Kimball Electronics, Inc.KE
Kimball Electronics, Inc. Income Taxes Disclosure
Income Taxes
On July 4, 2025, the One Big Beautiful Bill Act (“2025 U.S. tax reform”) was enacted into law. The 2025 U.S. Tax reform contains several key tax laws, including extensions and modifications of the Tax Cuts and Jobs Act. In accordance with ASC 740, Income Taxes, the Company is required to recognize the effect of the tax law changes in the period of enactment, such as remeasuring the estimated U.S. deferred tax assets and liabilities, as well as potential impacts to previously existing valuation allowances. The legislation has multiple effective dates, with certain provisions effective in fiscal year 2026 and others implemented through fiscal year 2028. The Company is in the process of assessing the impacts from the 2025 U.S. tax reform.
The U.S. Tax Cuts and Jobs Act (“Tax Reform”) was enacted into law on December 22, 2017, making broad and complex changes to the U.S. tax code. Tax Reform required a one-time transition tax on certain unremitted earnings of foreign subsidiaries that is payable over an eight-year period. As of June 30, 2025 and 2024, the remaining provision recorded for the one-time deemed repatriation tax were $3.3 million and $5.9 million, respectively. The remaining $3.3 million is payable in fiscal year 2026 and is recorded in Accrued expenses on the Consolidated Balance Sheet.
Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.
The components of the deferred tax assets and liabilities as of June 30, 2025 and 2024, were as follows, amounts as of June 30, 2024 exclude $11.1 million of deferred tax assets and $1.2 million of deferred tax liabilities classified as held for sale:
| (Amounts in Thousands) | 2025 | 2024 | |||||||||
| Deferred Tax Assets: | |||||||||||
| Receivables | $ | 336 | $ | 244 | |||||||
| Inventory | 2,252 | 2,465 | |||||||||
| Employee benefits | 322 | 378 | |||||||||
| Deferred compensation | 7,224 | 8,046 | |||||||||
| Capitalized research and development | 10,180 | 5,682 | |||||||||
| Tax credit carryforwards | 9,650 | 6,171 | |||||||||
Capital Loss | 5,259 | — | |||||||||
| Net operating loss carryforward | 4,676 | 364 | |||||||||
| Net foreign currency losses | 90 | 12 | |||||||||
| Business interest carryforward | 6,919 | 3,396 | |||||||||
| Asset impairment | — | 4,099 | |||||||||
| Miscellaneous | 4,672 | 3,509 | |||||||||
| Valuation Allowance | (16,418) | (9,242) | |||||||||
| Total asset | $ | 35,162 | $ | 25,124 | |||||||
| Deferred Tax Liabilities: | |||||||||||
| Property and equipment | 8,101 | 4,100 | |||||||||
Goodwill | 535 | 477 | |||||||||
| Miscellaneous | 1,336 | 799 | |||||||||
| Total liability | $ | 9,972 | $ | 5,376 | |||||||
| Net Deferred Income Taxes | $ | 25,190 | $ | 19,748 | |||||||
Since fiscal year 2023, we have capitalized research and development expenses that are required to be capitalized as an amortizable asset under Section 174 of the Internal Revenue Code and amortized over a period of five years. This requirement is based on the implementation of Tax Reform effective in tax years beginning as of January 1, 2022. As of June 30, 2025 and 2024, we have a net deferred tax asset from capitalized research and development expenses of $10.2 million and $5.7 million, respectively.
Income tax benefits associated with the net operating loss carryforwards expire from fiscal year 2030 to 2045. Income tax benefits associated with tax credit carryforwards primarily expire from fiscal year 2026 to 2045. A valuation allowance was provided as of June 30, 2025 and 2024 for deferred tax assets related to certain state credits of $7.2 million and $5.8 million, respectively. As of June 30, 2025 and 2024, we have full valuation allowances of $6.9 million and $3.4 million, respectively on the business interest carryforward deferred tax asset, following a determination that it is not more likely than not that it will be realized. Additionally, in fiscal year 2025, we recorded a deferred tax asset from the capital loss on the sale of GES for $5.3 million, on which a $2.3 million valuation allowance has been provided. See Note 3 - Sale of GES for further information regarding the sale. Except as reserved for in the valuation allowance, we believe our deferred income taxes are more likely than not to be realized in the future.
The components of income before taxes on income are as follows:
| Year Ended June 30 | |||||||||||||||||
| (Amounts in Thousands) | 2025 | 2024 | 2023 | ||||||||||||||
| United States | $ | (9,681) | $ | (35,055) | $ | (6,269) | |||||||||||
| Foreign | 35,910 | 60,254 | 81,013 | ||||||||||||||
| Total income before taxes on income | $ | 26,229 | $ | 25,199 | $ | 74,744 | |||||||||||
The Company currently operates international jurisdictions which expose the Company to taxation in various regions. The Company continually evaluates its global cash needs. Most of our accumulated unremitted foreign earnings have been invested in active non-U.S. business operations. The aggregate unremitted earnings of the Company’s foreign subsidiaries were approximately $451 million as of June 30, 2025. 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. During fiscal year 2025, the Company changed its indefinite reinvestment assertion for our subsidiary in China, and has recorded a deferred tax liability on their earnings for the applicable withholding taxes. The Company continues to assert permanent reinvestment of foreign earnings in all other foreign jurisdictions as well as for earnings prior to fiscal year 2025 for China.
The provision for income taxes is composed of the following items:
| Year Ended June 30 | |||||||||||||||||
| (Amounts in Thousands) | 2025 | 2024 | 2023 | ||||||||||||||
| Current Taxes: | |||||||||||||||||
| Federal | $ | (2,034) | $ | 2,024 | $ | 2,681 | |||||||||||
| Foreign | 12,097 | 12,372 | 15,560 | ||||||||||||||
| State | (1,688) | 587 | 824 | ||||||||||||||
| Total payable | $ | 8,375 | $ | 14,983 | $ | 19,065 | |||||||||||
| Deferred Taxes: | |||||||||||||||||
| Federal | $ | (3,344) | $ | (12,280) | $ | (2,554) | |||||||||||
| Foreign | (1,701) | 91 | 3,281 | ||||||||||||||
| State | (1,261) | (3,094) | (1,597) | ||||||||||||||
| Valuation allowance | 7,176 | 4,988 | 718 | ||||||||||||||
| Total deferred | $ | 870 | $ | (10,295) | $ | (152) | |||||||||||
| Total provision for income taxes | $ | 9,245 | $ | 4,688 | $ | 18,913 | |||||||||||
A reconciliation of the statutory U.S. income tax rate to the Company’s effective income tax rate follows:
Year Ended June 30 | |||||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||||||||||||||||||||
| (Amounts in Thousands) | Amount | % | Amount | % | Amount | % | |||||||||||||||||||||||||||||
| Tax computed at U.S. federal statutory rate | $ | 5,508 | 21.0 | % | $ | 5,292 | 21.0 | % | $ | 15,696 | 21.0 | % | |||||||||||||||||||||||
| State income taxes, net of federal income tax benefit | (2,810) | (10.7) | (2,433) | (9.7) | (762) | (1.0) | |||||||||||||||||||||||||||||
| Foreign tax rate differential | 2,267 | 8.6 | 592 | 2.3 | 410 | 0.5 | |||||||||||||||||||||||||||||
| Impact of foreign exchange rates on foreign income taxes | 637 | 2.4 | (995) | (3.9) | 1,868 | 2.5 | |||||||||||||||||||||||||||||
| Valuation allowance | 7,176 | 27.4 | 4,988 | 19.8 | 718 | 1.0 | |||||||||||||||||||||||||||||
Asset impairment/Disposal | (4,732) | (18.0) | (2,882) | (11.4) | — | — | |||||||||||||||||||||||||||||
| Research credit | (1,479) | (5.6) | (1,150) | (4.6) | (1,147) | (1.5) | |||||||||||||||||||||||||||||
| Global intangible low tax income | 2,913 | 11.1 | 1,339 | 5.3 | 1,387 | 1.9 | |||||||||||||||||||||||||||||
| Non-deductible compensation | 244 | 0.9 | 385 | 1.5 | 235 | 0.3 | |||||||||||||||||||||||||||||
| Other - net | (479) | (1.9) | (448) | (1.7) | 508 | 0.6 | |||||||||||||||||||||||||||||
| Total provision for income taxes | $ | 9,245 | 35.2 | % | $ | 4,688 | 18.6 | % | $ | 18,913 | 25.3 | % | |||||||||||||||||||||||
The Asset impairment/Disposal line in the table above includes, in fiscal year 2024, the tax effects of recording deferred tax assets resulting from the impairment recorded following the held for sale classification of GES. In fiscal year 2025, the line reflects the $5.3 million tax benefit on the capital loss from the GES sale as well as the tax impact of other adjustments to GES deferred tax assets following the disposal. See Note 3 - Sale of GES for further information regarding the sale.
Changes in the unrecognized tax benefit, excluding accrued interest and penalties, during fiscal years 2025, 2024, and 2023 were as follows:
| (Amounts in Thousands) | 2025 | 2024 | 2023 | ||||||||||||||
| Beginning balance - July 1 | $ | 216 | $ | 408 | $ | 402 | |||||||||||
| Tax positions related to prior fiscal years: | |||||||||||||||||
| Additions | 5 | 10 | 39 | ||||||||||||||
| Reductions | — | — | — | ||||||||||||||
| Tax positions related to current fiscal year: | |||||||||||||||||
| Additions | — | — | — | ||||||||||||||
| Reductions | — | — | — | ||||||||||||||
| Settlements | — | — | — | ||||||||||||||
| Lapses in statute of limitations | (55) | (202) | (33) | ||||||||||||||
| Ending balance - June 30 | $ | 166 | $ | 216 | $ | 408 | |||||||||||
| Portion that, if recognized, would reduce tax expense and effective tax rate | $ | 131 | $ | 182 | $ | 368 | |||||||||||
We do not expect the change in the amount of unrecognized tax benefits in the next 12 months to have a significant impact on our results of operations or financial position. We recognize interest and penalties related to unrecognized tax benefits in Provision for Income Taxes on the Consolidated Statements of Income.
Interest and penalties accrued for unrecognized tax benefits were $0.6 million at each of June 30, 2025, 2024, and 2023 . Expenses related to interest and penalties in fiscal years 2025, 2024, and 2023 were not material.
The Company or its wholly-owned subsidiaries file U.S. federal income tax returns and income tax returns in various state, local, and foreign jurisdictions. We are no longer subject to any significant U.S. federal tax examinations by tax authorities for years before fiscal year 2022. We are subject to income tax examinations by various, state, local, and foreign jurisdiction tax authorities for years after June 30, 2020.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Aug 22, 2025 | Showing above |
| 2024 | Aug 23, 2024 | |
| 2023 | Aug 24, 2023 | |
| 2022 | Aug 30, 2022 | |
| 2021 | Aug 27, 2021 | |
| 2020 | Aug 27, 2020 | |
| 2019 | Aug 27, 2019 | |
| 2018 | Aug 28, 2018 | |
| 2017 | Aug 29, 2017 | |
| 2016 | Aug 25, 2016 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.