What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-05-08 compared with 2024-02-06 · 92 added, 69 removed, 179 unchanged (47% of the section changed)

25 unchanged sentences

Such headwinds include pressure from elevated levels of inflation, higher interest rates, and geopolitical uncertainty.

Our inventory

levels, already elevated from strategic inventory purchases to mitigate part shortages in the prior fiscal year, remain high as softening demand has challenged our ability to work them down.

Our inventory levels, already elevated from strategic inventory purchases to mitigate part shortages in the prior fiscal year, remain high as softening demand has challenged our ability to work them down.

Additionally, as lead times dictate the ordering of components, demand softening results in deliveries of components that may exceed production needs in the short term.

To mitigate our inventory levels and the impacts to our balance sheet, we are working with our customers to consign excess inventory, make inventory deposits, or pay carrying costs.

Net sales in the 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.

Net sales in the third quarter of the current fiscal year decreased 12% compared to the prior fiscal year third quarter, with decreases in each of our end market verticals.

The decrease in sales to customers in the automotive market were largely driven by decreased demand.

1 unchanged sentence

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.

In the industrial market, sales decreased in large part due to a program at our automation, test, and measurement business in the third quarter of fiscal 2023 not recurring this quarter.

We have a strong focus on cost control balanced with managing the future growth prospects of our business.

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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.

To support our renewed strategic focus, in the third quarter of fiscal year 2024, we made the decision to divest of our automation, test and measurement business unit and committed to a plan to sell the business.

This will allow us to increase focus and support our EMS operations.

As a result, the disposal group has met the criteria to be classified as held for sale and is now reported at the lower of its carrying value or fair value less costs to sell.

In addition, we undertook restructuring efforts to align our cost structure with reduced end-market demand levels.

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 $539 million at March 31, 2024.

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.

We expect our balance sheet to continue 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.

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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

Nine Months Ended

Customer Service Years 2024 2023

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Selling and Administrative Expenses 16.8 3.9 % 17.8 3.7 % (5) %

Other General Income (0.9) (0.2) % — — % — %

Restructuring Expense 1.6 0.4 % — — % — %

Goodwill Impairment 5.8 1.4 % — — % — %

Asset Impairment 16.6 3.9 % — — % — %

Operating Income (6.4) (1.5) % 25.2 5.2 % (125) %

4 unchanged sentences

Open Orders $ 831 $ 882 (6) %

For the Six Months Ended

For the Nine Months Ended

(Amounts in Millions, Except for Per Share Data) 2024 as a % of Net Sales 2023 as a % of Net Sales % Change

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Selling and Administrative Expenses 50.7 4.0 % 50.2 3.8 % 1 %

Other General Income (0.9) (0.1) % — — % — %

Restructuring Expense 1.6 0.1 % — — % — %

Goodwill Impairment 5.8 0.5 % — — % — %

Asset Impairment 16.6 1.3 % — — % — %

Operating Income 29.7 2.3 % 56.3 4.2 % (47) %

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Diluted Earnings per Share $ 0.51 $ 1.46 (65) %

Net Sales by Vertical Market Three Months Ended Six Months Ended

December 31 December 31

Net Sales by Vertical Market Three Months Ended Nine Months Ended

March 31 March 31

(Amounts in Millions) 2024 2023 % Change 2024 2023 % Change

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Total Net Sales $ 425.0 $ 484.7 (12) % $ 1,284.4 $ 1,327.3 (3) %

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.

Third quarter fiscal year 2024 consolidated net sales decreased 12% compared to the third quarter of fiscal year 2023, while the year-to-date fiscal year 2024 consolidated net sales decreased 3% compared to the year-to-date period of fiscal year 2023.

The impact from foreign currency fluctuations on net sales was less than 1% in the current quarter and current year-to-date compared to the third 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.

1 unchanged sentence

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.

• 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.

• Sales to customers in the automotive market decreased 9% during the third quarter of fiscal year 2024, compared to the third quarter of fiscal year 2023 but remained flat in the year-to-date period of fiscal year 2024 compared to the year-to-date period of fiscal year 2023.

The decrease in the third quarter is due to overall decrease in demand across most of our major customers.

• Sales to customers in the medical market declined in both the third quarter of fiscal year 2024, compared to the third 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.

1 unchanged sentence

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 customers in the industrial market decreased 14% during the third quarter of fiscal year 2024, when compared to the third quarter of fiscal year 2023 but increased 3% in the year-to-date period of the current fiscal year when compared to the year-to-date period of the prior fiscal year.

The decrease in the third quarter is largely due to lower demand with our climate control customers as well as a program at our automation, test, and measurement business from the third quarter of fiscal 2023 not recurring this quarter.

In the year-to-date period, the moderate increase is driven by higher end market demand for charging systems and public safety products, offset by declines with climate control products and our automation, test, and measurement business.

Sales to Nexteer Automotive, Philips, ZF, and HL Mando accounted for the following portions of our net sales:

Three Months Ended Six Months Ended

December 31 December 31

Three Months Ended Nine Months Ended

March 31 March 31

2024 2023 2024 2023

4 unchanged sentences

* 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.

Gross profit as a percent of net sales in the third quarter of fiscal year 2024 declined when compared to the third quarter of fiscal year 2023 as we experienced lost absorption on lower revenue.

Gross profit as a percent of net sales in the first nine months of fiscal year 2024 remained relatively flat when compared to the first nine months of fiscal year 2023.

Selling and administrative expenses increased as a percent of net sales but decreased in absolute dollars in the third quarter of fiscal year 2024 when compared to the third quarter of fiscal year 2023.

The absolute dollar decrease was driven by decreased profit-sharing bonus expense and supplier financing charges due to decreased sales.

Selling and administrative expenses increased as a percent of sales and in absolute dollars in first nine months of fiscal year 2024 when compared to the first nine months of fiscal year 2023 driven by increased allowance for credit losses offset by a decrease in supplier financing charges.

Other General Income in the three and nine months ended March 31, 2024 included $0.9 million of pre-tax income resulting from payments received related to the settlement of a class action lawsuit in which Kimball Electronics was a class member.

No Other General Income was recorded during the three and nine months ended March 31, 2023.

In the three and nine months ended March 31, 2024, we recorded pre-tax restructuring expense of $1.6 million, for employee-related costs as we undertook a restructuring efforts to align our cost structure with reduced end market demand levels.

In the third quarter of fiscal year 2024, we made the decision to divest of our automation, test and measurement business unit and committed to a plan to sell the business.

As a result, the disposal group has met the criteria to be classified as held for sale and we have reported the business unit at the lower of its carrying value or fair value less costs to sell.

The carrying value exceeded the fair value less costs to sell, and we recorded pre-tax impairment charges of $5.8 million and $16.6 million on goodwill and assets held for sale, respectively, for the three and nine months ended March 31, 2024.

See Not e 3 - Assets and Liab ilities Held for Sale of Notes to Condensed Consolidated Financial Statements for more information.

Other Income (Expense) consisted of the following:

Three Months Ended Six Months Ended

December 31 December 31

Three Months Ended Nine Months Ended

March 31 March 31

(Amounts in Thousands) 2024 2023 2024 2023

5 unchanged sentences

Other income (expense), net $ (6,322) $ (3,344) $ (17,935) $ (8,043)

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.

Interest expense has increased in the three months and nine months ended March 31, 2024 compared to the three months and nine months ended March 31, 2023 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.

Our provision for income taxes for the nine months ended March 31, 2024 and March 31, 2023 was $(1.2) million, or (10.5)% of income before taxes on income, and $11.6 million, or 24.1% of income before taxes on income, respectively.

Income taxes and tax rate for the nine months ended March 31, 2024 reflect the tax impacts of the goodwill impairment and asset impairment charges.

We recorded a net loss of $6.1 million in the third quarter of fiscal year 2024, or $(0.24) per diluted share, a decrease of 137% from the third quarter fiscal year 2023 net income of $16.4 million, or $0.65 per diluted share.

In the year-to-date period of

fiscal year 2024, we recorded net income of $13.0 million, or $0.51 per diluted share, a decrease of 65% compared to the year-to-date period of fiscal 2023 net income of $36.6 million, or $1.46 per diluted share.

Third quarter and fiscal year to date 2024 results include the following non-recurring charges previously discussed:

a $4.4 million after-tax goodwill impairment charge, or $0.18 per diluted share, a $9.5 million after-tax asset impairment charge, or $0.38 per diluted share, and a $1.2 million after-tax restructuring charge, or $0.05 per diluted share.

Open orders were down 6% as of March 31, 2024 compared to March 31, 2023.

The decrease in open orders from March 31, 2023 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.

The majority of open orders as of March 31, 2024 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.

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.

Working capital at March 31, 2024 was $450.1 million compared to working capital of $454.3 million at June 30, 2023.

The current ratio was 2.0 at both March 31, 2024 and June 30, 2023.

The debt-to-equity ratio was 0.6 at March 31, 2024 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 $182.6 million at March 31, 2024 and $149.1 million at June 30, 2023.

Cash Conversion Days (“CCD”) are calculated as the sum of Days Sales Outstanding (“DSO”) plus Contract Asset Days (“CAD”) plus Production Days Supply on Hand (“PDSOH”) less Accounts Payable Days (“APD”) and less Advances from Customers Days (“ACD”).

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, 2023 September 30, 2023 December 31, 2022

March 31, 2024 December 31, 2023 March 31, 2023

Days Sales Outstanding 59 64 54

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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.

Inventory and customer deposits classified as long-term are included in the calculation of PDSOH and ACD, respectively.

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.

Additionally, through the first nine 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.

The following table reflects the major categories of cash flows for the first six months of fiscal years 2024 and 2023.

Six Months Ended

We expect inventory levels and working capital to continue to normalize as we seek relief through customer negotiations.

The following table reflects the major categories of cash flows for the first nine months of fiscal years 2024 and 2023.

Nine Months Ended

(Amounts in Millions) 2024 2023

Net cash used for operating activities $ (17.9) $ (71.9)

Net cash provided by (used for) operating activities $ 24.7 $ (57.9)

Net cash used for investing activities $ (37.7) $ (66.5)

1 unchanged sentence

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.

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.

Net cash provided by operating activities for the first nine months of fiscal year 2024 was driven by net income adjusted for non-cash items, partially offset by changes in operating assets and liabilities.

Net cash used for operating activities for the first nine months of the prior year was driven by changes in operating assets and liabilities.

Net income and non-cash adjustments provided cash of $60.0 million, while changes in operating assets and liabilities used $35.3 million of cash in the first nine months of fiscal year 2024.

In the first nine months of the prior year, cash used by changes in operating assets and liabilities was $122.3 million.

Net income adjusted for non-cash items provided cash of $60.0 million in the first nine months of fiscal year 2024.

Partially offsetting this was cash used of $35.3 million from changes in operating assets and liabilities in the first nine months of fiscal year 2024, largely due to a decrease in accounts payable, which used cash of $71.2 million driven by decreased inventory purchases due to lower sales, and a decrease in accrued expenses and taxes payable, which used $11.5 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 $32.2 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.

The cash used of $122.3 million from changes in operating assets and liabilities in the first nine months of fiscal year 2023 is largely due to an increase in inventory, which used cash of $88.6 million, driven by investment to support our expansions and growth in Mexico and Thailand, as well as supporting our customers through strategic inventory purchases to mitigate parts shortages, and an increase in accounts receivable, which used cash of $74.0 million primarily resulting from increased sales volumes.

Partially offsetting cash used by inventory was an increase in accounts payable, which provided cash of $45.1 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.

For the first nine months of fiscal years 2024 and 2023, net cash used for investing activities was $37.7 million and $66.5 million, respectively.

During the first nine months of fiscal year 2024, we invested $37.9 million into capital expenditures primarily to support new business awards, facility expansions, and replacement of older machinery and equipment.

During the first nine months of fiscal year 2023, we invested $66.8 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.

For the first nine months of fiscal year 2024, net cash provided by financing activities of $36.6 million resulted largely from net borrowings on our credit facilities of $38.2 million primarily for working capital purposes and capital expenditures.

For the first nine months of fiscal year 2023, net cash provided by financing activities of $107.1 million resulted largely from net borrowings on our credit facilities of $108.7 million primarily for working capital purposes and capital expenditures supporting our expansions.

Credit Facilities

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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 Company also maintains a 364-day multi-currency revolving credit facility (the “secondary credit facility”), which allows for borrowings up to $100 million and has a maturity date of January 3, 2025.

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.

We were in compliance with the financial covenants of the primary and secondary credit facilities during the period ended March 31, 2024.

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.

1 unchanged sentence

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.

As of March 31, 2024, 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 7 - 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.

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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.

In the nine months ended March 31, 2024 and 2023, we sold, without recourse, $317.0 million and $357.1 million of accounts receivable, respectively.

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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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 unused borrowings in USD equivalent under all of our credit facilities totaled $117.4 million at March 31, 2024, including the $100 million secondary credit facility.

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.

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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.

At March 31, 2024, 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.

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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.

At March 31, 2024, our foreign operations held cash totaling $64.7 million.

Most of our accumulated unremitted foreign earnings have been invested in active non-U.S.

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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.

The Company has repurchased $88.8 million of common stock under the Repurchase Plan through March 31, 2024.

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.

1 unchanged sentence

Additional cautionary statements regarding our risk factors are contained in our Annual Report on Form 10-K for the year ended June 30, 2023.

During the second quarter of fiscal year 2024, no level 1 or level 2 financial instruments were affected by a lack of market liquidity.

During the third 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.

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Off-Balance Sheet Arrangements

As of December 31, 2023, we do not have any material off-balance sheet arrangements.

As of March 31, 2024, we do not have any material off-balance sheet arrangements.

Critical Accounting Policies

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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.

See Note 1 - Business Description and Summary of Significant Accounting Policies of Notes to Condensed Consolidated Financial Statements for information regarding New Accounting Standards.

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-Q

Item 2. Management’s Discussion and Analysis