S K Item 601 b 2 and 10 because it is both 1 not material and 2 of the type that the Company treats as private or confidential The Registrant will supplementally furnish a copy of the unredacted exhibit to the Securities and Exchange Commission upon request provided however that the Registrant may request confidential treatment
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
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 and on the dates indicated

Company Name	Kimball Electronics, Inc. Vist SEC web-site
Category	PRINTED CIRCUIT BOARDS
Trading Symbol	KE