What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-08-24 compared with 2022-08-30 · 157 added, 143 removed, 860 unchanged (26% of the section changed)

20 unchanged sentences

Based on that evaluation, conducted under the criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, management concluded that our internal control over financial reporting was effective as of June 30, 2023.

/s/ DONALD D.

Chairman of the Board,

/s/ RICHARD D.

Chief Executive Officer

51 unchanged sentences

▪ Evaluated the calculation of the amount of revenue to recognize for the performance obligation by:

◦ Evaluating the reasonableness of management’s anticipated margins used in the Company’s calculation of revenue for performance obligations.

◦ Evaluating the reasonableness of management’s anticipated margins used in the Company’s calculation of revenue.

◦ Evaluating the appropriateness and consistency of the methods and assumptions used by management to develop the estimates of anticipated margin at completion.

• We tested the mathematical accuracy of management’s calculation of revenue recognized over time and the related contract asset balance.

/s/ Deloitte & Touche LLP

Indianapolis, Indiana

August 23, 2023

/s/ Deloitte & Touche LLP

We have served as the Company’s auditor since 2014.

22 unchanged sentences

Accounts payable 322,274 300,224

Advances from customers 33,905 25,942

Accrued expenses 72,515 46,996

12 unchanged sentences

Shares issued:

Shares outstanding:

24,724,000 and 24,626,000 , respectively

Additional paid-in capital 315,482 311,090

17 unchanged sentences

Other General Income ( 212 ) ( 1,384 ) ( 372 )

Goodwill Impairment — — 7,925

Operating Income 87,729 52,549 65,703

2 unchanged sentences

Interest expense ( 16,263 ) ( 2,655 ) ( 2,165 )

Non-operating income 590 7,929 2,103

Non-operating expense ( 6,834 ) ( 1,515 ) ( 4,581 )

Non-operating income (expense), net 3,125 ( 6,244 ) 6,414

Other income (expense), net ( 12,985 ) ( 8,818 ) 4,351

32 unchanged sentences

Net income $ 55,831 $ 31,253 $ 56,791

Adjustments to reconcile net income to net cash (used for) provided by operating activities:

Adjustments to reconcile net income to net cash (used for) provided by:

Depreciation and amortization 32,416 29,411 34,020

Loss on sales of assets 90 66 69

(Gain) loss on sales of assets ( 23 ) 90 66

Deferred income taxes ( 1,714 ) 772 ( 6,305 )

Goodwill impairment — — 7,925

Stock-based compensation 6,914 6,224 3,907

Net working capital adjustment on acquisition — — 3,785

Other, net 33 1,914 1,207

5 unchanged sentences

Accounts payable 20,448 89,234 14,460

Advances from customers 7,938 22,565 565

Accrued expenses and taxes payable 24,956 ( 11,687 ) 12,428

15 unchanged sentences

Net cash provided by (used for) financing activities 99,179 103,741 ( 53,078 )

Effect of Exchange Rate Change on Cash and Cash Equivalents ( 2,356 ) 3,231 ( 678 )

Net (Decrease) Increase in Cash and Cash Equivalents ( 56,591 ) 41,452 15,714

Cash and Cash Equivalents at Beginning of Year 106,442 64,990 49,276

Cash and Cash Equivalents at End of Year $ 49,851 $ 106,442 $ 64,990

Effect of Exchange Rate Change on Cash, Cash Equivalents, and Restricted Cash ( 895 ) ( 2,356 ) 3,231

Net (Decrease) Increase in Cash, Cash Equivalents, and Restricted Cash ( 5,987 ) ( 56,591 ) 41,452

Cash, Cash Equivalents, and Restricted Cash at Beginning of Year (1)

49,851 106,442 64,990

Cash, Cash Equivalents, and Restricted Cash at End of Year (1)

$ 43,864 $ 49,851 $ 106,442

Supplemental Disclosure of Cash Flow Information

4 unchanged sentences

Unpaid purchases of property and equipment at the end of the year $ 3,122 $ 4,538 $ 3,667

(1) The following table reconciles cash and cash equivalents in the consolidated balance sheets to cash, cash equivalents, and restricted cash per the consolidated statements of cash flows.

The restricted cash included in Prepaid expenses and other current assets on the consolidated balance sheet represents funds held by the Company for a foreign subsidiary’s employee savings plan.

Year Ended June 30

2023 2022 2021

Cash and Cash Equivalents $ 42,955 $ 49,851 $ 106,442

Restricted Cash included in Prepaid expenses and other current assets $ 909 $ — $ —

Total Cash, Cash Equivalents, and Restricted Cash at end of period $ 43,864 $ 49,851 $ 106,442

See Notes to Consolidated Financial Statements

20 unchanged sentences

( 3,126 ) 1,566 ( 1,560 )

Restricted share units issuance ( 2,000 shares)

( 40 ) 22 ( 18 )

Deferred share issuance ( 3,000 shares)

9 unchanged sentences

( 2,417 ) 1,001 ( 1,416 )

Restricted share units issuance ( 2,000 shares)

( 40 ) 22 ( 18 )

Deferred share issuance ( 3,000 shares)

Repurchase of Common Stock

( 485,000 shares)

( 9,122 ) ( 9,122 )

Amounts at June 30, 2023 $ 315,482 $ 296,053 $ ( 11,046 ) $ ( 76,495 ) $ 523,994

6 unchanged sentences

(also referred to herein as “Kimball Electronics,” the “Company,” “we,” “us,” or “our”) is a global, multifaceted manufacturing solutions provider.

We provide contract electronics manufacturing services (“EMS”) and diversified manufacturing services, including engineering and supply chain support, to customers in the automotive, medical, industrial, and public safety end markets.

We 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, precision molded plastics, and production automation, test, and inspection equipment.

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.

4 unchanged sentences

All significant intercompany balances and transactions have been eliminated in the consolidation.

Certain amounts for the years ended June 30, 2021 and 2020 have been reclassified to conform to current period presentation in the Consolidated Statements of Cash Flow within the Cash Flows from Operating Activities section.

Deferred tax valuation allowance is now included with Deferred income taxes while the other deferred charges have been reclassified to Other, net.

Reclassifications:

Advances from customers are now reported separately under Current Liabilities on the Consolidated Balance Sheets and reported separately on the 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 Consolidated Financial Statements for more information on advances from customers.

Use of Estimates:

2 unchanged sentences

While efforts are made to assure estimates used are reasonably accurate based on management’s knowledge of current events, actual results could differ from those estimates.

We have made estimates and assumptions considering the impact of the COVID-19 pandemic on our business.

These estimates may change as new events occur and more information is obtained.

Change in Estimates:

3 unchanged sentences

Changes in estimates are accounted for on a prospective basis by depreciating the assets’ current carrying values over their revised remaining useful lives.

The review performed by the Company in the current year indicated that Surface Mount Technology production equipment had actual lives that were longer than previously estimated.

The review performed by the Company in the prior fiscal year indicated that Surface Mount Technology production equipment had actual lives that were longer than previously estimated.

As a result of these findings, the Company changed its estimates of useful lives on these assets to 10 years, from lives of 5 or 7 years.

1 unchanged sentence

The effects of this change in useful life estimate for the fiscal year ended June 30, 2023 were a decrease in depreciation expense of $ 6.8 million, an increase in net income of $ 5.3 million, and an increase to basic and diluted earnings per share by $ 0.21 .

The effects of this change for the fiscal year ended June 30, 2022 were a decrease in depreciation expense of $ 6.3 million, an increase in net income of $ 4.9 million, and an increase to basic and diluted earnings per share by $ 0.19 .

Segment Information:

3 unchanged sentences

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

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

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

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

31 unchanged sentences

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 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.

8 unchanged sentences

Factoring fees were $ 4.8 million, $ 1.6 million, and $ 1.2 million during fiscal years 2023, 2022, and 2021, respectively, and were included in Selling and Administrative Expenses on the Consolidated Statements of Income.

One of our China operations, in limited circumstances, may receive banker’s acceptance drafts from customers as payment on account.

The banker’s acceptance drafts are non-interest bearing and primarily mature within six months from the origination date.

The Company has the ability to sell the drafts at a discount or transfer the drafts in settlement of current accounts payable prior to the scheduled maturity date.

We did not hold any drafts at June 30, 2022, and the drafts totaled less than $ 0.1 million at June 30, 2021.

These drafts were reflected in Receivables on the Consolidated Balance Sheets until the banker’s drafts are sold at a discount, transferred in settlement of current accounts payable, or cash is received at maturity.

Banker’s acceptance drafts sold at a discount or transferred in settlement of current accounts payable during fiscal years 2022, 2021, and 2020 were less than $ 0.1 million, $ 1.8 million, and $ 6.8 million, respectively.

See Note 6 - Commitments and Contingent Liabilities of Notes to Consolidated Financial Statements for more information on banker’s acceptance drafts.

Inventories are stated at the lower of cost and net realizable value.

5 unchanged sentences

Factors considered when evaluating obsolescence include the age of on-hand inventory and reduction in value due to damage, design changes, or cessation of product lines.

Evaluation of both excess inventory and obsolescence also considers whether customer agreements specify customer obligation to pay for such inventory.

Property, Equipment, and Depreciation:

32 unchanged sentences

Research and Development:

The costs of research and development are expensed as incurred.

Research and development costs were approximately, in millions, $ 23.7 , $ 20.9 , and $ 16.9 in fiscal years 2022, 2021, and 2020, respectively.

The costs of research and development are expensed as incurred and are included in Cost of Sales on the Consolidated Statements of Income.

Research and development costs were approximately $ 24.4 million, $ 23.7 million, and $ 20.9 million in fiscal years 2023, 2022, and 2021, respectively.

Insurance and Self-insurance:

13 unchanged sentences

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.

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.

12 unchanged sentences

ZF 12 % * * 10 % *

HL Mando * * * 12 % *

* amount is less than 10% of total

Off-Balance Sheet Risk:

Off-balance sheet arrangements are limited to banker’s acceptance drafts transferred with recourse provisions at one of the Company’s China operations and standby letters of credit entered into in the normal course of business as described in Note 6 - Commitments and Contingent Liabilities of Notes to Consolidated Financial Statements.

Off-balance sheet arrangements are limited to standby letters of credit entered into in the normal course of business as described in Note 6 - Commitments and Contingent Liabilities of Notes to Consolidated Financial Statements.

Other General Income:

Other General Income in fiscal years 2022 and 2021 consisted of $ 1.4 million and $ 0.4 million, respectively, resulting from payments received related to class action lawsuits in which Kimball Electronics was a class member.

Other General Income in fiscal years 2023, 2022, and 2021 consisted of $ 0.2 million, $ 1.4 million, and $ 0.4 million, respectively, resulting from payments received related to class action lawsuits in which Kimball Electronics was a class member.

These lawsuits alleged that certain suppliers to the EMS industry conspired over a number of years to raise and fix the prices of electronic components, resulting in overcharges to purchasers of those components.

The fiscal year 2021 amount was partially offset by lawsuit settlement accruals and payments.

We recorded no Other General Income during fiscal year 2020.

Non-operating Income and Expense:

1 unchanged sentence

The gain or loss on SERP investments is offset by a change in the SERP liability that is recognized in Selling and Administrative Expense.

Non-operating loss in fiscal year 2022 included $ 4.2 million in net losses from foreign currency rate movements and related derivative gain or loss.

Non-operating income in fiscal year 2021 included $ 4.8 million in net gains from foreign currency rate movements and related derivative gain or loss.

Non-operating expense in fiscal year 2020 included a $ 3.8 million net working capital adjustment recorded after the end of the measurement period of the GES acquisition that was determined through the dispute resolution procedure provided for under the terms of the asset purchase agreement.

Components of Non-operating income (expense), net:

(Amounts in Thousands) 2023 2022 2021

Foreign currency/derivative gain (loss) $ 2,769 $ ( 4,182 ) $ 4,806

Gain (loss) on SERP investments 701 ( 1,563 ) 2,073

Other ( 345 ) ( 499 ) ( 465 )

Non-operating income (expense), net $ 3,125 $ ( 6,244 ) $ 6,414

Foreign Currency Translation:

6 unchanged sentences

dollar, the translation of functional currency statements to U.S.

dollar statements uses end-of-period exchange rates for assets and liabilities, weighted average exchange rates for revenue

and expenses, and historical rates for equity.

dollar statements uses end-of-period exchange rates for assets and liabilities, weighted average exchange rates for revenue and expenses, and historical rates for equity.

The resulting currency translation adjustment is recorded in Accumulated Other Comprehensive Income (Loss), as a component of Share Owners’ Equity .

11 unchanged sentences

Non-Employee Directors Stock Compensation Deferral Plan (the “Deferral Plan”), which allows Non-Employee Directors to elect to defer all, or a portion of, their retainer fees in stock.

We recognize the cost resulting from share-based payment transactions using a fair-value-based method.

We recognize the cost resulting from share-based payment transactions using a fair-value-based method on a majority of our transactions.

The estimated fair value of outstanding performance shares is based on the stock price at the date of the grant.

2 unchanged sentences

New Accounting Standards:

Adopted in Fiscal Year 2022:

In December 2019, the FASB issued guidance on Simplifying the Accounting for Income Taxes, intended to simplify various aspects related to the accounting for income taxes.

We adopted this standard effective July 1, 2021, the beginning of our first quarter of fiscal year 2022, and the adoption did not have a material effect on our Consolidated Financial Statements.

Currently, there are no issued but not yet adopted accounting standards that are expected to have a material impact on the Company.

Note 2 Revenue from Contracts with Customers

Our revenue from contracts with customers is generated primarily from manufacturing services provided for the production of electronic assemblies, electronic and non-electronic components, medical devices, medical disposables, precision molded plastics, and automation, test, and inspection equipment in automotive, medical, industrial, and public safety applications, to the specifications and designs of our customers.

Our revenue from contracts with customers is generated primarily from manufacturing services provided for the production of electronic assemblies, electronic and non-electronic components, medical devices, medical disposables, precision molded plastics, and automation, test, and inspection equipment in automotive, medical, and industrial applications, to the specifications and designs of our customers.

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

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

The following table disaggregates our revenue by end market vertical for fiscal years 2023, 2022, and 2021:

4 unchanged sentences

Industrial 474.6 358.2 341.8

Public Safety 50.1 48.1 56.2

Other 34.7 17.4 13.7

Total net sales $ 1,823.4 $ 1,349.5 $ 1,291.8

For fiscal years 2022, 2021, and 2020, approximately 95 %, 89 %, and 78 % 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 for which

we have an enforceable right to payment for performance completed to date.

For fiscal years 2023, 2022, and 2021, approximately 95 %, 95 %, and 89 % 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 for which we have an enforceable right to payment for performance completed to date.

The remaining sales revenues were recognized at a point in time when the customer obtained control of the products.

2 unchanged sentences

Contract assets were $ 78.8 million and $ 64.1 million as of June 30, 2023 and 2022, respectively.

In limited circumstances, the Company may receive payments from customers in advance of the satisfaction of performance obligations primarily for material price variances, tooling, or other miscellaneous services or costs.

These advance payments are recognized as contract liabilities until the performance obligations are completed and are included in Accrued expenses on the Consolidated Balance Sheets, which amounted to $ 22.5 million and $ 7.6 million as of June 30, 2022 and 2021, respectively.

The Company may receive payments from customers in advance of the satisfaction of performance obligations primarily for material price variances, inventory purchases, tooling, or other miscellaneous services or costs.

These payments are recognized as contract liabilities until the performance obligations are completed and are included in Advances from customers, if inventory related, and Accrued expenses, if not inventory related, on the Consolidated Balance Sheets.

These payments amounted to $ 45.6 million and $ 30.9 million as of June 30, 2023 and 2022, respectively.

Our performance obligations are short term in nature and therefore our contract liabilities are all expected to be settled within twelve months.

21 unchanged sentences

Land use rights 39

Leasehold improvements Lesser of Useful Life or Term of Lease

Depreciation of property and equipment totaled, in millions, $ 26.0 for fiscal year 2022, $ 30.7 for fiscal year 2021, and $ 27.7 for fiscal year 2020.

Depreciation of property and equipment totaled $ 28.9 million for fiscal year 2023, $ 26.0 million for fiscal year 2022, and $ 30.7 million for fiscal year 2021.

Note 5 Goodwill and Other Intangible Assets

9 unchanged sentences

Goodwill, net $ 12,011

Balance as of June 30, 2022

Goodwill 32,762

Accumulated impairment ( 20,751 )

Goodwill, net $ 12,011

During fiscal years 2023, 2022, and 2021, no goodwill impairment was recognized.

During fiscal year 2020, $ 7.9 million of goodwill impairment was recognized at the GES reporting unit.

The impact to net income also included a $ 1.0 million reduction in income tax expense associated with the deferred tax asset established for the deductible portion of the impaired goodwill.

The balance of goodwill at the GES reporting unit was $ 5.8 million at both June 30, 2023 and 2022.

For the annual GES impairment test performed in the fourth quarter of fiscal year 2023, we used an independent, third-party valuation specialist to assist in the determination of fair value for the GES reporting unit.

We used a combination of the Income Approach, using a discounted cash flow model, and the Market Approach.

The GES reporting unit fair value exceeded the carrying value by less than 2 %.

The forecast assumptions used in the annual impairment test are considered management’s best projections for the outlook of this business but are uncertain, and potential events or circumstances, such as trends in the semiconductor and consumer electronics capital equipment markets which GES serves, could have a negative effect on GES’s estimated fair value and result in impairment charges that could be material to the Consolidated Financial Statements.

A summary of other intangible assets subject to amortization is as follows:

21 unchanged sentences

We also may enter into commercial letters of credit to facilitate payments to vendors and from customers.

Banker’s Acceptance Drafts:

One of the Company’s China operations, in limited circumstances, receives banker’s acceptance drafts from customers as settlement for their trade accounts receivable.

We in turn may transfer the acceptance drafts to a supplier of ours in settlement of current accounts payable.

These drafts contain certain recourse provisions afforded to the transferee under laws of The People’s Republic of China.

If a transferee were to exercise its available recourse rights, the draft would revert back to our China operation and we would be required to satisfy the obligation with the transferee.

We did not have any drafts transferred and outstanding at June 30, 2022, and the drafts transferred and outstanding at June 30, 2021 totaled $ 0.1 million.

No transferee has exercised their recourse rights against us.

For additional information on banker’s acceptance drafts, see Note 1 – Business Description and Summary of Significant Accounting Policies of Notes to Consolidated Financial Statements.

Product Warranties:

The Company provides only assurance-type warranties for a limited time period, which cover workmanship and assures the product complies with specifications provided by or agreed upon with the customer.

We maintain a provision for limited warranty repair or replacement of products manufactured and sold, which has been established in specific manufacturing contract agreements.

We estimate product warranty liability at the time of sale based on historical repair or replacement cost trends in conjunction with the length of the warranty offered.

Management refines the warranty liability periodically based on changes in historical cost trends and in certain cases where specific warranty issues become known.

Product warranty liability is recorded in Accrued expenses and Other long-term liabilities on the Consolidated Balance Sheets.

Changes in the product warranty liability during fiscal years 2022, 2021, and 2020 were as follows:

(Amounts in Thousands) 2022 2021 2020

Product Warranty Liability at the beginning of the year $ 610 $ 647 $ 958

Additions to warranty accrual (including changes in estimates)

( 49 ) 21 ( 271 )

Settlements made (in cash or in kind) ( 32 ) ( 58 ) ( 40 )

Product Warranty Liability at the end of the year $ 529 $ 610 $ 647

We maintain a provision for limited warranty repair or replacement of products manufactured and sold pursuant to specific manufacturing contract agreements that require such provisions.

We estimate this product warranty liability at the time of sale based on historical repair or replacement cost trends in conjunction with the length of the warranty offered.

Management refines this warranty liability periodically based on changes in historical cost trends and in certain cases where specific warranty issues become known.

This product warranty liability and expense was immaterial during fiscal years 2023, 2022, and 2021.

Note 7 Credit Facilities

1 unchanged sentence

Available Borrowing Capacity at Borrowings Outstanding at Borrowings Outstanding at

(Amounts in Millions, in U.S Dollar Equivalents) June 30, 2022 June 30, 2022 June 30, 2021

(Amounts in Millions, in U.S.

Dollar Equivalents) June 30, 2023 June 30, 2023 June 30, 2022

Primary credit facility (1)

$ 27.5 $ 272.1 $ 171.4

Secondary credit facility (2)

Thailand overdraft credit facility (3,4)

China revolving credit facility (3,5)

Netherlands revolving credit facility (3,6)

Poland revolving credit facility (3,7)

Vietnam credit facility (3,8)

Total credit facilities $ 106.1 281.5 180.6

2 unchanged sentences

$ 235.0 $ 145.0

(1) The Company maintained a U.S.

primary credit facility which was scheduled to mature on July 23, 2023.

On May 4, 2022, the Company entered into an amended and restated credit agreement (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, and the primary credit facility is now scheduled to mature May 4, 2027.

(1) The Company maintains a U.S.

primary credit facility (the “primary credit facility”) among the Company, the lenders party thereto, and JPMorgan Chase Bank, N.A., as Administrative Agent, and Bank of America, N.A., as Documentation Agent, scheduled to mature May 4, 2027.

The primary credit facility provides for $ 300 million in borrowings, with an option to increase the amount available for borrowing to $ 450 million at the Company’s request, subject to the consent of each lender participating in such increase.

This facility is maintained for working capital and general corporate purposes of the Company.

The Company incurred $ 0.6 million of debt issuance costs associated with the amended and restated credit agreement.

A commitment fee is payable on the unused portion of the credit facility which was immaterial to our operating results in fiscal years 2023, 2022, and 2021.

14 unchanged sentences

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 be less than 3.5 to 1.0.

The Company had $ 0.4 million in letters of credit contingently committed against the primary credit facility at both June 30, 2023 and 2022.

(2) The Company also maintains a foreign credit facility for its operation in Thailand which allows for borrowings of up to 2.4 million Thai Baht (approximately $ 0.1 million at June 30, 2022 exchange rates).

This credit facility can be terminated at any time by either the Company or the bank by giving prior written notice of at least 15 days to the other party.

Interest on borrowing under this facility is charged at a rate of interest determined by the bank in accordance with relevant laws and regulations for charging interest on an overdraft facility.

(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 and was immaterial to our operating results in fiscal year 2023.

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;

• the Alternate Base Rate (“ABR”), which is defined as the highest of the fluctuating rate per annum equal to the higher of:

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);

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.

(4) The Company maintains a foreign credit facility for its operation in Thailand which allows for borrowings of up to $ 10.1 million.

(5) The Company entered into a foreign credit facility for its EMS operation in China during the current fiscal year which allows for borrowings up to $ 7.5 million that can be drawn in either U.S.

dollars or China Renminbi.

(6) The Company also maintains an uncommitted revolving credit facility for our Netherlands subsidiary.

The Netherlands credit facility allows for borrowings of up to 9.2 million Euro (approximately $ 9.6 million at June 30, 2022 exchange rates), which borrowings can be made in Euro, U.S.

The Netherlands credit facility allows for borrowings of up to 9.2 million Euro (approximately $ 10.0 million at June 30, 2023 exchange

rates), which borrowings can be made in Euro, U.S.

dollars, or other optional currency.

The availability of funds under this facility is at the sole discretion of the bank.

Proceeds from the facility are to be used for general corporate purposes.

Interest on borrowing under this facility is charged at a rate of interest dependent on the denomination of the currency borrowed.

The facility is scheduled to mature in July 2023.

(7) The Company entered into a foreign credit facility for its operation in Poland which allows for borrowings up to 5.0 million Euro (approximately $ 5.4 million equivalent).

(8) The Company entered into a foreign credit facility for its operation in Vietnam which allows for borrowings up to $ 5.0 million.

(9) The amount of Long-term debt under credit facilities, less current maturities reflects the borrowings on the primary credit facility that the Company intends, and has the ability, to refinance for a period longer than twelve months.

2 unchanged sentences

Capitalized interest expense was immaterial during fiscal years 2023, 2022, and 2021.

Subsequent to June 30, 2022, the Company expanded the borrowing capacity of the Thailand credit facility to $ 10 million and entered into a foreign credit facility for its EMS operation in China which allows for borrowings up to $ 7.5 million.

Note 8 Employee Benefit Plans

2 unchanged sentences

Beginning January 1, 2022, the Company matches 50% of eligible employee contributions up to 6%.

The Company also provides a discretionary employer contribution determined annually by the Compensation and Governance Committee of the Company’s Board of Directors.

The Company also provides a discretionary employer 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, $ 6.1 , $ 4.2 , and $ 1.9 for fiscal years 2023, 2022, and 2021, respectively.

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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.

See Note 14 - Investments of Notes to Consolidated Financial Statements for further information regarding SERP.

We recognize SERP investment assets on the balance sheet at current fair value.

A SERP liability of the same amount is recorded on the balance sheet representing an obligation to distribute SERP funds to participants.

As of June 30, 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.

As of June 30, 2022, both total investments and obligations under SERP were $ 10.4 million, of which $ 2.6 million were short term and $ 7.8 million were long term.

The SERP investment assets are classified as trading, and accordingly, realized and unrealized gains and losses are recognized in the Other Income (Expense) category on our Consolidated Statements of Income.

Adjustments made to revalue the SERP liability are also recognized in income as selling and administrative expenses and offset valuation adjustments on SERP investment assets.

The change in net unrealized holding gains for the fiscal years ended June 30, 2023, 2022, and 2021 was approximately $ 0.2 million, $( 2.2 ) million, and $ 1.5 million respectively.

Defined Benefit Postemployment Plans:

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Benefits are paid using available cash on hand when eligible employees meet plan qualifications for payment.

As of both June 30, 2022 and 2021, total obligations under these plans were $ 5.4 million, of which $ 4.6 million were long term and $ 0.8 million were short term.

Of the total obligation at both June 30, 2022 and 2021, domestic plans were $ 1.2 million and foreign plans were $ 4.2 million.

Actuarial (gain) loss is recorded in Accumulated Other Comprehensive (Income) Loss and amortized into net period benefit cost on a straight-line basis over the average remaining service period of employees expected to receive benefits under the plans.

Net periodic benefit cost recognized for these plans in fiscal years 2022, 2021, and 2020 were $ 0.5 million, $ 0.4 million, and $ 0.3 million, respectively.

Net periodic benefit costs were not material in fiscal years 2023, 2022, or 2021.

Note 9 Stock Compensation Plans

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The Company awards performance shares to officers and other key employees.

The annual performance share awards are approved by the Compensation and Governance Committee of the Board.

The annual performance share awards are approved by the Talent, Culture, and Compensation Committee of the Board.

Beginning with awards granted in fiscal year 2022 that will vest in fiscal year 2025, awards cliff vest at the third anniversary of the award date.

To avoid a gap in the vesting of awards due to the transition from grants that vested annually in three equal installments to ones that vest after three years , two smaller bridge awards were also granted for fiscal year 2022 and fiscal year 2022-2023 performance periods.

The bridge award for the fiscal year 2022 performance period cliff vests at the first anniversary of the grant.

The bridge award for the fiscal year 2022 performance period cliff vested at the first anniversary of the grant.

The bridge award for the fiscal year 2022-2023 performance period cliff vests at the second anniversary of the grant.

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Under these awards, a number of shares will be issued to each participant based upon a combination of a profitability attainment component, based on the Company’s operating income plan, and a growth attainment component, based on the Company’s growth in sales revenue, comparing its three-year compounded annual growth rate (“CAGR”) with the Electronics Manufacturing Services Industry’s three-year CAGR.

The number of shares issued will be less than the targeted shares issuable if the Company does not reach 100 % of one or both of the above-mentioned performance metrics, and could be zero if the

Company does not reach the required minimum thresholds of either metric.

The number of shares issued will be less than the targeted shares issuable if the Company does not reach 100 % of one or both of the above-mentioned performance metrics, and could be zero if the Company does not reach the required minimum thresholds of either metric.

The number of shares issued will exceed the number of targeted shares issuable (up to a maximum of 125 %) if the Company exceeds 100 % of one or both of the above-mentioned incentive metrics.

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The number of outstanding shares presented in the above table, the amounts of unrecognized compensation, and the weighted average period include performance shares awarded that are applicable to future performance measurement periods and will be measured at fair value when the performance targets are established in future fiscal years.

Total Shareholder Return Performance Shares:

Separate from the performance shares described above, total shareholder return (“TSR”) performance shares were awarded to our CEO during fiscal year 2023.

This award was approved by the Talent, Culture, and Compensation Committee of the Board.

The participant will earn from 0 % to 100 % of the target award based on the total shareholder return ranking of the Company compared to the performance peer group at the end of the three -year performance period.

TSRs are expensed over the contractual vesting period as earned.

The shares will vest on March 1, 2026.

If the employment of a holder of a TSR terminates before the TSR has vested for any reason other than death, retirement, or total permanent disability, the TSR will be forfeited.

During fiscal year 2023, the Company granted 42,626 TSRs at an average grant date fair value of $ 16.88 for a total fair value of $ 0.7 million.

The grant date fair value of TSR awards was calculated using a Monte Carlo simulation, with the assistance of a third-party valuation specialist.

Unrestricted Share Grants:

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Unrestricted shares that are awarded to key employees are expensed immediately.

Restricted Share Units:

Restricted share units (“RSUs”) may be granted to employees as consideration for services rendered.

RSUs are participating securities and upon vesting, the outstanding number of RSUs are converted to shares of common stock.

RSUs are expensed over the contractual vesting period as earned.

If the employment of a holder of an RSU terminates before the RSU has vested for any reason other than death, retirement, or total permanent disability, the RSU will be forfeited.

During fiscal year 2021, the Company granted 3,322 RSUs to new key employees at an average grant date fair value of $ 19.63 for a total fair value of $ 0.1 million, and these RSUs vested in fiscal year 2022 as the contractual life of the RSUs were one year or less.

No RSUs were granted during fiscal years 2022 and 2020.

Restricted Shares:

Restricted shares may be granted to employees as consideration for services rendered.

The contractual life of the restricted shares is three years , with one-third of the interest in the restricted shares vested after year one of the grant, another one-third after year two of the grant, and the final one-third after year three of the grant.

Restricted shares are expensed over the contractual vesting period as earned.

If the employment of a holder of restricted shares terminates before the restricted share has vested for any reason other than death, retirement, or disability, the restricted shares not yet vested will be forfeited.

During fiscal year 2023, the Company granted restricted shares to officers and other key employees for a total fair value of $ 1.9 million.

No restricted shares were granted during fiscal years 2022 and 2021.

of Shares Weighted Average

Restricted shares outstanding at July 1, 2022 — $ —

Granted 78,372 $ 23.98

Vested ( 6,458 ) $ 23.34

Forfeited ( 11,602 ) $ 23.34

Restricted shares outstanding at June 30, 2023 60,312 $ 24.17

As of June 30, 2023, there was approximately $ 0.9 million of unrecognized compensation cost related to restricted shares.

The cost is expected to be recognized over vesting periods ending August 2023 through January 2026, with a weighted average vesting period of 1.3 years.

The fair value of the restricted shares is based on the stock price at the date of grant.

During fiscal year 2023, 6,458 restricted shares vested.

During fiscal years 2022 and 2021, respectively, no restricted shares vested.

The restricted shares vested represent the total number of shares vested prior to the reduction of shares withheld to satisfy tax withholding obligations.

During fiscal year 2021, the Company granted 3,322 restricted share units (“RSUs”) to new key employees at an average grant date fair value of $ 19.63 for a total fair value of $ 0.1 million, and these RSUs vested in fiscal year 2022.

The RSUs were participating securities and upon vesting, the outstanding number of the RSUs were converted to shares of common stock.

Deferred Share Units:

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During fiscal years 2023, 2022, and 2021, respectively, 39,032 , 34,480 , and 37,132 deferred share units were granted to non-employee members of the Board at an average grant date fair value of $ 23.07 , $ 24.87 , and $ 15.35 for a total fair value of $ 0.9 million, $ 0.9 million, and $ 0.6 million.

During fiscal year 2022, 2,753 shares of common stock were issued under the Deferral Plan to a former non-employee member of the Board in accordance with their deferral election at an average fair value of $ 17.55 .

During fiscal year 2023, no shares of common stock were issued under the Deferral Plan.

Note 10 Income Taxes

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Deferred compensation 9,013 7,141

Other current liabilities — 1,115

Capitalized research and development 3,501 —

Tax credit carryforwards 5,930 5,904

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Net Deferred Income Taxes $ 17,849 $ 18,748

During fiscal year 2023, the Company has capitalized research and development expenses that are required to be capitalized as an amortizable asset under Section 174 of the Internal Revenue Code and amortized over a period of five years.

This requirement is based on the implementation of Tax Reform effective in tax years beginning as of January 1, 2022.

As of June 30, 2023, the Company has a net deferred tax asset from capitalized research and development expenses of $ 3.5 million.

Income tax benefits associated with the net operating loss carryforwards expire from fiscal year 2023 to 2042.

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The Plan may be suspended or discontinued at any time.

During fiscal year 2022, the Company repurchased $ 9.1 million of common stock under the Plan at an average price of $ 18.82 per share, which was recorded as Treasury stock, at cost in the Consolidated Balance Sheet.

During fiscal year 2023, the Company had no share repurchases under the Plan.

During fiscal years 2022 and 2021, the Company repurchased $ 9.1 million and $ 3.0 million of common stock, respectively, under the Plan at an average price of $ 18.82 and $ 15.51 per share, respectively, which was recorded as Treasury stock, at cost in the Consolidated Balance Sheets.

Since the inception of the Plan, the Company has repurchased $ 88.8 million of common stock under that Plan at an average cost of $ 15.27 per share.

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The SERP investment assets are offset by a SERP liability which represents the Company’s obligation to distribute SERP funds to participants.

See Note 14 - Investments of Notes to Consolidated Financial Statements for further information regarding the SERP.

See Note 8 - Employee Benefit Plans of Notes to Consolidated Financial Statements for further information regarding the SERP.

Financial Instruments Not Carried At Fair Value:

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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 or expense on the Consolidated Statements of Income.

Based on fair values as of June 30, 2022, we estimate that approximately $ 0.5 million of pre-tax derivative loss deferred in Accumulated Other Comprehensive Income (Loss) will be reclassified into earnings, along with the earnings effects of related forecasted transactions, within the fiscal year ending June 30, 2023.

Based on fair values as of June 30, 2023, we estimate that approximately $ 3.6 million of pre-tax derivative gain deferred in Accumulated Other Comprehensive Income (Loss) will be reclassified into earnings, along with the earnings effects of related forecasted transactions, within the fiscal year ending June 30, 2024.

Losses on foreign exchange contracts are generally offset by gains in operating costs in the income statement when the underlying hedged transaction is recognized in earnings.

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Foreign exchange contracts Cost of Sales $ 4,936 $ 279 $ ( 814 )

Total $ 279 $ ( 814 ) $ 64

Derivatives Not Designated as Hedging Instruments

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Total Derivative Pre-Tax Gain (Loss) Recognized in Income $ 6,719 $ ( 922 ) $ ( 2,229 )

Note 14 Investments

Supplemental Employee Retirement Plan Investments:

The Company maintains a self-directed supplemental employee retirement plan (“SERP”) for executives and other key employees.

The Company SERP utilizes 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.

The SERP investment assets are classified as trading, and accordingly, realized and unrealized gains and losses are recognized in income in the Other Income (Expense) category on our Consolidated Statements of Income.

Adjustments made to revalue the SERP liability are also recognized in income as selling and administrative expenses and offset valuation adjustments on SERP investment assets.

The change in net unrealized holding gains for the fiscal years ended June 30, 2022, 2021, and 2020 was $( 2.2 ) million, $ 1.5 million, and less than $ 0.4 million, respectively.

SERP asset and liability balances applicable to Kimball Electronics participants were as follows:

(Amounts in Thousands) 2022 2021

SERP investments - current asset $ 2,605 $ 3,095

SERP investments - other long-term asset 7,759 9,549

Total SERP investments $ 10,364 $ 12,644

SERP obligation - current liability $ 2,605 $ 3,095

SERP obligation - other long-term liability 7,759 9,549

Total SERP obligation $ 10,364 $ 12,644

Note 14 Accrued Expenses

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Compensation 28,021 19,324

Customer advance payments 22,484 7,580

Non-inventory advance payments 11,660 4,935

Retirement plan 3,909 3,135

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Total accrued expenses $ 72,515 $ 46,996

Inventory-related customer advance payments are now reported separately on the Consolidated Balance Sheets and no longer included in accrued expenses.

The prior period amount above for advance payments and total accrued expenses have been recast to conform to the current year presentation.

Note 15 Geographic Information

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(Amounts in Thousands) 2023 2022 2021

United States $ 337,815 $ 359,839 $ 346,376

Mexico $ 502,707 $ 316,884 $ 265,476

United States 395,439 337,815 359,839

Poland 302,352 234,057 268,129

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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 8. Financial Statements and Supplementary Data