What changed in this filing

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Item 1. Business

2024-08-23 compared with 2023-08-24 · 58 added, 72 removed, 192 unchanged (40% of the section changed)

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Kimball Electronics was founded in 1961 and incorporated in 1998.

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.

We deliver a package of value that begins with our core competency of producing durable electronics and further offer contract manufacturing services for non-electronic components, medical disposables, drug delivery solutions and precision molded plastics.

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.

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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 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.

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

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.

We 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.

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 customers benefit from consistent supply chain 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 a uniform pricing approach by leveraging the purchasing 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.

We combine cross-functional teams from multiple facilities in quality, operational excellence, quoting, and design engineering global support with our business development team members located in-region with our global customers.

Clear roles and responsibilities, combined with diverse skill sets, establish a robust conduit critical for executing 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 customers trust and value our people, our deep-rooted Guiding Principles, and our sustainability policies.

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

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.

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

As discussed in the Our Business Strategy section below, we completed the divestiture of our automation, test, and measurement business on July 31, 2024, prior to which those subsidiaries manufactured products in China and Vietnam and maintained operations in India and Japan.

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

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

• Full box build manufacturing and assembly;

• Final Assembly of medical electronic products;

• High-level and final assembly of medical, automotive, and industrial products;

• Design services and support;

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• 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.

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Key elements of executing our strategy include:

• Leveraging Our Global Footprint – continue our strategy of utilizing our presence in key regions worldwide, primarily focused on expansions of existing facilities, as well as potential new geographic regions, as our customer demands dictate;

• Expanding Our Package of Value – enhance our core strengths and expand our package of value through contract manufacturing services in areas such as complex system assembly, specialized processes, and precision molded plastics with particular emphasis on Kimball medical solutions;

• Expanding Our Markets – explore opportunities that will broaden existing or establish new markets, capabilities, or technologies such as automation, test, and inspection equipment for industrial applications.

We expect to make investments that will strengthen or add new capabilities to our package of value as a multifaceted manufacturing solutions company, including through acquisitions.

See Item 1A - Risk Factors for risks associated with acquisitions.

• Leveraging Our Global Footprint – responding to customer demand through our presence in key regions with existing facilities, which we focus on expanding, and our consideration of potential new geographic regions;

• Expanding Our Package of Value – enhancing our core contract manufacturing services strengths and expanding our package of value in areas such as complex system assembly, specialized processes, and precision molded plastics with particular emphasis on Kimball medical solutions;

• Expanding Our Markets – exploring opportunities and making investments that will broaden existing or establish new markets.

In the third quarter of fiscal year 2024, we made the decision to divest GES, our automation, test and measurement business unit, and committed to a plan to sell the business, allowing for increased focus and support for the Company’s core operations.

We completed the divestiture of the GES business to Averna Technologies Inc.

on July 31, 2024.

See N ote 3 - Assets and Liabilities H eld for Sale of Notes to Condensed Consolidated Financial Statements for more information on this divestiture.

Our Business Offerings

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.

We further offer contract manufacturing services for non-electronic components, medical disposables, and precision molded plastics.

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.

We bring innovative, complete design solutions to our customers.

We offer Design for Excellence input to our customers as a part of our standard package of value, and we use sophisticated software tools to integrate the supply chain in a way that provides our customers with the flexibility their business requires.

We offer Design for Excellence input to our customers as a part of our standard package of value.

We use sophisticated software tools to integrate the supply chain in a way that provides our customers with the flexibility their business requires.

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.

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 offer low carbon and clean technology products, technologies and services.

We value our customers and their unique needs and expectations.

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Manufacturing services, including engineering and supply chain support, are marketed by our business development team.

We use a CRM model to provide our customers with convenient access to our global footprint and all of our services throughout the entire product life cycle.

We use a CRM model to provide our customers with convenient access to both our global footprint and all of our services throughout the entire product life cycle.

Major Competitive Factors

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We also face competition from our customers’ own capacity and capabilities to in-source production.

The proliferation of electronic components in today’s advanced products and the continuing trend of original equipment manufacturers in the electronics industry subcontracting the assembly process to companies with a core competency in this area drive growth in the EMS industry.

The proliferation of electronic components in today’s advanced products and the continuing trend by original equipment manufacturers in the electronics industry to subcontract the assembly process to companies with a core competency in this area drive growth in our industry.

The nature of the EMS industry is such that the start-up of new customers and new programs to replace expiring programs occurs frequently.

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• Core competency of producing durable electronics;

• Body of knowledge as it relates to the design and manufacture of products that require high levels of quality control, reliability, and durability;

• Body of knowledge in the design and manufacture of products that require high levels of quality control, reliability, and durability;

• Highly integrated, global footprint;

• Capability to provide our customers diversified contract manufacturing services for non-electronic components, medical disposables, precision molded plastics, and automation, test, and inspection equipment;

• Fully integrated engineering, manufacturing and supply chain services as the contract manufacturing organization (“CMO”) for our customers’ non-electronic components, medical disposables, and precision molded plastics;

• CRM model and our customer scorecard process;

• Ability to provide our customers with valuable input regarding designs for improved manufacturability, reliability, and cost;

• Ability to provide our customers with valuable design input for improved manufacturability, reliability, and cost;

• Quality systems, industry certifications, and regulatory compliance;

• Integrated supply chain solutions and competitive bid process resulting in competitive raw material pricing;

• Integrated supply chain solutions and competitive bid processes that result in competitive raw material pricing;

• Complete product life cycle management.

The EMS industry is very competitive as numerous manufacturers compete for business from existing and potential customers.

Numerous manufacturers in the EMS industry compete for business from existing and potential customers.

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 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 do not have a significant share of the EMS market and were ranked the 18th largest global EMS provider for calendar year 2023 by Manufacturing Market Insider in the April 2024 edition published by New Venture Research.

As of August 23, 2024, we have nine manufacturing facilities with two located in Indiana, one in China, two in Mexico, and one located in each of Florida, Poland, Romania, and Thailand.

Prior to the divestiture of our automation, test, and measurement business, GES, on July 31, 2024, we also operated manufacturing facilities in Vietnam and China, performed software design services primarily at a location in India, and provided other support engineering services at locations in California and 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 facilities in Thailand, Mexico, and Poland.

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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.

Beginning in fiscal year 2024, the Company changed its presentation of revenue for miscellaneous sales previously included in Other to include in the respective customers’ end market verticals.

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

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Industrial 27% 26% 27%

Other 2% 1% 1%

Total 100% 100% 100%

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Our agreements with customers are often not for a definitive term and are amended and extended, but generally continue for the relevant product’s life cycle, which can be difficult to predict at the beginning of a program.

Typically, our customer agreements do not commit the customer to purchase our services until a purchase order is provided, which are generally short term in nature.

Our customers generally have the right to cancel a particular program subject to contractual provisions governing termination, the final product runs, excess or obsolete inventory, and end-of-life pricing, which reduces the additional costs that we incur when a manufacturing services agreement is terminated.

Typically, our customer agreements do not commit the customer to purchase our services until a short time before we begin performing those services.

Our customers generally have the right to cancel a particular program subject to contractual provisions governing termination, the final product runs, excess or obsolete inventory, and end-of-life pricing, which reduce the additional costs that we incur when a manufacturing services agreement is terminated.

Raw Materials

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

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 EMS industry has experienced component shortages, component allocations, and shipping delays, particularly with semiconductors, in recent fiscal years.

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

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.

Raw materials are normally acquired for specific customer orders and may or may not be interchangeable among products.

Inherent risks associated with rapid technological changes within this contract industry are mitigated by procuring raw materials, for the most part, based on firm orders.

Raw materials are normally acquired for specific customer orders and often are not interchangeable among products.

Inherent risks associated with rapid technological changes within this our industry are mitigated by procuring raw materials, for the most part, based on firm orders.

In certain instances, such as when lead times dictate, we enter into contractual agreements for material in excess of the levels required to fulfill customer orders.

In turn, material authorization agreements with customers cover a portion of the exposure for material which is purchased prior to having a firm order.

In turn, material authorization agreements with customers cover a portion of the exposure for material that we must purchase prior to having a firm order.

We may also purchase additional inventory to support new product introductions, transfers of production between manufacturing facilities, and to mitigate the potential impact from component shortages.

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We feel that relying on trade secret or copyright protections is a superior strategy because there is no disclosure of the information to outside parties, and protections do not expire after a length of time.

We currently have or are pursuing a modest number of patents for some of our innovations and technologies in the United States and foreign countries.

We also maintain trademark rights (including registrations) for “Kimball Electronics,” “GES” and other wordmarks and trademarks that we use in our business in the United States and around the world.

We also maintain trademark rights (including registrations) for “Kimball Electronics,” and other wordmarks and trademarks that we use in our business in the United States and around the world.

We have policies and procedures to identify and protect our own intellectual property and that of our customers and suppliers.

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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 March 2023.

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.

The ESG Report reflects several long-standing Guiding Principles of the Company:

The 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.

The Report reflects several long-standing Guiding Principles of the Company:

our customer is our business;

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profitability and financial resources give us the freedom to shape our future and achieve our vision.

The ESG Report is posted on our website at https://www.kimballelectronics.com/esg.

The Report is posted on our website at https://www.kimballelectronics.com/sustainability.

The Company’s website and the information contained therein, or incorporated therein, are not intended to be incorporated into this Annual Report on Form 10-K.

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We actively promote DEI&B, and incorporate DEI&B into our culture, values, and strategies.

We provide a report on the diversity of our employees to the Board of Directors annually.

We provide a report on the diversity of our employees to our Board, in our Guiding Principles Report, and in our 2023 Talent Attraction & Retention report on our website at https://www.kimballelectronics.com/sustainability.

Contributing to Our Communities

One of our Guiding Principles is to strive to help our communities be great places to live.

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.

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.

We live this Guiding Principle and further the goals of our Human Rights Policy and our Global Policy on Philanthropic Contributions and Non-Commercial Sponsorships when we contribute and encourage our employees to contribute to our local communities.

Our contributions are intended to support the communities in which we operate, those who may not be in a position to directly benefit from employment with us or from our primary business activities, or those who can benefit from the value derived from our support or collaboration.

See the Giving section of our Guiding Principles Report for more information about the ways that we supported a wide range of charitable and non-commercial causes through donations of time, talent, and treasure that align with our Guiding Principles.

Environment and Energy Matters

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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.

Additionally, we publish disclosures in our annual Guiding Principles report that are written in accordance with the Global Reporting Initiative (GRI) Standards and are aligned to the United Nations (UN) Sustainability Development Goals (SDG) and Global Compact (UNGC), the Sustainable Accounting Standards Board (SASB) Electronic Manufacturing Services & Original Design Manufacturing Standard, and the Task Force on Climate-related Financial Disclosures (TCFD) framework.

We are members of the Responsible Minerals Initiative.

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

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.

The contents of the sustainability 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, 2024, Kimball Electronics employed approximately 7,000 people worldwide, with approximately 1,200 located in the United States and approximately 5,800 located in foreign countries.

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.

Currently, three of our seven independent members of the Board of Directors are female, along with four of our seven executive leadership 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;

• Increasing racial and ethnic diversity at the executive and senior management levels so our leadership will reflect our organization and the communities in which we operate;

• Maintaining an enterprise-wide target and expectation that 100% of the candidate slates for Board of Directors, executive, and director-level employee positions include candidates from underrepresented groups;

• Holding leadership accountable for diversity, equity, inclusion, and belonging outcomes.

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We believe that our employee relations are good.

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.”

For additional information, see our definitive Proxy Statement to be filed no later than 120 days after the end of the Company’s fiscal year covered by this Annual Report on Form 10-K.

Available Information

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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