10-Q 1 ke-20231231.htm KIMBALL ELECTRONICS, INC. FORM 10-Q ke-20231231
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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 December 31, 2023
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 January 24, 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) 
December 31,
2023
June 30,
2023
ASSETS  
Current Assets:  
Cash and cash equivalents$39,947 $42,955 
Receivables, net of allowances of $222 and $257, respectively
309,702 308,167 
Contract assets81,891 78,798 
Inventories455,736 450,319 
Prepaid expenses and other current assets43,226 49,188 
Total current assets930,502 929,427 
Property and Equipment, net of accumulated depreciation of $307,886 and $293,197, respectively
275,984 267,684 
Goodwill12,011 12,011 
Other Intangible Assets, net of accumulated amortization of $40,143 and $38,785, respectively
10,993 12,335 
Other Assets47,544 38,262 
Total Assets$1,277,034 $1,259,719 
LIABILITIES AND SHARE OWNERSEQUITY
Current Liabilities:
Current portion of borrowings under credit facilities$86,765 $46,454 
Accounts payable279,909 322,274 
Advances from customers42,717 33,905 
Accrued expenses63,448 72,515 
Total current liabilities472,839 475,148 
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 liabilities18,951 19,718 
Total other liabilities257,206 260,577 
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: 24,865,000 and 24,724,000, respectively
  
Additional paid-in capital316,309 315,482 
Retained earnings315,097 296,053 
Accumulated other comprehensive loss(9,641)(11,046)
Treasury stock, at cost:
Shares: 4,565,000 and 4,706,000, respectively
(74,776)(76,495)
Total Share Owners’ Equity546,989 523,994 
Total Liabilities and Share Owners’ Equity$1,277,034 $1,259,719 

3


KIMBALL ELECTRONICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Amounts in Thousands, Except for Per Share Data)
Three Months EndedSix Months Ended
December 31December 31
(Unaudited)2023202220232022
Net Sales$421,235 $436,696 $859,316 $842,585 
Cost of Sales386,802 402,505 789,341 779,073 
Gross Profit34,433 34,191 69,975 63,512 
Selling and Administrative Expenses17,823 16,702 33,875 32,452 
Operating Income16,610 17,489 36,100 31,060 
Other Income (Expense):
Interest income101 26 400 43 
Interest expense(6,137)(4,048)(11,584)(5,968)
Non-operating income (expense), net702 726 (429)1,226 
Other income (expense), net(5,334)(3,296)(11,613)(4,699)
Income Before Taxes on Income11,276 14,193 24,487 26,361 
Provision for Income Taxes2,986 3,473 5,443 6,132 
Net Income$8,290 $10,720 $19,044 $20,229 
Earnings Per Share of Common Stock:  
Basic$0.33 $0.43 $0.76 $0.81 
Diluted$0.33 $0.43 $0.75 $0.81 
Average Number of Shares Outstanding:
Basic25,094 24,881 25,067 24,854 
Diluted25,211 25,000 25,240 24,985 


4


KIMBALL ELECTRONICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Amounts in Thousands)
Three Months EndedThree Months Ended
December 31, 2023December 31, 2022
(Unaudited)Pre-taxTaxNet of TaxPre-taxTaxNet of Tax
Net income$8,290 $10,720 
Other comprehensive income (loss):
Foreign currency translation adjustments$6,484 $ $6,484 $10,570 $ $10,570 
Postemployment actuarial change(637)186 (451)(148)51 (97)
Derivative gain (loss)4,358 (960)3,398 3,401 (772)2,629 
Reclassification to (earnings) loss:
Derivatives(1,625)341 (1,284)(1,139)262 (877)
Amortization of actuarial change(10)3 (7)(37)9 (28)
Other comprehensive income (loss)$8,570 $(430)$8,140 $12,647 $(450)$12,197 
Total comprehensive income$16,430 $22,917 
 Six Months EndedSix Months Ended
December 31, 2023December 31, 2022
(Unaudited)Pre-taxTaxNet of TaxPre-taxTaxNet of Tax
Net income$19,044 $20,229 
Other comprehensive income (loss):
Foreign currency translation adjustments$2,254 $ $2,254 $3,333 $ $3,333 
Postemployment actuarial change(608)179 (429)(158)44 (114)
Derivative gain (loss)3,971 (882)3,089 3,684 (733)2,951 
Reclassification to (earnings) loss:
Derivatives(4,492)995 (3,497)(1,485)200 (1,285)
Amortization of actuarial change(16)4 (12)(138)33 (105)
Other comprehensive income (loss)$1,109 $296 $1,405 $5,236 $(456)$4,780 
Total comprehensive income$20,449 $25,009 

5


KIMBALL ELECTRONICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
 
Six Months Ended
December 31
(Unaudited)20232022
Cash Flows From Operating Activities:
Net income$19,044 $20,229 
Adjustments to reconcile net income to net cash used for operating activities:
Depreciation and amortization18,067 15,608 
(Gain) loss on sales of assets(71)32 
Deferred income taxes(3,113)(3,121)
Stock-based compensation3,662 3,357 
Other, net3,494 (515)
Change in operating assets and liabilities:
Receivables(5,734)(40,751)
Contract assets(3,093)(10,781)
Inventories(4,358)(88,922)
Prepaid expenses and other assets(2,848)(3,908)
Accounts payable(42,480)19,394 
Advances from customers8,763 14,622 
Accrued expenses and taxes payable(9,255)2,835 
Net cash used for operating activities(17,922)(71,921)
Cash Flows From Investing Activities:
Capital expenditures(24,406)(41,652)
Proceeds from sales of assets192 235 
Purchases of capitalized software(143)(507)
Other, net(8)38 
Net cash used for investing activities(24,365)(41,886)
Cash Flows From Financing Activities:
Proceeds from credit facilities 75,000 
Net change in revolving credit facilities40,250 17,852 
Payments related to tax withholding for stock-based compensation(1,391)(1,417)
Net cash provided by financing activities38,859 91,435 
Effect of Exchange Rate Change on Cash and Cash Equivalents368 (593)
Net Decrease in Cash, Cash Equivalents, and Restricted Cash(3,060)(22,965)
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)
$40,804 $26,886 
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for:
Income taxes$13,080 $7,600 
Interest expense$8,987 $3,819 
Non-cash investing activity:
Unpaid purchases of property and equipment at the end of the period$2,538 $8,110 
(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)December 31,
2023
June 30,
2023
Cash and Cash Equivalents$39,947 $42,955 
Restricted Cash included in Prepaid expenses and other current assets$857 $909 
Total Cash, Cash Equivalents, and Restricted Cash at end of period$40,804 $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 September 30, 2023$314,255 $306,807 $(17,781)$(75,019)$528,262 
Net income8,290 8,290 
Other comprehensive income (loss)8,140 8,140 
Issuance of non-restricted stock (18,000 shares)
235 222 457 
Compensation expense related to stock compensation plans1,867 1,867 
Performance and restricted share issuance (1,000 and 1,000 shares, respectively)
(48)21 (27)
Amounts at December 31, 2023$316,309 $315,097 $(9,641)$(74,776)$546,989 
Amounts at September 30, 2022$310,271 $249,731 $(27,089)$(76,668)$456,245 
Net income10,720 10,720 
Other comprehensive income (loss)12,197 12,197 
Issuance of non-restricted stock (14,000 shares)
150 172 322 
Compensation expense related to stock compensation plans1,664 1,664 
Amounts at December 31, 2022$312,085 $260,451 $(14,892)$(76,496)$481,148 
Six 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 income19,044 19,044 
Other comprehensive income (loss)1,405 1,405 
Issuance of non-restricted stock (18,000 shares)
235 222 457 
Compensation expense related to stock compensation plans3,480 3,480 
Performance and restricted share issuance (108,000 and 15,000 shares)
(2,888)1,497 (1,391)
Amounts at December 31, 2023$316,309 $315,097 $(9,641)$(74,776)$546,989 
Amounts at June 30, 2022$311,090 $240,222 $(19,672)$(77,669)$453,971 
Net income20,229 20,229 
Other comprehensive income (loss)4,780 4,780 
Issuance of non-restricted stock (14,000 shares)
150 172 322 
Compensation expense related to stock compensation plans3,262 3,262 
Performance share issuance (85,000 shares)
(2,417)1,001 (1,416)
Amounts at December 31, 2022$312,085 $260,451 $(14,892)$(76,496)$481,148 
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 December 31, 2023 and June 30, 2023, results of operations for the three and six months ended December 31, 2023 and 2022, cash flows for the six months ended December 31, 2023 and 2022, and share owners’ equity for the three and six months ended December 31, 2023 and 2022. 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 based input methods, in which judgment is required to evaluate assumptions including anticipated margins to estimate the
8


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 six months ended December 31, 2023 and 2022, we sold, without recourse, $198.9 million and $225.1 million of accounts receivable, respectively. For the three months ended December 31, 2023 and 2022, factoring fees were $0.8 million and $1.5 million, and $1.7 million and $2.4 million during the six months ended December 31, 2023 and 2022, 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 on the Condensed Consolidated Balance Sheet. At December 31, 2023, the noncurrent receivable associated with this customer in Other Assets totaled $2.9 million , which is net of the $2.0 million allowance for expected credit losses. The current portion of receivables from this customer is $2.3 million at December 31, 2023.
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. As of December 31, 2023, the Company determined there have been no indicators of impairment for goodwill and other intangible assets. See Note 11 - Goodwill and Other Intangible Assets of Notes to Condensed Consolidated Financial statements for more information on Goodwill and Other Intangible Assets.
9


Leases:
The Company leases certain office, manufacturing, and 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 $2.9 million at December 31, 2023 and $2.6 million at June 30, 2023, respectively. 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.
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 EndedSix Months Ended
 December 31December 31
(Amounts in Thousands)2023202220232022
Foreign currency/derivative gain (loss)$346 $719 $(328)$1,253 
Gain (loss) on SERP investments484 340 307 105 
Other(128)(333)(408)(132)
Non-operating income (expense), net$702 $726 $(429)$1,226 
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.
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 December 31, 2023 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 December 31, 2023, $2.6 million of the remaining deemed repatriation tax is short term and is recorded in Accrued expenses on the Condensed Consolidated Balance Sheet.

10


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.
The following table disaggregates our revenue by end market vertical for the three and six months ended December 31, 2023 and 2022.
Three Months EndedSix Months Ended
December 31December 31
(Amounts in Millions)2023202220232022
Vertical Markets:
Automotive$200.2 $205.2 $412.7 $393.4 
Medical108.1 125.6 210.5 241.6 
Industrial112.9 105.9 236.1 207.6 
Total net sales$421.2 $436.7 $859.3 $842.6 
For the three months ended December 31, 2023 and 2022, approximately 95% and 97% 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 six months ended December 31, 2023 and 2022, 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 $81.9 million and $78.8 million as of December 31, 2023 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 $56.9 million and $45.6 million as of December 31, 2023 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.

11


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)December 31, 2023June 30, 2023
Finished products$78 $432 
Work-in-process3,101 3,117 
Raw materials452,557 446,770 
Total inventory$455,736 $450,319 
Note 4. Accumulated Other Comprehensive Income (Loss)
During the six months ended December 31, 2023 and 2022, 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 reclassifications2,254 3,089 (429)4,914 
Reclassification to (earnings) loss (3,497)(12)(3,509)
Net current-period other comprehensive income (loss)2,254 (408)(441)1,405 
Balance at December 31, 2023
$(9,578)$960 $(1,023)$(9,641)
Balance at June 30, 2022
$(17,349)$(2,203)$(120)$(19,672)
Other comprehensive income (loss) before reclassifications3,333 2,951 (114)6,170 
Reclassification to (earnings) loss (1,285)(105)(1,390)
Net current-period other comprehensive income (loss)3,333 1,666 (219)4,780 
Balance at December 31, 2022
$(14,016)$(537)$(339)$(14,892)
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 EndedSix Months EndedAffected Line Item in the Condensed Consolidated Statements of Income
December 31December 31
(Amounts in Thousands)2023202220232022
Derivative gain (loss) (1)
$1,625 $1,139 $4,492 $1,485 Cost of Sales
(341)(262)(995)(200)Benefit (Provision) for Income Taxes
$1,284 $877 $3,497 $1,285 Net of Tax
Postemployment Benefits:
  Amortization of actuarial gain (2)
10 37 16 138 Non-operating income (expense), net
(3)(9)(4)(33)Benefit (Provision) for Income Taxes
$7 $28 $12 $105 Net of Tax
Total reclassifications for the period$1,291 $905 $3,509 $1,390 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 9 - Employee Benefit Plans of Notes to Condensed Consolidated Financial Statements for further information on postemployment benefit plans.
12


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 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 six months ended December 31, 2023 and 2022.
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)December 31, 2023December 31, 2023June 30, 2023
Primary credit facility (1)
$ $299.7 $272.1 
Secondary credit facility (2)
37.3 12.7  
Thailand overdraft credit facility (3)
10.1   
China revolving credit facility (3)
7.1   
Netherlands revolving credit facility (3)
0.8 9.4 9.4 
Poland revolving credit facility (3)
5.5   
Vietnam credit facility (3)
5.0   
Total credit facilities$65.8 $321.8 $281.5 
Less: current portion $(86.8)$(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
13


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.
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 December 31, 2023 and June 30, 2023.
(2)    The Company entered into a 364-day multi-currency revolving credit facility agreement on February 3, 2023 (the “secondary credit facility”), which allows for borrowings up to $50 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 February 2, 2024. 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.
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The weighted-average interest rate on borrowings outstanding under the credit facilities at December 31, 2023 and June 30, 2023 were 7.1% and 6.8%, respectively.
Subsequent to December 31, 2023, the Company amended its secondary credit facility on January 5, 2024 to increase the borrowing limit to $100 million from $50 million and change the maturity date to January 3, 2025. See Note 14 - Subsequent Event of Notes to Consolidated Financial Statements for further information.
Note 7. Fair Value
The Company categorizes assets and liabilities measured at fair value into three levels based upon the assumptions (inputs) used to price the assets or liabilities. Level 1 provides the most reliable measure of fair value, whereas level 3 generally requires significant management judgment. The three levels are defined as follows:
Level 1: Unadjusted quoted prices in active markets for identical assets and liabilities.
Level 2: Observable inputs other than those included in level 1. For example, quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets or liabilities in inactive markets.
Level 3: Unobservable inputs reflecting management’s own assumptions about the inputs used in pricing the asset or liability.
There were no changes in the inputs or valuation techniques used to measure fair values during the six months ended December 31, 2023. For more information on inputs and fair valuation techniques used, refer to our Annual Report on Form 10-K for the year ended June 30, 2023.
Recurring Fair Value Measurements:
As of December 31, 2023 and June 30, 2023, the fair values of financial assets and liabilities that are measured at fair value on a recurring basis using the market approach are categorized as follows:
 December 31, 2023
(Amounts in Thousands)Level 1Level 2Total
Assets   
Derivatives: foreign exchange contracts$ $4,063 $4,063 
Trading securities: mutual funds held in nonqualified SERP5,168  5,168 
Total assets at fair value$5,168 $4,063 $9,231 
Liabilities   
Derivatives: foreign exchange contracts$ $1,028 $1,028 
Total liabilities at fair value$ $1,028 $1,028 
    
 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 December 31, 2023 and June 30, 2023, or any activity in Level 3 assets or liabilities during the six months ended December 31, 2023.
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 9 - Employee Benefit Plans of Notes to Condensed Consolidated Financial Statements for further information regarding the SERP.

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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 six months ended December 31, 2023. 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 8. 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 December 31, 2023, we had outstanding foreign exchange contracts to hedge currencies against the U.S. dollar in the aggregate notional amount of $29.8 million and to hedge currencies against the Euro in the aggregate notional amount of 62.5 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 December 31, 2023, we estimate that approximately $3.0 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 December 31, 2023 and June 30, 2023.
See Note 7 - Fair Value of Notes to Condensed Consolidated Financial Statements for further information regarding the fair value of derivative assets and liabilities and Note 4 - 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 LocationDecember 31,
2023
June 30,
2023
Balance Sheet LocationDecember 31,
2023
June 30,
2023
Derivatives Designated as Hedging Instruments:
Foreign exchange contractsPrepaid expenses and other current assets$3,757 $4,772 Accrued expenses$637 $844 
      
Derivatives Not Designated as Hedging Instruments:    
Foreign exchange contractsPrepaid expenses and other current assets306 1,548 Accrued expenses391 401 
Total derivatives $4,063 $6,320  $1,028 $1,245 
The Effect of Derivative Instruments on Other Comprehensive Income (Loss)
  Three Months EndedSix Months Ended
December 31December 31
(Amounts in Thousands) 2023202220232022
Amount of Pre-Tax Gain or (Loss) Recognized in Other Comprehensive Income (Loss) (OCI) on Derivatives:  
Foreign exchange contracts $4,358 $3,401 $3,971 $3,684 
The Effect of Derivative Instruments on Condensed Consolidated Statements of Income
 Three Months EndedSix Months Ended
(Amounts in Thousands)December 31December 31
Derivatives in Cash Flow Hedging RelationshipsLocation of Gain or (Loss) 2023202220232022
Amount of Pre-Tax Gain or (Loss) Reclassified from Accumulated OCI into Income: 
Foreign exchange contractsCost of Sales$1,625 $1,139 $4,492 $1,485 
Derivatives Not Designated as Hedging Instruments   
Amount of Pre-Tax Gain or (Loss) Recognized in Income on Derivatives:  
Foreign exchange contractsNon-operating income (expense)$(1,015)$(998)$(873)$457 
   
Total Derivative Pre-Tax Gain (Loss) Recognized in Income$610 $141 $3,619 $1,942 
Note 9. 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, $3.1 million and $2.8 million for the six months ended December 31, 2023 and December 31, 2022, respectively.
The Company also maintains a supplemental employee retirement plan (“SERP”) for executives and other key employees which enables them to defer cash compensation on a pre-tax basis and restore amounts that would 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 December 31, 2023, both total investments and obligations under SERP were $5.2 million, of which $0.2 million were short term and $5.0 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
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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 six months ended December 31, 2023 and 2022 was approximately $0.1 million and $(0.2) million, respectively.
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 December 31, 2023, total obligations under these plans were $7.4 million of which $6.5 million were long term and $0.9 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 six months ended December 31, 2023 and 2022.
Note 10. 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 six 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-
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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.
(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 11. Goodwill and Other Intangible Assets
A summary of goodwill is as follows:
(Amounts in Thousands)December 31,
2023
June 30,
2023
 
Goodwill$32,762 $32,762 
Accumulated impairment(20,751)(20,751)
Goodwill, net$12,011 $12,011 
A summary of other intangible assets subject to amortization is as follows:
 December 31, 2023June 30, 2023
(Amounts in Thousands)CostAccumulated
Amortization
Net ValueCostAccumulated
Amortization
Net Value
Capitalized Software$30,883 $(27,928)$2,955 $30,867 $(27,385)$3,482 
Customer Relationships8,618 (3,770)4,848 8,618 (3,524)5,094 
Technology5,060 (5,060) 5,060 (4,816)244 
Trade Name6,575 (3,385)3,190 6,575 (3,060)3,515 
Other Intangible Assets$51,136 $(40,143)$10,993 $51,120 $(38,785)$12,335 
For the three months ended December 31, 2023 and 2022, amortization expense of other intangible assets was $0.6 million and $0.8 million, respectively. For the six months ended December 31, 2023 and 2022, amortization expense of other intangible assets was $1.5 million and $1.7 million, respectively.
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 is 15 years, 5 years, and 10 years, respectively. We have no intangible assets with indefinite useful lives which are not subject to amortization.
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Note 12. 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 six months ended December 31, 2023 and 2022, 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 13. Earnings Per Share
Basic and diluted earnings per share were calculated as follows under the two-class method:
Three Months EndedSix Months Ended
December 31December 31
(Amounts in thousands, except per share data)2023202220232022
Basic and Diluted Earnings Per Share:
   Net Income$8,290 $10,720 $19,044 $20,229 
   Less: Net Income allocated to participating securities10 16 25 29 
   Net Income allocated to common Share Owners$8,280 $10,704 $19,019 $20,200 
Basic weighted average common shares outstanding25,094 24,881 25,067 24,854 
Dilutive effect of average outstanding stock compensation awards117 119 173 131 
Dilutive weighted average shares outstanding25,211 25,000 25,240 24,985 
Earnings Per Share of Common Stock:
Basic$0.33 $0.43 $0.76 $0.81 
Diluted$0.33 $0.43 $0.75 $0.81 
Note 14. Subsequent Event
On January 5, 2024, we amended our 364-day multi-currency revolving credit facility agreement (the “secondary credit facility”), dated as of February 3, 2023, 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 amendment to the secondary credit facility increases the borrowing limit to $100.0 million from $50.0 million and changes the maturity date from February 2, 2024 to January 3, 2025.
The following terms and conditions remain unchanged under the amended secondary credit facility dated as of January 5, 2024 when compared to the agreement dated as of February 3, 2023:
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
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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;
1/2 of 1% per annum above the Federal Funds Effective Rate (as defined under the primary credit facility); or
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.
See Note 6 - Credit Facilities of Notes to Condensed Consolidated Financial Statements for further information on the financial covenants.
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.
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
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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 second quarter of the current fiscal year decreased 4% compared to the prior fiscal year second quarter, with decreases in the automotive and medical markets partially offset by an increase in sales in the industrial market. Beginning in fiscal year 2024, we changed our presentation of revenue for miscellaneous sales previously included in Other to include in the respective customers’ end market verticals. Prior year periods have been recast to conform to the current year presentation. 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 increased in large part due to the continued ramp-up of certain programs.
We have a strong focus on cost control balanced with managing the future growth prospects of our business. We expect to make investments that will strengthen or add new capabilities to our package of value as a multifaceted manufacturing solutions company, including through our recently completed capacity expansions. Managing working capital in conjunction with fluctuating demand levels is likewise key. In addition, a long-standing component of our profit-sharing incentive bonus plan is that it is linked to our financial performance which results in varying amounts of compensation expense as profits change.
We continue to maintain a strong balance sheet, which included a current ratio of 2.0, a debt-to-equity ratio of 0.6, and Share Owners’ equity of $547 million at December 31, 2023. Recently, we have invested to support our expansions and growth in Mexico, Thailand, and Poland. We expect our balance sheet to normalize as we negotiate with customers on excess inventory and as certain component shortages subside. Refer to the Future Liquidity section of Liquidity and Capital Resources below for further discussion of our liquidity.
The continuing success of our business is dependent upon our ability to replace expiring customers/programs with new customers/programs. We monitor our success in this area by tracking the number of customers and the percentage of our net sales generated from them by years of service as depicted in the table below. While variation in the size of program awards makes it difficult to directly correlate this data to our sales trends, we believe it does provide useful information regarding our customer loyalty and new business growth.
Six Months Ended
December 31
Customer Service Years20232022
More than 10 Years
% of Net Sales75 %79 %
# of Customers35 31 
5 to 10 Years
% of Net Sales20 %17 %
# of Customers18 18 
Less than 5 Years
% of Net Sales%%
# of Customers12 12 
Total
% of Net Sales100 %100 %
 # of Customers65 61 
A detailed discussion of risk factors and uncertainties that could have an effect on our performance are located within the “Risk Factors” section of our Annual Report on Form 10-K for the year ended June 30, 2023.
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Results of Operations
At or for the
 Three Months Ended 
 December 31
(Amounts in Millions, Except for Per Share Data)2023as a % of Net Sales2022as a % of Net Sales% Change
Net Sales$421.2 $436.7 (4)%
Gross Profit$34.4 8.2 %$34.2 7.8 %%
Selling and Administrative Expenses17.8 4.3 %16.7 3.8 %%
Operating Income 16.6 3.9 %17.5 4.0 %(5)%
Other Income (Expense)(5.3)(3.3)
Provision for Income Taxes3.0 3.5 (14)%
Net Income$8.3 $10.7 (23)%
Diluted Earnings per Share$0.33 $0.43 (23)%
Open Orders$836 $1,037 (19)%
 
For the Six Months Ended
 
 December 31
(Amounts in Millions, Except for Per Share Data)2023as a % of Net Sales2022as a % of Net Sales% Change
Net Sales$859.3 $842.6 %
Gross Profit$70.0 8.1 %$63.5 7.5 %10 %
Selling and Administrative Expenses33.9 3.9 %32.4 3.8 %%
Operating Income36.1 4.2 %31.1 3.7 %16 %
Other Income (Expense)(11.7)(4.8)
Provision for Income Taxes5.4 6.1 (11)%
Net Income$19.0 $20.2 (6)%
Diluted Earnings per Share$0.75 $0.81 (7)%
Net Sales by Vertical MarketThree Months Ended Six Months Ended 
 December 31 December 31 
(Amounts in Millions)20232022% Change20232022% Change
Automotive$200.2 $205.2 (2)%$412.7 $393.4 %
Medical108.1 125.6 (14)%210.5 241.6 (13)%
Industrial112.9 105.9 %236.1 207.6 14 %
Total Net Sales$421.2 $436.7 (4)%$859.3 $842.6 %
Second quarter fiscal year 2024 consolidated net sales decreased 4% compared to the second quarter of fiscal year 2023, while the year-to-date fiscal year 2024 consolidated net sales increased 2% compared to the year-to-date period of fiscal year 2023. The impact from foreign currency fluctuations on net sales was a favorable 1% in the current quarter and current year-to-date period compared to the second quarter and the year-to-date period of fiscal year 2023. Beginning in fiscal year 2024, we changed our presentation of revenue for miscellaneous sales previously included in Other to include in the respective customers’ end market verticals. Prior year periods have been recast to conform to the current year presentation. By end market vertical, our market verticals fluctuated as follows:
Sales to customers in the automotive market decreased 2% during the second quarter of fiscal year 2024, compared to the second quarter of fiscal year 2023 but increased 5% in the year-to-date period of fiscal year 2024 compared to the year-to-date period of fiscal year 2023. The quarter over quarter change is relatively flat, while the increase in the year-to-date period is due to overall demand increase, the continued ramp up of certain programs, and improved component availability.
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Sales to customers in the medical market declined in both the second quarter of fiscal year 2024, compared to the second quarter of fiscal year 2023 and the year-to-date period of the current fiscal year when compared to the year-to-date period of the prior fiscal year. This decrease is primarily due to decreased sales with a large medical customer who is remediating a recall. The cause of the recall is unrelated to the products we provided. Partially offsetting this decrease in sales was a ramp-up of certain programs and new product launches.
Sales to customers in the industrial market increased 7% during the second quarter of fiscal year 2024, when compared to the second quarter of fiscal year 2023 and increased 14% in the year-to-date period of the current fiscal year when compared to the year-to-date period of the prior fiscal year. These increases are largely due to higher end market demand for charging systems, public safety products, and climate control products, partially offset by lower demand for smart metering products.
Sales to Nexteer Automotive, Philips, ZF, and HL Mando accounted for the following portions of our net sales:
Three Months EndedSix Months Ended
  December 31December 31
 2023202220232022
Nexteer Automotive15%16%16%15%
Philips*16%*17%
ZF11%12%12%12%
HL Mando11%*11%*
* amount is less than 10% of total
Gross profit as a percent of net sales in the second quarter of fiscal year 2024 improved when compared to the second quarter of fiscal year 2023 driven by favorable product mix and lower material costs. Gross profit as a percent of net sales in the first half of fiscal year 2024 improved when compared to the first half of fiscal year 2023 driven by favorable product mix, lower material costs, and leverage from higher net sales.
Selling and administrative expenses increased as a percent of net sales and in absolute dollars in the second quarter and first half of fiscal year 2024 when compared to the second quarter and first half of fiscal year 2023, primarily driven by the allowance for credit losses recorded in the second quarter of fiscal year 2024.
Other Income (Expense) consisted of the following:
Three Months EndedSix Months Ended
 December 31December 31
(Amounts in Thousands)2023202220232022
Interest income$101 $26 $400 $43 
Interest expense(6,137)(4,048)(11,584)(5,968)
Foreign currency/derivative gain (loss)346 719 (328)1,253 
Gain (loss) on SERP investments484 340 307 105 
Other(128)(333)(408)(132)
Other income (expense), net$(5,334)$(3,296)$(11,613)$(4,699)
Interest expense has increased in the three months and six months ended December 31, 2023 compared to the three months and six months ended December 31, 2022 due to higher interest rates and higher borrowings on credit facilities. Foreign currency/derivative gains (losses) result from net foreign currency exchange rate movements during the periods. The revaluation to fair value of the SERP investments recorded in Other Income (Expense) is offset by the revaluation of the SERP liability recorded in Selling and Administrative Expenses, and thus there is no effect on net income.
Our provision for income taxes for the first six months ended December 31, 2023 and December 31, 2022 was $5.4 million, or 22.2% of income before taxes on income, and $6.1 million, or 23.3% of income before taxes on income, respectively.
Open orders were down 19% as of December 31, 2023 compared to December 31, 2022. The decrease in open orders from December 31, 2022 is primarily driven by reduced orders from a large medical customer who is remediating a recall. Open orders are the aggregate sales price of production pursuant to unfulfilled customer orders, which may be delayed or canceled by the customer subject to contractual termination provisions. The majority of open orders as of December 31, 2023 are expected to be filled within the next twelve months. Open orders at a point in time may not be indicative of future sales trends due to the contract nature of our business and the variability of order lead times among our customers.
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Liquidity and Capital Resources
Working capital at December 31, 2023 was $457.7 million compared to working capital of $454.3 million at June 30, 2023. The current ratio was 2.0 at both December 31, 2023 and June 30, 2023. The debt-to-equity ratio was 0.6 at December 31, 2023 and 0.5 at June 30, 2023. Our short-term liquidity available, represented as cash and cash equivalents plus the unused amount of our credit facilities, some of which are uncommitted, totaled $105.7 million at December 31, 2023 and $149.1 million at June 30, 2023.
Cash Conversion Days (“CCD”) are calculated as the sum of Days Sales Outstanding plus Contract Asset Days plus Production Days Supply on Hand less Accounts Payable Days and less Advances from Customers Days. CCD, or a similar metric, is used in our industry and by our management to measure the efficiency of managing working capital. The following table summarizes our CCD for the quarterly periods indicated. Beginning in the third quarter of fiscal year 2023, we included Advances from Customers Days in our CCD calculation as these are customer deposits related to inventory. Prior periods have been recast to conform to the current quarter presentation.
Three Months Ended
December 31, 2023September 30, 2023December 31, 2022
Days Sales Outstanding645856
Contract Asset Days181714
Production Days Supply on Hand109108108
Accounts Payable Days657172
Advances from Customers Days999
Cash Conversion Days11710397
We define Days Sales Outstanding as the average of monthly trade accounts and notes receivable divided by an average day’s net sales, Contract Asset Days as the average monthly contract assets divided by an average day’s net sales, Production Days Supply on Hand as the average of monthly gross inventory divided by an average day’s cost of sales, Accounts Payable Days as the average of monthly accounts payable divided by an average day’s cost of sales, and Advances from Customers Days as the total customer deposits divided by an average day’s cost of sales. Over the past several quarters, we have supported our customers through strategic inventory builds to mitigate parts shortages, which adversely impacted our PDSOH and CCD metrics. Additionally, through the first six months of fiscal year 2024, we have experienced customers push out deliveries due to softening consumer demand. As lead times dictate the ordering of components, these push outs negatively impact our cash conversion days and working capital. In these situations, we negotiate with our customers for inventory deposits or consignment arrangements to limit the impact to our balance sheet. We expect inventory levels and working capital to normalize as we seek relief through customer negotiations.
Cash Flows
The following table reflects the major categories of cash flows for the first six months of fiscal years 2024 and 2023.
Six Months Ended
December 31
(Amounts in Millions)20232022
Net cash used for operating activities$(17.9)$(71.9)
Net cash used for investing activities$(24.4)$(41.9)
Net cash provided by financing activities$38.9 $91.4 
Cash Flows from Operating Activities
Net cash used by operating activities for the first six months of fiscal year 2024 was driven by changes in operating assets and liabilities, partially offset by net income adjusted for non-cash items. Net cash used for operating activities for the first six months of the prior year was driven by changes in operating assets and liabilities. Changes in operating assets and liabilities used $59.0 million of cash in the first six months of fiscal year 2024, while net income and non-cash adjustments provided cash of $41.1 million. In the first six months of the prior year cash used by changes in operating assets and liabilities was $107.5 million.
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The cash used of $59.0 million from changes in operating assets and liabilities in the first six months of fiscal year 2024, is largely due to a decrease in accounts payable, which used cash of $42.5 million primarily driven by decreased inventory purchases due to lower sales, and a decrease in accrued expenses and taxes payable, which used $9.3 million primarily driven by timing of income tax and profit-sharing incentive bonus payments. Partially offsetting cash used by accounts payable and accrued expenses and taxes payable was an increase in advances from customers, which provided cash of $8.8 million. Partially offsetting the cash used from changes in operating assets and liabilities in the first six months of fiscal year 2024 was net income adjusted for non-cash items which provided cash of $41.1 million.
The cash used of $107.5 million from changes in operating assets and liabilities in the first six months of fiscal year 2023 is largely due to an increase in inventory, which used cash of $88.9 million, primarily due to the component shortages as we continue to purchase material not impacted by the shortages so we can fulfill our customer orders once the impacted components are received in addition to increased demand, and an increase in accounts receivable, which used cash of $40.8 million primarily resulting from increased sales volumes. Partially offsetting cash used by inventory was an increase in accounts payable, which provided cash of $23.2 million largely resulting from increased inventory purchases.
Cash Flows from Investing Activities
For the first six months of fiscal years 2024 and 2023, net cash used for investing activities was $24.4 million and $41.9 million, respectively. During the first six months of fiscal year 2024, we invested $24.5 million into capital expenditures primarily to support new business awards, facility expansions, and replacement of older machinery and equipment. During the first six months of fiscal year 2023, we invested $42.2 million into capital expenditures primarily for expansions at our Mexico, Thailand, and Poland facilities and to support new business awards.
Cash Flows from Financing Activities
For the first six months of fiscal year 2024, net cash provided by financing activities of $38.9 million resulted largely from net borrowings on our credit facilities of $40.3 million primarily for working capital purposes and capital expenditures. For the first six months of fiscal year 2023, net cash provided by financing activities of $91.4 million resulted largely from net borrowings on our credit facilities of $92.9 million.
Credit Facilities
The Company maintains a U.S. primary credit facility (the “primary credit facility”) scheduled to mature May 4, 2027. The primary credit facility provides for $300 million in borrowings, with an option to increase the amount available for borrowing to $450 million at the Company’s request, subject to the consent of each lender participating in such increase. The Company also maintains a 364-day multi-currency revolving credit facility (the “secondary credit facility”), which allows for borrowings up to $50 million and has a maturity date of February 2, 2024. The proceeds of the loans on the primary credit facility and the secondary credit facility are to be used for working capital and general corporate purposes of the Company. We were in compliance with the financial covenants of the primary and secondary credit facilities during the period ended December 31, 2023. As noted in the Future Liquidity section below, we amended our secondary credit facility on January 5, 2024 to increase the borrowings to $100 million.
We also maintain foreign credit facilities for working capital and general corporate purposes at specific foreign locations rather than utilizing funding from intercompany sources. These foreign credit facilities can be canceled at any time by either the bank or us and generally include renewal clauses. As of December 31, 2023, we maintained foreign credit facilities at our Thailand operation, our EMS operation in China, our Netherlands subsidiary, our Poland operation, and our Vietnam operation.
See Note 6 - Credit Facilities of Notes to Consolidated Financial Statements for more information on our credit facilities, including the terms of the credit facilities such as interest, commitment fees, and debt covenants.
Factoring Arrangements
The Company utilizes accounts receivable factoring arrangements 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 six months ended December 31, 2023 and 2022, we sold, without recourse, $198.9 million and $225.1 million of accounts receivable, respectively. See Note 1 - Business Description and Summary of Significant Accounting Policies of Notes to Condensed Consolidated Financial Statements for more information regarding the factoring arrangements.
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Future Liquidity
We believe our principal sources of liquidity from available funds on hand, cash generated from operations, and the availability of borrowing under our credit facilities, will be sufficient to meet our working capital and other operating needs for at least the next 12 months. The unused borrowings in USD equivalent under all of our credit facilities totaled $65.8 million at December 31, 2023, including the $50 million secondary credit facility initially scheduled to expire in February 2024. Subsequent to December 31, 2023, we amended our secondary credit facility on January 5, 2024 to increase the borrowing limit to $100 million from $50 million and change the maturity date to January 3, 2025. The increased borrowing limit will provide us with more liquidity at the enterprise level to meet working capital and other operating needs. See Note 14 - Subsequent Event of Notes to Consolidated Financial Statements for further information. Additionally, accounts receivable factoring arrangements could provide flexible access to cash as needed. While our primary credit facility includes a covenant that limits the amount of sold receivables outstanding at any time, currently and historically, we have been considerably below this limit.
We expect to continue to prudently invest in capital expenditures, including for capacity expansions and potential acquisitions, that would help us continue our growth as a multifaceted manufacturing solutions company. We recently completed our Thailand facility expansion in the third quarter of fiscal year 2022, our Mexico facility expansion in the first quarter of fiscal year 2023, and our Poland expansion in the fourth quarter of fiscal year 2023.
At December 31, 2023, our capital expenditure commitments were approximately $14 million, consisting primarily of capital related to new program wins, equipment for facility expansions, and replacement of older machinery and equipment. We anticipate our available liquidity will be sufficient to fund these capital expenditures.
We have purchase obligations that arise in the normal course of business for items such as raw materials, services, and software acquisitions/license commitments. In certain instances, such as when lead times dictate, we enter into contractual agreements for material in excess of the levels required to fulfill customer orders to help mitigate the potential impact related to component shortages, which require longer lead times. In turn, our material authorization agreements with customers cover a portion of the exposure for material which is purchased prior to having a firm order.
At December 31, 2023, our foreign operations held cash totaling $39.9 million. Most of our accumulated unremitted foreign earnings have been invested in active non-U.S. business operations, and it is not anticipated such earnings will be remitted to the United States. Our intent is to permanently reinvest the remaining funds outside of the United States, and our current plans do not demonstrate a need to repatriate these funds to our U.S. operations. However, if such funds were repatriated, a portion of the funds remitted may be subject to applicable non-U.S. income and withholding taxes.
The Company’s Repurchase Plan allows the repurchase of up to $100 million of our common stock. Purchases may be made under various programs, including in open-market transactions, block transactions on or off an exchange, or in privately negotiated transactions, all in accordance with applicable securities laws and regulations. The Repurchase Plan has no expiration date but may be suspended or discontinued at any time. The extent to which the Company repurchases its shares, and the timing of such repurchases, will depend upon a variety of factors, including market conditions, regulatory requirements, and other corporate considerations, as determined by the Company’s management team. The Company expects to finance the purchases with existing liquidity. The Company has repurchased $88.8 million of common stock under the Repurchase Plan through December 31, 2023.
Our ability to generate cash from operations to meet our liquidity obligations could be adversely affected in the future by factors such as general economic and market conditions, lack of availability of raw material components in the supply chain, a decline in demand for our services, loss of key contract customers, unsuccessful integration of acquisitions and new operations, global health emergencies, and the related uncertainties around the financial impact, and other unforeseen circumstances. In particular, should demand for our customers’ products and, in turn, our services decrease significantly over the next 12 months, the available cash provided by operations could be adversely impacted. Additional cautionary statements regarding our risk factors are contained in our Annual Report on Form 10-K for the year ended June 30, 2023.
Fair Value
During the second quarter of fiscal year 2024, no level 1 or level 2 financial instruments were affected by a lack of market liquidity. For level 1 financial assets, readily available market pricing was used to value the financial instruments. Our foreign currency derivative assets and liabilities, which were classified as level 2, were independently valued using observable market inputs such as forward interest rate yield curves, current spot rates, and time value calculations. To verify the reasonableness of the independently determined fair values, these derivative fair values were compared to fair values calculated by the counterparty banks. Our own credit risk and counterparty credit risk had an immaterial impact on the valuation of the foreign currency derivatives. See Note 7 - Fair Value of Notes to Condensed Consolidated Financial Statements for additional information.
27


Off-Balance Sheet Arrangements
As of December 31, 2023, we do not have any material off-balance sheet arrangements.
Critical Accounting Policies
Kimball Electronics’ Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America. These principles require the use of estimates and assumptions that affect amounts reported and disclosed in the Condensed Consolidated Financial Statements and related notes. Actual results could differ from these estimates and assumptions. Management uses its best judgment in the assumptions used to value these estimates, which are based on current facts and circumstances, prior experience, and other assumptions that are believed to be reasonable.
There have been no material changes to our critical accounting policies since our Annual Report on Form 10-K for the year ended June 30, 2023. For further information regarding our critical accounting policies, refer to “Note 1 - Business Description and Summary of Significant Accounting Policies” of Notes to Consolidated Financial Statements and “Critical Accounting Policies” in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended June 30, 2023.
28


New Accounting Standards
New accounting standards which have been issued but not yet adopted are typically disclosed in Note 1 - Business Description and Summary of Significant Accounting Policies of Notes to Condensed Consolidated Financial Statements for information regarding New Accounting Standards.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There were no material changes in our exposure to market risks for changes in foreign currency exchange rates and interest rates as compared to the fiscal year ended June 30, 2023.
Comprehensive disclosures of quantitative and qualitative market risk can be found in our Annual Report on Form 10-K for the year ended June 30, 2023.
Item 4. Controls and Procedures
(a)Evaluation of disclosure controls and procedures.
Kimball Electronics maintains controls and procedures designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Based upon their evaluation of those controls and procedures performed, the Chief Executive Officer and Chief Financial Officer of the Company concluded that the disclosure controls and procedures were effective as of December 31, 2023.
(b)Changes in internal control over financial reporting.
There have been no changes in our internal control over financial reporting that occurred during the quarter ended December 31, 2023 that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
We and our subsidiaries are not parties to any pending legal proceedings, other than ordinary routine litigation incidental to the business. The outcome of current routine pending litigation and claims, individually and in the aggregate, is not expected to have a material adverse impact on our business or financial condition.
Item 1A. Risk Factors
We are subject to various risks and uncertainties in the course of our business. A comprehensive disclosure of risk factors related to Kimball Electronics can be found in our Annual Report on Form 10-K for the year ended June 30, 2023.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On October 21, 2015, our Board of Directors (the “Board”) approved an 18-month stock repurchase plan (the “Repurchase Plan”), authorizing the repurchase of up to $20 million worth of our common stock. Then, separately on each of September 29, 2016, August 23, 2017, November 8, 2018, and November 10, 2020, the Board extended and increased the Repurchase Plan to allow the repurchase of up to an additional $20 million worth of common stock with no expiration date, which brought the total authorized stock repurchases under the Repurchase Plan to $100 million.
During the three months ended December 31, 2023, the Company did not purchase any common stock. The Company’s maximum value of remaining shares that may be purchased under the Repurchase Plan was $11.2 million at December 31, 2023.
Item 5. Other Information
During the three months ended December 31, 2023, no officers or directors adopted or terminated any contract, instruction or written plan for the purchase or sale of the Company’s securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any “non-Rule 10b5-1 trading arrangement.”


30


Item 6. Exhibits
Exhibits (numbered in accordance with Item 601 of Regulation S-K)
Incorporated by Reference
Exhibit No.DescriptionFormPeriod EndingExhibitFiling Date
3.18-K3.12/18/2021
3.28-K3.211/15/2022
10.1
8-K
10.1
11/21/2023
10.2
8-K
10.2
11/21/2023
10.3
8-K
10.1
1/5/2024
31.1Filed Herewith
31.2Filed Herewith
32.1(a)
Furnished Herewith
32.2(a)
Furnished Herewith
101.INS
Inline XBRL Instance Document - The instance document does not appear in the Interactive Data File because its Inline XBRL tags are embedded within the Inline XBRL document
Filed Herewith
101.SCH
Inline XBRL Taxonomy Extension Schema Document
Filed Herewith
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document
Filed Herewith
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document
Filed Herewith
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document
Filed Herewith
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document
Filed Herewith
104Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101)Filed Herewith
(a) In accordance with Item 601(b)(32)(ii) of Regulation S-K, the certifications furnished in Exhibit 32.1 and 32.2 will not be deemed “filed” for purposes of Section 18 of the Exchange Act. Such certifications will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference.



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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

  KIMBALL ELECTRONICS, INC.
   
 By:/s/ RICHARD D. PHILLIPS
  Richard D. Phillips
Chief Executive Officer
  February 6, 2024
   
   
 By:/s/ JANA T. CROOM
  Jana T. Croom
Chief Financial Officer
  February 6, 2024

32