What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-08-23 compared with 2023-08-24 · 104 added, 85 removed, 186 unchanged (50% of the section changed)

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

These forward-looking statements are subject to risks and uncertainties including, but not limited to, global economic conditions, geopolitical environment and conflicts such as the war in Ukraine, global health emergencies including the COVID-19 pandemic, availability or cost of raw materials and components, foreign exchange fluctuations, and our ability to convert new business opportunities into customers and revenue.

These forward-looking statements are subject to risks and uncertainties including, but not limited to, global economic conditions, geopolitical environment and conflicts such as the war in Ukraine, global health emergencies, availability or cost of raw materials and components, foreign exchange fluctuations, and our ability to convert new business opportunities into customers and revenue.

Additional cautionary statements regarding other risk factors that could have an effect on the future performance of Kimball Electronics are located within Item 1A - Risk Factors .

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

Our core competency is producing durable electronics, and we further offer contract manufacturing services for non-electronic components, medical devices, medical disposables, drug delivery devices and solutions, precision molded plastics, and production automation, test, and inspection equipment.

Our core competency is producing durable electronics, and we further offer contract manufacturing services for non-electronic components, medical disposables, drug delivery solutions, and precision molded plastics.

Our manufacturing services, including engineering and supply chain support, utilize common production and support capabilities globally.

We are well recognized by our customers and the industry for our excellent quality, reliability, and innovative service.

CIRCUITS ASSEMBLY, a leading brand and technical publication for electronics manufacturers worldwide, has recognized us four times in the past five years for achieving the Highest Overall Customer Rating in their Service Excellence Awards, and we received awards in all categories in 2022.

CIRCUITS ASSEMBLY, a leading brand and technical publication for electronics manufacturers worldwide, has previously recognized us four times for achieving the Highest Overall Customer Rating in their Service Excellence Awards, and most recently, we received Highest Overall Customer Ratings in four of the seven categories in 2023.

The contract manufacturing services industry is very competitive.

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We continue to monitor the current economic and industry conditions for uncertainties that may pose a threat to our future growth or cause disruption in business strategy, execution, and timing in the markets in which we compete.

The EMS industry 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.

We have taken various actions 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;

however, the duration or severity of the components shortages is unknown.

Supply chain restraints have also resulted in an industry-wide inflation of components, labor, freight, and other operating costs.

Through contractual pricing arrangements and negotiations with our customers, we have been able to mitigate a majority of these cost increases;

however, our profitability has been impacted, and necessary extended lead times on inventory purchases has negatively impacted our working capital.

The EMS industry is experiencing the impacts of softening demand from global macroeconomic headwinds, especially in the current fiscal year.

The financial impact on our future results cannot be reasonably estimated but could be material.

We experienced record sales in the current fiscal year as sales increased 35% from the prior fiscal year, with double-digit increases and annual records in all three of our end market verticals.

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

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

Sales in all three of our end market verticals have increased when compared to the prior fiscal year from the improved component availability and the launch and ramp-up of new programs.

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

Net sales in fiscal year 2024 decreased 6% from the prior fiscal year, 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.

In the medical market, sales decreased due to decreased sales with a large medical customer, first impacting our results in late fiscal year 2023, who is remediating a recall.

The cause of the recall is unrelated to the products we provided.

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

We expect consolidated net sales to decrease again in 2025 with the continued softness in demand and the loss of a major automotive program by our customer that was unrelated to any issues with our workmanship, quality, or ability to produce the product, in addition to the expected consolidated net sales decrease from the divestiture of our GES business discussed further in this section.

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

We expect to make investments that will strengthen or add new capabilities to our package of value as a multifaceted manufacturing solutions company, including through our recently announced and completed capacity expansions.

Managing working capital in conjunction with fluctuating demand levels is likewise key.

In addition, a long-standing component of our profit-sharing incentive bonus plan is that it is linked to our financial performance which results in varying amounts of compensation expense as profits change.

In addition, a long-standing component of our profit-sharing incentive bonus plan is its link to our financial performance, which results in varying amounts of compensation expense as profits change.

To support our renewed strategic focus, in the third quarter of fiscal year 2024, we made the decision to divest of GES, 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 reported at the lower of its carrying value or fair value less costs to sell at June 30, 2024.

We completed the divestiture of our GES business on July 31, 2024.

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

We continue to maintain a strong balance sheet as of the end of fiscal year 2024, which included a current ratio of 2.3, a debt-to-equity ratio of 0.5, and Share Owners’ equity of $540 million.

Recently, we have invested to support our expansions and growth in Mexico, Thailand, and Poland.

At the same time, we have supported our customers through strategic inventory purchases to mitigate part shortages.

We expect our balance sheet to normalize as parts shortages abate and our expansions continue to ramp up production.

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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A discussion regarding our financial condition and results of operations for fiscal year 2024 compared to fiscal year 2023 is presented below.

A discussion regarding our financial condition and results of operations for fiscal year 2022 compared to fiscal year 2021 can be found under captions entitled “Results of Operations - Fiscal Year 2022 Compared with Fiscal Year 2021” and “Liquidity and Capital Resources” in the section entitled “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended June 30, 2022 filed with the SEC on August 30, 2022, which is available free of charge through the SEC’s website at http://www.sec.gov or the Company’s website, http://investors.kimballelectronics.com.

A discussion regarding our financial condition and results of operations for fiscal year 2023 compared to fiscal year 2022 can be found under captions entitled “Results of Operations - Fiscal Year 2023 Compared with Fiscal Year 2022” and “Liquidity and Capital Resources” in the section entitled “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended June 30, 2023 filed with the SEC on August 24, 2023, which is available free of charge through the SEC’s website at http://www.sec.gov or the Company’s website, https://investors.kimballelectronics.com.

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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Other General Income (0.9) (0.1) % (0.2) — % (321) %

Restructuring Expense

2.4 0.1 % — — % — %

Goodwill Impairment 5.8 0.3 % — — % — %

Asset Impairment

17.0 1.0 % — — % — %

Operating Income 49.3 2.9 % 87.7 4.8 % (44) %

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Industrial 462.4 478.9 (3) %

Other 34.7 17.4 99 %

Total Net Sales $ 1,714.5 $ 1,823.4 (6) %

Net sales in fiscal year 2023 increased by 35% compared to net sales in fiscal year 2022, which included an unfavorable impact of 3% from foreign exchange fluctuations.

Net sales in fiscal year 2024 decreased by 6% compared to net sales in fiscal year 2023.

The impact from foreign currency fluctuations on net sales was negligible in fiscal year 2024 compared to fiscal year 2023.

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

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

By end market vertical, our market verticals fluctuated as follows:

• We experienced record sales to customers in the automotive market during the current fiscal year largely due to the ramp-up of certain programs, new product launches, and improved component availability.

• Sales to customers in the medical market also experienced record net sales, with a double-digit increase in sales when compared to the prior fiscal year.

The increase is primarily due to overall increased demand, improved component availability, and launch and ramp-up of new programs.

We expect fiscal year 2024 medical market sales to be unfavorably impacted by decreased sales with a large medical customer who is remediating a recall.

• Sales to customers in the automotive market were down slightly in the current fiscal year when compared to the prior fiscal year due to the overall decrease in demand across most of our major customers.

• Sales to customers in the medical market decreased when compared to the prior fiscal year.

This decrease is primarily due to decreased sales with a large medical customer who is remediating a recall.

The cause of the recall is unrelated to the products we provided.

• 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.

We also experienced record sales to customers in the industrial market during the current fiscal year, as a result of higher end market demand for climate control products which was supported by overall improved component availability, increased automation, test, and inspection equipment sales, and new product launches.

A significant amount of sales to Nexteer Automotive, Philips, and ZF accounted for the following portions of our net sales:

Partially offsetting this decrease in sales was a ramp-up of certain programs and new product launches.

• Sales to customers in the industrial market were down slightly in the current fiscal year when compared to the prior fiscal year.

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

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

Year Ended June 30

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* amount is less than 10% of total

Open orders were down 33% as of June 30, 2023 compared to June 30, 2022.

The decrease in open orders from June 30, 2022 is driven by decreased order lead times and the overall improvement in component availability, which has increased our ability to fulfill customer orders.

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 June 30, 2023 are expected to be filled within the next twelve months.

Open orders at a point in time may not be indicative of future sales trends due to the contract nature of our business and the variability of order lead times among our customers.

Gross profit as a percent of net sales improved in fiscal year 2023 when compared to fiscal year 2022 primarily due to the leverage gained on higher revenue and favorable product mix.

Additionally, we experienced lost absorption in the first half of fiscal year 2022 as the prior fiscal year was impacted to a much greater degree than the current fiscal year by component shortages, and as we retained our workforce, our gross profit as a percent of net sales was negatively impacted.

For fiscal year 2023, selling and administrative expenses declined as a percent of net sales but increased in absolute dollars when compared to fiscal year 2022.

The selling and administrative expense increase was driven by the increased factoring fees coupled with increased accounts receivable factoring activity, added resources to support our significant growth, wage inflation, and higher incentive-based compensation.

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

For fiscal year 2024, selling and administrative expenses remained relatively flat as a percent of net sales but decreased in absolute dollars when compared to fiscal year 2023.

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

Other General Income in fiscal years 2024 and 2023 consisted of $0.9 million and $0.2 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.

For fiscal year 2024, we recorded pre-tax restructuring expense of $2.4 million, for employee-related costs as we undertook 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 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 $17.0 million on goodwill and assets held for sale, respectively, in fiscal year 2024.

See Note 3 - Assets and Liabilities Held for Sale of Notes to Condensed Consolidated Financial Statements for more information.

Other Income (Expense) consisted of the following:

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Gain (Loss) on SERP Investments 680 701

Credit facilities fees and bank charges

Other (259) 369

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The Foreign Currency/Derivative Gain (Loss) resulted from net foreign currency exchange rate movements during the periods.

The gain in fiscal year 2023 and the loss in fiscal year 2022 were driven by the respective weakening and strengthening of the U.S.

The loss in fiscal year 2024 and the gain in fiscal year 2023 were driven by the respective weakening and strengthening of the U.S.

dollar versus foreign currencies that we have exposure to in our business.

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Total $ 25,199 18.6 % $ 74,744 25.3 %

The consolidated effective tax rate for fiscal year 2024 was lower due to the impact of the GES impairment charges, partially offset by the valuation allowance.

The domestic unfavorable tax rate was also distorted by the impairment charges.

The consolidated effective tax rate for fiscal year 2023 was unfavorably impacted by the mix of taxable earnings within our various tax jurisdictions and foreign exchange rate movements.

The domestic favorable tax rate was favorably impacted by our loss before taxes and the research and development tax credit.

The domestic effective tax rate and the consolidated effective tax rate for fiscal year 2022 were unfavorably impacted by the mix of taxable earnings within our various tax jurisdictions and foreign exchange rate movements.

Our overall effective tax rate will fluctuate depending on the geographic distribution of our worldwide earnings.

See Note 11 - Income Taxes of Notes to Consolidated Financial Statements for more information.

We recorded net income of $55.8 million in fiscal year 2023, or $2.22 per diluted share, an increase of 78.6% from fiscal year 2022 net income of $31.3 million, or $1.24 per diluted share.

Comparing the balance sheet as of June 30, 2023 to June 30, 2022, Receivables increased $85.3 million largely due to increased sales volumes.

Our inventory balance increased $54.7 million primarily to support our newly expanded facilities.

Property and equipment, net increased $60.8 million for expansions at our Mexico, Thailand, and Poland facilities and to support new business awards.

Accounts payable increased $22.1 million primarily due to the increased inventory purchases.

Borrowings under credit facilities increased $100.9 million primarily due to borrowings on the U.S.

primary credit facility for working capital purposes and capital expenditures supporting our expansions.

We recorded net income of $20.5 million in fiscal year 2024, or $0.81 per diluted share, a decrease of 63.3% from fiscal year 2023 net income of $55.8 million, or $2.22 per diluted share.

Open orders were down 11% as of June 30, 2024 compared to June 30, 2023.

The decrease in open orders from June 30, 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 June 30, 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

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The current ratio was 2.3 at June 30, 2024 and 2.0 at June 30, 2023, respectively.

The debt-to-equity ratio was 0.5 and 0.4 at June 30, 2023 and June 30, 2022, respectively.

The debt-to-equity ratio was 0.5 at both June 30, 2024 and 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 $220.1 million at June 30, 2024 and $149.1 million at June 30, 2023.

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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

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CCD 100 110 117 103 94

We define DSO as the average of monthly trade accounts and notes receivable divided by an average day’s net sales, CAD as the average monthly contract assets divided by an average day’s net sales, PDSOH as the average of monthly gross inventory divided by an average day’s cost of sales, APD as the average of monthly accounts payable divided by an average day’s cost of sales, and ACD as the total customer deposits divided by an average day’s cost of sales.

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 the average of monthly customer deposits divided by an average day’s cost of sales.

Over the past several quarters, we have supported our customers through strategic inventory builds to mitigate parts shortages, which adversely impacted our PDSOH and CCD metrics.

We expect inventory levels and working capital to normalize as the parts shortages abate and our expansions continue to ramp up production.

Additionally, in 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 continue to normalize as we seek relief through customer negotiations.

The following table reflects the major categories of cash flows for the fiscal years ended June 30, 2024 and 2023.

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(Amounts in Millions) 2024 2023

Net cash used for operating activities $ (13.8) $ (83.2)

Net cash provided by (used for) operating activities $ 73.2 $ (13.8)

Net cash used for investing activities $ (46.5) $ (90.5)

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Cash Flows from Operating Activities

Net cash used for operating activities for the fiscal year ended June 30, 2023 and the fiscal year ended June 30, 2022 was driven by changes in operating assets and liabilities, partially offset by net income plus non-cash depreciation and amortization charges.

Changes in operating assets and liabilities used $107.3 million of cash in the fiscal year ended June 30, 2023 and $152.8 million of cash in the fiscal year ended June 30, 2022, respectively.

Net cash provided by operating activities for the fiscal year ended June 30, 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 fiscal year ended June 30, 2023 was driven by changes in operating assets and liabilities, partially offset by net income adjusted for non-cash items.

Net income and non-cash adjustments provided cash of $82.6 million, while changes in operating assets and liabilities used $9.4 million of cash in the fiscal year ended June 30, 2024.

For the fiscal year ended June 30, 2023, cash used by changes in operating assets and liabilities was $107.3 million, while net income and non-cash adjustments provided cash of $93.5 million.

Net income adjusted for non-cash items provided cash of $82.6 million in fiscal year 2024.

Partially offsetting this was cash used of $9.4 million from changes in operating assets and liabilities in fiscal year 2024, largely due to the decrease in accounts payable which used cash of $102.6 million driven by decreased inventory purchases due to lower sales.

Partially offsetting cash used by accounts payable was a decrease in inventory which provided cash of $64.2 million driven by decreased inventory purchases due to lower sales, and an increase in advances from customers, which provided cash of $34.9 million.

The cash used of $107.3 million from changes in operating assets and liabilities in fiscal year 2023 was largely due to an increase in accounts receivable, which used cash of $82.4 million primarily resulting from increased sales volumes, and an increase in inventory, which used cash of $50.2 million, driven by investment to support our expansions.

Partially offsetting cash used by inventory was an increase in accounts payable, which provided cash of $20.4 million largely resulting from increased inventory purchases, and an increase in advances from customers, which provided cash of $7.9 million.

The cash used of $152.8 million from changes in operating assets and liabilities in fiscal year 2022 was largely due to an increase in inventory, which used cash of $203.2 million primarily due to the component shortages as we continued to purchase material not impacted by the shortages so we can fulfill our customer orders once the impacted components are received, and an increase in accounts receivable, which used cash of $26.5 million primarily resulting from increased sales volumes.

Partially offsetting cash used by inventory was an increase in accounts payable, which provided cash of $89.2 million largely resulting from increased inventory purchases, and an increase in advances from customers, which provided cash of $22.6 million.

See Note 1 - Business Description and Summary of Significant Accounting Policies of Notes to Consolidated Financial Statements for information regarding reclassifications of advances from customers.

Cash Flows from Investing Activities

Net cash used for investing activities during fiscal year 2024 includes $47.0 million cash used for capital investments.

The capital investments were primarily for expansions at our Mexico, Thailand, and Poland facilities and to support new business awards.

The capital investments were primarily to support new business awards, replacement of older machinery and equipment, and facility expansions.

Net cash used for investing activities during fiscal year 2023 includes $90.7 million cash used for capital investments.

The capital investments were primarily for expansions at our Thailand and Mexico facilities and to support new business awards.

The capital investments were primarily for expansions at our Mexico, Thailand, and Poland facilities and to support new business awards.

Cash Flows from Financing Activities

Net cash provided by financing activities for the fiscal year ended June 30, 2024 resulted largely from net borrowings on our credit facilities of $13.5 million primarily for working capital purposes and capital expenditures.

Net cash provided by financing activities for the fiscal year ended June 30, 2023 resulted largely from net borrowings on our credit facilities of $100.7 million primarily for working capital purposes and capital investments supporting expansions.

Net cash used for financing activities for the fiscal year ended June 30, 2022 resulted largely from net borrowings on our credit facilities of $114.9 million primarily for working capital purposes.

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 fiscal year ended June 30, 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.

We also maintain foreign credit facilities for working capital and general corporate purposes at specific foreign locations rather than utilizing funding from intercompany sources.

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Factoring Arrangements

The Company utilizes accounts receivable factoring arrangements with third-party financial institutions in order to extend terms for the customer without negatively impacting our cash flow.

We participate in our customers’ supply chain financing arrangements in order to extend terms for the customer without negatively impacting our cash flow.

These arrangements in all cases do not contain recourse provisions which would obligate us in the event of our customers’ failure to pay.

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Future Liquidity

We believe our principal sources of liquidity from available funds on hand, cash generated from operations, and the availability of borrowing under our credit facilities, will be sufficient to meet our working capital and other operating needs for at least the next 12 months.

The unused borrowings in USD equivalent under all of our credit facilities totaled $106.1 million at June 30, 2023, including the $50 million secondary facility expiring in February 2024.

We believe our principal sources of liquidity from available funds on hand, cash generated from operations, proceeds from the sale of GES, 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 $142.1 million at June 30, 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.

Additionally, accounts receivable factoring arrangements could provide flexible access to cash as needed.

While our primary and secondary credit facilities include a covenant that limits the amount of sold receivables outstanding at any time, currently and historically, we have been considerably below this limit.

While our primary credit facility includes a covenant that limits the amount of sold receivables outstanding at any time, currently and historically, we have been considerably below this limit.

We expect to continue to prudently invest in capital expenditures, including for capacity expansions and potential acquisitions, that would help us continue our growth as a multifaceted manufacturing solutions company.

We recently completed our Thailand facility expansion in the third quarter of fiscal year 2022, our Mexico facility expansion in the first quarter of fiscal year 2023, and our Poland expansion in the fourth quarter of fiscal year 2023.

At June 30, 2023, our capital expenditure commitments were approximately $13 million, consisting primarily of equipment for the Poland, Mexico, and Thailand facility expansions and capital related to new program wins.

At June 30, 2024, our capital expenditure commitments were approximately $14 million, consisting primarily of capital related to new program wins and replacement of older machinery and equipment.

We anticipate our available liquidity will be sufficient to fund these capital expenditures.

We have purchase obligations that arise in the normal course of business for items such as raw materials, services, and software acquisitions/license commitments.

In certain instances, such as when lead times dictate, we enter into contractual agreements for material in excess of the levels required to fulfill customer orders to help mitigate the potential impact related to component shortages, which require longer lead times.

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

At June 30, 2023, our foreign operations held cash totaling $41.4 million and the aggregate unremitted earnings of our foreign subsidiaries were approximately $420 million.

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

business operations, and it is not anticipated such earnings will be remitted to the United States.

Our intent is to permanently reinvest the remaining funds outside of the United States, and our current plans do not demonstrate a need to repatriate these funds to our U.S.

However, if such funds were repatriated, a portion of the funds remitted may be subject to applicable non-U.S.

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 that we must purchase prior to having a firm order.

At June 30, 2024, our foreign operations held cash totaling $77.9 million.

The Company continually evaluates its global cash needs.

The aggregate unremitted earnings of the Company’s foreign subsidiaries, which are currently permanently reinvested, were approximately $482 million as of June 30, 2024.

If such funds were repatriated or we determined that all or a portion of such foreign earnings are no longer permanently reinvested, we may be subject to applicable non-U.S.

income and withholding taxes.

The Company has a Board-authorized stock repurchase plan (the “Plan”) to allow the repurchase of up to $100 million of common stock.

Determination of the amount of any potential future unrecognized deferred tax liability on such unremitted earnings is not practicable and is recorded in the period that the funds are repatriated.

The Company’s Repurchase Plan allows the repurchase of up to $100 million of our common stock.

Purchases may be made under various programs, including in open-market transactions, block transactions on or off an exchange, or in privately negotiated transactions, all in accordance with applicable securities laws and regulations.

The Plan has no expiration date but may be suspended or discontinued at any time.

The Repurchase Plan has no expiration date but may be suspended or discontinued at any time.

The extent to which the Company repurchases its shares, and the timing of such repurchases, will depend upon a variety of factors, including market conditions, regulatory requirements, and other corporate considerations, as determined by the Company’s management team.

The Company expects to finance the purchases with existing liquidity.

The Company has repurchased $88.8 million of common stock under the Plan through June 30, 2023.

Our ability to generate cash from operations to meet our liquidity obligations could be adversely affected in the future by factors such as general economic and market conditions, lack of availability of raw material components in the supply chain, a decline in demand for our services, loss of key contract customers, unsuccessful integration of acquisitions and new operations, global health emergencies such as the COVID-19 pandemic, and the related uncertainties around the financial impact, and other unforeseen circumstances.

The Company has repurchased $91.8 million of common stock under the Repurchase Plan through June 30, 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.

In particular, should demand for our customers’ products and, in turn, our services decrease significantly over the next 12 months, the available cash provided by operations could be adversely impacted.

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Our own credit risk and counterparty credit risk had an immaterial impact on the valuation of the foreign currency derivatives.

See Note 12 - Fair Value of Notes to Consolidated Financial Statements for more information.

See Note 1 3 - Fair Value of Notes to Consolidated Financial Statements for additional information.

Off-Balance Sheet Arrangements

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Based on estimated product returns and price concessions, a reserve for returns and allowances is recorded at the time revenue is recognized, resulting in a reduction of revenue.

Goodwill and Other Intangible Assets - Goodwill, $12.0 million as of both June 30, 2023 and 2022 represents the difference between the purchase price and the related underlying tangible and intangible net asset fair values resulting from business acquisitions.

Goodwill and Other Intangible Assets - Goodwill, $6.2 million and $12.0 million as of June 30, 2024 and 2023, respectively, represents the difference between the purchase price and the related underlying tangible and intangible net asset fair values resulting from business acquisitions.

Annually, or if conditions indicate an earlier review is necessary, goodwill is tested at the reporting unit level.

If the estimated fair value of the reporting unit is less than the carrying value, goodwill is written down to its estimated fair value.

No impairment charges were recorded in fiscal year 2023 or 2022 resulting from our annual impairment tests for all reporting units.

Our decision to divest GES, our former automation, test and measurement business, and the disposal group meeting the criteria to be classified as held for sale, resulted in goodwill impairment of $5.8 million, pre-tax in fiscal year 2024.

No impairment charges were recorded in fiscal year 2024 or 2023 resulting from our annual impairment tests for all other reporting units.

Other Intangible Assets, $3.0 million and $12.3 million as of June 30, 2024 and 2023, respectively, are reported on the Consolidated Balance Sheets and consist of capitalized software, customer relationships, technology, and trade name.

Intangible assets are reviewed for impairment, and their remaining useful lives evaluated for revision, when events or circumstances indicate that the carrying value may not be recoverable over the remaining lives of the assets.

See Note 1 - Business Description and Summary of Significant Accounting Policies of Notes to Consolidated Financial Statements for further discussion of the Company’s goodwill and intangible asset accounting policies.

Our decision to divest of our automation, test and measurement business resulted in the associated intangible assets being classified as held for sale.

See Note 1 - Business Description and Summary of Significant Accounting Policies and Note 3 - Assets and Liabilities Held for Sale of Notes to Consolidated Financial Statements for further discussion of the Company’s goodwill and intangible asset accounting policies, held for sale classification, and impairment.

Taxes - Deferred income tax assets and liabilities are recognized for the estimated future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.

7 unchanged sentences

As tax positions are effectively settled, the tax provision will be adjusted accordingly.

The liability for uncertain income tax and other tax positions, including accrued interest and penalties on those positions, was $1.8 million at both June 30, 2023 and June 30, 2022.

The liability for uncertain income tax and other tax positions, including accrued interest and penalties on those positions, was $1.6 million and $1.8 million at June 30, 2024 and June 30, 2023, respectively.

Numerous foreign jurisdictions in which the company operates have adopted the Organization for Economic Cooperation and Development’s global framework implementing a 15% corporate minimum tax, commonly referred to as Pillar Two.

The Company will be subject to Pillar Two beginning in fiscal year 2025.

Based on current legislation and available guidance, we do not anticipate Pillar Two will have a material impact to our financial condition, results of operation, cash flows, or effective tax rate.

We will continue to monitor additional guidance as it is released.

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 Consolidated Financial Statements for information regarding New Accounting Standards.

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

See Note 1 - Business Description and Summary of Significant Accounting Policies of Notes to 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-K

Item 7. Management’s Discussion and Analysis