Item 1A - Risk Factors
The following important risk factors, among others, could affect future results and events, causing results and events to differ materially from those expressed or implied in forward-looking statements made in this report and presented elsewhere by management from time to time. Such factors, among others, may have a material adverse effect on our business, financial condition, and results of operations and should be carefully considered. Additional risks and uncertainties that we do not currently know about, we currently believe are immaterial, or we have not predicted may also affect our business, financial condition, or results of operations. Because of these and other factors, past performance should not be considered an indication of future performance.
Business and Operational Risks
Concentration among a small number of key customers, and our customers’ ordering behavior, could materially reduce our revenues, profitability, and manufacturing efficiency.
Losses of key customers within specific industries or significant volume reductions from key customers are both risks. For fiscal year 2026, sales to our three largest customers — Nexteer Automotive, Philips, and ZF — accounted for approximately 40% of our net sales in the aggregate, and sales to Nexteer Automotive alone accounted for approximately 18% of our net sales. Over the past two fiscal years, we experienced the loss of a major automotive program from a significant customer, which was unrelated to Kimball’s performance, and we cannot assure you that similar program losses will not occur in the future. For example, our automotive customers, including Nexteer Automotive and ZF, are subject to significant cyclical, technological, and regulatory pressures. If our automotive customers reduce production volumes, delay or cancel programs, in-source manufacturing, or shift purchasing to competitors, our results of operations could be materially adversely affected.
Our continuing success is dependent upon replacing expiring contract customers/programs with new customers/programs. See “Customers” in Item 1 - Business for disclosure of the net sales as a percentage of consolidated net sales for each of our significant customers during fiscal years 2026, 2025, and 2024. Regardless of whether our agreements with our customers, including our significant customers, have a definite term, our customers typically do not commit to firm production schedules for more than one quarter.
Many factors outside of our control impact our customers and their ordering behavior, including global pandemics, recessions in end markets, changing technologies and industry standards, commercial acceptance for products, shifting market demand, product obsolescence, changing sourcing strategies, and our customers’ loss of business. Our customers generally have the right to cancel a particular product, subject to contractual provisions governing the final product runs, excess or obsolete inventory, recovery of dedicated investments, and end-of-life pricing. New customer relationships also present risk because we do not have an extensive product or customer relationship history. As many of our costs and operating expenses are relatively fixed, a reduction in customer demand, particularly a reduction in demand for a product that represents a significant amount of revenue, can harm our gross profit margins and results of operations.
Significant declines in the level of purchases by key customers or the loss of a significant number of customers could have a material adverse effect on our business. As many of our costs and operating expenses are relatively fixed, a reduction in customer demand, particularly a reduction in demand for a product that represents a significant amount of revenue, can harm our gross profit margins and results of operations.
Consolidation among our customers exposes us to increased risks, including reduced revenue and dependence on a smaller number of customers. Consolidation in industries that utilize our services may occur as companies combine to achieve further economies of scale and other synergies, which could result in an increase in excess manufacturing capacity as companies seek to divest manufacturing operations or eliminate duplicative product lines. Excess manufacturing capacity may increase pricing and competitive pressures for our industry as a whole and for us in particular. In addition, the nature of the contract manufacturing industry is such that the start-up of new customers and new programs to replace expiring programs occurs frequently, and new customers and program start-ups generally cause margin dilution early in the life of a program.
We cannot assure you that our current or future customers will not terminate their manufacturing service arrangements with us or significantly change, reduce, cancel, or delay the amount of services ordered. Such changes, delays and cancellations have led to, and may lead in the future to declines in our production, increases in excess or obsolete inventory that we may not be able to sell to customers or third parties, and reductions in the efficient use of our manufacturing facilities. In the past, we have also been required to increase staffing and other expenses in order to meet anticipated demand. On occasion, customers have required rapid increases in production for one or more of their products, which stresses our resources and may have an adverse effect on our financial position, results of operations, or cash flows.
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Supply chain disruptions could increase our inventory costs, interrupt our operations, or prevent us from purchasing sufficient materials, parts, and components necessary to meet customer demand at competitive prices, in a timely manner, or at all.
We depend on suppliers globally to provide timely delivery of materials, parts, and components for use in our products. We have experienced, and may again experience in the future, shortages of some of the materials, parts and components that we use, particularly with semiconductors. These shortages can result from strong demand for those components or from problems experienced by suppliers, such as shortages of raw materials and shipping delays for such components with common carriers. These unanticipated component shortages have and, when they occur, may continue to result in curtailed production or delays in production, which prevent us from making scheduled shipments to customers.
Our integrated supply chain solutions for purchasing components and materials is a competitive strength and key to our strategy as a CDMO. Inflation and prices from suppliers have increased and may continue to rise. When prices rise for these or other similar reasons, they impact our margins and results of operations if we are not able to pass the increases through to our customers or otherwise offset them through cost savings. Many of our customer contracts permit periodic prospective adjustments to pricing based on decreases and increases in component prices and other factors; however, we could bear the risk of component price increases that occur between any such re-pricing or, if such re-pricing is not permitted or accepted by customers, during the balance of the term of the particular customer contract. There can be no assurance that we will continue to be able to purchase the components and materials needed to manufacture customer products at favorable prices. Accordingly, certain component price increases could adversely affect our gross profit margins and results of operations.
We have also experienced, and may again experience in the future, such shortages due to the effects of and responses to industry-wide conditions, pandemics, natural disasters, and other events outside our control, including macroeconomic events, trade restrictions, political crises, social unrest, terrorism, and conflicts (including the Russian invasion of, and ongoing war in, Ukraine, the conflict involving the United States, Israel, and Iran and the related regional instability in the Middle East, evolving trade and sanctions regimes affecting semiconductor supply, and the risk of prolonged reliance on select regions (including Taiwan and mainland China) for certain critical components). We cannot reasonably predict the full extent to which these events may impact our supply chain, because any impacts will depend on future developments that are highly uncertain and continuously evolving, including new information that may emerge concerning new or existing pandemics, further actions by governmental entities or others in response to the types of events described above, and how quickly and to what extent normal economic and operating conditions can resume.
Suppliers adjust their capacity as demand fluctuates, and component shortages and/or component allocations could occur in addition to longer lead times. Certain components we purchase are primarily manufactured in select regions of the world and issues in those regions could cause manufacturing delays. Maintaining strong relationships with key suppliers of components critical to the manufacturing process is essential. Our production of a customer’s product has and could again be negatively impacted by any quality, reliability or availability issues with any of our component suppliers. Component shortages may also increase our cost of goods sold because we may be required to pay higher prices for components in short supply and redesign or reconfigure products to accommodate substitute components. These and other price increases, including increased tariffs, could have an adverse impact on our profitability if we cannot offset such increases with other cost reductions or by price increases to customers. If a component shortage is threatened or anticipated, we have and may in the future purchase such components in greater quantities and over longer lead times to avoid a delay or interruption in our operations. Purchasing additional components in this way may cause us to incur additional inventory carrying costs and may cause us to experience inventory obsolescence, both of which may not be recoverable from our customers and could adversely affect our gross profit margins and results of operations. If suppliers fail to meet commitments to us in terms of price, delivery, or quality, or if the supply chain is unable to react timely to increases in demand, it could interrupt our operations and negatively impact our ability to meet commitments to customers.
The substantial investments required to start up and expand facilities and new customer programs may adversely affect our margins and profitability.
We continue to expand our global operations by increasing our product and service offerings, including as a CDMO, and scaling our infrastructure at certain facilities to support our business. This expansion increases the complexity of our business and places significant strain on our management, personnel, operations, systems, technical performance, financial resources, and internal financial control and reporting functions. We may not be able to manage these expansions effectively or successfully, which could damage our reputation, limit our growth, and negatively affect our operating results.
Start-ups of new customer programs require the coordination of the design and manufacturing processes, as well as substantial investments in resources and equipment. The design and engineering required for certain new programs can take an extended period of time, and further time may be required to achieve customer acceptance. Accordingly, the launch of any particular
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program may be delayed, less successful than we originally anticipated, or not successful at all. Additionally, even after acceptance, most of our customers do not commit to long-term production schedules, and we are unable to forecast the level of customer orders with certainty over a given period of time. If our customers do not purchase anticipated levels of products, we may not recover our up-front investments, may not realize profits, and may not effectively utilize expanded fixed manufacturing capacities. All of these types of manufacturing inefficiencies could have an adverse impact on our financial position, operating margins, results of operations, or cash flows.
We may not realize the anticipated benefits of the Helvoet acquisition or other future acquisitions.
On July 1, 2026, we completed our acquisition of Helvoet. Helvoet is our largest acquisition to date, expanded our manufacturing footprint into India and, additionally, the Netherlands, and materially expanded our precision molded plastics, complex tooling, and medical device component manufacturing capabilities. The success of the Helvoet acquisition depends on our ability to integrate Helvoet’s operations, employees, customers, information systems, financial and internal controls, and manufacturing processes with those of the Company on the timelines we currently expect, and to retain Helvoet’s key personnel and customer relationships.
Integration efforts may be complicated by differences in operating practices, geographic distances, differing regulatory regimes (including in India and the European Union), the need to remediate any control deficiencies identified in the integration process, and the diversion of management attention from ongoing operations. If we are unable to integrate Helvoet successfully or realize the strategic, operational, or financial benefits we expect, or if unanticipated integration costs, liabilities, or delays arise, we may not achieve the return on investment or the growth we anticipate and our business, results of operations, and financial condition could be materially adversely affected. Some of these risks are heightened by our decision to fund a portion of the purchase price from our credit facilities. Similar risks would apply to future acquisitions we may complete.
Our international operations make us vulnerable to financial and operational risks associated with doing business in foreign countries.
We derive a substantial majority of our revenues from our operations outside the United States, primarily in China, Mexico, Poland, Romania, and Thailand. Our international operations are subject to a number of risks, which may include the following:
•global, regional, or local economic and political instability;
•foreign currency fluctuations including currency controls and inflation, which may adversely affect our ability to do business in certain markets and reduce the U.S. dollar value of revenues, profits, or cash flows we generate in non-U.S. markets;
•warfare, riots, terrorism, general strikes, or other forms of violence and/or geopolitical disruption, including the Russian invasion of Ukraine and the ongoing war there;
•compliance with laws and regulations, including the U.S. Foreign Corrupt Practices Act, applicable to operations outside of the U.S.;
•potentially adverse tax consequences, including changes in tax rates and the manner in which multinational companies are taxed in the United States and other countries; and
•foreign labor practices.
These risks could have an adverse effect on our financial position, results of operations, or cash flows. Certain foreign jurisdictions restrict the amount of cash that can be transferred to the United States or impose taxes and penalties on such transfers of cash if we seek to repatriate these funds.
Changes to U.S. tariff measures and other potential changes in international trade relations implemented by the U.S. or other countries could have a material adverse effect on our business, financial condition, cash flows and results of operations.
Our supply chain is heavily reliant on raw materials and components manufactured and assembled in various countries, including China. These supply chain operations are subject to tariff and other international trade regulations in each of the countries where we operate. For example, when imported into the U.S., such raw materials and components are subject to applicable rates of duty. The U.S. government has recently made statements and taken certain actions that have created significant uncertainty about the future relationship between the U.S. and various other countries regarding trade policies, treaties, government regulations, and tariffs, including implementing tariffs on certain countries and implementing and subsequently pausing and, sometimes, reimplementing such tariffs on others. Because of these statements and actions, we are exposed to the possibility of supply disruptions and increased costs and expenses. Significant uncertainty exists about the future relationship between the U.S. and other countries regarding trade policies, treaties, and tariffs.
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During fiscal year 2026, tariffs implemented under various U.S. trade authorities increased costs within our supply chain. We have generally recovered, and expect to continue recovering, a significant portion of these costs through contractual pass-through and repricing mechanisms. Although we may not be able to fully recover tariff-related costs, any unrecovered amounts are not expected to be material to our results of operations or cash flows. Changes in tariff policies, trade restrictions, or other international trade measures could nevertheless adversely affect our costs, our customers, our supply chain, or demand for our services.
We cannot predict with certainty the future trade policy of the U.S. or other countries, and we cannot reasonably predict the full extent to which these events may impact our supply chain, because any impacts will depend on future trade policy, treaty, and tariff developments that are highly uncertain and continuously evolving. Relevant factors include whether such tariffs are ultimately implemented, the timing and duration of implementation and the amount, scope, and nature of such tariffs and potential exclusions from the application of those tariffs. These tariffs and other unfavorable government policies on international trade (such as export controls) may increase the cost of manufacturing our customers’ products, affect the demand for our manufacturing services, or restrict our access to raw materials and components used in the manufacture of our customers’ products, each of which could negatively impact our financial condition and results of operations. Further, such developments, or the perception that any such developments could occur, may have a material adverse effect on global economic conditions and the stability of global financial markets, and may significantly reduce global trade and, in particular, trade between the impacted nations and the U.S. Any of these factors could depress economic activity and adversely impact the price and demand for our customers’ products, increase our costs, and affect our customers and suppliers, any of which could have a material adverse effect on our business, financial condition and results of operations.
We operate in a highly competitive industry and may not be able to compete successfully.
Numerous manufacturers within the contract manufacturing industry compete globally for business from existing and potential customers. Some of our competitors have greater resources and more geographically diversified international operations than we do. We also face competition from the manufacturing operations of our customers, who are continually evaluating the merits of manufacturing products internally against the advantages of outsourcing to contract manufacturing service providers. In the past, some of our customers have decided to in-source a portion of their manufacturing from us in order to utilize their excess internal manufacturing capacity. The competition may further intensify as more companies enter the markets in which we operate, as existing competitors expand capacity, and as the industry consolidates.
In relation to customer pricing pressures, if we cannot achieve the proportionate reductions in costs, profit margins may suffer. The high level of competition in the industry impacts our ability to implement price increases or, in some cases, even maintain prices, which also could lower profit margins. In addition, as end markets dictate, we are continually assessing excess capacity and developing plans to better utilize manufacturing operations, including consolidating and shifting manufacturing capacity to lower cost venues as necessary.
We may not achieve the organic growth on which our strategy depends.
Our strategy to achieve sustained, profitable growth depends on our ability to expand our existing customer relationships, secure new customer programs, launch those programs on time and on budget, successfully introduce new categories of manufacturing services (including through our Kimball Solutions CDMO offerings), and expand our global manufacturing footprint (including the ramp of our new Indianapolis, Indiana medical CDMO facility). New program start-ups typically require significant investment in capacity, tooling, and working capital, and generally generate lower margins early in a program’s life. If we fail to execute on these initiatives, if new programs experience delays or higher start-up costs than we anticipate, or if we cannot secure and retain the customer demand needed to fill our expanded capacity, our revenue growth, margin performance, and returns on invested capital could be adversely affected.
Our business may be harmed due to failure to successfully implement information technology solutions or a lack of reasonable safeguards to maintain data security, including adherence to evolving global data privacy laws, cross-border data transfer, AI-specific regulations, and physical security measures.
The operation of our business depends on effective information technology systems, including data management, analytics, and artificial intelligence and machine learning technologies (collectively, “AI”) platforms and applications. See also ‘Risks related to our development and use of artificial intelligence’ below. These systems are subject to the risk of security breach or cybersecurity threat, including misappropriation of assets or other sensitive information, such as confidential business information and personally identifiable data relating to employees, customers, and other business partners, or data corruption which could cause operational disruption. The unpredictability of AI, machine learning, and similar systems that automate certain operational tasks bring the potential for unintended consequences and unexpected disruptions in business operations, financial losses, and reputational damage, including if such systems produce incorrect or biased outputs, expose confidential data to third-party AI providers, or generate outputs that infringe third-party intellectual property or violate applicable privacy
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or AI-specific laws (such as the EU AI Act, Colorado AI Act, and other emerging AI legislation). As we could be the target of cyber and other security threats, which are becoming increasingly sophisticated, we must continuously monitor and develop our information technology networks and infrastructure to prevent, detect, address, and mitigate the risk of unauthorized access, misuse, computer viruses, and other events that could have a security impact. Information systems require an ongoing commitment of significant resources to research new technologies and processes, maintain and enhance existing systems, and develop new systems in order to keep pace with changes in information processing technology and evolving industry standards as well as to protect against cyber risks and security breaches. While we provide employee awareness training around phishing, malware, and other cyber threats to help protect against these cyber and security risks, we cannot ensure the measures we take to protect our information technology systems will be sufficient.
Implementation delays, poor execution, or a breach of information technology systems could disrupt our operations, damage our reputation, or increase costs related to the mitigation of, response to, or litigation arising from any such issue. Similar risks exist with our third-party vendors. Any problems caused by these third parties, including those resulting from disruption in communications services, cyber attacks, or security breaches, have the potential to hinder our ability to conduct business.
Because we operate in the United States, Mexico, China, India, The Netherlands, Poland, Romania, and Thailand, we are subject to a wide and evolving range of data privacy, employee-monitoring, and cross-border data-transfer laws, including the EU and UK General Data Protection Regulations, the ePrivacy Directive, Mexico’s Federal Personal Data Protection Law, India’s Digital Personal Data Protection Act, and analogous laws in U.S. states and other jurisdictions in which we operate. AI-specific laws — including the EU Artificial Intelligence Act and state-level AI laws such as Colorado’s Artificial Intelligence Act — increasingly overlap with these privacy regimes and impose their own compliance obligations on our development, deployment, or use of AI systems.
Compliance with these laws is complex, costly, and increasingly requires cross-functional coordination among legal, IT, human resources, and business owners. Non-compliance, or perceived non-compliance, with any of these laws could result in significant civil penalties, injunctions, litigation, contract remediation obligations, and reputational harm, any of which could materially adversely affect our business, financial condition, and results of operations.
Our development, deployment, and use of artificial intelligence technologies could expose us to operational, legal, reputational, and competitive risks.
We use, and expect to continue to use and expand our use of AI, across our business, including in engineering design services, manufacturing process optimization, predictive maintenance, quality analytics, supply chain forecasting, back office productivity tools, and certain administrative functions. Some of these tools are developed internally, and others are provided by third-party suppliers, including through generally available large language models and cloud services.
Our use of AI presents a variety of risks, including operational risks (such as system errors, unreliable or biased outputs, and disruptions to business processes); intellectual property risks (including uncertainty regarding ownership of AI-generated outputs and possible infringement of third-party rights); data privacy and confidentiality risks (including the possibility that confidential customer or supplier information could be exposed through third-party AI tools); cybersecurity risks (including AI-enabled attacks such as deepfake impersonation, prompt injection, model poisoning, and automated phishing); competitive risks (including if our competitors deploy AI more effectively or at lower cost); and reputational risks (including if AI is misused or produces harmful, biased, or inaccurate outputs).
AI-specific laws and regulations are developing rapidly and are increasingly divergent across jurisdictions. Examples include the European Union Artificial Intelligence Act, the Colorado Artificial Intelligence Act, and other state-level AI laws in the United States, as well as evolving guidance from the U.S. Securities and Exchange Commission on AI-related disclosure. Complying with these laws and regulations could increase our costs, require changes to our AI systems, or limit our ability to deploy AI technologies. Failure to comply, or perceived failure to comply, could result in enforcement actions, litigation, or reputational harm. In addition, the U.S. Securities and Exchange Commission has focused on so-called ‘AI washing,’ or overstating the capabilities or business impact of AI, and we could be subject to claims if any of our public statements about AI are considered misleading.
Our use of AI also depends on our ability to attract and retain personnel with the relevant technical skills, to invest in the necessary infrastructure, and to safeguard our customers’ and suppliers’ proprietary information. Any of these risks could adversely affect our business, financial condition, results of operations, or reputation.
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We depend on attracting and retaining executive officers, key employees, skilled personnel, and sufficient labor to efficiently operate our business.
Our ability to execute our strategy depends on attracting, developing, and retaining employees with the technical, engineering, and operational skills needed to run an increasingly automated, digitized, and data-driven manufacturing environment, including engineers, data and analytics professionals, cybersecurity and artificial intelligence specialists, skilled operators supporting our Industry 4.0 initiatives, and quality and regulatory personnel supporting our operations. Competition for these skills is intense and can be compounded by broader labor market pressures — including localized labor shortages, wage inflation, evolving employee expectations regarding workplace flexibility, and demographic shifts in the regions where we operate. If we are unable to attract and retain qualified personnel, to develop the technical and leadership capabilities of our existing workforce, or to manage the labor and retention effects of restructuring actions such as the closure of our Tampa facility, our ability to serve our customers, execute our strategic initiatives, and maintain operational efficiency could be adversely affected.
Regulatory and Litigation Risks
Failure to protect our intellectual property could undermine our competitive position.
Competing effectively depends, to a significant extent, on maintaining the proprietary nature of our intellectual property. We attempt to protect our intellectual property rights worldwide through a combination of keeping our proprietary information secret and utilizing trademark, copyright, and trade secret laws, as well as licensing agreements and third-party non-disclosure and assignment agreements. Because of the differences in foreign laws concerning proprietary rights, our intellectual property rights do not generally receive the same degree of protection in foreign countries as they do in the United States, and therefore, in some parts of the world, we have limited protections, if any, for our intellectual property. If we are unable to adequately protect our intellectual property embodied in our solutions, designs, processes, and products, the competitive advantages of our proprietary technology could be reduced or eliminated, which would harm our business and could have a material adverse effect on our results of operations and financial position.
Anti-takeover provisions in our organizational documents and Indiana law could delay or prevent a change in control.
Certain provisions of our Amended and Restated Articles of Incorporation and the Amended and Restated By-Laws may delay or prevent a merger or acquisition that a Share Owner may consider favorable. For example, the Amended and Restated Articles of Incorporation authorizes our Board of Directors to issue one or more series of preferred stock, prevents Share Owners from acting by written consent without unanimous consent, and requires a supermajority Share Owner approval for certain business combinations with related persons. These provisions may discourage acquisition proposals or delay or prevent a change in control, which could harm our stock price. Indiana law also imposes some restrictions on potential acquirers.
Failure to satisfy applicable customer, industry, and regulatory quality standards could adversely affect our customer relationships, results of operations, and reputation.
We make substantial investments in comprehensive, company-wide quality systems, certifications, and controls designed to satisfy customer requirements and to comply with the various product and quality-system regulations applicable to our operations. If we fail to meet these requirements, we may incur costs associated with product defects, warranty and product liability claims, production interruptions, government investigations, fines, and penalties, and our failure to comply could delay or prevent our customers’ ability to obtain or maintain product approvals or to receive products from us on schedule. Any of the foregoing could adversely affect our reputation, customer relationships, financial position, results of operations, or cash flows. Although we maintain product liability and other insurance coverage that we believe is generally consistent with industry practice, our coverage may not be adequate to protect us fully against substantial claims arising from warranty or product-defect liabilities.
Our medical CDMO operations — including our expanded footprint in Indianapolis, Indiana and our new Helvoet operations in India and the Netherlands — are subject to additional quality and regulatory requirements, including the U.S. Food and Drug Administration’s Quality Management System Regulation (formerly the Quality System Regulation) and current Good Manufacturing Practices (cGMP), the European Union Medical Device Regulation (2017/745) and In Vitro Diagnostic Regulation (2017/746), ISO 13485, and comparable regimes in China, India, and Thailand. Failures to comply, delays in obtaining or maintaining product-specific registrations or notified body certifications, or negative outcomes from FDA or comparable inspections could result in warning letters, import alerts, consent decrees, product recalls, or the temporary suspension of production, any of which could adversely affect our reputation, customer relationships, financial position, results of operations, or cash flows. Because we also handle customer-owned drug substances and drug products in support of drug delivery programs, our failure or our customers’ failure to comply with applicable drug cGMP, controlled-substance handling, or pharmacovigilance obligations could adversely affect our medical CDMO business.
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Climate change, evolving sustainability regulation, and stakeholder expectations regarding environmental, social, and governance matters could increase our costs, impose new compliance obligations, and expose us to enforcement, litigation, and reputational risk.
Customers, investors, and other stakeholders continue to focus on environmental issues — including climate change, greenhouse gas emissions, water use, waste, and hazardous materials — and on broader sustainability topics. We have made public commitments to significantly reduce our greenhouse gas emissions and waste intensity and to increase our use of renewable electricity and recycled water by 2030, and we may adopt additional voluntary sustainability initiatives in the future. Our failure or perceived failure to achieve these commitments, or to satisfy other sustainability expectations of our customers, investors, employees, or other stakeholders, could adversely affect our reputation, our customer and investor relationships, our ability to attract and retain employees, our results of operations, and our attractiveness as an investment or business partner, and could expose us to government enforcement actions and private litigation.
Increased frequency and severity of extreme weather events, sea-level rise, and heightened water stress associated with climate change could damage our facilities or those of our suppliers and customers, disrupt our supply chain, and reduce demand for our services. Our past and present operations are also subject to extensive federal, state, local, and foreign environmental laws and regulations governing discharges to air, water, and land, the handling and disposal of solid and hazardous waste, the use of hazardous materials in production, and the remediation of contamination associated with releases of hazardous substances. Compliance with more stringent laws or regulations, or stricter interpretation of existing requirements, could require material expenditures, and any investigations or remedial efforts could result in material liabilities.
We are also subject to a rapidly evolving set of climate- and sustainability-related disclosure regimes. The European Union’s Corporate Sustainability Reporting Directive (CSRD) and the European Sustainability Reporting Standards (ESRS) apply, or under certain circumstances could apply, to our EU operations and, in some cases, to our global business. We prepare our annual Guiding Principles Report with reference to the ESRS as outlined by the CSRD, and continued compliance with the CSRD and ESRS, together with the European Union’s ongoing ‘Omnibus’ simplification proposals and evolving climate-related disclosure regimes in California and other U.S. states, could require significant effort and resources, particularly if the requirements do not align with existing initiatives. Transition to a lower-carbon economy could also require material investments in renewable energy, energy efficiency, and retrofitting or constructing facilities with lower-emission technology, and increases in the cost of energy, water, or other resources used in our operations or in the freight and logistics services on which we depend could reduce our profitability.
In addition, our customers have adopted, and may continue to adopt, procurement policies and sustainability goals that impose environmental, social, and governance requirements on their suppliers, including us, and an increasing number of investors have adopted sustainability policies for their portfolio companies. These practices, together with the divergent and rapidly evolving investor policies, voluntary sustainability frameworks, and regulatory regimes described above, may be difficult or expensive to comply with, may conflict with one another, and could adversely affect our reputation, business, or financial condition. Given the political significance and continuing uncertainty around these issues, we cannot predict how climate change and related legal, regulatory, and market developments will ultimately affect our operations and financial condition.
Compliance with government legislation and regulations may significantly increase our operating costs in the United States and abroad.
Legislation and regulations promulgated by the U.S. federal and foreign governments could significantly impact our profitability by burdening us with forced cost choices that either cannot be recovered by increased pricing or, if we increase our pricing, could negatively impact demand for our products. For example:
•The Dodd-Frank Wall Street Reform and Consumer Protection Act contains provisions to improve transparency and accountability concerning the supply of certain minerals, known as “conflict minerals,” originating from the Democratic Republic of Congo (“DRC”) and adjoining countries. These rules could adversely affect the sourcing, supply, and pricing of materials used in our products, as the number of suppliers who provide conflict-free minerals may be limited. We may also suffer reputational harm if we determine that certain of our products contain minerals not determined to be conflict-free or if we are unable to modify our products to avoid the use of such materials. We may also face challenges in satisfying customers who may require that our products be certified as containing conflict-free minerals or that we adopt more stringent guidelines like those fostered by the Responsible Business Alliance (“RBA”) and Responsible Materials Initiative (“RMI”).
•We are subject to a variety of federal, state, local and foreign environmental, health and safety, product stewardship and producer responsibility laws and regulations, including those arising from global pandemics or relating to the use, generation, storage, discharge and disposal of hazardous chemicals used during our manufacturing process, those governing worker health and safety, those requiring design changes, supply chain investigation or conformity
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assessments, and those relating to the recycling or reuse of products we manufacture. These include EU regulations and directives, such as the Restrictions on Hazardous Substances (“RoHS”), the Waste Electrical and Electronic Equipment (“WEEE”) directives, and the Registration, Evaluation, Authorization, and Restriction of Chemicals (“REACH”) regulation, and similar regulations in China (the Management Methods for Controlling Pollution for Electronic Information Products or “China RoHS”). If we fail to comply with any present or future regulations or timely obtain any needed permits, we could become subject to liabilities, and we could face fines or penalties, the suspension of production, or prohibitions on sales of products we manufacture. In addition, such regulations could restrict our ability to expand our facilities or could require us to acquire costly equipment, or to incur other significant expenses, including expenses associated with the recall of any non-compliant product or with changes in our operational, procurement and inventory management activities.
Shifts in U.S. political, tax, trade, and regulatory policy could adversely affect our business and results of operations.
Since January 2025, changes in the U.S. presidential administration have led to a series of executive orders, agency reorganizations, and rapidly evolving policy priorities that affect areas critical to our operations, including tariffs and trade policy, immigration enforcement, environmental and workplace regulation, the pace and scope of federal regulatory enforcement, and the composition of the federal workforce. These developments have introduced increased legal, regulatory, reputational, and operational uncertainty for companies that operate cross-border supply chains, including us.
The One Big Beautiful Bill Act, signed into law on July 4, 2025, made the 21% corporate tax rate permanent and made a variety of other changes to the U.S. tax code, some of which may affect our effective tax rate, cash taxes, deferred tax assets and liabilities (including in respect of GILTI, Section 163(j), and Section 174 research and experimental expenditures), and the value of our tax incentives. Further changes in U.S. tax law, or in tax laws in the foreign jurisdictions in which we operate, could adversely affect our results of operations.
Heightened fiscal and political uncertainty in the United States, including the risk of future government shutdowns, delays or terminations of federal programs, and increased scrutiny of federal contractors, could also have direct or indirect effects on our customers, our suppliers, and our results of operations, even though we do not primarily sell to the U.S. government. Any of these developments could materially adversely affect our business, financial condition, and results of operations.
Financial Risks
We are exposed to the credit risk of our customers.
The instability of market conditions drives an elevated risk of potential bankruptcy of customers resulting in a greater risk of uncollectible outstanding accounts receivable. Accordingly, we intensely monitor our receivables and related credit risks. The realization of these risks could have a negative impact on our profitability.
Failure to effectively manage working capital may adversely affect our cash flow from operations.
We closely monitor inventory and receivable efficiencies and continuously strive to improve these measures of working capital, but customer financial difficulties, cancellation or delay of customer orders, shifts in customer payment practices, transfers of production among our manufacturing facilities, additional inventory purchases to mitigate potential impact from component shortages, or manufacturing delays could adversely affect our cash flow from operations.
We could incur losses due to asset impairment.
As business conditions change, we must continually evaluate and work toward the optimum asset base. It is possible that certain assets such as, but not limited to, facilities, equipment, intangible assets, or goodwill could be impaired at some point in the future depending on changing business conditions. Our July 1, 2026 acquisition of Helvoet is expected to result in the recognition of additional goodwill and identifiable intangible assets during fiscal year 2027, and if the integration of Helvoet, its financial performance, its customer relationships, or the projected cash flows we ascribe to those assets do not meet our expectations, we could be required to recognize impairment charges with respect to those or other long-lived assets. Such impairment could have an adverse impact on our financial position and results of operations.
Fluctuations in our effective tax rate could have a significant impact on our financial position, results of operations, or cash flows.
Our effective tax rate is highly dependent upon the geographic mix of earnings across the jurisdictions where we operate. Changes in tax laws or tax rates in those jurisdictions could have a material impact on our operating results. Judgment is required in determining the worldwide provision for income taxes, other tax liabilities, interest, and penalties. We base our tax position upon the anticipated nature and conduct of our business and upon our understanding of the tax laws of the various countries in which we have assets or conduct activities. Our tax position, however, is subject to review and possible challenge
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by taxing authorities and to possible changes in law (including adverse changes to the manner in which the United States and other countries tax multinational companies or interpret their tax laws). We cannot determine in advance the extent to which some jurisdictions may assess additional tax or interest and penalties on such additional taxes. In addition, our effective tax rate may be increased by changes in the valuation of deferred tax assets and liabilities, changes in our cash management strategies, changes in local tax rates, or countries adopting more aggressive interpretations of tax laws.
Several countries where we operate provide tax incentives to attract and retain business. We have obtained incentives where available and practicable. Our taxes could increase if certain incentives were retracted, they were not renewed upon expiration, we no longer qualify for such programs, or tax rates applicable to us in such jurisdictions were otherwise increased. In addition, our growth may cause our effective tax rate to increase, depending on the jurisdictions in which we expand our business or acquire operations. Given the scope of our international operations and our international tax arrangements, changes in tax rates and the manner in which multinational companies are taxed in the United States and other countries could have a material impact on our financial results and competitiveness.
Certain of our subsidiaries provide financing, products, and services to, and may undertake certain significant transactions with, other subsidiaries in different jurisdictions. Moreover, several jurisdictions in which we operate have tax laws with detailed transfer pricing rules which require that all transactions with non-resident related parties be priced using arm’s length pricing principles and that contemporaneous documentation must exist to support such pricing. Due to inconsistencies among jurisdictions in the application of the arm’s length standard, our transfer pricing methods may be challenged and, if not upheld, could increase our income tax expense. In addition, the Organization for Economic Cooperation and Development continues to issue guidelines and proposals related to transfer pricing and profit shifting that may result in legislative changes that could reshape international tax rules in numerous countries and negatively impact our effective tax rate.
We are exposed to foreign currency risk.
During fiscal year 2026, the U.S. dollar continued to depreciate against several of the currencies to which we have significant exposure, including the Euro, Polish zloty, and Romanian leu, and had a favorable 2% impact on our net sales for the year. Continued volatility in the U.S. dollar, including as a result of shifting U.S. monetary and fiscal policy, could materially affect our revenues, costs, and results of operations. Fluctuations in exchange rates could impact our operating results. Our risk management strategy includes the use of derivative financial instruments to hedge certain foreign currency exposures. Any hedging techniques we implement contain risks and may not be entirely effective. Exchange rate fluctuations could also make our products more expensive than competitors’ products not subject to these fluctuations, which could adversely affect our revenues and profitability in international markets.
A failure to comply with the financial covenants under our credit facilities could adversely impact us.
Our primary credit facility requires us to comply with certain financial covenants. We believe the most significant covenants under our credit facilities are the ratio of consolidated total indebtedness minus unrestricted cash not to exceed $25 million to adjusted consolidated EBITDA, as defined in our primary credit facility, and the interest coverage ratio. More detail on these financial covenants is discussed in Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations. As of June 30, 2026, we had $116.6 million in borrowings under our credit facilities and had total cash and cash equivalents of $88.9 million. In the future, a default on the financial covenants under our credit facilities could cause an increase in the borrowing rates or make it more difficult for us to secure future financing, which could adversely affect our financial condition.
We are exposed to inflation, interest rate, and other banking and capital market risks.
High levels of inflation in the U.S. and other countries where we operate have and may continue to increase our costs and may impact pricing and customer demand, both of which may impact our revenues and earnings. We have exposure to interest rate risk on our borrowings under our credit facilities. The interest rates of these borrowings are based on a spread plus applicable base rate, including the Secured Overnight Financing Rate (“SOFR”), the Euro Interbank Offered Rate (“EURIBOR”), the prime rate of a reference bank, or the federal funds rate. An adverse change in the base rates upon which our interest rates are determined could have a material adverse effect on our financial position, results of operations, or cash flows. Rising interest rates have increased our costs of borrowing. Additionally, volatility in capital markets could present challenges to us if we need to raise funds in the equity market. This, in turn, may cause us to adopt strategies that may be less capital-intensive. Volatility in the credit markets, including due to evolving U.S. Federal Reserve monetary policy in response to inflation, employment, and tariff-related economic conditions, may have an adverse effect on our ability to obtain debt financing.
Our reliance on customer supply-chain financing and receivables purchase agreements exposes us to program-availability and counterparty risks.
During fiscal year 2026, we sold $315.8 million of accounts receivable under customer supply chain financing arrangements and $171.3 million of accounts receivable under receivables purchase agreements (“RPAs”) with third-party banking
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institutions. These programs enable us to accelerate cash collection but expose us to a variety of risks, including the potential loss or non-renewal of a program by a customer or financial institution, adverse changes in the pricing (including base rate volatility) or terms of these programs, and concentration of counterparty risk at particular banks.
If one or more of these programs becomes unavailable or economically unattractive, our working capital, cash flows, and interest expense could be adversely affected, and we may need to draw on our credit facilities or reduce our share repurchase or capital expenditure activities to bridge any resulting funding gap.
General Risk Factors
Facility catastrophes, pandemics, and other business-interruption events may impact our production schedules and profitability.
Natural disasters, pandemics, or other catastrophic events, including severe weather (including cyclones, hurricanes, and floods) as well as terrorist attacks, power interruptions, fires, and pandemics, could disrupt operations and likewise our ability to produce or deliver products. Our manufacturing operations require significant amounts of energy, including natural gas. Employees are an integral part of our business, and events such as a pandemic could reduce the availability of employees reporting for work. In the event we experience a temporary or permanent interruption in our ability to produce or deliver product, revenues could be reduced, and business could be materially adversely affected. In addition, catastrophic events, or the threat thereof, can adversely affect U.S. and world economies, and could result in reduced demand for our customers’ products and delayed or lost revenue for our services. We maintain insurance to help protect us from costs relating to some of these matters, but it may not be sufficient or paid in a timely manner to us in the event of such an interruption.
Item 1B - Unresolved Staff Comments
None.
Item 1C - Cybersecurity
We depend on information systems and technology in substantially all aspects of our business, including communications among our employees and with suppliers and customers. We recognize the significance of developing, implementing, and maintaining cybersecurity measures to safeguard our information systems and products and protect the confidentiality, integrity, and availability of our data.
Cybersecurity Risk Management and Strategy
We maintain a risk-based cybersecurity program and related processes designed to assess, identify and manage material risks from cybersecurity threats, including risks relating to our information technology systems, business operations, confidential information, customer and supplier information and personal data. These processes are integrated into our enterprise risk management and internal audit activities.
Our cybersecurity program is informed by recognized cybersecurity standards and practices, including ISO 27001. The Company has achieved and maintains ISO 27001 certification for the scope covered by that certification.
We use a combination of internal personnel, external service providers and third-party advisors to support our cybersecurity risk management processes. These resources may include managed security monitoring, vulnerability assessments, penetration testing, third-party assessments, employee training, phishing awareness activities, incident response planning, disaster recovery, and business continuity planning. We also maintain processes designed to assess and manage cybersecurity risks associated with certain third parties, including through third-party risk assessments and other vendor due diligence/oversight processes.
We maintain cybersecurity insurance intended to address certain cybersecurity-related risks, subject to policy terms, limits and exclusions.
Governance
Board’s Oversight Role
The Board of Directors oversees risks from cybersecurity threats directly and through the Audit Committee.The Audit Committee has primary responsibility for overseeing cybersecurity risk and receives reports at each of its regular quarterly meetings from management and, as appropriate, internal and external cybersecurity resources regarding cybersecurity risk management, threat trends, program initiatives and incident response preparedness. The full Board receives cybersecurity updates at least twice each year. The Board and Audit Committee receive additional updates as appropriate based on the nature and severity of cybersecurity matters.
Management’s Role
At the management level, cybersecurity risk oversight is led by our Chief Legal and Administrative Officer, who has more than 30 years of experience managing enterprise risk and leading IT strategy and is responsible for spearheading the ongoing
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development and execution of our cybersecurity strategy and governance. Our Chief Legal and Administrative Officer is supported by a team of enterprise infrastructure and security risk professionals who are responsible for identifying, assessing, monitoring, managing, and communicating our cybersecurity risks. This cross-functional team includes experienced leaders in IT infrastructure and operational technology (OT) environments, including in system design, network monitoring, endpoint protection, and security response.
Management uses cross-functional incident response and disclosure escalation processes designed to support timely evaluation, escalation, and communication of cybersecurity incidents, including assessment of potential materiality and disclosure obligations.
Incident Response, Business Continuity, and the Effect of Cybersecurity Threats
We maintain incident response, disaster recovery and business continuity plans designed to support escalation, containment, recovery and business continuity in the event of a cybersecurity incident. We periodically evaluate and test elements of these plans through assessments, exercises and other preparedness activities.
Like many other companies, from time to time, we detect attempts by third parties to gain access to our systems and networks, and the frequency of such attempts could increase in the future. As of the date of this Annual Report, we have not identified risks from cybersecurity threats, including as a result of any previous cybersecurity incidents, that have materially affected or are reasonably likely to materially affect the Company, including its business strategy, results of operations or financial condition. However, cybersecurity threats continue to evolve, and there can be no assurance that our processes, controls, or third-party service providers will prevent or timely detect all cybersecurity incidents or mitigate all related risks. For additional information regarding cybersecurity risks, see Item 1A - Risk Factors - “Our business may be harmed due to failure to successfully implement information technology solutions or a lack of reasonable safeguards to maintain data security, including adherence to evolving global data privacy laws, cross-border data transfer, AI-specific regulations, and physical security measures.”
Item 2 - Properties
We have eleven manufacturing facilities, ten of which are owned and one (in Indiana) is leased, with three located in Indiana (two of which are fully operational), two in Mexico, and one located in each of Poland, Romania, The Netherlands, India, China, and Thailand. These facilities occupy approximately 2,057,000 square feet in aggregate. The Netherlands and India manufacturing facilities were acquired on July 1, 2026, see Note 22 - Subsequent Event of Notes to Consolidated Financial Statements for more information. We lease a facility in the Netherlands to accommodate our support services there. In addition, we own a 42,000 square-foot building to house our headquarters located in Jasper, Indiana. Our Tampa facility, excluded from above, was sold during fiscal year 2026, see Note 4 - Restructuring Activities of Notes to Consolidated Financial Statements for more information.
Generally, our manufacturing facilities are utilized at normal capacity levels on a multiple shift basis. At times, certain facilities utilize reduced shifts due to demand and sales fluctuations. We continually assess our capacity needs and evaluate our operations to optimize our service levels by geographic region. We executed a lease in fiscal year 2025 for a third manufacturing facility in Indiana to expand our medical CDMO footprint and production has not started. When the leased facility is fully operational, it will replace the existing Indianapolis, Indiana facility. See Item 1A - Risk Factors for information regarding financial and operational risks related to our international operations.
Significant loss of income resulting from a facility catastrophe would be partially offset by business interruption insurance coverage.
We hold a land lease for our facility in China that expires in fiscal year 2056 and one for our facility in Thailand that expires in fiscal year 2030. See Note 1 - Business Description and Summary of Significant Accounting Policies of Notes to Consolidated Financial Statements for additional information concerning leases. In addition, we own approximately 83 acres of land which includes land where our facilities reside.
Item 3 - Legal Proceedings
We and our subsidiaries are not parties to any pending legal proceedings, other than ordinary routine litigation and claims incidental to the business. The outcome of current routine pending litigation and claims, individually and in the aggregate, is not expected to have a material adverse impact on our business or financial condition. We are also required to disclose any pending or contemplated environmental proceeding by a governmental authority where potential monetary sanctions could reach $300,000 or more. No such proceeding is presently pending.
Item 4 - Mine Safety Disclosures
Not applicable.
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Information about Our Executive Officers
Our executive officers as of August 19, 2026 are as follows:
Name Age Office and Area of Responsibility
Richard D. Phillips 56 Chief Executive Officer and Director
Adam M. Baumann 45 Chief Accounting Officer
Jana T. Croom 49 Chief Financial Officer
Jessica L. DeLorenzo 41 Chief Human Resources Officer
Douglas A. Hass 50 Chief Legal & Administrative Officer, Secretary
Steven T. Korn 62 Chief Operating Officer
Kathy R. Thomson 57 Chief Commercial Officer
Executive officers are appointed annually by the Board of Directors. The following is a brief description of the business experience during the past five or more years of each of our executive officers.
Mr. Phillips was appointed Chief Executive Officer and Director effective March 1, 2023. Mr. Phillips was most recently the President and Chief Executive Officer from 2019 until 2022 for Elkay Manufacturing Company. Previously, Mr. Phillips served as the President, Chief Executive Officer, and Board member from 2017 through 2019, for Essendant, Inc.
Mr. Baumann was appointed Chief Accounting Officer effective July 1, 2023. He joined Kimball Electronics in April 2019 as Assistant Corporate Controller and served as our Corporate Controller since March 2021. Mr. Baumann was previously employed by Vectren Corporation from 2009 to 2019.
Ms. Croom is our Chief Financial Officer effective July 1, 2021. Ms. Croom joined Kimball Electronics in January 2021 in the role of Vice President, Finance. Prior to joining Kimball Electronics, she held the position of Vice President, Financial Planning and Analysis for NiSource Inc. since August 2019. Previously at NiSource Inc., she served as Director of Operations Planning since March 2017 and Director of Regulatory Affairs since April 2014. Ms. Croom currently serves on the Board of First Energy Corp.
Ms. DeLorenzo was appointed Vice President, Human Resources in June 2018, and her title was changed to Chief Human Resources Officer in 2025 to better reflect the evolution of her role at the Company. Ms. DeLorenzo joined Kimball Electronics in 2015 in the position of Director, Organizational Development.
Mr. Hass was appointed Chief Legal and Administrative Officer and Secretary in 2025, having previously served as our Chief Legal and Compliance Officer and Secretary since 2022. He joined Kimball Electronics in 2020 as Associate General Counsel and Assistant Secretary. From 2016 through 2020, Mr. Hass served as General Counsel and Secretary of Nasdaq-listed Lifeway Foods. Mr. Hass had assumed the leadership of information technology and computing systems, including cybersecurity, following the departure of our former Chief Information Officer on January 1, 2025. Mr. Hass currently serves on the Board of Columbus Insurance, Ltd.
Mr. Korn was appointed to the role of Chief Operating Officer effective July 1, 2023. Previously, Mr. Korn was our President, Global Electronics Manufacturing Services Operations since July 2020, and Vice President, North American Operations since 2007.
Mr. Regrut was appointed to the role of Vice President, Investor Relations, Strategic Development, and Treasurer effective November 14, 2025. He joined Kimball Electronics in March 2021 as Head of Investor Relations. Prior to joining Kimball Electronics, he held the position of Vice President, Investor Relations, for Big Lots, Inc. from 2012 to 2021.
Ms. Thomson was appointed to the role of Chief Commercial Officer effective July 1, 2023. Previously, Ms. Thomson was our Vice President, Global Business Development and Design Services since August 2018. Prior to joining Kimball Electronics, she held the position of Vice President of Business Development for Creation Technologies since 2012.
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PART II
Item 5 - Market for Registrant’s Common Equity, Related Share Owner Matters and Issuer Purchases of Equity Securities
Market Information
The Company’s common stock trades on the Nasdaq Global Select Market of The Nasdaq Stock Market LLC (“Nasdaq”) under the symbol: KE.
Dividends
Since our inception, we have not paid any dividends on our common stock, and we currently do not have plans to pay dividends in fiscal year 2027. Our Board of Directors (the “Board”) regularly reviews our capital allocation strategy.
Share Owners
On August 6, 2026, the Company’s common stock was owned by approximately 872 Share Owners of record.
Securities Authorized for Issuance Under Equity Compensation Plans
The information required by this item concerning securities authorized for issuance under equity compensation plans is incorporated by reference to Item 12 - Security Ownership of Certain Beneficial Owners and Management and Related Share Owner Matters of Part III.
Issuer Purchases of Equity Securities
On October 21, 2015, our Board approved an 18-month stock repurchase plan (the “Plan”), authorizing the repurchase of up to $20 million worth of our common stock. Then, separately on each of September 29, 2016, August 23, 2017, November 8, 2018, November 10, 2020, November 15, 2024, and May 13, 2026 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 $140 million.
During fiscal year 2026, the Company repurchased $11.9 million of common stock under the Plan. The following table contains information about our purchases of equity securities during the three months ended June 30, 2026.
(1)Excludes 1% U.S. excise tax on share repurchases which is recognized as part of the cost basis of the shares acquired in the Consolidated Statements of Share Owners’ Equity.
Item 6 - [Reserved]
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Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
Certain statements contained within this document are considered forward-looking under the Private Securities Litigation Reform Act of 1995. The statements may be identified by the use of words such as “believes,” “anticipates,” “expects,” “intends,” “plans,” “projects,” “estimates,” “forecasts,” “likely,” “future,” “may,” “might,” “should,” “would,” “could,” “will,” “can,” “potentially,” “probable,” and similar expressions. These forward-looking statements are subject to risks and uncertainties including, but not limited to, global economic conditions, geopolitical environment and conflicts such as war, global health emergencies, availability or cost of raw materials and components, tariffs and other trade barriers, foreign exchange fluctuations, and our ability to convert new business opportunities into customers and revenue. Additional cautionary statements regarding other risk factors that could have an effect on the future performance of Kimball Electronics are located within Item 1A - Risk Factors.
Business Overview
We are a global, multifaceted manufacturing solutions provider. We provide electronics manufacturing services (“EMS”), including engineering and supply chain support, to customers in the automotive, medical, and industrial end markets. We further produce higher level and final assemblies and offer contract development and manufacturing organization (“CDMO”) solutions which include the production of medical disposables and drug delivery devices, from precision molded plastics and cold chain management to drug integration. 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. We have participated in the CIRCUITS ASSEMBLY Service Excellence Awards for the past twelve consecutive years, winning awards for excellence each year of participation and recently receiving top honors in all seven award categories. CIRCUITS ASSEMBLY is a leading brand and technical publication for electronics manufacturers worldwide.
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. Pricing remains competitive in the market even as production efficiencies and material pricing advantages for most projects drive costs and prices down over the life of the projects, a characteristic of our business and the market that we expect to continue.
We 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.
Beginning in February 2025, the U.S. implemented tariffs on a variety of countries and commodities under the International Emergency Economic Powers Act (“IEEPA”), and certain countries have imposed or are considering retaliatory tariffs on U.S. exports. The global tariff landscape is highly dynamic, including legal challenges and administrative processes related to tariffs and potential refunds. Increased tariffs have and may continue to impact end customer demand. We have recovered, and expect to continue recovering, a significant portion of our tariff-related costs from our customers, although recovery may lag the timing of cost occurrence. In the fourth quarter of fiscal year 2026, following the Supreme Court ruling that the IEEPA tariffs must be vacated, we began receiving refunds on IEEPA tariffs, a significant portion of which will be returned to our customers. While we may not be able to fully recover tariff costs, we expect any unrecovered amounts, after giving effect to our contractual pass-through and repricing mechanisms, to be immaterial to our results of operations and cash flows.
We are closely monitoring ongoing geopolitical tensions in the Middle East, including the recent conflict involving the U.S., Israel, and Iran, and the related regional instability. We are specifically monitoring the impacts to global macroeconomic conditions, supply chain disruptions, freight and component cost increases, and the related impact to end customer demand.
Net sales in fiscal year 2026 decreased 4% compared to fiscal year 2025, driven primarily by decreases in the automotive and industrial vertical markets partially offset by an increase in the medical market.
We have a strong focus on cost control balanced with managing the future growth prospects of our business. 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 entering into a lease on a new facility for our Indianapolis operations, and our recently announced acquisition of Helvoet. 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 its link to our financial performance, which results in varying amounts of compensation expense as profits change.
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In fiscal year 2025, the Company announced that its Board of Directors had approved a plan to cease operations at our Tampa facility, which was completed by the end of the fiscal year 2025, and the sale of the land and building was completed in fiscal year 2026. The decision was another important step towards sharpening our strategic focus, while leveraging our global footprint and streamlining the operating structure. Production activities on existing customer programs were transferred out of Tampa, with the majority of the work going to our plants in North America, primarily our newly expanded facility in Mexico and Jasper. As we continue to monitor the progression of tariffs and the geopolitical economic environment, additional restructuring efforts may be necessary. In fiscal year 2027, we expect the following known trends and uncertainties to affect our results of operations: (i) integration of Helvoet, including one-time integration costs, purchase-accounting adjustments, and expected revenue and cost synergies; (ii) start-up costs and depreciation associated with our new Indianapolis, Indiana medical CDMO facility as it replaces our existing Indianapolis operations; (iii) continued uncertainty regarding U.S. and foreign tariff policy; (iv) ongoing demand pressure in the automotive vertical, partially offset by expected growth in the medical vertical; and (v) potential changes to our effective tax rate arising from the geographic mix of earnings and from the continued implementation of the One Big Beautiful Bill Act. We continue to work with our customers to optimize our global footprint.
We continue to maintain a strong balance sheet as of the end of fiscal year 2026, which included a current ratio of 2.1, a debt-to-equity ratio of 0.2, and Share Owners’ equity of $585 million. Refer to the Future Liquidity section of Liquidity and Capital Resources below for further discussion of our liquidity.
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.
Year End
More than 10 Years
Less than 5 Years
% of Net Sales 6 % 6 % 6 %
Total
Our total number of customers declined by eight from 2025 to 2026. Those customers accounted for approximately 1% of our consolidated net sales in fiscal year 2025.
A detailed discussion of risk factors and uncertainties that could have an effect on our performance are located within Item 1A - Risk Factors.
Presentation of Results of Operations and Liquidity and Capital Resources
A discussion regarding our financial condition and results of operations for fiscal year 2026 compared to fiscal year 2025 is presented below. A discussion regarding our financial condition and results of operations for fiscal year 2025 compared to fiscal year 2024 can be found under captions entitled “Results of Operations - Fiscal Year 2025 Compared with Fiscal Year 2024” 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, 2025 filed with the SEC on August 22, 2025, which is available free of charge through the SEC’s website at http://www.sec.gov or the Company’s website, https://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.
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Results of Operations - Fiscal Year 2026 Compared with Fiscal Year 2025
At or For the Year Ended
Selling and Administrative Expenses 61.1 4.3 % 50.3 3.4 % 22 %
(Gain on Disposal) Asset Impairment (14.7) (1.0) % (2.4) (0.2) % (516) %
Other Income (Expense) (12.8) (19.3)
Provision for Income Taxes 25.3 9.2 173 %
Diluted Earnings per Share $ 1.13 $ 0.68 66 %
Net Sales by Vertical Market For the Year Ended
Beginning in the first quarter 2026, sales to certain customers previously included in the automotive vertical, specifically those customers more aligned with commercial vehicle applications versus passenger vehicles, are now reflected in the industrial vertical to better reflect the nature of the programs. Prior periods have been recast to conform to current period presentation. For the year ended June 30, 2025, $29.4 million of the industrial net sales were previously categorized as automotive.
Net sales in fiscal year 2026 decreased by 4% compared to net sales in fiscal year 2025. Foreign currency fluctuations had a favorable 2% impact on net sales in fiscal year 2026 compared to fiscal year 2025. By end market vertical, our market verticals fluctuated as follows:
•Sales to customers in the automotive market were down in the current fiscal year when compared to the prior fiscal year resulting from the loss of a major automotive program that was unrelated to Kimball, the continued pressure on customer demand partially as a result of tariffs primarily impacting North America, partially offset by improvements in Europe.
•Sales to customers in the medical market increased when compared to the prior fiscal year. Fiscal year 2025 was favorably impacted by $24 million in non-recurring consignment inventory sales to a customer for completed programs. Offsetting the decreases from the non-recurring consignment inventory sales in the prior year were a step-up in sales with our largest medical customer in addition to some new program wins.
•In the industrial end market vertical, sales to customers decreased when compared to fiscal year 2025 primarily as a result of decline in residential HVAC partially offset by an increase in smart metering in Europe.
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Sales to Nexteer Automotive, Philips, and ZF accounted for the following portions of our net sales:
Year Ended June 30
Nexteer Automotive 18% 19%
Philips 11% *
* amount is less than 10% of total
Gross profit as a percent of net sales improved in fiscal year 2026 when compared to fiscal year 2025 as we experienced volume leverage in Europe, cost efficiencies from global restructuring and the closure of our Tampa facility, and favorable foreign exchange rates.
For fiscal year 2026, selling and administrative expenses increased as a percent of net sales and in absolute dollars when compared to fiscal year 2025, driven by higher wages and benefits, increased profit-sharing bonus expense and stock compensation driven by improved performance, and increased professional fees relating to business transformation. Fiscal year 2026 also included a $2.0 million recovery received during the first three months of fiscal year 2026 resulting from a customer terminating a program.
In fiscal year 2026 and 2025, we recorded pre-tax restructuring expense of $5.0 million and $11.0 million, primarily for employee-related costs as we undertook restructuring efforts to align our cost structure with reduced end market demand levels and incurred costs related to the Tampa closure.
At June 30, 2025, we ceased operations at our Tampa facility. At that time, the related land, building, and equipment were classified as held for sale. On April 22, 2026, the Company completed the sale of the Tampa land and buildings recording a gain on sale of $15.0 million. See Note 4 - Restructuring Activities of Notes to Consolidated Financial Statements for more information. We completed the divestiture of GES on July 31, 2024 and recorded a gain on disposal of $2.4 million during fiscal year 2025. See Note 3 - Sale of GES of Notes to Consolidated Financial Statements for more information.
Other Income (Expense) consisted of the following:
Other Income (Expense) Year Ended
Foreign Currency/Derivative Gain (Loss) (1,263) (1,751)
Gain (Loss) on SERP Investments 666 614
Factoring fees / AR program discounts (3,862) (2,415)
Credit facilities fees and bank charges (910) (1,018)
Interest expense has decreased in the year ended June 30, 2026 compared to the year ended June 30, 2025 due to lower borrowings on credit facilities and lower interest rates. The Foreign Currency/Derivative Gain (Loss) resulted from net foreign currency exchange rate movements during the periods. The losses in fiscal year 2026 and 2025 were driven by the weakening of the U.S. dollar versus foreign currencies that we have exposure to in our business. The revaluation to fair value of the SERP investments recorded in Other Income (Expense) is offset by the revaluation of the SERP liability recorded in Selling and Administrative Expenses, and thus there is no effect on net income.
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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 2026 was driven higher primarily by the recognition of dividend withholding taxes from foreign subsidiaries as well as the inclusion of GILTI income which resulted in additional U.S. tax on foreign earnings.
The consolidated effective tax rate for fiscal year 2025 was driven higher by the limitation on the deductibility of business interest expense under Section 163(j) and the inclusion of GILTI income which resulted in additional U.S. tax on foreign earnings.
Our overall effective tax rate will fluctuate depending on the geographic distribution of our worldwide earnings. See Note 12 - Income Taxes of Notes to Consolidated Financial Statements for more information.
We recorded net income of $28.0 million in fiscal year 2026, or $1.13 per diluted share, an increase of 64.6% from fiscal year 2025 net income of $17.0 million, or $0.68 per diluted share.
Open orders were flat as of June 30, 2026 compared to June 30, 2025. The total reported for June 30, 2025 has been revised to $642 million, from the $702 million originally reported, to more accurately reflect the calculation of open order activity impacting all three verticals. 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, 2026 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.
Liquidity and Capital Resources
Working capital at June 30, 2026 was $360.9 million compared to working capital of $381.0 million at June 30, 2025. The current ratio was 2.1 at June 30, 2026 and 2.2 at June 30, 2025, respectively. The debt-to-equity ratio was 0.2 at June 30, 2026 and 0.3 at June 30, 2025. Our short-term liquidity available, represented as cash and cash equivalents plus the unused amount of our credit facilities, some of which are uncommitted, totaled $403.8 million at June 30, 2026 and $373.5 million at June 30, 2025.
Cash Conversion Days (“CCD”) are calculated as the sum of Days Sales Outstanding (“DSO”) plus Contract Asset Days (“CAD”) plus Production Days Supply on Hand (“PDSOH”) less Accounts Payable Days (“APD”) and less Advances from Customers Days (“ACD”). 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 Days Sales Outstanding as the average of monthly trade accounts and notes receivable divided by an average day’s net sales, Contract Asset Days as the average monthly contract assets divided by an average day’s net sales, Production Days Supply on Hand as the average of monthly gross inventory divided by an average day’s cost of sales, Accounts Payable Days as the average of monthly accounts payable divided by an average day’s cost of sales, and Advances from Customers Days as the average of monthly customer deposits divided by an average day’s cost of sales. Over the past several quarters, we have improved our CCD metrics by better aligning our working capital with the lower sales levels.
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Cash Flows
The following table reflects the major categories of cash flows for the fiscal years ended June 30, 2026 and 2025.
Year Ended June 30
Net cash provided by operating activities $ 72.3 $ 183.9
Net cash used for investing activities $ (25.9) $ (14.7)
Net cash used for financing activities $ (47.1) $ (160.9)
Cash Flows from Operating Activities
Net cash provided by operating activities for the fiscal year ended June 30, 2026 was primarily driven by net income adjusted for non-cash items as well as changes in operating assets and liabilities. Net income adjusted for non-cash items generated operating cash flow of $62.8 million in fiscal year 2026. Changes in operating assets and liabilities generated cash flow of $9.5 million in fiscal year 2026 driven primarily by cash provided by accounts payable of $20.0 million, which was driven by the improvement of payment terms, and accrued expenses and taxes payable which provided cash of $13.3 million, driven by improved performance which resulted in increased accrued taxes and accrued compensation. Partially offsetting cash provided by accounts payable and accrued expenses was an increase in inventory which used cash of $19.9 million, which was due to longer lead times on certain components as well as ramp up of new programs.
Net cash provided by operating activities for the fiscal year ended June 30, 2025 was primarily driven by change in receivables, which provided cash of $71.8 million due to lower sales levels and increased use of factoring programs, and inventories, which provided cash of $74.6 million due to working down previously inflated inventory levels from strategic inventory builds to mitigate part shortages. Net income adjusted for non-cash items also generated operating cash flow of $56.5 million in fiscal year 2025.
Cash Flows from Investing Activities
Net cash used for investing activities during fiscal year 2026 includes $51.7 million cash used for capital investments including for the new medical facility in Indianapolis as well as to support new business awards and facility improvements, partially offset by the $21.7 million of proceeds from the sale of the Tampa facility. See Note 4 - Restructuring Activities of Notes to Consolidated Financial Statements for more information on the Tampa facility sale.
Net cash used for investing activities during fiscal year 2025 includes $33.7 million cash used for capital investments primarily to support new business awards and replacement of older machinery, partially offset by the $18.5 million of proceeds from the sale of GES. See Note 3 - Sale of GES of Notes to Consolidated Financial Statements for more information on the divestiture of GES.
Cash Flows from Financing Activities
Net cash used for financing activities for the fiscal year ended June 30, 2026 resulted largely from payments of $30.9 million on our credit facilities to reduce debt.
Net cash used for financing activities for the fiscal year ended June 30, 2025 resulted largely from net payments on our credit facilities of $147.3 million.
Credit Facilities
The Company maintains a U.S. primary credit facility (the “primary credit facility”) which was scheduled to mature on May 4, 2027. The primary credit facility provides for $300 million in revolving 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. On December 20, 2024, the Company entered into an amended and restated credit agreement which resulted in the addition of a term loan borrowing, allowing for term loan borrowings of $100 million repayable in scheduled quarterly installments, and is scheduled to mature on December 20, 2029.
On April 30, 2026, the Company entered into an amended and restated credit agreement (the “restated primary credit facility”). The restated primary credit facility continues to provide for revolving borrowings of $300 million, with the option to increase the amount available for revolving borrowings by an additional $150 million at the Company’s request, subject to the consent of each lender participating in such increase. The amended and restated credit agreement is scheduled to mature on April 30, 2031. The terms for the term loan borrowings remain largely unchanged in the restated primary credit facility. It is still scheduled to mature on December 20, 2029 for such term loan borrowings and the quarterly payment schedule for such term
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loan borrowings. This facility is maintained for working capital and general corporate purposes of the Company. We were in compliance with the financial covenants of the primary credit facility during the period ended June 30, 2026.
We also maintain foreign credit facilities for working capital and general corporate purposes at specific foreign locations rather than utilizing funding from intercompany sources. These foreign credit facilities can be canceled at any time by either the bank or us and generally include renewal clauses. As of June 30, 2026, we maintained foreign credit facilities at our Thailand operation, our China operation, our Netherlands subsidiary, and our Poland operation.
See Note 9 - Credit Facilities of Notes to Consolidated Financial Statements for more information on our credit facilities, including the terms of the credit facilities such as interest, commitment fees, debt covenants, and the amended primary credit facility.
Factoring Arrangements
We participate in our customers’ supply chain financing arrangements 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, 2026 and 2025, we sold, without recourse, $315.8 million and $338.4 million of accounts receivable, respectively.
In addition to our customers’ supply chain financing arrangements, we have also entered into receivables purchase agreements (“RPA’s”) with third-party banking institutions for certain domestic receivables. We sell our entire interest in certain receivables for 100% of face value, less a discount. We are required to remit amounts collected as a servicer under the RPA’s timely to the financial institution that purchased the receivables. Our risks with respect to receivables we service include commercial disputes regarding such receivables, and under one of the RPA’s, no greater than 5% of sold and outstanding receivables in the event of customer insolvency. In the fiscal years ended June 30, 2026 and 2025, under these programs, we sold $171.3 million and $19.4 million of receivables, respectively. See Note 1 - Business Description and Summary of Significant Accounting Policies of Notes to Consolidated Financial Statements for more information regarding our factoring arrangements.
Future Liquidity
As of June 30, 2026, following several quarters of strong cash generated from operating activities and debt reduction, we are in a much improved liquidity position with $88.9 million in cash and unused borrowings in USD equivalent under all of our credit facilities of $314.9 million. Additionally, considering expected future sources of liquidity from cash generated from operations, we are positioned to meet our working capital and other operating needs for at least the next twelve months.
We expect to continue to prudently invest in capital expenditures that would help us continue our growth as a multifaceted manufacturing solutions company, including for capacity expansions and potential acquisitions such as the recent announcement of the Helvoet acquisition. In July 2026, the Company paid a purchase price of approximately 90.0 million Euro, or approximately $103.0 million which was funded with a combination of the Company’s cash and existing lines of credit. See Note 22 - Subsequent Event of Notes to Consolidated Financial Statements for more information regarding our recent acquisition.
At June 30, 2026, our capital expenditure commitments were approximately $7.7 million, consisting primarily of capital related to new program wins as well as for facility improvements. 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. In turn, material authorization agreements with customers cover a portion of the exposure for material that we must purchase prior to having a firm order.
At June 30, 2026, our foreign operations held cash totaling $85 million. Most of our accumulated unremitted foreign earnings have been invested in active non-U.S. business operations. The Company continually evaluates its global cash needs. If such funds were repatriated or we determined that all or a portion of such foreign earnings are no longer permanently reinvested, we may be subject to applicable non-U.S. income and withholding taxes. Determination of the amount of any potential future unrecognized deferred tax liability on such unremitted earnings is not practicable and is recorded in the period when any foreign earnings are determined to be no longer permanently reinvested.
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The Company’s Repurchase Plan allows the repurchase of up to $140 million of our 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 Repurchase 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 $115.6 million of common stock under the Repurchase Plan through June 30, 2026.
Our ability to generate cash from operations to meet our liquidity obligations could be adversely affected in the future by factors such as general economic and market conditions, lack of availability of raw material components in the supply chain, a decline in demand for our services, loss of key contract customers, unsuccessful integration of acquisitions and new operations, global health emergencies, and the related uncertainties around the financial impact, and other unforeseen circumstances. 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.
Fair Value
During fiscal year 2026, no level 1 or level 2 financial instruments were affected by a lack of market liquidity. For level 1 financial assets, readily available market pricing was used to value the financial instruments. 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 14 - Fair Value of Notes to Consolidated Financial Statements for additional information.
Off-Balance Sheet Arrangements
As of June 30, 2026, we do not have any material off-balance sheet arrangements.
Critical Accounting Policies and Estimates
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.
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
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provision will be adjusted accordingly. The liability for uncertain income tax and other tax positions, including accrued interest and penalties on those positions, was $1.6 million and $1.5 million at June 30, 2026 and June 30, 2025, 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 15 - 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, 2026 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 9 - 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, 2026 would not have a material impact of profitability in an annual period. The interest rate on all borrowings at June 30, 2026 are based on the Secured Overnight Financing Rate (“SOFR”).
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Item 8 - Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page No.
Management’s Report on Internal Control Over Financial Reporting 34
Report of Independent Registered Public Accounting Firm (PCAOB No. 34) 35
Notes to Consolidated Financial Statements 43
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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, 2026.
/s/ RICHARD D. PHILLIPS
Richard D. Phillips
Chief Executive Officer
/s/ JANA T. CROOM
Jana T. Croom
Chief Financial Officer
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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, 2026 and 2025, 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, 2026, 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, 2026, based on the 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, 2026 and 2025, and the results of its operations and its cash flows for each of the three years in the period ended June 30, 2026, 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, 2026, 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.
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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 to depict the Company’s progress towards meeting its performance obligations, using costs based input methods, 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.
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 manufactured products. 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.
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◦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.
/s/ Deloitte & Touche LLP
Indianapolis, Indiana
We have served as the Company’s auditor since 2014.
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KIMBALL ELECTRONICS, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands, Except for Share Data)
ASSETS
Current Assets:
Prepaid expenses and other current assets 42,836 36,027
Assets held for sale — 6,861
LIABILITIES AND SHARE OWNERS’ EQUITY
Current Liabilities:
Current portion of long-term debt $ 8,202 $ 17,400
Other Liabilities:
Long-term debt under credit facilities, less current portion 108,000 129,650
Share Owners’ Equity:
Preferred stock-no par value
Shares authorized: 15,000,000Shares issued: None — —
Common stock-no par value
Accumulated other comprehensive income (loss) (4,672) 1,063
Treasury stock, at cost:
See Notes to Consolidated Financial Statements
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KIMBALL ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in Thousands, Except for Per Share Data)
Year Ended June 30
Other General Income — — (892)
Goodwill Impairment — — 5,820
Other Income (Expense):
Earnings Per Share of Common Stock:
Average Number of Shares Outstanding:
See Notes to Consolidated Financial Statements
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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
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KIMBALL ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
Year Ended June 30
Cash Flows From Operating Activities:
Adjustments to reconcile net income to net cash provided by:
(Gain)/loss on sales of assets 506 (1,139) (15)
Goodwill impairment — — 5,820
Change in operating assets and liabilities:
Cash Flows From Investing Activities:
Purchases of capitalized software (187) (399) (966)
Cash Flows From Financing Activities:
Additional net change in revolving credit facilities 2,052 (9,830) 13,450
Net cash (used for) provided by financing activities (47,050) (160,874) 8,974
Net Increase in Cash, Cash Equivalents, and Restricted Cash 174 10,688 34,915
Supplemental Disclosure of Cash Flow Information
Cash paid during the year for:
Non-cash investing activity:
See Notes to Consolidated Financial Statements
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KIMBALL ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF SHARE OWNERS’ EQUITY
(Amounts in Thousands, Except for Share Data)
Other comprehensive income (loss) (6,761) (6,761)
Compensation expense related to stock compensation plans 6,773 6,773
Compensation expense related to stock compensation plans 6,035 6,035
Charitable donation of common stock (2,000 shares) 10 20 30
Other comprehensive income (loss) (5,735) (5,735)
Compensation expense related to stock compensation plans 7,676 7,676
Charitable donation of common stock (1,000 shares) 17 13 30
See Notes to Consolidated Financial Statements
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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 electronics manufacturing services (“EMS”), including engineering and supply chain support, to customers in the automotive, medical, and industrial end markets. We further produce higher level and final assemblies and offer contract development and manufacturing organization (“CDMO”) solutions which include the production of medical disposables and drug delivery devices, from precision molded plastics and cold chain management to drug integration. 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. We intend to change our name to Kimball Solutions, Inc., subject to Share Owners’ approval, to reflect our strategic focus as a full-service provider.
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 consolidation.
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.
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.
Our operating segments meet the aggregation criteria under the current accounting guidance for segment reporting. As of June 30, 2026, 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 precision molded plastics and drug delivery devices. Our contract manufacturing services support primarily automotive, medical, and industrial 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. See Note 17 - Segment Reporting for more information.
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, and precision molded plastics built to customers’ specifications. Our customer agreements are generally not for a definitive term but continue for the relevant product’s life cycle. Typically, our customer agreements do not commit the customer to purchase our services until a purchase order or a contractually binding forecast is provided, which are generally short term in nature. Customer purchase orders and contractually binding forecasts primarily have a single performance obligation. Generally, the prices stated in the customer purchase orders or committed to in contractually binding forecasts are agreed upon prices for the manufactured product and do not vary over the term of the order or the contractually binding forecast period, 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.
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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 participate in our customers’ supply chain financing arrangements for certain of our accounts receivable 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 2026, 2025, and 2024, we sold $315.8 million, $338.4 million, and $410.0 million of accounts receivable under these arrangements, respectively. Factoring fees were $2.7 million, $2.3 million, and $3.4 million during fiscal years 2026, 2025, and 2024, respectively. Factoring fees are recorded in Non-operating income (expense), net on our Consolidated Statements of Income for the fiscal years ended June 30, 2026 and June 30, 2025. Prior to fiscal year 2025, factoring fees were recorded in Selling and Administrative Expenses.
We are also a party to receivables purchase agreements (“RPA’s”) with third-party banking institutions for the sale of trade receivables generated from sales to certain customers, subject to acceptance by, and a funding commitment from, the banks that are a party to the RPA’s. Receivables sold pursuant to the RPA’s are serviced by us.
Under the RPA’s, we sell our entire interest in certain receivables at the invoice amount less a discount. Upon sale, these receivables are removed from the Consolidated Balance Sheets and cash received is presented as cash provided by operating activities in the Consolidated Statements of Cash Flows. We are required to remit amounts collected as a servicer under the RPA’s timely to the financial institution that purchased the receivables. Our risks with respect to receivables we service include
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commercial disputes regarding such receivables and, under one of the RPA’s, no greater than 5% of sold and outstanding receivables in the event of customer insolvency.
In fiscal years 2026 and 2025, under the RPA’s, we sold $171.3 million and $19.4 million of receivables and incurred discount fees of $1.1 million and $0.1 million, respectively, recorded in Non-operating income (expense), net on our Consolidated Statements of Income. Receivables sold under the RPA and subject to our servicing that remained outstanding and uncollected as of June 30, 2026 and June 30, 2025 were $49.0 million and $19.4 million, respectively. Of the $49.0 million outstanding and uncollected at June 30, 2026, $22.0 million is subject to the 5% customer insolvency provision.
In limited circumstances, our China operation 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. There are no drafts outstanding at June 30, 2026 and 2025, respectively. Drafts received and outstanding would be 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 2026 and 2025 were $46.3 million and $14.3 million, respectively. No banker’s acceptance drafts were sold at a discount or transferred in settlement of current accounts payable during fiscal year 2024.
In fiscal year 2024, changes to the expected timing of payments from and risk of default for a customer resulted in the recording of an allowance for credit losses of $2.0 million in Selling and Administrative Expenses on our Consolidated Statements of Income. An additional $0.4 million allowance was recorded in fiscal year 2026.Although the customer is not in bankruptcy and we will continue to pursue full recovery, an allowance was deemed necessary in consideration of the expected timing of payments and risk of default. The amount expected to be collected after twelve months is included in Other Assets, net on the Consolidated Balance Sheet. At June 30, 2026, the noncurrent receivable associated with this customer in Other Assets, net totaled $2.3 million, which is net of the $2.4 million allowance for expected credit losses. The $2.4 million allowance for expected credit losses does not include fully reserved unpaid late payment fees. The current portion of receivables from this customer is $1.8 million at June 30, 2026.
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. Evaluation of both excess inventory and obsolescence also considers whether customer agreements specify customer obligation to pay for such inventory.
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 for most assets and units of production method for certain fully dedicated machinery and equipment. 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. In fiscal year 2024, we recognized $17.0 million of impairment with the decision to divest of GES. In addition, on November 4, 2024, the Company announced that its Board of Directors has approved a plan to cease operations at our Tampa facility, which concluded with the assets being held for sale at the end of the fiscal year. No impairment was recorded on the Tampa assets as we deemed them recoverable. See Note 3 - Sale of GES and Note 4 - Restructuring Activities, respectively, for more information on the GES divestiture and Tampa Closure. Impairment of long-lived assets was not material during fiscal years 2026 and 2025.
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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. See Note 7 - Goodwill and Other Intangible Assets for more information on Goodwill.
To test GES, our automation, test, and measurement business unit, for goodwill impairment in fiscal year 2024, we used 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.
During fiscal year 2024, the Company made the decision to divest of GES and committed to a plan to sell the business. As a result, the business unit met the criteria to be classified as held for sale, and goodwill and asset impairment were recorded. See Note 3 - Sale of GES for more information on the sale of GES.
Other Intangible Assets:
Other Intangible Assets reported on the Consolidated Balance Sheets consist of capitalized software. 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.
Leases:
The Company leases certain office facilities, manufacturing facilities, warehouse facilities, and equipment under operating leases, in addition to land on which certain office and manufacturing facilities reside. These operating leases expire from fiscal year 2027 to 2056. The Company determines if a contract is or contains a lease at inception. Lease assets and liabilities are initially recognized based on the present value of lease payments over the lease term calculated using our estimated incremental borrowing rate, unless the implicit rate is readily determinable. The estimated incremental borrowing rate is the rate of interest we would have to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms. Lease terms include options to extend or terminate the lease when it is reasonably certain that those options will be exercised. See Note 21 - Leases for more information on leases.
Research and Development:
The costs of research and development are expensed as incurred and are included in Cost of Sales on the Consolidated Statements of Income. Research and development costs were approximately $19.1 million, $17.5 million, and $18.3 million in fiscal years 2026, 2025, and 2024, 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 14% of the workforce is covered under self-insured medical and short-term disability plans. At June 30, 2026 and 2025, accrued liabilities for self-insurance exposure were $2.3 million and $1.4 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
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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. See Note 12 - Income Taxes for more information.
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
Philips 11% * * 13% *
HL Mando * * * * 10%
*amount is less than 10% of total
Off-Balance Sheet Risk:
Off-balance sheet arrangements are limited to standby letters of credit entered into in the normal course of business as described in Note 8 - Commitments and Contingent Liabilities.
Non-operating Income and Expense:
Non-operating income (expense), net includes the impact of such items as foreign currency rate movements and related derivative gain or loss, fair value adjustments on supplemental employee retirement plan (“SERP”) investments, government subsidies, credit facility fees, factoring fees, bank charges, and other miscellaneous non-operating income and expense items that are not directly related to operations. Prior to fiscal year 2025, factoring fees were recorded in Selling and Administrative Expenses on our Consolidated Statements of Income. The gain (loss) on SERP investments is offset by a change in the SERP liability that is recognized in Selling and Administrative Expense.
Components of Non-operating income (expense), net:
Year Ended
Foreign currency/derivative gain (loss) $ (1,263) $ (1,751) $ (1,425)
Factoring fees/AR program discounts (3,862) (2,415) —
Credit facilities fees and bank charges (910) (1,018) (873)
Non-operating income (expense), net $ (5,564) $ (5,332) $ (1,877)
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Foreign Currency Translation:
The Company 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 15 - Derivative Instruments for more information on derivative instruments and hedging activities.
Stock-Based Compensation:
As described in Note 11 - Stock Compensation Plans, the Company maintains the 2023 Equity 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 on a majority of our transactions. 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 2026:
In December 2023, the Financial Accounting Standards Board (“FASB”) issued guidance on Improvements to Income Tax Disclosures, intended to enhance the transparency and decision usefulness of income tax disclosures. The guidance is effective for fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company adopted the standard for the year ended June 30, 2026. See Note 12 - Income Taxes for more information.
Not Yet Adopted:
In December 2025, FASB issued guidance on Interim Reporting, intended to improve the navigability of the guidance in ASC 270, Interim Reporting, and clarify when it applies. The guidance is effective for interim reporting periods within annual reporting periods beginning after December 15, 2027. Early adoption is permitted, and the guidance can be applied prospectively or retrospectively. We are currently evaluating the impact of the adoption of this guidance on our consolidated financial statements.
In September 2025, the FASB issued guidance on Accounting for Internal-Use Software, intended to modernize the accounting for software costs and changing the requirements for capitalization of software costs. The guidance is effective for fiscal years beginning after December 15, 2027 and for interim reporting periods within those annual reporting periods. Early adoption is permitted as of the beginning of an annual reporting period, and the guidance can be applied prospectively, retrospectively, or
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on a modified transition approach. We will adopt this guidance prospectively on July 1, 2026, and the adoption of this guidance will not have a material impact on our consolidated financial statements.