What changed in this filing

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Item 2. Management’s Discussion and Analysis

2026-02-05 compared with 2025-11-06 · 74 added, 61 removed, 167 unchanged (45% of the section changed)

29 unchanged sentences

If we are unable to fully recover these costs, our results of operations and cash flows could be adversely impacted.

Net sales in the first quarter of the current fiscal year decreased 2% compared to the prior fiscal year first quarter, most significantly in our automotive end market vertical.

Net sales in the second quarter of the current fiscal year decreased 5% compared to the prior fiscal year second quarter, most significantly in our automotive end market vertical.

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

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We continue to work with our customers to optimize our global footprint.

We continue to maintain a strong balance sheet, which included a current ratio of 2.2, a debt-to-equity ratio of 0.2, and Share Owners’ equity of $577 million at September 30, 2025.

We continue to maintain a strong balance sheet, which included a current ratio of 2.2, a debt-to-equity ratio of 0.3, and Share Owners’ equity of $579 million at December 31, 2025.

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.

Three Months Ended

Six Months Ended

Customer Service Years 2025 2024

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# of Customers 50 58

Our total number of customers declined by seven from September 30, 2024 to September 30, 2025 all of which accounted for less than 1% of our consolidated net sales in the first quarter of fiscal year 2025.

Our total number of customers declined by eight when comparing December 31, 2025 to December 31, 2024 all of which accounted for approximately 1% of our consolidated net sales in the first six months of fiscal year 2025.

A detailed discussion of risk factors and uncertainties that could have an effect on our performance are located within the “Risk Factors” section of our Annual Report on Form 10-K for the year ended June 30, 2025.

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Restructuring Expense 1.8 0.5 % 4.7 1.3 %

Gain on Disposal (0.1) — % (1.3) (0.3) %

Asset Impairment (Gain on Disposal) 0.4 0.1 % — — %

Operating Income 10.8 3.2 % 8.2 2.3 % 31 %

14.5 4.0 % 9.1 2.4 % 59 %

Other Income (Expense) (3.9) (4.8)

Provision (Benefit) for Income Taxes 3.3 — 7,869 %

$ 10.1 $ 3.2 220 %

Net Income $ 3.6 $ 3.4 6 %

Diluted Earnings per Share $ 0.15 $ 0.14 7 %

Open Orders $ 557 $ 564 (1) %

Net Sales by Vertical Market Three Months Ended

(Amounts in Millions) 2025 2024 % Change

For the Six Months Ended

(Amounts in Millions, Except for Per Share Data) 2025 as a % of Net Sales 2024 as a % of Net Sales % Change

Net Sales $ 706.9 $ 731.6 (3) %

Gross Profit $ 56.7 8.0 % $ 47.0 6.4 % 21 %

Selling and Administrative Expenses 28.0 3.9 % 24.0 3.2 % 17 %

Restructuring Expense 3.2 0.5 % 7.0 1.0 %

Asset Impairment (Gain on Disposal) 0.3 — % (1.3) (0.2) %

Operating Income 25.2 3.6 % 17.3 2.4 % 45 %

Other Income (Expense) (7.2) (10.9)

Provision (Benefit) for Income Taxes 4.3 (0.2) 1,968 %

Net Income $ 13.7 $ 6.6 108 %

Diluted Earnings per Share $ 0.55 $ 0.26 112 %

Net Sales by Vertical Market Three Months Ended Six Months Ended

December 31 December 31

(Amounts in Millions) 2025 2024 % Change 2025 2024 % Change

Automotive $ 162.3 $ 186.3 (13) % $ 326.7 $ 368.0 (11) %

Medical 96.3 84.0 15 % 197.9 173.8 14 %

99.6 102.7 (3) %

Industrial 82.7 87.1 (5) % 182.3 189.8 (4) %

Total Net Sales $ 341.3 $ 357.4 (5) % $ 706.9 $ 731.6 (3) %

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Prior periods have been recast to conform to current period presentation.

For the three months ended September 30, 2024, $6.6 million of the industrial net sales were previously categorized as automotive.

First quarter fiscal year 2026 consolidated net sales decreased 2% compared to the first quarter of fiscal year 2025.

Foreign currency fluctuations had a favorable 1% impact on net sales in the current quarter compared to the first quarter of fiscal year 2025.

• In the automotive end market vertical, sales to customers decreased 10% during the first quarter of fiscal year 2026 compared to the first quarter of fiscal year 2025, driven by the loss of a major automotive program that was unrelated to Kimball.

• Sales to the medical end market vertical increased 13% during the first quarter of fiscal year 2026 compared to the first quarter of fiscal year 2025.

The increase was driven by a step-up in sales with our largest medical customer.

• In the industrial end market vertical, sales to customers were relatively flat decreasing 3% during the first quarter of fiscal year 2026 compared to the first quarter of fiscal year 2025.

For the three and six months ended December 31, 2024, $6.5 million and $13.1 million of the industrial net sales were previously categorized as automotive.

Second quarter fiscal year 2026 consolidated net sales decreased 5% compared to the second quarter of fiscal year 2025, and the year-to-date fiscal year 2026 consolidated net sales decreased 3% compared to the year-to-date period of fiscal year 2025.

Foreign currency fluctuations had a favorable 2% impact on net sales in the current quarter compared to the second quarter and year-to-date period of fiscal year 2025.

• In the automotive end market vertical, sales to customers decreased for both the quarter over quarter and year-to-date periods driven by the loss of a major automotive program that was unrelated to Kimball and the continued pressure on customer demand as a result of tariffs primarily impacting North America.

• Sales to the medical end market vertical increased for both the quarter over quarter and year-to-date periods driven by a step-up in sales with our largest medical customer in addition to some new program wins.

• In the industrial end market vertical, sales to customers decreased quarter over quarter as a result of declines in climate controls.

The year-to-date period remained relatively flat when compared to prior year-to-date.

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

Three Months Ended

Three Months Ended Six Months Ended

December 31 December 31

2025 2024 2025 2024

Nexteer Automotive 20% 20% 19% 19%

Philips 11% * 11% *

ZF 11% 12% 10% 12%

* amount is less than 10% of total

Gross profit as a percent of net sales in the first quarter of fiscal year 2026 improved when compared to the first quarter of fiscal year 2025.

The improvement was a result of efficiencies driven by our efforts to align our cost structure with reduced end market demand levels, including the Tampa closure, resizing our workforce, and taking specific cost actions.

Selling and administrative expenses decreased moderately both as a percent of net sales and in absolute dollars in the first quarter of fiscal year 2026 when compared to the first quarter of fiscal year 2025.

In the first quarter of fiscal year 2026, following a customer termination of a program, an agreement was reached for the customer to compensate us for incurred costs, resulting in recognition of a $2.0 million recovery recorded in selling and administrative expenses.

This was partially offset by increased profit-sharing bonus expense driven by improved performance.

In the three months ended September 30, 2025, we recorded pre-tax restructuring expense of $1.4 million 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 the three months ended September 30, 2024, we recorded pre-tax restructuring expense of $2.3 million for employee-related costs for cost structure alignment.

Gross profit as a percent of net sales in the second quarter of fiscal year 2026 improved when compared to the second quarter of fiscal year 2025 as well as in the first half of the fiscal year.

The improvement was a result of efficiencies driven by our restructuring efforts, including the Tampa closure, and favorable exchange rates.

Selling and administrative expenses increased both as a percent of net sales and in absolute dollars in the second quarter of fiscal year 2026 when compared to the second quarter of fiscal year 2025 as well as in the first half of the fiscal year.

The increased expenses were primarily driven by higher wages and benefits in addition to increased profit-sharing bonus expense and stock compensation driven by improved performance.

The year-to-date period also included a $2.0 million recovery received during the first three months of fiscal year 2026 resulting from a customer terminating a program.

In the three and six months ended December 31, 2025, we recorded pre-tax restructuring expense of $1.8 million and $3.2 million 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 the three and six months ended December 31, 2024, we recorded pre-tax restructuring expense of $4.7 million and $7.0 million for employee-related costs for cost structure alignment and incurred costs related to the Tampa closure in the second quarter.

Other Income (Expense) consisted of the following:

Three Months Ended

Three Months Ended Six Months Ended

December 31 December 31

(Amounts in Thousands) 2025 2024 2025 2024

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Other income (expense), net $ (3,783) $ (4,756) $ (7,238) $ (10,987)

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

Interest expense has decreased in the three and six months ended December 31, 2025 compared to the three and six months ended December 31, 2024 due to lower borrowings on credit facilities and lower interest rates.

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 (benefit) for income taxes for the three months ended September 30, 2025 and September 30, 2024 was $0.9 million, or 8.3% of income before taxes on income, and $(0.3) million, or (9.4)% of income before taxes on income, respectively.

The low tax rate in the three months ended September 30, 2025 was driven by the new U.S.

tax legislation resulting in a partial release of the valuation allowance against the business interest limitation deferred tax asset.

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 flat as of September 30, 2025 compared to September 30, 2024.

Our provision (benefit) for income taxes for the six months ended December 31, 2025 and December 31, 2024 was $4.3 million, or 23.7% of income before taxes on income, and $(0.2) million, or (3.6)% of income before taxes on income, respectively.

The tax benefit in the six months ended December 31, 2024 is primarily the result of the valuation allowance reversal recorded in period associated with the expected capital gains from the sale of the Tampa property.

Open orders were relatively flat when comparing December 31, 2025 to December 31, 2024.

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

Liquidity and Capital Resources

Working capital at September 30, 2025 was $378.5 million compared to working capital of $381.0 million at June 30, 2025.

The current ratio was 2.2 at September 30, 2025 and 2.2 at June 30, 2025.

The debt-to-equity ratio was 0.2 at September 30, 2025 and 0.3 at June 30, 2025.

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 $370.0 million at September 30, 2025 and $373.5 million at June 30, 2025.

Working capital at December 31, 2025 was $378.5 million compared to working capital of $381.0 million at June 30, 2025.

The current ratio was 2.2 at December 31, 2025 and 2.2 at June 30, 2025.

The debt-to-equity ratio was 0.3 at December 31, 2025 and 0.3 at June 30, 2025.

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 $363.0 million at December 31, 2025 and $373.5 million at June 30, 2025.

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

September 30, 2025 June 30, 2025 September 30, 2024

December 31, 2025 September 30, 2025 December 31, 2024

Days Sales Outstanding 59 54 65

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Over the past several 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 first three months of fiscal years 2026 and 2025.

Three Months Ended

The following table reflects the major categories of cash flows for the first six months of fiscal years 2026 and 2025.

Six Months Ended

(Amounts in Millions) 2025 2024

Net cash provided by operating activities $ 14.9 $ 74.9

Net cash (used for) provided by investing activities $ (6.2) $ 5.2

Net cash used for investing activities $ (24.4) $ (1.2)

Net cash used for financing activities $ (2.1) $ (97.3)

Cash Flows from Operating Activities

Net cash provided by operating activities for the first three months of fiscal year 2026 was driven by net income adjusted for non-cash items, partially offset by 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 and changes in operating assets and liabilities.

Net income adjusted for non-cash items provided cash of $18.0 million in the first three months of fiscal year 2026, while changes in operating assets and liabilities used $9.9 million of cash in the first three months of fiscal year 2026, largely due to a decrease in advances from customers, which used cash of $10.7 million.

Net income adjusted for non-cash items generated 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.

Net cash provided by operating activities for the first six months of fiscal year 2026 was driven by net income adjusted for non-cash items, partially offset by changes in operating assets and liabilities.

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

Net income adjusted for non-cash items provided cash of $34.4 million in the first six months of fiscal year 2026, while changes in operating assets and liabilities used $19.4 million of cash in the first six months of fiscal year 2026, largely due to a decrease in advances from customers, which used cash of $10.8 million and an increase in contract assets, which used cash of $7.9 million.

Net income adjusted for non-cash items provided cash of $28.1 million in the first six months of fiscal year 2025, while changes in operating assets and liabilities provided $46.8 million of cash in the first six months of fiscal year 2025, largely due to a decrease of accounts receivable, which provided cash of $45.5 million, and a decrease of inventory, which provided cash of $28.0 million.

Partially offsetting cash provided by accounts receivable and inventory was a decrease in accrued expenses and taxes payable, which used cash of $27.1 million primarily driven by timing of profit-sharing incentive bonus and income tax payments.

Cash Flows from Investing Activities

Net cash used by investing activities of $6.2 million in the first three months of fiscal year 2026 was largely due to capital investments of $10.6 million.

Net cash used by investing activities of $24.4 million in the first six months of fiscal year 2026 was largely due to capital investments of $28.7 million.

The capital investments were primarily for the new medical facility in Indianapolis as well as to support new business awards and replacement of older machinery and equipment.

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.

Net cash used by investing activities of $1.2 million in the first six months of fiscal year 2025 was largely due to capital investments of $20.0 million primarily to support new business awards and replacement of older machinery and equipment, 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.

Cash Flows from Financing Activities

For the first three months of fiscal year 2026, net cash used for financing activities of $14.0 million resulted largely from net payments on our credit facilities of $9.6 million.

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 six months of fiscal year 2026, net cash used for financing activities of $2.1 million resulted largely from repurchases of our common stock under an authorized repurchase plan and the remittance of tax withholdings on share-based payments partially offset by net borrowings on our credit facilities of $6.7 million.

For the first six months of fiscal year 2025, net cash used for financing activities of $97.3 million resulted largely from net payments on our credit facilities of $89.8 million.

Credit Facilities

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

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

We were in compliance with the financial covenants of the primary credit facility as of December 31, 2025.

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

As of December 31, 2025, 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.

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

In the three months ended September 30, 2025 and 2024, we sold, without recourse, $71.2 million and $87.3 million of accounts receivable, respectively.

In the six months ended December 31, 2025 and 2024, we sold, without recourse, $144.1 million and $169.0 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.

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Our risks with respect to receivables we service include commercial disputes regarding such receivables and no greater than 5% of sold and outstanding receivables in the event of customer insolvency.

In the three months ended September 30, 2025, under this program, we sold $28.6 million of receivables.

In the six months ended December 31, 2025, under this program, we sold $57.4 million of receivables.

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.

Future Liquidity

As of September 30, 2025, following several quarters of strong cash generated from operating activities and debt reduction, we are in a much improved liquidity position with $75.7 million in cash and unused borrowings in USD equivalent under all of our credit facilities of $294.3 million.

As of December 31, 2025, following several quarters of strong cash generated from operating activities and debt reduction, we are in a much improved liquidity position with $77.9 million in cash and unused borrowings in USD equivalent under all of our credit facilities of $285.1 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 invest in capital expenditures, including for capacity expansions and potential acquisitions, that would help us continue our growth as a multifaceted manufacturing solutions company.

At September 30, 2025, our capital expenditure commitments were approximately $29.0 million, consisting primarily of leasehold improvements on our new medical facility and capital related to new program wins.

At December 31, 2025, our capital expenditure commitments were approximately $16.0 million, consisting primarily of capital related to new program wins and leasehold improvements on our new medical facility.

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

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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, 2025, our foreign operations held cash totaling $75.2 million.

At December 31, 2025, our foreign operations held cash totaling $77.5 million.

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

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The Company expects to finance the purchases with existing liquidity.

The Company has repurchased $105.2 million of common stock under the Repurchase Plan through September 30, 2025.

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.

The Company has repurchased $109.5 million of common stock under the Repurchase Plan through December 31, 2025.

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.

Additional cautionary statements regarding our risk factors are contained in our Annual Report on Form 10-K for the year ended June 30, 2025.

During the first quarter of fiscal year 2026, no level 1 or level 2 financial instruments were affected by a lack of market liquidity.

During the second quarter of fiscal year 2026, 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 September 30, 2025, we do not have any material off-balance sheet arrangements.

As of December 31, 2025, we do not have any material off-balance sheet arrangements.

Critical Accounting Policies and Estimates

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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