Kimball Electronics, Inc.

Previous wording

Certain statements contained within this document are considered forward-looking under the Private Securities Litigation Reform Act of 1995. The statements may be identified by the use of words such as “believes,” “anticipates,” “expects,” “intends,” “plans,” “projects,” “estimates,” “forecasts,” “likely,” “future,” “may,” “should,” “would,” “could,” “will,” “can,” “potentially,” and similar expressions. These forward-looking statements are subject to risks and uncertainties including, but not limited to, global economic conditions, geopolitical environment and conflicts such as the war in Ukraine, global health emergencies, 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 contained in our Annual Report on Form 10-K for the year ended June 30, 2025.

Current wording

Certain statements contained within this document are considered forward-looking under the Private Securities Litigation Reform Act of 1995. The statements may be identified by the use of words such as “believes,” “anticipates,” “expects,” “intends,” “plans,” “projects,” “estimates,” “forecasts,” “likely,” “future,” “may,” “should,” “would,” “could,” “will,” “can,” “potentially,” and similar expressions. These forward-looking statements are subject to risks and uncertainties including, but not limited to, global economic conditions, geopolitical environment and conflicts such as 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 contained in our Annual Report on Form 10-K for the year ended June 30, 2025.

Previous wording

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.

Current wording

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.

Previous wording

Beginning in February 2025, the U.S. implemented tariffs on a variety of countries and commodities. In response, certain countries have imposed, or are considering, retaliatory tariffs on U.S. exports. The global tariff landscape is evolving at a rapid pace, with changes impacting businesses and markets around the world. While these increased tariffs have and may continue to impact end customer demand, we expect that we will recover the tariff costs by passing them on to our customers. If we are unable to fully recover these costs, our results of operations and cash flows could be adversely impacted.

Current wording

Beginning in February 2025, the U.S. implemented tariffs on a variety of countries and commodities, 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. If we are unable to fully recover these costs, our results of operations and cash flows could be adversely impacted.

Previous wording

Net sales in the second quarter of the current fiscal year decreased 5% compared to the prior fiscal year second quarter, most significantly in our automotive end market vertical.

Current wording

Net sales in the third quarter of the current fiscal year decreased 6% compared to the prior fiscal year third quarter, driven primarily by single-digit percentage declines in each end market vertical.

Previous wording

We continue to maintain a strong balance sheet, which included a current ratio of 2.2, a debt-to-equity ratio of 0.3, and Share Owners’ equity of $579 million at December 31, 2025. Refer to the Future Liquidity section of Liquidity and Capital Resources below for further discussion of our liquidity.

Current wording

We continue to maintain a strong balance sheet, which included a current ratio of 2.1, a debt-to-equity ratio of 0.3, and Share Owners’ equity of $578 million at March 31, 2026. Refer to the Future Liquidity section of Liquidity and Capital Resources below for further discussion of our liquidity.

Previous wording

Our total number of customers declined by eight when comparing December 31, 2025 to December 31, 2024 all of which accounted for approximately 1% of our consolidated net sales in the first six months of fiscal year 2025.

Current wording

Our total number of customers declined by eight when comparing the nine-month periods ended March 31, 2026 to March 31, 2025. Those customers accounted for approximately 1% of our consolidated net sales in the first nine months of fiscal year 2025.

Previous wording

Beginning in the first quarter of fiscal year 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 three and six months ended December 31, 2024, $6.5 million and $13.1 million of the industrial net sales were previously categorized as automotive.

Current wording

Beginning in the first quarter of fiscal year 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 three and nine months ended March 31, 2025, $7.5 million and $20.6 million of the industrial net sales were previously categorized as automotive.

Previous wording

Second quarter fiscal year 2026 consolidated net sales decreased 5% compared to the second quarter of fiscal year 2025, and the year-to-date fiscal year 2026 consolidated net sales decreased 3% compared to the year-to-date period of fiscal year 2025.

Current wording

Third quarter fiscal year 2026 consolidated net sales decreased 6% compared to the third quarter of fiscal year 2025, and the year-to-date fiscal year 2026 consolidated net sales decreased 4% compared to the year-to-date period of fiscal year 2025.

Previous wording

Foreign currency fluctuations had a favorable 2% impact on net sales in the current quarter compared to the second quarter and year-to-date period of fiscal year 2025.

Current wording

Foreign currency fluctuations had a favorable 3% impact on net sales in the current quarter compared to the third quarter of fiscal year 2025, and a favorable impact of 2% in the current year-to-date period compared to the year-to-date period of fiscal year 2025.

Previous wording

•In the automotive end market vertical, sales to customers decreased for both the quarter over quarter and year-to-date periods driven by the loss of a major automotive program that was unrelated to Kimball and the continued pressure on customer demand as a result of tariffs primarily impacting North America.

Current wording

•In the automotive end market vertical, sales to customers quarter over quarter remained relatively flat when compared to prior year quarter. Year-to-date the automotive end market vertical decreased resulting from the loss of a major automotive program that was unrelated to Kimball, the continued pressure on customer demand as a result of tariffs primarily impacting North America, and softness in demand, particularly in Asia, partially offset by improvements in Europe.

Previous wording

•Sales to the medical end market vertical increased for both the quarter over quarter and year-to-date periods driven by a step-up in sales with our largest medical customer in addition to some new program wins.

Current wording

•Sales to the medical end market vertical decreased quarter over quarter but increased in the year-to-date period. The third quarter of fiscal year 2025 and the prior year-to-date period were 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.

Previous wording

•In the industrial end market vertical, sales to customers decreased quarter over quarter as a result of declines in climate controls. The year-to-date period remained relatively flat when compared to prior year-to-date.

Current wording

•In the industrial end market vertical, sales to customers decreased for both quarter over quarter and year-to-date periods primarily as a result of declines in climate controls and residential HVAC.

Previous wording

Gross profit as a percent of net sales in the second quarter of fiscal year 2026 improved when compared to the second quarter of fiscal year 2025 as well as in the first half of the fiscal year. The improvement was a result of efficiencies driven by our restructuring efforts, including the Tampa closure, and favorable exchange rates.

Current wording

Gross profit as a percent of net sales in the third quarter of fiscal year 2026 improved when compared to the third quarter of fiscal year 2025 as well as in the first nine months of the fiscal year. Improvements in both quarter over quarter as well as year over year were primarily driven by broad improvements in Europe, including the maturing of a new braking program and favorable exchange rates. We also experienced improvement as a result of efficiencies driven by our restructuring efforts, including the Tampa closure. These improvements were partially offset by increased costs from opening our new manufacturing facility in Indianapolis. Gross profit as a percent of net sales in the third quarter of fiscal year 2025 experienced dilution from the non-recurring consignment inventory sale.

Previous wording

Selling and administrative expenses increased both as a percent of net sales and in absolute dollars in the second quarter of fiscal year 2026 when compared to the second quarter of fiscal year 2025 as well as in the first half of the fiscal year. The increased expenses were primarily driven by higher wages and benefits in addition to increased profit-sharing bonus expense and stock compensation driven by improved performance. The year-to-date period also included a $2.0 million recovery received during the first three months of fiscal year 2026 resulting from a customer terminating a program.

Current wording

Selling and administrative expenses increased both as a percent of net sales and in absolute dollars in the third quarter of fiscal year 2026 when compared to the third quarter of fiscal year 2025 as well as in the first nine months of the fiscal year. The increased expenses were primarily 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. The year-to-date period also included a $2.0 million recovery received during the first three months of fiscal year 2026 resulting from a customer terminating a program.

Previous wording

In the three and six months ended December 31, 2025, we recorded pre-tax restructuring expense of $1.8 million and $3.2 million 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. In the three and six months ended December 31, 2024, we recorded pre-tax restructuring expense of $4.7 million and $7.0 million for employee-related costs for cost structure alignment and incurred costs related to the Tampa closure in the second quarter.

Current wording

In the three and nine months ended March 31, 2026, we recorded pre-tax restructuring expense of $0.9 million and $4.1 million 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. In the three and nine months ended March 31, 2025, we recorded pre-tax restructuring expense of $2.0 million and $9.0 million for employee-related costs for cost structure alignment and incurred costs related to the Tampa closure.

Previous wording

Interest expense has decreased in the three and six months ended December 31, 2025 compared to the three and six months ended December 31, 2024 due to lower borrowings on credit facilities and lower interest rates. Foreign currency/derivative gains (losses) result from net foreign currency exchange rate movements during the periods. The revaluation to fair value of the SERP investments recorded in Other Income (Expense) is offset by the revaluation of the SERP liability recorded in Selling and Administrative Expenses, and thus there is no effect on net income.

Current wording

Interest expense has decreased in the three and nine months ended March 31, 2026 compared to the three and nine months ended March 31, 2025 due to lower borrowings on credit facilities and lower interest rates. Foreign currency/derivative gains (losses) result from net foreign currency exchange rate movements during the periods. The revaluation to fair value of the SERP investments recorded in Other Income (Expense) is offset by the revaluation of the SERP liability recorded in Selling and Administrative Expenses, and thus there is no effect on net income.

Previous wording

Our provision (benefit) for income taxes for the six months ended December 31, 2025 and December 31, 2024 was $4.3 million, or 23.7% of income before taxes on income, and $(0.2) million, or (3.6)% of income before taxes on income, respectively. The tax benefit in the six months ended December 31, 2024 is primarily the result of the valuation allowance reversal recorded in period associated with the expected capital gains from the sale of the Tampa property.

Current wording

Our provision (benefit) for income taxes for the nine months ended March 31, 2026 and March 31, 2025 was $7.3 million, or 27.4% of income before taxes on income, and $3.1 million, or 23.0% of income before taxes on income, respectively.

Previous wording

Open orders were relatively flat when comparing December 31, 2025 to December 31, 2024. Open orders at a point in time may not be indicative of future sales trends due to the contract nature of our business.

Current wording

Open orders declined by 6% when comparing March 31, 2026 to March 31, 2025. Open orders at a point in time may not be indicative of future sales trends due to the contract nature of our business.

Previous wording

Working capital at December 31, 2025 was $378.5 million compared to working capital of $381.0 million at June 30, 2025. The current ratio was 2.2 at December 31, 2025 and 2.2 at June 30, 2025. The debt-to-equity ratio was 0.3 at December 31, 2025 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 $363.0 million at December 31, 2025 and $373.5 million at June 30, 2025.

Current wording

Working capital at March 31, 2026 was $371.9 million compared to working capital of $381.0 million at June 30, 2025. The current ratio was 2.1 at March 31, 2026 and 2.2 at June 30, 2025. The debt-to-equity ratio was 0.3 at March 31, 2026 and 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 $358.5 million at March 31, 2026 and $373.5 million at June 30, 2025.

Previous wording

The following table reflects the major categories of cash flows for the first six months of fiscal years 2026 and 2025.

Current wording

The following table reflects the major categories of cash flows for the first nine months of fiscal years 2026 and 2025.

Previous wording

Net cash provided by operating activities for the first six months of fiscal year 2026 was driven by net income adjusted for non-cash items, partially offset by changes in operating assets and liabilities. Net cash provided by operating activities for the first six months of the prior year was driven by net income adjusted for non-cash items and changes in operating assets and liabilities.

Current wording

Net cash provided by operating activities for the first nine months of fiscal year 2026 was driven by net income adjusted for non-cash items, partially offset by changes in operating assets and liabilities. Net cash provided by operating activities for the first nine months of the prior year was driven by net income adjusted for non-cash items and changes in operating assets and liabilities.

Previous wording

Net income adjusted for non-cash items provided cash of $34.4 million in the first six months of fiscal year 2026, while changes in operating assets and liabilities used $19.4 million of cash in the first six months of fiscal year 2026, largely due to a decrease in advances from customers, which used cash of $10.8 million and an increase in contract assets, which used cash of $7.9 million.

Current wording

Net income adjusted for non-cash items provided cash of $52.7 million in the first nine months of fiscal year 2026, while changes in operating assets and liabilities used $22.8 million of cash in the first nine months of fiscal year 2026, largely due to a decrease in advances from customers, which used cash of $13.2 million and an increase in receivables, which used cash of $9.8 million. Partially offsetting cash used for advances from customers and receivables was an increase in accounts payable, which provided cash of $15.1 million.

Previous wording

Net income adjusted for non-cash items provided cash of $28.1 million in the first six months of fiscal year 2025, while changes in operating assets and liabilities provided $46.8 million of cash in the first six months of fiscal year 2025, largely due to a decrease of accounts receivable, which provided cash of $45.5 million, and a decrease of inventory, which provided cash of $28.0 million. Partially offsetting cash provided by accounts receivable and inventory was a decrease in accrued expenses and taxes payable, which used cash of $27.1 million primarily driven by timing of profit-sharing incentive bonus and income tax payments.

Current wording

Net income adjusted for non-cash items provided cash of $40.0 million in the first nine months of fiscal year 2025, while changes in operating assets and liabilities provided $65.9 million of cash in the first nine months of fiscal year 2025, largely due to a decrease of accounts receivable, which provided cash of $32.5 million, and a decrease of inventory, which provided cash of $39.9 million. Partially offsetting cash provided by accounts receivable and inventory was a decrease in accrued expenses and taxes payable, which used cash of $19.7 million primarily driven by timing of profit-sharing incentive bonus and income tax payments.

Previous wording

Net cash used by investing activities of $24.4 million in the first six months of fiscal year 2026 was largely due to capital investments of $28.7 million. The capital investments were primarily for the new medical facility in Indianapolis as well as to support new business awards and replacement of older machinery and equipment.

Current wording

Net cash used by investing activities of $38.1 million in the first nine months of fiscal year 2026 was largely due to capital investments of $43.2 million. The capital investments were primarily for the new medical facility in Indianapolis as well as to support new business awards and facility improvements.

Previous wording

Net cash used by investing activities of $1.2 million in the first six months of fiscal year 2025 was largely due to capital investments of $20.0 million primarily to support new business awards and replacement of older machinery and equipment, 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.

Current wording

Net cash used by investing activities of $5.2 million in the first nine months of fiscal year 2025 was largely due to capital investments of $24.0 million primarily to support new business awards and replacement of older machinery and equipment, 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.

Previous wording

For the first six months of fiscal year 2026, net cash used for financing activities of $2.1 million resulted largely from repurchases of our common stock under an authorized repurchase plan and the remittance of tax withholdings on share-based payments partially offset by net borrowings on our credit facilities of $6.7 million. For the first six months of fiscal year 2025, net cash used for financing activities of $97.3 million resulted largely from net payments on our credit facilities of $89.8 million.

Current wording

For the first nine months of fiscal year 2026, net cash provided by financing activities of $2.5 million resulted largely from net borrowings on our credit facilities of $15.4 million partially offset by repurchases of our common stock under an authorized repurchase plan and the remittance of tax withholdings on share-based payments. For the first nine months of fiscal year 2025, net cash used for financing activities of $126.6 million resulted largely from net payments on our credit facilities of $116.1 million.

Previous wording

See Note 8 - 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, and debt covenants.

Current wording

Subsequent to March 31, 2026, the Company entered into an amended and restated credit agreement on April 30, 2026 to its existing primary credit facility. This amendment and restatement changes the maturity date of the revolving credit borrowings from May 4, 2027 to April 30, 2031. See Note 8 - 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.

Previous wording

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. In the six months ended December 31, 2025 and 2024, we sold, without recourse, $144.1 million and $169.0 million of accounts receivable, respectively.

Current wording

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. In the nine months ended March 31, 2026 and 2025, we sold, without recourse, $208.7 million and $236.2 million of accounts receivable, respectively.

Previous wording

During the fourth quarter of fiscal year 2025, we entered into an accounts receivable factoring program with a financial institution 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 Receivables Purchase Agreement (the “RPA”) on a weekly basis to the financial institution that purchased the receivables. Our risks with respect to receivables we service include commercial disputes regarding such receivables and no greater than 5% of sold and outstanding receivables in the event of customer insolvency. In the six months ended December 31, 2025, under this program, we sold $57.4 million of receivables. See Note 1 - Business Description and Summary of Significant Accounting Policies of Notes to Condensed Consolidated Financial Statements for more information regarding the factoring arrangements.

Current wording

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 nine months ended March 31, 2026, under this program, we sold $100.1 million of receivables. See Note 1 - Business Description and Summary of Significant Accounting Policies of Notes to Condensed Consolidated Financial Statements for more information regarding the factoring arrangements.

Previous wording

As of December 31, 2025, following several quarters of strong cash generated from operating activities and debt reduction, we are in a much improved liquidity position with $77.9 million in cash and unused borrowings in USD equivalent under all of our credit facilities of $285.1 million. Additionally, considering expected future sources of liquidity from cash generated from operations and proceeds from the sale of the Tampa facility, we are positioned to meet our working capital and other operating needs for at least the next twelve months.

Current wording

As of March 31, 2026, following several quarters of strong cash generated from operating activities and debt reduction, we are in a much improved liquidity position with $82.5 million in cash and unused borrowings in USD equivalent under all of our credit facilities of $276.0 million. Additionally, considering expected future sources of liquidity from cash generated from operations and proceeds from the completed sale of the Tampa facility, we are positioned to meet our working capital and other operating needs for at least the next twelve months.

Previous wording

We expect to continue to prudently invest in capital expenditures, including for capacity expansions and potential acquisitions, that would help us continue our growth as a multifaceted manufacturing solutions company. At December 31, 2025, our capital expenditure commitments were approximately $16.0 million, consisting primarily of capital related to new program wins and leasehold improvements on our new medical facility. We anticipate our available liquidity will be sufficient to fund these capital expenditures.

Current wording

We expect to continue to prudently invest in capital expenditures, including for capacity expansions and potential acquisitions, that would help us continue our growth as a multifaceted manufacturing solutions company. At March 31, 2026, our capital expenditure commitments were approximately $8.5 million, consisting primarily of capital related to new program wins and leasehold improvements on our new medical facility. We anticipate our available liquidity will be sufficient to fund these capital expenditures.

Previous wording

At December 31, 2025, our foreign operations held cash totaling $77.5 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. The Company asserts permanent reinvestment of foreign earnings in all our foreign jurisdictions with the exception of earnings from our China operation beginning in 2025 and thereafter.

Current wording

At March 31, 2026, our foreign operations held cash totaling $81.8 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. The Company asserts permanent reinvestment of foreign earnings in all our foreign jurisdictions with the exception of earnings from our China operation beginning in 2025 and thereafter.

Previous wording

The Company’s Repurchase Plan allows the repurchase of up to $120 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 $109.5 million of common stock under the Repurchase Plan through December 31, 2025.

Current wording

The Company’s Repurchase Plan allows the repurchase of up to $120 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 $113.5 million of common stock under the Repurchase Plan through March 31, 2026.

Previous wording

During the second quarter of 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 9 - Fair Valueof Notes to Condensed Consolidated Financial Statements for additional information.

Current wording

During the third quarter of 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 9 - Fair Valueof Notes to Condensed Consolidated Financial Statements for additional information.