Get Started for Free Contexxia identifies hard-to-find pieces of information in SEC filings. No more highlighters, no more redlining, no more poring over huge documents. Kimball Electronics, Inc. (1606757) 10-K published on Aug 27, 2020 at 5:03 pm
Reporting Period: Jun 29, 2020
We are committed to our environmental, social, and governance philosophies and practices, which have been a part of who we are since our founding in 1961. To showcase how our employees around the world share a strong sense of responsibility to protect the environment, sustain a safety focus at our facilities, and give back in meaningful ways to the communities where we live and work, we issued our first Environmental, Social & Governance Report (“ESG Report”) in December 2019. The ESG Report highlights the long-term environmental, social and governance principles, and practices designed to support the Company’s commitment to sustaining “lasting relationships” and achieving “global success” with its stakeholders wherever Kimball Electronics’ touch is felt throughout the world. The ESG Report reflects several long-standing Guiding Principles of the Company: Our customer is our business; our people are the company; the environment is our home; we strive to help our communities be great places to live; profitability and financial resources give us the freedom to shape our future and achieve our vision. The ESG Report is posted on our website.
For example, the COVID-19 pandemic poses the risk that we or our employees, suppliers, customers, and others may be restricted or prevented from conducting business activities as normal for indefinite or intermittent periods of time, which has impacted and will continue to impact our global operations. We have experienced and are experiencing sales declines in certain product categories, especially in the automotive market as a result of temporary suspensions of production by automakers. Several of our facilities have experienced temporary suspensions of operations due to the COVID-19 outbreak. While all facilities have since resumed normal operations, further temporary suspensions could occur. All of our operations have been, and will continue to be, impacted to varying degrees by government measures worldwide to contain or mitigate the spread of the virus, including travel restrictions, restrictions on operation of businesses, shelter in place orders, and mandatory closures of schools and child-care facilities, which in turn can have adverse impacts on the availability of critical components, our supply chain, capacity utilization at our facilities, and the ability of certain employees to return to work. We have modified our business practices for the continued health and safety of our employees and may take further actions, or be required to take further actions, that are in the best interests of our employees. Our suppliers and customers have also implemented, or may implement, similar practices in response to the pandemic. The implementation of health and safety practices by us or our suppliers or customers could adversely impact deliveries and productivity and increase costs. In addition, responding to the continuing pandemic could divert management’s attention from our key strategic priorities or cause us to divert or delay the application of our resources toward initiatives that may otherwise increase our long-term value. We cannot reasonably predict the full extent to which the COVID-19 pandemic will impact our financial position, results of operations, and cash flows, which will depend on future developments that are highly uncertain and continuously evolving, including, the duration of the COVID-19 pandemic and its severity, new medical and other information that may emerge concerning COVID-19, further actions by governmental entities or others in response to the pandemic, and how quickly and to what extent normal economic and operating conditions can resume.
We continue to monitor the current economic and industry conditions for uncertainties that may pose a threat to our future growth or cause disruption in business strategy, execution, and timing in the markets in which we compete. We are actively monitoring the global COVID-19 pandemic and its impact on all our operations, including the effect on customers, the supply chain, the availability of critical components, and the health and availability of our workforce. Our primary focus is the well-being and safety of our employees, and we are following current guidelines suggested by applicable authorities, including utilizing protective shields, face masks, body temperature scanning, social distancing, and proper hygiene. Our response to each positive case in our facilities follows our procedures for communication to our employees, contact tracing, self-quarantining, testing, and sanitization of the affected work areas. Because of the variety of critical medical device assemblies we manufacture around the world, our facilities are classified as “essential businesses” or otherwise have been permitted to operate under shelter in place orders or other similar orders but have been affected to varying degrees by COVID-19. We are maintaining close contact and communication with our customers and our supply chain to ensure safety measures follow appropriate guidelines for the health and safety of all parties and to minimize disruption of operations. Significant uncertainties and risks exist related to the severity and duration of the impact of COVID-19 on our end markets, the supply chain, the health and availability of our workforce, and global macroeconomic conditions; therefore, its financial impact on our results cannot be reasonably estimated but could be material.
The COVID-19 pandemic has adversely impacted the automotive industry by disrupting the supply chain from China and leading to automakers in the U.S. and Europe temporarily suspending production during April and May. Although we experienced growth in the automotive market in the first nine months of fiscal year 2020 when compared to the nine-month period of the prior fiscal year, led by the continued ramp-up of new programs including programs for fully electric vehicles, we experienced a 43% decline in sales in the automotive market in the last quarter of fiscal year 2020 when compared to the fourth quarter of the prior fiscal year due to the impact of COVID-19. We anticipate sales to customers in the automotive market to return to pre-COVID-19 levels by the middle of fiscal year 2021. In the medical market, we experienced year-over-year sales growth, with a 23% increase in the fourth quarter of fiscal year 2020 when compared to the fourth quarter of the prior fiscal year due to the significant increase in demand for medical assemblies, specifically those related to respiratory care and patient monitoring products, as a direct result of COVID-19. We expect growth to continue in the medical market in the upcoming quarters. In the industrial market, growth was driven in large part due to increased demand for smart metering products and improved sales at our GES reporting unit.
In January 2017, the FASB issued guidance for Intangibles - Goodwill and Other, which simplifies the goodwill impairment test by eliminating the requirement to compare the implied fair value of goodwill with its carrying amount as part of step two of the goodwill impairment test. An entity should perform its goodwill impairment tests by comparing the fair value of a reporting unit with its carrying amount, recognizing an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, not to exceed the total amount of goodwill allocated to that reporting unit. The guidance is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019 with early adoption allowed and should be applied on a prospective basis. The Company elected to early adopt this guidance beginning in the fourth quarter of fiscal year 2020, and applied to its fourth quarter goodwill impairment tests discussed in Note 6 - Goodwill and Other Intangible Assets.