What changed in this filing

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Item 1. Business

2023-08-24 compared with 2022-08-30 · 75 added, 58 removed, 189 unchanged (41% of the section changed)

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They should not be construed as a guarantee that such results or events will, in fact, occur or be realized as actual results may differ materially from those expressed in these forward-looking statements.

The statements may be identified by the use of words such as “believes,” “anticipates,” “expects,” “intends,” “plans,” “projects,” “estimates,” “forecasts,” “seeks,” “likely,” “future,” “may,” “might,” “should,” “would,” “could,” “will,” “potentially,” and similar expressions.

It is not possible to foresee or identify all factors that could cause actual results to differ from expected or historical results.

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Kimball Electronics was founded in 1961 and incorporated in 1998.

We are a global, multifaceted manufacturing solutions provider of contract electronics manufacturing services (“EMS”) and diversified manufacturing services, including engineering and supply chain support, to customers in the automotive, medical, industrial, and public safety end markets.

We deliver a package of value that begins with our core competency of producing durable electronics and has expanded into diversified contract manufacturing services for non-electronic components, medical disposables, drug delivery solutions, 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 global footprint and operating system that is enabled by highly integrated procedures, standardization, and teamwork.

We deliver a package of value that begins with our core competency of producing durable electronics and extends to contract manufacturing services for non-electronic components, medical disposables, drug delivery solutions, 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 and reliability throughout the entire life cycle of our customers’ products.

We deliver award-winning service across our global footprint with an operations platform driven by highly integrated procedures, standardization, and teamwork.

Our Customer Relationship Management (“CRM”) model is key to providing our customers convenient access to our global footprint and all of our services throughout the entire product life cycle.

Because our customers are in businesses where engineering changes must be tightly controlled and long product life cycles are common, they value our track record of quality, financial stability, social responsibility, and commitment to long-term relationships.

We have been producing safety critical electronic assemblies for our automotive customers for over 35 years.

During this time, we have developed expertise that has proven to be valuable not only to our automotive customers, but also to our medical, industrial, and public safety customers as well.

We have been successful in growing and diversifying our business by leveraging this experience and know-how in the areas of design and process validation, traceability, process and change control, and lean manufacturing to create valuable and innovative solutions for customers across these verticals.

This includes diversified contract manufacturing services for medical disposables, precision molded plastics, and design, production, and servicing of automation, test, and inspection equipment for industrial applications.

We have harmonized our quality systems to be compliant with various important industry certifications and regulatory requirements, which allows us to take advantage of other strategic points of leverage in the supply chain, and within our operations, to cost-effectively manufacture electronic and non-electronic products in the same production facility for customers from all four end market verticals.

Many of our customers are multinational companies selling products in multiple regions of the world.

These customers leverage investments in their supplier relationships with partners like us that can provide them with engineering, manufacturing, and supply chain support in multiple regions of the world.

We commonly manufacture the same product for the same customer in multiple locations.

Coupled with our CRM model and our global systems, procedures, processes, and teamwork, our strategy for expanding our global footprint has aligned us with the preferences of the customers in our four end market verticals and has positioned us well to support their global growth initiatives.

Our global component sourcing, procurement, quoting, and customer pricing processes and central functions provide our customers with commonality and consistency across the various regions where we operate.

For example, our central sourcing organization uses global procurement processes and strategies to ensure sufficient availability of components and a uniform approach to pricing while leveraging the purchase volume of the entire organization.

We manage customer pricing for the products we produce primarily with a standardized, global quoting model that we can apply seamlessly wherever our customers ask us to produce their products.

Our CRM model combines experts from our manufacturing facilities and members of our business development team who reside remotely and nearer to our customers around the world.

We also have cross-functional teams in the areas of quality, operational excellence, quoting, and design engineering with representatives from our various locations that provide support to our teams on a global basis.

The skill sets of these team members and the clarity in their roles and responsibilities help provide our customers with a strong conduit that is critical to execution and forming a strong relationship.

We have institutionalized a customer scorecard process that provides all levels of our company with valuable feedback that drives actions for continuous improvement.

This process has helped us deliver award-winning service and build loyalty with our customers.

Because they operate in industries that demand rigorous engineering controls and that commonly require long product life cycles, our customers value our track record of quality, financial stability, social responsibility, and commitment to long-term relationships.

For over 35 years, we have manufactured safety-critical electronic assemblies for automotive customers, developing invaluable expertise that extends beyond the automotive industry to benefit our customers in the medical and industrial sectors as well.

By harnessing our experience and expertise in design and process validation, traceability, process and control change, as well as lean manufacturing, we have achieved substantial growth and diversification.

This has enabled us to create innovative and valuable solutions for customers across our three verticals.

We have harmonized our quality systems to meet and exceed industry certifications and regulatory requirements.

This allows us to leverage key supply chain advantages and streamline our operations, enabling cost-effective manufacturing of both electronic and non-electronic products within a single production facility for customers from all three end market verticals.

Many of our customers are multinational companies operating across multiple global regions, and they maximize their supplier relationship by partnering with us for engineering, manufacturing, and supply chain support across multiple locations and regions.

We commonly manufacture the same product for the same customer in multiple facilities.

Coupled with our CRM model and our global systems, procedures, processes, and teamwork, our strategic approach to expanding our global footprint aligns with our customers’ preferences in our three end market verticals.

This positions us strongly to support their global growth initiatives.

Our customers benefit from consistent processes across all regions thanks to our global component sourcing, procurement, quoting, and customer pricing operations.

Our central sourcing organization employs global procurement strategies that ensure consistent component availability and uniform pricing approach by leveraging the purchase volume of our entire organization.

Our unified, global quoting model allows us to seamlessly respond to our customers’ production needs anywhere across our global footprint.

Our CRM model combines our facilities’ manufacturing experts with our business development team members located in-region with our global customers.

Cross-functional teams from multiple facilities collaborate in quality, operational excellence, quoting, and design engineering global support.

Clear roles and responsibilities, combined with diverse skill sets, establish a robust conduit critical for execution of our customers’ objectives and building strong customer relationships.

Our robust customer scorecard process provides valuable feedback to all levels of our company, driving continuous improvement initiatives, strengthening our award-winning service, and fostering deep customer loyalty.

Our corporate headquarters is located at 1205 Kimball Boulevard, Jasper, Indiana.

Production occurs in our facilities located in the United States, China, Mexico, Poland, Romania, Thailand, and Vietnam.

We manufacture products for our customers at facilities located in the United States, China, Mexico, Poland, Romania, Thailand, and Vietnam.

We also have operations in India and Japan.

Our services are sold globally on a contract basis, and we produce products to our customers’ specifications with manufacturing services which primarily include:

We offer our services globally on a contract basis, and we manufacture products to our customers’ specifications.

Our services primarily include:

• Production and testing of printed circuit board assemblies (PCBAs);

• Full box build manufacturing and assembly;

• Final Assembly of medical electronic products;

• Design services and support;

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• Reliability testing (testing of products under a series of extreme environmental conditions);

• Production and testing of printed circuit board assemblies (PCBAs);

• Aftermarket services;

• Production and assembly of medical devices, medical disposables including packaging, and other non-electronic products;

• Drug delivery devices and solutions with and without electronics;

• Class 8 clean room assembly, cold chain and product sterilization management;

• Design engineering and manufacturing of automation, test, and inspection equipment;

• Class 7 and 8 clean room assembly, cold chain and product sterilization management;

• Design engineering and production of precision molded plastics;

• Design engineering and manufacturing of automation, test, and inspection equipment;

• Software design;

• Complete product life cycle management.

We pride ourselves on the fact that we pay close attention to the evolving needs and preferences of our customers, and we continue to look for opportunities to grow and diversify our business by expanding our package of value and global footprint.

We take pride in our attentive approach to understanding and adapting to our customers’ ever-changing needs and preferences.

We continuously seek opportunities to grow and diversify our business and the value we deliver to customers while enhancing our global presence.

Reporting Segment

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Our operating segments meet the aggregation criteria under the accounting guidance for segment reporting.

As of June 30, 2022, all of our operating segments provided contract manufacturing services, including engineering and supply chain support, for the production of electronic assemblies and other products including medical devices, medical disposables, precision molded plastics, and automation, test, and inspection equipment primarily in automotive, medical, industrial, and public safety applications, to the specifications and designs of our customers.

As of June 30, 2023, all of our operating segments provided contract manufacturing services, including engineering and supply chain support, for the production of electronic assemblies and other products including medical devices, medical disposables, precision molded plastics, and automation, test, and inspection equipment primarily in automotive, medical, and industrial applications, to the specifications and designs of our customers.

The nature of the products, the production process, the type of customers, and the methods used to distribute the products have similar characteristics across all our operating segments.

Each of our operating segments services customers in multiple markets, and many of our customers’ programs are manufactured and serviced by multiple operating segments.

Each of our operating segments serves customers in multiple markets, and many of our customers’ programs are manufactured and serviced by multiple operating segments.

We leverage global processes such as component procurement and customer pricing that provide commonality and consistency among the various regions in which we operate.

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Our Business Offerings

We offer contract electronics manufacturing services, including engineering and supply chain support, to customers in the automotive, medical, industrial, and public safety end market verticals.

We further offer diversified contract manufacturing services for non-electronic components, medical disposables, precision molded plastics, as well as production automation, test, and inspection equipment.

We offer electronics manufacturing services, including engineering and supply chain support, to customers in the automotive, medical, and industrial end market verticals.

We further offer contract manufacturing services for non-electronic components, medical disposables, precision molded plastics, as well as production automation, test, and inspection equipment.

Our services support the complete product life cycle of our customers’ products, and our processes and capabilities cover a range of products from high volume-low mix to high mix-low volume.

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Our robust new product introduction process and our extensive manufacturing capabilities give us the ability to execute to the various quality and reliability expectations of our customers in each of our end market verticals.

We are committed to protecting the planet by combating climate change, including contributing to a lower carbon future, in our operations, our value chains, and in the services we offer to our customers.

Our strategies include actions to optimize our manufacturing facilities and processes for sustainability, increase clean energy in our purchased power mix, collaborate with our customers and supply chain to address upstream and downstream carbon emissions, invest in clean energy solutions for climate protection, and develop low carbon products, technologies and services.

We value our customers and their unique needs and expectations.

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Personal relationships are important to us, and we strive to build long-term global partnerships.

Our commitment to support our customers is backed by our history and demonstrated performance for the past 60 years.

Our commitment to support our customers is backed by our history and demonstrated performance for over the past 60 years.

Marketing Channels

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Our continuing success depends upon our ability to replace expiring customers/programs with new customers/programs.

We do not believe that we, or the industry in general, have any special practices or special conditions affecting working capital items that are significant for understanding our business other than fluctuating inventory levels, which may increase in conjunction with the start-up of new programs and component availability.

We, and the industry in general, have special conditions affecting working capital that are significant for understanding our business, including fluctuating inventory levels, which may increase in conjunction with the start-up of new programs and component availability.

Additionally, the nature of the contract manufacturing business is such that customers may be required to make advance payments for certain inventory purchases and share in the risk of excess and obsolete inventory.

Our Competitive Strengths

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Our competition includes EMS companies such as Benchmark Electronics, Inc., Flex Ltd., Jabil Inc., Plexus Corp., and Sanmina Corporation.

We do not have a significant share of the EMS market and were ranked the 21st largest global EMS provider for calendar year 2021 by Manufacturing Market Insider in the March 2022 edition published by New Venture Research.

As of June 30, 2022, we have eleven manufacturing facilities with two located in Indiana, two in China, and one located in each of California, Florida, Mexico, Poland, Romania, Thailand, and Vietnam.

We do not have a significant share of the EMS market and were ranked the 20th largest global EMS provider for calendar year 2022 by Manufacturing Market Insider in the March 2023 edition published by New Venture Research.

As of June 30, 2023, we have twelve manufacturing facilities with two located in Indiana, two in China, two in Mexico, and one located in each of California, Florida, Poland, Romania, Thailand, and Vietnam.

Our software design services are primarily performed at our location in India, and other support services are performed at our location in Japan.

We continually assess our capacity needs and evaluate our operations to optimize our service levels for supporting our customers’ needs around the globe, and we have recently expanded our facility in Thailand and are in the process of expanding the facilities in Mexico and Poland.

See Item 1A - Risk Factors for information regarding financial and operational risks related to our international operations.

Consolidated sales revenue is generally not affected by seasonality.

While the total electronic assemblies market has broad applications, our customers are concentrated in the automotive, medical, industrial, and public safety end markets.

While the total electronic assemblies market has broad applications, our customers are concentrated in the automotive, medical, and industrial end markets.

Beginning in fiscal year 2023, the Company changed its presentation of revenue for the industrial and public safety end market verticals by combining them into the industrial end market vertical.

Prior year periods have been recast to conform to the current year presentation.

Sales by industry as a percent of net sales for each of the three years in the period ended June 30, 2023 were as follows:

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Industrial 26% 27% 26%

Public Safety 4% 3% 5%

Other 2% 1% 1%

Total 100% 100% 100%

Included in our sales were a significant amount to Nexteer Automotive and Philips, which accounted for the following portions of net sales:

Included in our sales were a significant amount to Nexteer Automotive, Philips, and ZF, which accounted for the following portions of net sales:

Year Ended June 30

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Philips 14% 15% 15%

* amount is less than 10% of total

The nature of the contract manufacturing business is such that start-up of new programs to replace expiring programs occurs frequently.

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Raw materials utilized in the manufacture of contract electronic products are generally readily available from both domestic and foreign sources, although from time to time the industry experiences shortages of certain components due to supply and demand forces, combined with rapid product life cycles of certain components.

In addition, unforeseen events such as natural disasters and the COVID-19 global pandemic can and have disrupted portions of the supply chain.

In addition, unforeseen events such as natural disasters and global events, like pandemics, can and have disrupted portions of the supply chain.

We believe that maintaining close communication with suppliers helps minimize potential disruption in our supply chain.

The EMS industry is currently experiencing component shortages, component allocations, cost inflation, and shipping delays, particularly with semiconductors, driven by the strong demand in electronics and the global recovery from the impact of COVID-19, complicated by its continued impact.

The EMS industry continues to experience component shortages, component allocations, and shipping delays, particularly with semiconductors, which were especially challenging in the prior fiscal year.

Component shortages or allocations could continue to increase component costs and potentially interrupt our operations and negatively impact our ability to meet commitments to customers.

The semiconductor shortage has adversely impacted global manufacturing, including the automotive industry, leading to automakers temporarily suspending production at times.

We take various actions to attempt to mitigate the risk and minimize the impact to our customers as well as the adverse effect component shortages or allocations could have on our results.

We take various actions to attempt to mitigate the risk and minimize the impact to our customers as well as the adverse effect component shortages, component allocations, or shipping delays could have on our results.

Through contractual pricing arrangements and negotiations with our customers, we attempt to mitigate the adverse effect that cost increases could have on our results.

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We are committed to responsible, sustainable environmental, social, and governance philosophies and practices, which have been a part of our fabric since our founding in 1961.

To showcase how our employees around the world share a strong sense of responsibility to protect the environment, sustain a safety focus at our facilities, and give back in meaningful ways to the communities where we live and work, we issued our latest annual Environmental, Social & Governance Report (“ESG Report”) in February 2022.

The ESG Report highlights the long-term environmental, social, and governance principles and practices designed to support the Company’s commitment to sustaining lasting relationships and achieving global success with its stakeholders wherever Kimball Electronics’ touch is felt throughout the world.

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Further, we seek to remove any suppliers that continue to fail to meet our supplier and conflict minerals policies after being provided the opportunity to remedy non-compliance via implementation of a corrective action plan.

We also conduct recurring internal trainings for all employees and certain select contractors on export compliance, anti-corruption and anti-slavery, and insider trading.

In addition, Kimball Electronics is a member of the Responsible Minerals Initiative, which is evaluating the supply chain risks of conflict minerals and other minerals (e.g., cobalt, mica) and studying how to mitigate those risks.

We also conduct recurring, annual training for all employees and certain select contractors on export compliance, anti-corruption and anti-slavery, and insider trading.

In addition, Kimball Electronics is a member of the RMI, which is evaluating the supply chain risks of conflict minerals and other minerals (e.g., cobalt, mica) and studying how to mitigate those risks.

As reflected in our Vision and Guiding Principles, Kimball Electronics is committed to the highest standards of conduct in its business dealings.

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We live this Guiding Principle and further the goals of our Human Rights Policy when we contribute and encourage our employees to contribute to our local communities.

Below are examples of our contributions:

• In 2022, we committed $100,000 to Southwestern Indiana Child Advocacy Center Coalition (“SWICACC”), a safe reporting center for abused or neglected children that serves seven counties in southwestern Indiana.

We made our final installment of the commitment in fiscal year 2023.

• On International Women’s Day 2021, we donated $5,000 to Water To Thrive to build a freshwater well system for a village in Ethiopia because safe, fresh drinking water is a basic human right.

We donated $20,000 and over 200 hours of paid work time so that our employees could volunteer to help build a house for Greater Indy Habitat for Humanity.

We donated $10,000 each to the Red Cross in Poland and Romania to aid in Ukrainian relief efforts, and gave our employees in Poland two days of paid time off for volunteering to help refugees.

Kimball Electronics Gives, an employee-based giving circle, raised enough money to offer grants totaling $10,500 to eight worthy causes.

This well was fully operational during fiscal year 2023.

• In 2022, we donated $100,000 to refugee-related activities and aid causes, including Ukrainian refugees.

• Kimball Electronics Gives, an employee-based giving circle, raised enough money to offer grants totaling $8,400 to seven worthy causes selected by our employees.

To date, Kimball Electronics Gives has donated $41,500 to various worthy causes.

• In 2022, we implemented our Creating Quality for Life Scholarship program, awarding 10 dependents of employees a total of $12,500.

• We also initiated our Employee Relief Fund to help employees with undue financial stress placed on them and their families due to a catastrophic event or other unfortunate personal event creating financial hardship.

Environment and Energy Matters

Our operations are subject to various foreign, federal, state, and local laws and regulations with respect to environmental matters.

Our operations are subject to various foreign, federal, state, and local laws and regulations with respect to environmental and ecological matters.

We believe that we are in substantial compliance with present laws and regulations and that there are no material liabilities related to such items.

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Federal, foreign, and state regulations may control the allocation of fuels available to us, but to date we have experienced no interruption of production due to such regulations.

Kimball Electronics participates in the Carbon Disclosure Project (CDP) climate change and water security questionnaires to quantify our environmental practices, provide transparency on our progress, and assist in the reduction of our contributions to climate change.

Additionally, we align our sustainability reporting with the Sustainability Accounting Standards Board (SASB) and the Task Force On Climate Related Financial Disclosures (TCFD) frameworks and also highlight our alignment with the UN Sustainable Development Goals and the UN Global Compact.

We discuss our ESG goals and programs in detail in our annual ESG report.

We publish this ESG report and our responses to the CDP climate change and water security questionnaires annually on our website at kimballelectronics.com/esg.

We publish this information because our Guiding Principles remind us that the environment is our home and that we will be leaders in not only protecting but enhancing our world.

The contents of the ESG reports and CDP questionnaire responses are not incorporated by reference into this Annual Report on Form 10-K or in any other report or document we file with the SEC.

Refer to the discussion in Item 1A - Risk Factors for further details of the legal and regulatory initiatives related to environmental matters including climate change that could adversely affect our business, results of operations, and financial condition.

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As of June 30, 2023, Kimball Electronics employed approximately 7,900 people worldwide, with approximately 1,300 located in the United States and approximately 6,600 located in foreign countries.

Half of the independent members of the Board of Directors are female, along with four of our nine executive management team members and over 50% of our global workforce.

We continue to execute on our commitment to diversity, equity, inclusion,

and belonging, and exhibit our commitment to gender, racial, and ethnic diversity by striving toward the corporate goals we outline in both our Global Human Rights Policy and Diversity, Equity, Inclusion, and Belonging statement, including by:

Three of our seven independent members of the Board of Directors are female, along with four of our eight executive management team members and over 50% of our global workforce.

We continue to execute on our commitment to diversity, equity, inclusion, and belonging, and exhibit our commitment to gender, racial, and ethnic diversity by striving toward the corporate goals we outline in both our Global Human Rights Policy and Diversity, Equity, Inclusion, and Belonging statement, including by:

• Increasing female representation globally at the executive and senior management levels;

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We believe this is evidence that we truly operate our business as our people are the company.

We consistently have a participation rate in our Guiding Principles survey that exceeds 90%.

We consistently have a participation rate in our Guiding Principles survey of approximately 90%.

Upon completion of this survey every year, each local management team receives qualitative and quantitative feedback and are responsible for crafting improvement plans based on our people’s inputs.

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For additional information, see the Company’s Proxy Statement to be filed for its annual meeting of Share Owners to be held November 17, 2023 under the caption “Our People are the Company:

Human Capital Management and Succession Planning Oversight.”

Human Capital Management.”

Available Information

The Company makes available free of charge through its website, http://investors.kimballelectronics.com, its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements, and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with, or furnished to, the Securities and Exchange Commission (“SEC”).

The Company makes available free of charge through its website, https://investors.kimballelectronics.com, its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements, and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with, or furnished to, the Securities and Exchange Commission (“SEC”).

All reports the Company files with the SEC are also available via the SEC website, http://www.sec.gov.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business