Kimball Electronics(KE) - 2025 Q4 - Annual Report

PART I Item 1. Business Kimball Electronics is a global EMS/CMO provider for automotive, medical, and industrial markets, emphasizing high-reliability electronics and a global footprint - Kimball Electronics provides electronics manufacturing services (EMS) and contract manufacturing organization (CMO) solutions, including medical disposables and drug delivery devices, for automotive, medical, and industrial end markets[21][23][249] - The company operates manufacturing facilities in the United States, China, Mexico, Poland, Romania, and Thailand, with a corporate headquarters in Jasper, Indiana[22][38] Sales by Industry as a Percent of Net Sales (FY2023-FY2025) | Industry | 2025 | 2024 | 2023 | | :--------- | :--- | :--- | :--- | | Automotive | 49% | 48% | 46% | | Medical | 27% | 25% | 28% | | Industrial | 24% | 27% | 26% | | Total | 100% | 100% | 100% | Significant Customer Net Sales as a Percent of Total Net Sales (FY2023-FY2025) | Customer | 2025 | 2024 | 2023 | | :---------------- | :--- | :--- | :--- | | Nexteer Automotive | 19% | 16% | 15% | | Philips | * | * | 14% | | ZF | 11% | 13% | 12% | * amount is less than 10% of total - As of June 30, 2025, Kimball Electronics employed approximately 5,700 people worldwide, with 1,000 in the United States and 4,700 in foreign countries[57][59] - The average workforce tenure is 8 years, with an enterprise-wide Guiding Principles survey score of 8.13[57][59] Item 1A. Risk Factors The company faces diverse risks including customer concentration, supply chain disruptions, international operational challenges, regulatory compliance, and financial market volatility - Key business and operational risks include potential reduction of purchases by or loss of key customers, dependence on efficient manufacturing capacity utilization, and supply chain disruptions leading to increased costs or production interruptions[63][67][70] - International operations, which generate a substantial majority of revenues, are vulnerable to global economic and political instability, health emergencies, foreign currency fluctuations, and changes in trade policies and tariffs[76][77] - Regulatory and litigation risks include the failure to protect intellectual property, non-compliance with quality standards (e.g., FDA QSR for medical devices), and increasing compliance costs related to environmental, health, safety, and ESG regulations (e.g., CSRD, ESRS, conflict minerals)[88][90][93][102] - Financial risks include exposure to customer credit risk, challenges in managing working capital, potential asset impairment, fluctuations in effective tax rates due to geographic earnings mix and tax law changes, foreign currency risk, and interest rate volatility on credit facilities[103][104][105][106][109][111] Item 1B. Unresolved Staff Comments The company reported no unresolved staff comments from the SEC - There are no unresolved staff comments[117] Item 1C. Cybersecurity Kimball Electronics maintains a multi-layered cybersecurity program with Audit Committee oversight, focusing on risk assessment, third-party engagement, and incident response - The company's cybersecurity risk management program is integrated into its broader enterprise risk management, with oversight from the Audit Committee and leadership from the Chief Legal and Administrative Officer[119][124][126] - Key components of the cybersecurity program include a four-phase Enterprise Risk Management (ERM) process, periodic engagement of independent security firms, ISO 27001:2013 certification, annual mandatory employee training, and a risk management process for third-party vendors[120][121][122][129] - The Kimball Electronics Support Center (KESC) serves as the central point for cybersecurity incident reporting, monitoring, detection, and response, escalating significant incidents to the Cybersecurity Incident Response Team (CIRT) and potentially the Audit Committee and Board[130][131] - As of the report date, the company does not believe any cybersecurity threats have materially affected or are reasonably likely to materially affect its business strategy, results of operations, or financial condition[133] Item 2. Properties Kimball Electronics operates eight global manufacturing facilities, mostly owned, and is expanding its medical CMO footprint with a new leased Indiana facility - The company has eight manufacturing facilities (two in Indiana, two in Mexico, one each in China, Poland, Romania, and Thailand) totaling approximately 1,499,000 square feet, mostly owned[134] - A new 308,000 square-foot leased manufacturing facility in Indiana is being added to expand the medical CMO footprint, which will replace the existing Indianapolis facility[134] - The Tampa facility is currently classified as held for sale[134] Item 3. Legal Proceedings Kimball Electronics and its subsidiaries are not involved in any material pending legal proceedings beyond routine litigation and claims incidental to their business - The company is not a party to any material pending legal proceedings, other than ordinary routine litigation and claims incidental to the business[138] - The outcome of current routine pending litigation and claims is not expected to have a material adverse impact on the business or financial condition[138] Item 4. Mine Safety Disclosures This item is not applicable to Kimball Electronics, Inc - Mine Safety Disclosures are not applicable to the company[139] Information about Our Executive Officers This section details the executive officers of Kimball Electronics, their roles, and business experience as of August 22, 2025 Executive Officers as of August 22, 2025 | Name | Age | Office and Area of Responsibility | | :----------------- | :-- | :------------------------------------------------ | | Richard D. Phillips | 55 | Chief Executive Officer and Director | | Adam M. Baumann | 44 | Chief Accounting Officer | | Jana T. Croom | 48 | Chief Financial Officer | | Jessica L. DeLorenzo | 40 | Chief Human Resources Officer | | Douglas A. Hass | 49 | Chief Legal & Administrative Officer, Secretary | | Steven T. Korn | 61 | Chief Operating Officer | | Kathy R. Thomson | 56 | Chief Commercial Officer | - Executive officers are appointed annually by the Board of Directors[140] PART II Item 5. Market for Registrant's Common Equity, Related Share Owner Matters and Issuer Purchases of Equity Securities Kimball Electronics' common stock trades on Nasdaq, has not paid dividends, and has an authorized stock repurchase plan under which shares were repurchased in FY2025 - The company's common stock trades on the Nasdaq Global Select Market under the symbol KE[149] - Kimball Electronics has not paid dividends on its common stock since inception and currently has no plans to pay dividends in fiscal year 2026[150] - As of August 7, 2025, there were 24,218,517 shares of common stock outstanding and approximately 925 share owners of record[4][151] Issuer Purchases of Equity Securities (Q4 FY2025) | Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plan | Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plan | | :--------------------------- | :------------------------------- | :--------------------------- | :------------------------------------------------------------------ | :-------------------------------------------------------------------- | | April 1, 2025 - April 30, 2025 | — | $ — | — | $ 19,295,851 | | May 1, 2025 - May 31, 2025 | 69,948 | $ 17.92 | 69,948 | $ 18,042,591 | | June 1, 2025 - June 30, 2025 | 92,531 | $ 18.88 | 92,531 | $ 16,295,868 | | Total | 162,479 | $ 18.46 | 162,479 | | - During fiscal year 2025, the company repurchased $11.9 million of common stock under the $120 million authorized repurchase plan[154][203] Item 6. [Reserved] This item is reserved and contains no information Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Kimball Electronics experienced a 13% net sales decrease in FY2025 due to market declines, but improved cash conversion and undertook restructuring efforts, expecting a marginal sales decline in FY2026 - Net sales in fiscal year 2025 decreased by 13% from the prior fiscal year, with declines in automotive (loss of a major program), medical (lower demand from customer overstocking), and industrial markets (GES sale, smart metering, public safety)[162][171] - The company completed the divestiture of its GES business on July 31, 2024, and approved a plan to cease operations at its Tampa facility, transferring production to other North American plants[164] Key Financial Ratios (June 30, 2025 vs. 2024) | Metric | June 30, 2025 | June 30, 2024 | | :----------------- | :------------ | :------------ | | Current Ratio | 2.2 | 2.3 | | Debt-to-Equity Ratio | 0.3 | 0.5 | | Share Owners' Equity | $570 million | | Cash Conversion Days (CCD) Trend (Q4 FY2024 - Q4 FY2025) | Metric | June 30, 2025 | March 31, 2025 | Dec 31, 2024 | Sep 30, 2024 | June 30, 2024 | | :----- | :------------ | :------------- | :----------- | :----------- | :------------ | | DSO | 56 | 58 | 65 | 66 | 58 | | CAD | 18 | 21 | 19 | 18 | 16 | | PDSOH | 84 | 96 | 98 | 100 | 93 | | APD | 55 | 56 | 57 | 56 | 50 | | ACD | 18 | 20 | 18 | 20 | 17 | | CCD | 85 | 99 | 107 | 108 | 100 | - Net cash provided by operating activities significantly increased to $183.9 million in FY2025 from $73.2 million in FY2024, driven by changes in receivables and inventories[185][186] - The company's liquidity position improved significantly with $88.8 million in cash and $284.7 million in unused credit facilities as of June 30, 2025[197] Results of Operations - Fiscal Year 2025 Compared with Fiscal Year 2024 This section details the financial performance comparison between fiscal years 2025 and 2024, highlighting changes in net sales, gross profit, expenses, and tax rates Consolidated Statements of Income Highlights (FY2025 vs. FY2024) | Metric (Amounts in Millions) | 2025 | % of Net Sales (2025) | 2024 | % of Net Sales (2024) | % Change | | :--------------------------- | :-------- | :-------------------- | :-------- | :-------------------- | :------- | | Net Sales | $1,486.7 | | $1,714.5 | | (13)% | | Gross Profit | $104.4 | 7.0% | $140.3 | 8.2% | (26)% | | Selling and Administrative Expenses | $50.3 | 3.4% | $66.7 | 4.0% | (25)% | | Restructuring Expense | $11.0 | 0.7% | $2.4 | 0.1% | 361% | | Operating Income | $45.5 | 3.1% | $49.3 | 2.9% | (8)% | | Net Income | $17.0 | | $20.5 | | (17)% | | Diluted Earnings per Share | $0.68 | | $0.81 | | (16)% | - Gross profit as a percentage of net sales declined in FY2025 (7.0%) compared to FY2024 (8.2%) due to lost absorption on lower revenue[172] - Selling and administrative expenses decreased by 25% in FY2025, both in absolute dollars and as a percentage of net sales, due to cost reduction efforts, the GES divestiture, reclassification of factoring fees, decreased profit-sharing bonus expense, and lower allowance for credit losses[173] - Restructuring expense increased significantly by 361% to $11.0 million in FY2025, primarily for employee-related costs to align with reduced demand and costs related to the Tampa facility closure[175] - The company recorded a gain on disposal of $2.4 million in FY2025 from the GES divestiture, compared to impairment charges of $5.8 million (goodwill) and $17.0 million (assets held for sale) in FY2024[176] - The consolidated effective tax rate for FY2025 was 35.2%, higher than FY2024's 18.6%, driven by the limitation on business interest expense deductibility and GILTI income[177][178] Liquidity and Capital Resources This section analyzes the company's cash flow, credit facilities, factoring arrangements, and capital expenditure commitments for fiscal years 2025 and 2024 Cash Flow Summary (FY2025 vs. FY2024) | Cash Flow Category (Amounts in Millions) | 2025 | 2024 | | :--------------------------------------- | :------- | :------- | | Net cash provided by operating activities | $183.9 | $73.2 | | Net cash used for investing activities | $(14.7) | $(46.5) | | Net cash (used for) provided by financing activities | $(160.9) | $9.0 | - Operating cash flow in FY2025 was primarily driven by a $71.8 million change in receivables (due to lower sales and increased factoring) and a $74.6 million change in inventories (working down inflated levels)[186] - Investing activities in FY2025 included $33.7 million for capital investments, partially offset by $18.5 million in proceeds from the GES sale[188] - Financing activities in FY2025 primarily involved net payments of $147.3 million on credit facilities[190] - The company amended its primary credit facility in December 2024, adding a $100 million term loan maturing in December 2029, while maintaining a $300 million revolving facility maturing in May 2027[191][192] - The company sold $338.4 million of accounts receivable in FY2025 through factoring arrangements, including a new domestic program that sold $19.4 million of receivables[195][196] - Capital expenditure commitments as of June 30, 2025, were approximately $35 million, primarily for leasehold improvements and new program wins[198] - The company expects additional pre-tax restructuring charges of $0.5 million to $1.0 million in the first half of fiscal year 2026 related to the Tampa facility closure[199] Item 7A. Quantitative and Qualitative Disclosures About Market Risk Kimball Electronics manages foreign currency and interest rate risks through hedging and credit facilities, with no material impact expected from hypothetical adverse changes - The company's principal foreign currency exposures include the Euro, Polish zloty, Romanian leu, Chinese renminbi, Thai baht, and Mexican peso[212] - Derivative financial instruments are used to hedge certain foreign currency exposures, with a hypothetical 10% adverse change in foreign currency exchange rates not expected to have a material impact on annual profitability[212] - Interest rate risk primarily relates to the primary credit facility, with rates based on market indices like SOFR[213] - A hypothetical 10% change in interest rates is not estimated to have a material impact on annual profitability[213] Item 8. Financial Statements and Supplementary Data This section presents the audited consolidated financial statements for Kimball Electronics, Inc., including the balance sheets, statements of income, comprehensive income, cash flows, and share owners' equity for the fiscal years ended June 30, 2025, 2024, and 2023. It also includes management's report on internal control over financial reporting and the independent registered public accounting firm's report, along with detailed notes to the financial statements covering significant accounting policies, revenue recognition, asset sales, restructuring, inventories, property, goodwill, intangible assets, commitments, credit facilities, employee benefits, stock compensation, income taxes, share owners' equity, fair value, derivative instruments, accrued expenses, segment reporting, geographic information, earnings per share, accumulated other comprehensive income, and leases - Management concluded that internal control over financial reporting was effective as of June 30, 2025[221] - The independent registered public accounting firm, Deloitte & Touche LLP, issued an unqualified opinion on the financial statements and the effectiveness of internal control over financial reporting as of June 30, 2025[225] - A critical audit matter identified was revenue recognition over time for contracts with customers, due to judgments required in evaluating anticipated margins and the significant number of such contracts[234] Consolidated Balance Sheet Highlights (June 30, 2025 vs. 2024) | Asset/Liability (Amounts in Thousands) | June 30, 2025 | June 30, 2024 | | :------------------------------------- | :------------ | :------------ | | Cash and cash equivalents | $88,781 | $77,965 | | Receivables, net | $222,623 | $282,336 | | Inventories | $273,500 | $338,116 | | Total current assets | $699,604 | $847,006 | | Total Assets | $1,077,312 | $1,207,919 | | Current portion of long-term debt | $17,400 | $59,837 | | Accounts payable | $218,805 | $213,551 | | Total current liabilities | $318,561 | $375,322 | | Long-term debt under credit facilities | $129,650 | $235,000 | | Total Share Owners' Equity | $569,884 | $540,461 | Consolidated Statements of Income (FY2025, FY2024, FY2023) | Metric (Amounts in Thousands) | 2025 | 2024 | 2023 | | :---------------------------- | :---------- | :---------- | :---------- | | Net Sales | $1,486,727 | $1,714,510 | $1,823,429 | | Gross Profit | $104,404 | $140,257 | $156,165 | | Operating Income | $45,535 | $49,277 | $87,729 | | Net Income | $16,984 | $20,511 | $55,831 | | Diluted Earnings per Share | $0.68 | $0.81 | $2.22 | Consolidated Statements of Cash Flows (FY2025, FY2024, FY2023) | Cash Flow Category (Amounts in Thousands) | 2025 | 2024 | 2023 | | :---------------------------------------- | :--------- | :--------- | :---------- | | Net cash provided by operating activities | $183,937 | $73,217 | $(13,804) | | Net cash used for investing activities | $(14,700) | $(46,521) | $(90,467) | | Net cash (used for) provided by financing activities | $(160,874) | $8,974 | $99,179 | | Net Increase (Decrease) in Cash | $10,688 | $34,915 | $(5,987) | Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure Kimball Electronics reported no changes in or disagreements with its accountants on accounting and financial disclosure matters - There were no changes in and disagreements with accountants on accounting and financial disclosure[373] Item 9A. Controls and Procedures The Chief Executive Officer and Chief Financial Officer concluded that Kimball Electronics' disclosure controls and procedures were effective as of June 30, 2025. Management's report on the effectiveness of internal control over financial reporting, audited by the independent registered public accounting firm, is incorporated by reference, and no material changes in internal control over financial reporting occurred during the quarter - The CEO and CFO concluded that disclosure controls and procedures were effective as of June 30, 2025[373] - Management's assessment of the effectiveness of internal control over financial reporting was effective as of June 30, 2025, and was audited by the independent registered public accounting firm[221][373] - No material changes in internal control over financial reporting occurred during the quarter ended June 30, 2025[373] Item 9B. Other Information During the three months ended June 30, 2025, no officers or directors adopted or terminated any Rule 10b5-1 trading arrangements - No officers or directors adopted or terminated any Rule 10b5-1 trading arrangements during the three months ended June 30, 2025[374] Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to Kimball Electronics, Inc - Disclosure regarding foreign jurisdictions that prevent inspections is not applicable[374] PART III Item 10. Directors, Executive Officers and Corporate Governance Information regarding directors, executive officers, corporate governance, and committees (including the Audit Committee and Nominating and ESG Committee) is incorporated by reference from the definitive Proxy Statement to be filed for the Annual Meeting of Share Owners. The company maintains a Code of Conduct and insider trading policies, available on its website - Information on Directors, Executive Officers, and Corporate Governance is incorporated by reference from the definitive Proxy Statement[376][378] - The company has a Code of Conduct applicable to all employees, including executive officers, and insider trading policies, both available on its website[380][381] Item 11. Executive Compensation Information regarding executive compensation is incorporated by reference from the definitive Proxy Statement to be filed for the Annual Meeting of Share Owners - Information on Executive Compensation is incorporated by reference from the definitive Proxy Statement[382] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Share Owner Matters Information concerning security ownership of certain beneficial owners and management, as well as securities authorized for issuance under equity compensation plans, is incorporated by reference from the definitive Proxy Statement - Information on Security Ownership of Certain Beneficial Owners and Management and Securities Authorized for Issuance Under Equity Compensation Plans is incorporated by reference from the definitive Proxy Statement[383][384] Item 13. Certain Relationships and Related Transactions, and Director Independence Information regarding certain relationships and related transactions, and director independence, is incorporated by reference from the definitive Proxy Statement - Information on Certain Relationships and Related Transactions, and Director Independence is incorporated by reference from the definitive Proxy Statement[385][386] Item 14. Principal Accounting Fees and Services Information concerning principal accounting fees and services is incorporated by reference from the definitive Proxy Statement - Information on Principal Accounting Fees and Services is incorporated by reference from the definitive Proxy Statement[387] PART IV Item 15. Exhibits, Financial Statement Schedules This section lists the consolidated financial statements and supplementary data included in Item 8, along with a schedule of Valuation and Qualifying Accounts. It also provides an index of exhibits filed or incorporated by reference as part of this annual report - The consolidated financial statements and supplementary data are found in Item 8[389] - Schedule II, Valuation and Qualifying Accounts, is included for each of the three years ended June 30, 2025[390] - An Index of Exhibits is provided, listing documents filed or incorporated by reference[391] Item 16. Form 10-K Summary This item indicates that no Form 10-K Summary is provided - No Form 10-K Summary is provided[392] SIGNATURES The report is duly signed on behalf of Kimball Electronics, Inc. by its Chief Financial Officer, Chief Executive Officer, and Chief Accounting Officer, as well as by the Directors, as of August 22, 2025 - The report is signed by Jana T. Croom (Chief Financial Officer), Richard D. Phillips (Chief Executive Officer and Director), and Adam M. Baumann (Chief Accounting Officer) as of August 22, 2025[399][400]