Kimball Electronics(KE) - 2022 Q1 - Quarterly Report

Financial Performance - Net sales for the first quarter of fiscal year 2022 decreased by 12% to $292.7 million compared to $331.7 million in the same quarter of fiscal year 2021[100] - Gross profit declined by 49% to $15.6 million, representing 5.3% of net sales, down from 9.2% in the prior year[100] - Sales to the automotive market increased by 9% year-over-year, totaling $129.4 million, while sales to the medical market decreased by 33% to $85.0 million[101] - Open orders increased by 114% to $749.3 million compared to $349.8 million in the previous year, primarily driven by the automotive and medical verticals[102] Operational Challenges - Component shortages, particularly in semiconductors, continue to impact operations and customer commitments, with potential financial implications that cannot be reasonably estimated[93] - The COVID-19 pandemic continues to pose uncertainties affecting operations, with the company implementing safety measures to protect employees and minimize disruptions[92] - Selling and administrative expenses decreased in absolute dollars but increased as a percentage of net sales due to lower sales volume and higher payroll costs[104] - The company is focused on cost control while managing growth prospects amid global component shortages and logistical challenges[95] Financial Position - The company maintains a strong balance sheet with a current ratio of 1.8 and a debt-to-equity ratio of 0.2, with shareholders' equity at $440 million[96] - Receivables decreased by $26.5 million, while inventory increased by $61.7 million due to component shortages[108] - Working capital decreased to $275.6 million at September 30, 2021, from $282.6 million at June 30, 2021, with a current ratio of 1.8[109] - The company had $68.0 million in borrowings under the primary credit facility as of September 30, 2021, up from $62.7 million at June 30, 2021[122] - The unused borrowings under all credit facilities totaled $93.5 million at September 30, 2021, indicating sufficient liquidity for operational needs[126] Investment and Capital Expenditures - Cash used for investing activities increased to $(12.9) million in Q3 2021 from $(8.3) million in Q3 2020, with $12.7 million invested in capital expenditures[117] - Capital expenditure commitments were approximately $30 million, primarily for the expansion of facilities in Mexico and Thailand[127] Tax and Interest - Interest income increased to $24,000 in Q3 2021 from $7,000 in Q3 2020, while interest expense decreased to $(395,000) from $(823,000)[106] - The effective tax rate increased to 27.4% for Q3 2021 from 15.7% in Q3 2020, primarily due to a favorable tax adjustment in the prior year[107] Stock and Borrowing - The company has a stock repurchase plan authorized for up to $100 million, with $79.7 million repurchased through September 30, 2021[130] - The Netherlands subsidiary had $4.6 million in borrowings outstanding under its revolving credit facility as of September 30, 2021, up from $3.5 million as of June 30, 2021[129] Market Risks and Accounting - There were no material changes in exposure to market risks for foreign currency exchange rates and interest rates compared to the fiscal year ended June 30, 2021[137] - The company is monitoring the transition from LIBOR, which will cease publication of certain settings after June 30, 2023[137] - No level 1 or level 2 financial instruments were affected by a lack of market liquidity during the first quarter of fiscal year 2022[132] - There have been no material changes to critical accounting policies since the Annual Report for the year ended June 30, 2021[135] Future Outlook - The EMS industry is projected to grow at a compound annual growth rate (CAGR) of 7.1% through 2025, with the company targeting a long-term CAGR of 8%[91] - The company expects cash generation from operations could be adversely affected by factors such as economic conditions and supply chain issues[131] - The company intends to finance stock repurchases with existing liquidity, depending on market conditions and corporate considerations[130]