Kimball Electronics, Inc. - Quarter Report: 2023 March (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2023

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 001-36454


KIMBALL ELECTRONICS, INC.
(Exact name of registrant as specified in its charter)

Indiana

35-2047713

(State or other jurisdiction of

(I.R.S. Employer Identification No.)

incorporation or organization)

1205 Kimball Boulevard, Jasper, Indiana

47546

(Address of principal executive offices)

(Zip Code)

(812) 634-4000



Registrant’s telephone number, including area code
Not Applicable
Former name, former address and former fiscal year, if changed since last report


Securities registered pursuant to Section 12(b) of the Act:
Title of each Class	Trading Symbol	Name of each exchange on which registered
Common Stock, no par value	KE	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☒

Emerging growth company

☐

Non-accelerated filer

☐

Smaller reporting company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

The number of shares outstanding of the Registrant’s common stock as of April 24, 2023 was 24,724,281 shares.

KIMBALL ELECTRONICS, INC.

FORM 10-Q

INDEX


		Page No.

PART I FINANCIAL INFORMATION

	Item 1. Financial Statements
	Condensed Consolidated Balance Sheets - March 31, 2023 (Unaudited) and June 30, 2022	3
	Condensed Consolidated Statements of Income (Unaudited) - Three and Nine Months Ended March 31, 2023 and 2022	4
	Condensed Consolidated Statements of Comprehensive Income (Unaudited) - Three and Nine Months Ended Mar ch 31, 2023 and 2022	5
	Condensed Consolidated Statements of Cash Flows (Unaudited) - Nine Months Ended March 31, 2023 and 2022	6
	Condensed Consolidated Statement of Share Owners’ Equity (Unaudited) - Three and Nine Months Ended March 31, 2023 and 2022	7
	Notes to Condensed Consolidated Financial Statements (Unaudited)	8
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
	Item 3. Quantitative and Qualitative Disclosures About Market Risk	31
	Item 4. Controls and Procedures	31

PART II OTHER INFORMATION

	Item 1. Legal Proceedings	32
	Item 1A. Risk Factors	32
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	32

	Item 6. Exhibits	33

SIGNATURES		34

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

KIMBALL ELECTRONICS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in Thousands, Except for Share Data)


	(Unaudited)
	March 31, 2023		June 30, 2022
ASSETS
Current Assets:
Cash and cash equivalents	$	30,445	$	49,851
Receivables, net of allowances of $299 and $139, respectively	299,329		222,857
Contract assets	75,690		64,080
Inventories	488,170		395,630
Prepaid expenses and other current assets	54,053		28,665

Total current assets	947,687		761,083
Property and Equipment, net of accumulated depreciation of $287,855 and $271,139, respectively	258,058		206,835
Goodwill	12,011		12,011
Other Intangible Assets, net of accumulated amortization of $37,954 and $35,437, respectively	13,210		14,707
Other Assets	37,975		41,131
Total Assets	$	1,268,941	$	1,035,767

LIABILITIES AND SHARE OWNERS’ EQUITY
Current Liabilities:

Current portion of borrowings under credit facilities	$	54,420	$	35,580
Accounts payable	361,547		308,617

Accrued expenses	89,961		64,545
Total current liabilities	505,928		408,742
Other Liabilities:
Long-term debt under credit facilities, less current portion	235,000		145,000
Long-term income taxes payable	5,859		7,812
Other long-term liabilities	18,968		20,242
Total other liabilities	259,827		173,054

Share Owners’ Equity:
Preferred stock-no par value
Shares authorized: 15,000,000 Shares issued: None	—		—
Common stock-no par value
Shares authorized: 150,000,000 Shares issued: 29,430,000	—		—
Additional paid-in capital	314,008		311,090
Retained earnings	276,851		240,222
Accumulated other comprehensive loss	(11,178)		(19,672)
Treasury stock, at cost:
Shares: 4,706,000 and 4,804,000, respectively	(76,495)		(77,669)
Total Share Owners’ Equity	503,186		453,971
Total Liabilities and Share Owners’ Equity	$	1,268,941	$	1,035,767

See Notes to Condensed Consolidated Financial Statements.

KIMBALL ELECTRONICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Amounts in Thousands, Except for Per Share Data)



	Three Months Ended				Nine Months Ended
	March 31				March 31
(Unaudited)	2023		2022		2023		2022
Net Sales	$	484,703	$	368,057	$	1,327,288	$	976,038
Cost of Sales	441,731		334,113		1,220,804		905,657
Gross Profit	42,972		33,944		106,484		70,381
Selling and Administrative Expenses	17,752		13,667		50,204		39,794
Other General Income	—		—		—		(1,384)


Operating Income	25,220		20,277		56,280		31,971
Other Income (Expense):
Interest income	45		31		88		66
Interest expense	(4,822)		(669)		(10,790)		(1,537)
Non-operating income (expense), net	1,433		(1,465)		2,659		(2,090)
Other income (expense), net	(3,344)		(2,103)		(8,043)		(3,561)
Income Before Taxes on Income	21,876		18,174		48,237		28,410
Provision for Income Taxes	5,476		4,536		11,608		7,095
Net Income	$	16,400	$	13,638	$	36,629	$	21,315

Earnings Per Share of Common Stock:
Basic	$	0.66	$	0.54	$	1.47	$	0.84
Diluted	$	0.65	$	0.54	$	1.46	$	0.84





Average Number of Shares Outstanding:
Basic	24,898		25,175		24,868		25,192
Diluted	25,067		25,272		25,031		25,291

See Notes to Condensed Consolidated Financial Statements.

KIMBALL ELECTRONICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Amounts in Thousands)


	Three Months Ended						Three Months Ended
	March 31, 2023						March 31, 2022
(Unaudited)	Pre-tax		Tax		Net of Tax		Pre-tax		Tax		Net of Tax
Net income					$	16,400					$	13,638
Other comprehensive income (loss):
Foreign currency translation adjustments	$	2,094	$	—	$	2,094	$	(2,432)	$	—	$	(2,432)

Postemployment actuarial change	(68)		18		(50)		(19)		7		(12)
Derivative gain (loss)	3,270		(768)		2,502		1,063		(271)		792
Reclassification to (earnings) loss:
Derivatives	(1,111)		293		(818)		(22)		31		9

Amortization of actuarial change	(19)		5		(14)		(61)		15		(46)
Other comprehensive income (loss)	$	4,166	$	(452)	$	3,714	$	(1,471)	$	(218)	$	(1,689)
Total comprehensive income					$	20,114					$	11,949



	Nine Months Ended						Nine Months Ended
	March 31, 2023						March 31, 2022
(Unaudited)	Pre-tax		Tax		Net of Tax		Pre-tax		Tax		Net of Tax
Net income					$	36,629					$	21,315
Other comprehensive income (loss):
Foreign currency translation adjustments	$	5,427	$	—	$	5,427	$	(7,912)	$	—	$	(7,912)

Postemployment actuarial change	(226)		62		(164)		(119)		33		(86)
Derivative gain (loss)	6,954		(1,501)		5,453		148		(102)		46
Reclassification to (earnings) loss:
Derivatives	(2,596)		493		(2,103)		414		(1)		413

Amortization of actuarial change	(157)		38		(119)		(190)		46		(144)
Other comprehensive income (loss)	$	9,402	$	(908)	$	8,494	$	(7,659)	$	(24)	$	(7,683)
Total comprehensive income					$	45,123					$	13,632

See Notes to Condensed Consolidated Financial Statements.

KIMBALL ELECTRONICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in Thousands)



	Nine Months Ended
	March 31
(Unaudited)	2023		2022
Cash Flows From Operating Activities:
Net income	$	36,629	$	21,315
Adjustments to reconcile net income to net cash used for operating activities:
Depreciation and amortization	23,840		22,452
(Gain) loss on sales of assets	(37)		104

Deferred income taxes	(1,816)		(538)


Stock-based compensation	5,357		4,538



Other, net	392		800
Change in operating assets and liabilities:
Receivables	(74,008)		(25,176)
Contract assets	(11,610)		(17,898)
Inventories	(88,557)		(142,516)
Prepaid expenses and other assets	(18,235)		(6,705)
Accounts payable	45,086		61,120
Accrued expenses and taxes payable	25,074		(2,161)
Net cash used for operating activities	(57,885)		(84,665)
Cash Flows From Investing Activities:
Capital expenditures	(65,535)		(49,454)
Proceeds from sales of assets	278		297

Purchases of capitalized software	(1,293)		(675)
Other, net	53		(191)
Net cash used for investing activities	(66,497)		(50,023)
Cash Flows From Financing Activities:
Proceeds from credit facilities	75,000		50,000

Net change in revolving credit facilities	33,665		21,186




Repurchases of common stock	—		(4,726)
Payments related to tax withholding for stock-based compensation	(1,417)		(1,579)

Debt issuance costs	(100)		(25)
Net cash provided by financing activities	107,148		64,856
Effect of Exchange Rate Change on Cash and Cash Equivalents	(294)		(1,007)
Net Decrease in Cash, Cash Equivalents, and Restricted Cash	(17,528)		(70,839)
Cash, Cash Equivalents, and Restricted Cash at Beginning of Period (1)	49,851		106,442
Cash, Cash Equivalents, and Restricted Cash at End of Period (1)	$	32,323	$	35,603
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for:
Income taxes	$	12,771	$	12,779
Interest expense	$	7,642	$	1,077
Non-cash investing activity:
Unpaid purchases of property and equipment at the end of the period	$	9,740	$	5,060
(1) The following table reconciles cash and cash equivalents in the balance sheets to cash, cash equivalents, and restricted cash per the statements of cash flows. The restricted cash included in Prepaid expenses and other current assets on the balance sheet represents funds held by the Company for a foreign subsidiary’s employee savings plan.
(Unaudited)	March 31, 2023		June 30, 2022
Cash and Cash Equivalents	$	30,445	$	49,851
Restricted Cash included in Prepaid expenses and other current assets	$	1,878	$	—
Total Cash, Cash Equivalents, and Restricted Cash at end of period	$	32,323	$	49,851

See Notes to Condensed Consolidated Financial Statements.

KIMBALL ELECTRONICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHARE OWNERS’ EQUITY

(Amounts in Thousands, Except for Share Data)


	Three Months Ended
			Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock		Total Share Owners’ Equity
(Unaudited)	Additional Paid-In Capital
Amounts at December 31, 2022	$	312,085	$	260,451	$	(14,892)	$	(76,496)	$	481,148
Net income			16,400						16,400
Other comprehensive income (loss)					3,714				3,714

Issuance of non-restricted stock (100 shares)	2						1		3
Compensation expense related to stock compensation plans	1,921								1,921







Amounts at March 31, 2023	$	314,008	$	276,851	$	(11,178)	$	(76,495)	$	503,186




Amounts at December 31, 2021	$	307,996	$	216,646	$	(10,877)	$	(68,598)	$	445,167
Net income			13,638						13,638
Other comprehensive income (loss)					(1,689)				(1,689)


Compensation expense related to stock compensation plans	1,515								1,515

Restricted share units issuance (1,000 shares)	(13)						7		(6)
Deferred share issuance (3,000 shares)	(32)						32		—
Repurchase of Common Stock (259,000 shares)							(4,891)		(4,891)
Amounts at March 31, 2022	$	309,466	$	230,284	$	(12,566)	$	(73,450)	$	453,734


	Nine Months Ended
			Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock		Total Share Owners’ Equity
(Unaudited)	Additional Paid-In Capital
Amounts at June 30, 2022	$	311,090	$	240,222	$	(19,672)	$	(77,669)	$	453,971
Net income			36,629						36,629
Other comprehensive income (loss)					8,494				8,494

Issuance of non-restricted stock (14,100 shares)	152						173		325
Compensation expense related to stock compensation plans	5,183								5,183
Performance share issuance (85,000 shares)	(2,417)						1,001		(1,416)






Amounts at March 31, 2023	$	314,008	$	276,851	$	(11,178)	$	(76,495)	$	503,186

Amounts at June 30, 2021	$	308,123	$	208,969	$	(4,883)	$	(70,237)	$	441,972
Net income			21,315						21,315
Other comprehensive income (loss)					(7,683)				(7,683)

Issuance of non-restricted stock (5,000 shares)	67						58		125
Compensation expense related to stock compensation plans	4,474								4,474
Performance share issuance (143,000 shares)	(3,126)						1,566		(1,560)
Restricted share units issuance (2,000 shares)	(40)						22		(18)
Deferred share issuance (3,000 shares)	(32)						32		—
Repurchase of Common Stock (259,000 shares)							(4,891)		(4,891)
Amounts at March 31, 2022	$	309,466	$	230,284	$	(12,566)	$	(73,450)	$	453,734

See Notes to Condensed Consolidated Financial Statements.

KIMBALL ELECTRONICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1. Business Description and Summary of Significant Accounting Policies

Business Description:

Kimball Electronics, Inc. (also referred to herein as “Kimball Electronics,” the “Company,” “we,” “us,” or “our”) is a global, multifaceted manufacturing solutions provider. We provide contract electronics manufacturing services (“EMS”) and diversified manufacturing services, including engineering and supply chain support, to customers in the automotive, medical, and industrial safety end markets. We deliver a package of value that begins with our core competency of producing durable electronics and has expanded into diversified contract manufacturing services for non-electronic components, medical disposables, precision molded plastics, and production automation, test, and inspection equipment. Our design and manufacturing expertise coupled with robust processes and procedures help us ensure that we deliver the highest levels of quality, reliability, and service throughout the entire life cycle of our customers’ products. We deliver award-winning service across our highly integrated global footprint, which is enabled by our largely common operating system, procedures, and standardization. We are well recognized by customers and industry trade publications for our excellent quality, reliability, and innovative service.

Basis of Presentation:

The Condensed Consolidated Financial Statements presented herein reflect the consolidated financial position as of March 31, 2023 and June 30, 2022, results of operations for the three and nine months ended March 31, 2023 and 2022, cash flows for the nine months ended March 31, 2023 and 2022, and share owners’ equity for the three and nine months ended March 31, 2023 and 2022. The financial data presented herein is unaudited and should be read in conjunction with the annual Consolidated Financial Statements as of and for the year ended June 30, 2022 and related notes thereto included in our Annual Report on Form 10-K. As such, certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted, although we believe that the disclosures are adequate to make the information presented not misleading. Intercompany transactions and balances have been eliminated. Management believes the financial statements include all adjustments (consisting only of normal recurring adjustments) considered necessary to present fairly the financial statements for the interim periods. The results of operations for the interim periods shown in this report are not necessarily indicative of results for any future interim period or for the entire fiscal year.

Change in Estimates:

The Company reviews the estimated useful lives of its fixed assets on an ongoing basis. In evaluating useful lives, the Company considers how long assets will remain functionally efficient and effective, given levels of technology, competitive factors, and the economic environment. If the assessment indicates that the assets will continue to be used for a longer period than previously anticipated, the useful life of the assets is revised, resulting in a change in estimate. Changes in estimates are accounted for on a prospective basis by depreciating the assets’ current carrying values over their revised remaining useful lives.

In fiscal year 2022, a review indicated that Surface Mount Technology production equipment had actual lives that were longer than previously estimated. As a result of these findings, the Company changed its estimates of useful lives on these assets to 10 years, from lives of 5 or 7 years. The change was effective and accounted for prospectively beginning on November 1, 2021. The effects of this change in useful life estimate for the nine months ended March 31, 2023 were a decrease in depreciation expense of $2.6 million, an increase in net income of $2.0 million, and an increase to basic and diluted earnings per share by $0.08.

Revenue Recognition:

Our revenue from contracts with customers is generated primarily from manufacturing services provided for the production of electronic assemblies, components, medical devices, medical disposables, precision molded plastics, and automation, test, and inspection equipment built to customers’ specifications. Our customer agreements are generally not for a definitive term but continue for the relevant product’s life cycle. Typically, our customer agreements do not commit the customer to purchase our services until a purchase order is provided, which is generally short term in nature. Customer purchase orders primarily have a single performance obligation. Generally, the prices stated in the customer purchase orders are agreed upon prices for the manufactured product and do not vary over the term of the order, and therefore, the majority of our contracts do not contain variable consideration. In limited circumstances, we may enter into a contract which contains minimum quantity thresholds to cover our capital costs, and we may offer our customer a rebate for specific volume thresholds or other incentives; in these cases, the rebates or incentives are accounted for as variable consideration.

The majority of our revenue is recognized over time as manufacturing services are performed as we manufacture a product to customer specifications with no alternative use and we have an enforceable right to payment for performance completed to date. The remaining revenue for manufacturing services is recognized when the customer obtains control of the product, typically either upon shipment or delivery of the product dependent on the terms of the contract, and the customer is able to direct the use of and obtain substantially all of the remaining benefits from the asset. We generally recognize revenue over time using costs based input methods, in which judgment is required to evaluate assumptions including anticipated margins to estimate the corresponding amount of revenue to recognize. Costs used as a basis for estimating anticipated margins include material, direct and indirect labor, and appropriate applied overheads. Anticipated margins are determined based on historical or quoted customer pricing. Costs based input methods are considered a faithful depiction of our efforts and progress toward satisfying our performance obligations for manufacturing services and for which we believe we are entitled to payment for performance completed to date. The cumulative effect of revisions to estimates related to net contract revenues or costs are recorded in the period in which the revisions to estimates are identified and the amounts can be reasonably estimated.

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 services and 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 net revenue.

Direct incremental costs to obtain and fulfill a contract are capitalized as a contract asset only if they are material, expected to be recovered, and are not accounted for in accordance with other guidance. Incidental items that are immaterial in the context of the contract are recognized as expense in the period incurred.

Trade Accounts Receivable:

The Company’s trade accounts receivable are recorded per the terms of the agreement or sale, and accrued interest is recognized when earned. Our policy for estimating the allowance for credit losses on trade accounts receivable includes analysis of such items as aging, credit worthiness, payment history, and historical bad debt experience. Management uses these specific analyses in conjunction with an evaluation of the general economic and market conditions to estimate expected credit losses. Management believes that historical loss information generally provides a basis for its assessment of expected credit losses. Trade accounts receivable are written off after exhaustive collection efforts occur and the receivable is deemed uncollectible. Adjustments to the allowance for credit losses are recorded in Selling and Administrative Expenses on our Condensed Consolidated Statements of Income.

In the ordinary course of business, customers periodically negotiate extended payment terms on trade accounts receivable. Customary terms require payment within 30 to 45 days, with any terms beyond 45 days being considered extended payment terms. We utilize factoring arrangements for certain of our accounts receivables with third-party financial institutions in order to extend terms for the customer without negatively impacting our cash flow. These arrangements in all cases do not contain recourse provisions which would obligate us in the event of our customers’ failure to pay. Receivables are considered sold when they are transferred beyond the reach of Kimball Electronics and its creditors, the purchaser has the right to pledge or exchange the receivables, and we have surrendered control over the transferred receivables. In the nine months ended March 31, 2023 and 2022, we sold, without recourse, $357.1 million and $201.5 million of accounts receivable, respectively. Factoring fees were $1.4 million and $0.4 million for the three months ended March 31, 2023 and 2022, and $3.8 million and $0.9 million during the nine months ended March 31, 2023 and 2022, respectively. Factoring fees are recorded in Selling and Administrative Expenses on our Condensed Consolidated Statements of Income.

Goodwill and Other Intangible Assets:

Goodwill 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 assessed or 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. Other Intangible Assets consist of capitalized software, customer relationships, technology, and trade name, and 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. As of March 31, 2023, the Company determined there have been no indicators of impairment for goodwill and other intangible assets. See Note 11 - Goodwill and Other Intangible Assets of Notes to Condensed Consolidated Financial statements for more information on Goodwill and Other Intangible Assets.

We perform our annual goodwill impairment test of our Global Equipment Services (“GES”) reporting unit in the fourth quarter. As of March 31, 2023, GES has $5.8 million of goodwill. In our latest annual test performed as of April 30, 2022, the fair value of the GES reporting unit exceeded its carrying value by 9%. We are in the process of developing our long-range plan, which will support our annual test. Our test will consider GES’s recent performance and trends in the semiconductor and consumer electronics capital equipment markets which GES serves. If our test indicates a decline in GES’s fair value, there could be a non-cash charge for impairment.

Leases:

The Company leases certain office, manufacturing, and warehouse facilities under operating leases, in addition to land on which certain office and manufacturing facilities resides. Operating lease costs and cash payments for operating leases are immaterial to the Condensed Consolidated Statements of Income and our Condensed Consolidated Statements of Cash Flows. Lease right-of-use assets and lease liabilities each totaled $2.8 million at March 31, 2023 and $3.1 million at June 30, 2022, respectively. Lease right-of-use assets are included in Other Assets and lease liabilities are included in Accrued expenses and Other long-term liabilities on the Condensed Consolidated Balance Sheets.

Other General Income:

Other General Income in the nine months ended March 31, 2022 included $1.4 million of pre-tax income 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. No Other General Income was recorded in three and nine months ended March 31, 2023 and in the three months ended March 31, 2022.

Non-operating Income (Expense), net:

Non-operating income (expense), net includes the impact of such items as foreign currency rate movements and related derivative gain or loss, fair value adjustments on supplemental employee retirement plan (“SERP”) investments, amortization of actuarial gains (losses), and other miscellaneous non-operating income and expense items that are not directly related to operations. The gain (loss) on SERP investments is offset by a change in the SERP liability that is recognized in Selling and Administrative Expenses.

Components of Non-operating income (expense), net:


	Three Months Ended				Nine Months Ended
	March 31				March 31
(Amounts in Thousands)	2023		2022		2023		2022
Foreign currency/derivative gain (loss)	$	1,328	$	(625)	$	2,581	$	(1,325)
Gain (loss) on SERP investments	353		(719)		458		(404)


Other	(248)		(121)		(380)		(361)
Non-operating income (expense), net	$	1,433	$	(1,465)	$	2,659	$	(2,090)

Income Taxes:

In determining the quarterly provision for income taxes, we use an estimated annual effective tax rate which is based on expected annual income, statutory tax rates, and available tax planning opportunities in the various jurisdictions in which we operate. Unusual or infrequently occurring items are separately recognized in the quarter in which they occur.

Deferred income tax assets and liabilities, recorded in Other Assets and Other long-term liabilities, respectively, in the Condensed Consolidated Balance Sheets, 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. These assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the temporary differences are expected to reverse. We evaluate the recoverability of deferred tax assets each quarter by assessing the likelihood of future taxable income and available tax planning strategies that could be implemented to realize our deferred tax assets. If recovery is not likely, we provide a valuation allowance based on our best estimate of future taxable income in the various taxing jurisdictions and the amount of deferred taxes ultimately realizable. Future events could change management’s assessment.

We operate within multiple taxing jurisdictions and are subject to tax audits in these jurisdictions. These audits can involve complex uncertain tax positions, which may require an extended period of time to resolve. A tax benefit from an uncertain tax position may be recognized only if it is more likely than not that the tax position will be sustained on examination by taxing authorities, based on the technical merits of the position. We maintain a liability for uncertain income tax and other tax positions, including accrued interest and penalties on those positions. As tax positions are effectively settled, the tax liability is adjusted accordingly. We recognize interest and penalties related to unrecognized tax benefits in Provision for Income Taxes on the Condensed Consolidated Statements of Income.

The U.S. Tax Cuts and Jobs Act (“Tax Reform”) was enacted into law on December 22, 2017, making broad and complex changes to the U.S. tax code, for which complete guidance may have not yet been issued. Tax Reform, in addition to other changes, required a one-time transition tax on certain unremitted earnings of foreign subsidiaries that is payable over an eight-year period. As of March 31, 2023 and June 30, 2022, the remaining provision recorded for the one-time deemed repatriation tax was $7.8 million and $8.9 million, respectively, payable through fiscal year 2026, with the long-term portion recorded in Long-term income taxes payable on the Condensed Consolidated Balance Sheets. As of March 31, 2023, $1.9 million of the remaining deemed repatriation tax is short term and is recorded in Accrued expenses on the Condensed Consolidated Balance Sheet.

Note 2. Revenue from Contracts with Customers

Our revenue from contracts with customers is generated primarily from manufacturing services provided for the production of electronic assemblies, electronic and non-electronic components, medical devices, medical disposables, precision molded plastics, and automation, test, and inspection equipment in automotive, medical, and industrial applications, to the specifications and designs of our customers. Beginning in fiscal year 2023, the Company changed its presentation of revenue for the industrial and public safety end market verticals by combining them into the industrial end market vertical. Prior year periods have been recast to conform to the current year presentation.

The following table disaggregates our revenue by end market vertical for the three and nine months ended March 31, 2023 and 2022.


	Three Months Ended				Nine Months Ended
	March 31				March 31
(Amounts in Millions)	2023		2022		2023		2022
Vertical Markets:
Automotive	$	216.0	$	161.5	$	600.5	$	429.8
Medical	134.0		102.9		373.5		277.7
Industrial	126.9		98.2		332.8		255.8
Other	7.8		5.5		20.5		12.7
Total net sales	$	484.7	$	368.1	$	1,327.3	$	976.0

For the three months ended March 31, 2023 and 2022, approximately 96% and 95% of our net sales, respectively, were recognized over time as manufacturing services were performed under a customer contract on a product with no alternative use and we have an enforceable right to payment for performance completed to date. For the nine months ended March 31, 2023 and 2022, approximately 96% and 95% of our net sales, respectively, were recognized over time. The remaining sales revenues were recognized at a point in time when the customer obtained control of the products.

The timing differences of revenue recognition, billings to our customers, and cash collections from our customers result in billed accounts receivable and unbilled accounts receivable. Contract assets on the Condensed Consolidated Balance Sheets relate to unbilled accounts receivable and occur when revenue is recognized over time as manufacturing services are provided and the billing to the customer has not yet occurred as of the balance sheet date, which are generally transferred to receivables in the next fiscal quarter due to the short-term nature of the manufacturing cycle. Contract assets were $75.7 million and $64.1 million as of March 31, 2023 and June 30, 2022, respectively.

The Company may receive payments from customers in advance of the satisfaction of performance obligations primarily for material price variances, tooling, or other miscellaneous services or costs. These advance payments are recognized as contract liabilities until the performance obligations are completed and are included in Accrued expenses on the Condensed Consolidated Balance Sheets, which amounted to $36.0 million and $22.5 million as of March 31, 2023 and June 30, 2022, respectively. Our performance obligations are short term in nature and therefore our contract liabilities are all expected to be settled within twelve months.

Note 3. Inventories

Inventories were valued using the lower of first-in, first-out (“FIFO”) cost and net realizable value. Inventory components were as follows:


(Amounts in Thousands)	March 31, 2023		June 30, 2022
Finished products	$	485	$	525
Work-in-process	9,671		4,911
Raw materials	478,014		390,194


Total inventory	$	488,170	$	395,630

Note 4. Accumulated Other Comprehensive Income (Loss)

During the nine months ended March 31, 2023 and 2022, the changes in the balances of each component of Accumulated Other Comprehensive Income (Loss), net of tax, were as follows:


Accumulated Other Comprehensive Income (Loss)
(Amounts in Thousands)	Foreign Currency Translation Adjustments		Derivative Gain (Loss)		Post Employment Benefits Net Actuarial Gain (Loss)		Accumulated Other Comprehensive Income (Loss)
Balance at June 30, 2022	$	(17,349)	$	(2,203)	$	(120)	$	(19,672)

Other comprehensive income (loss) before reclassifications	5,427		5,453		(164)		10,716
Reclassification to (earnings) loss	—		(2,103)		(119)		(2,222)
Net current-period other comprehensive income (loss)	5,427		3,350		(283)		8,494
Balance at March 31, 2023	$	(11,922)	$	1,147	$	(403)	$	(11,178)

Balance at June 30, 2021	$	(2,223)	$	(2,427)	$	(233)	$	(4,883)
Other comprehensive income (loss) before reclassifications	(7,912)		46		(86)		(7,952)
Reclassification to (earnings) loss	—		413		(144)		269
Net current-period other comprehensive income (loss)	(7,912)		459		(230)		(7,683)
Balance at March 31, 2022	$	(10,135)	$	(1,968)	$	(463)	$	(12,566)

The following reclassifications were made from Accumulated Other Comprehensive Income (Loss) to the Condensed Consolidated Statements of Income:


Reclassifications from Accumulated Other Comprehensive Income (Loss)	Three Months Ended				Nine Months Ended				Affected Line Item in the Condensed Consolidated Statements of Income
	March 31				March 31
(Amounts in Thousands)	2023		2022		2023		2022
Derivative gain (loss) (1)	$	1,111	$	22	$	2,596	$	(414)	Cost of Sales

	(293)		(31)		(493)		1		Benefit (Provision) for Income Taxes
	$	818	$	(9)	$	2,103	$	(413)	Net of Tax
Postemployment Benefits:




Amortization of actuarial gain (2)	19		61		157		190		Non-operating income (expense), net
	(5)		(15)		(38)		(46)		Benefit (Provision) for Income Taxes
	$	14	$	46	$	119	$	144	Net of Tax

Total reclassifications for the period	$	832	$	37	$	2,222	$	(269)	Net of Tax

Amounts in parentheses indicate reductions to income.

(1) See Note 8 - Derivative Instruments of Notes to Condensed Consolidated Financial Statements for further information on derivative instruments.

(2) See Note 9 - Employee Benefit Plans of Notes to Condensed Consolidated Financial Statements for further information on postemployment benefit plans.

Note 5. Commitments and Contingent Liabilities

The Company typically provides only assurance-type warranties for a limited time period, which cover workmanship and assures the product complies with specifications provided by or agreed upon with the customer. We maintain a provision for limited warranty repair or replacement of products manufactured and sold, which has been established in specific manufacturing contract agreements. We estimate product warranty liability at the time of sale based on historical repair or replacement cost trends in conjunction with the length of the warranty offered. Management refines the warranty liability regularly based on changes in historical cost trends and in certain cases where specific warranty issues become known. Product warranty liability is recorded in Accrued expenses and Other long-term liabilities on the Condensed Consolidated Balance Sheets.

Changes in the product warranty liability for the nine months ended March 31, 2023 and 2022 were as follows:


	Nine Months Ended
	March 31
(Amounts in Thousands)	2023		2022
Product warranty liability at the beginning of the period	$	529	$	610
Additions to warranty accrual (including changes in estimates)	158		(64)
Settlements made (in cash or in kind)	(109)		(13)
Product warranty liability at the end of the period	$	578	$	533

Note 6. Credit Facilities

Credit facilities consisted of the following:


	Available Borrowing Capacity at		Borrowings Outstanding at		Borrowings Outstanding at
(Amounts in Millions, in U.S Dollar Equivalents)	March 31, 2023		March 31, 2023		June 30, 2022
Primary credit facility (1)	$	20.6	$	279.0	$	171.4
Secondary credit facility (2)	50.0		—		—
Thailand overdraft credit facility (3)	10.1		—		—
China revolving credit facility (4)	7.5		—		—
Netherlands revolving credit facility	0.6		9.3		9.2
Poland revolving credit facility (5)	5.4		—		—
Vietnam credit facility (6)	3.9		1.1		—
Total credit facilities	$	98.1	$	289.4	$	180.6
Less: current portion			$	(54.4)	$	(35.6)
Long-term debt under credit facilities, less current portion (7)			$	235.0	$	145.0

(1) The Company maintains a U.S. primary credit facility (the “primary credit facility”) among the Company, the lenders party thereto, and JPMorgan Chase Bank, N. A., as Administrative Agent, and Bank of America, N.A., as Documentation Agent, scheduled to mature 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 upon request, subject to the consent of each lender participating in such increase. This facility is maintained for working capital and general corporate purposes of the Company. A commitment fee is payable on the unused portion of the credit facility at a rate that ranges from 10.0 to 25.0 basis points per annum as determined by the Company’s ratio of consolidated total indebtedness to adjusted consolidated EBITDA, as defined in the primary credit facility. Types of borrowings available on the primary credit facility include revolving loans, multi-currency term loans, and swingline loans.

The interest rate on borrowings is dependent on the type and currencies of borrowings and will be one of the following options:

•any Term Benchmark borrowing denominated in U.S. Dollars will utilize the Secured Overnight Financing Rate (“SOFR”), which is a rate per annum equal to the secured overnight financing rate for such business day published by the SOFR Administrator, the Federal Reserve Bank of New York, on the immediately succeeding business day, plus the Revolving Commitment Term Benchmark spread which can range from 100.0 to 175.0 basis points based on the Company’s ratio of consolidated total indebtedness to adjusted consolidated EBITDA;

•any Term Benchmark borrowing denominated in Euros will utilize the Euro Interbank Offered Rate (“EURIBOR”) in effect two target days prior to the advance (adjusted upwards to reflect bank reserve costs) for such interest period as defined in the agreement, plus the Revolving Commitment Term Benchmark spread which can range from 100.0 to 175.0 basis points based on the Company’s ratio of consolidated total indebtedness to adjusted consolidated EBITDA; or

•the Alternate Base Rate (“ABR”), which is defined as the highest of the fluctuating rate per annum equal to the higher of:

a.Prime Rate in the U.S. last quoted by the Wall Street Journal, and if this is ceased to be quoted, the highest bank prime loan rate or similar loan rate quoted by the Federal Reserve Board;

b.1/2 of 1% per annum above the Federal Funds Effective Rate (as defined under the primary credit facility); or

c.1% per annum above the Adjusted SOFR Rate (as defined under the primary credit facility);

plus the Revolving Commitment ABR spread which can range from 0.0 to 75.0 basis points based on the Company’s ratio of consolidated total indebtedness to adjusted consolidated EBITDA.

The Company’s financial covenants under the primary credit facility require:

•a ratio of consolidated total indebtedness minus unencumbered U.S. cash on hand in the United States in excess of $15 million to adjusted consolidated EBITDA, determined as of the end of each of its fiscal quarters for the then most recently ended four fiscal quarters, to not be greater than 3.0 to 1.0, provided, however, that for each fiscal quarter end during the four quarter period following a material permitted acquisition, as defined in the Credit Agreement, the Company will not permit this financial covenant to be greater than 3.5 to 1.0 for each such fiscal quarter end, and,

•an interest coverage ratio, defined as that ratio of consolidated EBITDA for such period to cash interest expense for such period, for any period of four consecutive fiscal quarters, to not be less than 3.5 to 1.0.

The Company had $0.4 million in letters of credit contingently committed against the credit facility at both March 31, 2023 and June 30, 2022.

(2) The Company entered into a 364-day multi-currency revolving credit facility agreement on February 3, 2023 (the “secondary credit facility”), which allows for borrowings up to $50 million, among the Company, as borrower, certain subsidiaries of the Company as guarantors, the lenders party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent and Bank of America, N.A., as Documentation Agent. The secondary credit facility has a maturity date of February 2, 2024. The proceeds of the loans are to be used for working capital and general corporate purposes of the Company. A commitment fee on the unused portion of principal amount of this secondary credit facility is payable at 30.0 basis points per annum.

The interest rate on borrowings is dependent on the type of borrowings and will be one of the following options:

•any Term Benchmark borrowing denominated in U.S. Dollars will utilize the Secured Overnight Financing Rate (“SOFR”), which is a rate per annum equal to the secured overnight financing rate for such business day published by the SOFR Administrator, the Federal Reserve Bank of New York, on the immediately succeeding business day, plus a Revolving Commitment Term Benchmark spread of 175.0 basis points;

•any Term Benchmark borrowing denominated in Euros will utilize the Euro Interbank Offered Rate (“EURIBOR”) in effect two target days prior to the advance (adjusted upwards to reflect bank reserve costs) for such interest period as defined in the agreement, plus a Revolving Commitment Term Benchmark spread of 175.0 basis points; or

•the Alternate Base Rate (“ABR”), which is defined as the highest of the fluctuating rate per annum equal to the higher of:

a.Prime Rate in the U.S. last quoted by the Wall Street Journal, and if this is ceased to be quoted, the highest bank prime loan rate or similar loan rate quoted by the Federal Reserve Board;

b.1/2 of 1% per annum above the Federal Funds Effective Rate (as defined under the primary credit facility); or

c.1% per annum above the Adjusted SOFR Rate (as defined under the primary credit facility);

plus a Revolving Commitment ABR spread of 75.0 basis points.

The Company’s financial covenants under this secondary credit facility are the same as the financial covenants for its primary credit facility.

(3) During the first quarter of fiscal year 2023, the Company expanded the borrowing capacity of the Thailand credit facility to $10.1 million.

(4) The Company entered into a foreign credit facility for its EMS operation in China during the first quarter of fiscal year 2023 which allows for borrowings up to $7.5 million.

(5) The Company entered into a foreign credit facility for its operation in Poland which allows for borrowings up to 5.0 million Euro (approximately $5.4 million equivalent).

(6) The Company entered into a foreign credit facility for its operation in Vietnam which allows for borrowings up to $5.0 million.

(7) The amount of Long-term debt under credit facilities, less current maturities reflects the borrowings on the primary credit facility that the Company intends, and has the ability, to refinance for a period longer than twelve months. The primary credit facility matures on May 4, 2027.

The weighted-average interest rate on borrowings outstanding under the credit facilities at March 31, 2023 and June 30, 2022 were 6.6% and 2.7%, respectively.

Note 7. Fair Value

The Company categorizes assets and liabilities measured at fair value into three levels based upon the assumptions (inputs) used to price the assets or liabilities. Level 1 provides the most reliable measure of fair value, whereas level 3 generally requires significant management judgment. The three levels are defined as follows:

•Level 1: Unadjusted quoted prices in active markets for identical assets and liabilities.

•Level 2: Observable inputs other than those included in level 1. For example, quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets or liabilities in inactive markets.

•Level 3: Unobservable inputs reflecting management’s own assumptions about the inputs used in pricing the asset or liability.

There were no changes in the inputs or valuation techniques used to measure fair values during the nine months ended March 31, 2023. For more information on inputs and fair valuation techniques used, refer to our Annual Report on Form 10-K for the year ended June 30, 2022.

Recurring Fair Value Measurements:

As of March 31, 2023 and June 30, 2022, the fair values of financial assets and liabilities that are measured at fair value on a recurring basis using the market approach are categorized as follows:


	March 31, 2023
(Amounts in Thousands)	Level 1		Level 2		Total
Assets
Cash equivalents	$	—	$	—	$	—
Derivatives: foreign exchange contracts	—		5,117		5,117

Trading securities: mutual funds held in nonqualified SERP	8,420		—		8,420
Total assets at fair value	$	8,420	$	5,117	$	13,537
Liabilities
Derivatives: foreign exchange contracts	$	—	$	1,097	$	1,097
Total liabilities at fair value	$	—	$	1,097	$	1,097

	June 30, 2022
(Amounts in Thousands)	Level 1		Level 2		Total
Assets

Cash equivalents	$	1,541	$	—	$	1,541
Derivatives: foreign exchange contracts	—		1,872		1,872

Trading securities: mutual funds held in nonqualified SERP	10,364		—		10,364
Total assets at fair value	$	11,905	$	1,872	$	13,777
Liabilities
Derivatives: foreign exchange contracts	$	—	$	3,522	$	3,522
Total liabilities at fair value	$	—	$	3,522	$	3,522

We had no level 3 assets or liabilities at March 31, 2023 and June 30, 2022, or any activity in Level 3 assets or liabilities during the nine months ended March 31, 2023.

The nonqualified supplemental employee retirement plan (“SERP”) assets consist primarily of equity funds, balanced funds, bond funds, and a money market fund. The SERP investment assets are offset by a SERP liability which represents the Company’s obligation to distribute SERP funds to participants. See Note 9 - Employee Benefit Plans of Notes to Condensed Consolidated Financial Statements for further information regarding the SERP.

Financial Instruments Not Carried At Fair Value:

Financial instruments that are not reflected in the Condensed Consolidated Balance Sheets at fair value that have carrying amounts which approximate fair value include notes receivable and borrowings under credit facilities. There were no changes to the inputs and valuation techniques used to assess the fair value of these financial instruments during the nine months ended March 31, 2023. For more information on inputs and fair valuation techniques used, refer to our Annual Report on Form 10-K for the year ended June 30, 2022.

The carrying values of our cash deposit accounts, trade accounts receivable, and trade accounts payable approximate fair value due to the relatively short maturity and immaterial non-performance risk.

Note 8. Derivative Instruments

Foreign Exchange Contracts:

We operate internationally and are therefore exposed to foreign currency exchange rate fluctuations in the normal course of business. Our primary means of managing this exposure is to utilize natural hedges, such as aligning currencies used in the supply chain with the sale currency. To the extent natural hedging techniques do not fully offset currency risk, we use derivative instruments with the objective of reducing the residual exposure to certain foreign currency rate movements. Factors considered in the decision to hedge an underlying market exposure include the materiality of the risk, the volatility of the market, the duration of the hedge, the degree to which the underlying exposure is committed to, and the availability, effectiveness, and cost of derivative instruments. Derivative instruments are only utilized for risk management purposes and are not used for speculative or trading purposes.

We use forward contracts designated as cash flow hedges to protect against foreign currency exchange rate risks inherent in forecasted transactions denominated in a foreign currency. Non-designated foreign exchange contracts are also used to hedge against foreign currency exchange rate risks related to intercompany balances and other balance sheet positions denominated in currencies other than the functional currencies. As of March 31, 2023, we had outstanding foreign exchange contracts to hedge currencies against the U.S. dollar in the aggregate notional amount of $18.0 million and to hedge currencies against the Euro in the aggregate notional amount of 58.4 million Euro. The notional amounts are indicators of the volume of derivative activities but may not be indicators of the potential gain or loss on the derivatives.

In limited cases due to unexpected changes in forecasted transactions, cash flow hedges may cease to meet the criteria to be designated as cash flow hedges. Depending on the type of exposure hedged, we may either purchase a derivative contract in the opposite position of the undesignated hedge or may retain the hedge until it matures if the hedge continues to provide an adequate offset in earnings against the currency revaluation impact of foreign currency denominated liabilities.

The fair value of outstanding derivative instruments is recognized on the Condensed Consolidated Balance Sheets as a derivative asset or liability and presented with Prepaid expenses and other current assets and Accrued expenses, respectively. When derivatives are settled with the counterparty, the derivative asset or liability is relieved and cash flow is impacted for the net settlement. For derivative instruments that meet the criteria of hedging instruments under FASB guidance, the gain or loss on the derivative instrument is initially recorded net of related tax effect in Accumulated Other Comprehensive Income (Loss), a component of Share Owners’ Equity, and is subsequently reclassified into earnings in the period or periods during which the hedged transaction is recognized in earnings. The gain or loss associated with derivative instruments that are not designated as hedging instruments or that cease to meet the criteria for hedging under FASB guidance is reported immediately in Non-operating income (expense), net on the Condensed Consolidated Statements of Income.

Based on fair values as of March 31, 2023, we estimate that approximately $3.4 million of pre-tax derivative gain deferred in Accumulated Other Comprehensive Loss will be reclassified into earnings, along with the earnings effects of related forecasted transactions, within the next 12 months. Gains on foreign exchange contracts are generally offset by losses in operating income in the income statement when the underlying hedged transaction is recognized in earnings. Because gains or losses on foreign exchange contracts fluctuate partially based on currency spot rates, the future effect on earnings of the cash flow hedges alone is not determinable, but in conjunction with the underlying hedged transactions, the result is expected to be a decline in currency risk. The maximum length of time we had hedged our exposure to the variability in future cash flows was 12 months as of both March 31, 2023 and June 30, 2022.

See Note 7 - Fair Value of Notes to Condensed Consolidated Financial Statements for further information regarding the fair value of derivative assets and liabilities and Note 4 - Accumulated Other Comprehensive Income (Loss) of Notes to Condensed Consolidated Financial Statements for the changes in deferred derivative gains and losses.

Information on the location and amounts of derivative fair values in the Condensed Consolidated Balance Sheets and derivative gains and losses in the Condensed Consolidated Statements of Income are presented below.

Fair Value of Derivative Instruments on the Condensed Consolidated Balance Sheets


	Asset Derivatives					Liability Derivatives
		Fair Value As of					Fair Value As of
(Amounts in Thousands)	Balance Sheet Location	March 31, 2023		June 30, 2022		Balance Sheet Location	March 31, 2023		June 30, 2022
Derivatives Designated as Hedging Instruments:
Foreign exchange contracts	Prepaid expenses and other current assets	$	4,218	$	1,189	Accrued expenses	$	662	$	1,486

Derivatives Not Designated as Hedging Instruments:
Foreign exchange contracts	Prepaid expenses and other current assets	899		683		Accrued expenses	435		2,036

Total derivatives		$	5,117	$	1,872		$	1,097	$	3,522

The Effect of Derivative Instruments on Other Comprehensive Income (Loss)


	Three Months Ended				Nine Months Ended
	March 31				March 31
(Amounts in Thousands)	2023		2022		2023		2022
Amount of Pre-Tax Gain or (Loss) Recognized in Other Comprehensive Income (Loss) (OCI) on Derivatives:
Foreign exchange contracts	$	3,270	$	1,063	$	6,954	$	148

The Effect of Derivative Instruments on Condensed Consolidated Statements of Income


		Three Months Ended				Nine Months Ended
(Amounts in Thousands)		March 31				March 31
Derivatives in Cash Flow Hedging Relationships	Location of Gain or (Loss)	2023		2022		2023		2022
Amount of Pre-Tax Gain or (Loss) Reclassified from Accumulated OCI into Income:

Foreign exchange contracts	Cost of Sales	$	1,111	$	22	$	2,596	$	(414)



Derivatives Not Designated as Hedging Instruments
Amount of Pre-Tax Gain or (Loss) Recognized in Income on Derivatives:
Foreign exchange contracts	Non-operating income (expense)	$	(286)	$	(388)	$	171	$	(430)



Total Derivative Pre-Tax Gain (Loss) Recognized in Income		$	825	$	(366)	$	2,767	$	(844)

Note 9. Employee Benefit Plans

The Company maintains a trusteed defined contribution retirement plan which is in effect for substantially all domestic employees meeting the eligibility requirements. The Company also maintains a supplemental employee retirement plan (“SERP”) for executives and other key employees which enables them to defer cash compensation on a pre-tax basis in excess of IRS limitations. The SERP is structured as a rabbi trust, and therefore, assets in the SERP portfolio are subject to creditor claims in the event of bankruptcy. We recognize SERP investment assets on the balance sheet at current fair value. A SERP liability of the same amount is recorded on the balance sheet representing an obligation to distribute SERP funds to participants. As of March 31, 2023, both total investments and obligations under SERP were $8.4 million, of which $2.7 million were short term and $5.7 million were long term. As of June 30, 2022, both total investments and obligations under SERP were $10.4 million, of which $2.6 million were short term and $7.8 million were long term. The SERP investment assets are classified as trading, and accordingly, realized and unrealized gains and losses are recognized in the Other Income (Expense) category on our Condensed Consolidated Statements of Income. Adjustments made to revalue the SERP liability are also recognized in income as selling and administrative expenses and offset valuation adjustments on SERP investment assets. The change in net unrealized holding gains for both the nine months ended March 31, 2023 and 2022 was approximately $0.1 million and $(1.1) million, respectively.

The Company established and maintains severance plans for all domestic employees and other postemployment plans for certain foreign subsidiaries. There are no statutory requirements for us to contribute to the plans, nor do employees contribute to the plans. The plans hold no assets. Benefits are paid using available cash on hand when eligible employees meet plan qualifications for payment. Net periodic benefit costs were not material for the nine months ended March 31, 2023 and 2022.

Note 10. Stock Compensation Plans

A stock compensation plan was created and adopted by the Company’s Board of Directors (the “Board”) on October 3, 2014. The Kimball Electronics, Inc. 2014 Stock Option and Incentive Plan (the “Plan”) allows for the issuance of up to 4.5 million shares and may be granted in the form of incentive stock options, stock appreciation rights, restricted shares, unrestricted shares, restricted share units, or performance shares and performance units. The Plan is a ten-year plan with no further awards allowed to be made under the Plan after October 1, 2024.

On October 20, 2016, the Board approved a nonqualified deferred stock compensation plan, the Kimball Electronics, Inc. Non-Employee Directors Stock Compensation Deferral Plan (the “Deferral Plan”), which allows Non-Employee Directors to elect to defer all, or a portion of, their retainer fees in stock until retirement or termination from the Board or death. The Deferral Plan allows for issuance of up to 1.0 million shares of the Company’s common stock. For more information on the Plan and the Deferral Plan, refer to our Annual Report on Form 10-K for the year ended June 30, 2022.

During the first nine months of fiscal year 2023, the following stock compensation was granted under the Plan and the Deferral Plan.


Stock Compensation Granted	Quarter Granted	Shares/Units	Grant Date Fair Value (2)

Long-Term Performance Shares (1)	1st Quarter	184,446	$23.34

Restricted Shares (3)	1st Quarter	55,355	$23.34

Long-Term Performance Shares (4)	1st Quarter	500	$21.51








Unrestricted Shares (5)	2nd Quarter	13,842	$23.30

Deferred Share Units (6)	2nd Quarter	38,925	$23.07

Unrestricted Shares (5)	3rd Quarter	108	$23.30

Deferred Share Units (6)	3rd Quarter	107	$23.30

Long-Term Performance Shares (1)	3rd Quarter	92,072	$25.51

Restricted Shares (3)	3rd Quarter	23,017	$25.51

Total Shareholder Return Performance Shares (7)	3rd Quarter	42,626	$16.88

(1) Long-term performance share awards were granted to officers and other key employees. These annual performance share awards were approved by the Talent, Culture, and Compensation Committee of the Board. The awards granted in fiscal year 2023 will cliff vest at the third anniversary of the award date in fiscal year 2026.

Under these awards, a number of shares will be issued to each participant based upon a combination of the Company’s profitability based on its operating income over the performance period as defined in the Company’s operating business plans for the applicable fiscal years and the Company’s growth based on a comparison of its three-year compounded annual growth rate (“CAGR”) with the Electronics Manufacturing Services Industry’s three-year CAGR. The number of shares issued will be less than the targeted shares issuable if the Company does not reach 100% of one or both of the above-mentioned performance metrics, and could be zero if the Company does not reach the required minimum thresholds of either metric. The number of shares issued will exceed the number of targeted shares issuable (up to a maximum of 125%) if the Company exceeds 100% of one or both of the above-mentioned incentive metrics.

(2) The grant date fair value is the weighted average stock price based on the dates of the grants.

(3) Restricted shares were granted to officers and other key employees. These restricted shares were approved by the Talent, Culture, and Compensation Committee of the Board. The contractual life of the restricted shares is three years, with one-third of the interest in the restricted shares vested after year one of the grant, another one-third after year two of the grant, and the final one-third after year three of the grant. Restricted shares are expensed over the contractual vesting period as earned. If the employment of a holder of restricted shares terminates before the RSU has vested for any reason other than death, retirement, or disability, the restricted shares not yet vested will be forfeited.

(4) Long-term performance share awards were granted to a key employee. This award granted in fiscal year 2023 will cliff vest at the first anniversary of the award date in fiscal year 2024. Shares will be issued to this participant based on the performance metrics described in (1) above.

(5) Unrestricted shares were awarded to non-employee members of the Board as compensation for the portion of their annual retainer fees resulting from their elections to be paid in unrestricted shares in lieu of cash payment or deferred share units. Director’s fees are expensed over the period that directors earn the compensation. Unrestricted shares do not have vesting periods, holding periods, restrictions on sales, or other restrictions.

(6) Deferred share units were awarded to non-employee members of the Board as compensation for the portion of their annual retainer fees resulting from their elections to receive deferred share units in lieu of cash payment or unrestricted shares. Director’s fees are expensed over the period that directors earn the compensation. Deferred share units are participating securities and are payable in common stock in a lump sum or installments in accordance with deferral elections upon a Director’s retirement or termination from the Board or death.

(7) Total shareholder return (“TSR”) performance shares were awarded to our CEO during fiscal year 2023. This award was approved by the Talent, Culture, and Compensation Committee of the Board. The participant will earn from 0% to 100% of the target award based on the total shareholder return ranking of the Company compared to the performance peer group at the end of the three-year performance period. The shares will vest on March 1, 2026.

Note 11. Goodwill and Other Intangible Assets

A summary of goodwill is as follows:


(Amounts in Thousands)	March 31, 2023		June 30, 2022

Goodwill	$	32,762	$	32,762
Accumulated impairment	(20,751)		(20,751)
Goodwill, net	$	12,011	$	12,011

A summary of other intangible assets subject to amortization is as follows:


	March 31, 2023						June 30, 2022
(Amounts in Thousands)	Cost		Accumulated Amortization		Net Value		Cost		Accumulated Amortization		Net Value
Capitalized Software	$	30,911	$	(27,096)	$	3,815	$	29,891	$	(26,209)	$	3,682
Customer Relationships	8,618		(3,399)		5,219		8,618		(3,024)		5,594
Technology	5,060		(4,564)		496		5,060		(3,805)		1,255
Trade Name	6,575		(2,895)		3,680		6,575		(2,399)		4,176
Other Intangible Assets	$	51,164	$	(37,954)	$	13,210	$	50,144	$	(35,437)	$	14,707

During the three months ended March 31, 2023 and 2022, amortization expense of other intangible assets was $0.9 million and $0.8 million, respectively. During the nine months ended March 31, 2023 and 2022, amortization expense of other intangible assets was $2.6 million.

The estimated useful life of internal-use software ranges from 3 years to 10 years. The amortization period for the customer relationships, technology, and trade name intangible assets is 15 years, 5 years, and 10 years, respectively. We have no intangible assets with indefinite useful lives which are not subject to amortization.

Note 12. Share Owners’ Equity

During the nine months ended March 31, 2023, the Company had no share repurchases under the Plan. Since the inception of the Plan, the Company has repurchased $88.8 million of common stock at an average cost of $15.27 per share.

Note 13. Earnings Per Share

Basic and diluted earnings per share were calculated as follows under the two-class method:



	Three Months Ended				Nine Months Ended
	March 31				March 31
(Amounts in thousands, except per share data)	2023		2022		2023		2022
Basic and Diluted Earnings Per Share:
Net Income	$	16,400	$	13,638	$	36,629	$	21,315
Less: Net Income allocated to participating securities	24		19		53		31
Net Income allocated to common Share Owners	$	16,376	$	13,619	$	36,576	$	21,284

Basic weighted average common shares outstanding	24,898		25,175		24,868		25,192


Dilutive effect of average outstanding stock compensation awards	169		97		163		99
Dilutive weighted average shares outstanding	25,067		25,272		25,031		25,291

Earnings Per Share of Common Stock:
Basic	$	0.66	$	0.54	$	1.47	$	0.84
Diluted	$	0.65	$	0.54	$	1.46	$	0.84

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

Certain statements contained within this document are considered forward-looking under the Private Securities Litigation Reform Act of 1995. The statements may be identified by the use of words such as “believes,” “anticipates,” “expects,” “intends,” “plans,” “projects,” “estimates,” “forecasts,” “likely,” “future,” “may,” “should,” “would,” “could,” “will,” “potentially,” and similar expressions. These forward-looking statements are subject to risks and uncertainties including, but not limited to, global economic conditions, geopolitical environment and conflicts such as the war in Ukraine, global health emergencies including the COVID-19 pandemic, availability or cost of raw materials and components, 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 contained in our Annual Report on Form 10-K for the year ended June 30, 2022.

Business Overview

We are a global, multifaceted manufacturing solutions provider. We provide contract electronics manufacturing services (“EMS”) and diversified manufacturing services, including engineering and supply chain support, to customers in the automotive, medical, industrial, and public safety end markets. Our core competency is producing durable electronics, and we further offer diversified contract manufacturing services for non-electronic components, medical devices, medical disposables, drug delivery devices and solutions, precision molded plastics, and production automation, test, and inspection equipment. Our 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 recognized us four times in the past five years for achieving the Highest Overall Customer Rating in their Service Excellence Awards, and we received awards in all categories in 2022.

The contract manufacturing services industry is very competitive. As a mid-sized player, we can expect to be challenged by the agility and flexibility of the smaller, regional players, and we can expect to be challenged by the scale and price competitiveness of the larger, global players. We enjoy a unique market position between these extremes which allows us to compete with the larger scale players for high-volume projects, but also maintain our competitive position in the generally lower volume durable electronics market space. 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. Price increases are uncommon in the market as production efficiencies and material pricing advantages for most projects drive costs and prices down over the life of the projects. This characteristic of the contract electronics marketplace is expected to continue.

The Worldwide Manufacturing Services Market - 2022 Edition, a comprehensive study on the worldwide EMS market published by New Venture Research (“NVR”), provided worldwide forecast trends through 2026. NVR projects the worldwide assembly market for electronics products to grow at a compound annual growth rate (“CAGR”) of 4.3% over the next five years, with the EMS industry projected to grow at a CAGR of 5.5%.

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 COVID-19 pandemic continues to impact the global economy, and we are actively monitoring its impact on all our operations. We cannot reasonably estimate the financial impact of the uncertainties and risks of the COVID-19 pandemic on our future results, though they could be material. The well-being and safety of our employees remains our number one priority, and we are following guidelines suggested by applicable authorities as appropriate for our operations.

The EMS industry continues to experience component shortages, component allocations, and shipping delays, particularly with semiconductors, which were especially challenging in the prior fiscal year. Component shortages or allocations could continue to increase component costs and potentially interrupt our operations and negatively impact our ability to meet commitments to customers. We have taken various actions to mitigate the risk and minimize the impact to our customers as well as the adverse effect component shortages, component allocations, or shipping delays could have on our results; however, the duration or severity of the components shortages is unknown.

COVID-19 interruptions and supply chain restraints have also resulted in an industry-wide inflation of components, labor, freight, and other operating costs. Through contractual pricing arrangements and negotiations with our customers, we have been able to mitigate a majority of these cost increases; however, our profitability has been impacted, and necessary extended lead times on inventory purchases has negatively impacted our working capital. The financial impact on our future results cannot be reasonably estimated but could be material.

We experienced record quarterly net sales in the third quarter of the current fiscal year as sales increased 32% from the prior fiscal year third quarter, with double-digit increases and quarterly records in all three of our end market verticals. Beginning in fiscal year 2023, we changed our presentation of revenue for the industrial and public safety end market verticals by combining them into the industrial end market vertical. Prior year periods have been recast to conform to the current year presentation. The increase in sales to customers in the automotive market in the third quarter of fiscal year 2023 were largely driven by the supply chain catching up with the demand, the continued ramp-up of certain programs, and the launch of new programs. In the medical market, sales increased due to the launch and ramp-up of new programs in addition to improved component availability. In the industrial market, sales increased in large part due to improved component availability and new product launches.

We have a strong focus on cost control balanced with managing the future growth prospects of our business and growing backlog of orders due to the global component shortage and logistical challenges. 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 announced and 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 that it is linked to our financial performance which results in varying amounts of compensation expense as profits change.

We continue to maintain a strong balance sheet, which included a current ratio of 1.9, a debt-to-equity ratio of 0.6, and Share Owners’ equity of $503 million at March 31, 2023. Recently, we have invested to support our expansions and growth in Mexico and Thailand. At the same time, we have supported our customers through strategic inventory purchases to mitigate parts shortages. We expect our balance sheet to normalize as parts shortages abate and our expansions continue to ramp up production. Refer to the Future Liquidity section of Liquidity and Capital Resources below for further discussion of our liquidity.

In addition to the above discussion related to the current market conditions, management currently considers the following events, trends, and uncertainties to be most important to understanding our financial condition and operating performance:

•Employees throughout our business operations are an integral part of our ability to compete successfully, and the stability of the management team is critical to long-term Share Owner value. Our talent management and succession planning processes help to maintain stability in management.

•Due to the contract and project nature of the contract manufacturing industry, fluctuation in the demand for our products and variation in the gross margin on those programs is inherent to our business. Effective management of manufacturing capacity is, and will continue to be, critical to our success.

•The nature of the EMS industry is such that the start-up of new customers and new programs to replace expiring programs occurs frequently. As such, our ability to continue contractual relationships with our customers, including our principal customers, is not certain. While our agreements with customers generally do not have a definitive term and thus could be canceled at any time with little or no notice, we generally realize relatively few cancellations prior to the end of the product’s life cycle. We attribute this to our focus on long-term customer relationships, meeting customer expectations, required capital investment, and product qualification cycle times. New customers, program start-ups, and facility expansions generally cause margin dilution early in their respective lifecycles, which we generally recover as the customer relationship, program, or facility becomes established and matures.

•Risk factors within our business include, but are not limited to, general economic and market conditions, component availability, logistical challenges, customer order delays, globalization, global health emergencies including the COVID-19 pandemic, geopolitical conflicts such as the war in Ukraine, impact related to tariffs and other trade barriers, foreign currency exchange rate fluctuations, rapid technological changes, supplier and customer financial stability, the contract nature of this industry, the concentration of sales to significant customers, and the potential for customers to choose a dual sourcing strategy or to in-source a greater portion of their manufacturing. The continuing success of our business is dependent upon our ability to replace expiring customers/programs with new customers/programs. We monitor our success in this area by tracking the number of customers and the percentage of our net sales generated from them by years of service as depicted in the table below. 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. Additional risk factors 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, 2022.


	Nine Months Ended
	March 31
Customer Service Years		2023		2022
More than 10 Years
% of Net Sales		78	%	79	%
# of Customers		31		34
5 to 10 Years
% of Net Sales		17	%	17	%
# of Customers		19		21
Less than 5 Years
% of Net Sales		5	%	4	%
# of Customers		12		11
Total
% of Net Sales		100	%	100	%
# of Customers		62		66

Financial Overview


	At or for the
	Three Months Ended
	March 31
(Amounts in Millions, Except for Per Share Data)	2023		as a % of Net Sales		2022		as a % of Net Sales		% Change
Net Sales	$	484.7			$	368.1			32	%
Gross Profit	$	43.0	8.9	%	$	33.9	9.2	%	27	%
Selling and Administrative Expenses	17.8		3.7	%	13.6		3.7	%	30	%

Operating Income	25.2		5.2	%	20.3		5.5	%	24	%
Other Income (Expense)	(3.3)				(2.2)
Provision for Income Taxes	5.5				4.5				21	%
Net Income	$	16.4			$	13.6			20	%
Diluted Earnings per Share	$	0.65			$	0.54			20	%
Open Orders	$	882			$	930			(5)	%



	For the Nine Months Ended
	March 31
(Amounts in Millions, Except for Per Share Data)	2023		as a % of Net Sales		2022		as a % of Net Sales		% Change
Net Sales	$	1,327.3			$	976.0			36	%
Gross Profit	$	106.5	8.0	%	$	70.4	7.2	%	51	%
Selling and Administrative Expenses	50.2		3.8	%	39.8		4.0	%	26	%
Other General Income	—				1.4
Operating Income	56.3		4.2	%	32.0		3.3	%	76	%
Other Income (Expense)	(8.1)				(3.6)
Provision for Income Taxes	11.6				7.1				64	%
Net Income	$	36.6			$	21.3			72	%
Diluted Earnings per Share	$	1.46			$	0.84			74	%


Net Sales by Vertical Market	Three Months Ended						Nine Months Ended
	March 31						March 31
(Amounts in Millions)	2023		2022		% Change		2023		2022		% Change
Automotive	$	216.0	$	161.5	34	%	$	600.5	$	429.8	40	%
Medical	134.0		102.9		30	%	373.5		277.7		34	%
Industrial	126.9		98.2		29	%	332.8		255.8		30	%
Other	7.8		5.5		42	%	20.5		12.7		61	%
Total Net Sales	$	484.7	$	368.1	32	%	$	1,327.3	$	976.0	36	%

Third quarter and year-to-date fiscal year 2023 consolidated net sales increased compared to the third quarter and year-to-date period of fiscal year 2022, with a new quarterly record set in the third quarter of fiscal year 2023. The impact from foreign currency fluctuations on net sales was an unfavorable 2% in the current quarter and an unfavorable 4% in the current year-to-date period compared to the third quarter and the year-to-date period of fiscal year 2022, respectively. By end market vertical, our market verticals fluctuated as follows:

•Sales to customers in the automotive market experienced record net sales during the third quarter of fiscal year 2023, increasing 34% compared to the third quarter of fiscal year 2022 and increasing 40% in the year-to-date period of fiscal year 2023 compared to the year-to-date period of fiscal year 2022. This double-digit increase is largely due to the continued ramp-up of certain programs, new product launches, and improved component availability.

•Sales to customers in the medical market experienced record net sales during the third quarter of fiscal year 2023, increasing 30% compared to the third quarter of fiscal year 2022 and increasing 34% in the year-to-date period of fiscal year 2023 when compared to the year-to-date period of fiscal year 2022. This double-digit increase is primarily due to launch and ramp-up of new programs and overall improved component availability.

•Beginning in fiscal year 2023, the Company changed its presentation of revenue for the industrial and public safety end market verticals by combining them into the industrial end market vertical. Prior year periods have been recast to conform to the current year presentation. Sales to customers in the industrial market also experienced record net sales during the third quarter of fiscal year 2023, increasing 29% when compared to the third quarter of fiscal year 2022 largely due to improved component availability and new product launches. Sales to customers in the industrial market also had a double-digit increase in the year-to-date period of the current fiscal year when compared to the year-to-date period of the prior fiscal year primarily due to higher end market demand for climate control products which was supported by overall improved component availability.

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


	Three Months Ended		Nine Months Ended
	March 31		March 31
	2023	2022	2023	2022
Nexteer Automotive	15%	18%	15%	17%
Philips	14%	15%	15%	15%
ZF	12%	*	12%	*


* amount is less than 10% of total

Open orders were down 5% as of March 31, 2023 compared to March 31, 2022. The decrease in open orders from March 31, 2022 is driven by the overall improvement in component availability, which has increased our ability to fulfill customer orders. Open orders are the aggregate sales price of production pursuant to unfulfilled customer orders, which may be delayed or canceled by the customer subject to contractual termination provisions. The majority of open orders as of March 31, 2023 are expected to be filled within the next twelve months. Open orders at a point in time may not be indicative of future sales trends due to the contract nature of our business and the variability of order lead times among our customers.

Gross profit as a percent of net sales in the third quarter of fiscal year 2023 declined when compared to the third quarter of fiscal year 2022 as we continue to optimize operating performance levels following recent facility expansions.

Gross profit as a percent of net sales in the first nine months of fiscal year 2023 improved when compared to the first nine months of fiscal year 2022 primarily due to the leverage gained on higher revenue. Additionally, we experienced lost absorption in the first half of fiscal year 2022 as the prior fiscal year was impacted to a much greater degree than the current fiscal year by component shortages, and as we retained our workforce, our gross profit as a percent of net sales was negatively impacted.

Selling and administrative expenses as a percent of net sales remained flat but increased in absolute dollars in the third quarter of fiscal year 2023 when compared to the third quarter of fiscal year 2022. The selling and administrative expenses increase was driven by the increase in the fair value of the liability for the supplemental employee retirement plan (“SERP”), increased factoring fees due to higher factoring fee rates coupled with increased accounts receivable factoring activity, added resources to support our significant growth, wage inflation, and higher incentive-based compensation.

Selling and administrative expenses declined as a percent of net sales but increased in absolute dollars in the first nine months of fiscal year 2023 when compared to the first nine months of fiscal year 2022. The selling and administrative expenses increase was driven by increased factoring fees due to higher factoring fee rates coupled with increased accounts receivable factoring activity, added resources to support our significant growth, wage inflation, and higher incentive-based compensation.

Other General Income in the nine months ended March 31, 2022 included $1.4 million of pre-tax income resulting from payments received related to the 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. No Other General Income was recorded in the three and nine month periods ended March 31, 2023 and in the three month period ended March 31, 2022.

Other Income (Expense) consisted of the following:


	Three Months Ended				Nine Months Ended
	March 31				March 31
(Amounts in Thousands)	2023		2022		2023		2022
Interest income	$	45	$	31	$	88	$	66
Interest expense	(4,822)		(669)		(10,790)		(1,537)
Foreign currency/derivative gain (loss)	1,328		(625)		2,581		(1,325)
Gain (loss) on SERP investments	353		(719)		458		(404)




Other	(248)		(121)		(380)		(361)
Other income (expense), net	$	(3,344)	$	(2,103)	$	(8,043)	$	(3,561)

Interest expense has increased in the three and nine months ended March 31, 2023 compared to the three and nine months ended March 31, 2022 due to higher interest rates and higher borrowings on credit facilities. Foreign currency/derivative gains (losses) result from net foreign currency exchange rate movements during the periods. The revaluation to fair value of the SERP investments recorded in Other Income (Expense) is offset by the revaluation of the SERP liability recorded in Selling and Administrative Expenses, and thus there is no effect on net income.

Our provision for income taxes for the first nine months ended March 31, 2023 and March 31, 2022 was $11.6 million, or 24.1% of income before taxes on income, and $7.1 million, or 25.0% of income before taxes on income, respectively.

Comparing the balance sheet as of March 31, 2023 to June 30, 2022, receivables increased $76.5 million largely due to higher sales volumes. Our inventory balance increased $92.5 million due to the component shortages as we continue to purchase material not impacted by the shortages so we can fulfill our customer orders once the impacted components are received, as well as to support production at our newly expanded facilities. Property and Equipment, net increased $51.2 million for expansions at our Mexico, Thailand, and Poland facilities and to support new business awards. Accounts payable increased $52.9 million primarily due to the increased inventory purchases. Borrowings on credit facilities increased $108.8 million primarily for working capital purposes and capital expenditures supporting our expansions.

Liquidity and Capital Resources

Working capital at March 31, 2023 was $441.8 million compared to working capital of $352.3 million at June 30, 2022. The current ratio was 1.9 at both March 31, 2023 and June 30, 2022. The debt-to-equity ratio was 0.6 at March 31, 2023 and 0.4 at June 30, 2022. 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 $128.5 million at March 31, 2023 and $178.6 million at June 30, 2022.

Cash Conversion Days (“CCD”) are calculated as the sum of Days Sales Outstanding plus Contract Asset Days plus Production Days Supply on Hand less Accounts Payable Days and less Advances from Customers Days. CCD, or a similar metric, is used in our industry and by our management to measure the efficiency of managing working capital. The following table summarizes our CCD for the quarterly periods indicated. Beginning in the third quarter of fiscal year 2023, we included Advances from Customers Days in our CCD calculation as these are customer deposits related to inventory. Prior periods have been recast to conform to the current quarter presentation.


	Three Months Ended
	March 31, 2023	December 31, 2022	March 31, 2022
Days Sales Outstanding	54	56	51
Contract Asset Days	14	14	14
Production Days Supply on Hand	101	108	89
Accounts Payable Days	69	72	71
Advances from Customers Days	8	9	4
Cash Conversion Days	92	97	79

We define Days Sales Outstanding as the average of monthly trade accounts and notes receivable divided by an average day’s net sales, Contract Asset Days as the average monthly contract assets divided by an average day’s net sales, Production Days Supply on Hand as the average of monthly gross inventory divided by an average day’s cost of sales, Accounts Payable Days as the average of monthly accounts payable divided by an average day’s cost of sales, and Advances from Customers Days as the total customer deposits divided by an average day’s cost of sales. 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. We expect inventory levels and working capital to normalize as the part shortages abate and our expansions continue to ramp up production.

Cash Flows

The following table reflects the major categories of cash flows for the first nine months of fiscal years 2023 and 2022.


	Nine Months Ended
	March 31
(Amounts in Millions)	2023		2022
Net cash used for operating activities	$	(57.9)	$	(84.7)
Net cash used for investing activities	$	(66.5)	$	(50.0)
Net cash provided by financing activities	$	107.1	$	64.9

Cash Flows from Operating Activities

Net cash used for operating activities for the first nine months of fiscal year 2023 and the first nine months of the prior year was driven by changes in operating assets and liabilities. Changes in operating assets and liabilities used $122.3 million of cash in the first nine months of fiscal year 2023 compared to $133.3 million of cash used in the first nine months of the prior year.

The cash used of $122.3 million from changes in operating assets and liabilities in the first nine months of fiscal year 2023 is largely due to an increase in inventory, which used cash of $88.6 million, driven by investment to support our expansions and growth in Mexico and Thailand, as well as supporting our customers through strategic inventory purchases to mitigate parts shortages, and an increase in accounts receivable, which used cash of $74.0 million primarily resulting from increased sales volumes. Partially offsetting cash used by inventory was an increase in accounts payable, which provided cash of $45.1 million largely resulting from increased inventory purchases.

The cash used of $133.3 million from changes in operating assets and liabilities in the first nine months of fiscal year 2022 is largely due to an increase in inventory, which used cash of $142.5 million primarily due to the component shortages as we continue to purchase material not impacted by the shortages so we can fulfill our customer orders once the impacted components are received, and an increase in accounts receivable, which used cash of $25.2 million primarily resulting from increased sales volumes. Partially offsetting cash used by inventory was an increase in accounts payable, which provided cash of $61.1 million largely resulting from increased inventory purchases.

Cash Flows from Investing Activities

For the first nine months of fiscal years 2023 and 2022, net cash used for investing activities was $66.5 million and $50.0 million, respectively. During the first nine months of fiscal year 2023, we invested $66.8 million into capital expenditures primarily for expansions at our Mexico, Thailand, and Poland facilities and to support new business awards. During the first nine months of fiscal year 2022, we invested $50.1 million into capital expenditures primarily for expansions at our Thailand and Mexico facilities and to support new business awards.

Cash Flows from Financing Activities

For the first nine months of fiscal year 2023, net cash provided by financing activities of $107.1 million resulted largely from net borrowings on our credit facilities of $108.7 million primarily for working capital purposes and capital expenditures supporting our expansions. For the first nine months of fiscal year 2022, net cash provided by financing activities of $64.9 million resulted largely from net borrowings on our credit facilities of $71.2 million.

Credit Facilities

The Company maintains a U.S. primary credit facility (the “primary credit facility”) among the Company, the lenders party thereto, and JPMorgan Chase Bank, N.A., as Administrative Agent, and Bank of America, N.A., as Documentation Agent, scheduled to mature 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 proceeds of the loans on the primary credit facility are to be used for working capital and general corporate purposes of the Company. A portion of the credit facility, not to exceed $15 million of the principal amount, will be available for the issuance of letters of credit. A commitment fee on the unused portion of the principal amount of the credit facility is payable at a rate that ranges from 10.0 to 25.0 basis points per annum as determined by the Company’s ratio of consolidated total indebtedness to adjusted consolidated EBITDA, as defined under the primary credit facility.

The interest rate on borrowings is dependent on the type and currencies of borrowings and will be one of following options:

•the Alternate Base Rate (“ABR”), which is defined as the highest of the fluctuation rate per annum equal to the higher of:

a.Prime Rate in the U.S. last quoted by the Wall Street Journal, and if this is ceased to be quoted, the highest bank prime loan rate or similar rate quoted by the Federal Reserve Board;

b.1/2 of 1% per annum above the Federal Funds Effective Rate (as defined under the primary credit facility); or

c.1% per annum above the Adjusted Term SOFR Rate (as defined under the primary credit facility);

plus the Revolving Commitment ABR spread which can range from 0.0 to 75.0 basis points based on the Company’s ratio of consolidated total indebtedness to adjusted consolidated EBITDA.

At March 31, 2023, we had $279.0 million in borrowings under the primary credit facility and $0.4 million in letters of credit against the primary credit facility, and $235.0 million of the borrowings were classified as long-term as the Company intends, and has the ability, to refinance for a period longer than twelve months. At June 30, 2022, we had $171.4 million in borrowings under the primary credit facility and $0.4 million in letters of credit against the primary credit facility, and $145.0 million were classified as long-term.

The Company’s financial covenants under the primary credit facility require:

We were in compliance with the financial covenants during the nine-month period ended March 31, 2023.

The Company entered into a 364-day multi-currency revolving credit facility agreement on February 3, 2023 (the “secondary credit facility”), which allows for borrowings up to $50 million, among the Company, as borrower, certain subsidiaries of the Company as guarantors, the lenders party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent and Bank of America, N.A., as Documentation Agent. The secondary credit facility has a maturity date of February 2, 2024. The proceeds of the loans are to be used for working capital and general corporate purposes of the Company. A commitment fee on the unused portion of principal amount of this secondary credit facility is payable at 30.0 basis points per annum.