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Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations

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 three times in the past four years for achieving the Highest Overall Customer Rating in their Service Excellence Awards.

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. 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. Our response to each positive case in our facilities follows our procedures for communication to our employees, contact tracing, self-quarantining, testing, and sanitization of the affected work areas. Nonetheless, all of our facilities have been affected to varying degrees by COVID-19. Most recently, due to the continued spread of COVID-19 cases, in various cities in China where our customers and suppliers operate, Chinese authorities have reinstated certain measures to keep COVID-19 in check, including travel restrictions, stay-at-home orders, compulsory quarantines, and the temporary closure of many corporate offices, manufacturing facilities, and factories. We continue to maintain close contact and communication with our customers and our supply chain to ensure safety measures follow appropriate guidelines for the health and safety of all parties and to minimize disruption of operations. While the availability of vaccines and other treatments is encouraging, significant uncertainties and risks still exist related to the severity and duration of the impact of COVID-19 on our end markets, the supply chain, the health and availability of our workforce, and global macroeconomic conditions; therefore, its financial impact on our future results cannot be reasonably estimated but could be material.

The EMS industry continues to experience component shortages, component allocations, and shipping delays, particularly with semiconductors, which have been especially challenging throughout this 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 the financial impact on our future results cannot be reasonably estimated but could be material.

In February 2022, Russia launched an invasion of Ukraine. The ongoing war there has impacted the global economy as the United States, the UK, the EU, and other countries have imposed broad export controls and financial and economic sanctions against Russia (a large exporter of commodities), Belarus, and specific areas of Ukraine, and may continue to impose additional sanctions or other measures. Russia may impose its own counteractive measures. Companies worldwide are interrupting or

stopping production in Ukraine, Russia, and neighboring countries. We do not procure materials directly from Ukraine or Russia, but these impacts can further exacerbate the ongoing supply chain disruptions that are occurring across the globe, particularly in the automotive industry. While the precise effects on global economies of the ongoing war and sanctions remain uncertain, they have already resulted in significant volatility in financial markets, fluctuations in currency exchange rates, and an increase in energy and commodity prices globally. Should the war continue or escalate, there may be various economic and security consequences including, but not limited to, additional supply shortages of different kinds; further increases in prices of commodities; significant disruptions in logistics infrastructure and telecommunications services; and risks relating to the unavailability of information technology systems and infrastructure. The resulting impacts to the global economy, financial markets, inflation, interest rates, and unemployment, among others, could adversely impact economic and financial conditions, and may disrupt the global economy’s ongoing recovery from the COVID-19 pandemic. Other potential consequences include, but are not limited to, growth in the number of popular uprisings in the region, increased political discontent, especially in the regions most affected by war or economic sanctions, increase in cyberterrorism activities and attacks, displacement of persons to regions close to the areas of conflict, and an increase in the number of refugees fleeing across Europe, among other unforeseen social and humanitarian effects. Any future negative impact to our operations cannot be reasonably estimated but could be material.

As expected, the second half of fiscal year 2022 finished stronger than the first half as we had record quarterly net sales in the fourth quarter and record annual net sales. Sales to customers in the automotive market and the industrial market experienced record annual net sales. We anticipate demand from customers in the automotive market to remain strong in fiscal year 2023 as the supply chain catches up with the demand and the continued ramp-up of certain programs and the launch of new programs. In the medical market, sales increased slightly by 2% as the prior fiscal year benefited from the COVID-19-related demand increase for medical assemblies. In the industrial market, sales increased in the current fiscal year in large part due to higher end market demand for climate control products. Sales to customers in the public safety market were slightly higher in the current fiscal year compared to fiscal year 2021.

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 as of the end of fiscal year 2022, which included a current ratio of 1.9, a debt-to-equity ratio of 0.4, and Share Owners’ equity of $454 million. 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 $178.6 million at June 30, 2022.

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 and program start-ups generally cause margin dilution early in the life of a program, which are generally recovered as the program 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 Item 1A - Risk Factors.

Year End

More than 10 Years

Less than 5 Years

% of Net Sales 4 % 3 % 13 %

Total

Presentation of Results of Operations and Liquidity and Capital Resources

A discussion regarding our financial condition and results of operations for fiscal year 2022 compared to fiscal year 2021 is presented below. A discussion regarding our financial condition and results of operations for fiscal year 2021 compared to fiscal year 2020 can be found under captions entitled “Results of Operations - Fiscal Year 2021 Compared with Fiscal Year 2020” and “Liquidity and Capital Resources” in the section entitled “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended June 30, 2021 filed with the SEC on August 27, 2021, which is available free of charge through the SEC’s website at http://www.sec.gov or the Company’s website, http://investors.kimballelectronics.com. The Company’s website and the information contained therein, or incorporated therein, are not intended to be incorporated into this Annual Report on Form 10-K.

Results of Operations - Fiscal Year 2022 Compared with Fiscal Year 2021

At or For the Year Ended

Selling and Administrative Expenses 53.5 4.0 % 52.7 4.0 % 1 %

Other General Income 1.4 0.4

Other Income (Expense) (8.7) 4.4

Provision for Income Taxes 12.5 13.3 (6) %

Diluted Earnings per Share $ 1.24 $ 2.24 (45) %

Net Sales by Vertical Market For the Year Ended

Net sales in fiscal year 2022 increased by 4% compared to net sales in fiscal year 2021, which included an unfavorable impact of 1% from foreign exchange fluctuations. By end market vertical, our market verticals fluctuated as follows:

•We experienced record sales to customers in the automotive market largely due to the ramp-up of certain programs and new product introductions, including programs for fully electric vehicles, partially offset by the unfavorable impact of component shortages.

•Sales to customers in the medical market improved slightly in the current fiscal year when compared to the prior fiscal year due to launch and ramp-up of new programs. Partially offsetting this increase was the benefit in the prior fiscal year sales of the temporary increase in demand for medical assemblies, specifically those related to respiratory care and patient monitoring products as a direct result of the COVID-19 pandemic and related global shortage of respiratory equipment.

•We also experienced record sales to customers in the industrial market during the current fiscal year, as a result of higher end market demand for climate control products.

•Sales to customers in the public safety market were slightly higher in fiscal year 2022 compared to fiscal year 2021.

A significant amount of sales to Nexteer Automotive and Philips accounted for the following portions of our net sales:

Year Ended June 30

Nexteer Automotive 17% 17%

Open orders were up 59% as of June 30, 2022 compared to June 30, 2021, primarily from an increase in the medical and automotive verticals. The increase in open orders in both the medical and automotive market is driven by the overall increase in demand coupled with the component shortages, which has limited 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 June 30, 2022 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. Additionally, COVID-19 and the component shortages could impact the timing of fulfillment of open orders.

Gross profit as a percent of net sales declined in fiscal year 2022 when compared to fiscal year 2021. We incurred higher material costs, increased freight costs, unfavorable foreign currency fluctuations, and wage inflation in the current fiscal year compared to the prior fiscal year. We also experienced lost absorption in the first half of the current fiscal year as we retained our workforce to be well-positioned for the anticipated growth in the second half of the current fiscal year. Partially offsetting these unfavorable factors in fiscal year 2022 were lower profit-sharing incentive bonus expense and lower depreciation from the change in estimates of useful lives on Surface Mount Technology production equipment. See Note 1 - Business Description and Summary of Significant Accounting Policies of Notes to Consolidated Financial Statements for more information on the change in estimates of useful lives.

For fiscal year 2022, selling and administrative expenses increased slightly by 1% in absolute dollars but remained flat as a percent of net sales when compared to fiscal year 2021.

Other General Income in fiscal years 2022 and 2021 consisted of $1.4 million and $0.4 million, respectively, resulting from payments received related to class action lawsuits in which Kimball Electronics was a class member. The fiscal year 2021 amount was partially offset by lawsuit settlement accruals and payments.

Other Income (Expense) consisted of the following:

Other Income (Expense) Year Ended

Interest Income $ 81 $ 102

Foreign Currency/Derivative Gain (Loss) (4,182) 4,806

Gain (Loss) on SERP Investments (1,563) 2,073

Other Income (Expense), net $ (8,818) $ 4,351

The Foreign Currency/Derivative Gain/(Loss) resulted from net foreign currency exchange rate movements during the periods. The loss in fiscal year 2022 and the gain in fiscal year 2021 were driven by the respective strengthening and weakening of the U.S. dollar versus foreign currencies that we have exposure to in our business. The revaluation of the fair value of the supplemental employee retirement plan (“SERP”) investments recorded in Other Income (Expense) is offset by the revaluation of the SERP liability recorded in Selling and Administrative Expenses, and thus there is no effect on net income. Other includes fees associated with our credit facilities, amortization of actuarial gains (losses), and other miscellaneous items that are not directly related to operations.

Our income before income taxes and effective tax rate were comprised of the following U.S. and foreign components:

The consolidated effective tax rate for fiscal year 2022 was unfavorably impacted by the mix of taxable earnings within our various tax jurisdictions and foreign exchange rate movements.

The domestic effective tax rate and the consolidated effective tax rate for fiscal year 2021 were favorably impacted by a reversal of state valuation allowances. The consolidated effective tax rate was also favorably impacted by the mix of taxable earnings within our various tax jurisdictions and foreign exchange rate movements.

Our overall effective tax rate will fluctuate depending on the geographic distribution of our worldwide earnings. See Note 10 - Income Taxes of Notes to Consolidated Financial Statements for more information.

We recorded net income of $31.3 million in fiscal year 2022, or $1.24 per diluted share, a decrease of 45.0% from fiscal year 2021 net income of $56.8 million, or $2.24 per diluted share.

Comparing the balance sheet as of June 30, 2022 to June 30, 2021, Receivables increased $19.5 million largely due to increased sales volumes. Our inventory balance increased $195.2 million primarily due to the component shortages as we continued to purchase material not impacted by the shortages so we can fulfill our customer orders once the impacted components are received, as well as increased demand. Property and equipment, net increased $43.6 million primarily from the Mexico and Thailand facility expansions. Accounts payable increased $92.1 million primarily due to the increased inventory purchases. Borrowings under credit facilities increased $114.4 million primarily due to borrowings on the U.S. primary credit facility for working capital purposes, including the strategic inventory builds to mitigate part shortages.

Liquidity and Capital Resources

Working capital at June 30, 2022 was $352.3 million compared to working capital of $282.6 million at June 30, 2021. The current ratio was 1.9 at both June 30, 2022 and June 30, 2021. The debt-to-equity ratio was 0.4 and 0.1 at June 30, 2022 and June 30, 2021, respectively. 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 $178.6 million at June 30, 2022 and $206.7 million at June 30, 2021.

Cash Conversion Days (“CCD”) are calculated as the sum of Days Sales Outstanding (“DSO”) plus Contract Asset Days (“CAD”) plus Production Days Supply on Hand (“PDSOH”) less Accounts Payable Days (“APD”). 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.

Three Months Ended

We define DSO as the average of monthly trade accounts and notes receivable divided by an average day’s net sales, CAD as the average monthly contract assets divided by an average day’s net sales, PDSOH as the average of monthly gross inventory divided by an average day’s cost of sales, and APD as the average of monthly accounts payable 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.

Cash Flows

The following table reflects the major categories of cash flows for the fiscal years ended June 30, 2022 and 2021.

Year Ended June 30

Net cash (used for) provided by operating activities $ (83.2) $ 130.1

Net cash used for investing activities $ (74.8) $ (38.8)

Net cash provided by (used for) financing activities $ 103.7 $ (53.1)

Cash Flows from Operating Activities

Net cash used for operating activities for the fiscal year ended June 30, 2022 was driven by changes in operating assets and liabilities. Net cash provided by operating activities for the fiscal year ended June 30, 2021 was driven by net income adjusted for non-cash items and changes in operating assets and liabilities. Changes in operating assets and liabilities used $152.8 million of cash in the fiscal year ended June 30, 2022 compared to $40.4 million of cash provided in the fiscal year ended June 30, 2021.

The cash used of $152.8 million from changes in operating assets and liabilities in fiscal year 2022 was largely due to an increase in inventory, which used cash of $203.2 million primarily due to the component shortages as we continued 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 $26.5 million primarily resulting from increased sales volumes. Partially offsetting cash used by inventory was an increase in accounts payable, which provided cash of $96.8 million largely resulting from increased inventory purchases.

The cash provided of $40.4 million from changes in operating assets and liabilities in fiscal year 2021 was primarily due to a decrease in contract assets, which provided cash of $24.5 million as a result of the impact of timing of shipments and related billings to our customers, the decrease in inventory, which provided cash of $18.6 million primarily due to the consumption of the inventory build at the end of the prior fiscal year in addition to the reimbursement from certain customers for the excess raw material inventory we purchased based on their forecasts during the ramp-up due to COVID-19, and the increase in accounts payable, which provided cash of $14.6 million. Partially offsetting cash provided by contract assets and inventory was an increase in accounts receivable, which used cash of $28.4 million primarily resulting from increased sales volumes and customer sales mix.

Cash Flows from Investing Activities

Net cash used for investing activities during fiscal year 2022 includes $74.7 million cash used for capital investments. The capital investments were primarily for expansions at our Thailand and Mexico facilities and to support new business awards.

Net cash used for investing activities during fiscal year 2021 includes $39.4 million cash used for capital investments. The capital investments were primarily for machinery and equipment for capacity purposes and to support new business awards in addition to capital investments for the beginning of the expansions at our Thailand and Mexico facilities.

Cash Flows from Financing Activities

Net cash provided by financing activities for the fiscal year ended June 30, 2022 resulted largely from net borrowings on our credit facilities of $114.9 million primarily for working capital purposes.

Net cash used for financing activities for the fiscal year ended June 30, 2021 resulted largely from net payments on our credit facilities of $52.3 million.

Credit Facilities

The Company maintained a U.S. primary credit facility which was scheduled to mature on July 23, 2023. On May 4, 2022, the Company entered into an amended and restated credit agreement (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, and the primary credit facility is now scheduled to mature on May 4, 2027. The primary credit facility provides for $300 million in borrowings, with an option to increase the amount available for borrowing to $450 million at the Company’s request, subject to the consent of each lender participating in such increase.

The 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, was available for the issuance of letters of credit. A commitment fee on the unused portion of the principal amount of the credit facility was payable at a rate that ranged 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 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 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 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 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 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 of the borrowings were classified as long term. At June 30, 2021, we had $62.7 million in borrowings under the primary credit facility and $0.4 million in letters of credit against the primary credit facility, and $40.0 million of the borrowings were classified as long term. Our debt classified as long term reflects the borrowings the Company intends, and has the ability, to refinance for a period longer than twelve months. As noted above in the Cash Flows for Financing Activities section, our borrowings on the primary credit facility increased due to working capital purposes.

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 be less than 3.5 to 1.0.

We were in compliance with the financial covenants during the fiscal year ended June 30, 2022.

Kimball Electronics has foreign credit facilities available to satisfy short-term cash needs at specific foreign locations rather than funding from intercompany sources. These foreign credit facilities can be canceled at any time by either the bank or us. As of June 30, 2022, we maintained the following foreign credit facilities:

•A Thailand overdraft credit facility which allows for borrowings up to 2.4 million Thai Baht (approximately $0.1 million at June 30, 2022 exchange rates). We had no borrowings outstanding under this credit facility as of June 30, 2022 or June 30, 2021.

•An uncommitted revolving credit facility for our Netherlands subsidiary, which allows for borrowings of up to 9.2 million Euro (approximately $9.6 million at June 30, 2022 exchange rates) that can be drawn in Euro, U.S. dollars, or other optional currency. At June 30, 2022 and 2021, we had $9.2 million and $3.5 million, respectively, in borrowings outstanding under this credit facility. The facility matures in July 2023.

During the current fiscal year, the Poland revolving credit facility, which allowed borrowings up to 5 million Euro, matured and was not extended. There were no borrowings on the Poland revolving credit facility during the current or prior fiscal year.

Subsequent to June 30, 2022, the Company expanded the borrowing capacity of the Thailand credit facility to $10 million and entered into a foreign credit facility for its EMS operation in China which allows for borrowings up to $7.5 million. These facilities will be used for general corporate needs and working capital purposes, including the strategic inventory builds to mitigate part shortages.

Factoring Arrangements

The Company may utilize accounts receivable factoring arrangements 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. During the fiscal years ended June 30, 2022 and 2021, we sold, without recourse, $303.4 million and $306.3 million of accounts receivable, respectively. See Note 1 - Business Description and Summary of Significant Accounting Policies of Notes to Consolidated Financial Statements for more information regarding the factoring arrangements.

Future Liquidity

We believe our principal sources of liquidity from available funds on hand, cash generated from operations, and the availability of borrowing under our credit facilities, will be sufficient to meet our working capital and other operating needs for at least the next 12 months. The unused borrowings in USD equivalent under all of our credit facilities totaled $128.7 million at June 30, 2022. We expect to continue to prudently invest in capital expenditures, including for capacity expansions and potential acquisitions, that would help us continue our growth as a multifaceted manufacturing solutions company. In fiscal year 2021, we approved capacity expansions at our Thailand and Mexico facilities. Our Thailand facility expansion was completed in the third quarter of fiscal year 2022, and we anticipate the Mexico facility expansion will be complete in the first quarter of fiscal year 2023. We have also approved a plan to expand the facility in Poznan, Poland, and the expansion is expected to be completed in early fiscal year 2024. We are in a solid financial position to be able to weather the continuing impact of COVID-19; however, significant uncertainties and risks exist related to the severity and duration of its impact to certain markets, the supply chain, and global macroeconomic conditions.

At June 30, 2022, our capital expenditure commitments were approximately $22 million, consisting primarily of commitments for the expansion of our Poland facility, equipment for the Mexico and Thailand facility expansions, and capital related to new program wins. We anticipate our available liquidity will be sufficient to fund these capital expenditures.

We have purchase obligations that arise in the normal course of business for items such as raw materials, services, and software acquisitions/license commitments. In certain instances, such as when lead times dictate, we enter into contractual agreements

for material in excess of the levels required to fulfill customer orders to help mitigate the potential impact related to component shortages, which require longer lead times. In turn, our material authorization agreements with customers cover a portion of the exposure for material which is purchased prior to having a firm order.

At June 30, 2022, our foreign operations held cash totaling $48.3 million and the aggregate unremitted earnings of our foreign subsidiaries were approximately $353 million. Most of these accumulated unremitted foreign earnings have been invested in active non-U.S. business operations, and it is not anticipated such earnings will be remitted to the United States. Our intent is to permanently reinvest the remaining funds outside of the United States, and our current plans do not demonstrate a need to repatriate these funds to our U.S. operations. However, if such funds were repatriated, a portion of the funds remitted may be subject to applicable non-U.S. income and withholding taxes.

The Company has a Board-authorized stock repurchase plan (the “Plan”) to allow the repurchase of up to $100 million of common stock. Purchases may be made under various programs, including in open-market transactions, block transactions on or off an exchange, or in privately negotiated transactions, all in accordance with applicable securities laws and regulations. The Plan has no expiration date but may be suspended or discontinued at any time. The extent to which the Company repurchases its shares, and the timing of such repurchases, will depend upon a variety of factors, including market conditions, regulatory requirements, and other corporate considerations, as determined by the Company’s management team. The Company expects to finance the purchases with existing liquidity. The Company has repurchased $88.8 million of common stock under the Plan through June 30, 2022.

Our ability to generate cash from operations to meet our liquidity obligations could be adversely affected in the future by factors such as general economic and market conditions, lack of availability of raw material components in the supply chain, a decline in demand for our services, loss of key contract customers, unsuccessful integration of acquisitions and new operations, global health emergencies such as the COVID-19 pandemic, the duration and severity of the COVID-19 pandemic and the related uncertainties around the financial impact, and other unforeseen circumstances. In particular, should demand for our customers’ products and, in turn, our services decrease significantly over the next 12 months, the available cash provided by operations could be adversely impacted.

The preceding statements include forward-looking statements under the Private Securities Litigation Reform Act of 1995. Certain factors could cause actual results to differ materially from forward-looking statements.

Fair Value

During fiscal year 2022, no level 1 or level 2 financial instruments were affected by a lack of market liquidity. For level 1 financial assets, readily available market pricing was used to value the financial instruments. Our foreign currency derivative assets and liabilities, which were classified as level 2, were independently valued using observable market inputs such as forward interest rate yield curves, current spot rates, and time value calculations. To verify the reasonableness of the independently determined fair values, these derivative fair values were compared to fair values calculated by the counterparty banks. Our own credit risk and counterparty credit risk had an immaterial impact on the valuation of the foreign currency derivatives. See Note 12 - Fair Value of Notes to Consolidated Financial Statements for more information.

Off-Balance Sheet Arrangements

As of June 30, 2022, we do not have any material off-balance sheet arrangements.

Critical Accounting Policies

Kimball Electronics’ Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America. These principles require the use of estimates and assumptions that affect amounts reported and disclosed in the Consolidated Financial Statements and related notes. Actual results could differ from these estimates and assumptions. Management uses its best judgment in the assumptions used to value these estimates, which are based on current facts and circumstances, prior experience, and other assumptions that are believed to be reasonable. Management believes the following critical accounting policies reflect the more significant judgments and estimates used in preparation of our Consolidated Financial Statements and are the policies that are most critical in the portrayal of our financial position and results of operations. Management has discussed these critical accounting policies and estimates with the Audit Committee of the Company’s Board of Directors and with the Company’s independent registered public accounting firm.

Revenue recognition - Kimball Electronics recognizes revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those services and products. The majority of our revenue is recognized over time as manufacturing services are performed where we manufacture a product with no alternative use and have an enforceable right to payment for performance completed to date. The remaining revenue is

recognized when the customer obtains control of the manufactured product. We have elected to account for shipping and handling activities related to contracts with customers as costs to fulfill our promise to transfer the associated products. Accordingly, we record customer payments of shipping and handling costs as a component of net sales and classify such costs as a component of cost of sales. We recognize sales net of applicable sales or value add taxes. Based on estimated product returns and price concessions, a reserve for returns and allowances is recorded at the time revenue is recognized, resulting in a reduction of revenue.

Goodwill and Other Intangible Assets - Goodwill, $12.0 million as of both June 30, 2022 and 2021 represents the difference between the purchase price and the related underlying tangible and intangible net asset fair values resulting from business acquisitions. Annually, or if conditions indicate an earlier review is necessary, goodwill is tested at the reporting unit level. If the estimated fair value of the reporting unit is less than the carrying value, goodwill is written down to its estimated fair value. No impairment charges were recorded in fiscal year 2022 or 2021 resulting from our annual impairment tests for all reporting units.

Other Intangible Assets, $14.7 million and $17.0 million as of June 30, 2022 and 2021, respectively, are reported on the Consolidated Balance Sheets and consist of capitalized software, customer relationships, technology, and trade name. Intangible assets are reviewed for impairment, and their remaining useful lives evaluated for revision, when events or circumstances indicate that the carrying value may not be recoverable over the remaining lives of the assets.

See Note 1 - Business Description and Summary of Significant Accounting Policies of Notes to Consolidated Financial Statements for further discussion of the Company’s goodwill and intangible asset accounting policies.

Taxes - Deferred income tax assets and liabilities are recognized for the estimated future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. 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 our 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 issues, which may require an extended period of time to resolve. However, we believe we have made adequate provision for income and other taxes for all years that are subject to audit. As tax positions are effectively settled, the tax provision will be adjusted accordingly. The liability for uncertain income tax and other tax positions, including accrued interest and penalties on those positions, was $1.8 million and $3.0 million at June 30, 2022 and June 30, 2021, respectively.

New Accounting Standards

See Note 1 - Business Description and Summary of Significant Accounting Policies of Notes to Consolidated Financial Statements for information regarding New Accounting Standards.

Item 7A - Quantitative and Qualitative Disclosures About Market Risk

Foreign Exchange Rate Risk: Kimball Electronics operates internationally and thus is subject to potentially adverse movements in foreign currency rate changes. Our principal foreign currency exposures include the Euro, Polish zloty, Romanian leu, Chinese renminbi, Thai baht, and Mexican peso. Our risk management strategy includes the use of derivative financial instruments to hedge certain foreign currency exposures. Derivatives are used only to manage underlying exposures and are not used in a speculative manner. Further information on derivative financial instruments is provided in Note 13 - Derivative Instruments of Notes to Consolidated Financial Statements. We estimate that a hypothetical 10% adverse change in foreign currency exchange rates from levels at June 30, 2022 relative to non-functional currency balances of monetary instruments, to the extent not hedged by derivative instruments, would not have a material impact on profitability in an annual period. Actual future gains and losses could have a material impact in an annual period depending on changes or differences in market rates and interrelationships, hedging instruments, timing, and other factors.

Interest Rate Risk: Our primary exposure to market risk for changes in interest rates relates to our primary credit facility, described further in Note 7 - Credit Facilities of Notes to Consolidated Financial Statements, as the interest rates paid for borrowings are determined at the time of borrowing based on market indices. Therefore, although we can elect to fix the interest rate at the time of borrowing, the facility does expose us to market risk for changes in interest rates. We estimate that a hypothetical 10% change in interest rates on borrowing levels at June 30, 2022 would not have a material impact of profitability in an annual period. The interest rate on certain borrowings under our credit facilities, including our primary credit facility, are based on the Secured Overnight Financing Rate (“SOFR”).

Item 8 - Financial Statements and Supplementary Data

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Page No.

Management’s Report on Internal Control Over Financial Reporting 35

Report of Independent Registered Public Accounting Firm (PCAOB No. 34) 36

Notes to Consolidated Financial Statements 44

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The management of Kimball Electronics, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting and for the preparation and integrity of the accompanying financial statements and other related information in this report. The consolidated financial statements of the Company and its subsidiaries, including the footnotes, were prepared in accordance with accounting principles generally accepted in the United States of America and include judgments and estimates, which in the opinion of management are applied on an appropriately conservative basis. We maintain a system of internal and disclosure controls intended to provide reasonable assurance that assets are safeguarded from loss or material misuse, transactions are authorized and recorded properly, and that the accounting records may be relied upon for the preparation of the financial statements. This system is tested and evaluated regularly for adherence and effectiveness by employees who work within the internal control processes and by our staff of internal auditors.

The Audit Committee of the Board of Directors, which is comprised of directors who are not employees of the Company, meets regularly with management, our internal auditors, and the independent registered public accounting firm to review our financial policies and procedures, our internal control structure, the objectivity of our financial reporting, and the independence of the independent registered public accounting firm. The internal auditors and the independent registered public accounting firm have free and direct access to the Audit Committee, and they meet periodically, without management present, to discuss appropriate matters.

Because of inherent limitations, a system of internal control over financial reporting may not prevent or detect misstatements and even when determined to be effective, can only provide reasonable assurance with respect to financial statement preparation and presentation.

These consolidated financial statements are subject to an evaluation of internal control over financial reporting conducted under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer. Based on that evaluation, conducted under the criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, management concluded that our internal control over financial reporting was effective as of June 30, 2022.

/s/ DONALD D. CHARRON

Donald D. Charron

Chairman of the Board,

Chief Executive Officer

/s/ JANA T. CROOM

Jana T. Croom

Chief Financial Officer

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Share Owners and the Board of Directors of Kimball Electronics, Inc.

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Kimball Electronics, Inc. and subsidiaries (the “Company”) as of June 30, 2022 and 2021, the related consolidated statements of income, comprehensive income, share owners’ equity, and cash flows, for each of the three years in the period ended June 30, 2022, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the “financial statements”). We also have audited the Company’s internal control over financial reporting as of June 30, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of June 30, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended June 30, 2022, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of June 30, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.

Basis for Opinions

The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying management’s report on internal control over financial reporting. Our responsibility is to express an opinion on these financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Revenue Recognition - Contracts Recognized Over Time - Refer to Notes 1 and 2 to the financial statements

Critical Audit Matter Description

The majority of the Company’s revenue is recognized over time as manufacturing services are performed when the Company manufactures a product to customer specifications with no alternative use and for which the Company has an enforceable right to payment for performance completed to date. The Company generally recognizes revenue over time using cost-based input methods to depict the Company’s progress towards meeting its performance obligations, in which judgment is required to evaluate assumptions including the anticipated margins to estimate the corresponding amount of revenue to recognize.

The timing differences of revenue recognition, billings to the Company’s customers, and cash collections from the Company’s customers result in billed accounts receivable and unbilled accounts receivable. Contract assets on the 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. The contract asset balance was $64.1 million as of June 30, 2022.

We identified the Company’s revenue recognition over time for contracts with customers as a critical audit matter because of the judgments required to evaluate assumptions including the anticipated margins to estimate the corresponding amount of revenue to recognize and contract assets to record. This required an increased extent of audit effort due to the significant number of contracts on which the Company recognizes revenue over time, and a high degree of auditor judgment when performing procedures to audit management’s estimate of anticipated margins used to recognize revenue over time and evaluating the results of those procedures.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to management’s estimates of the anticipated margins used to recognize revenue over time and record contract assets included the following, among others:

•We tested the effectiveness of controls over the Company’s recognition of revenue over time and the related contract asset balance, including management’s process for estimating the anticipated margins for products manufactured to customer specifications for which the Company has an enforceable right to payment for performance completed to date.

•We evaluated management’s ability to estimate revenue accurately by comparing actual margins to management’s historical estimates for completed contracts.

•We selected a sample of contracts with customers and performed the following:

▪Evaluated whether the contracts with customers were properly included or excluded in management’s calculation of over time contract revenue based on the terms and conditions of each contract, including whether the Company determined the product has no alternative use and that the Company has an enforceable right to payment for performance completed to date.

▪Compared the transaction prices to the consideration expected to be received based on current rights and obligations under the contracts and any modifications that were agreed upon with the customers.

▪Tested the accuracy and completeness of the costs incurred to date for the respective performance obligations by comparing the quantities on hand and standard cost per the calculation to the Company’s perpetual inventory information and testing any manufacturing variances and purchase price adjustments.

▪Evaluated the calculation of the amount of revenue to recognize for the performance obligation by:

◦Evaluating the reasonableness of management’s anticipated margins used in the Company’s calculation of revenue for performance obligations.

◦Evaluating the appropriateness and consistency of the methods and assumptions used by management to develop the estimates of anticipated margin at completion.

•We tested the mathematical accuracy of management’s calculation of revenue recognized over time and the related contract asset balance.

Indianapolis, Indiana

/s/ Deloitte & Touche LLP

We have served as the Company’s auditor since 2014.

KIMBALL ELECTRONICS, INC.

CONSOLIDATED BALANCE SHEETS

(Amounts in Thousands, Except for Share Data)

ASSETS

Current Assets:

Prepaid expenses and other current assets 28,665 27,320

LIABILITIES AND SHARE OWNERS’ EQUITY

Current Liabilities:

Current portion of borrowings under credit facilities $ 35,580 $ 26,214

Other Liabilities:

Long-term debt under credit facilities, less current portion 145,000 40,000

Long-term income taxes payable 7,812 8,854

Share Owners’ Equity:

Preferred stock-no par value

Shares authorized: 15,000,000Shares issued: None — —

Common stock-no par value

Accumulated other comprehensive loss (19,672) (4,883)

Treasury stock, at cost:

See Notes to Consolidated Financial Statements

KIMBALL ELECTRONICS, INC.

CONSOLIDATED STATEMENTS OF INCOME

(Amounts in Thousands, Except for Per Share Data)

Year Ended June 30

Other General Income (1,384) (372) —

Goodwill Impairment — — 7,925

Other Income (Expense):

Earnings Per Share of Common Stock:

Average Number of Shares Outstanding:

See Notes to Consolidated Financial Statements

KIMBALL ELECTRONICS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Amounts in Thousands)

Pre-tax Tax Net of Tax Pre-tax Tax Net of Tax Pre-tax Tax Net of Tax

Other Comprehensive Income (Loss):

Reclassification to (earnings) loss:

See Notes to Consolidated Financial Statements

KIMBALL ELECTRONICS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in Thousands)

Year Ended June 30

Cash Flows From Operating Activities:

Loss on sales of assets 90 66 69

Goodwill impairment — — 7,925

Net working capital adjustment on acquisition — — 3,785

Change in operating assets and liabilities:

Cash Flows From Investing Activities:

Purchases of capitalized software (757) (970) (385)

Cash Flows From Financing Activities:

Proceeds from credit facilities 100,000 — —

Payments on credit facilities — (46,500) —

Additional net change in revolving credit facilities 14,936 (5,768) (8,083)

Settlements on previous year acquisition — 2,957 —

Debt issuance costs (652) — (45)

Effect of Exchange Rate Change on Cash and Cash Equivalents (2,356) 3,231 (678)

Supplemental Disclosure of Cash Flow Information

Cash paid during the year for:

Non-cash investing activity:

See Notes to Consolidated Financial Statements

KIMBALL ELECTRONICS, INC.

CONSOLIDATED STATEMENTS OF SHARE OWNERS’ EQUITY

(Amounts in Thousands, Except for Share Data)

Other comprehensive income (loss) (2,923) (2,923)

Issuance of non-restricted stock (4,000 shares) 22 48 70

Compensation expense related to stock compensation plans 3,948 3,948

Deferred share issuance (3,000 shares) (32) 32 —

Other comprehensive income (loss) 5,668 5,668

Issuance of non-restricted stock (4,000shares) 19 47 66

Compensation expense related to stock compensation plans 3,850 3,850

Deferred share issuance (3,000 shares) (30) 30 —

Other comprehensive income (loss) (14,789) (14,789)

Issuance of non-restricted stock (6,000 shares) 73 70 143

Compensation expense related to stock compensation plans 6,092 6,092

Restricted share units issuance (2,000 shares) (40) 22 (18)

Deferred share issuance (3,000 shares) (32) 32 —

See Notes to Consolidated Financial Statements

KIMBALL ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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, industrial, and public 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.

Principles of Consolidation:

The Consolidated Financial Statements include the accounts of all domestic and foreign subsidiaries. All significant intercompany balances and transactions have been eliminated in the consolidation.

Certain amounts for the years ended June 30, 2021 and 2020 have been reclassified to conform to current period presentation in the Consolidated Statements of Cash Flow within the Cash Flows from Operating Activities section. Deferred tax valuation allowance is now included with Deferred income taxes while the other deferred charges have been reclassified to Other, net.

Use of Estimates:

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts included in the Consolidated Financial Statements and related note disclosures. While efforts are made to assure estimates used are reasonably accurate based on management’s knowledge of current events, actual results could differ from those estimates. We have made estimates and assumptions considering the impact of the COVID-19 pandemic on our business. These estimates may change as new events occur and more information is obtained.

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 shorter or 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.

The review performed by the Company in the current year 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 fiscal year ended June 30, 2022 were a decrease in depreciation expense of $6.3 million, an increase in net income of $4.9 million, and an increase to basic and diluted earnings per share by $0.19.

Segment Information:

Kimball Electronics has business units located in the United States, China, Mexico, Poland, Romania, and Thailand, and each of these business units qualify as operating segments. In addition, GES has operations located in the United States, China, India, Japan, and Vietnam. The GES operations qualify as a single operating segment with its group results regularly reviewed by our chief operating decision maker, which is our Chief Executive Officer.

Our operating segments meet the aggregation criteria under the current accounting guidance for segment reporting. As of June 30, 2022, all of our operating segments provide contract manufacturing services, including engineering and supply chain support, for the production of electronic assemblies and other products including medical devices, medical disposables, precision molded plastics, and automation, test, and inspection equipment primarily in automotive, medical, industrial, and public safety applications, to the specifications and designs of our customers. The nature of the products, the production process, the type of customers, and the methods used to distribute the products have similar characteristics across all our operating segments. Each of our operating segments service customers in multiple markets, and many of our customers’ programs are manufactured and serviced by multiple operating segments. We leverage global processes such as component procurement and customer pricing that provide commonality and consistency among the various regions in which we operate. All of our operating segments have similar long-term economic characteristics, and as such, have been aggregated into one reportable segment.

Revenue Recognition:

We recognize revenue in accordance with the standard issued by the Financial Accounting Standards Board (“FASB”), Revenue from Contracts with Customers and all the related amendments. 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 customer’s 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.

Cash and Cash Equivalents:

Cash equivalents consist primarily of highly liquid investments with original maturities of three months or less at the time of acquisition. Cash and cash equivalents consist of bank accounts and money market funds. Bank accounts are stated at cost, which approximates fair value, and money market funds are stated at fair value.

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 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 with third-party financial institutions for certain of our accounts receivables 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. During fiscal years 2022, 2021, and 2020, we sold, without recourse, $303.4 million, $306.3 million, and $280.7 million of accounts receivable, respectively. Factoring fees were $1.6 million, $1.2 million, and $1.9 million during fiscal years 2022, 2021, and 2020, respectively, and were included in Selling and Administrative Expenses on the Consolidated Statements of Income.

One of our China operations, in limited circumstances, may receive banker’s acceptance drafts from customers as payment on account. The banker’s acceptance drafts are non-interest bearing and primarily mature within six months from the origination date. The Company has the ability to sell the drafts at a discount or transfer the drafts in settlement of current accounts payable prior to the scheduled maturity date. We did not hold any drafts at June 30, 2022, and the drafts totaled less than $0.1 million at June 30, 2021. These drafts were reflected in Receivables on the Consolidated Balance Sheets until the banker’s drafts are sold at a discount, transferred in settlement of current accounts payable, or cash is received at maturity. Banker’s acceptance drafts sold at a discount or transferred in settlement of current accounts payable during fiscal years 2022, 2021, and 2020 were less than $0.1 million, $1.8 million, and $6.8 million, respectively. See Note 6 - Commitments and Contingent Liabilities of Notes to Consolidated Financial Statements for more information on banker’s acceptance drafts.

Inventories:

Inventories are stated at the lower of cost and net realizable value. Cost includes material, labor, and applicable manufacturing overhead. Costs associated with underutilization of capacity are expensed as incurred. Inventories are valued using the first-in, first-out (“FIFO”) method. Inventories are adjusted for excess and obsolete inventory. Evaluation of excess inventory includes such factors as anticipated usage, inventory turnover, inventory levels, and product demand levels. Factors considered when evaluating obsolescence include the age of on-hand inventory and reduction in value due to damage, design changes, or cessation of product lines.

Property, Equipment, and Depreciation:

Property and equipment are stated at cost less accumulated depreciation and depreciated over the estimated useful life of the assets using the straight-line method. Generally, maintenance and repairs are expensed as incurred. Depreciation and expenses for maintenance and repairs are included in both Cost of Sales and Selling and Administrative Expense on the Consolidated Statements of Income.

Impairment of Long-Lived Assets:

We perform reviews for impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Impairment is recognized when estimated future cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying amount. When an impairment is identified, the carrying amount of the asset is reduced to its estimated fair value. Assets to be disposed of are recorded at the lower of net book value or fair market value less cost to sell at the date management commits to a plan of disposal. Impairment of long-lived assets was not material during fiscal years 2022, 2021, and 2020.

Goodwill:

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.

To test for goodwill impairment, we use a combination of the Income Approach and the Market Approach. The discounted cash flow method (Income Approach) uses forecasted information based on management’s strategic plans and projections.

Discount rates are developed using a weighted average cost of capital (“WACC”) methodology. The WACC represents the blended average required rate of return for equity and debt capital based on observed market return data and company specific risk factors. In the Market Approach, fair value is determined using transactional evidence for similar publicly traded equity. See Note 5 - Goodwill and Other Intangible Assets of Notes to Consolidated Financial Statements for more information on our goodwill.

Other Intangible Assets:

Other Intangible Assets reported on the Consolidated Balance Sheets consist of capitalized software, customer relationships, technology, and trade name. Intangible assets are reviewed for impairment, and their remaining useful lives evaluated for revision, when events or circumstances indicate that the carrying value may not be recoverable over the remaining lives of the assets. Internal-use software is stated at cost less accumulated amortization and is amortized using the straight-line method. During the software application development stage, capitalized costs include external consulting costs, cost of software licenses, and could include internal payroll and payroll-related costs for employees who are directly associated with a software project. Upgrades and enhancements are capitalized if they result in added functionality which enable the software to perform tasks it was previously incapable of performing. Software maintenance, training, data conversion, and business process reengineering costs are expensed in the period in which they are incurred. We have not recognized impairment on other intangible assets during fiscal years 2022, 2021, or 2020.

Leases:

The Company leases certain office, manufacturing, and warehouse facilities under operating leases, in addition to land on which certain office and manufacturing facilities reside. These operating leases expire from fiscal year 2023 to 2057. Operating lease costs and cash payments for operating leases are immaterial to the Consolidated Statements of Income and our Consolidated Statements of Cash Flows. Lease right-of-use assets and lease liabilities each totaled $3.1 million and $1.6 million at June 30, 2022 and June 30, 2021, 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 Consolidated Balance Sheets. The future undiscounted operating lease payments as of June 30, 2022 were $1.0 million, $0.9 million, $0.6 million, $0.5 million, and $0.1 million for the five years ended June 30, 2027, and $0.2 million thereafter.

Research and Development:

The costs of research and development are expensed as incurred. Research and development costs were approximately, in millions, $23.7, $20.9, and $16.9 in fiscal years 2022, 2021, and 2020, respectively.

Insurance and Self-insurance:

We are self-insured up to certain limits for general liability, workers’ compensation, and certain domestic employee health benefits including medical, short-term disability, and dental, with the related liabilities included in the accompanying financial statements. Our policy is to estimate reserves based upon a number of factors including known claims, estimated incurred but not reported claims, and other analyses, which are based on historical information along with certain assumptions about future events. Approximately 15% of the workforce is covered under self-insured medical and short-term disability plans. At June 30, 2022 and 2021, accrued liabilities for self-insurance exposure were $1.4 million and $1.1 million, respectively.

The remainder of our workforce not covered by self-insured plans have medical and disability coverage through either our external plans or government plans. Insurance benefits are not provided to retired employees.

Income Taxes:

Deferred income tax assets and liabilities, recorded in Other Assets and Other long-term liabilities, respectively, in the 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 Consolidated Statements of Income. SeeNote 10 - Income Taxes of Notes to Consolidated Financial Statements for more information on income taxes.

Concentrations of Credit Risk:

We have business and credit risks associated with our customers. The Company monitors credit quality and associated risks of receivables on an individual basis based on criteria such as financial stability of the party and collection experience in conjunction with general economic and market conditions.

A summary of significant customers’ net sales and trade receivables as a percentage of consolidated net sales and consolidated trade receivables is as follows:

Net Sales Trade Receivables

Year Ended June 30 As of June 30

ZF * * * * 11%

* amount is less than 10% of total

Off-Balance Sheet Risk:

Off-balance sheet arrangements are limited to banker’s acceptance drafts transferred with recourse provisions at one of the Company’s China operations and standby letters of credit entered into in the normal course of business as described in Note 6 - Commitments and Contingent Liabilities of Notes to Consolidated Financial Statements.

Other General Income:

Other General Income in fiscal years 2022 and 2021 consisted of $1.4 million and $0.4 million, respectively, 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. The fiscal year 2021 amount was partially offset by lawsuit settlement accruals and payments. We recorded no Other General Income during fiscal year 2020.

Non-operating Income and Expense:

Non-operating income and expense include 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, government subsidies, bank charges, and other miscellaneous non-operating income and expense items that are not directly related to operations. The gain or loss on SERP investments is offset by a change in the SERP liability that is recognized in Selling and Administrative Expense. Non-operating loss in fiscal year 2022 included $4.2 million in net losses from foreign currency rate movements and related derivative gain or loss. Non-operating income in fiscal year 2021 included $4.8 million in net gains from foreign currency rate movements and related derivative gain or loss. Non-operating expense in fiscal year 2020 included a $3.8 million net working capital adjustment recorded after the end of the measurement period of the GES acquisition that was determined through the dispute resolution procedure provided for under the terms of the asset purchase agreement.

Foreign Currency Translation:

The Company predominantly uses the U.S. dollar and Euro as its functional currencies. Foreign currency assets and liabilities are remeasured into functional currencies at end-of-period exchange rates, except for nonmonetary assets and equity, which are remeasured at historical exchange rates. Revenue and expenses are remeasured at the weighted average exchange rate during the fiscal year, except for expenses related to nonmonetary assets, which are remeasured at historical exchange rates. Gains and losses from foreign currency remeasurement are reported in Non-operating income or expense on the Consolidated Statements of Income.

For business units whose functional currency is other than the U.S. dollar, the translation of functional currency statements to U.S. dollar statements uses end-of-period exchange rates for assets and liabilities, weighted average exchange rates for revenue

and expenses, and historical rates for equity. The resulting currency translation adjustment is recorded in Accumulated Other Comprehensive Income (Loss), as a component of Share Owners’ Equity.

Derivative Instruments and Hedging Activities:

Derivative financial instruments are recognized on the balance sheet as assets and liabilities and are measured at fair value. Changes in the fair value of derivatives are recorded each period in earnings or Accumulated Other Comprehensive Income (Loss), depending on whether a derivative is designated and effective as part of a hedge transaction, and if it is, the type of hedge transaction. Hedge accounting is utilized when a derivative is expected to be highly effective upon execution and continues to be highly effective over the duration of the hedge transaction. Hedge accounting permits gains and losses on derivative instruments to be deferred in Accumulated Other Comprehensive Income (Loss) and subsequently included in earnings in the periods in which earnings are affected by the hedged item. For transactions and balances denominated in currencies other than functional currencies, we use forward purchases to manage exposure to the variability of cash flows and foreign exchange contracts to hedge intercompany balances and other balance sheet positions. Cash receipts and cash payments related to derivative instruments are recorded in the same category as the cash flows from the items being hedged on the Consolidated Statements of Cash Flows. See Note 13 - Derivative Instruments of Notes to Consolidated Financial Statements for more information on derivative instruments and hedging activities.

Stock-Based Compensation:

As described in Note 9 - Stock Compensation Plans of Notes to Consolidated Financial Statements, the Company maintains the 2014 Stock Option and Incentive Plan, which allows for the issuance of incentive stock options, stock appreciation rights, restricted shares, unrestricted shares, restricted share units, or performance shares and performance units for grant to officers and other key employees, and to members of the Board of Directors who are not employees. The Company also maintains 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. We recognize the cost resulting from share-based payment transactions using a fair-value-based method. The estimated fair value of outstanding performance shares is based on the stock price at the date of the grant. Stock-based compensation expense is recognized for the portion of the award for which performance targets have been established and is expected to vest. The Company has elected to account for forfeitures by reversing the compensation costs at the time a forfeiture occurs.

New Accounting Standards:

Adopted in Fiscal Year 2022:

In December 2019, the FASB issued guidance on Simplifying the Accounting for Income Taxes, intended to simplify various aspects related to the accounting for income taxes. We adopted this standard effective July 1, 2021, the beginning of our first quarter of fiscal year 2022, and the adoption did not have a material effect on our Consolidated Financial Statements.

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, industrial, and public safety applications, to the specifications and designs of our customers.

The following table disaggregates our revenue by end market vertical for fiscal years 2022, 2021, and 2020:

Year Ended

Vertical Markets:

For fiscal years 2022, 2021, and 2020, approximately 95%, 89%, and 78% 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 for which

we have an enforceable right to payment for performance completed to date. 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 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 $64.1 million and $45.9 million as of June 30, 2022 and 2021, respectively.

In limited circumstances, 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 Consolidated Balance Sheets, which amounted to $22.5 million and $7.6 million as of June 30, 2022 and 2021, 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 at June 30:

Note 4 Property and Equipment

Major classes of property and equipment consist of the following at June 30:

The useful lives used in computing depreciation are based on estimated service lives for classes of property, as follows:

Years

Buildings and improvements 5 to 40

Machinery and equipment 3 to 11

Land use rights 39

Leasehold improvements Lesser of Useful Life or Term of Lease

Depreciation of property and equipment totaled, in millions, $26.0 for fiscal year 2022, $30.7 for fiscal year 2021, and $27.7 for fiscal year 2020.

Note 5 Goodwill and Other Intangible Assets

A summary of goodwill is as follows:

(Amounts in Thousands)

Accumulated impairment (20,751)

During fiscal years 2022 and 2021, no goodwill impairment was recognized. During fiscal year 2020, $7.9 million of goodwill impairment was recognized at the GES reporting unit. The impact to net income also included a $1.0 million reduction in income tax expense associated with the deferred tax asset established for the deductible portion of the impaired goodwill. The balance of goodwill at the GES reporting unit was $5.8 million at both June 30, 2022 and 2021.

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

During fiscal years 2022, 2021, and 2020, amortization expense of other intangible assets was, in millions, $3.4, $3.3, and $3.2, respectively. Amortization expense in future periods is expected to be, in millions, $3.3, $2.4, $1.8, $1.5, and $1.4 in the five years ending June 30, 2027, and $4.3 thereafter. The estimated useful life of internal-use software ranges from 3 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.

Intangible assets are reviewed for impairment, and their remaining useful lives evaluated for revision, when events or circumstances indicate that the carrying value may not be recoverable over the remaining lives of the assets.

Note 6 Commitments and Contingent Liabilities

Guarantees:

As of June 30, 2022 and 2021, we had no guarantees issued which were contingent on the future performance of another entity. Standby letters of credit may be issued to third-party suppliers and insurance institutions and can only be drawn upon in the event of the Company’s failure to pay its obligations to the beneficiary. We had a maximum financial exposure from unused standby letters of credit totaling $0.4 million as of both June 30, 2022 and 2021. We do not expect circumstances to arise that would require us to perform under any of these arrangements and believe that the resolution of any claims that might arise in the future, either individually or in the aggregate, would not materially affect our consolidated financial statements. Accordingly, no liability has been recorded as of June 30, 2022 and 2021 with respect to the standby letters of credit. We also may enter into commercial letters of credit to facilitate payments to vendors and from customers.

Banker’s Acceptance Drafts:

One of the Company’s China operations, in limited circumstances, receives banker’s acceptance drafts from customers as settlement for their trade accounts receivable. We in turn may transfer the acceptance drafts to a supplier of ours in settlement of current accounts payable. These drafts contain certain recourse provisions afforded to the transferee under laws of The People’s Republic of China. If a transferee were to exercise its available recourse rights, the draft would revert back to our China operation and we would be required to satisfy the obligation with the transferee. We did not have any drafts transferred and outstanding at June 30, 2022, and the drafts transferred and outstanding at June 30, 2021 totaled $0.1 million. No transferee has exercised their recourse rights against us. For additional information on banker’s acceptance drafts, see Note 1 – Business Description and Summary of Significant Accounting Policies of Notes to Consolidated Financial Statements.

Product Warranties:

The Company 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 periodically 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 Consolidated Balance Sheets.

Changes in the product warranty liability during fiscal years 2022, 2021, and 2020 were as follows:

Product Warranty Liability at the beginning of the year $ 610 $ 647 $ 958

Additions to warranty accrual (including changes in estimates) (49) 21 (271)

Settlements made (in cash or in kind) (32) (58) (40)

Product Warranty Liability at the end of the year $ 529 $ 610 $ 647

Note 7 Credit Facilities

Credit facilities consisted of the following:

Thailand overdraft credit facility (2) 0.1 — —

Netherlands revolving credit facility (3) 0.4 9.2 3.5

Less: current portion (35.6) (26.2)

Long-term debt under credit facilities, less current portion (4) $ 145.0 $ 40.0

(1) The Company maintained a U.S. primary credit facility which was scheduled to mature on July 23, 2023. On May 4, 2022, the Company entered into an amended and restated credit agreement (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, and the primary credit facility is now 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. This facility is maintained for working capital and general corporate purposes of the Company. The Company incurred $0.6 million of debt issuance costs associated with the amended and restated credit agreement. A commitment fee is payable on the unused portion of the credit facility which was immaterial to our operating results in fiscal years 2022, 2021, and 2020. The commitment fee on the unused portion of 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 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 of borrowings and will be one of the following options:

•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:

The Company had $0.4 million in letters of credit contingently committed against the primary credit facility at both June 30, 2022 and 2021.

(2) The Company also maintains a foreign credit facility for its operation in Thailand which allows for borrowings of up to 2.4 million Thai Baht (approximately $0.1 million at June 30, 2022 exchange rates). This credit facility can be terminated at any time by either the Company or the bank by giving prior written notice of at least 15 days to the other party. Interest on borrowing under this facility is charged at a rate of interest determined by the bank in accordance with relevant laws and regulations for charging interest on an overdraft facility.

(3) The Company also maintains an uncommitted revolving credit facility for our Netherlands subsidiary. The Netherlands credit facility allows for borrowings of up to 9.2 million Euro (approximately $9.6 million at June 30, 2022 exchange rates), which borrowings can be made in Euro, U.S. dollars, or other optional currency. The availability of funds under this facility is at the sole discretion of the bank. Proceeds from the facility are to be used for general corporate purposes. Interest on borrowing under this facility is charged at a rate of interest dependent on the denomination of the currency borrowed. The facility is scheduled to mature in July 2023.

(4) 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 June 30, 2022 and June 30, 2021 were 2.7% and 2.0%, respectively. Capitalized interest expense was immaterial during fiscal years 2022, 2021, and 2020.

Note 8 Employee Benefit Plans

Defined Contribution Retirement Plans:

The Company maintains a trusteed defined contribution retirement plan which is in effect for substantially all domestic employees meeting the eligibility requirements. Beginning January 1, 2022, the Company matches 50% of eligible employee contributions up to 6%. The Company also provides a discretionary employer contribution determined annually by the Compensation and Governance Committee of the Company’s Board of Directors. Total expense related to employer contributions to the domestic retirement plans was, in millions, $4.2, $1.9, and $2.4 for fiscal years 2022, 2021, and 2020, respectively.

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. See Note 14 - Investments of Notes to Consolidated Financial Statements for further information regarding SERP.

Defined Benefit Postemployment Plans:

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 the Company 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.

As of both June 30, 2022 and 2021, total obligations under these plans were $5.4 million, of which $4.6 million were long term and $0.8 million were short term. Of the total obligation at both June 30, 2022 and 2021, domestic plans were $1.2 million and foreign plans were $4.2 million. Actuarial (gain) loss is recorded in Accumulated Other Comprehensive (Income) Loss and amortized into net period benefit cost on a straight-line basis over the average remaining service period of employees expected to receive benefits under the plans. Net periodic benefit cost recognized for these plans in fiscal years 2022, 2021, and 2020 were $0.5 million, $0.4 million, and $0.3 million, respectively.

Note 9 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 awarded 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.

Pre-tax stock compensation charged against income in fiscal years 2022, 2021, and 2020 was $6.2 million, $3.9 million, and $4.0 million, respectively. These costs are included in Selling and Administrative Expenses.

Performance Shares:

The Company awards performance shares to officers and other key employees. The annual performance share awards are approved by the Compensation and Governance Committee of the Board. Beginning with awards granted in fiscal year 2022 that will vest in fiscal year 2025, awards cliff vest at the third anniversary of the award date. To avoid a gap in the vesting of awards due to the transition from grants that vested annually in three equal installments to ones that vest after three years, two smaller bridge awards were also granted for fiscal year 2022 and fiscal year 2022-2023 performance periods. The bridge award for the fiscal year 2022 performance period cliff vests at the first anniversary of the grant. The bridge award for the fiscal year 2022-2023 performance period cliff vests at the second anniversary of the grant. The award for the fiscal year 2022-2024 performance period, and future performance share awards, cliff vest at the third anniversary of the grant.

Under these awards, a number of shares will be issued to each participant based upon a combination of a profitability attainment component, based on the Company’s operating income plan, and a growth attainment component, based on the Company’s growth in sales revenue, comparing 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.

If a participant is not employed on the date shares are issued, the performance share award is forfeited, except in the case of death, retirement at age 62 or older, total permanent disability, or certain other circumstances described in the Plan.

A summary of the Company’s performance share activity during fiscal year 2022 is presented below:

Numberof Shares Weighted AverageGrant DateFair Value

As of June 30, 2022, there was approximately $6.0 million of unrecognized compensation cost related to performance shares, based on the latest estimated attainment of performance goals. That cost is expected to be recognized over performance periods ending August 2022 through August 2024, with a weighted average vesting period of 1.2 years. The fair value of performance shares is based on the stock price at the date of grant. During fiscal years 2022, 2021, and 2020, respectively, 214,099, 239,194, and 253,483 performance shares vested at a fair value of $3.3 million, $4.1 million, and $3.9 million. The performance shares vested represent the total number of shares vested prior to the reduction of shares withheld to satisfy tax withholding obligations. The number of outstanding shares presented in the above table, the amounts of unrecognized compensation, and the weighted average period include performance shares awarded that are applicable to future performance measurement periods and will be measured at fair value when the performance targets are established in future fiscal years.

Unrestricted Share Grants:

Unrestricted shares may be granted to key employees and non-employee members of the Board as consideration for services rendered. Unrestricted share grants do not have vesting periods, holding periods, restrictions on sale, or other restrictions. The fair value of unrestricted shares is based on the stock price at the date of the award. During fiscal years 2022, 2021, and 2020, respectively, the Company granted a total of 6,777, 4,235, and 4,258 unrestricted shares at an average grant date fair value of $23.10, $15.35, and $16.99 for a total fair value of $0.2 million, $0.1 million, and $0.1 million. Unrestricted shares are awarded to non-employee members of the Board as compensation for director’s fees, including directors’ elections to receive unrestricted shares in lieu of cash payment. Director’s fees are expensed over the period that directors earn the compensation. Unrestricted shares that are awarded to key employees are expensed immediately.

Restricted Share Units:

Restricted share units (“RSUs”) may be granted to employees as consideration for services rendered. RSUs are participating securities and upon vesting, the outstanding number of RSUs are converted to shares of common stock. RSUs are expensed over the contractual vesting period as earned. If the employment of a holder of an RSU terminates before the RSU has vested for any reason other than death, retirement, or total permanent disability, the RSU will be forfeited. During fiscal year 2021, the Company granted 3,322 RSUs to new key employees at an average grant date fair value of $19.63 for a total fair value of $0.1 million, and these RSUs vested in fiscal year 2022 as the contractual life of the RSUs were one year or less. No RSUs were granted during fiscal years 2022 and 2020.

Deferred Share Units:

Deferred share units may be granted to non-employee members of the Board under the Deferral Plan as compensation for the portion of their annual retainer fees resulting from their election 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. During fiscal years 2022, 2021, and 2020, respectively, 34,480, 37,132, and 32,950 deferred share units were granted to non-employee members of the Board at an average grant date fair value of $24.87, $15.35, and $17.30 for a total fair value of $0.9 million, $0.6 million, and $0.6 million. During fiscal year 2022, 2,753 shares of common stock were issued under the Deferral Plan to a former non-employee member of the Board in accordance with their deferral election at an average fair value of $17.55.

Note 10 Income Taxes

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 required a one-time transition tax on certain unremitted earnings of foreign subsidiaries that is payable over an eight-year period. As of June 30, 2022 and 2021, the remaining provision recorded for the one-time deemed repatriation tax were $8.9 million and $9.8 million respectively, payable through fiscal year 2026, with the long-term portion recorded in Long-term income taxes payable on the Consolidated Balance Sheets. As of June 30, 2022 and 2021, $1.0 million and $0.9 million of the remaining deemed repatriation tax is short term and is recorded in Accrued expenses on the Consolidated Balance Sheet.

Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

The components of the deferred tax assets and liabilities as of June 30, 2022 and 2021, were as follows:

Deferred Tax Assets:

Receivables $ 46 $ 95

Other current liabilities — 1,115

Net operating loss carryforward 2,664 2,037

Net foreign currency losses 477 —

Deferred Tax Liabilities:

Net foreign currency gains — 2

Income tax benefits associated with the net operating loss carryforwards expire from fiscal year 2023 to 2042. Income tax benefits associated with tax credit carryforwards primarily expire from fiscal year 2025 to 2031. A valuation allowance was provided as of June 30, 2022 and 2021 for deferred tax assets related to certain state credits of $3.5 million and $1.8 million, respectively. Except as reserved for in the valuation allowance, we believe our tax credit and net operating loss carryforwards are more likely than not to be realized in the future.

The components of income before taxes on income are as follows:

Year Ended June 30

The aggregate unremitted earnings of the Company’s foreign subsidiaries were approximately $353 million as of June 30, 2022. Most of these accumulated unremitted foreign earnings have been invested in active non-U.S. business operations, and it is not anticipated such earnings will be remitted to the United States. Our intent is to permanently reinvest these funds outside of the United States, and our current plans do not demonstrate a need to repatriate these funds to our U.S. operations. However, if such funds were repatriated, a portion of the funds remitted may be subject to applicable non-U.S. income and withholding taxes.

The provision for income taxes is composed of the following items:

Year Ended June 30

Current Taxes:

Deferred Taxes:

A reconciliation of the statutory U.S. income tax rate to the Company’s effective income tax rate follows:

Year Ended June 30

(Amounts in Thousands) Amount % Amount % Amount %

Non-deductible goodwill impairment — — — — 388 1.5

Changes in the unrecognized tax benefit, excluding accrued interest and penalties, during fiscal years 2022, 2021, and 2020 were as follows:

Tax positions related to prior fiscal years:

Reductions — — —

Tax positions related to current fiscal year:

Additions — — —

Reductions — — —

Settlements — (8) —

Lapses in statute of limitations (695) (76) (66)

We do not expect the change in the amount of unrecognized tax benefits in the next 12 months to have a significant impact on our results of operations or financial position. We recognize interest and penalties related to unrecognized tax benefits in Provision for Income Taxes on the Consolidated Statements of Income.

Interest and penalties accrued for unrecognized tax benefits as of June 30, 2022, 2021, and 2020 was $0.6 million, $1.2 million, and $1.6 million. Expenses related to interest and penalties in fiscal years 2022, 2021, and 2020 were not material.

The Company or its wholly-owned subsidiaries file U.S. federal income tax returns and income tax returns in various state, local, and foreign jurisdictions. We are no longer subject to any significant U.S. federal tax examinations by tax authorities for years before fiscal year 2018. We are subject to income tax examinations by various, state, local, and foreign jurisdiction tax authorities for years after June 30, 2016.

Global Equipment Services & Manufacturing Vietnam Company Limited is subject to tax examinations for various foreign jurisdictions for years after December 31, 2011 relating to periods prior to the acquisition date.

Note 11 Share Owners’ Equity

On October 21, 2015, the Company’s Board of Directors (the “Board”) authorized an 18-month stock repurchase plan (the “Plan”) allowing a repurchase of up to $20 million worth of common stock. Then, separately on each of September 29, 2016, August 23, 2017, November 8, 2018, and November 10, 2020, the Board extended and increased the Plan to allow the repurchase of up to an additional $20 million worth of common stock with no expiration date, which brought the total authorized stock repurchases under the Plan to $100 million. Purchases may be made under various programs, including in open-market transactions, block transactions on or off an exchange, or in privately negotiated transactions, all in accordance with applicable securities laws and regulations. The Plan may be suspended or discontinued at any time.

During fiscal year 2022, the Company repurchased $9.1 million of common stock under the Plan at an average price of $18.82 per share, which was recorded as Treasury stock, at cost in the Consolidated Balance Sheet. Since the inception of the Plan, the Company has repurchased $88.8 million of common stock under that Plan at an average cost of $15.27 per share.

Note 12 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 fiscal year 2022.

Financial Instruments Recognized at Fair Value:

The following methods and assumptions were used to measure fair value:

Financial Instrument Level Valuation Technique/Inputs Used

Cash Equivalents 1 Market - Quoted market prices

Trading securities: Mutual funds held in SERP 1 Market - Quoted market prices

Recurring Fair Value Measurements:

As of June 30, 2022 and 2021, 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:

(Amounts in Thousands) Level 1 Level 2 Total

Assets

Derivatives: foreign exchange contracts — 1,872 1,872

Trading securities: mutual funds held in nonqualified SERP 10,364 — 10,364

Liabilities

Derivatives: foreign exchange contracts $ — $ 3,522 $ 3,522

Total liabilities at fair value $ — $ 3,522 $ 3,522

(Amounts in Thousands) Level 1 Level 2 Total

Assets

Derivatives: foreign exchange contracts — 1,468 1,468

Trading securities: mutual funds held in nonqualified SERP 12,644 — 12,644

Liabilities

Derivatives: foreign exchange contracts $ — $ 1,702 $ 1,702

Total liabilities at fair value $ — $ 1,702 $ 1,702

We had no Level 3 assets or liabilities as of June 30, 2022 and 2021, or any activity in Level 3 assets or liabilities during fiscal years 2022, 2021, and 2020.

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 14 - Investments of Notes to Consolidated Financial Statements for further information regarding the SERP.

Financial Instruments Not Carried At Fair Value:

Financial instruments that are not reflected in the Consolidated Balance Sheets at fair value that have carrying amounts which approximate fair value include the following:

Financial Instrument Level Valuation Technique/Inputs Used

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

Note 13 Derivative Instruments

Foreign Exchange Contracts:

We operate internationally and are therefore exposed to foreign currency exchange rate fluctuations in the normal course of our 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 June 30, 2022, we had outstanding foreign exchange contracts to hedge currencies against the U.S. dollar in the aggregate notional amount of $41.7 million and to hedge currencies against the Euro in the aggregate notional amount of 54.8 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 Consolidated Balance Sheets as a derivative asset or liability and presented within 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 effective portions of the gain or loss on the derivative instrument are initially recorded net of related tax effect in Accumulated Other Comprehensive Income (Loss), a component of Share Owners’ Equity, and are 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 or expense on the Consolidated Statements of Income.

Based on fair values as of June 30, 2022, we estimate that approximately $0.5 million of pre-tax derivative loss deferred in Accumulated Other Comprehensive Income (Loss) will be reclassified into earnings, along with the earnings effects of related forecasted transactions, within the fiscal year ending June 30, 2023. Losses on foreign exchange contracts are generally offset by gains in operating costs 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 June 30, 2022 and June 30, 2021.

See Note 12 - Fair Value of Notes to Consolidated Financial Statements for further information regarding the fair value of derivative assets and liabilities and Note 18 - Accumulated Other Comprehensive Income (Loss) of Notes to Consolidated Financial Statements for the amount and changes in derivative gains and losses deferred in Accumulated Other Comprehensive Income (Loss).

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

Fair Values of Derivative Instruments on the Consolidated Balance Sheets

Asset Derivatives Liability Derivatives

Fair Value As of Fair Value As of

Derivatives Designated as Hedging Instruments:

Derivatives Not Designated as Hedging Instruments:

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

The Effect of Derivative Instruments on Consolidated Statements of Income

(Amounts in Thousands) Year Ended June 30

Amount of Pre-Tax Gain or (Loss) Reclassified from Accumulated OCI into Income:

Foreign exchange contracts Cost of Sales $ 279 $ (814) $ 64

Derivatives Not Designated as Hedging Instruments

Amount of Pre-Tax Gain or (Loss) Recognized in Income on Derivatives:

Note 14 Investments

Supplemental Employee Retirement Plan Investments:

The Company maintains a self-directed supplemental employee retirement plan (“SERP”) for executives and other key employees. The Company SERP utilizes 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. The SERP investment assets are classified as trading, and accordingly, realized and unrealized gains and losses are recognized in income in the Other Income (Expense) category on our 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 the fiscal years ended June 30, 2022, 2021, and 2020 was $(2.2) million, $1.5 million, and less than $0.4 million, respectively.

SERP asset and liability balances applicable to Kimball Electronics participants were as follows:

SERP investments - current asset $ 2,605 $ 3,095

SERP investments - other long-term asset 7,759 9,549

SERP obligation - current liability $ 2,605 $ 3,095

SERP obligation - other long-term liability 7,759 9,549

Note 15 Accrued Expenses

Accrued expenses consisted of:

Note 16 Geographic Information

The following geographic area data includes net sales based on the country location of the Company’s business unit providing the manufacturing or other service and long-lived assets based on physical location. Long-lived assets include property and equipment and capitalized software.

Year Ended June 30

Net Sales:

Long-Lived Assets:

Note 17 Earnings Per Share

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

(Amounts in thousands, except per share data) Year Ended June 30

Basic and Diluted Earnings Per Share:

Less: Net Income allocated to participating securities 45 84 24

Dilutive effect of average outstanding stock compensation awards 106 196 185

Earnings Per Share of Common Stock:

Note 18 Accumulated Other Comprehensive Income (Loss)

The changes in the balances of each component of Accumulated Other Comprehensive Income (Loss), net of tax, were as follows:

Other comprehensive income (loss) before reclassifications 5,671 114 (506) 5,279

Reclassification to (earnings) loss — 713 (324) 389

Reclassification to (earnings) loss — (73) (192) (265)

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

Reclassifications from Accumulated Other Comprehensive Income (Loss)

Year Ended June 30 Affected Line Item in the

(Amounts in Thousands) 2022 2021 Consolidated Statements of Income

Derivative Gain (Loss) (1) $ 279 $ (814) Cost of Sales

(206) 101 Benefit (Provision) for Income Taxes

Postemployment Benefits:

Amortization of Actuarial Gain (Loss) (2) $ 253 $ 428 Non-operating income

(61) (104) Benefit (Provision) for Income Taxes

Total Reclassifications for the Period $ 265 $ (389) Net of Tax

Amounts in parentheses indicate reductions to income.

(1) See Note 13 - Derivative Instruments of Notes to Consolidated Financial Statements for further information on derivative instruments.

(2) See Note 8 - Employee Benefit Plans of Notes to Consolidated Financial Statements for further information on postemployment benefit plans.

Item 9 -Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

None.

Item 9A - Controls and Procedures

(a) Evaluation of disclosure controls and procedures.

KE US Equity

KE · 10-K · period ended 2022-06-30

Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 7A - Quantitative and Qualitative Disclosures About Market Risk

Item 8 - Financial Statements and Supplementary Data

Item 9 -Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

Item 9A - Controls and Procedures

KE US Equity☆

KE · 10-K · period ended 2022-06-30

Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 7A - Quantitative and Qualitative Disclosures About Market Risk

Item 8 - Financial Statements and Supplementary Data

Item 9 -Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

Item 9A - Controls and Procedures

KE US Equity