What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-11-06 compared with 2024-05-08 · 90 added, 134 removed, 137 unchanged (62% of the section changed)

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Certain statements contained within this document are considered forward-looking under the Private Securities Litigation Reform Act of 1995.

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

The statements may be identified by the use of words such as “believes,” “anticipates,” “expects,” “intends,” “plans,” “projects,” “estimates,” “forecasts,” “likely,” “future,” “may,” “should,” “would,” “could,” “will,” “can,” “potentially,” 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, availability or cost of raw materials and components, foreign exchange fluctuations, and our ability to convert new business opportunities into customers and revenue.

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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 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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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.

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 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.

In the medical market, sales decreased 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.

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.

Net sales in the first quarter of the current fiscal year decreased 15% compared to the prior fiscal year first quarter, with decreases in each of our end market verticals.

The decrease in sales to customers in the automotive and medical markets were largely driven by decreased demand.

The decrease in sales to customers in the industrial market were related to the sale of GES and continued softness specific to smart metering and climate control production.

We expect consolidated net sales to continue to lag when compared to fiscal year 2024 with the continued softness in demand and the loss of a major automotive program (impacts beginning in the third quarter) 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.

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

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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.

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.

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, we completed the divestiture of our GES business on July 31, 2024 and undertook restructuring efforts beginning in fiscal year 2024 to align our cost structure with reduced end-market demand levels.

In addition, on November 4, 2024, the Company announced that its Board of Directors has approved a plan to cease operations at our Tampa facility, expected to be completed by the end of the fiscal year.

The decision was another important step towards sharpening our strategic focus, while leveraging our global footprint and streamlining the operating structure.

Production activities on existing customer programs will be transferred out of Tampa, with the majority of the work going to our plants in North America, primarily our newly expanded facility in Mexico and Jasper.

We continue to maintain a strong balance sheet, which included a current ratio of 2.3, a debt-to-equity ratio of 0.4, and Share Owners’ equity of $548 million at September 30, 2024.

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

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.

Nine Months Ended

Three Months Ended

Customer Service Years 2024 2023

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Selling and Administrative Expenses 13.5 3.6 % 16.0 3.7 % (16) %

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

Restructuring Expense 2.3 0.6 % — — % — %

Goodwill Impairment 5.8 1.4 % — — % — %

Asset Impairment 16.6 3.9 % — — % — %

Gain on Disposal

(1.3) (0.3) % — — % — %

Operating Income 9.1 2.4 % 19.5 4.4 % (53) %

Other Income (Expense) (6.2) (6.2)

Provision for Income Taxes (6.7) 5.5 (222) %

Provision (Benefit) for Income Taxes

(0.3) 2.5 (111) %

Net Income $ 3.2 $ 10.8 (71) %

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Open Orders $ 594 $ 907 (35) %

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

Net Sales $ 1,284.4 $ 1,327.3 (3) %

Gross Profit $ 103.5 8.1 % $ 106.5 8.0 % (3) %

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) %

Other Income (Expense) (17.9) (8.1)

Provision for Income Taxes (1.2) 11.6 (111) %

Net Income $ 13.0 $ 36.6 (65) %

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

Net Sales by Vertical Market Three Months Ended Nine Months Ended

March 31 March 31

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

Net Sales by Vertical Market Three Months Ended

(Amounts in Millions) 2024 2023 % Change

Automotive $ 188.4 $ 212.5 (11) %

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Total Net Sales $ 374.3 $ 438.1 (15) %

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.

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

First quarter fiscal year 2025 consolidated net sales decreased 15% compared to the first quarter of fiscal year 2024.

The impact from foreign currency fluctuations on net sales was less than 1% in the current quarter compared to the first quarter of fiscal year 2024.

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

• 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.

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

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

• 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 Nine Months Ended

March 31 March 31

2024 2023 2024 2023

• Sales to customers in the automotive market decreased 11% during the first quarter of fiscal year 2025 compared to the first quarter of fiscal year 2024.

The decrease in the first quarter is due to customer demand reductions, particularly in North America and Europe.

• Sales to customers in the medical market declined in the first quarter of fiscal year 2025 compared to the first quarter of fiscal year 2024.

The decrease is primarily due to customer demand reductions.

• Sales to customers in the industrial market decreased 22% during the first quarter of fiscal year 2025, when compared to the first quarter of fiscal year 2024.

Approximately half of the decline is related to the sale of GES and the remainder is due to continued softness in industrial specific to smart metering and climate control production.

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

Three Months Ended

Nexteer Automotive 18% 16%

Philips * 14% * 15%

ZF 12% 12% 12% 12%

HL Mando * 10%

* amount is less than 10% of total

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.

Gross profit as a percent of net sales in the first quarter of fiscal year 2025 declined when compared to the first quarter of fiscal year 2024 as we experienced lost absorption on lower revenue.

Selling and administrative expenses decreased both as a percent of net sales and in absolute dollars in the first quarter of fiscal year 2025 when compared to the first quarter of fiscal year 2024, driven by cost reduction efforts, decreased profit-sharing bonus expense, and the classification of factoring fees.

In the three months ended September 30, 2024, we recorded pre-tax restructuring expense of $2.3 million for employee-related costs as we undertook restructuring efforts to align our cost structure with reduced end market demand levels.

We completed the divestiture of GES on July 31, 2024 and recorded a gain on disposal of $1.3 million during the first quarter of fiscal year 2025.

See Note 3 - Sale of GES of Notes to Condensed Consolidated Financial Statements for more information.

Other Income (Expense) consisted of the following:

Three Months Ended Nine Months Ended

March 31 March 31

Three Months Ended

(Amounts in Thousands) 2024 2023

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Gain (loss) on SERP investments 345 (177)

Factoring fees (537) —

Credit facilities fees and bank charges (263) (201)

Other (172) (79)

Other income (expense), net $ (6,231) $ (6,279)

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.

Interest expense has decreased in the three months ended September 30, 2024 compared to the three months ended September 30, 2023 due to lower interest rates and lower 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 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 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.

Prior to fiscal year 2025, factoring fees were recorded in Selling and Administrative Expenses on our Condensed Consolidated Statements of Income.

Our provision (benefit) for income taxes for the three months ended September 30, 2024 and September 30, 2023 was $(0.3) million, or (9.4)% of income before taxes on income, and $2.5 million, or 18.6% of income before taxes on income, respectively.

The tax benefit in the three months ended September 30, 2024 was the result of an interest recovery on a prior period tax audit.

Open orders were down 35% as of September 30, 2024 compared to September 30, 2023.

The decrease in open orders from September 30, 2023 is primarily driven by reduced orders due to cancellation of a major automotive program, other automotive customer demand reductions, and medical customer demand reductions.

Open orders at a point in time may not be indicative of future sales trends due to the contract nature of our business.

Our open orders depend on the lead times from our customers, which have reduced since September 30, 2023 when parts were more constrained, which also contributed to the decline in open orders.

Liquidity and Capital Resources

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.

Working capital at September 30, 2024 was $439.0 million compared to working capital of $471.7 million at June 30, 2024.

The current ratio was 2.3 at both September 30, 2024 and June 30, 2024.

The debt-to-equity ratio was 0.4 at September 30, 2024 and 0.5 at June 30, 2024.

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 $263.4 million at September 30, 2024 and $220.1 million at June 30, 2024.

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”).

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Three Months Ended

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

September 30, 2024 June 30, 2024 September 30, 2023

Days Sales Outstanding 66 58 58

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Cash Conversion Days 108 100 103

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.

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 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.

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 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

We have experienced customers push out deliveries and sales declines, which have negatively impacted our cash conversion days and working capital.

We expect our CCD metrics to improve as we align our working capital with the lower sales levels.

The following table reflects the major categories of cash flows for the first three months of fiscal years 2025 and 2024.

Three Months Ended

(Amounts in Millions) 2024 2023

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

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

Net cash provided by financing activities $ 36.6 $ 107.1

Net cash provided by operating activities $ 45.5 $ 12.8

Net cash provided by (used for) investing activities $ 5.2 $ (11.3)

Net cash (used for) provided by financing activities $ (53.0) $ 14.0

Cash Flows from Operating Activities

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.

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.

Net cash provided by operating activities for the first three months of fiscal year 2025 was driven by net income adjusted for non-cash items and changes in operating assets and liabilities.

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

Net income adjusted for non-cash items provided cash of $16.8 million in the first three months of fiscal year 2025, while changes in operating assets and liabilities provided $28.7 million of cash in the first three months of fiscal year 2025, largely due to a decrease of accounts receivable, which provided cash of $20.1 million primarily resulting from decreased sales volumes compared to the three months ended June 30, 2024, and an increase in advances from customers, which provided cash of $8.7 million.

Partially offsetting cash provided by accounts receivable and advances from customers was a decrease in accrued expenses and taxes payable, which used cash of $22.5 million primarily driven by timing of profit-sharing incentive bonus and income tax payments.

The cash used of $9.7 million from changes in operating assets and liabilities in the first three months of fiscal year 2024 was largely due to an increase in inventory, which used cash of $34.0 million, driven by investment to support our newly expanded facilities, a decrease in accounts payable, which used cash of $11.6 million, and an increase in contract assets, which used cash of $8.9 million.

Partially offsetting cash used by inventory, accounts payable, and contract assets was a decrease in accounts receivable, which provided cash of $45.3 million primarily resulting from decreased sales volumes compared to the three months ended June 30, 2023.

Cash Flows from Investing Activities

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.

Net cash provided by investing activities of $5.2 million in the first three months of fiscal year 2025 was largely due to the $18.5 million of proceeds from the sale of GES, partially offset by capital investments of $13.5 million primarily to support new business awards and replacement of older machinery and equipment.

See Note 3 - Sale of GES of Notes to Consolidated Financial Statements for more information on the divestiture of GES.

Net cash used for investing activities in the first three months of fiscal year 2024 included $11.3 million cash used for capital investments.

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

Cash Flows from Financing Activities

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.

For the first three months of fiscal year 2025, net cash used for financing activities of $53.0 million resulted largely from net payments on our credit facilities of $49.1 million.

For the first three months of fiscal year 2024, net cash provided by financing activities of $14.0 million resulted largely from net borrowings on our credit facilities of $15.4 million primarily for working capital purposes and capital expenditures.

Credit Facilities

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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 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.

We were in compliance with the financial covenants of the primary and secondary credit facilities during the period ended September 30, 2024.

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

These foreign credit facilities can be canceled at any time by either the bank or us and generally include renewal clauses.

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.

As of September 30, 2024, we maintained foreign credit facilities at our Thailand operation, our China operation, our Netherlands subsidiary, and our Poland operation.

See Note 8 - 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.

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.

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

In the three months ended September 30, 2024 and 2023, we sold, without recourse, $87.3 million and $103.0 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 $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.

The unused borrowings in USD equivalent under all of our credit facilities totaled $186.8 million at September 30, 2024, including the $100 million secondary credit facility.

Our secondary credit facility matures on January 3, 2025.

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

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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 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.

At September 30, 2024, our capital expenditure commitments were approximately $13 million, consisting primarily of capital related to new program wins.

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

We expect to continue our restructuring efforts, including the closure of our Tampa facility.

We expect these restructuring efforts to be predominantly cash expenditures to be incurred over approximately the next 12 months and estimate between $10.0 million and $14.0 million of pre-tax restructuring charges, including $8.0 million to $11.0 million for Tampa exit costs.

Once Tampa’s operations have ceased, we expect to sell the building and land, with the proceeds from the sale anticipated to exceed the exit costs.

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

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 September 30, 2024, our foreign operations held cash totaling $75.7 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.

The Company continually evaluates its global cash needs.

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.

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 when any foreign earnings are determined to be no longer permanently reinvested.

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

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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 March 31, 2024.

The Company has repurchased $94.7 million of common stock under the Repurchase Plan through September 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.

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Additional cautionary statements regarding our risk factors are contained in our Annual Report on Form 10-K for the year ended June 30, 2024.

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

During the first quarter of fiscal year 2025, 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 March 31, 2024, we do not have any material off-balance sheet arrangements.

As of September 30, 2024, we do not have any material off-balance sheet arrangements.

Critical Accounting Policies

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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-Q

Item 2. Management’s Discussion and Analysis