10-Q 1 ke-20220331.htm 10-Q ke-20220331
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission File Number    001-36454
ke-20220331_g1.jpg
KIMBALL ELECTRONICS, INC.
(Exact name of registrant as specified in its charter)
Indiana35-2047713
(State or other jurisdiction of(I.R.S. Employer Identification No.)
incorporation or organization)
1205 Kimball Boulevard, Jasper, Indiana
47546
(Address of principal executive offices)(Zip Code)
(812) 634-4000
Registrant’s telephone number, including area code
Not Applicable
Former name, former address and former fiscal year, if changed since last report
Securities registered pursuant to Section 12(b) of the Act:
Title of each ClassTrading SymbolName of each exchange on which registered
Common Stock, no par valueKEThe Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  
Yes  ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes  ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Emerging growth company
Non-accelerated filerSmaller reporting company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). 
Yes     No ☒

The number of shares outstanding of the Registrant’s common stock as of April 25, 2022 was 24,850,155 shares.



KIMBALL ELECTRONICS, INC.
FORM 10-Q
INDEX
Page No.
 
PART I    FINANCIAL INFORMATION
 
 
PART II    OTHER INFORMATION
 

2


PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

KIMBALL ELECTRONICS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands, Except for Share Data)
(Unaudited) 
March 31,
2022
June 30,
2021
ASSETS  
Current Assets:  
Cash and cash equivalents$35,603 $106,442 
Receivables, net of allowances of $162 and $177, respectively
224,216 203,382 
Contract assets63,761 45,863 
Inventories338,375 200,386 
Prepaid expenses and other current assets31,302 27,320 
Total current assets693,257 583,393 
Property and Equipment, net of accumulated depreciation of $272,991 and $264,907, respectively
191,370 163,251 
Goodwill12,011 12,011 
Other Intangible Assets, net of accumulated amortization of $34,776 and $35,813, respectively
15,117 17,008 
Other Assets41,665 38,398 
Total Assets$953,420 $814,061 
LIABILITIES AND SHARE OWNERSEQUITY
Current Liabilities:
Current portion of borrowings under credit facilities$42,096 $26,214 
Accounts payable275,799 216,544 
Accrued expenses58,733 58,016 
Total current liabilities376,628 300,774 
Other Liabilities:
Long-term debt under credit facilities, less current portion95,000 40,000 
Long-term income taxes payable7,812 8,854 
Other long-term liabilities20,246 22,461 
Total other liabilities123,058 71,315 
Share Owners’ Equity:
Preferred stock-no par value
Shares authorized: 15,000,000
Shares issued: None
  
Common stock-no par value
Shares authorized: 150,000,000
Shares issued: 29,430,000
  
Additional paid-in capital309,466 308,123 
Retained earnings230,284 208,969 
Accumulated other comprehensive loss(12,566)(4,883)
Treasury stock, at cost:
Shares: 4,581,000 and 4,473,000, respectively
(73,450)(70,237)
Total Share Owners’ Equity453,734 441,972 
Total Liabilities and Share Owners’ Equity$953,420 $814,061 

3


KIMBALL ELECTRONICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Amounts in Thousands, Except for Per Share Data)
Three Months EndedNine Months Ended
March 31March 31
(Unaudited)2022202120222021
Net Sales$368,057 $310,329 $976,038 $962,682 
Cost of Sales334,113 284,323 905,657 876,428 
Gross Profit33,944 26,006 70,381 86,254 
Selling and Administrative Expenses13,667 11,744 39,794 38,347 
Other General Income (376)(1,384)(717)
Operating Income20,277 14,638 31,971 48,624 
Other Income (Expense):
Interest income31 38 66 71 
Interest expense(669)(370)(1,537)(1,809)
Non-operating income (expense), net(1,465)(309)(2,090)5,643 
Other income (expense), net(2,103)(641)(3,561)3,905 
Income Before Taxes on Income18,174 13,997 28,410 52,529 
Provision for Income Taxes4,536 3,525 7,095 10,184 
Net Income$13,638 $10,472 $21,315 $42,345 
Earnings Per Share of Common Stock:  
Basic$0.54 $0.42 $0.84 $1.68 
Diluted$0.54 $0.41 $0.84 $1.67 
Average Number of Shares Outstanding:
Basic25,175 25,049 25,192 25,101 
Diluted25,272 25,217 25,291 25,288 


4


KIMBALL ELECTRONICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Amounts in Thousands)
Three Months EndedThree Months Ended
March 31, 2022March 31, 2021
(Unaudited)Pre-taxTaxNet of TaxPre-taxTaxNet of Tax
Net income$13,638 $10,472 
Other comprehensive income (loss):
Foreign currency translation adjustments$(2,432)$ $(2,432)$(5,177)$ $(5,177)
Postemployment actuarial change(19)7 (12)18 (5)13 
Derivative gain (loss)1,063 (271)792 (1,108)254 (854)
Reclassification to (earnings) loss:
Derivatives(22)31 9 5 18 23 
Amortization of actuarial change(61)15 (46)(77)20 (57)
Other comprehensive income (loss)$(1,471)$(218)$(1,689)$(6,339)$287 $(6,052)
Total comprehensive income$11,949 $4,420 
 Nine Months EndedNine Months Ended
March 31, 2022March 31, 2021
(Unaudited)Pre-taxTaxNet of TaxPre-taxTaxNet of Tax
Net income$21,315 $42,345 
Other comprehensive income (loss):
Foreign currency translation adjustments$(7,912)$ $(7,912)$4,262 $ $4,262 
Postemployment actuarial change(119)33 (86)(508)159 (349)
Derivative gain (loss)148 (102)46 (230)(64)(294)
Reclassification to (earnings) loss:
Derivatives414 (1)413 1,047 (175)872 
Amortization of actuarial change(190)46 (144)(341)83 (258)
Other comprehensive income (loss)$(7,659)$(24)$(7,683)$4,230 $3 $4,233 
Total comprehensive income$13,632 $46,578 

5


KIMBALL ELECTRONICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
 
Nine Months Ended
March 31
(Unaudited)20222021
Cash Flows From Operating Activities:
Net income$21,315 $42,345 
Adjustments to reconcile net income to net cash (used for) provided by operating activities:
Depreciation and amortization22,452 25,245 
Loss on sales of assets104 28 
Deferred income taxes(538)(4,675)
Stock-based compensation4,538 2,767 
Other, net800 625 
Change in operating assets and liabilities:
Receivables(25,176)(22,986)
Contract assets(17,898)17,179 
Inventories(142,516)37,635 
Prepaid expenses and other assets(6,705)(6,603)
Accounts payable61,120 7,431 
Accrued expenses and taxes payable(2,161)4,764 
Net cash (used for) provided by operating activities(84,665)103,755 
Cash Flows From Investing Activities:
Capital expenditures(49,454)(22,704)
Proceeds from sales of assets297 391 
Purchases of capitalized software(675)(702)
Other, net(191)43 
Net cash used for investing activities(50,023)(22,972)
Cash Flows From Financing Activities:
Proceeds from credit facilities50,000  
Payments on credit facilities (34,500)
Net change in revolving credit facilities21,186 (23,419)
Settlements on previous year acquisition 2,957 
Repurchases of common stock(4,726)(2,996)
Payments related to tax withholding for stock-based compensation(1,579)(771)
Debt issuance costs(25) 
Net cash provided by (used for) financing activities64,856 (58,729)
Effect of Exchange Rate Change on Cash and Cash Equivalents(1,007)2,607 
Net (Decrease) Increase in Cash and Cash Equivalents(70,839)24,661 
Cash and Cash Equivalents at Beginning of Period106,442 64,990 
Cash and Cash Equivalents at End of Period$35,603 $89,651 
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for:
Income taxes$12,779 $10,818 
Interest expense$1,077 $2,197 
Non-cash investing activity:
Unpaid purchases of property and equipment at the end of the period$5,060 $2,734 

6


KIMBALL ELECTRONICS, INC.
CONDENSED CONSOLIDATED STATEMENT OF SHARE OWNERS’ EQUITY
(Amounts in Thousands, Except for Share Data)
Three Months Ended
Retained EarningsAccumulated Other Comprehensive Income (Loss)Treasury StockTotal Share Owners’ Equity
(Unaudited)Additional Paid-In Capital
Amounts at December 31, 2021$307,996 $216,646 $(10,877)$(68,598)$445,167 
Net income13,638 13,638 
Other comprehensive income (loss)(1,689)(1,689)
Compensation expense related to stock compensation plans1,515 1,515 
Restricted share units issuance (1,000 shares)
(13)7 (6)
Deferred share issuance (3,000 shares)
(32)32  
Repurchase of Common Stock (259,000 shares)
(4,891)(4,891)
Amounts at March 31, 2022$309,466 $230,284 $(12,566)$(73,450)$453,734 
Amounts at December 31, 2020$306,120 $184,051 $(266)$(70,267)$419,638 
Net income10,472 10,472 
Other comprehensive income (loss)(6,052)(6,052)
Compensation expense related to stock compensation plans907 907 
Deferred share issuance (3,000 shares)
(30)30  
Amounts at March 31, 2021$306,997 $194,523 $(6,318)$(70,237)$424,965 
Nine Months Ended
Retained EarningsAccumulated Other Comprehensive Income (Loss)Treasury StockTotal Share Owners’ Equity
(Unaudited)Additional Paid-In Capital
Amounts at June 30, 2021$308,123 $208,969 $(4,883)$(70,237)$441,972 
Net income21,315 21,315 
Other comprehensive income (loss)(7,683)(7,683)
Issuance of non-restricted stock (5,000 shares)
67 58 125 
Compensation expense related to stock compensation plans4,474 4,474 
Performance share issuance (143,000 shares)
(3,126)1,566 (1,560)
Restricted share units issuance (2,000 shares)
(40)22 (18)
Deferred share issuance (3,000 shares)
(32)32  
Repurchase of Common Stock (259,000 shares)
(4,891)(4,891)
Amounts at March 31, 2022$309,466 $230,284 $(12,566)$(73,450)$453,734 
Amounts at June 30, 2020$306,808 $152,178 $(10,551)$(69,070)$379,365 
Net income42,345 42,345 
Other comprehensive income (loss)4,233 4,233 
Issuance of non-restricted stock (4,000 shares)
19 46 65 
Compensation expense related to stock compensation plans2,724 2,724 
Performance share issuance (156,000 shares)
(2,524)1,753 (771)
Deferred share issuance (3,000 shares)
(30)30  
Repurchase of Common Stock (193,000 shares)
(2,996)(2,996)
Amounts at March 31, 2021$306,997 $194,523 $(6,318)$(70,237)$424,965 
7


KIMBALL ELECTRONICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Business Description and Summary of Significant Accounting Policies
Business Description:
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 contract electronics manufacturing services (“EMS”) and diversified manufacturing services, including engineering and supply chain support, to customers in the automotive, medical, industrial, and public safety end markets. We offer a package of value that begins with our core competency of producing durable electronics and includes our set of robust processes and procedures that help us ensure that we deliver the highest levels of quality, reliability, and service throughout the entire life cycle of our customers’ products. We further offer diversified contract manufacturing services for non-electronic components, medical devices, medical disposables, precision molded plastics, and production automation, test, and inspection equipment. We are consistently recognized by customers and industry trade publications for our excellent quality, reliability, and innovative service.
Basis of Presentation:
The Condensed Consolidated Financial Statements presented herein reflect the consolidated financial position as of March 31, 2022 and June 30, 2021, results of operations for the three and nine months ended March 31, 2022 and 2021, cash flows for the nine months ended March 31, 2022 and 2021, and share owners’ equity for the three and nine months ended March 31, 2022 and 2021. The financial data presented herein is unaudited and should be read in conjunction with the annual Consolidated Financial Statements as of and for the year ended June 30, 2021 and related notes thereto included in our Annual Report on Form 10-K. As such, certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted, although we believe that the disclosures are adequate to make the information presented not misleading. Intercompany transactions and balances have been eliminated. Management believes the financial statements include all adjustments (consisting only of normal recurring adjustments) considered necessary to present fairly the financial statements for the interim periods. The results of operations for the interim periods shown in this report are not necessarily indicative of results for any future interim period or for the entire fiscal year.
Certain prior period amounts have been reclassified to conform to current period presentation in the Condensed Consolidated Statements of Cash Flow within the Cash Flows from Operating Activities section. Deferred tax valuation allowance is now included with Deferred income taxes while the other deferred charges have been reclassified to Other, net.
Change in Estimates:
The Company reviews the estimated useful lives of its fixed assets on an ongoing basis. In evaluating useful lives, the Company considers how long assets will remain functionally efficient and effective, given levels of technology, competitive factors, and the economic environment. If the assessment indicates that the assets will continue to be used for a longer period than previously anticipated, the useful life of the assets is revised, resulting in a change in estimate. Changes in estimates are accounted for on a prospective basis by depreciating the assets’ current carrying values over their revised remaining useful lives.
The most recent review indicated that Surface Mount Technology production equipment had actual lives that were longer than previously estimated. As a result of these findings, the Company changed its estimates of useful lives on these assets to 10 years, from lives of 5 or 7 years. The change was effective and accounted for prospectively beginning on November 1, 2021. The effects of this change in useful life estimate for the three months ended March 31, 2022 were a decrease in depreciation expense of $2.4 million, an increase in net income of $1.9 million, and an increase to basic and diluted earnings per share by $0.07. The effects of this change in useful life estimate for the nine months ended March 31, 2022 were a decrease in depreciation expense of $4.1 million, an increase in net income of $3.2 million, and an increase to basic and diluted earnings per share by $0.13.
Revenue Recognition:
Our revenue from contracts with customers is generated primarily from manufacturing services provided for the production of electronic assemblies, components, medical disposables, precision molded plastics, and automation, test, and inspection equipment built to customer’s 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
8


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.
Trade Accounts Receivable:
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 Condensed 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 utilize factoring arrangements for certain of our accounts receivables with third-party financial institutions 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. In the nine months ended March 31, 2022 and 2021, we sold, without recourse, $201.5 million and $246.3 million of accounts receivable, respectively. Factoring fees were $0.4 million and $0.2 million for the three months ended March 31, 2022 and 2021, respectively, and $0.9 million and $1.0 million during the nine months ended March 31, 2022 and 2021, respectively. Factoring fees are recorded in Selling and Administrative Expenses on our Condensed Consolidated Statements of Income.
One of our China operations, in limited circumstances, may receive banker’s acceptance drafts from customers as payment on account. The banker’s acceptance drafts are non-interest bearing and primarily mature within six months from the origination date. The Company has the ability to sell the drafts at a discount or transfer the drafts in settlement of current accounts payable prior to the scheduled maturity date. We did not hold any drafts at March 31, 2022, and the drafts totaled less than $0.1 million at June 30, 2021. These drafts were reflected in Receivables on the Condensed Consolidated Balance Sheets until the banker’s drafts were sold at a discount, transferred in settlement of current accounts payable, or cash was received at maturity. Banker’s acceptance drafts sold at a discount or transferred in settlement of current accounts payable during the nine months ended March 31, 2022 and 2021 were less than $0.1 million and $1.8 million, respectively.
9


Goodwill and Other Intangible Assets:
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 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. Other Intangible Assets consist of capitalized software, customer relationships, technology, and trade name, and 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 March 31, 2022, the Company determined there have been no indicators of impairment for goodwill and other intangible assets. See Note 12 - Goodwill and Other Intangible Assets of Notes to Condensed Consolidated Financial statements for more information on Goodwill and Other Intangible Assets.
Leases:
The Company leases certain office, manufacturing, and warehouse facilities under operating leases, in addition to land on which certain office and manufacturing facilities resides. Operating lease costs and cash payments for operating leases are immaterial to the Condensed Consolidated Statements of Income and our Condensed Consolidated Statements of Cash Flows. Lease right-of-use assets and lease liabilities each totaled $3.4 million at March 31, 2022 and $1.6 million at June 30, 2021. Lease right-of-use assets are included in Other Assets and lease liabilities are included in Accrued expenses and Other long-term liabilities on the Condensed Consolidated Balance Sheets.
Other General Income:
Other General Income in the nine months ended March 31, 2022 and 2021 included $1.4 million and $0.7 million, respectively, of pre-tax income 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. No Other General Income was recorded in three months ended March 31, 2022, and $0.4 million in the three months ended March 31, 2021.
Non-operating Income (Expense), net:
Non-operating income (expense), net includes the impact of such items as foreign currency rate movements and related derivative gain or loss, fair value adjustments on supplemental employee retirement plan (“SERP”) investments, amortization of actuarial gains (losses), and other miscellaneous non-operating income and expense items that are not directly related to operations. The gain (loss) on SERP investments is offset by a change in the SERP liability that is recognized in Selling and Administrative Expenses.
Components of Non-operating income (expense), net:
 Three Months EndedNine Months Ended
 March 31March 31
(Amounts in Thousands)2022202120222021
Foreign currency/derivative gain (loss)$(625)$(637)$(1,325)$4,330 
Gain (loss) on SERP investments(719)164 (404)1,525 
Adjustments after measurement period of GES acquisition 335  53 
Other(121)(171)(361)(265)
Non-operating income (expense), net$(1,465)$(309)$(2,090)$5,643 
Income Taxes:
In determining the quarterly provision for income taxes, we use an estimated annual effective tax rate which is based on expected annual income, statutory tax rates, and available tax planning opportunities in the various jurisdictions in which we operate. Unusual or infrequently occurring items are separately recognized in the quarter in which they occur.
Deferred income tax assets and liabilities, recorded in Other Assets and Other long-term liabilities, respectively, in the Condensed 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.
10


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 Condensed Consolidated Statements of Income.
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, for which complete guidance may have not yet been issued. Tax Reform, in addition to other changes, required a one-time transition tax on certain unremitted earnings of foreign subsidiaries that is payable over an eight-year period. As of March 31, 2022 and June 30, 2021, the remaining provision recorded for the one-time deemed repatriation tax was $8.9 million and $9.8 million, respectively, payable through fiscal year 2026, with the long-term portion recorded in Long-term income taxes payable on the Condensed Consolidated Balance Sheets. As of March 31, 2022, $1.1 million of the remaining deemed repatriation tax is short term and is recorded in Accrued expenses on the Condensed Consolidated Balance Sheet.
New Accounting Standards:
Adopted in fiscal year 2022:
In December 2019, the FASB issued guidance on Simplifying the Accounting for Income Taxes, intended to simplify various aspects related to the accounting for income taxes. We adopted this standard effective July 1, 2021, the beginning of our first quarter of fiscal year 2022, and the adoption did not have a material effect on our Condensed Consolidated Financial Statements.
Note 2. Revenue from Contracts with Customers
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, industrial, and public safety applications, to the specifications and designs of our customers.
The following table disaggregates our revenue by end market vertical for the three and nine months ended March 31, 2022 and 2021.
Three Months EndedNine Months Ended
March 31March 31
(Amounts in Millions)2022202120222021
Vertical Markets:
Automotive$161.5 $139.6 $429.8 $409.7 
Medical102.9 85.4 277.7 299.7 
Industrial84.4 69.2 220.1 207.0 
Public Safety13.8 13.5 35.7 37.3 
Other5.5 2.6 12.7 9.0 
Total net sales$368.1 $310.3 $976.0 $962.7 
For both the three months ended March 31, 2022 and 2021, approximately 95% of our net sales 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. For the nine months ended March 31, 2022 and 2021, approximately 95% and 89% of our net sales, respectively, were recognized over time. 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 Condensed 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 $63.8 million and $45.9 million as of March 31, 2022 and June 30, 2021, respectively.
11


In limited circumstances, the Company may receive payments from customers in advance of the satisfaction of performance obligations primarily for tooling, material price variances, or other miscellaneous services or costs. These advance payments are recognized as contract liabilities until the performance obligations are completed and are included in Accrued expenses on the Condensed Consolidated Balance Sheets, which amounted to $17.2 million and $7.6 million as of March 31, 2022 and June 30, 2021, respectively. Our performance obligations are short term in nature and therefore our contract liabilities are all expected to be settled within twelve months.
Note 3. Inventories
Inventories were valued using the lower of first-in, first-out (“FIFO”) cost and net realizable value. Inventory components were as follows:
(Amounts in Thousands)March 31, 2022June 30, 2021
Finished products$895 $769 
Work-in-process7,336 5,149 
Raw materials330,144 194,468 
Total inventory$338,375 $200,386 
Note 4. Accumulated Other Comprehensive Income (Loss)
During the nine months ended March 31, 2022 and 2021, the changes in the balances of each component of Accumulated Other Comprehensive Income (Loss), net of tax, were as follows:
Accumulated Other Comprehensive Income (Loss)
(Amounts in Thousands)Foreign Currency Translation AdjustmentsDerivative Gain (Loss)Post Employment Benefits
Net Actuarial Gain (Loss)
Accumulated Other Comprehensive Income (Loss)
Balance at June 30, 2021
$(2,223)$(2,427)$(233)$(4,883)
Other comprehensive income (loss) before reclassifications(7,912)46 (86)(7,952)
Reclassification to (earnings) loss 413 (144)269 
Net current-period other comprehensive income (loss)(7,912)459 (230)(7,683)
Balance at March 31, 2022
$(10,135)$(1,968)$(463)$(12,566)
Balance at June 30, 2020
$(7,894)$(3,254)$597 $(10,551)
Other comprehensive income (loss) before reclassifications4,262 (294)(349)3,619 
Reclassification to (earnings) loss 872 (258)614 
Net current-period other comprehensive income (loss)4,262 578 (607)4,233 
Balance at March 31, 2021
$(3,632)$(2,676)$(10)$(6,318)

12


The following reclassifications were made from Accumulated Other Comprehensive Income (Loss) to the Condensed Consolidated Statements of Income:
Reclassifications from Accumulated Other Comprehensive Income (Loss)Three Months EndedNine Months EndedAffected Line Item in the Condensed Consolidated Statements of Income
March 31March 31
(Amounts in Thousands)2022202120222021
Derivative gain (loss) (1)
$22 $(5)$(414)$(1,047)Cost of Sales
(31)(18)1 175 Benefit (Provision) for Income Taxes
$(9)$(23)$(413)$(872)Net of Tax
Postemployment Benefits:
  Amortization of actuarial gain (2)
61 77 190 341 Non-operating income (expense), net
(15)(20)(46)(83)Benefit (Provision) for Income Taxes
$46 $57 $144 $258 Net of Tax
Total reclassifications for the period$37 $34 $(269)$(614)Net of Tax
Amounts in parentheses indicate reductions to income.
(1) See Note 8 - Derivative Instruments of Notes to Condensed Consolidated Financial Statements for further information on derivative instruments.
(2) See Note 10 - Employee Benefit Plans of Notes to Condensed Consolidated Financial Statements for further information on postemployment benefit plans.
Note 5. Commitments and Contingent Liabilities
The Company typically provides only assurance-type warranties for a limited time period, which cover workmanship and assures the product complies 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, which has been established in specific manufacturing contract agreements. We estimate 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 the warranty liability periodically based on changes in historical cost trends and in certain cases where specific warranty issues become known. Product warranty liability is recorded in Accrued expenses and Other long-term liabilities on the Condensed Consolidated Balance Sheets.
Changes in the product warranty liability for the nine months ended March 31, 2022 and 2021 were as follows:
Nine Months Ended
March 31
(Amounts in Thousands)20222021
Product warranty liability at the beginning of the period$610 $647 
Additions to warranty accrual (including changes in estimates)(64)(31)
Settlements made (in cash or in kind)(13)(58)
Product warranty liability at the end of the period$533 $558 


13


Note 6. Credit Facilities
Credit facilities consisted of the following:
Available
Borrowing Capacity at
Borrowings Outstanding atBorrowings Outstanding at
(Amounts in Millions, in U.S Dollar Equivalents)March 31, 2022March 31, 2022June 30, 2021
Primary credit facility (1)
$21.9 $127.7 $62.7 
Secondary credit facility (2)
20.0   
Thailand overdraft credit facility0.1   
Netherlands revolving credit facility0.8 9.4 3.5 
Total credit facilities$42.8 $137.1 $66.2 
Less: current portion $(42.1)$(26.2)
Long-term debt under credit facilities, less current portion (3)
$95.0 $40.0 
(1)    The Company maintains a U.S. primary credit facility (the “primary facility”) among the Company, the lenders party thereto, and JPMorgan Chase Bank, National Association, as Administrative Agent, and Bank of America, N.A., as Documentation Agent, scheduled to mature July 27, 2023. The primary facility provides for $150 million in borrowings, with an option to increase the amount available for borrowing to $225 million upon 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 including capital expenditures and potential acquisitions. A commitment fee is payable on the unused portion of the credit facility at a rate that ranges from 20.0 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 facility. Types of borrowings available on the primary facility include revolving loans, multi-currency term loans, and swingline loans.
On November 8, 2021, the primary facility was amended to provide, among other things, (1) the interest rate calculation method will generally transition from the London Interbank Offered Rate (“LIBOR”) to the Secured Overnight Financing Rate (“SOFR”) on the transition date of December 31, 2021 on applicable borrowings; (2) the Eurocurrency borrowings are replaced with Term Benchmark borrowings; (3) if any Term Benchmark borrowing is denominated Euros, the Euro Interbank Offered Rate (“EURIBOR”) shall be utilized; and (4) all ABR borrowings will be denominated in U.S. Dollars.
The interest rate on borrowings is dependent on the type and currencies of borrowings and will be one of the following options:
prior to the transition date of December 31, 2021, any Term Benchmark borrowing denominated in U.S. Dollars will utilize LIBOR in effect two business days prior to the advance (adjusted upwards to reflect bank reserve costs) for such interest period as defined in the agreement, plus the Term Benchmark Loans spread which can range from 125.0 to 175.0 basis points based on the Company’s ratio of consolidated total indebtedness to adjusted consolidated EBITDA;
after the transition date of December 31, 2021, any existing or future Term Benchmark borrowing denominated in U.S. Dollars will utilize 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 Term Benchmark Loans spread which can range from 125.0 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 business days prior to the advance (adjusted upwards to reflect bank reserve costs) for such interest period as defined in the agreement, plus the Term Benchmark Loans spread which can range from 125.0 to 175.0 basis points based on the Company’s ratio of consolidated total indebtedness to adjusted consolidated EBITDA; or
the Alternate Base Rate (“ABR”), which is defined as the highest of the fluctuating rate per annum equal to the higher of
a.JPMorgan’s prime rate;
b.1% per annum above the Adjusted LIBO Rate (as defined under the primary credit facility); or
c.1/2 of 1% per annum above the Federal Funds Effective Rate (as defined under the primary credit facility);
plus the ABR Loans spread which can range from 25.0 to 75.0 basis points based on the Company’s ratio of consolidated total indebtedness to adjusted consolidated EBITDA.
14


The Company’s financial covenants under the primary credit facility require:
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, and
a fixed charge coverage ratio, determined as of the end of each of its fiscal quarters for the then most recently ended four fiscal quarters, to not be less than 1.1 to 1.0.
The Company had $0.4 million in letters of credit contingently committed against the credit facility at both March 31, 2022 and June 30, 2021.
Subsequent to March 31, 2022, the Company amended and restated this primary facility on May 4, 2022. See Note 15 - Subsequent Event of Notes to Condensed Consolidated Financial Statements for further information on the amended and restated primary facility.
(2)    The Company entered into a credit agreement on March 16, 2022 (the “secondary credit facility”), which allows for borrowings up to $20 million. This secondary credit facility was established for working capital purposes and had a maturity date of the earlier of June 30, 2022 or the date upon which the primary credit facility was refinanced. As noted above, the primary credit facility was amended and restated on