10-Q 1 ke-20240331.htm KIMBALL ELECTRONICS, INC. FORM 10-Q ke-20240331
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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, 2024
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
keilogoonelinecolorcmyk2revi.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 23, 2024 was 24,869,206 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,
2024
June 30,
2023
ASSETS  
Current Assets:  
Cash and cash equivalents$65,208 $42,955 
Receivables, net of allowances of $1,193 and $257, respectively
277,894 308,167 
Contract assets76,073 78,798 
Inventories396,199 450,319 
Prepaid expenses and other current assets43,018 49,188 
Assets held for sale29,619  
Total current assets888,011 929,427 
Property and Equipment, net of accumulated depreciation of $309,171 and $293,197, respectively
273,823 267,684 
Goodwill6,191 12,011 
Other Intangible Assets, net of accumulated amortization of $27,303 and $38,785, respectively
3,197 12,335 
Other Assets, net
89,606 38,262 
Total Assets$1,260,828 $1,259,719 
LIABILITIES AND SHARE OWNERSEQUITY
Current Liabilities:
Current portion of borrowings under credit facilities$84,618 $46,454 
Accounts payable248,174 322,274 
Advances from customers36,099 33,905 
Accrued expenses59,621 72,515 
Liabilities held for sale
9,369  
Total current liabilities437,881 475,148 
Other Liabilities:
Long-term debt under credit facilities, less current portion235,000 235,000 
Long-term income taxes payable3,255 5,859 
Other long-term liabilities45,631 19,718 
Total other liabilities283,886 260,577 
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
Shares outstanding: 24,869,000 and 24,724,000, respectively
  
Additional paid-in capital317,828 315,482 
Retained earnings309,021 296,053 
Accumulated other comprehensive loss(13,064)(11,046)
Treasury stock, at cost:
Shares: 4,561,000 and 4,706,000, respectively
(74,724)(76,495)
Total Share Owners’ Equity539,061 523,994 
Total Liabilities and Share Owners’ Equity$1,260,828 $1,259,719 
3


KIMBALL ELECTRONICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(Amounts in Thousands, Except for Per Share Data)
Three Months EndedNine Months Ended
March 31March 31
(Unaudited)2024202320242023
Net Sales$425,036 $484,703 $1,284,352 $1,327,288 
Cost of Sales391,492 441,731 1,180,833 1,220,804 
Gross Profit33,544 42,972 103,519 106,484 
Selling and Administrative Expenses16,861 17,752 50,736 50,204 
Other General Income(892) (892) 
Restructuring Expense1,622  1,622  
Goodwill Impairment5,820  5,820  
Asset Impairment16,564  16,564  
Operating Income (Loss)
(6,431)25,220 29,669 56,280 
Other Income (Expense):
Interest income83 45 483 88 
Interest expense(5,875)(4,822)(17,459)(10,790)
Non-operating income (expense), net(530)1,433 (959)2,659 
Other income (expense), net(6,322)(3,344)(17,935)(8,043)
Income (Loss) Before Taxes on Income(12,753)21,876 11,734 48,237 
Provision (Benefit) for Income Taxes
(6,677)5,476 (1,234)11,608 
Net Income (Loss)$(6,076)$16,400 $12,968 $36,629 
Earnings (Loss) Per Share of Common Stock:  
Basic$(0.24)$0.66 $0.52 $1.47 
Diluted$(0.24)$0.65 $0.51 $1.46 
Average Number of Shares Outstanding:
Basic25,118 24,898 25,084 24,868 
Diluted25,118 25,067 25,263 25,031 


4


KIMBALL ELECTRONICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Amounts in Thousands)
Three Months EndedThree Months Ended
March 31, 2024March 31, 2023
(Unaudited)Pre-taxTaxNet of TaxPre-taxTaxNet of Tax
Net income (loss)
$(6,076)$16,400 
Other comprehensive income (loss):
Foreign currency translation adjustments$(3,678)$(193)$(3,871)$2,094 $ $2,094 
Postemployment actuarial change(23)5 (18)(68)18 (50)
Derivative gain (loss)2,185 (499)1,686 3,270 (768)2,502 
Reclassification to (earnings) loss:
Derivatives(1,600)352 (1,248)(1,111)293 (818)
Amortization of actuarial change37 (9)28 (19)5 (14)
Other comprehensive income (loss)$(3,079)$(344)$(3,423)$4,166 $(452)$3,714 
Total comprehensive income (loss)
$(9,499)$20,114 
 Nine Months EndedNine Months Ended
March 31, 2024March 31, 2023
(Unaudited)Pre-taxTaxNet of TaxPre-taxTaxNet of Tax
Net income$12,968 $36,629 
Other comprehensive income (loss):
Foreign currency translation adjustments$(1,424)$(193)$(1,617)$5,427 $ $5,427 
Postemployment actuarial change(631)184 (447)(226)62 (164)
Derivative gain (loss)6,156 (1,381)4,775 6,954 (1,501)5,453 
Reclassification to (earnings) loss:
Derivatives(6,092)1,347 (4,745)(2,596)493 (2,103)
Amortization of actuarial change21 (5)16 (157)38 (119)
Other comprehensive income (loss)$(1,970)$(48)$(2,018)$9,402 $(908)$8,494 
Total comprehensive income$10,950 $45,123 

5


KIMBALL ELECTRONICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
 
Nine Months Ended
March 31
(Unaudited)20242023
Cash Flows From Operating Activities:
Net income$12,968 $36,629 
Adjustments to reconcile net income to net cash provided by (used for) operating activities:
Depreciation and amortization28,522 23,840 
(Gain) loss on sales of assets110 (37)
Deferred income taxes(14,149)(1,816)
Goodwill impairment5,820  
Asset impairment16,264  
Stock-based compensation5,435 5,357 
Other, net5,025 392 
Change in operating assets and liabilities:
Receivables16,446 (74,008)
Contract assets2,725 (11,610)
Inventories1,865 (88,557)
Prepaid expenses and other assets(5,774)(18,235)
Accounts payable(71,214)37,689 
Advances from customers32,200 14,400 
Accrued expenses and taxes payable(11,526)18,071 
Net cash provided by (used for) operating activities24,717 (57,885)
Cash Flows From Investing Activities:
Capital expenditures(37,075)(65,535)
Proceeds from sales of assets241 278 
Purchases of capitalized software(873)(1,293)
Other, net5 53 
Net cash used for investing activities(37,702)(66,497)
Cash Flows From Financing Activities:
Proceeds from credit facilities 75,000 
Net change in revolving credit facilities38,200 33,665 
Payments related to tax withholding for stock-based compensation(1,479)(1,417)
Debt issuance costs(150)(100)
Net cash provided by financing activities36,571 107,148 
Effect of Exchange Rate Change on Cash and Cash Equivalents(113)(294)
Net Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash23,473 (17,528)
Cash, Cash Equivalents, and Restricted Cash at Beginning of Period (1)
43,864 49,851 
Cash, Cash Equivalents, and Restricted Cash at End of Period (1)
$67,337 $32,323 
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for:
Income taxes$21,544 $12,771 
Interest expense$15,241 $7,642 
Non-cash investing activity:
Unpaid purchases of property and equipment at the end of the period$4,927 $9,740 
(1) The following table reconciles cash and cash equivalents in the balance sheets to cash, cash equivalents, and restricted cash per the statements of cash flows. The restricted cash included in Prepaid expenses and other current assets on the balance sheet represents funds held by the Company for a foreign subsidiary’s employee savings plan.
(Unaudited)March 31,
2024
June 30,
2023
Cash and Cash Equivalents$65,208 $42,955 
Restricted Cash included in Prepaid expenses and other current assets$2,129 $909 
Total Cash, Cash Equivalents, and Restricted Cash at end of period$67,337 $43,864 
6


KIMBALL ELECTRONICS, INC.
CONDENSED CONSOLIDATED STATEMENTS 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, 2023$316,309 $315,097 $(9,641)$(74,776)$546,989 
Net income (loss)
(6,076)(6,076)
Other comprehensive income (loss)(3,423)(3,423)
Compensation expense related to stock compensation plans1,658 1,658 
Performance and restricted share issuance (0 and 4,000 shares, respectively)
(139)52 (87)
Amounts at March 31, 2024$317,828 $309,021 $(13,064)$(74,724)$539,061 
Amounts at December 31, 2022$312,085 $260,451 $(14,892)$(76,496)$481,148 
Net income16,400 16,400 
Other comprehensive income (loss)3,714 3,714 
Issuance of non-restricted stock (100 shares)
2 1 3 
Compensation expense related to stock compensation plans1,921 1,921 
Amounts at March 31, 2023$314,008 $276,851 $(11,178)$(76,495)$503,186 
Nine Months Ended
Retained EarningsAccumulated Other Comprehensive Income (Loss)Treasury StockTotal Share Owners’ Equity
(Unaudited)Additional Paid-In Capital
Amounts at June 30, 2023$315,482 $296,053 $(11,046)$(76,495)$523,994 
Net income12,968 12,968 
Other comprehensive income (loss)(2,018)(2,018)
Issuance of non-restricted stock (18,000 shares)
235 222 457 
Compensation expense related to stock compensation plans5,138 5,138 
Performance and restricted share issuance (108,000 and 19,000 shares)
(3,027)1,549 (1,478)
Amounts at March 31, 2024$317,828 $309,021 $(13,064)$(74,724)$539,061 
Amounts at June 30, 2022$311,090 $240,222 $(19,672)$(77,669)$453,971 
Net income36,629 36,629 
Other comprehensive income (loss)8,494 8,494 
Issuance of non-restricted stock (14,100 shares)
152 173 325 
Compensation expense related to stock compensation plans5,183 5,183 
Performance share issuance (85,000 shares)
(2,417)1,001 (1,416)
Amounts at March 31, 2023$314,008 $276,851 $(11,178)$(76,495)$503,186 
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 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.
Basis of Presentation:
The Condensed Consolidated Financial Statements presented herein reflect the consolidated financial position as of March 31, 2024 and June 30, 2023, results of operations for the three and nine months ended March 31, 2024 and 2023, cash flows for the nine months ended March 31, 2024 and 2023, and share owners’ equity for the three and nine months ended March 31, 2024 and 2023. 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, 2023 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.
Reclassifications:
Advances from customers are now reported separately on the Condensed Consolidated Statements of Cash Flows. Advances from customers were previously reported in accounts payable and accrued expenses. Prior period amounts have been reclassified to conform to current period presentation. See Note 2 - Revenue from Contracts with Customers of Notes to Condensed Consolidated Financial Statements for more information on advances from customers.
Revenue Recognition:
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 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 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
8


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. We also have the ability to and have periodically utilized additional accounts receivable factoring arrangements to provide flexible access to cash as needed. In the nine months ended March 31, 2024 and 2023, we sold, without recourse, $317.0 million and $357.1 million of accounts receivable, respectively. For the three months ended March 31, 2024 and 2023, factoring fees were $0.9 million and $1.4 million, and $2.6 million and $3.8 million during the nine months ended March 31, 2024 and 2023, respectively. Factoring fees are recorded in Selling and Administrative Expenses on our Condensed Consolidated Statements of Income.
During the three months ended December 31, 2023, 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 Condensed 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 Condensed Consolidated Balance Sheet. At March 31, 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 $2.8 million at March 31, 2024.

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 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. 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. During the quarter ending March 31, 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 Note 3 - Assets and Liabilities Held for Sale for more information on goodwill and asset impairment and 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 facilities, warehouse facilities, and equipment 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 $1.9 million at March 31, 2024 and $2.6 million at June 30, 2023, respectively. Lease right-of-use assets are included in Other Assets, net 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 three and nine months ended March 31, 2024 included $0.9 million 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.
Restructuring:
We recorded restructuring expense of $1.6 million in the three and nine months ended March 31, 2024 for employee-related costs as we undertook restructuring efforts during the current quarter 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 over the remainder of the calendar year and estimate between $1.0 million and $2.0 million of additional pre-tax restructuring charges.
Non-operating Income (Expense), net:
Non-operating income (expense), net includes the impact of such items as foreign currency rate movements and related derivative gain or loss, fair value adjustments on supplemental employee retirement plan (“SERP”) investments, government subsidies, bank charges, and other miscellaneous non-operating income and expense items that are not directly related to operations. The gain (loss) on SERP investments is offset by a change in the SERP liability that is recognized in Selling and Administrative Expenses.
Components of Non-operating income (expense), net:
 Three Months EndedNine Months Ended
 March 31March 31
(Amounts in Thousands)2024202320242023
Foreign currency/derivative gain (loss)$(536)$1,328 $(864)$2,581 
Gain (loss) on SERP investments277 353 584 458 
Other(271)(248)(679)(380)
Non-operating income (expense), net$(530)$1,433 $(959)$2,659 

10


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, net 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.
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, 2024 and June 30, 2023, the remaining provision recorded for the one-time deemed repatriation tax was $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 Condensed Consolidated Balance Sheets. As of March 31, 2024, $2.6 million of the remaining deemed repatriation tax is short term and is recorded in Accrued expenses on the Condensed Consolidated Balance Sheets.
New Accounting Standards:
Not Yet Adopted:
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.
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, and industrial applications, to the specifications and designs of our customers. 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.

11


The following table disaggregates our revenue by end market vertical for the three and nine months ended March 31, 2024 and 2023.
Three Months EndedNine Months Ended
March 31March 31
(Amounts in Millions)2024202320242023
Vertical Markets:
Automotive (1)
$202.0 $221.9 $614.7 $615.3 
Medical (2)
113.0 135.5 323.5 377.1 
Industrial (3)
110.0 127.3 346.2 334.9 
Total net sales$425.0 $484.7 $1,284.4 $1,327.3 
(1)    For the three and nine months ended March 31, 2023, respectively, $5.9 million and $14.8 million of the Automotive net sales were previously categorized as Other.
(2)    For the three and nine months ended March 31, 2023, respectively, $1.5 million and $3.6 million of the Medical net sales were previously categorized as Other.
(3)    For the three and nine months ended March 31, 2023, respectively, $0.4 million and $2.1 million of the Industrial net sales were previously categorized as Other.
For the three months ended March 31, 2024 and 2023, approximately 97% and 96% 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. For both the nine months ended March 31, 2024 and 2023, approximately 96% 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 $76.1 million and $78.8 million as of March 31, 2024 and June 30, 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 Condensed Consolidated Balance Sheets, which amounted to $49.6 million and $45.6 million as of March 31, 2024 and June 30, 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 Note 4 - Inventories of Notes to Condensed Consolidated Financial Statements for further discussion.
Note 3. Assets and Liabilities Held for Sale
In the third quarter of fiscal year 2024, the Company made the decision to divest of 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 Company expects a sale of the disposal group to occur within the next 12 months. 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 quarter ended March 31, 2024. The carrying value exceeded the fair value less costs to sell, and the Company recognized impairment charges of $5.8 million and $16.6 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 Note 12 - Goodwill and Other Intangible Assets of Notes to Condensed Consolidated Financial Statements for more information on Goodwill.
12


The major classes of assets and liabilities held for sale consisted of the following:
(Amounts in Thousands)March 31,
2024
Assets held for sale:
Receivables, net$8,599 
Inventories7,217 
Prepaid expenses and other current assets4,766 
Property and Equipment, net5,822 
Goodwill 
Other Intangible Assets, net8,010 
Other Assets, net
11,469 
Valuation Allowance(16,264)
Total Assets held for sale$29,619 
Liabilities held for sale:
Accounts payable$4,239 
Advances from customers944 
Accrued expenses2,302 
Other long-term liabilities1,884 
Total Liabilities held for sale$9,369 
Other assets, net in the table above includes $10.2 million of deferred tax assets.
The following table summarizes net sales and income (loss) before taxes on income for the disposal group:
Three Months EndedNine Months Ended
March 31March 31
(Amounts in Thousands)2024202320242023
Net Sales$8,105 $16,755 $30,903 $40,577 
Income (Loss) Before Taxes on Income (1)
$(25,691)$1,352 $(25,141)$(976)
(1) Includes goodwill impairment of $5.8 million and asset impairment of $16.6 million for the three and nine months ended March 31, 2024. Also includes allocated corporate overhead expenses.
Note 4. 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, 2024June 30, 2023
Finished products$391 $432 
Work-in-process 3,117 
Raw materials395,808 446,770 
Total inventory$396,199 $450,319 
Additionally, we have raw materials inventory totaling $44.1 million classified as long-term included in Other Assets, net in our Condensed 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 $29.1 million from this customer related to this inventory, which is included in Other long-term liabilities in our Condensed Consolidated Balance Sheets. At June 30, 2023, we had no inventory or customer deposits classified as long-term.
13


Note 5. Accumulated Other Comprehensive Income (Loss)
During the nine months ended March 31, 2024 and 2023, 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, 2023
$(11,832)$1,368 $(582)$(11,046)
Other comprehensive income (loss) before reclassifications(1,617)4,775 (447)2,711 
Reclassification to (earnings) loss (4,745)16 (4,729)
Net current-period other comprehensive income (loss)(1,617)30 (431)(2,018)
Balance at March 31, 2024
$(13,449)$1,398 $(1,013)$(13,064)
Balance at June 30, 2022
$(17,349)$(2,203)$(120)$(19,672)
Other comprehensive income (loss) before reclassifications5,427 5,453 (164)10,716 
Reclassification to (earnings) loss (2,103)(119)(2,222)
Net current-period other comprehensive income (loss)5,427 3,350 (283)8,494 
Balance at March 31, 2023
$(11,922)$1,147 $(403)$(11,178)
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)2024202320242023
Derivative gain (loss) (1)
$1,600 $1,111 $6,092 $2,596 Cost of Sales
(352)(293)(1,347)(493)Benefit (Provision) for Income Taxes
$1,248 $818 $4,745 $2,103 Net of Tax
Postemployment Benefits:
  Amortization of actuarial gain (2)
(37)19 (21)157 Non-operating income (expense), net
9 (5)5 (38)Benefit (Provision) for Income Taxes
$(28)$14 $(16)$119 Net of Tax
Total reclassifications for the period$1,220 $832 $4,729 $2,222 Net of Tax
Amounts in parentheses indicate reductions to income.
(1) See Note 9 - 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 6. 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 regularly 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 the nine months ended March 31, 2024 and 2023.
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Note 7. 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, 2024March 31, 2024June 30, 2023
Primary credit facility (1)
$ $299.7 $272.1 
Secondary credit facility (2)
89.4 10.6  
Thailand overdraft credit facility (3)
10.1   
China revolving credit facility (3)
6.9   
Netherlands revolving credit facility (3)
0.6 9.3 9.4 
Poland revolving credit facility (3)
5.4   
Vietnam credit facility (3)
5.0   
Total credit facilities$117.4 $319.6 $281.5 
Less: current portion $(84.6)$(46.5)
Long-term debt under credit facilities, less current portion (4)
$235.0 $235.0 
(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 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. A commitment fee is payable on the unused portion of the credit facility 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.
The interest rate on borrowings is dependent on the type and currencies of borrowings and will be one of the following options:
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
the Alternate Base Rate (“ABR”), which is defined as the highest of the fluctuating rate per annum equal to the higher of:
a.Prime Rate in the U.S. last quoted by the Wall Street Journal, and if this is ceased to be quoted, the highest bank prime loan rate or similar loan rate quoted by the Federal Reserve Board;
b.1/2 of 1% per annum above the Federal Funds Effective Rate (as defined under the primary credit facility); or
c.1% per annum above the Adjusted SOFR Rate (as defined under the primary credit facility);
plus the Revolving Commitment ABR spread which can range from 0.0 to 75.0 basis points based on the Company’s ratio of consolidated total indebtedness to adjusted consolidated EBITDA.

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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, 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.
The Company had $0.4 million in letters of credit contingently committed against the credit facility at both March 31, 2024 and June 30, 2023.
(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.
The interest rate on borrowings is dependent on the type of borrowings and will be one of the following options:
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
the Alternate Base Rate (“ABR”), which is defined as the highest of the fluctuating rate per annum equal to the higher of:
a.Prime Rate in the U.S. last quoted by the Wall Street Journal, and if this is ceased to be quoted, the highest bank prime loan rate or similar loan rate quoted by the Federal Reserve Board;
b.1/2 of 1% per annum above the Federal Funds Effective Rate (as defined under the primary credit facility); or
c.1% per annum above the Adjusted SOFR Rate (as defined under the primary credit facility);
plus a Revolving Commitment ABR spread of 75.0 basis points.
The Company’s financial covenants under this secondary credit facility are the same as the financial covenants for its primary credit facility.
(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. During the second quarter of fiscal year 2024, the Company entered into a foreign credit facility for its EMS operation in China with a new lender, which allows for borrowings up to 50 million RMB, and canceled the prior credit facility which allowed for borrowings up to $7.5 million.
(4)    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 March 31, 2024 and June 30, 2023 were 6.9% and 6.8%, respectively.

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Note 8. Fair Value
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 1: Unadjusted quoted prices in active markets for identical assets and liabilities.
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.
Level 3: Unobservable inputs reflecting management’s own assumptions about the inputs used in pricing the asset or liability.
There were no changes in the inputs or valuation techniques used to measure fair values during the nine months ended March 31, 2024. For more information on inputs and fair valuation techniques used, refer to our Annual Report on Form 10-K for the year ended June 30, 2023.
Recurring Fair Value Measurements:
As of March 31, 2024 and June 30, 2023, the fair values of financial assets and liabilities that are measured at fair value on a recurring basis using the market approach are categorized as follows:
 March 31, 2024
(Amounts in Thousands)Level 1Level 2Total
Assets   
Derivatives: foreign exchange contracts$ $4,712 $4,712 
Trading securities: mutual funds held in nonqualified SERP5,318  5,318 
Total assets at fair value$5,318 $4,712 $10,030 
Liabilities   
Derivatives: foreign exchange contracts$ $794 $794 
Total liabilities at fair value$ $794 $794 
    
 June 30, 2023
(Amounts in Thousands)Level 1Level 2Total
Assets   
Derivatives: foreign exchange contracts$ $6,320 $6,320 
Trading securities: mutual funds held in nonqualified SERP8,668  8,668 
Total assets at fair value$8,668 $6,320 $14,988 
Liabilities   
Derivatives: foreign exchange contracts$ $1,245 $1,245 
Total liabilities at fair value$ $1,245 $1,245 
We had no level 3 assets or liabilities at March 31, 2024 and June 30, 2023, or any activity in Level 3 assets or liabilities during the nine months ended March 31, 2024.
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 Note 10 - Employee Benefit Plans of Notes to Condensed Consolidated Financial Statements for further information regarding the SERP.
Non-Recurring Fair Value Measurements:
As of March 31, 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 $16.3 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 Note 3 - Assets and Liabilities Held for Sale of Notes to Condensed Consolidated Financial Statements for additional information.

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Financial Instruments Not Carried At Fair Value:
Financial instruments that are not reflected in the Condensed Consolidated Balance Sheets at fair value that have carrying amounts which approximate fair value include notes receivable and borrowings under credit facilities. There were no changes to the inputs and valuation techniques used to assess the fair value of these financial instruments during the nine months ended March 31, 2024. For more information on inputs and fair valuation techniques used, refer to our Annual Report on Form 10-K for the year ended June 30, 2023.
The carrying values of our cash deposit accounts, trade accounts receivable, and trade accounts payable approximate fair value due to the relatively short maturity and immaterial non-performance risk.
Note 9. Derivative Instruments
Foreign Exchange Contracts:
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 March 31, 2024, we had outstanding foreign exchange contracts to hedge currencies against the U.S. dollar in the aggregate notional amount of $25.6 million and to hedge currencies against the Euro in the aggregate notional amount of 67.2 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 Condensed 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 Condensed Consolidated Statements of Income.
Based on fair values as of March 31, 2024, we estimate that approximately $3.5 million of pre-tax derivative gain deferred in Accumulated Other Comprehensive Loss will be reclassified into earnings, along with the earnings effects of related forecasted transactions, within the next 12 months. Gains on foreign exchange contracts are generally offset by losses 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 March 31, 2024 and June 30, 2023.
See Note 8 - Fair Value of Notes to Condensed Consolidated Financial Statements for further information regarding the fair value of derivative assets and liabilities and Note 5 - Accumulated Other Comprehensive Income (Loss) of Notes to Condensed Consolidated Financial Statements for the changes in deferred derivative gains and losses.

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Information on the location and amounts of derivative fair values in the Condensed Consolidated Balance Sheets and derivative gains and losses in the Condensed Consolidated Statements of Income are presented below.
Fair Value of Derivative Instruments on the Condensed Consolidated Balance Sheets
Asset DerivativesLiability Derivatives
Fair Value As of Fair Value As of
(Amounts in Thousands)Balance Sheet LocationMarch 31,
2024
June 30,
2023
Balance Sheet LocationMarch 31,
2024
June 30,
2023
Derivatives Designated as Hedging Instruments:
Foreign exchange contractsPrepaid expenses and other current assets$4,345 $4,772 Accrued expenses$742 $844 
      
Derivatives Not Designated as Hedging Instruments:    
Foreign exchange contractsPrepaid expenses and other current assets367 1,548 Accrued expenses52 401 
Total derivatives $4,712 $6,320  $794 $1,245 
The Effect of Derivative Instruments on Other Comprehensive Income (Loss)
  Three Months EndedNine Months Ended
March 31March 31
(Amounts in Thousands) 2024202320242023
Amount of Pre-Tax Gain or (Loss) Recognized in Other Comprehensive Income (Loss) (OCI) on Derivatives:  
Foreign exchange contracts $2,185 $3,270 $6,156 $6,954 
The Effect of Derivative Instruments on Condensed Consolidated Statements of Income
 Three Months EndedNine Months Ended
(Amounts in Thousands)March 31March 31
Derivatives in Cash Flow Hedging RelationshipsLocation of Gain or (Loss) 2024202320242023
Amount of Pre-Tax Gain or (Loss) Reclassified from Accumulated OCI into Income: 
Foreign exchange contractsCost of Sales$1,600 $1,111 $6,092 $2,596 
Derivatives Not Designated as Hedging Instruments   
Amount of Pre-Tax Gain or (Loss) Recognized in Income on Derivatives:  
Foreign exchange contractsNon-operating income (expense)$650 $(286)$(223)$171 
   
Total Derivative Pre-Tax Gain (Loss) Recognized in Income$2,250 $825 $5,869 $2,767 
Note 10. Employee Benefit Plans
Defined Contribution Retirement Plan:
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, $3.7 million and $4.2 million for the nine months ended March 31, 2024 and March 31, 2023, 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 otherwise be 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 March 31, 2024, both total investments and obligations under SERP were $5.4 million, of which $0.3 million were short term and $5.1 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 Condensed 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 both the nine months ended March 31, 2024 and 2023 was approximately $0.4 million and $0.1 million, respectively.
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Defined Benefit Postemployment Plan:
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 March 31, 2024, total obligations under these plans were $7.4 million of which $5.7 million were long term and $1.7 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 nine months ended March 31, 2024 and 2023.
Note 11. Stock Compensation Plans
A stock compensation plan was created and adopted by the Company’s Board of Directors (the “Board”) on October 3, 2014. The Kimball Electronics, Inc. 2014 Stock Option and Incentive Plan (the “2014 Plan”) allows for the issuance of up to 4.5 million shares and may be granted in the form of incentive stock options, stock appreciation rights, restricted shares, unrestricted shares, restricted share units, or performance shares and performance units. The Plan is a ten-year plan with no further awards allowed to be made under the Plan after October 1, 2024. On September 20, 2023, on the recommendation of our Talent, Culture, and Compensation (TCC) Committee, our Board adopted the Kimball Electronics, Inc. 2023 Equity Incentive Plan (the “2023 Plan”), subject to Share Owner approval at our 2023 Annual Meeting. The 2023 Plan was approved by our Share Owners on November 17, 2023. The 2023 Plan supersedes our 2014 Plan and allows for the issuance of up to 2.0 million shares. 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.
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. For more information on the 2014 Plan and the Deferral Plan, refer to our Annual Report on Form 10-K for the year ended June 30, 2023. For more information on the 2023 Plan, refer to our Notice of 2023 Annual Meeting and Proxy Statement.
During the first nine months of fiscal year 2024, the following stock compensation was granted under the 2014 Plan, the 2023 Plan, and the Deferral Plan.
Stock Compensation GrantedQuarter GrantedShares/Units
Grant Date Fair Value (2)
Long-Term Performance Shares (1)
1st Quarter172,079 $29.19 
Restricted Shares (3)
1st Quarter71,422 $29.19 
Long-Term Performance Shares (4)
2nd Quarter35,650 $25.21 
Restricted Shares (4)
2nd Quarter23,768 $25.21 
Unrestricted Shares (5)
2nd Quarter18,128 $25.24 
Deferred Share Units (6)
2nd Quarter26,347 $25.24 
(1) Long-term performance share awards were granted to officers and other key employees. These annual performance share awards were approved by the Talent, Culture, and Compensation Committee of the Board. The awards granted in fiscal year 2024 will cliff vest at the third anniversary of the award date in fiscal year 2027.
Under these awards, a number of shares will be issued 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 compounded annual growth rate (“CAGR”) with the Electronics Manufacturing Services Industry’s three-year 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 shares issuable (up to a maximum of 125%) if the Company exceeds 100% of one or both of the above-mentioned incentive metrics.
20


(2) The grant date fair value is the weighted average stock price based on the dates of the grants.
(3) Restricted shares were granted to officers and other key employees. These restricted shares were approved by the Talent, Culture, and Compensation Committee of the Board. 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. Restricted shares are expensed over the contractual vesting period as earned. If the employment of a holder of restricted shares terminates before the RSU has vested for any reason other than death, retirement, or disability, the restricted shares not yet vested will be forfeited.
(4) Additional long-term performance share and restricted share awards were approved by the Talent, Culture, and Compensation Committee of the Board and were granted in the second quarter of fiscal year 2024. The awards will vest over a 5-year performance cycle, with one-third of the interest in the shares vesting after year three of the grant, another one-third after year four of the grant, and the final one-third after year five of the grant. The vesting of the performance share awards could range from 0% to 100% of the targeted issuable shares, dependent on the achievement of specific performance metrics.
(5) Unrestricted shares were awarded to non-employee members of the Board as compensation for the portion of their annual retainer fees resulting from their elections to be paid in unrestricted shares in lieu of cash payment or deferred share units. Director’s fees are expensed over the period that directors earn the compensation. Unrestricted shares do not have vesting periods, holding periods, restrictions on sales, or other restrictions.
(6) Deferred share units were awarded to non-employee members of the Board as compensation for the portion of their annual retainer fees resulting from their elections to receive deferred share units in lieu of cash payment or unrestricted shares. Director’s 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 retirement or termination from the Board or death.
Note 12. Goodwill and Other Intangible Assets
A summary of goodwill is as follows, amounts as of March 31, 2024 exclude the amounts classified as held for sale:
(Amounts in Thousands)
Balance as of June 30, 2023
Goodwill$32,762 
Accumulated impairment(20,751)
Goodwill, net$12,011 
Impairment recorded
(5,820)
Goodwill classified as held for sale
(13,745)
Accumulated impairment classified as held for sale
13,745 
Balance as of March 31, 2024
Goodwill19,017 
Accumulated impairment(12,826)
Goodwill, net$6,191 
A summary of other intangible assets subject to amortization is as follows, amounts as of March 31, 2024 exclude the amounts classified as held for sale:
 March 31, 2024June 30, 2023
(Amounts in Thousands)CostAccumulated
Amortization
Net ValueCostAccumulated
Amortization
Net Value
Capitalized Software$30,500 $(27,303)$3,197 $30,867 $(27,385)$3,482 
Customer Relationships   8,618 (3,524)5,094 
Technology   5,060 (4,816)244 
Trade Name   6,575 (3,060)3,515 
Other Intangible Assets$30,500 $(27,303)$3,197 $51,120 $(38,785)$12,335 
For the three months ended March 31, 2024 and 2023, amortization expense of other intangible assets was $0.5 million and $0.9 million, respectively. For the nine months ended March 31, 2024 and 2023, amortization expense of other intangible assets was $2.0 million and $2.6 million, respectively.
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The estimated useful life of internal-use software ranges from 3 years to 10 years. The amortization period for the customer relationships, technology, and trade name intangible assets was 15 years, 5 years, and 10 years, respectively. We ceased amortization on the intangible assets upon meeting the held for sale classification. See Note 3 - Assets and Liabilities Held for Sale of Notes to Condensed Consolidated Financial Statements for additional information. We have no intangible assets with indefinite useful lives which are not subject to amortization.
Note 13. Share Owners’ Equity
The Company has a Board-authorized stock repurchase plan (the “Repurchase Plan”) allowing 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.
During both the nine months ended March 31, 2024 and 2023, the Company had no share repurchases under the Repurchase Plan. Since the inception of the Repurchase Plan, the Company has repurchased $88.8 million of common stock at an average cost of $15.27 per share.
Note 14. Earnings Per Share
Basic and diluted earnings per share were calculated as follows under the two-class method:
Three Months EndedNine Months Ended
March 31March 31
(Amounts in thousands, except per share data)2024202320242023
Basic and Diluted Earnings Per Share:
   Net Income$(6,076)$16,400 $12,968 $36,629 
   Less: Net Income allocated to participating securities 24 16 53 
   Net Income allocated to common Share Owners$(6,076)$16,376 $12,952 $36,576 
Basic weighted average common shares outstanding25,118 24,898 25,084 24,868 
Dilutive effect of average outstanding stock compensation awards 169 179 163 
Dilutive weighted average shares outstanding25,118 25,067 25,263 25,031 
Earnings Per Share of Common Stock:
Basic$(0.24)$0.66 $0.52 $1.47 
Diluted$(0.24)$0.65 $0.51 $1.46 
For the three months ended March 31, 2024, all 434,000 outstanding stock compensation awards were antidilutive, as a result of the net loss recognized for the period, and were excluded from the dilutive calculation. The net loss in the three months ended March 31, 2024 was not allocated to participating securities as the holders have no requirements to fund losses. For the nine months ended March 31, 2024 and for the three and nine months ended March 31, 2023, all outstanding stock compensation awards were dilutive and were included in the dilutive calculation.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
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,” “should,” “would,” “could,” “will,” “can,” “potentially,” 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 contained in our Annual Report on Form 10-K for the year ended June 30, 2023.

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Business Overview
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 devices, medical disposables, drug delivery devices and solutions, precision molded plastics, and production automation, test, and inspection equipment. 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.
The Worldwide Manufacturing Services Market - 2023 Edition, a comprehensive study on the worldwide EMS market published by New Venture Research (“NVR”), provided worldwide forecast trends through 2027. NVR projects the worldwide assembly market for electronics products to grow at a compound annual growth rate (“CAGR”) of 4.3% over the next five years, with the EMS industry projected to grow at a CAGR of 5.5%.
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. Our inventory levels, already elevated from strategic inventory purchases to mitigate part shortages in the prior fiscal year, remain high as softening demand has challenged our ability to work them down. Additionally, as lead times dictate the ordering of components, demand softening results in deliveries of components that may exceed production needs in the short term. To mitigate our inventory levels and the impacts to our balance sheet, we are working with our customers to consign excess inventory, make inventory deposits, or pay carrying costs.
Net sales in the third quarter of the current fiscal year decreased 12% compared to the prior fiscal year third quarter, 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 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 the third quarter of fiscal 2023 not recurring this quarter.
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 expansio