What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-08-22 compared with 2024-08-23 · 89 added, 109 removed, 181 unchanged (52% 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, 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, tariffs and other trade barriers, 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 disposables, drug delivery solutions, and precision molded plastics.

We further produce higher level and final assemblies and offer contract manufacturing organization (“CMO”) solutions which include the production of medical disposables and drug delivery devices, from precision molded plastics and cold chain management to drug integration.

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.

CIRCUITS ASSEMBLY, a leading brand and technical publication for electronics manufacturers worldwide, has recognized us for the past 13 consecutive years for rankings in Highest Overall Customer Rating in their Service Excellence Awards.

Most recently, we were recognized by our customers for highest ratings in service excellence in seven categories:

dependability/timely delivery, manufacturing quality, responsiveness, technology, value for the price, flexibility, and overall satisfaction.

The contract manufacturing services industry is very competitive.

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We expect to continue to effectively operate in this market space;

however, one significant challenge will be maintaining our profit margins while we continue our revenue growth.

however, one significant challenge will be maintaining our profit margins.

Pricing is competitive in the market as production efficiencies and material pricing advantages for most projects drive costs and prices down over the life of the projects.

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The Worldwide Manufacturing Services Market - 2025 Edition , a comprehensive study on the worldwide EMS market published by New Venture Research (“NVR”), provided worldwide forecast trends through 2029.

NVR projects the worldwide assembly market for electronics products to grow at a compound annual growth rate (“CAGR”) of 4.6% over the next five years, with the EMS industry projected to grow at a CAGR of 4.6%.

NVR projects the worldwide assembly market for electronics products to grow at a compound annual growth rate (“CAGR”) of 6.3% over the next five years.

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 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.

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

Net sales in fiscal year 2025 decreased 13% 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.

The decrease in sales to customers in the automotive markets were largely driven by the loss of a major automotive program that was unrelated to Kimball and other automotive programs going end of life.

The decrease in sales to customers in the medical markets was primarily driven by lower demand resulting from customer overstocking of inventory.

We expect moderate medical growth in fiscal year 2026.

The decrease in sales to customers in the industrial market were related to the sale of GES and declines in smart metering and public safety.

We expect consolidated net sales in fiscal year 2026 to decline marginally from fiscal year 2025, largely due to the continued impact of the loss of a major automotive program discussed above.

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 completed capacity expansions.

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 entering into a lease on a new facility for our Indianapolis operations, and our recently 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 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 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, which concluded with the assets being held for sale at 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 have been transferred out of Tampa as of June 30, 2025, 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 as of the end of fiscal year 2025, which included a current ratio of 2.2, a debt-to-equity ratio of 0.3, and Share Owners’ equity of $570 million.

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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# of Customers 58 65 65

Our total number of customers declined by seven from 2024 to 2025;

three of which were divested with our automation, test, and measurement business, and the remaining four customers accounted for less than 1% of our consolidated net sales in fiscal year 2024.

A detailed discussion of risk factors and uncertainties that could have an effect on our performance are located within Item 1A - Risk Factors .

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Goodwill Impairment — — % 5.8 0.3 % (100) %

Asset Impairment

(Gain on Disposal) Asset Impairment

(2.4) (0.2) % 17.0 1.0 % (114) %

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Net sales in fiscal year 2025 decreased by 13% compared to net sales in fiscal year 2024.

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.

The impact from foreign currency fluctuations on net sales was less than 1% in fiscal year 2025 compared to fiscal year 2024.

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

• 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 automotive market were down in the current fiscal year when compared to the prior fiscal year driven by the loss of a major automotive program that was unrelated to Kimball and other automotive programs going end of life.

• 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.

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:

This decrease was primarily driven by lower demand resulting from customer overstocking of inventory.

• In the industrial end market vertical, the sale of GES accounts for approximately one third of the sales decrease compared to the prior fiscal year.

We also experienced declines in our smart metering programs, where our customers are experiencing continued market share declines from commoditization, and to a lesser degree, declines in public safety and climate control customers.

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

Year Ended June 30

Nexteer Automotive 19% 16%

Philips * 14%

* amount is less than 10% of total

Gross profit as a percent of net sales declined in fiscal year 2025 when compared to fiscal year 2024 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.

For fiscal year 2025, selling and administrative expenses declined as a percent of net sales and in absolute dollars when compared to fiscal year 2024, driven by cost reduction efforts, the divestiture of GES in July 2024, the classification of factoring fees, decreased profit-sharing bonus expense, and lower allowance from credit losses.

Other General Income in fiscal year 2024 consisted of $0.9 million 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.

There was no Other General Income reported in fiscal year 2025.

In fiscal year 2025, we recorded pre-tax restructuring expense of $11.0 million, primarily for employee-related costs as we undertook restructuring efforts to align our cost structure with reduced end market demand levels and incurred costs related to the Tampa closure.

In 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.

We completed the divestiture of GES on July 31, 2024 and recorded a gain on disposal of $2.4 million during fiscal year 2025.

In fiscal year 2024, we recorded pre-tax impairment charges of $5.8 million and $17.0 million on goodwill and assets held for sale, respectively.

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

Other Income (Expense) consisted of the following:

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Gain (Loss) on SERP Investments 614 680

Factoring fees / AR program discounts

Credit facilities fees and bank charges

(1,018) (873)

Other (762) (259)

Other Income (Expense), net $ (19,306) $ (24,078)

Interest expense has increased in the year ended June 30, 2024 compared to the year ended June 30, 2023 due to higher interest rates and higher borrowings on credit facilities.

Interest expense has decreased in the year ended June 30, 2025 compared to the year ended June 30, 2024 due to lower borrowings on credit facilities and lower interest rates.

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

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

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.

The losses in fiscal year 2025 and 2024 were driven by the weakening of the U.S.

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

The revaluation of the fair value of the supplemental employee retirement plan (“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.

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 income before income taxes and effective tax rate were comprised of the following U.S.

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Year Ended June 30, 2025 Year Ended June 30, 2024

(Amounts in Thousands) Income (Loss) Before Taxes Effective Tax Rate Income Before Taxes Effective Tax Rate

(Amounts in Thousands) Income (Loss) Before Taxes Effective Tax Rate Income (Loss) Before Taxes Effective Tax Rate

United States $ (9,681) 11.8 % $ (35,055) 21.6 %

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Total $ 26,229 35.2 % $ 25,199 18.6 %

The consolidated effective tax rate for fiscal year 2025 was driven higher by the limitation on the deductibility of business interest expense under Section 163(j) and the inclusion of GILTI income which resulted in additional U.S.

tax on foreign earnings.

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.

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

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Open orders were down 2% as of June 30, 2025 compared to June 30, 2024.

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.

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The current ratio was 2.2 at June 30, 2025 and 2.3 at June 30, 2024, respectively.

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

The debt-to-equity ratio was 0.3 at June 30, 2025 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 $373.5 million at June 30, 2025 and $220.1 million at June 30, 2024.

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CCD 85 99 107 108 100

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.

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.

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 two quarters, we have improved our CCD metrics by better aligning our working capital with the lower sales levels.

The following table reflects the major categories of cash flows for the fiscal years ended June 30, 2025 and 2024.

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(Amounts in Millions) 2025 2024

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

Net cash provided by operating activities $ 183.9 $ 73.2

Net cash used for investing activities $ (14.7) $ (46.5)

Net cash provided by financing activities $ 9.0 $ 99.2

Net cash (used for) provided by financing activities $ (160.9) $ 9.0

Cash Flows from Operating Activities

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.

Net cash provided by operating activities for the fiscal year ended June 30, 2025 was primarily driven by change in receivables, which provided cash of $71.8 million due to lower sales levels and increased use of factoring programs, and inventories, which provided cash of $74.6 million due to working down previously inflated inventory levels from strategic inventory builds to mitigate part shortages.

Net income adjusted for non-cash items also generated operating cash flow of $56.5 million in fiscal year 2025.

Net cash provided for 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 income and non-cash adjustments generated operating cash flow 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.

Cash Flows from Investing Activities

Net cash used for investing activities during fiscal year 2025 includes $33.7 million cash used for capital investments primarily to support new business awards and replacement of older machinery, partially offset by the $18.5 million of proceeds from the sale of GES.

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

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 Mexico, Thailand, and Poland facilities and to support new business awards.

Cash Flows from Financing Activities

Net cash used for financing activities for the fiscal year ended June 30, 2025 resulted largely from net payments on our credit facilities of $147.3 million.

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.

Credit Facilities

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primary credit facility (the “primary credit facility”) scheduled to mature on May 4, 2027.

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

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.

The primary credit facility provides for $300 million in revolving 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.

On December 20, 2024, the Company entered into an amended and restated credit agreement which resulted in the addition of a term loan borrowing, allowing for term loan borrowings of $100 million repayable in scheduled quarterly installments, and is scheduled to mature on December 20, 2029.

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

The Company terminated its 364-day multi-currency revolving credit facility (the “secondary credit facility”), which previously allowed for borrowings up to $100 million and had a maturity date of January 3, 2025.

We were in compliance with the financial covenants of the primary credit facility during the period ended June 30, 2025.

Through the amendment of the primary credit facility, including adding a $100 million term loan borrowing, we were able to maintain our same total borrowing capacity even with the termination of the secondary credit facility.

Additionally, we were able to secure our primary credit facility’s interest rate pricing for the $100 million term loan for five years, which is beyond the duration of our current primary credit facility.

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 June 30, 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 June 30, 2025, we maintained foreign credit facilities at our Thailand operation, our Netherlands subsidiary, and our Poland operation.

See Note 9 - Credit Facilities of Notes to Consolidated Financial Statements for more information on our credit facilities, including the terms of the credit facilities such as interest, commitment fees, and debt covenants.

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Receivables are considered sold when they are transferred beyond the reach of Kimball Electronics and its creditors, the purchaser has the right to pledge or exchange the receivables, and we have surrendered control over the transferred receivables.

During the fiscal years ended June 30, 2024 and 2023, we sold, without recourse, $410.0 million and $485.4 million of accounts receivable, respectively.

See Note 1 - Business Description and Summary of Significant Accounting Policies of Notes to Consolidated Financial Statements for more information regarding the factoring arrangements.

During the fiscal years ended June 30, 2025 and 2024, we sold $338.4 million and $410.0 million of accounts receivable, respectively.

During the fourth quarter of fiscal year 2025, we entered into an accounts receivable factoring program with a financial institution for certain domestic receivables.

We sell our entire interest in certain receivables for 100% of face value, less a discount.

We are required to remit amounts collected as a servicer under the Receivables Purchase Agreement (the “RPA”) on a weekly basis to the financial institution that purchased the receivables.

Our risks with respect to receivables we service include commercial disputes regarding such receivables and no greater than 5.0% of sold and outstanding receivables in the event of customer insolvency.

In fiscal year 2025, under this program, we sold $19.4 million of receivables.

See Note 1 - Business Description and Summary of Significant Accounting Policies of Notes to Consolidated Financial Statements for more information regarding our factoring arrangements.

Future Liquidity

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 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, 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.

As of June 30, 2025, following a year of strong cash generated from operating activities and debt reduction, we are in a much improved liquidity position with $88.8 million in cash and unused borrowings in USD equivalent under all of our credit facilities of $284.7 million.

Additionally, considering expected future sources of liquidity from cash generated from operations and proceeds from the sale of the Tampa facility, we are positioned to meet our working capital and other operating needs for at least the next twelve months.

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

In March 2025, we executed a lease for a facility in Indiana to expand our medical CMO footprint with the lease commencing in June 2025.

The initial lease term is ten years and annual base rent of $1.8 million, increasing 3% each year.

At June 30, 2025, our capital expenditure commitments were approximately $35 million, consisting primarily of leasehold improvements and 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 the first half of fiscal year 2026.

We estimate additional pre-tax restructuring charges between $0.5 million to $1.0 million.

Now that Tampa’s operations have ceased, we expect to sell the building and land, with the proceeds from the sale anticipated to exceed the combined amount of the total expected restructuring costs and the carrying value of the Assets Held for Sale.

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

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At June 30, 2025, our foreign operations held cash totaling $85.3 million.

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

business operations.

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.

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.

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.

During fiscal year 2025, the Company changed its indefinite reinvestment assertion for our subsidiary in China, and has recorded a deferred tax liability on their earnings for the applicable withholding taxes.

The Company continues to assert permanent reinvestment of foreign earnings in all other foreign jurisdictions as well as for earnings prior to fiscal year 2025 for China.

The Company’s Repurchase Plan allows the repurchase of up to $120 million of our common stock.

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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 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.

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As of June 30, 2025, we do not have any material off-balance sheet arrangements.

Critical Accounting Policies

Critical Accounting Policies and Estimates

Kimball Electronics’ Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America.

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The remaining revenue is recognized when the customer obtains control of the manufactured product.

We have elected to account for shipping and handling activities related to contracts with customers as costs to fulfill our promise to transfer the associated products.

Accordingly, we record customer payments of shipping and handling costs as a component of net sales and classify such costs as a component of cost of sales.

We recognize sales net of applicable sales or value add taxes.

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, $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.

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.

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.

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The liability for uncertain income tax and other tax positions, including accrued interest and penalties on those positions, was $1.5 million and $1.6 million at June 30, 2025 and June 30, 2024, 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

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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 7. Management’s Discussion and Analysis