Kimball Electronics, Inc. (Form: 10-K, Received: 08/28/2018 17:12:05)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended June 30, 2018

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 001-36454



KIMBALL ELECTRONICS, INC.
(Exact name of registrant as specified in its charter)
Indiana		35-2047713
(State or other jurisdiction of		(I.R.S. Employer Identification No.)
incorporation or organization)
1205 Kimball Boulevard, Jasper, Indiana		47546
(Address of principal executive offices)		(Zip Code)
(812) 634-4000
Registrant’s telephone number, including area code



Securities registered pursuant to Section 12(b) of the Act:
Title of each Class		Name of each exchange on which registered
Common Stock, no par value		The NASDAQ Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act: None



Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes o No x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o	Accelerated filer x
Non-accelerated filer o	Smaller reporting company o
(Do not check if a smaller reporting company)	Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

The aggregate market value of the common stock held by non-affiliates, as of December 29, 2017 (the last business day of the Registrant’s most recently completed second fiscal quarter), was $473.5 million based on 96.3% of common stock held by non-affiliates.

The number of shares outstanding of the Registrant’s common stock as of August 15, 2018 was 26,381,318 shares.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for the Annual Meeting of Share Owners to be held on November 8, 2018 , are incorporated by reference into Part III.

KIMBALL ELECTRONICS, INC.

FORM 10-K INDEX



		Page No.

PART I

Item 1.	Business	3
Item 1A.	Risk Factors	8
Item 1B.	Unresolved Staff Comments	18
Item 2.	Properties	18
Item 3.	Legal Proceedings	18
Item 4.	Mine Safety Disclosures	18
Executive Officers of the Registrant		19

PART II

Item 5.	Market for Registrant’s Common Equity, Related Share Owner Matters and Issuer Purchases of Equity Securities	20
Item 6.	Selected Financial Data	22
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	35
Item 8.	Financial Statements and Supplementary Data	36
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	70
Item 9A.	Controls and Procedures	70
Item 9B.	Other Information	70

PART III

Item 10.	Directors, Executive Officers and Corporate Governance	71
Item 11.	Executive Compensation	71
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Share Owner Matters	71
Item 13.	Certain Relationships and Related Transactions, and Director Independence	72
Item 14.	Principal Accounting Fees and Services	72

PART IV

Item 15.	Exhibits, Financial Statement Schedules	73
Item 16.	Form 10-K Summary	73
SIGNATURES		76

PART I

Item 1 - Business

General

As used herein, the terms “Company,” “Kimball Electronics,” “we,” “us,” or “our” refer to Kimball Electronics, Inc., the Registrant, and its subsidiaries. Reference to a year relates to a fiscal year, ended June 30 of the year indicated, rather than a calendar year unless the context indicates otherwise. Additionally, references to the first, second, third, and fourth quarters refer to those respective quarters of the fiscal year indicated.

Forward-Looking Statements

This document contains certain forward-looking statements. These are statements made by management, using their best business judgment based upon facts known at the time of the statements or reasonable estimates, about future results, plans, or future performance and business of the Company. Such statements involve risk and uncertainty, and their ultimate validity is affected by a number of factors, both specific and general. They should not be construed as a guarantee that such results or events will, in fact, occur or be realized as actual results may differ materially from those expressed in these forward-looking statements. The statements may be identified by the use of words such as “believes,” “anticipates,” “expects,” “intends,” “plans,” “projects,” “estimates,” “forecasts,” “seeks,” “likely,” “future,” “may,” “might,” “should,” “would,” “will,” and similar expressions. It is not possible to foresee or identify all factors that could cause actual results to differ from expected or historical results. We make no commitment to update these factors or to revise any forward-looking statements for events or circumstances occurring after the statement is issued, except as required by law.

The risk factors discussed in Item 1A - Risk Factors of this report could cause our results to differ materially from those expressed in forward-looking statements. There may be other risks and uncertainties that we are unable to predict at this time or that we currently do not expect to have a material adverse effect on our business. Any such risks could cause our results to differ materially from those expressed in forward-looking statements.

At any time when we make forward-looking statements, we desire to take advantage of the “safe harbor” which is afforded such statements under the Private Securities Litigation Reform Act of 1995 where factors could cause actual results to differ materially from forward-looking statements.

Overview

Kimball Electronics was founded in 1961 and was incorporated in 1998. We are a global provider of contract electronic manufacturing services, including engineering and supply chain support, to customers in the automotive, medical, industrial, and public safety end markets. We offer a package of value that begins with our core competency of producing “durable electronics” and have expanded into diversified contract manufacturing services for non-electronic components, medical disposables, plastics, and metal fabrication. This package of value includes our set of robust processes and procedures that help us ensure that we deliver the highest levels of quality, reliability, and service throughout the entire life cycle of our customers’ products. We believe our customers appreciate our body of knowledge as it relates to the design and manufacture of their products that require durability, reliability, the highest levels of quality control, and regulatory compliance. We deliver award-winning service from our highly integrated global footprint which is enabled by a largely common operating system, a standardization strategy, global procedures, and teamwork. Our Customer Relationship Management (“CRM”) model is key to providing our customers convenient access to our global footprint and all of our services throughout the entire product life cycle, making us easy to do business with. Because our customers are in businesses where engineering changes must be tightly controlled and long product life cycles are common, our track record of quality, financial stability, social responsibility, and commitment to long-term relationships is important to them.

We have been producing safety critical electronic assemblies for our automotive customers for over 30 years. During this time, we have built up a body of knowledge that has not only proven to be valuable to our automotive customers, but to our medical, industrial, and public safety customers as well. We have been successful in growing and diversifying our business by leveraging our automotive experience and know-how in the areas of design and process validation, traceability, process and change control, and lean manufacturing to create valuable and innovative solutions for new customers in the medical, industrial, and public safety end market verticals. These solutions include diversified contract manufacturing services as we now offer our customers design engineering and manufacturing expertise in precision metals and plastics. We have harmonized our quality systems to be compliant with various important industry certifications and regulatory requirements. This allows us to take advantage of other strategic points of leverage in the supply chain and within our operations so we can cost-effectively manufacture electronic and non-electronic products in the same production facility for customers from all four of our end market verticals.

Many of our customers are multinational companies that sell their products in multiple regions of the world. For these customers, it is important for them to be able to leverage their investment in their supply partner relationships such that the same partner provides them with engineering, manufacturing, and supply chain support in multiple regions of the world. It is common for us to manufacture the same product for the same customer in multiple locations. Our strategy for expanding our global footprint has aligned us with the preferences of the customers in our four end market verticals and has positioned us well to support their global growth initiatives. Our global systems, procedures, processes, and teamwork combined with our CRM model have allowed us to accomplish this goal for many of our largest customers.

Our global processes and central functions that support component sourcing, procurement, quoting, and customer pricing provide commonality and consistency among the various regions in which we operate. We have a central, global sourcing organization that utilizes procurement processes and practices to help secure sources from around the world and to ensure sufficient availability of components and a uniform approach to pricing while leveraging the purchase volume of the entire organization. Customer pricing for all of the products we produce is managed centrally utilizing a standardized quoting model regardless of where our customers request their products to be produced.

Our CRM model combines members of our team from within our manufacturing facilities and members of our business development team who reside remotely and nearer to our customers around the world. We also have cross functional teams in the areas of quality, operational excellence, quoting, and design engineering with representatives from our various locations that provide support to our teams on a global basis. The skill sets of these team members and the clarity in their roles and responsibilities help provide our customers with a strong conduit that is critical to execution and forming a strong relationship. We have institutionalized a customer scorecard process that provides all levels of our company with valuable feedback that helps us drive the actions for continuous improvement. Our customer scorecard process has helped us deliver award-winning service and build loyalty with our customers.

Our corporate headquarters is located at 1205 Kimball Boulevard, Jasper, Indiana. Production occurs in our facilities located in the United States, China, Mexico, Poland, Romania, and Thailand.

Our services are sold globally on a contract basis, and we produce products to our customers’ specifications. Our manufacturing services primarily include:


•	Design services and support;


•	Supply chain services and support;


•	Rapid prototyping and new product introduction support;


•	Product design and process validation and qualification;


•	Industrialization and automation of manufacturing processes;


•	Reliability testing (testing of products under a series of extreme environmental conditions);


•	Production and testing of printed circuit board assemblies (PCBAs);


•	Assembly, production, and packaging of medical disposables and other non-electronic products;


•	Design engineering and production of precision plastics and metal fabrication; and


•	Complete product life cycle management.

We pride ourselves on the fact that we pay close attention to the evolving needs and preferences of our customers. As we have done in the past, we will continue to look for opportunities to grow and diversify our business by expanding our package of value and our global footprint.

Spin-Off

Kimball Electronics, Inc. was a wholly owned subsidiary of Kimball International, Inc. (“former Parent” or “Kimball International”) and on October 31, 2014 became a stand-alone public company upon the completion of a spin-off from former Parent. In conjunction with the spin-off, on October 31, 2014, Kimball International distributed 29.1 million shares of Kimball Electronics common stock to Kimball International Share Owners. Holders of Kimball International common stock received three shares of Kimball Electronics common stock for every four shares of Kimball International common stock held on October 22, 2014. Kimball International structured the distribution to be tax free to its U.S. Share Owners for U.S. federal income tax purposes.

Reporting Segment

Operating segments are defined as components of an enterprise for which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision making group, in deciding how to allocate resources and in assessing performance. Each of our business units qualifies as an operating segment with its results regularly reviewed by our chief operating decision maker. Our chief operating decision maker is our Chief Executive Officer. Our business units meet the aggregation criteria under the current accounting guidance for segment reporting. As of June 30, 2018 , all of our business units operate in the electronic manufacturing services industry that provide electronic assemblies and/or components primarily in automotive, medical, industrial, and public safety applications, all 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, all have similar characteristics. Each of our business units service customers in multiple markets and many of our customers’ programs are manufactured and serviced by multiple business units. Our global processes such as component procurement and customer pricing provide commonality and consistency among the various regions in which we operate. All of our business units have similar long-term economic characteristics. As such, our business units have been aggregated into one reportable segment. See Item 6 - Selected Financial Data for more information regarding the Company’s financial results.

Our Business Strategy

We intend to achieve sustained, profitable growth in the markets we serve by supporting the global growth initiatives of our customers, and we will continue our development beyond the electronic manufacturing services (“EMS”) market to become a multifaceted manufacturing solutions company. Key elements of executing our strategy include:


•	Leveraging Our Global Footprint – continue our strategy of utilizing our presence in key global regions, including new potential country locations and/or facility expansion as our customer demands dictate;


•	Expanding Our Package of Value – enhance our core strengths and expand upon our package of value through diversified contract manufacturing services in areas such as complex system assembly, specialized processes, precision metals, and plastics; and


•	Expanding Our Markets - explore opportunities that will establish new markets, platforms, and technologies beyond the EMS market such as the automation, test, and measurement systems market.

To expand our markets and implement our new platform strategy, we expect to make investments that will help us develop beyond the EMS market, including through acquisitions. As part of this strategy, we entered into an agreement on May 11, 2018 with GES Holdings, Inc., Global Equipment Services and Manufacturing, Inc., and its subsidiaries (collectively referred to as “GES”) to acquire substantially all of the assets and assume certain liabilities of GES. We will pay a cash purchase price of approximately $50 million plus the assumed liabilities, and the transaction price is subject to certain post-closing working capital adjustments. The GES acquisition is expected to close in the first quarter of our fiscal year 2019, subject to customary closing conditions, including regulatory requirements and governmental approvals. The GES acquisition supports our new platform strategy as GES specializes in production processing and test equipment design, volume manufacturing, and global services for the semiconductor and electronics product manufacturing industry. See Item 1A - Risk Factors for risks associated with this acquisition and Note 2 - Acquisitions of Notes to Consolidated Financial Statements for more information on this pending acquisition.

Our Business Offerings

We offer contract electronic manufacturing services, including engineering and supply chain support, to customers in the automotive, medical, industrial, and public safety end market verticals. We also offer diversified contract manufacturing services for non-electronic components, medical disposables, plastics, and metal fabrication. Our services support the complete product life cycle of our customers’ products, and our processes and capabilities cover a range of products from high volume-low mix to high mix-low volume. We collaborate with third-party design services companies to bring innovative, complete design solutions to our customers. We offer Design for Excellence input to our customers as a part of our standard package of value. We use sophisticated software tools to integrate the supply chain in a way that provides our customers with the flexibility their business requires. Our robust new product introduction process and our extensive manufacturing capabilities give us the ability to execute to the quality and reliability expectations in the electronics manufacturing industry.

We value our customers and their unique needs and expectations. Our customer focus and dedication to unparalleled excellence in engineering and manufacturing has resulted in proven success in the contract manufacturing industry. Personal relationships are important to us. We strive to build long-term global partnerships. Our commitment to support our customers is backed by our history and demonstrated performance over the past 50 years.

Marketing Channels

Manufacturing services, including engineering and supply chain support, are marketed by our business development team. We use a CRM model to provide our customers with convenient access to our global footprint and all of our services throughout the entire product life cycle.

Major Competitive Factors

Key competitive factors in the EMS market include competitive pricing, quality and reliability, engineering design services, production flexibility, on-time delivery, customer lead time, test capability, and global presence. Growth in the EMS industry is created through the proliferation of electronic components in today’s advanced products and the continuing trend of original equipment manufacturers in the electronics industry subcontracting the assembly process to companies with a core competency in this area. The nature of the EMS industry is such that the start-up of new customers and new programs to replace expiring programs occurs frequently. New customer and program start-ups generally cause losses early in the life of a program, which are generally recovered as the program becomes established and matures. We continue to experience margin pressures related to an overall excess capacity position in the electronics subcontracting services market and from our customers’ own capacity and capabilities to in-source production. Our continuing success depends upon our ability to replace expiring customers/programs with new customers/programs.

We do not believe that we, or the industry in general, have any special practices or special conditions affecting working capital items that are significant for understanding our EMS business other than fluctuating inventory levels which may increase in conjunction with transfers of production among facilities and start-up of new programs.

Our Competitive Strengths

Our competitive strengths derive from our experience of producing safety critical electronic assemblies for automotive customers for over 30 years and leveraging this experience to create valuable and innovative solutions for customers in different industries. Our core strengths include:


•	Our core competency of producing durable electronics;


•	Our body of knowledge as it relates to the design and manufacture of products that require high levels of quality control, reliability, and durability;


•	Our highly integrated, global footprint;


•	Our capability to provide our customers diversified contract manufacturing services for non-electronic components, medical disposables, plastics, and metal fabrication;


•	Our CRM model and our customer scorecard process;


•	Our ability to provide our customers with valuable input regarding designs for improved manufacturability, reliability, and cost;


•	Our quality systems, industry certifications, and regulatory compliance;


•	Our integrated supply chain solutions and competitive bid process resulting in competitive raw material pricing; and


•	Complete product life cycle management.

Competitors

The EMS industry is very competitive as numerous manufacturers compete for business from existing and potential customers. Our competition includes EMS companies such as Benchmark Electronics, Inc., Jabil Inc., and Plexus Corp. We do not have a significant share of the EMS market and were ranked the 19 ^th largest global EMS provider for calendar year 2017 by Manufacturing Market Insider in the March 2018 edition published by New Venture Research.

Locations

As of June 30, 2018 , we have nine manufacturing facilities with three located in Indiana and one located in each of Florida, China, Mexico, Poland, Romania, and Thailand. We continually assess our capacity needs and evaluate our operations to optimize our service levels for supporting our customers’ needs around the globe. During fiscal year 2016, the construction of our greenfield facility in Romania was completed. We recently acquired certain assets and assumed certain liabilities of two contract manufacturing companies located in Indiana, one during fiscal year 2017 and one during fiscal year 2016. See Item 1A - Risk Factors for information regarding financial and operational risks related to our international operations, acquisitions, and start-up operations. Financial information by geographic area for each of the three years in the period ended June 30, 2018 is included in Note 15 - Geographic Information of Notes to Consolidated Financial Statements.

Seasonality

Sales revenue of our EMS business is generally not affected by seasonality.

Customers

While the total electronic assemblies market has broad applications, our customers are concentrated in the automotive, medical, industrial, and public safety industries.

Sales by industry as a percent of net sales for each of the three years in the period ended June 30, 2018 were as follows:



	Year Ended June 30
	2018	2017	2016
Automotive	44%	41%	39%
Medical	29%	28%	30%
Industrial	20%	22%	22%
Public Safety	6%	7%	7%
Other	1%	2%	2%
Total	100%	100%	100%

See Note 15 - Geographic Information of Notes to Consolidated Financial Statements for financial information reported by geographic area.

Included in our sales were a significant amount to ZF, Philips, and Nexteer Automotive, which accounted for the following portions of net sales:



	Year Ended June 30
	2018	2017	2016
ZF	15%	12%	11%
Philips	13%	14%	15%
Nexteer Automotive	13%	12%	*

* amount is less than 10% of total

The nature of the contract business is such that start-up of new customers to replace expiring customers occurs frequently. Our agreements with customers are often not for a definitive term and are amended and extended, but generally continue for the relevant product’s life cycle, which can be difficult to predict at the beginning of a program. Typically, our customer agreements do not commit the customer to purchase our services until a purchase order is provided, which are generally short-term in nature. Our customers generally have the right to cancel a particular program subject to contractual provisions governing termination, the final product runs, excess or obsolete inventory, and end-of-life pricing, which reduces the additional costs that we incur when a manufacturing services agreement is terminated.

Backlog

The aggregate sales price of production pursuant to worldwide open orders, which in certain cases may be canceled by the customer subject to contractual termination provisions, was $293.1 million and $214.3 million as of June 30, 2018 and 2017 , respectively. Substantially all of the open orders as of June 30, 2018 are expected to be filled within the next fiscal year. Open orders may not be indicative of future sales trends.

Raw Materials

Raw materials utilized in the manufacture of contract electronic products are generally readily available from both domestic and foreign sources, although from time to time the industry experiences shortages of certain components due to supply and demand forces, combined with rapid product life cycles of certain components. In addition, unforeseen events such as natural disasters can and have disrupted portions of the supply chain. We believe that maintaining close communication with suppliers helps minimize potential disruption in our supply chain.

Raw materials are normally acquired for specific customer orders and may or may not be interchangeable among products. Inherent risks associated with rapid technological changes within this contract industry are mitigated by procuring raw materials, for the most part, based on firm orders. 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 which is purchased prior to having a firm order. We may also purchase additional inventory to support new product introductions and transfers of production between manufacturing facilities.

Research and Development

Research and development activities include the development of manufacturing processes, engineering and testing procedures, major process improvements, and information technology initiatives.

Research and development costs were approximately:



	Year Ended June 30
(Amounts in Millions)	2018	2017	2016
Research and Development Costs	$11	$10	$9

Intellectual Property

Our primary intellectual property is our proprietary manufacturing technology and processes which allow us to provide very competitive electronic manufacturing services to our customers. As such, this intellectual property is complex and normally contained within our facilities. The nature of this know-how does not lend itself well to traditional patent protection. In addition, we feel the best protection strategy involves maintaining our intellectual property as trade secrets because there is no disclosure of the information to outside parties, and there is no expiration on the length of protection. For these reasons, we do not own any patents that we consider significant to our business, and our only registered trademark is the “Kimball” name as registered in certain categories relating to our electronics manufacturing and design services, which were assigned to us by former Parent.

Environment and Energy Matters

Our operations are subject to various foreign, federal, state, and local laws and regulations with respect to environmental matters. We believe that we are in substantial compliance with present laws and regulations and that there are no material liabilities related to such items.

We are dedicated to excellence, leadership, and stewardship in protecting the environment and communities in which we have operations. We believe that continued compliance with foreign, federal, state, and local laws and regulations which have been enacted relating to the protection of the environment will not have a material effect on our capital expenditures, earnings, or competitive position. Management believes capital expenditures for environmental control equipment during the two fiscal years ending June 30, 2020 will not represent a material portion of total capital expenditures during those years.

Our operations require significant amounts of energy, including natural gas and electricity. Federal, foreign, and state regulations may control the allocation of fuels available to us, but to date we have experienced no interruption of production due to such regulations.

Employees

As of June 30, 2018 , Kimball Electronics employed approximately 5,700 people worldwide, with approximately 1,100 located in the United States and approximately 4,600 located in foreign countries. Our U.S. operations are not subject to collective bargaining arrangements. Most of our foreign operations are subject to collective bargaining arrangements, many mandated by government regulation or customs of the particular countries. We believe that our employee relations are good.

Available Information

The Company makes available free of charge through its website, http://investors.kimballelectronics.com, its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements, and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with, or furnished to, the Securities and Exchange Commission (“SEC”). All reports the Company files with the SEC are also available via the SEC website, http://www.sec.gov, or may be read and copied at the SEC Public Reference Room located at 100 F Street, N.E., Washington, D.C. 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. 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.

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.

Risks Relating to Our Business

Uncertain macroeconomic and industry conditions could adversely impact demand for our products and services and adversely affect operating results.

Market demand for our products and services, which impacts revenues and gross profit, is influenced by a variety of economic and industry factors such as:


•	instability of the global financial markets;


•	uncertainty of worldwide economic conditions;


•	volatile energy costs;


•	erosion of global consumer confidence;


•	general corporate profitability of our end markets;


•	credit availability to our customers and our customers’ end markets;


•	demand fluctuations in the industries we currently serve, including automotive, medical, industrial, and public safety;


•	demand for end-user products which include electronic assembly components produced by us;


•	excess capacity in the industries in which we compete; and


•	changes in customer order patterns, including changes in product quantities, delays in orders, or cancellation of orders.

We must make decisions based on order volumes in order to achieve efficiency in manufacturing capacities. These decisions include determining what level of additional business to accept, production schedules, component procurement commitments, and personnel requirements, among various other considerations. We must constantly monitor the changing economic landscape and may modify our strategic direction based upon the changing business environment. If we do not react quickly enough to the changes in market or economic conditions, it could result in lost customers, decreased market share, and increased operating costs.

Many countries, including certain of those in North America, Europe, and Asia in which we operate, have in the recent past experienced economic uncertainty, slow economic growth, or recession. The economic recovery of recent years may slow and recessionary conditions may return, which could result in our customers or potential customers reducing or delaying orders as well as a number of other negative effects on our business, such as increased pricing pressures, the insolvency of suppliers, which could cause production delays, the inability of customers to obtain credit, or the insolvency of customers. In addition, the uncertainties of the market and economic conditions, both in Europe and worldwide, caused by the United Kingdom’s pending exit from the European Union could also have an adverse effect on our business and results of operations.

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.

Reduction of purchases by or the loss of one or more key customers could reduce revenues and profitability.

Losses of key contract customers within specific industries or significant volume reductions from key contract customers are both risks. If one of our current customers merges with or is acquired by a party that currently is aligned with a competitor, or the combination creates excess capacity, we could lose future revenues. 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 2018 , 2017 , and 2016 . Regardless of whether our agreements with our customers, including our significant customers, have a definite term, our customers typically do not have an obligation to purchase a minimum quantity of products or services as individual purchase orders or other product or project specific documentation are typically entered into from time to time. Our customers generally have the right to cancel a particular product, subject to contractual provisions governing the final product runs, excess or obsolete inventory, and end-of-life pricing. As such, our ability to continue the relationships with such customers is uncertain.

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. In addition, the nature of the contract electronics manufacturing industry is such that the start-up of new customers and new programs to replace expiring programs occurs frequently, and new customer and program start-ups generally cause losses early in the life of a program. We can provide no assurance that we will be able to fully replace any lost sales, which could have an adverse effect on our financial position, results of operations, or cash flows.

We operate in a highly competitive environment and may not be able to compete successfully.

Numerous manufacturers within the EMS 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 EMS providers. In the past, some of our customers have decided to in-source a portion of their electronics 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.

As of June 30, 2018, we are no longer an “emerging growth company” and are therefore subject to the auditor attestation requirement in the assessment of our internal control over financial reporting and certain other increased disclosure and governance requirements.

Because our total annual gross revenues exceed $1.07 billion as of June 30, 2018, we are no longer an “emerging growth company,” as defined in the JOBS Act. Therefore, we are now subject to certain requirements that apply to other public companies but did not previously apply to us due to our status as an emerging growth company. These requirements include:


•	compliance with the auditor attestation requirement in the assessment of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act;


•	compliance with any new rules that may be adopted by the Public Company Accounting Oversight Board;


•	compliance with any new or revised financial accounting standards applicable to public companies without an extended transition period;


•	full disclosure regarding executive compensation required of larger public companies; and


•	compliance with the requirement of holding a nonbinding advisory vote on executive compensation and obtaining Share Owner approval of any golden parachute payments not previously approved.

Failure to comply with these requirements could subject us to enforcement actions by the SEC, divert management’s attention, damage our reputation, and adversely affect our business, results of operations, or financial condition. In particular, if our independent registered public accounting firm is not able to render the required attestation, it could result in lost investor confidence in the accuracy, reliability, and completeness of our financial reports. We expect that the loss of “emerging growth company” status and compliance with these increased requirements will require management to expend additional time while also condensing the time frame available to comply with certain requirements, which may further increase our legal and financial compliance costs.

We may be unable to purchase a sufficient amount of materials, parts, and components for use in our products 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. The financial stability of suppliers is monitored by us when feasible as the loss of a significant supplier could have an adverse impact on our operations. Suppliers adjust their capacity as demand fluctuates, and component shortages and/or component allocations could occur. Certain components purchased by us 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. Price increases of commodity components could have an adverse impact on our profitability if we cannot offset such increases with other cost reductions or by price increases to customers. Materials utilized in our manufacturing process are generally available, but future availability is unknown and could impact our ability to meet customer order requirements. If suppliers fail to meet commitments to us in terms of price, delivery, or quality, it could interrupt our operations and negatively impact our ability to meet commitments to customers.

Our operating results could be adversely affected by increases in the cost of fuel and other energy sources.

The cost of energy is a critical component of freight expense and the cost of operating manufacturing facilities. Increases in the cost of energy could reduce our profitability.

We are subject to manufacturing inefficiencies due to start-up of new programs, transfer of production, and other factors.

At times, we may experience labor or other manufacturing inefficiencies due to factors such as start-up of new programs, transfers of production among our manufacturing facilities, a sudden decline in sales, a new operating system, or turnover in personnel. Manufacturing inefficiencies could have an adverse impact on our financial position, results of operations, or cash flows.

A change in our sales mix among various products could have a negative impact on our gross profit margin.

Changes in product sales mix could negatively impact our gross margin as margins of different products vary. We strive to improve the margins of all products, but certain products have lower margins in order to price the product competitively or in connection with the start-up of a new program. An increase in the proportion of sales of products with lower margins could have an adverse impact on our financial position, results of operations, or cash flows.

We may implement future restructuring efforts and those efforts may not be successful.

We continually evaluate our manufacturing capabilities and capacities in relation to current and anticipated market conditions. We may implement restructuring plans in the future, and the successful execution of those restructuring initiatives will be dependent on various factors and may not be accomplished as quickly or effectively as anticipated.

We will face risks commonly encountered with growth through acquisitions.

Our sales growth plans may occur through both organic growth and acquisitions. Acquisitions involve many risks, including:


•	difficulties in identifying suitable acquisition candidates and in negotiating and consummating acquisitions on terms attractive to us;


•	difficulties in the assimilation of the operations of the acquired company;


•	the diversion of resources, including diverting management’s attention from our current operations;


•	risks of entering new geographic or product markets in which we have limited or no direct prior experience;


•	the potential loss of key customers of the acquired company;


•	the potential loss of key employees of the acquired company;


•	the potential incurrence of indebtedness to fund the acquisition;


•	the potential issuance of common stock for some or all of the purchase price, which could dilute ownership interests of our current Share Owners;


•	the acquired business not achieving anticipated revenues, earnings, cash flow, or market share;


•	excess capacity;


•	the assumption of undisclosed liabilities;


•	potential adverse tax effects; and


•	dilution of earnings.

We may not be successful in launching start-up operations.

We are committed to growing our business, and therefore from time to time, we may determine that it would be in our best interest to start up a new operation. Start-up operations involve a number of risks and uncertainties, such as funding the capital expenditures related to the start-up operation, developing a management team for the new operation, diversion of management focus away from current operations, and creation of excess capacity. Any of these risks could have a material adverse effect on our financial position, results of operations, or cash flows.

If efforts to start-up new programs are not successful, this could limit sales growth or cause sales to decline.

As we depend on industries that utilize technologically advanced electronic components which often have short life cycles, we must continue to invest in advanced equipment and product development to remain competitive in this area. The start-up of new programs requires the coordination of the design and manufacturing processes. 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 program may be delayed, less successful than we originally anticipated, or not successful at all. Difficulties or delays in starting up new programs or lack of customer acceptance of such programs could limit sales growth or cause sales to decline and adversely impact our operating results.

Our international operations involve financial and operational risks.

We have 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:


•	economic and political instability, including the uncertainties caused by the United Kingdom’s pending exit from the European Union;


•	warfare, riots, terrorism, and other forms of violence or geopolitical disruption;


•	compliance with laws, such as the Foreign Corrupt Practices Act, applicable to U.S. companies doing business outside the United States;


•	changes in U.S. or foreign policies, regulatory requirements, and laws;


•	tariffs and other trade barriers, including tariffs recently imposed by the United States as well as responsive tariffs imposed by China and the European Union;


•	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. In addition, 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.

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. To the extent we have excess cash in foreign locations that could be used in, or is needed by, our operations in the United States, we may incur significant penalties and/or taxes to repatriate these funds.

If customers do not perceive our engineering and manufacturing services to be innovative and of high quality, our reputation could suffer.

We believe that establishing and maintaining a good reputation is critical to our business. Promotion and enhancement of our name will depend on the effectiveness of marketing and advertising efforts and on successfully providing innovative and high quality electronic engineering and manufacturing services. If customers do not perceive our services to be innovative and of high quality, our reputation could suffer, which could have a material adverse effect on our business.

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, or manufacturing delays could adversely affect our cash flow from operations.

We may not be able to achieve maximum utilization of our manufacturing capacity.

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. As a result, at times it can be difficult for us to schedule production and maximize utilization of our manufacturing capacity. Fluctuations and deferrals of customer orders may have a material adverse effect on our ability to utilize our fixed capacity and thus negatively impact our operating margins.

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. 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 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, further acquisitions may cause our effective tax rate to increase. 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. For example, on December 22, 2017, the United States enacted the Tax Cuts and Jobs Act (“Tax Reform”), which includes a number of significant changes to previous U.S. tax laws that impact us, including provisions for a one-time transition tax on deemed repatriation of undistributed foreign earnings and a reduction in the corporate tax rate from 35% to 21%, among other changes. Tax Reform also transitions U.S. international taxation from a worldwide system to a modified territorial system and includes base erosion prevention measures on non-U.S. earnings.

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. Risks associated with transfer pricing adjustments are further highlighted by the global initiative from the Organization for Economic Cooperation and Development (“OECD”) known as the Base Erosion and Profit Shifting (“BEPS”) project. The BEPS project is challenging longstanding international tax norms regarding the taxation of profits from cross-border business. Given the scope of our international operations and the fluid and uncertain nature of how the BEPS project might ultimately lead to future legislation, it is difficult to assess how any changes in tax laws would impact our income tax expense.

A failure to comply with the financial covenants under our primary credit facility could adversely impact us.

Our primary credit facility requires us to comply with certain financial covenants. We believe the most significant covenants under this credit facility are the ratio of consolidated indebtedness minus unencumbered U.S. cash on hand in the United States in excess of $15 million to adjusted consolidated EBITDA, as defined in the credit facility, and the fixed charge 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, 2018 , we had $6.0 million in short-term borrowings under this credit facility and had total cash and cash equivalents of $46.4 million . In the future, a default on the financial covenants under our credit facility 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.

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 data privacy laws and physical security measures.

The operation of our business depends on effective information technology systems, which 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. As we could be the target of cyber and other security threats, 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 maintain and enhance existing systems and to 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 success of such training.

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. In addition, new data privacy laws and regulations, including the new European Union General Data Protection Regulation (“GDPR”), effective May 25, 2018, pose increasingly complex compliance challenges and potentially elevate costs, and any failure to comply with these laws and regulations could result in significant penalties.

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 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.

We may be sued by third parties for alleged infringement of their intellectual property rights and incur substantial litigation or other costs.

We may be sued by third parties who allege that our products or services infringe their intellectual property rights. Such claims, regardless of their merits, could result in substantial costs and diversion of resources in the defense or settlement of such claims. In the event of a claim upheld against us, we may be required to spend a significant amount of money and effort to develop non-infringing alternatives or obtain and maintain licenses. We may not be successful in developing such alternatives or obtaining or maintaining such licenses on reasonable terms or at all, which could have a material adverse effect on our results of operations, financial position, and cash flows.

Our insurance may not adequately protect us from liabilities related to product defects.

We maintain product liability and other insurance coverage that we believe to be generally in accordance with industry practices. However, our insurance coverage may not be adequate to protect us fully against substantial claims and costs that may arise from liabilities related to product defects, particularly if we have a large number of defective products or if the root cause is disputed.

Our failure to maintain Food and Drug Administration (FDA) registration of one or more of our registered manufacturing facilities could negatively impact our ability to produce products for our customers in the medical industry.

To maintain FDA registration, Kimball Electronics is subject to FDA audits of the manufacturing process. FDA audit failure could result in a partial or total suspension of production, fines, or criminal prosecution. Failure or noncompliance could have an adverse effect on our reputation in addition to an adverse impact on our financial position, results of operations, or cash flows.

We are subject to extensive environmental regulation and significant potential environmental liabilities.

The past and present operation and ownership by Kimball Electronics of manufacturing plants and real property are subject to extensive and changing federal, state, local, and foreign environmental laws and regulations, including those relating to discharges in air, water, and land, the handling and disposal of solid and hazardous waste, the use of certain hazardous materials in the production of select products, and the remediation of contamination associated with releases of hazardous substances. In addition, the increased prevalence of global climate change concerns may result in new regulations that may negatively impact us. We cannot predict what environmental legislation or regulations will be enacted in the future, how existing or future laws or regulations will be administered or interpreted, or what environmental conditions may be found to exist. Compliance with more stringent laws or regulations, or stricter interpretation of existing laws, may require additional expenditures, some of which could be material. In addition, any investigations or remedial efforts relating to environmental matters could involve material costs or otherwise result in material liabilities.

Our failure to retain the existing management team, maintain our engineering, technical, and manufacturing process expertise, or continue to attract qualified personnel could adversely affect our business.

We depend significantly on our executive officers and other key personnel. The unexpected loss of the services of any one of these executive officers or other key personnel may have an adverse effect on us.

Our success also depends on keeping pace with technological advancements and adapting services to provide manufacturing capabilities which meet customers’ changing needs. Therefore, we must retain our qualified engineering and technical personnel and successfully anticipate and respond to technological changes in a cost effective and timely manner. Our culture and guiding principles focus on continuous training, motivating, and development of employees, and we strive to attract, motivate, and retain qualified personnel. Failure to retain and attract qualified personnel could adversely affect our business.

Availability of manufacturing labor and turnover in personnel could cause manufacturing inefficiencies and increase operating costs.

The demand for manufacturing labor and the low unemployment rate in certain geographic areas in which we operate makes recruiting new production employees and retaining experienced production employees difficult. Shortage of production workers could adversely impact our ability to complete our customers’ orders on a timely basis, which could adversely affect our relations with customers, potentially resulting in reduction in orders from customers or loss of customers. Turnover in personnel could result in additional training and inefficiencies that could adversely impact our operating results.

Natural disasters or other catastrophic events may impact our production schedules and, in turn, negatively impact profitability.

Natural disasters or other catastrophic events, including severe weather, terrorist attacks, power interruptions, and fires, could disrupt operations and likewise our ability to produce or deliver products. Our manufacturing operations require significant amounts of energy, including natural gas and oil, and governmental regulations may control the allocation of such fuels to Kimball Electronics. 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 delayed or lost revenue for our services. In addition, any continuing disruption in our computer systems could adversely affect the ability to receive and process customer orders, manufacture products, and ship products on a timely basis, and could adversely affect relations with customers, potentially resulting in reduction in orders from customers or loss of customers. We maintain insurance to help protect us from costs relating to some of these matters, but such may not be sufficient or paid in a timely manner to us in the event of such an interruption.

Imposition of government regulations may significantly increase our operating costs in the United States and abroad.

Legislative and regulatory reforms by the U.S. federal and foreign governments could significantly impact the profitability of Kimball Electronics by burdening us with forced cost choices that cannot be recovered by increased pricing or, if we increase our pricing, this could negatively impact demand for our products. For example:


•	International Traffic in Arms Regulations (ITAR) must be followed when producing defense related products for the U.S. government. A breach of these regulations could have an adverse impact on our financial condition, results of operations, or cash flows.


•	Foreign regulations are increasing in many areas such as data privacy, hazardous waste disposal, labor relations, and employment practices.

•

Changes in policies by the U.S. or other governments could negatively affect our operating results due to changes in duties, tariffs or taxes, or limitations on currency or fund transfers, as well as government-imposed restrictions on producing certain products in, or shipping them to, specific countries. For example, our facility in Mexico operates under the Mexican Maquiladora (“IMMEX”) program. This program provides for reduced tariffs and eased import regulations. We could be adversely affected by changes in the IMMEX program or our failure to comply with its requirements. As another example, the U.S. government has recently imposed tariffs on certain products imported from China as well as steel and aluminum imported from the European Union, Mexico, and Canada. China and the European Union have imposed tariffs on U.S. products in retaliation. These tariffs could force our customers or us to consider various strategic options including, but not limited to, looking for different suppliers, shifting production to facilities in different geographic regions, absorbing the additional costs, or passing the cost on to customers. Ultimately, these tariffs could adversely affect the competitiveness of our domestic operations, which could lead to the reduction or exit of certain U.S. manufacturing capacity. The U.S. government has also indicated its intent to renegotiate certain existing trade agreements and impose additional tariffs on automotive imports. Depending on the types of changes made, demand for our foreign manufacturing facilities could be reduced, or operating costs in our U.S. manufacturing facilities could be increased, which could negatively impact our financial performance. Moreover, any retaliatory actions by other countries where we operate could also negatively impact our financial performance.

SEC “Conflict Minerals” regulation may increase our costs and reduce our sales levels.

As a result of the Dodd-Frank Act, the SEC adopted rules establishing due diligence, disclosure, and reporting requirements for public companies which manufacture products that include components containing certain minerals referred to as “conflict minerals.” Since certain products we manufacture for our customers contain such minerals, we are required to determine, disclose, and report whether or not such minerals in our products originate from the Democratic Republic of Congo (“DRC”) and adjoining countries. Such regulations could decrease the availability and increase the prices of components used in our products, particularly if we choose (or are required by our customers) to source such components from different suppliers. In addition, as our supply chain is complex and the process to comply with the SEC rules is cumbersome, the ongoing compliance process is both time-consuming and costly. We may face reduced sales if we are unable to timely verify the origins of minerals contained in the components included in our products, or supply disruptions if our due diligence process reveals that materials we source contain minerals that originated in the DRC or adjoining countries.

Risks Relating to the Spin-Off

If the distribution pursuant to the spin-off does not qualify as a tax-free transaction, tax could be imposed on the Share Owners and former Parent, and we may be required to indemnify former Parent for its tax.

In connection with the spin-off, former Parent received (i) a ruling from the Internal Revenue Service (the “IRS”) that the Parent stock unification will not cause Parent to recognize income or gain as a result of the distribution; and (ii) an opinion of Squire Patton Boggs (US) LLP to the effect that the distribution satisfies the requirements to qualify as a tax-free transaction for U.S. federal income tax purposes under Section 355 of the Code. However, the validity of both the IRS ruling and the tax opinion is subject to the accuracy of factual representations and assumptions provided by former Parent and us in connection with obtaining the IRS ruling and the tax opinion, including with respect to post-spin-off operations and conduct of the parties. Neither former Parent nor we are aware of any facts or circumstances that would cause these statements or representations to be incomplete or untrue or cause the facts on which the opinion is based to be materially different from the facts at the time of the spin-off. However, if these representations and assumptions are inaccurate or incomplete in any material respect, including those relating to the past and future conduct of the business, then we will not be able to rely on the IRS ruling or the tax opinion.

Furthermore, the tax opinion is not binding on the Internal Revenue Service or the courts. Accordingly, the IRS or the courts may reach conclusions with respect to the spin-off that are different from the conclusions reached in the opinion. If, notwithstanding our receipt of the tax opinion, the spin-off is determined to be taxable, then (i) former Parent would be subject to tax as if it sold the Kimball Electronics common stock in a taxable sale for its fair market value; and (ii) each Share Owner who received Kimball Electronics common stock would be treated as receiving a distribution of property in an amount equal to the fair market value of the Kimball Electronics common stock that would generally result in varied tax liabilities for each Share Owner depending on the facts and circumstances.

Pursuant to the Tax Matters Agreement entered into in connection with the spin-off, (i) we agreed (a) not to enter into any transaction that could cause any portion of the spin-off to be taxable to former Parent, including under Section 355(e) of the Code; and (b) to indemnify former Parent for any tax liabilities resulting from such transactions; and (ii) former Parent agreed to indemnify us for any tax liabilities resulting from such transactions entered into by former Parent. In addition, under U.S. Treasury regulations, each member of former Parent’s consolidated group at the time of the spin-off (including us and our

subsidiaries) is jointly and severally liable for the resulting U.S. federal income tax liability if all or a portion of the spin-off does not qualify as a tax-free transaction, and we have agreed to indemnify former Parent for a portion of certain tax liabilities incurred in connection with the spin-off under certain circumstances. These obligations may discourage, delay, or prevent a change of control of our company.

We currently share directors with former Parent, which means the overlap may give rise to conflicts.

Certain members of our Board of Directors serve as directors of former Parent, but the overlapping directors do not constitute a majority of our Board members. These directors may have actual or apparent conflicts of interest with respect to matters involving or affecting us or former Parent. For example, there could be the potential for a conflict of interest when we or former Parent look at acquisitions and other corporate opportunities that may be suitable for both companies. Also, conflicts may arise if there are issues or disputes under the commercial arrangements that may exist between former Parent and us. Our Board of Directors and the Board of Directors of former Parent will review and address any potential conflict of interests that may arise between former Parent and us. Although no specific measures to resolve such conflicts of interest have been formulated, our Board of Directors and the Board of Directors of former Parent have a fiduciary obligation to deal fairly and in good faith. Our Board of Directors exercises reasonable judgment and takes such steps as they deem necessary under all of the circumstances in resolving any specific conflict of interest which may occur and will determine what, if any, specific measures, such as retention of an independent advisor, independent counsel, or special committee, may be necessary or appropriate. Any such conflict could have a material adverse effect on our business.

Risks Relating to Our Common Stock

Our stock price may fluctuate significantly.

The market price of our common stock may fluctuate widely, depending on many factors, some of which may be beyond our control, including:


•	actual or anticipated fluctuations in our operating results due to factors related to our business;


•	wins and losses on contract competitions and new business pursuits;


•	success or failure of our business strategy;


•	our quarterly or annual earnings, or those of other companies in our industry;


•	our ability to obtain financing as needed;


•	announcements by us or our competitors of significant acquisitions or dispositions;


•	changes in accounting standards, policies, guidance, interpretations or principles;


•	the failure of securities analysts to cover our common stock;


•	changes in earnings estimates by securities analysts or our ability to meet those estimates;


•	the operating and stock price performance of other comparable companies;


•	the changes in customer requirements for our products and services;


•	natural or environmental disasters that investors believe may affect us;


•	overall market fluctuations;


•	results from any material litigation or government investigation;


•	changes in laws and regulations affecting our business; and


•	general economic conditions and other external factors.

Stock markets in general have experienced volatility that has often been unrelated to the operating performance of a particular company. These broad market fluctuations, coupled with changes in results of operations and general economic, political, and market conditions, could adversely affect the trading price of our common stock.

Anti-takeover provisions in our organizational documents, the Tax Matters Agreement, and Indiana law could delay or prevent a change in control.

We have adopted the Amended and Restated Articles of Incorporation and the Amended and Restated Bylaws. Certain provisions of the Amended and Restated Articles of Incorporation and the Amended and Restated Bylaws 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, 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.

Under the Tax Matters Agreement entered into in connection with the spin-off, we have agreed not to enter into any transaction involving an acquisition (including issuance) of our common stock or any other transaction (or, to the extent we have the right to prohibit it, to permit any such transaction) that could cause the distribution pursuant to the spin-off to be taxable to former Parent. We have also agreed to indemnify former Parent for any tax resulting from any such transactions. Generally, former Parent will recognize taxable gain on the distribution if there are one or more acquisitions (including issuances) of our capital stock, directly or indirectly, representing 50% or more, measured by vote or value, of our then-outstanding capital stock, and the acquisitions or issuances are deemed to be part of a plan or series of related transactions that include the distribution. As a result, our obligations may limit our ability to pursue strategic transactions or engage in new business or other transactions that may maximize our business and might discourage, delay, or prevent a change of control of our company.

We cannot assure you that we will pay dividends on our stock in the future.

We have not paid any dividends on our common stock since the spin-off. The timing, declaration, amount, and payment of future dividends to our Share Owners will fall within the discretion of our Board of Directors and will depend on many factors, including our financial condition, results of operations and capital requirements, industry practice, and other business considerations that our Board of Directors considers relevant from time to time. In addition, our ability to declare or the amount of any future dividends may be restricted by the provisions of Indiana law and covenants in our primary credit facility. We do not have a plan to pay future dividends at this time. There can be no assurance that we will pay a dividend in the future or continue to pay any dividend if we do commence the payment of dividends. To the extent that expectations by market participants regarding the potential payment, or amount, of any dividend prove to be incorrect, the price of our common stock may be materially and negatively affected, and investors that bought shares of our common stock based on those expectations may suffer a loss on their investment.

Item 1B - Unresolved Staff Comments

None.

Item 2 - Properties

As of June 30, 2018 , we had nine manufacturing facilities with three located in Indiana and one located in each of Florida, China, Mexico, Poland, Romania, and Thailand. These facilities occupy approximately 1,221,000 square feet in aggregate, all of which are owned. In addition, we own two administration facilities in Indiana occupying approximately 48,000 square feet, which include our headquarters located in Jasper, Indiana. See Note 15 - Geographic Information of Notes to Consolidated Financial Statements for additional 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, not all facilities were utilized at normal capacity during fiscal year 2018 . We continually assess our capacity needs and evaluate our operations to optimize our service levels by geographic region. 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.

The Company holds land leases for our facilities in China and Thailand and a warehouse facility lease in Indiana, with these leases expiring from fiscal year 2021 to 2056 . See Note 5 - Commitments and Contingent Liabilities of Notes to Consolidated Financial Statements for additional information concerning leases. In addition, we own approximately 97 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 incidental to the business. The outcome of current routine pending litigation, individually and in the aggregate, is not expected to have a material adverse impact on our business or financial condition.

Item 4 - Mine Safety Disclosures

Not applicable.

Executive Officers of the Registrant

Our executive officers as of August 28, 2018 are as follows:

(Age as of August 28, 2018 )



Name	Age	Office and Area of Responsibility
Donald D. Charron	54	Chairman of the Board and Chief Executive Officer
Michael K. Sergesketter	58	Vice President, Chief Financial Officer
John H. Kahle	61	Vice President, General Counsel, Chief Compliance Officer, and Secretary
Christopher J. Thyen	55	Vice President, New Platforms
Jessica L. DeLorenzo	33	Vice President, Human Resources
Sandy A. Smith	55	Vice President, Information Technology
Janusz F. Kasprzyk	58	Vice President, European Operations
Steven T. Korn	54	Vice President, North American Operations
Roger Chang (Chang Shang Yu)	61	Vice President, Asian Operations
Desiree L. Castillejos	47	Vice President, Corporate Development and M&A, and Chief Strategy Officer
Kathy R. Thomson	49	Vice President, Global Business Development and Design Services

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. Charron is our Chairman of the Board and Chief Executive Officer. Prior to the spin-off, he served as an Executive Vice President of former Parent, a member of the Board of Directors of former Parent, and the President of the Kimball Electronics Group that now comprises Kimball Electronics following the spin-off. Mr. Charron had led the EMS segment of former Parent since joining former Parent in 1999. Mr. Charron’s extensive contract electronics industry experience prior to joining former Parent, as well as his intimate knowledge of former Parent’s EMS operations, provides valuable operational, strategic, and global market insights.

Mr. Sergesketter is our Vice President, Chief Financial Officer. Prior to the spin-off, he served as Vice President, Chief Financial Officer for Kimball Electronics Group that now comprises Kimball Electronics following the spin-off. Mr. Sergesketter had served in this role with former Parent since 1996.

Mr. Kahle is our Vice President, General Counsel, Chief Compliance Officer, and Secretary. Mr. Kahle was appointed Chief Compliance Officer in April 2016 in addition to his Vice President, General Counsel, and Secretary role. Prior to the spin-off, he served as Executive Vice President, General Counsel and Secretary of former Parent and had served in this role with former Parent since 2001.

Mr. Thyen was appointed our Vice President, New Platforms, in August 2018. Prior to this, he served as Vice President, Business Development since 2008.

Ms. DeLorenzo was appointed Vice President, Human Resources, effective June 29, 2018. Ms. DeLorenzo joined Kimball Electronics in 2015 in the position of Director, Organizational Development. Before joining Kimball Electronics, she held the position of Director, Student Services at Vincennes University since 2011.

Ms. Smith is our Vice President, Information Technology and has served in this role since 2004.

Mr. Kasprzyk is our Vice President, European Operations and has served in this role since 2008.

Mr. Korn is our Vice President, North American Operations and has served in this role since 2007.

Mr. Chang is our Vice President, Asian Operations and has served in this role since 2004.

Ms. Castillejos was appointed Vice President, Corporate Development and M&A, and Chief Strategy Officer effective August 13, 2018. Prior to joining Kimball Electronics, she held the position of Vice President, Corporate Development for Nokia Technology since 2016. Prior to Nokia Technology, she served as the Vice President, Corporate Development for Persistent Systems since 2010.

Ms. Thomson was appointed Vice President, Global Business Development and Design Services effective August 20, 2018. Previously Ms. Thomson held the position of Vice President of Business Development for Creation Technologies since 2012.

PART II

Item 5 - Market for Registrant’s Common Equity, Related Share Owner Matters and Issuer Purchases of Equity Securities

Market Prices

The Company’s common stock trades on the NASDAQ Global Select Market of The NASDAQ Stock Market LLC (“NASDAQ”) under the symbol: KE. High and low sales prices by quarter for the last two fiscal years, as quoted by the NASDAQ system, were as follows:



	2018				2017
	High		Low		High		Low
First Quarter	$	22.05	$	17.46	$	14.28	$	11.54
Second Quarter	$	22.45	$	18.14	$	19.00	$	13.38
Third Quarter	$	19.70	$	15.75	$	18.45	$	15.05
Fourth Quarter	$	19.70	$	15.80	$	18.90	$	15.90

The last reported sales price of our common stock on August 15, 2018 , as reported by NASDAQ, was $19.95 .

Dividends

We have not paid any dividends on our common stock since the spin-off. We do not have a plan to pay future dividends at this time.

Share Owners

On August 15, 2018 , the Company’s common stock was owned by approximately 1,294 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 of Directors (the “Board”) approved an 18-month stock repurchase plan, authorizing the repurchase of up to $20 million worth of our common stock. On September 26, 2016, the Board extended the stock repurchase plan authorizing the repurchase of up to an additional $20 million worth of common stock with no expiration date. On August 23, 2017, the Board increased the Plan to allow the repurchase of up to an additional $20 million worth of common stock with no expiration date. This latest increase brings the total authorized stock repurchases under the Plan to $60 million . At June 30, 2018 , $15.5 million remained available under the repurchase program.

During fiscal year 2018 , the Company has repurchased $9.4 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, 2018 .



Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plan	Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plan
April 1, 2018 - April 30, 2018	—	$	—	—	$	18,608,701
May 1, 2018 - May 31, 2018	52,177	$	18.61	52,177	$	17,637,743
June 1, 2018 - June 30, 2018	110,794	$	19.15	110,794	$	15,516,025
Total	162,971	$	18.98	162,971

Performance Graph

The following performance graph is not deemed to be “soliciting material” or to be “filed” with the SEC or subject to Regulation 14A or 14C under the Exchange Act or to the liabilities of Section 18 of the Exchange Act and will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent the Company specifically incorporates it by reference into such a filing.

The graph below compares the cumulative total return to Share Owners of the Company’s common stock from November 3, 2014, the first day of trading in the Company’s common stock, through June 30, 2018 , the last business day of the fiscal year, to the cumulative total return of the NASDAQ Stock Market (U.S.) and a peer group index for the same period of time. The peer group index is comprised of publicly traded companies in the EMS industry and includes: Benchmark Electronics, Inc., Flex Ltd., Jabil Inc., Plexus Corp., and Sanmina Corporation. The public companies included in the peer group each have a larger revenue base than we do.

The graph assumes $100 is invested in the Company’s stock and each of the two indexes at the closing market quotations on November 3, 2014 , the first day of trading in Kimball Electronics common stock, and that dividends, if any, are reinvested. The performances shown on the graph are not necessarily indicative of future price performance.



	11/03/2014		06/30/2015		06/30/2016		06/30/2017		06/30/2018
Kimball Electronics, Inc.	$	100.00	$	202.08	$	172.44	$	250.00	$	253.46
NASDAQ Stock Market (U.S.)	$	100.00	$	108.38	$	106.56	$	136.71	$	168.97
Peer Group Index	$	100.00	$	99.49	$	101.36	$	145.47	$	131.37

Item 6 - Selected Financial Data

This information should be read in conjunction with Item 8 - Financial Statements and Supplementary Data and Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations . The Consolidated Financial Statements for periods prior to the spin-off, which occurred on October 31, 2014, were derived from the accounting records of former Parent as if we operated on a stand-alone basis. Our historical results of operations, financial position, or cash flows presented in the Consolidated Financial Statements for periods prior to the spin-off may not be indicative of what they would have been had the Company operated as a stand-alone public company for the entirety of the periods presented.



	Year Ended June 30
(Amounts in Thousands, Except for Per Share Data)	2018		2017		2016		2015		2014
Consolidated Statements of Income Data:
Net Sales	$	1,072,061	$	930,914	$	842,060	$	819,350	$	741,530
Net Income ⁽¹⁾	$	16,752	$	34,179	$	22,287	$	26,205	$	24,613
Earnings Per Share: ⁽²⁾
Basic	$	0.63	$	1.25	$	0.77	$	0.90	$	0.84
Diluted	$	0.62	$	1.24	$	0.76	$	0.89	$	0.84

	As of June 30
(Amounts in Thousands)	2018		2017		2016		2015		2014
Consolidated Balance Sheet Data:
Total Assets	$	608,758	$	554,944	$	510,565	$	483,257	$	408,730
Long-Term Debt, Less Current Maturities	$	—	$	—	$	—	$	—	$	—

(1) Fiscal year 2018 net income included income tax expense of $17.9 million ( $0.66 per diluted share) due to the U.S. Tax Cuts and Jobs Act (“Tax Reform”) that was enacted into law in December 2017 and relates to the deemed repatriation of unremitted foreign earnings and the revaluation of net deferred tax assets.

Fiscal year 2017 net income included $2.5 million ( $0.09 per diluted share) of after-tax income resulting from settlements received related to an antitrust class action lawsuit in which the Company was a member and $0.9 million ( $0.03 per diluted share) of after-tax income resulting from the bargain purchase gain recognized in the acquisition of Aircom Manufacturing, Inc. See Note 2 - Acquisitions of Notes to Consolidated Financial Statements for more information regarding the acquisition and bargain purchase gain.

Fiscal year 2016 net income included a foreign income tax benefit of $1.8 million ($0.06 per diluted share) as a result of a favorable tax ruling related to the fiscal year 2015 capitalization of the Company’s Romania subsidiary and $0.1 million ($0.01 per diluted share) of after-tax expense related to the spin-off.

Fiscal year 2015 net income included $2.4 million ( $0.08 per diluted share) of after-tax expense related to the spin-off.

Fiscal year 2014 net income included $0.3 million ( $0.01 per diluted share) of after-tax restructuring expenses, $3.5 million ( $0.12 per diluted share) of after-tax income resulting from settlements received related to two antitrust class action lawsuits in which the Company was a member, and $2.2 million ( $0.08 per diluted share) of after-tax expense related to the spin-off.

(2) Basic and diluted earnings per share for the period ended prior to the spin-off on October 31, 2014 were retrospectively restated adjusting the number of Kimball Electronics shares outstanding for the stock split effective on October 16, 2014 to 29.1 million shares.

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

Business Overview

We are a global contract electronic manufacturing services (“EMS”) company that specializes in producing durable electronics for the automotive, medical, industrial, and public safety markets. We also offer diversified contract manufacturing services for non-electronic components, medical disposables, plastics, and metal fabrication. 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 EMS industry for our excellent quality, reliability, and innovative service, and we were named the 2016 EMS Company of the Year by CIRCUITS ASSEMBLY, a leading brand and technical publication for electronics manufacturers worldwide. In 2018, we were recognized for achieving the Highest Overall Customer Rating in CIRCUITS ASSEMBLY’s 2018 Service Excellence Awards.

The EMS industry is very competitive. As a mid-sized player in the EMS market, we can expect to be challenged by the agility and flexibility of the smaller, regional players, and we can expect to be challenged by the scale and price competitiveness of the larger, global players. We enjoy a unique market position between these extremes which allows us to compete with the larger scale players for high-volume projects, but also maintain our competitive position in the generally lower volume durable electronics market space. We expect to continue to effectively operate in this market space; however, one significant challenge will be maintaining our profit margins while we continue our revenue growth. Price increases are uncommon in the market as production efficiencies and material pricing advantages for most projects drive costs and prices down over the life of the projects. This characteristic of the contract electronics marketplace is expected to continue.

Key economic indicators currently point toward continued strengthening in the overall economy. However, uncertainties still exist and may pose a threat to our future growth as they have the tendency to cause disruption in business strategy, execution, and timing in many of the markets in which we compete. One such trend that the EMS industry is beginning to experience is component shortages and component allocations. Component shortages or allocations could increase component costs and potentially interrupt our operations and negatively impact our ability to meet commitments to customers. We are taking various actions to mitigate the risk and minimize the adverse effect the component shortages or allocations could have on our results and the impact to our customers. In addition, the impact from the recently imposed and additional proposed tariffs on components we utilize in our domestic manufacturing process, of which many currently can only be sourced via China, may adversely affect the competitiveness of our domestic operations.

The March 2018 edition of the Manufacturing Market Insider published by New Venture Research indicated the group of leading EMS companies that comprise its annual list of the 50 largest EMS providers for 2017, of which we are a member, experienced revenue growth of 11.4% in calendar year 2017. Excluding the two largest EMS providers, there was revenue growth of 8.0% in calendar year 2017. During calendar year 2017, we experienced growth of approximately 11%.

Our overall expectation for the EMS market is moderate growth with mixed demand. Our focus is on the four key vertical markets of automotive, medical, industrial, and public safety. Our current goal is to grow at an 8% annual organic growth rate.

The automotive end market has improved from both new product introductions and increased demand on existing products, and it continues to benefit from the trend of increasing electronic content that is placed in automobiles. The industrial market is showing improvement with increased end market demand for smart metering and climate control products. Overall in the public safety market, we have experienced mixed demand and may continue to see demand fluctuations as we wind down our International Traffic in Arms Regulations (ITAR) compliance programs and turn our focus to growth in our non-defense related business. Sales in the current fiscal year in the public safety market declined compared to the prior fiscal year resulting from programs reaching end of life, which more than offset increased volumes from new product introductions. In the medical market, growth was driven largely from new program launches in addition to an overall strengthening of the market. We continue to monitor the current economic environment and its potential impact on our customers.

We invest in capital expenditures prudently for projects in support of both organic growth and potential acquisitions that would enhance our capabilities and diversification while providing an opportunity for growth and improved profitability. For example, the acquisitions of Medivative Technologies, LLC (“Medivative”) and Aircom Manufacturing, Inc. (“Aircom”) within the last several fiscal years provide capabilities that will enhance our medical end market as well as support our mechanical assembly needs in all four key vertical markets by offering our customers design engineering and manufacturing expertise in precision metals and plastics. We have a strong focus on cost control and closely monitor market changes and our liquidity in order to proactively adjust our operating costs and discretionary capital spending as needed. Managing working capital in conjunction with fluctuating demand levels is likewise key. In addition, a long-standing component of our profit sharing incentive bonus plan is that it is linked to our financial performance which results in varying amounts of compensation expense as profits change.

As discussed in Item 1 - Business , we entered into an agreement on May 11, 2018 with GES Holdings, Inc., Global Equipment Services and Manufacturing, Inc., and its subsidiaries (collectively referred to as “GES”) to acquire substantially all of the assets and assume certain liabilities of GES. The pending GES acquisition supports our new platform strategy as GES specializes in production processing and test equipment design, volume manufacturing, and global services for the semiconductor and electronics product manufacturing industry. See Item 1A - Risk Factors for risks associated with this acquisition and Note 2 - Acquisitions of Notes to Consolidated Financial Statements for more information on this pending acquisition.

We continue to maintain a strong balance sheet as of the end of fiscal year 2018 , which included no long-term debt and Share Owners’ equity of $356 million . Our short-term liquidity available, represented as cash and cash equivalents plus the unused amount of our credit facilities, totaled $108.7 million at June 30, 2018 .

In addition to the above discussion related to the current market conditions, management currently considers the following events, trends, and uncertainties to be most important to understanding our financial condition and operating performance:


•	Due to the contract and project nature of the EMS industry, fluctuation in the demand for our products and variation in the gross margin on those projects is inherent to our business. Effective management of manufacturing capacity is, and will continue to be, critical to our success.

•

The nature of the EMS industry is such that the start-up of new customers and new programs to replace expiring programs occurs frequently. While our agreements with customers generally do not have a definitive term and thus could be canceled at any time with little or no notice, we generally realize relatively few cancellations prior to the end of the product’s life cycle. We attribute this to our focus on long-term customer relationships, meeting customer expectations, required capital investment, and product qualification cycle times. As such, our ability to continue contractual relationships with our customers, including our principal customers, is not certain. New customers and program start-ups generally cause losses early in the life of a program, which are generally recovered as the program becomes established and matures. Risk factors within our business include, but are not limited to, general economic and market conditions, customer order delays, globalization, impact related to tariffs and other trade barriers, foreign currency exchange rate fluctuations, rapid technological changes, component availability, supplier and customer financial stability, the contract nature of this industry, the concentration of sales to large customers, and the potential for customers to choose a dual sourcing strategy or to in-source a greater portion of their electronics manufacturing. The continuing success of our business is dependent upon our ability to replace expiring customers/programs with new customers/programs. We monitor our success in this area by tracking the number of customers and the percentage of our net sales generated from them by years of service as depicted in the table below. While variation in the size of program award makes it difficult to directly correlate this data to our sales trends, we believe it does provide useful information regarding our customer loyalty and new business growth. Additional risk factors that could have an effect on our performance are located within Item 1A - Risk Factors .



	Year End
Customer Service Years	2018		2017		2016
More than 10 Years
% of Net Sales	61	%	56	%	56	%
# of Customers	28		28		25
5 to 10 Years
% of Net Sales	28	%	36	%	38	%
# of Customers	18		22		29
Less than 5 Years
% of Net Sales	11	%	8	%	6	%
# of Customers	30		32		32
Total
% of Net Sales	100	%	100	%	100	%
# of Customers	76		82		86


•	Globalization continues to be a factor not only in the industries in which we operate but also for our key customers, suppliers, and competitors.


•	Employees throughout our business operations are an integral part of our ability to compete successfully, and the stability of the management team is critical to long-term Share Owner value. Our talent management and succession planning processes help to maintain stability in management.

Certain preceding statements could be considered forward-looking statements under the Private Securities Litigation Reform Act of 1995 and are subject to certain risks and uncertainties including, but not limited to, successful integration of acquisitions and new operations, adverse changes in the global economic conditions, the geopolitical environment, loss of key customers or suppliers, or similar unforeseen events. Additional risk factors that could have an effect on our performance are located within Item 1A - Risk Factors .

Results of Operations - Fiscal Year 2018 Compared with Fiscal Year 2017



	At or For the Year Ended
	June 30
(Amounts in Millions, Except for Per Share Data)	2018		as a % of Net Sales		2017		as a % of Net Sales		% Change
Net Sales	$	1,072.1			$	930.9			15	%
Gross Profit	$	86.2	8.0	%	$	75.6	8.1	%	14	%
Selling and Administrative Expenses	$	43.9	4.0	%	$	36.5	3.9	%	20	%
Other General Income	$	—			$	4.0
Operating Income	$	42.3	4.0	%	$	43.1	4.6	%	(2	)%
Provision for Income Taxes	$	28.0			$	10.1			178	%
Net Income	$	16.8			$	34.2			(51	)%
Diluted Earnings per Share	$	0.62			$	1.24
Open Orders	$	293.1			$	214.3			37	%



Net Sales by Vertical Market	For the Year Ended
	June 30
(Amounts in Millions)	2018		2017		% Change
Automotive	$	469.3	$	378.7	24	%
Medical	313.3		256.5		22	%
Industrial	217.0		205.6		6	%
Public Safety	61.3		70.1		(13	)%
Other	11.2		20.0		(44	)%
Total Net Sales	$	1,072.1	$	930.9	15	%

Net sales in fiscal year 2018 increased 15% compared to net sales in fiscal year 2017 primarily due to the ramp-up of new product introductions, an overall increase in demand, and the favorable effect of foreign exchange fluctuations on sales. By end market vertical, the increase in net sales was driven by double-digit sales growth to customers in the automotive and medical end markets, in addition to an increase in sales to customers in the industrial market vertical. Sales to customers in the automotive and the industrial markets both experienced record sales in the current fiscal year.

Sales to customers in the automotive market improved as demand in all of the Company’s geographic markets increased compared to the prior fiscal year, which included the ramp-up of new product introductions and increased demand for existing programs. Sales to customers in the medical market increased due to new program launches and stronger demand on existing products. Sales to customers in the industrial market improved largely due to new product launches related to smart metering and increased end market demand for climate control products, which more than offset decreases from the exit of certain programs. Sales to customers in the public safety market declined due to lower overall demand and certain programs reaching end of life.

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



	Year Ended June 30
	2018	2017
ZF	15%	12%
Philips	13%	14%
Nexteer Automotive	13%	12%

Open orders were up 37% as of June 30, 2018 compared to June 30, 2017 primarily as a result of a large increase of orders in the automotive market, which was in part due to new product introductions. Open orders are the aggregate sales price of production pursuant to unfulfilled customer orders, which may be canceled by the customer subject to contractual termination provisions. Substantially all of the open orders as of June 30, 2018 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.

Gross profit as a percent of net sales declined slightly to 8.0% in fiscal year 2018 from 8.1% in fiscal year 2017 primarily due to an unfavorable impact on yields and higher costs associated with the support of new product introductions in addition to unfavorable product mix, which were partially offset by the positive impact from leverage gained on higher revenue.

For fiscal year 2018 , selling and administrative expenses increased slightly as a percent of net sales and increased in absolute dollars compared to fiscal year 2017 . The current fiscal year selling and administrative expenses increased in absolute dollars from the prior fiscal year primarily due to higher salary and related payroll costs, which were largely due to an increase in the number of employees, higher incentive-based compensation, and higher factoring fees from our accounts receivable factoring arrangements. In addition, during fiscal year 2018, we incurred $0.9 million of incremental costs directly related to the pending acquisition of GES, which were expensed as incurred. This increase was partially offset by the lower expense from the supplemental employee retirement plan (“SERP”) in the current year. The SERP expense is a result of the revaluation of the SERP liability and is offset by the revaluation to fair value of the SERP investments recorded in Other Income (Expense).

Other General Income in fiscal year 2017 of $4.0 million resulted from a payment received related to the settlement of a class action lawsuit in which Kimball Electronics was a class member. The lawsuit alleged that certain suppliers to the EMS industry conspired over a number of years to raise and fix the prices of electronic components, resulting in overcharges to purchasers of those components. No Other General Income was recorded during fiscal year 2018.

Other Income (Expense) consisted of the following:



Other Income (Expense)	Year Ended
	June 30
(Amounts in Thousands)	2018			2017
Interest Income	$	73		$	64
Interest Expense	(527		)	(271		)
Foreign Currency/Derivative Gain (Loss)	2,358			(453		)
Gain on Supplemental Employee Retirement Plan Investment	712			1,006
Bargain Purchase Gain on Acquisition	—			925
Other	(189		)	(73		)
Other Income (Expense), net	$	2,427		$	1,198

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 was no effect on net income. The Foreign Currency/Derivative Gain (Loss) resulted from net foreign currency exchange rate movements. The Bargain Purchase Gain on Acquisition for fiscal year 2017 resulted from the Aircom acquisition as the consideration paid for Aircom was less than the estimated fair values of the assets acquired and liabilities assumed. See Note 2 - Acquisitions of Notes to Consolidated Financial Statements for more information regarding the Aircom acquisition.

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



	Year Ended June 30, 2018				Year Ended June 30, 2017
(Amounts in Thousands)	Income Before Taxes		Effective Tax Rate		Income Before Taxes		Effective Tax Rate
United States	$	5,609	329.2	%	$	10,051	25.6	%
Foreign	$	39,166	24.4	%	$	34,204	21.9	%
Total	$	44,775	62.6	%	$	44,255	22.8	%

In December 2017, the United States enacted the Tax Cuts and Jobs Act (“Tax Reform”), which lowered the U.S. corporate statutory tax rate from 35% to 21%. For fiscal year companies with a June 30 year end, the blended federal statutory tax rate for the current fiscal year ending June 30, 2018 is 28.1%. Due to the enactment of Tax Reform, we revalued our net deferred tax assets at the new applicable rates as of December 31, 2017, with measurement period adjustments subsequently recorded during the six-month period ended June 30, 2018, and we estimated and recorded tax on the one-time deemed repatriation on our accumulated unremitted foreign earnings during fiscal year 2018. While we expect the lower U.S. corporate statutory tax rate will lower our consolidated effective tax rate and have a favorable impact on our net income in the future, Tax Reform did have a significant unfavorable impact to our effective tax rate and our net income for fiscal year 2018 as the total provisional tax adjustments resulting from Tax Reform were $17.9 million , or $0.66 per diluted share.

The consolidated effective tax rate for fiscal year 2018 of 62.6% and the domestic effective tax rate were unfavorably impacted by Tax Reform, primarily driven by income tax expense of approximately $13.4 million for the deemed repatriation tax and approximately $4.4 million for the revaluation of our net deferred tax assets, which were both treated as provisional tax adjustments and recognized in Provision for Income Taxes on the Consolidated Statements of Income for fiscal year 2018. The Company considers these provisional recorded amounts to be reasonable estimates as of June 30, 2018. As a result, these amounts could be adjusted during the measurement period ending December 2018. Items partially offsetting the unfavorable impact from Tax Reform on the effective tax rate included the income tax adjustment related to the excess tax benefit on stock-based compensation granted during fiscal year 2018, which was recognized in accordance with the new accounting standard for share-based payment transactions, the high mix of earnings in foreign jurisdictions that have generally lower statutory rates than the United States, and the U.S. research and development tax credit.

Our overall effective tax rate will fluctuate depending on the geographic distribution of our worldwide earnings. See Note 9 - Income Taxes of Notes to Consolidated Financial Statements for more information, including additional information on Tax Reform. See Note 1 - Business Description and Summary of Significant Accounting Policies for information related to the excess tax benefit recognized in accordance with the new accounting standard for share-based payment transactions.

We recorded net income of $16.8 million in fiscal year 2018 , or $0.62 per diluted share, a decrease of 51% from fiscal year 2017 net income of $34.2 million , or $1.24 per diluted share, due to the reasons previously discussed.

Comparing the balance sheet as of June 30, 2018 to June 30, 2017 , our inventory balance increased $57.0 million primarily to support increased open orders and production volumes, the implementation of an inventory management program for one of our largest customers in the medical market, and additional purchases to help mitigate the potential impact from component shortages. Prepaid expenses and other current assets declined by $13.8 million primarily due to the new accounting standard that was prospectively adopted in the fourth quarter of our fiscal year 2018 which requires all deferred tax assets and liabilities to be classified as noncurrent on our balance sheet; this adoption reclassified $8.3 million from Prepaid expenses and other current assets to Other Assets as of June 30, 2018. Accounts payable increased $33.2 million largely from the increased inventory purchases to support increased production volumes. Long-term income taxes payable has a balance of $12.4 million at June 30, 2018 for the long-term portion of the deemed repatriation tax that is allowed to be paid over an eight-year period. Treasury stock, at cost increased $7.4 million due to stock repurchases under an authorized stock repurchase plan. See Note 1 - Business Description and Summary of Significant Accounting Policies for information related to the new accounting standard on the classification of deferred tax assets and liabilities.

Results of Operations - Fiscal Year 2017 Compared with Fiscal Year 2016



	At or For the Year Ended
	June 30
(Amounts in Millions, Except for Per Share Data)	2017		as a % of Net Sales		2016		as a % of Net Sales		% Change
Net Sales	$	930.9			$	842.1			11	%
Gross Profit	$	75.6	8.1	%	$	64.5	7.7	%	17	%
Selling and Administrative Expenses	$	36.5	3.9	%	$	34.8	4.2	%	5	%
Other General Income	$	4.0			$	—
Operating Income	$	43.1	4.6	%	$	29.7	3.5	%	45	%
Net Income	$	34.2			$	22.3			53	%
Diluted Earnings per Share	$	1.24			$	0.76
Open Orders	$	214.3			$	171.0			25	%



Net Sales by Vertical Market	For the Year Ended
	June 30
(Amounts in Millions)	2017		2016		% Change
Automotive	$	378.7	$	326.7	16	%
Medical	256.5		249.2		3	%
Industrial	205.6		186.6		10	%
Public Safety	70.1		61.1		15	%
Other	20.0		18.5		8	%
Total Net Sales	$	930.9	$	842.1	11	%

Net sales in fiscal year 2017 increased 11% compared to net sales in fiscal year 2016 primarily due to increased sales from new product awards and overall increased demand. The fiscal year 2017 increase in net sales over fiscal year 2016 was driven by sales growth to customers in all four of our end market verticals, with the sales to customers in the automotive market, industrial market, and public safety market experiencing double-digit growth.

Sales to customers in the automotive market improved as demand in all markets increased compared to fiscal year 2016, although we did experience a slow-down in the China market within the second half of fiscal year 2017. The increase in the automotive market demand over fiscal year 2016 was driven by the ramp-up of new product introductions and increased demand from existing customers. Sales to customers in the medical market increased as the sales from the recent acquisitions and new product introductions more than offset declines from existing products. Sales to customers in the industrial market improved largely due to increased end market demand for climate control products as well as new product launches related to smart metering. Sales to customers in the public safety market increased primarily due to new product awards and increased demand for existing products.

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



	Year Ended June 30
	2017	2016
Philips	14%	15%
ZF	12%	11%
Nexteer Automotive	12%	*

* amount is less than 10% of total

Open orders were up 25% as of June 30, 2017 compared to June 30, 2016 as open orders in each of the four vertical markets increased. Open orders at a point in time may not be indicative of future sales trends due to the contract nature of our business.

Gross profit as a percent of net sales improved to 8.1% in fiscal year 2017 from 7.7% in fiscal year 2016 primarily due to the positive impact from leverage gained on higher revenue, cost productivity, and favorable product mix, which were partially offset by the costs related to the ramp-up of the Romania operation and new product introductions.

For fiscal year 2017, selling and administrative expenses decreased as a percent of net sales and increased in absolute dollars compared to fiscal year 2016. Selling and administrative expenses benefited in fiscal year 2017 from not having the incremental start-up costs related to our Romania operation, which was partially offset by higher expense from the supplemental employee retirement plan (“SERP”) in fiscal year 2017. The SERP expense is a result of the revaluation of the SERP liability and is offset by the revaluation to fair value of the SERP investments recorded in Other Income (Expense).

Other Income (Expense) consisted of the following:



Other Income (Expense)	Year Ended
	June 30
(Amounts in Thousands)	2017			2016
Interest Income	$	64		$	79
Interest Expense	(271		)	(80		)
Foreign Currency/Derivative Loss	(453		)	(1,292		)
Gain (Loss) on Supplemental Employee Retirement Plan Investment	1,006			(67		)
Bargain Purchase Gain on Acquisition	925			—
Other	(73		)	(386		)
Other Income (Expense), net	$	1,198		$	(1,746	)

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 was no effect on net income. The Foreign Currency/Derivative Loss resulted from net foreign currency exchange rate movements. The Bargain Purchase Gain on Acquisition for fiscal year 2017 resulted from the Aircom acquisition as the consideration paid for Aircom was less than the estimated fair values of the assets acquired and liabilities assumed. See Note 2 - Acquisitions of Notes to Consolidated Financial Statements for more information regarding the Aircom acquisition.

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



	Year Ended June 30, 2017				Year Ended June 30, 2016
(Amounts in Thousands)	Income Before Taxes		Effective Tax Rate		Income Before Taxes		Effective Tax Rate
United States	$	10,051	25.6	%	$	1,919	17.8	%
Foreign	$	34,204	21.9	%	$	26,057	20.5	%
Total	$	44,255	22.8	%	$	27,976	20.3	%

When compared to the statutory rate, the effective tax rate for fiscal year 2017 of 22.8% was favorably impacted by a high mix of earnings in foreign jurisdictions, which have lower statutory rates than the United States, foreign exchange rates on foreign income taxes, and domestic tax credits. Also favorably impacting the effective tax rate for fiscal year 2017 was the $0.9 million bargain purchase gain from the Aircom acquisition, which is not taxable. The effective tax rate for fiscal year 2016 of 20.3% was favorably impacted by a high mix of earnings in foreign jurisdictions, which have lower statutory rates than the United States, a foreign income tax benefit of $1.8 million recognized as a result of a favorable tax ruling related to the fiscal year 2015 capitalization of the Company’s Romania subsidiary, and adjustments for domestic tax credits.

We recorded net income of $34.2 million in fiscal year 2017, or $1.24 per diluted share, an increase of 53% from fiscal year 2016 net income of $22.3 million, or $0.76 per diluted share, due to the reasons previously discussed.

Liquidity and Capital Resources

Working capital at June 30, 2018 was $208.4 million compared to working capital of $188.9 million at June 30, 2017 . The current ratio was 1.9 at both June 30, 2018 and June 30, 2017 . Our short-term liquidity available, represented as cash and cash equivalents plus the unused amount of our credit facilities, totaled $108.7 million at June 30, 2018 and $104.8 million at June 30, 2017 .

Cash Conversion Days (“CCD”) are calculated as the sum of Days Sales Outstanding (“DSO”) plus Production Days Supply on Hand (“PDSOH”) less Accounts Payable Days (“APD”). CCD is a metric used to measure the efficiency of managing working capital. CCD for the quarter ended June 30, 2018 was 63 days, which increased slightly from 60 days for the quarter ended June 30, 2017 . The following table summarizes our CCD for the quarterly periods indicated.



	Three Months Ended
	June 30, 2018	March 31, 2018	December 31, 2017	September 30, 2017	June 30, 2017
DSO	57	58	62	60	62
PDSOH	72	66	66	61	59
APD	66	62	68	62	61
CCD	63	62	60	59	60

We define DSO as the average of monthly trade accounts and notes receivable divided by an average day’s net sales, PDSOH as the average of monthly gross inventory divided by an average day’s cost of sales, and APD as the average of monthly accounts payable divided by an average day’s cost of sales. Our PDSOH trend has increased during fiscal year 2018 as a result of the higher inventory balance to support increased open orders and production volumes, the implementation of an inventory management program for one of our largest customers in the medical market, and additional purchases to help mitigate the potential impact from component shortages. The higher PDSOH trend was partially offset by improvement in both our DSO and APD trend during the current fiscal year.

Cash Flows

The following table reflects the major categories of cash flows for the fiscal years ended June 30, 2018 , 2017 , and 2016 .



	Year Ended June 30
(Amounts in Millions)	2018			2017			2016
Net cash provided by operating activities	$	40.2		$	46.8		$	36.8
Net cash used for investing activities	$	(26.2	)	$	(35.7	)	$	(42.6	)
Net cash used for financing activities	$	(12.6	)	$	(22.0	)	$	(4.3	)

Cash Flows from Operating Activities

Net cash provided by operating activities for the fiscal years ended June 30, 2018 , 2017 , and 2016 was primarily driven by net income adjusted for non-cash items. Cash provided by operating activities for the fiscal year ended June 30, 2018 included the adjustment for income tax expense resulting from Tax Reform reflected in Deferred income tax and other deferred charges and Accrued expenses and taxes payable. Cash provided by operating activities for fiscal year ended June 30, 2017 included $4.0 million of cash proceeds related to the settlement of a class action lawsuit. Changes in working capital used $9.3 million , $14.1 million , and $10.0 million of cash for the fiscal years ended June 30, 2018 , 2017 , and 2016 , respectively.

The $9.3 million usage of cash from changes in working capital balances in fiscal year 2018 was largely due to an increase in inventory, which used cash of $55.8 million primarily to support increased open orders and production volumes, the implementation of an inventory management program for one of our largest customers in the medical market, and additional purchases to help mitigate the potential impact from component shortages. Partially offsetting these usages was an increase in accounts payable which provided cash of $33.3 million , largely resulting from the increased inventory purchases. In addition, an increase in accrued expenses and taxes payable provided cash of $11.0 million primarily from the increase in income taxes payable related to the deemed repatriation tax net of income taxes paid, which was partially offset by a reduction in other accrued expenses.

The $14.1 million usage of cash from changes in working capital balances in fiscal year 2017 was primarily due to fluctuations in our accounts receivable and inventory. An increase in accounts receivable used cash of $19.3 million which resulted primarily from increased sales volumes. An increase in inventory used cash of $8.5 million primarily to support increased open orders and production volumes. Partially offsetting these usages was an increase in accounts payable which provided cash of $9.5 million largely resulting from inventory purchases to support higher volumes and an increase in accrued expenses which provided cash of $8.2 million primarily related to taxes payable and accrued compensation.

The $10.0 million usage of cash from changes in working capital balances in fiscal year 2016 was primarily due to fluctuations in our accounts receivable, inventory, and prepaid expenses and other current assets. An increase in accounts receivable used cash of $9.2 million which resulted primarily from increased sales volumes. An increase in inventory used cash of $3.5 million primarily to support increased production volumes. An increase in certain prepaid expenses and other current assets used cash of $3.7 million primarily due to an increase in taxes refundable. Partially offsetting these usages was an increase in accounts payable which provided cash of $8.3 million primarily related to the increased inventory purchases.

Cash Flows from Investing Activities

For each period shown in the previous table, net cash used for investing activities primarily represents cash used for capital investments. During fiscal years 2018 , 2017 , and 2016 , we reinvested $26.5 million , $34.3 million , and $34.6 million , respectively, into capital investments for the future with the largest expenditures in each period being for manufacturing equipment.

During fiscal year 2018, the capital expenditures were primarily for capacity purposes and to support new business awards. During fiscal year 2017, a large amount of our capital expenditures were to support new business awards, capacity purposes, and for the purchase of the previously leased facility that housed the former Medivative operation. Also during fiscal year 2017, we invested $2.1 million for the Aircom acquisition. During fiscal year 2016, a large amount of our expenditures included equipment to support new business awards and our greenfield start-up facility in Romania. Also during fiscal year 2016, we invested $8.3 million for the Medivative acquisition. See Note 2 - Acquisitions of Notes to Consolidated Financial Statements for more information on the acquisitions.

Cash Flows from Financing Activities

Net cash used for financing activities for the fiscal year ended June 30, 2018 resulted from repurchases of our common stock under an authorized stock repurchase plan, net payments on our revolving credit facilities, and the remittance of tax withholdings on share-based payments. Net cash used for financing activities for the fiscal year ended June 30, 2017 resulted from repurchases of our common stock under an authorized stock repurchase plan, payments on our primary credit facility borrowings, and the remittance of tax withholdings on share-based payments, partially offset by the borrowings on our primary credit facility for domestic cash needs. During fiscal year 2016 , net cash used for financing activities resulted primarily from repurchases of our common stock under an authorized stock repurchase plan, which was partially offset by net borrowings on our credit facilities.

Credit Facilities

At June 30, 2018 , the Company maintained a U.S. primary credit facility (the “primary facility”), dated as of October 31, 2014 and amended on October 3, 2016, with JPMorgan Chase Bank National Association, as administrative agent, and other lenders party thereto. The credit facility was scheduled to mature on October 31, 2019 and allowed for $50 million in borrowings, with an option to increase the amount available for borrowing to $75 million at the Company’s request, subject to participating banks’ consent.

The proceeds of the revolving credit loans were to be used for general corporate purposes of the Company including potential acquisitions and stock repurchases. A portion of the credit facility, not to exceed $15 million of the principal amount, was available for the issuance of letters of credit. A commitment fee on the unused portion of the principal amount of the credit facility was payable at a rate that ranged from 20.0 to 25.0 basis points per annum as determined by the Company’s ratio of consolidated total indebtedness to adjusted consolidated EBITDA, as defined in the primary facility. The interest rate on borrowings was dependent on the type of borrowings.

At June 30, 2018 , we had $6.0 million in short-term borrowings under the primary facility and $0.4 million in letters of credit against the primary credit facility. At June 30, 2017 , we had $10.0 million in short-term borrowings under the primary facility and $0.4 million in letters of credit against the primary credit facility. The short-term borrowings under the primary facility were used for domestic cash needs, including stock repurchases.

The Company’s financial covenants under the primary credit facility required:


•	a ratio of consolidated total indebtedness minus unencumbered U.S. cash on hand in the United States in excess of $15 million to adjusted consolidated EBITDA, determined as of the end of each of its fiscal quarters for the then most recently ended four fiscal quarters, to not be greater than 3.0 to 1.0, and


•	a fixed charge coverage ratio, determined as of the end of each of its fiscal quarters for the then most recently ended four fiscal quarters, to not be less than 1.10 to 1.00.

We were in compliance with the financial covenants during the fiscal year ended June 30, 2018 . Subsequent to June 30, 2018 , we amended and restated the primary facility. See section titled “Future Liquidity” below for more information on this amended and restated primary credit facility.

Kimball Electronics utilizes foreign credit facilities to satisfy short-term cash needs at specific foreign locations rather than funding from intercompany sources. As of June 30, 2018 , we maintained a Thailand overdraft credit facility which allows for borrowings up to 90 million Thai Baht (approximately $2.7 million at June 30, 2018 exchange rates). We had no borrowings outstanding under this foreign credit facility as of June 30, 2018 or June 30, 2017 . As of June 30, 2018 , we also maintained a credit facility for our China operation, which allows for borrowings up to $7.5 million that can be drawn in either U.S. dollars or China Renminbi. We had no borrowings outstanding under this foreign credit facility as of June 30, 2018 or June 30, 2017 . During fiscal year 2017, we established an uncommitted revolving credit facility for our Netherlands subsidiary, which allows for borrowings of up to 9.2 million Euro (approximately $10.8 million at June 30, 2018 exchange rates) that can be drawn in Euro, U.S. dollars, or other optional currency. At June 30, 2018 , we had $2.3 million in borrowings under this Netherlands revolving credit facility, and we had no borrowings outstanding under this foreign credit facility as of June 30, 2017 . These foreign credit facilities can be canceled at any time by either the bank or us.

Factoring Arrangements

The Company may utilize accounts receivable factoring arrangements with third-party financial institutions in order to extend terms for the customer without negatively impacting our cash flow. These arrangements in all cases do not contain recourse provisions which would obligate us in the event of our customers’ failure to pay. Receivables are considered sold when they are transferred beyond the reach of Kimball Electronics and its creditors, the purchaser has the right to pledge or exchange the receivables, and we have surrendered control over the transferred receivables. During the fiscal years ended June 30, 2018 and 2017 , we sold, without recourse, $181.5 million and $145.3 million of accounts receivable, respectively. See Note 1 - Business Description and Summary of Significant Accounting Policies of Notes to Consolidated Financial Statements for more information regarding the factoring arrangements.

Future Liquidity

On July 27, 2018, we amended and restated our existing primary credit facility. The amended and restated primary credit facility has a maturity date of June 27, 2023; allows for $150 million in borrowings (up from $50 million), with an option to increase to $225 million (up from $75 million) at the Company’s request, subject to the consent of each lender participating in such increase; allows a portion of the credit facility (not to exceed $15 million of the principal amount) to be available for the issuance of letters of credit; offers borrowings in the form of revolving credit loans or swingline loans; and is to be used for working capital and general corporate purposes including capital expenditures and acquisitions. As with the primary credit facility entered into on October 31, 2014, under the amended and restated primary credit facility, the interest rate on the borrowings is dependent on the type of borrowings, we are subject to financial covenants, and a commitment fee is payable on the unused portion of the principal amount. See Note 19 - Subsequent Events of Notes to Consolidated Financial Statements for more detail on the amended and restated primary facility.

The availability to borrow under all of our existing credit facilities in USD equivalent as of June 30, 2018 totaled $62.3 million . We believe our principal sources of liquidity from available funds on hand, cash generated from operations, and the availability of borrowing under our credit facilities, including the increased borrowing limit on the amended and restated primary credit facility, will be sufficient to meet our working capital and other operating needs for at least the next 12 months. We expect to continue to invest in capital expenditures prudently and make investments that will help us develop beyond the EMS market, including through acquisitions such as the pending GES acquisition. We intend to fund the pending GES acquisition with proceeds from the amended and restated primary credit facility, and on August 1, 2018, we borrowed $20.2 million on the amended and restated primary credit facility to fund a portion of the pending GES acquisition to be held in escrow until closing. See Note 2 - Acquisitions of Notes to Consolidated Financial Statements for more information regarding the pending GES acquisition.

We are growing our business in Europe through the expansion of our manufacturing capabilities in the region. We completed the construction of our greenfield facility in Romania in fiscal year 2016 and have begun operations. Capacity at this facility will continue to ramp up during fiscal year 2019.

At June 30, 2018 , our capital expenditure commitments were approximately $6 million , consisting primarily of commitments for capacity purposes in anticipation of future growth, including new program wins, replacement of older machinery and equipment, and improvements to our facilities. We anticipate our funds on hand and funds provided by operations will be sufficient to fund these capital expenditures.

At June 30, 2018 , our foreign operations held cash totaling $45.3 million . Tax Reform imposed a one-time deemed repatriation tax on accumulated unremitted foreign earnings of 15.5% for the accumulated unremitted foreign earnings held in foreign cash and other liquid assets and 8.0% of the residual accumulated unremitted foreign earnings. The Company estimated and recorded approximately $13.4 million for the deemed repatriation tax, of which approximately $1.0 million of the tax payable will be paid in the next 12 months with the remaining balance to be paid over an eight-year period. The Company expects to pay this tax payable with available liquidity. Most of these accumulated unremitted foreign earnings have been invested in active non-U.S. business operations, and it is not anticipated such earnings will be remitted to the United States. Our intent is to permanently reinvest these funds outside of the United States. However, if such funds were repatriated, a portion of the funds remitted may be subject to applicable non-U.S. income and withholding taxes. See Note 9 - Income Taxes of Notes to Consolidated Financial Statements for additional information on the deemed repatriation tax and Tax Reform.

On October 21, 2015 , the Company’s Board of Directors approved a resolution to authorize an 18-month stock repurchase plan (the “Plan”) to allow the repurchase of up to $20 million of common stock. Then on September 29, 2016, the Board extended the Plan to allow the repurchase of up to an additional $20 million worth of common stock with no expiration date. On August 23, 2017, the Board increased the Plan to allow the repurchase of up to an additional $20 million worth of common stock with no expiration date. This latest increase brings the total authorized stock repurchases under the Plan to $60 million. The Plan 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 $44.5 million of common stock under the Plan through June 30, 2018 .

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, the ability of Kimball Electronics to generate profits, and other unforeseen circumstances. In particular, should demand for our customers’ products and, in turn, our services decrease significantly over the next 12 months, the available cash provided by operations could be adversely impacted.

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

Fair Value

During fiscal year 2018 , 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 11 - Fair Value of Notes to Consolidated Financial Statements for more information.

Contractual Obligations

The following table summarizes the Company’s contractual obligations as of June 30, 2018 .



	Payments Due During Fiscal Years Ending June 30
(Amounts in Millions)	Total		2019		2020-2021			2022-2023			Thereafter
Recorded Contractual Obligations: ^(a)
Long-Term Debt Obligations ^(b)	$	8.4	$	8.4		$	—		$	—		$	—
Long-Term Income Taxes Payable ^(c)	13.4		1.0			2.1			2.1			8.2
Other Long-Term Liabilities Reflected on the Balance Sheet ^{(d) (e) (f)}	13.0		0.9			2.8			1.2			8.1
Unrecorded Contractual Obligations:
Operating Leases ^(f)	1.5		0.3			0.4			0.2			0.6
Purchase Obligations ^(g)	521.1		495.1			24.3			1.7			—
Total	$	557.4	$	505.7		$	29.6		$	5.2		$	16.9


(a)	As of June 30, 2018 , we had no Capital Lease Obligations.


(b)	Amounts outstanding on our credit facilities and the accrued interest for these amounts are included on the Long-Term Debt Obligations line. Refer to Note 6 - Credit Facilities of Notes to Consolidated Financial Statements for more information regarding our credit facilities. The fiscal year 2019 amount was recorded as a current liability.

(c)

U.S. federal income taxes payable for the one-time deemed repatriation tax on certain unremitted earnings of foreign subsidiaries. The fiscal year 2019 amount includes $1.0 million for short-term income taxes payable on the deemed repatriation tax recorded as a current liability. Refer to Note 9 - Income Taxes of Notes to Consolidated Financial Statements for more information regarding the deemed repatriation tax.


(d)	The timing of payments of certain items included on the Other Long-Term Liabilities Reflected on the Balance Sheet line above is estimated based on the following assumptions:


•	The timing of SERP payments is estimated based on an assumed retirement age of 62 with payout based on the prior distribution elections of participants. The fiscal year 2019 amount includes $0.3 million for SERP payments recorded as current liabilities.


•	The timing of severance plan payments is estimated based on the average remaining service life of employees. The fiscal year 2019 amount includes $0.4 million for severance payments recorded as a current liability.


•	The timing of warranty payments is estimated based on historical data. The fiscal year 2019 amount includes $0.2 million for short-term warranty payments recorded as a current liability.


(e)	Excludes $0.2 million of deferred tax liabilities and long-term unrecognized tax benefits which are not tied to a contractual obligation and for which we cannot make a reasonably reliable estimate of the period of future payments.


(f)	Refer to Note 5 - Commitments and Contingent Liabilities of Notes to Consolidated Financial Statements for more information regarding Operating Leases and certain Other Long-Term Liabilities.

(g)

Purchase Obligations are defined as agreements to purchase goods or services that are enforceable and legally binding and that specify all significant terms. The amounts listed above for purchase obligations include contractual commitments for items such as raw materials, supplies, capital expenditures, services, and software acquisitions/license commitments. Cancellable purchase obligations that we intend to fulfill are also included in the purchase obligations amount listed. 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. Purchase obligations as of June 30, 2018 include the placement of orders to help mitigate the potential impact related to component shortages, which requires longer lead times. In turn, material authorization agreements with customers cover a portion of the exposure for material which is purchased prior to having a firm order.

Off-Balance Sheet Arrangements

In limited circumstances, we receive banker’s acceptance drafts from customers in our China operation. In turn, we may transfer the acceptance drafts to a supplier in settlement of current accounts payable. These drafts contain certain recourse provisions afforded to the transferee under laws of The People’s Republic of China, and if exercised, the draft would revert back to our China operation and we would be required to satisfy the obligation with the transferee. At June 30, 2018 , the drafts transferred and outstanding totaled $2.0 million . No transferee has exercised their recourse rights against us.

We also have standby letters of credit and operating leases entered into in the normal course of business. These arrangements do not have a material current effect and are not reasonably likely to have a material future effect on our financial condition, results of operations, liquidity, capital expenditures, or capital resources.

See Note 1 - Business Description and Summary of Significant Accounting Policies of Notes to Consolidated Financial Statements for more information on the banker’s acceptance drafts and Note 5 - Commitments and Contingent Liabilities of Notes to Consolidated Financial Statements for more information on standby letters of credit. We do not have material exposures to trading activities of non-exchange traded contracts.

Critical Accounting Policies

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

Revenue recognition - Kimball Electronics recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable, and collectability is reasonably assured. Delivery is not considered to have occurred until the title and the risk of loss passes to the customer according to the terms of the contract. Title and risk of loss are transferred upon shipment to or receipt at our customers’ locations, or in limited circumstances, as determined by other specific sales terms of the transaction. Shipping and handling fees billed to customers are recorded as sales while the related shipping and handling costs are included in cost of sales. We recognize sales net of applicable sales tax.

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. In connection with Tax Reform, we remeasured our net deferred tax assets and recorded provisional adjustments using the new U.S. corporate statutory tax rate of 21% for fiscal years beyond 2018. 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.

Tax Reform required a one-time transition tax, or deemed repatriation tax, on certain unremitted earnings of foreign subsidiaries. The deemed repatriation tax is based on 15.5% of the accumulated unremitted foreign earnings held in foreign cash and other liquid assets and 8.0% of the residual accumulated foreign earnings, less a portion of foreign taxes paid which are creditable for U.S. federal income tax purposes. We have recorded a provisional tax expense for deemed repatriation on our unremitted foreign earnings. The Company considers the provisional adjustments related to Tax Reform to be reasonable estimates as of June 30, 2018, and these amounts could be affected by additional information and further analysis. As a result, these amounts could be adjusted during the measurement period ending December 2018.

We operate within multiple taxing jurisdictions and are subject to tax audits in these jurisdictions. These audits can involve complex issues, which may require an extended period of time to resolve. However, we believe we have made adequate provision for income and other taxes for all years that are subject to audit. As tax positions are effectively settled, the tax provision will be adjusted accordingly. The liability for uncertain income tax and other tax positions, including accrued interest and penalties on those positions, was $0.2 million at both June 30, 2018 and June 30, 2017 .

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 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 12 - 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, 2018 and 2017 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.

Item 8 - Financial Statements and Supplementary Data



INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
	Page No.

Management’s Report on Internal Control Over Financial Reporting	37

Report of Independent Registered Public Accounting Firm	38

Consolidated Balance Sheets as of June 30, 2018 and 2017	40

Consolidated Statements of Income for Each of the Three Years in the Period Ended June 30, 2018	41

Consolidated Statements of Comprehensive Income for Each of the Three Years in the Period Ended June 30, 2018	42

Consolidated Statements of Cash Flows for Each of the Three Years in the Period Ended June 30, 2018	43

Consolidated Statements of Share Owners’ Equity for Each of the Three Years in the Period Ended June 30, 2018	44

Notes to Consolidated Financial Statements	45

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, 2018 .



	/s/ DONALD D. CHARRON
	Donald D. Charron
	Chairman of the Board,
	Chief Executive Officer
	August 28, 2018

	/s/ MICHAEL K. SERGESKETTER
	Michael K. Sergesketter
	Vice President,
	Chief Financial Officer
	August 28, 2018

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Share Owners 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, 2018 and 2017 , 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, 2018 and the related notes and the schedules 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, 2018 , based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of June 30, 2018 and 2017 , and the results of its operations and its cash flows for each of the three years in the period ended June 30, 2018 , 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, 2018, 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.

/s/ Deloitte & Touche LLP

DELOITTE & TOUCHE LLP

Indianapolis, Indiana

August 28, 2018

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

KIMBALL ELECTRONICS, INC.

CONSOLIDATED BALANCE SHEETS

(Amounts in Thousands, Except for Share Data)



	June 30, 2018			June 30, 2017
ASSETS
Current Assets:
Cash and cash equivalents	$	46,428		$	44,555
Receivables, net of allowances of $482 and $284, respectively	173,559			169,785
Inventories	201,596			144,606
Prepaid expenses and other current assets	15,405			29,219
Total current assets	436,988			388,165
Property and Equipment, net of accumulated depreciation of $198,672 and $180,028, respectively	137,210			137,549
Goodwill	6,191			6,191
Other Intangible Assets, net of accumulated amortization of $27,276 and $26,392, respectively	4,375			4,581
Other Assets	23,994			18,458
Total Assets	$	608,758		$	554,944

LIABILITIES AND SHARE OWNERS’ EQUITY
Current Liabilities:
Borrowings under credit facilities	$	8,337		$	10,000
Accounts payable	187,788			154,619
Accrued expenses	32,446			34,630
Total current liabilities	228,571			199,249
Other Liabilities:
Long-term income taxes payable	12,361			—
Other long-term liabilities	12,299			13,423
Total other liabilities	24,660			13,423
Share Owners’ Equity:
Preferred stock-no par value
Shares authorized: 15,000,000 Shares issued: none	—			—
Common stock-no par value
Shares authorized: 150,000,000 Shares issued: 29,430,000	—			—
Additional paid-in capital	304,215			302,483
Retained earnings	99,374			82,671
Accumulated other comprehensive loss	(6,899		)	(9,084		)
Treasury stock, at cost:
Shares: 2,898,000 and 2,592,000, respectively	(41,163		)	(33,798		)
Total Share Owners’ Equity	355,527			342,272
Total Liabilities and Share Owners’ Equity	$	608,758		$	554,944

See Notes to Consolidated Financial Statements

KIMBALL ELECTRONICS, INC.

CONSOLIDATED STATEMENTS OF INCOME

(Amounts in Thousands, Except for Per Share Data)



	Year Ended June 30
	2018			2017			2016
Net Sales	$	1,072,061		$	930,914		$	842,060
Cost of Sales	985,859			855,319			777,522
Gross Profit	86,202			75,595			64,538
Selling and Administrative Expenses	43,854			36,543			34,816
Other General Income	—			(4,005		)	—
Operating Income	42,348			43,057			29,722
Other Income (Expense):
Interest income	73			64			79
Interest expense	(527		)	(271		)	(80		)
Non-operating income	3,337			2,319			166
Non-operating expense	(456		)	(914		)	(1,911		)
Other income (expense), net	2,427			1,198			(1,746		)
Income Before Taxes on Income	44,775			44,255			27,976
Provision for Income Taxes	28,023			10,076			5,689
Net Income	$	16,752		$	34,179		$	22,287

Earnings Per Share of Common Stock:
Basic	$	0.63		$	1.25		$	0.77
Diluted	$	0.62		$	1.24		$	0.76

Average Number of Shares Outstanding:
Basic	26,745			27,413			28,916
Diluted	27,007			27,530			29,176

See Notes to Consolidated Financial Statements

KIMBALL ELECTRONICS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Amounts in Thousands)



	Year Ended June 30, 2018									Year Ended June 30, 2017									Year Ended June 30, 2016
	Pre-tax			Tax			Net of Tax			Pre-tax			Tax			Net of Tax			Pre-tax			Tax			Net of Tax
Net Income							$	16,752								$	34,179								$	22,287
Other Comprehensive Income (Loss):
Foreign currency translation adjustments	$	2,519		$	—		$	2,519		$	2,777		$	—		$	2,777		$	(540	)	$	—		$	(540	)
Postemployment severance actuarial change	533			(188		)	345			285			(107		)	178			507			(195		)	312
Derivative gain (loss)	(2,669		)	704			(1,965		)	779			(256		)	523			(2,869		)	937			(1,932		)
Reclassification to (earnings) loss:
Derivatives	1,668			(213		)	1,455			(13		)	(161		)	(174		)	3,537			(1,185		)	2,352
Amortization of prior service costs	—			—			—			—			—			—			28			(10		)	18
Amortization of actuarial change	(358		)	140			(218		)	(317		)	119			(198		)	(254		)	101			(153		)
Other Comprehensive Income (Loss)	$	1,693		$	443		$	2,136		$	3,511		$	(405	)	$	3,106		$	409		$	(352	)	$	57
Total Comprehensive Income							$	18,888								$	37,285								$	22,344

See Notes to Consolidated Financial Statements

KIMBALL ELECTRONICS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in Thousands)



	Year Ended June 30
	2018			2017			2016
Cash Flows From Operating Activities:
Net income	$	16,752		$	34,179		$	22,287
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	26,376			23,904			19,869
Gain on sales of assets	(7		)	(33		)	(145		)
Deferred income tax and other deferred charges	1,213			(115		)	1,449
Deferred tax valuation allowance	(638		)	—			—
Stock-based compensation	5,299			3,484			3,406
Excess tax benefits from stock-based compensation	—			—			(203		)
Bargain purchase gain	—			(925		)	—
Other, net	487			359			137
Change in operating assets and liabilities:
Receivables	(2,876		)	(19,267		)	(9,192		)
Inventories	(55,769		)	(8,549		)	(3,513		)
Prepaid expenses and other current assets	5,092			(3,976		)	(3,713		)
Accounts payable	33,272			9,486			8,270
Accrued expenses and taxes payable	10,999			8,207			(1,820		)
Net cash provided by operating activities	40,200			46,754			36,832
Cash Flows From Investing Activities:
Capital expenditures	(25,876		)	(33,254		)	(33,664		)
Proceeds from sales of assets	261			490			209
Payments for acquisitions, net of cash acquired	—			(2,138		)	(8,267		)
Purchases of capitalized software	(643		)	(1,018		)	(968		)
Other, net	44			211			100
Net cash used for investing activities	(26,214		)	(35,709		)	(42,590		)
Cash Flows From Financing Activities:
Proceeds from credit facilities	—			4,000			12,000
Payments on credit facilities	—			(13,000		)	(3,000		)
Net change in revolving credit facilities	(1,542		)	10,000			—
Excess tax benefits from stock-based compensation	—			—			203
Repurchases of common stock	(9,553		)	(22,325		)	(12,606		)
Payments related to tax withholding for stock-based compensation	(1,508		)	(709		)	(897		)
Net cash used for financing activities	(12,603		)	(22,034		)	(4,300		)
Effect of Exchange Rate Change on Cash and Cash Equivalents	490			806			(384		)
Net Increase (Decrease) in Cash and Cash Equivalents	1,873			(10,183		)	(10,442		)
Cash and Cash Equivalents at Beginning of Year	44,555			54,738			65,180
Cash and Cash Equivalents at End of Year	$	46,428		$	44,555		$	54,738

See Notes to Consolidated Financial Statements

KIMBALL ELECTRONICS, INC.

CONSOLIDATED STATEMENTS OF SHARE OWNERS’ EQUITY

(Amounts in Thousands, Except for Share Data)



	Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total Share Owners’ Equity

Amounts at June 30, 2015	$	298,491		$	26,205		$	(12,247	)	$	—		$	312,449
Net income				22,287									22,287
Other comprehensive income							57						57
Issuance of non-restricted stock (47,000 shares)	(28		)							545			517
Compensation expense related to stock compensation plans	2,915												2,915
Performance share issuance (258,000 shares)	203												203
Repurchase of employee shares for tax withholding (78,000 shares)										(897		)	(897		)
Repurchase of Common Stock (1,179,000 shares)										(13,162		)	(13,162		)
Amounts at June 30, 2016	$	301,581		$	48,492		$	(12,190	)	$	(13,514	)	$	324,369
Net income				34,179									34,179
Other comprehensive income							3,106						3,106
Issuance of non-restricted stock (10,000 shares)	46									119			165
Compensation expense related to stock compensation plans	3,246												3,246
Performance share issuance (136,000 shares)	(2,390		)							1,502			(888		)
Repurchase of Common Stock (1,528,000 shares)										(21,905		)	(21,905		)
Amounts at June 30, 2017	$	302,483		$	82,671		$	(9,084	)	$	(33,798	)	$	342,272
Net income				16,752									16,752
Other comprehensive income							2,136						2,136
Tax Reform impact				(49		)	49						—
Issuance of non-restricted stock (8,000 shares)	65									90			155
Compensation expense related to stock compensation plans	5,138												5,138
Performance share issuance (174,000 shares)	(3,471		)							1,963			(1,508		)
Repurchase of Common Stock (488,000 shares)										(9,418		)	(9,418		)
Amounts at June 30, 2018	$	304,215		$	99,374		$	(6,899	)	$	(41,163	)	$	355,527

See Notes to Consolidated Financial Statements

KIMBALL ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 Business Description and Summary of Significant Accounting Policies

Business Description:

Kimball Electronics, Inc. (also referred to herein as “Kimball Electronics,” the “Company,” “we,” “us,” or “our”) is a global contract electronic manufacturing services (“EMS”) company that specializes in producing durable electronics for the automotive, medical, industrial, and public safety markets. We offer a package of value that begins with our core competency of producing “durable electronics” and includes our set of robust processes and procedures that help us ensure that we deliver the highest levels of quality, reliability, and service throughout the entire life cycle of our customers’ products. We have been producing safety critical electronic assemblies for our automotive customers for over 30 years. We also offer diversified contract manufacturing services for non-electronic components, medical disposables, plastics, and metal fabrication. We are well recognized by customers and industry trade publications for our excellent quality, reliability, and innovative service.

Kimball Electronics was a wholly owned subsidiary of Kimball International, Inc. (“former Parent” or “Kimball International”) and on October 31, 2014 became a stand-alone public company upon the completion of a spin-off from former Parent.

Principles of Consolidation:

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

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. Each of our business units qualifies as an operating segment with its results regularly reviewed by our chief operating decision maker. Our chief operating decision maker is our Chief Executive Officer. Our business units meet the aggregation criteria under the current accounting guidance for segment reporting. As of June 30, 2018 , all of our business units operated in the EMS industry with engineering, manufacturing, and supply chain services that provide electronic assemblies and/or components primarily in automotive, medical, industrial, and public safety applications, all 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. Each of our business units service customers in multiple markets, and many of our customers’ programs are manufactured and serviced by multiple business units. Our global processes such as component procurement and customer pricing provide commonality and consistency among the various regions in which we operate. All of our business units have similar long-term economic characteristics. As such, our business units have been aggregated into one reportable segment.

Revenue Recognition:

Our net sales are principally from the manufacturing of electronic assemblies, medical disposables, and components all built to customer specifications. We recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable, and collectability is reasonably assured. Delivery is not considered to have occurred until the title and the risk of loss passes to the customer according to the terms of the contract. Title and risk of loss are transferred upon shipment to or receipt at our customers’ locations, or in limited circumstances, as determined by other specific sales terms of the transaction. Shipping and handling fees billed to customers are recorded as sales while the related shipping and handling costs are included in cost of sales. We recognize sales net of applicable sales tax. Based on estimated product returns and price concessions, a reserve for returns and allowances is recorded at the time of the sale, resulting in a reduction of revenue.

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.

Notes Receivable and Trade Accounts Receivable:

The Company’s notes receivable and trade accounts receivable are recorded per the terms of the agreement or sale, and accrued interest is recognized when earned. We determine on a case-by-case basis the cessation of accruing interest, the resumption of accruing interest, the method of recording payments received on nonaccrual receivables, and the delinquency status for our limited number of notes receivable.

Our policy for estimating the allowance for credit losses on trade accounts receivable and notes 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 determine the final allowance for credit losses on the trade accounts receivable and notes receivable. Trade accounts receivable and notes receivable are written off after exhaustive collection efforts occur and the receivable is deemed uncollectible. Our limited amount of notes receivable allows management to monitor the risks, credit quality indicators, collectability, and probability of impairment on an individual basis. Adjustments to the allowance for credit losses are recorded in selling and administrative expenses.

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 may utilize accounts receivable factoring arrangements with third-party financial institutions in order to extend terms for the customer without negatively impacting our cash flow. These arrangements in all cases do not contain recourse provisions which would obligate us in the event of our customers’ failure to pay. Receivables are considered sold when they are transferred beyond the reach of Kimball Electronics and its creditors, the purchaser has the right to pledge or exchange the receivables, and we have surrendered control over the transferred receivables. During the fiscal years ended June 30, 2018 and 2017 , we sold, without recourse, $181.5 million and $145.3 million of accounts receivable, respectively. Factoring fees were $1.1 million during fiscal year 2018 and were included Selling and Administrative Expense on the Consolidated Statements of Income. Factoring fees were not material in fiscal years 2017 and 2016 .

The Company’s China operation, in limited circumstances, may receive banker’s acceptance drafts from customers as payment for their trade accounts receivable. 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. These drafts, which totaled $3.8 million and $5.3 million at June 30, 2018 and 2017 , respectively, are 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 2018 and 2017 were $5.5 million and $8.1 million , respectively. See Note 5 - Commitments and Contingent Liabilities of Notes to Consolidated Financial Statements for more information on banker’s acceptance drafts.

Inventories:

Inventories are stated at the lower of cost and net realizable value at June 30, 2018 and lower of cost or market value at June 30, 2017. See section entitled “New Accounting Standards” below for more information on the adoption of new accounting guidance on simplifying the measurement of inventory. Cost includes material, labor, and applicable manufacturing overhead. Costs associated with underutilization of capacity are expensed as incurred. Inventories are valued using the first-in, first-out (“FIFO”) method. Inventories are adjusted for excess and obsolete inventory. Evaluation of excess inventory includes such factors as anticipated usage, inventory turnover, inventory levels, and product demand levels. Factors considered when evaluating obsolescence include the age of on-hand inventory and reduction in value due to damage, design changes, or cessation of product lines.

Property, Equipment, and Depreciation:

Property and equipment are stated at cost less accumulated depreciation. Depreciation is provided over the estimated useful life of the assets using the straight-line method for financial reporting purposes. Major maintenance activities and improvements are capitalized; other maintenance and repairs are expensed. Depreciation and expenses for maintenance and repairs are included in both Cost of Sales and Selling and Administrative Expense on the Consolidated Statements of Income.

Impairment of Long-Lived Assets:

We perform reviews for impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Impairment is recognized when estimated future cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying amount. When an impairment is identified, the carrying amount of the asset is reduced to its estimated fair value. Assets to be disposed of are recorded at the lower of net book value or fair market value less cost to sell at the date management commits to a plan of disposal. Impairment of long-lived assets was not material during fiscal years 2018 , 2017 , and 2016 .

Goodwill and Other Intangible Assets:

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, we may assess qualitative factors to determine if it is more likely than not that the fair value is less than its carrying amount and if it is necessary to perform the quantitative two-step goodwill impairment test. We also have the option to bypass the qualitative assessment and proceed directly to performing the first step of the quantitative goodwill impairment test. If the first step is determined to be necessary, we compare the carrying value of the reporting unit to an estimate of the reporting unit’s fair value to identify potential impairment. If the estimated fair value of the reporting unit is less than the carrying value, a second step is performed to determine the amount of potential goodwill impairment. If impaired, goodwill is written down to its estimated implied fair value. Goodwill is assigned to and the fair value is tested at the reporting unit level. The fair value is established primarily using a discounted cash flow analysis and secondarily a market approach utilizing current industry information. The calculation of the fair value of the reporting units considers current market conditions existing at the assessment date. During fiscal years 2018 , 2017 , and 2016 , no goodwill impairment was recognized. At both June 30, 2018 and 2017 , gross goodwill was $19.0 million , accumulated impairment was $12.8 million , and goodwill, net was $6.2 million .

In addition to performing the required annual testing, we will continue to monitor circumstances and events in future periods to determine whether additional goodwill impairment testing is warranted on an interim basis.

Other Intangible Assets reported on the Consolidated Balance Sheets consist of capitalized software and customer relationships. Intangible assets are reviewed for impairment when events or circumstances indicate that the carrying value may not be recoverable over the remaining lives of the assets.

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



	June 30, 2018						June 30, 2017
(Amounts in Thousands)	Cost		Accumulated Amortization		Net Value		Cost		Accumulated Amortization		Net Value
Capitalized Software	$	30,484	$	26,154	$	4,330	$	29,806	$	25,294	$	4,512
Customer Relationships	1,167		1,122		45		1,167		1,098		69
Other Intangible Assets	$	31,651	$	27,276	$	4,375	$	30,973	$	26,392	$	4,581

During fiscal years 2018 , 2017 , and 2016 , amortization expense of other intangible assets was, in thousands, $899 , $924 , and $883 , respectively. Amortization expense in future periods is expected to be, in thousands, $831 , $699 , $640 , $561 , and $548 in the five years ending June 30, 2023 , and $1,096 thereafter. The amortization period for the customer relationship intangible asset is 15 years . The estimated useful life of internal-use software ranges from 3 to 10 years .

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 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.

Capitalized customer relationships are amortized on estimated attrition rate of customers. We have no intangible assets with indefinite useful lives which are not subject to amortization.

Research and Development:

The costs of research and development are expensed as incurred. Research and development costs were approximately, in millions, $11 , $10 , and $9 in fiscal years 2018 , 2017 , and 2016 , respectively.

Insurance and Self-insurance:

We are self-insured up to certain limits for general liability, workers’ compensation, and certain 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 20% of the workforce is covered under self-insured medical and short-term disability plans. At both June 30, 2018 and 2017 , accrued liabilities for self-insurance exposure were $1.4 million .

We carry external medical and disability insurance coverage for the remainder of our eligible workforce not covered by self-insured plans. Insurance benefits are not provided to retired employees.

Income 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 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.

The Company entered into a Tax Matters Agreement with former Parent that governs the Company’s rights and obligations after the spin-off with respect to tax liabilities and benefits, tax attributes, tax contests, and other tax sharing regarding income taxes, other tax matters, and related tax returns. The Company will continue to have joint and several liabilities with former Parent with the IRS and certain U.S. state tax authorities for U.S. federal income and state taxes for the taxable periods in which the Company was a part of former Parent’s consolidated group. The tax matters agreement specifies the portion, if any, of this liability for which the Company bears responsibility, and former Parent has agreed to indemnify the Company against any amounts for which the Company is not responsible. As of June 30, 2018 and 2017 , the Company has a receivable from Kimball International recorded for $0.5 million and $0.6 million , respectively. As of June 30, 2018 and 2017 , $0.4 million and $0.5 million , respectively, of the receivable from Kimball International is a long-term receivable and was recorded in Other Assets on the Consolidated Balance Sheets, relating to benefits from domestic research and development tax credits.

Concentrations of Credit Risk:

We have business and credit risks concentrated in the automotive, medical, industrial, and public safety industries. The Company monitors credit quality and associated risks of notes receivable 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. At June 30, 2018 and 2017 , amounts outstanding under notes receivables were $0.5 million and $0.7 million , respectively.

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



	At or For the Year Ended		At or For the Year Ended
	June 30, 2018		June 30, 2017
	Net Sales	Trade Receivables	Net Sales	Trade Receivables
ZF	15%	17%	12%	17%
Philips	13%	*	14%	*
Nexteer Automotive	13%	16%	12%	13%
Regal Beloit Corporation	*	11%	*	11%

* amount is less than 10% of total

Off-Balance Sheet Risk:

Off-balance sheet arrangements are limited to banker’s acceptance drafts transferred with recourse provisions at the Company’s China operation, standby letters of credit, and operating leases entered into in the normal course of business as described in Note 5 - Commitments and Contingent Liabilities of Notes to Consolidated Financial Statements.

Other General Income:

Other General Income in fiscal year 2017 consisted of $4.0 million resulting from a payment received related to a class action lawsuit in which Kimball Electronics was a class member. The lawsuit alleged that certain suppliers to the EMS industry conspired over a number of years to raise and fix the prices of electronic components, resulting in overcharges to purchasers of those components. We recorded no Other General Income during fiscal years 2018 and 2016.

Non-operating Income and Expense:

Non-operating income and expense include the impact of such items as foreign currency rate movements and related derivative gain or loss, fair value adjustments on supplemental employee retirement plan (“SERP”) investments, bank charges, bargain purchase gain on acquisition, and other miscellaneous non-operating income and expense items that are not directly related to operations. The gain or loss on SERP investments is offset by a change in the SERP liability that is recognized in Selling and Administrative Expense.

Foreign Currency Translation:

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

For business units whose functional currency is other than the U.S. dollar, the translation of functional currency statements to U.S. dollar statements uses end-of-period exchange rates for assets and liabilities, weighted average exchange rates for revenue and expenses, and historical rates for equity. The resulting currency translation adjustment is recorded in Accumulated Other Comprehensive Income (Loss), as a component of Share Owners’ Equity.

Derivative Instruments and Hedging Activities:

Derivative financial instruments are recognized on the balance sheet as assets and liabilities and are measured at fair value. Changes in the fair value of derivatives are recorded each period in earnings or Accumulated Other Comprehensive Income (Loss), depending on whether a derivative is designated and effective as part of a hedge transaction, and if it is, the type of hedge transaction. Hedge accounting is utilized when a derivative is expected to be highly effective upon execution and continues to be highly effective over the duration of the hedge transaction. Hedge accounting permits gains and losses on derivative instruments to be deferred in Accumulated Other Comprehensive Income (Loss) and subsequently included in earnings in the periods in which earnings are affected by the hedged item, or when the derivative is determined to be ineffective. We use derivatives primarily for forward purchases of foreign currency to manage exposure to the variability of cash flows, primarily related to the foreign exchange rate risks inherent in forecasted transactions denominated in foreign currency. 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 12 - Derivative Instruments of Notes to Consolidated Financial Statements for more information on derivative instruments and hedging activities.

Stock-Based Compensation:

As described in Note 8 - Stock Compensation Plans of Notes to Consolidated Financial Statements, the Company maintains the 2014 Stock Option and Incentive Plan, which allows for the issuance of incentive stock options, stock appreciation rights, restricted shares, unrestricted shares, restricted share units, or performance shares and performance units for grant to officers and other key employees, and to members of the Board of Directors who are not employees. The Company established in fiscal year 2017 the Kimball Electronics, Inc. Non-Employee Directors Stock Compensation Deferral Plan (the “Deferral Plan”), which allows Non-Employee Directors to elect to defer all, or a portion of, their retainer fees in stock. We recognize the cost resulting from share-based payment transactions using a fair-value-based method. The estimated fair value of outstanding performance shares is based on the stock price at the date of the grant. Stock-based compensation expense is recognized for the portion of the award that is ultimately expected to vest. The Company has elected to account for forfeitures by reversing the compensation costs at the time a forfeiture occurs. See section entitled “New Accounting Standards” below for more information on the adoption of new accounting guidance on accounting for share-based payment transactions.

New Accounting Standards:

Adopted in fiscal year 2018:

In November 2015, the Financial Accounting Standards Board (“FASB”) issued guidance on the balance sheet classification of deferred taxes. Under the previous guidance, deferred tax assets and liabilities must be separated into current and noncurrent amounts in a classified statement of financial position. The new guidance requires deferred tax assets and liabilities be classified as noncurrent in a classified statement of financial position. The new guidance does not change the requirement that deferred tax assets and liabilities of a tax-paying component of an entity be offset and presented as a single amount. We adopted this standard on a prospective basis in the fourth quarter of fiscal year 2018 to all deferred tax assets and liabilities. The prior periods were not retrospectively adjusted. The effect was a decrease in Prepaid expenses and other current assets and an increase in Other Assets of $8.3 million on the Consolidated Balance Sheet as of June 30, 2018. There was no impact on our consolidated financial position, results of operations, or cash flows.

In July 2015, the FASB issued guidance on Simplifying the Measurement of Inventory. The guidance amends the subsequent measurement of inventory from the lower of cost or market to the lower of cost and net realizable value. Under the current guidance, market value could be replacement cost, net realizable value, or net realizable value less an approximately normal profit margin. Within the scope of the new guidance, an entity should measure inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. We adopted this standard on a prospective basis in the fourth quarter of fiscal year 2018. Prior periods were not retrospectively adjusted. The adoption of this standard did not have a material effect on our consolidated financial statements.

In February 2018, the FASB issued guidance on accounting for the reclassification of certain tax effects from accumulated other comprehensive income. The objective of this guidance is to allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the U.S. Tax Cuts and Jobs Act (“Tax Reform”) enacted into law on December 22, 2017. If a company elects to reclassify the stranded tax effects, the guidance offers two acceptable adoption methods: (i) at the beginning of the period, annual or interim, of adoption; or (ii) retrospectively to each period or periods in which the tax effects of Tax Reform related to items remaining in accumulated other comprehensive income are recognized. The Company elected to adopt this guidance at the beginning of its third quarter of fiscal year 2018 and reclassified its stranded tax effects from accumulated other comprehensive income to retained earnings as of January 1, 2018. The components of the Company’s accumulated other comprehensive income that had stranded tax effects as a result of the change in the federal corporate tax rate due to Tax Reform were derivative gain (loss) and postemployment benefits net actuarial gain. Upon adoption of this guidance, a net cumulative-effect adjustment of, in thousands, $49 was recorded to the Company’s retained earnings as of January 1, 2018. This cumulative-effect adjustment decreased Retained earnings and decreased Accumulated other comprehensive loss on the Consolidated Balance Sheet. There was no impact to results of operations or cash flows as a result of the adoption of this guidance.

In March 2016, the FASB issued guidance on accounting for share-based payment transactions. The objective of this guidance is to simplify certain aspects of the accounting for share-based payment transactions, including the treatment of excess income tax benefits and deficiencies, allowing an election to account for forfeitures as they occur, and classification of excess tax benefits on the statement of cash flows. The Company adopted this guidance effective July 1, 2017. There was no impact on the Company’s financial statements upon the initial adoption as there were no tax benefits that were not previously recognized because the related tax deduction had not reduced taxes payable, and therefore no cumulative-effect adjustment to the Company’s beginning retained earnings was required. The Company has elected to reverse the compensation cost of any forfeited awards at the time they occur and will classify the cash flows related to excess tax benefits for share-based payment arrangements as cash flows from operating activities on a prospective basis. The new guidance requires prospective application of the tax effects of differences recognized on or after the effective date between the deduction for an award for tax purposes

and the compensation costs of that award recognized for financial reporting purposes. As a result, during fiscal year 2018, the Company recorded an income tax adjustment related to the excess tax benefit on performance shares granted of $0.6 million in Provision for Income Taxes on the Consolidated Statements of Income, or $0.02 per diluted share. Due to including the income tax effects from excess tax benefits in the provision for income taxes, the effects of the excess tax benefits are no longer included in the calculation of diluted shares outstanding, which generally will result in an increase in the number of diluted shares outstanding. The Company adopted this change in the method of calculating diluted shares outstanding on a prospective basis.

Not Yet Adopted:

In March 2017, the FASB issued guidance on improving the presentation of net periodic pension cost and net periodic postretirement benefit cost. The new guidance changes how employers that sponsor defined benefit pension plans and other postretirement plans present net periodic benefit costs in the income statement. An employer is required to report the service cost component in the same line item as other compensation costs arising from services rendered by the affected employees during the period. Other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside of income from operations. The update also allows only the service cost component to be eligible for capitalization, when applicable. The new guidance will be effective for us in our first quarter of fiscal year 2019. The amendments in this guidance must be applied retrospectively for the presentation of the service cost component and the other components of the net benefit cost in the income statement, and prospectively for the capitalization of the service cost component in assets. We do not expect the adoption of this standard to have a material effect on our consolidated financial position, results of operations, or cash flows.

In February 2016, the FASB issued guidance on leases. The new guidance requires lessees to recognize assets and liabilities on the balance sheet for the rights and obligations created by those leases with terms of more than 12 months. Under the current guidance, only capital leases are recognized on the balance sheet. The new guidance requires additional qualitative and quantitative disclosures. The new guidance will be effective for our fiscal year 2020 interim and annual financial statements. Early application is permitted. The guidance is to be adopted using a modified retrospective transition method, with the option to recognize a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption. We are currently evaluating the optional transition method and the impact of the adoption of this guidance on our consolidated financial statements.

In May 2014, the FASB issued guidance on the recognition of revenue from contracts with customers. The core principle of the guidance is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration which the company expects to receive in exchange for those goods or services. To achieve this core principle, the guidance provides a five-step analysis of transactions to determine when and how revenue is recognized. The guidance addresses several areas including transfer of control, contracts with multiple performance obligations, and costs to obtain and fulfill contracts. The guidance also requires additional disclosure about the nature, amount, timing, and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. The guidance is effective for us as of July 1, 2018, the beginning of our first quarter of fiscal year 2019. Under the guidance there are two acceptable adoption methods: (i) full retrospective adoption to each prior reporting period presented with the option to elect certain practical expedients; or (ii) modified retrospective adoption with the cumulative effect of initially applying the guidance recognized at the date of initial application and providing certain additional disclosures. The Company will adopt this new guidance utilizing the modified retrospective approach. The Company has completed its preliminary assessment of the new guidance and anticipates, for the majority of its contracts for manufacturing services, it will change from a point-in-time recognition method upon transfer of title to recognize revenue earlier using an over-time model based on the progress of completing customer orders. We expect the adoption of the guidance will have a material effect on the Company’s consolidated balance sheets primarily from the recognition of contract assets for unbilled receivables and a corresponding reduction in inventories. Upon adoption, the Company expects to recognize a contract asset for unbilled receivables of approximately $43 million , a reduction in work-in-process and finished goods inventories of approximately $39 million , and an after-tax adjustment to the beginning balance of retained earnings in fiscal year 2019 of approximately $3 million . The Company does not expect the new guidance to materially impact its revenue or results of operations for the periods after adoption, however the Company continues to assess the full impact of adopting the new guidance on its consolidated financial statements. The Company is also continuing to modify its accounting policies, financial reporting processes, and relevant internal controls related to adoption of the new revenue guidance.

Note 2 Acquisitions

Pending Acquisition:

On May 11, 2018, the Company entered into a definitive agreement to acquire substantially all of the assets and assume certain liabilities of GES Holdings, Inc., Global Equipment Services and Manufacturing, Inc., and its subsidiaries (collectively referred to as “GES”). The Company agreed to pay a total cash purchase price of approximately $50 million plus the assumed liabilities. The transaction price is subject to certain post-closing working capital adjustments. The acquisition is anticipated to be funded with the Company’s primary credit facility and is expected to close in early fiscal year 2019, subject to customary closing conditions, including regulatory requirements and governmental approvals.

Conditions precedent to close include entering into local country purchase agreements for each of Vietnam, China, India, and Japan, each in a form acceptable to both parties. The Asset Purchase Agreement contains representations, warranties, indemnification provisions, termination provisions, and other clauses and provisions usual and customary for agreements of this type.

This acquisition supports the Company’s new platform strategy and plans to continue its development beyond the electronic manufacturing services (“EMS”) market. GES specializes in production processing and test equipment design, volume manufacturing, and global services for the semiconductor and electronics product manufacturing industry.

Fiscal Year 2017 Acquisition:

On July 18, 2016 , the Company acquired certain assets and assumed certain liabilities of Aircom Manufacturing, Inc. (“Aircom”), located in Indianapolis, Indiana, for consideration of $3.5 million , which consisted of $2.5 million in cash payments and the settlement of a $1.0 million receivable. The Aircom acquisition was accounted for as a business combination and included assets acquired of $6.4 million and liabilities assumed of $1.4 million based on their estimated fair values as of the acquisition date.

Consideration paid for Aircom was less than the estimated fair values of the assets acquired and liabilities assumed, which resulted in a bargain purchase gain of $0.9 million and was recorded in Non-operating income on the Consolidated Statements of Income. The bargain purchase gain resulted from the financial distress of Aircom as they were unable to secure sufficient capital to continue operations and service their existing debt.

The Aircom acquisition added expertise in the manufacturing of precision metals and plastics to our package of value. Operating results are included in the Company’s consolidated financial statements beginning from the date of acquisition and had an immaterial effect on the Company’s consolidated financial results for the fiscal year ended June 30, 2017 . Direct transaction costs of the Aircom acquisition were not material and were expensed as incurred.

Fiscal Year 2016 Acquisition:

On May 2, 2016 , the Company acquired certain assets and assumed certain liabilities of Medivative Technologies, LLC, (“Medivative”) located in Indianapolis, Indiana, a wholly owned subsidiary of privately held Aircom Manufacturing, Inc. The Medivative acquisition adds capabilities in mechanical design, precision plastics, combination devices, instruments, and complex system assembly to our package of value. The Medivative acquisition positions us to better serve both existing and new customers in the medical end market vertical.

The Medivative acquisition was accounted for as a business combination with a total purchase price of $7.3 million , which included a cash payment of $8.3 million less a working capital adjustment of $1.0 million . Assets acquired were $11.6 million , which included $3.6 million of tax deductible goodwill, and liabilities assumed were $4.3 million . The allocation of the purchase price to the assets acquired and liabilities assumed was based on their estimated fair values as of the date of acquisition. Operating results are included in the Company’s consolidated financial statements beginning from the date of acquisition and had an immaterial effect on the Company’s consolidated financial results for the fiscal year ended June 30, 2016 . Direct transaction costs of the acquisition were not material and were expensed as incurred.

Note 3 Inventories

Inventories were valued using the lower of first-in, first-out (“FIFO”) cost and net realizable value at June 30, 2018 and lower of FIFO cost or market value at June 30, 2017. See Note 1 – Business Description and Summary of Significant Accounting Policies for information on the adoption of new accounting guidance on simplifying the measurement of inventory. Following are inventory components at June 30:



(Amounts in Thousands)	2018		2017
Finished products	$	25,552	$	18,916
Work-in-process	17,254		15,480
Raw materials	158,790		110,210
Total inventory	$	201,596	$	144,606

Note 4 Property and Equipment

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



(Amounts in Thousands)	2018			2017
Land	$	10,321		$	9,331
Buildings and improvements	71,385			63,996
Machinery and equipment	246,758			230,142
Construction-in-progress	7,418			14,108
Total	$	335,882		$	317,577
Less: Accumulated depreciation	(198,672		)	(180,028		)
Property and equipment, net	$	137,210		$	137,549

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



	Years
Buildings and improvements	3 to 40
Machinery and equipment	3 to 11
Leasehold improvements	Lesser of Useful Life or Term of Lease

Depreciation of property and equipment totaled, in millions, $25.5 for fiscal year 2018 , $23.0 for fiscal year 2017 , and $19.5 for fiscal year 2016 .

Note 5 Commitments and Contingent Liabilities

Leases:

Operating leases for land on which certain office and manufacturing facilities reside, a warehouse facility, and certain equipment, which expire from fiscal year 2020 to 2056 , contain provisions under which minimum annual lease payments are, in millions, $0.3 , $0.3 , $0.1 , $0.1 , and $0.1 for the five years ending June 30, 2023 , respectively, and aggregate $0.6 million from fiscal year 2024 to the expiration of the leases in fiscal year 2056 . We are obligated under certain real estate leases to maintain the properties and pay real estate taxes. Certain leases include renewal options and escalation clauses. Total rental expense amounted to, in millions, $0.7 , $0.7 , and $0.5 in fiscal years 2018 , 2017 , and 2016 , respectively.

As of June 30, 2018 and 2017 , the Company had no capital leases.

Guarantees:

As of June 30, 2018 and 2017 , we had no guarantees issued which were contingent on the future performance of another entity. Standby letters of credit may be issued to third-party suppliers and insurance institutions and can only be drawn upon in the event of the Company’s failure to pay its obligations to the beneficiary. We had a maximum financial exposure from unused standby letters of credit totaling $0.4 million as of both June 30, 2018 and 2017 . We don’t expect circumstances to arise that would require us to perform under any of these arrangements and believe that the resolution of any claims that might arise in the future, either individually or in the aggregate, would not materially affect our consolidated financial statements. Accordingly, no liability has been recorded as of June 30, 2018 and 2017 with respect to the standby letters of credit. We also may enter into commercial letters of credit to facilitate payments to vendors and from customers.

Banker’s Acceptance Drafts:

The Company’s China operation, in limited circumstances, receives banker’s acceptance drafts from customers as settlement for their trade accounts receivable. We in turn may transfer the acceptance drafts to a supplier of ours in settlement of current accounts payable. These drafts contain certain recourse provisions afforded to the transferee under laws of The People’s Republic of China. If a transferee were to exercise its available recourse rights, the draft would revert back to our China operation and we would be required to satisfy the obligation with the transferee. At June 30, 2018 and 2017 , the drafts transferred and outstanding totaled $2.0 million and $2.1 million , respectively. No transferee has exercised their recourse rights against us. For additional information on banker’s acceptance drafts, see Note 1 – Business Description and Summary of Significant Accounting Policies of Notes to Consolidated Financial Statements.

Product Warranties:

The Company provides only assurance-type warranties for a limited time period, which cover workmanship and assures the product complies with specifications provided by or agreed upon with the customer. We maintain a provision for limited warranty repair or replacement of products manufactured and sold, which has been established in specific manufacturing contract agreements. We estimate product warranty liability at the time of sale based on historical repair or replacement cost trends in conjunction with the length of the warranty offered. Management refines the warranty liability periodically based on changes in historical cost trends and in certain cases where specific warranty issues become known.

Changes in the product warranty accrual during fiscal years 2018 , 2017 , and 2016 were as follows:



(Amounts in Thousands)	2018			2017			2016
Product Warranty Liability at the beginning of the year	$	593		$	605		$	621
Additions to warranty accrual (including changes in estimates)	346			415			160
Settlements made (in cash or in kind)	(283		)	(427		)	(176		)
Product Warranty Liability at the end of the year	$	656		$	593		$	605

Note 6 Credit Facilities

Credit facilities consisted of the following:



	Availability to Borrow at		Borrowings Outstanding at		Borrowings Outstanding at
(Amounts in Millions, in U.S Dollar Equivalents)	June 30, 2018		June 30, 2018		June 30, 2017
Primary credit facility ⁽¹⁾	$	43.6	$	6.0	$	10.0
Thailand overdraft credit facility ⁽²⁾	2.7		—		—
China revolving credit facility ⁽³⁾	7.5		—		—
Netherlands revolving credit facility ⁽⁴⁾	8.5		2.3		—
Total	$	62.3	$	8.3	$	10.0

(1)

At June 30, 2018 , the Company maintained a U.S. primary credit facility (the “primary facility”) dated as of October 31, 2014 and scheduled to mature in October 2019 . The primary facility provided for $50 million in borrowings, with an option to increase the amount available for borrowing to $75 million upon request, subject to participating banks’ consent. This facility was maintained for acquisitions and general corporate purposes. A commitment fee was payable on the unused portion of the credit facility which was immaterial to our operating results in fiscal years 2018 , 2017 , and 2016 . The commitment fee on the unused portion of principal amount of the credit facility was payable at a rate that ranges from 20.0 to 25.0 basis points per annum as determined by the Company’s ratio of consolidated total indebtedness to adjusted consolidated EBITDA, as defined in the primary facility. Types of borrowings available on the primary facility included revolving loans, multi-currency term loans, and swingline loans. The interest rate on borrowings was dependent on the type of borrowings.

The Company’s financial covenants under the primary credit facility required:


•	a ratio of consolidated total indebtedness minus unencumbered U.S. cash on hand in the United States in excess of $15 million to adjusted consolidated EBITDA, determined as of the end of each of its fiscal quarters for the then most recently ended four fiscal quarters, to not be greater than 3.0 to 1.0, and


•	a fixed charge coverage ratio, determined as of the end of each of its fiscal quarters for the then most recently ended four fiscal quarters, to not be less than 1.10 to 1.00.


	The Company had $0.4 million in letters of credit contingently committed against the credit facility at June 30, 2018 .

Subsequent to June 30, 2018 , the Company amended and restated this primary facility. See Note 19 - Subsequent Events of Notes to Consolidated Financial Statements for more detail on the amended and restated primary facility.

(2)

The Company also maintains a foreign credit facility for its operation in Thailand which allows for borrowings of up to 90.0 million Thai Baht (approximately $2.7 million at June 30, 2018 exchange rates). This credit facility can be terminated at any time by either the Company or the bank by giving prior written notice of at least 15 days to the other party. Interest on borrowing under this facility is charged at a rate of interest determined by the bank in accordance with relevant laws and regulations for charging interest on an overdraft facility.

(3)

The Company also maintains a foreign revolving credit facility for its China operation. The China credit facility allows for borrowings of up to $7.5 million , which borrowings can be made in either Chinese Renminbi (RMB) or U.S. dollars. The availability of this uncommitted facility is at the sole discretion of the bank and is subject to the availability of funds and other relevant conditions. The bank may, at its sole discretion, agree to provide the facility on such terms and conditions as the bank deems appropriate. Further, the availability of the facility is also subject to the determination by the bank of the borrower’s actual need for such facility. Proceeds from the facility are to be used for general working capital purposes. Interest on borrowing under this facility is charged at a rate of interest determined by the bank and is dependent on the denomination of the currency borrowed. The facility matures on May 31, 2019 .

(4) The Company established an uncommitted revolving credit facility in fiscal year 2017 for our Netherlands subsidiary. The Netherlands credit facility allows for borrowings of up to 9.2 million Euro (approximately $10.8 million at June 30, 2018 exchange rates), which borrowings can be made in Euro, U.S. dollars, or other optional currency. The availability of funds under this facility is at the sole discretion of the bank. Proceeds from the facility are to be used for general corporate purposes. Interest on borrowing under this facility is charged at a rate of interest dependent on the denomination of the currency borrowed. The facility matures on June 21, 2019 .

The weighted-average interest rate on short-term borrowings outstanding under the credit facilities at June 30, 2018 and June 30, 2017 were 2.67% and 4.50% , respectively. Cash payments for interest on borrowings in fiscal years 2018 , 2017 , and 2016 were, in thousands, $410 , $294 , and $44 , respectively. Capitalized interest expense was immaterial during fiscal years 2018 , 2017 , and 2016 .

Note 7 Employee Benefit Plans

Retirement Plans:

The Company maintains a trusteed defined contribution retirement plan which is in effect for substantially all domestic employees meeting the eligibility requirements. The Company also maintains a supplemental employee retirement plan (“SERP”) for executives and other key employees which enables them to defer cash compensation on a pre-tax basis in excess of IRS limitations. The SERP is structured as a rabbi trust, and therefore assets in the SERP portfolio are subject to creditor claims in the event of bankruptcy.

The discretionary employer contribution for domestic employees is determined annually by the Compensation and Governance Committee of the Company’s Board of Directors. Total expense related to employer contributions to the domestic retirement plans was, in millions, $2.0 , $1.7 , and $1.4 for fiscal years 2018 , 2017 , and 2016 , respectively.

Employees of certain foreign subsidiaries are covered by local pension or retirement plans. Total expense related to these foreign plans was, in millions, $0.4 , $0.2 , and $0.3 for fiscal years 2018 , 2017 , and 2016 , respectively.

Severance Plans:

The Company established and maintains severance plans for all domestic employees. These plans provide severance benefits to eligible employees meeting the plans’ qualifications, primarily involuntary termination without cause. There are no statutory requirements for the Company to contribute to the plans, nor do employees contribute to the plans. The plans hold no assets. Benefits are paid using available cash on hand when eligible employees meet plan qualifications for payment. Benefits are based upon an employee’s years of service and accumulate up to certain limits specified in the plans and include both salary and an allowance for medical benefits.

The components and changes in the Benefit Obligation, Accumulated Other Comprehensive Income (Loss), and Net Periodic Benefit Cost, for the domestic severance plans, are as follows:



	June 30
(Amounts in Thousands)	2018			2017
Changes and Components of Benefit Obligation:
Benefit obligation at beginning of year	$	1,808		$	1,805
Service cost	364			302
Interest cost	49			39
Actuarial gain for the period	(533		)	(285		)
Benefits paid	(30		)	(53		)
Benefit obligation at end of year	$	1,658		$	1,808
Balance in current liabilities	$	353		$	385
Balance in noncurrent liabilities	1,305			1,423
Total benefit obligation recognized in the Consolidated Balance Sheets	$	1,658		$	1,808



	June 30
(Amounts in Thousands)	2018			2017
Changes and Components in Accumulated Other Comprehensive Income (Loss) (before tax):
Accumulated Other Comprehensive Income (Loss) at beginning of year	$	(929	)	$	(961	)
Net change in unrecognized actuarial (gain) loss	(175		)	32
Accumulated Other Comprehensive Income (Loss) at end of year	$	(1,104	)	$	(929	)



(Amounts in Thousands)	Year Ended June 30
Components of Net Periodic Benefit Cost (before tax):	2018			2017			2016
Service cost	$	364		$	302		$	328
Interest cost	49			39			50
Amortization of prior service cost	—			—			28
Amortization of actuarial (gain) loss	(358		)	(317		)	(254		)
Net periodic benefit cost recognized in the Consolidated Statements of Income	$	55		$	24		$	152

The benefit cost in the above table includes only normal recurring levels of severance activity, as estimated using an actuarial method. Unusual or non-recurring severance actions are not estimable using actuarial methods and are expensed in accordance with other applicable U.S. GAAP.

Prior service cost was amortized on a straight-line basis over the average remaining service period of employees that were active at the time of the plan initiation, and actuarial (gain) loss is amortized on a straight-line basis over the average remaining service period of employees expected to receive benefits under the plan.

The estimated actuarial net (gain) loss for the severance plans that will be amortized from accumulated other comprehensive income (loss) into net periodic benefit cost over the next fiscal year is $(400) thousand . No prior service cost remains to be amortized for next fiscal year.

Assumptions used to determine fiscal year end benefit obligations for both fiscal year 2018 and 2017 included a discount rate of 2.8% and a compensation growth rate of 3.0% . Weighted average assumptions used to determine fiscal year net periodic benefit costs included a discount rate of 2.8% , 2.4% , and 2.7% for fiscal years 2018 , 2017 , 2016 , respectively, and a compensation growth rate of 3.0% for each of the fiscal years 2018 , 2017 , and 2016 .

Note 8 Stock Compensation Plans

A stock compensation plan was created and adopted by the Company’s Board of Directors (the “Board”) on October 3, 2014. The Kimball Electronics, Inc. 2014 Stock Option and Incentive Plan (the “Plan”) allows for the issuance of up to 4.5 million shares and may be awarded in the form of incentive stock options, stock appreciation rights, restricted shares, unrestricted shares, restricted share units, or performance shares and performance units. The Plan is a ten-year plan with no further awards allowed to be made under the Plan after October 1, 2024.

Prior to the spin-off, former Parent maintained stock compensation plans in which our executives and certain key employees participated. All awards granted under the former Parent plans were based on former Parent’s Common Stock. Performance share awards issued and outstanding to Kimball Electronics employees under the former Parent plans as of the spin-off date were amended, in accordance with the terms of the plans, to provide an equitable adjustment as a result of the spin-off.

On October 20, 2016, the Board approved a nonqualified deferred stock compensation plan, the Kimball Electronics, Inc. Non-Employee Directors Stock Compensation Deferral Plan (the “Deferral Plan”), which allows Non-Employee Directors to elect to defer all, or a portion of, their retainer fees in stock until retirement or termination from the Board or death. The Deferral Plan allows for issuance of up to 1.0 million shares of the Company’s common stock.

Pre-tax stock compensation charged against income in fiscal years 2018 , 2017 , and 2016 was $5.3 million , $3.5 million , and $3.4 million , respectively. These costs are included in Selling and Administrative Expenses.

Performance Shares:

The Company awards performance shares to officers and other key employees. Under these awards granted prior to fiscal year 2016, a number of shares will be issued to each participant based upon the attainment of the applicable bonus percentage calculated under the Company’s profit sharing incentive bonus plan as applied to a total potential share award made and approved by the Compensation and Governance Committee of the Board. Under these awards granted in and subsequent to fiscal year 2016, a number of shares will be issued to each participant based upon a combination of the bonus percentage attainment component above, adjusted to a three-year average bonus percentage, and a growth attainment component, which is the Company’s growth in sales revenue based on comparison of its three-year compounded annual growth rate (“CAGR”) with the Electronics Manufacturing Services Industry’s three-year CAGR.

Performance shares are vested when shares of the Company’s Common Stock are issued shortly after the end of the fiscal year in which the performance measurement period is complete. Certain outstanding performance shares are applicable to performance measurement periods in future fiscal years and will be measured at fair value when the performance targets are established in future fiscal years. The contractual life of performance shares ranges from one year to five years . If a participant is not employed on the date shares are issued, the performance share award is forfeited, except in the case of death, retirement at age 62 or older, total permanent disability, or certain other circumstances described in the Plan.

On December 2, 2014, Performance Share Awards issued and outstanding to Kimball Electronics employees under the former Parent plans were amended, in accordance with the terms of the plans, to provide an equitable adjustment as a result of the spin-off. The awards have been or will be granted in shares of the Company’s Common Stock, instead of Kimball International, Inc. shares, under the Kimball Electronics Plan. The amended awards retained the same terms and conditions, vesting schedule, issuance dates, and expiration dates of the original Kimball International awards.

A summary of the Company’s performance share activity during fiscal year 2018 is presented below:



	Number of Shares		Weighted Average Grant Date Fair Value
Performance shares outstanding at July 1, 2017	603,114		$	11.46
Granted	209,821		$	18.30
Vested	(255,757	)	$	11.30
Forfeited	(750	)	$	12.07
Performance shares outstanding at June 30, 2018	556,428		$	14.11

As of June 30, 2018 , there was approximately $4.6 million of unrecognized compensation cost related to performance shares, based on the latest estimated attainment of performance goals. That cost is expected to be recognized over annual performance periods ending August 2018 through August 2020, with a weighted average vesting period of nine months . The fair value of performance shares is based on the stock price at the date of grant. During fiscal years 2018 , 2017 , and 2016 , respectively, 255,757 , 194,624 , and 279,923 performance shares vested at a fair value of $2.9 million , $2.0 million , and 2.7 million . The performance shares vested represent the total number of shares vested prior to the reduction of shares withheld to satisfy tax withholding obligations. The number of shares presented in the above table, the amounts of unrecognized compensation, and the weighted average period include performance shares awarded that are applicable to future performance measurement periods and will be measured at fair value when the performance targets are established in future fiscal years.

Unrestricted Share Grants:

Unrestricted shares may be granted to employees and members of the Board as consideration for services rendered. Unrestricted share grants do not have vesting periods, holding periods, restrictions on sale, or other restrictions. The fair value of unrestricted shares is based on the stock price at the date of the award. During fiscal years 2018 , 2017 , and 2016 , respectively, the Company granted a total of 7,694 , 10,477 , and 47,262 unrestricted shares at an average grant date fair value of $20.15 , $15.75 , and $10.94 for a total fair value of $0.2 million , $0.2 million , and $0.5 million . Unrestricted shares were awarded to non-employee members of the Board as compensation for director’s fees, including directors’ elections to receive unrestricted shares in lieu of cash payment. Director’s fees are expensed over the period that directors earn the compensation.

Deferred Share Units:

Deferred share units may be granted to non-employee members of the Board under the Deferral Plan as compensation for the portion of their annual retainer fees resulting from their election to receive deferred share units in lieu of cash payment or unrestricted shares. Director’s fees are expensed over the period that directors earn the compensation. Deferred share units are participating securities and are payable in common stock upon a director’s retirement or termination from the Board or death. During fiscal years 2018 and 2017 , respectively, 12,159 and 19,207 deferred share units were granted to non-employee members of the Board at an average grant date fair value of $20.15 and $15.79 for a total fair value of $0.2 million and $0.3 million .

Note 9 Income Taxes

The U.S. Tax Cuts and Jobs Act (“Tax Reform”) was enacted into law on December 22, 2017. Tax Reform makes broad and complex changes to the U.S. tax code, for which complete guidance may have not yet been issued. Tax Reform affected our fiscal year ended June 30, 2018, including, but not limited to, (i) reducing the U.S. corporate statutory tax rate, (ii) requiring a

one-time transition tax on certain unremitted earnings of foreign subsidiaries that is payable over an eight-year period, (iii) eliminating U.S. federal income taxes on dividends from foreign subsidiaries, and (iv) bonus depreciation that will allow for full expensing of qualifying property. Tax Reform reduces the U.S. corporate statutory tax rate from 35% to 21% . For our fiscal year ended June 30, 2018, we had a blended corporate tax rate of 28.1% , which was based on the applicable tax rates before and after Tax Reform and the number of days in the fiscal year.

The Company made reasonable estimates of certain effects and, therefore, recorded provisional adjustments including the revaluation of its net deferred tax assets at the new applicable rates and the one-time deemed repatriation tax on accumulated unremitted foreign earnings. Approximately $4.4 million of additional tax expense was recorded for fiscal year 2018 for the revaluation of the net deferred tax assets. The Company also recorded during fiscal year 2018 approximately $13.4 million of tax expense for the deemed repatriation tax, of which $12.4 million of the tax payable was recorded in Long-term income taxes payable on the Consolidated Balance Sheet. The one-time deemed repatriation tax is based on 15.5% of the accumulated unremitted foreign earnings held in foreign cash and other liquid assets and 8.0% of the residual accumulated unremitted foreign earnings, less a portion of foreign taxes paid which are creditable for U.S. federal income tax purposes. Both the revaluation of the net deferred tax assets and the deemed repatriation tax were recognized in Provision for Income Taxes on the Consolidated Statement of Income for fiscal year 2018. The Company considers these provisional recorded amounts to be reasonable estimates as of June 30, 2018, and these amounts could be affected by additional information and further analysis related to Tax Reform. As a result, these amounts could be adjusted during the measurement period ending December 2018.

Tax Reform also subjects U.S. corporations to tax on Global Intangible Low-Taxed Income (“GILTI”), which imposes tax on foreign earnings in excess of a deemed return on tangible assets. Due to the complexity of the new GILTI tax rules, the Company is continuing to evaluate this provision for which no provisional amounts have been recorded in the Company’s Consolidated Financial Statements. An accounting policy election can be made to either record deferred taxes related to GILTI or to record the related taxes in the period in which they occur. The Company has not yet elected an accounting policy related to GILTI and will only do so after completion of further evaluation and analysis. The provisions related to GILTI are subject to adjustment during the measurement period ending December 2018.

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, 2018 and 2017 , were as follows:



(Amounts in Thousands)	2018			2017
Deferred Tax Assets:
Receivables	$	158		$	112
Inventory	1,153			1,792
Employee benefits	194			190
Deferred compensation	6,496			8,226
Other current liabilities	830			727
Tax credit carryforwards	1,251			749
Goodwill	655			1,421
Net operating loss carryforward	2,376			1,597
Net foreign currency losses	—			75
Property and equipment	—			1,774
Miscellaneous	2,394			1,387
Valuation Allowance	(638		)	—
Total asset	$	14,869		$	18,050
Deferred Tax Liabilities:
Property and equipment	$	565		$	—
Net foreign currency gains	$	12		$	—
Miscellaneous	300			1,962
Total liability	$	877		$	1,962
Net Deferred Income Taxes	$	13,992		$	16,088

Income tax benefits associated with the net operating loss carryforwards expire from fiscal year 2023 to 2038 . Income tax benefits associated with tax credit carryforwards primarily expire from fiscal year 2020 to 2027 . A valuation allowance was provided as of June 30, 2018 for deferred tax assets related to certain state credits of, in thousands, $638 that we currently believe are more likely than not to remain unrealized in the future.

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



	Year Ended June 30
(Amounts in Thousands)	2018		2017		2016
United States	$	5,609	$	10,051	$	1,919
Foreign	39,166		34,204		26,057
Total income before taxes on income	$	44,775	$	44,255	$	27,976

Tax Reform affected our fiscal year ended June 30, 2018, including, but not limited to, (i) requiring a one-time transition tax on certain unremitted earnings of foreign subsidiaries that is payable over an eight-year period, and (ii) eliminating U.S. federal income taxes on dividends from foreign subsidiaries. The aggregate unremitted earnings of the Company’s foreign subsidiaries was approximately $224 million as of June 30, 2018 . Most of these accumulated unremitted foreign earnings have been invested in active non-U.S. business operations, and it is not anticipated such earnings will be remitted to the United States. Our intent is to permanently reinvest these funds outside of the United States. However, if such funds were repatriated, a portion of the funds remitted may be subject to applicable non-U.S. income and withholding taxes.

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



	Year Ended June 30
(Amounts in Thousands)	2018			2017			2016
Current Taxes:
Federal	$	13,132		$	2,696		$	280
Foreign	11,982			8,130			5,848
State	459			134			50
Total payable	$	25,573		$	10,960		$	6,178
Deferred Taxes:
Federal	$	5,015		$	6		$	153
Foreign	(2,427		)	(631		)	(501		)
State	(776		)	(259		)	(141		)
Valuation allowance	638			—			—
Total deferred	$	2,450		$	(884	)	$	(489	)
Total provision for income taxes	$	28,023		$	10,076		$	5,689

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



	Year Ended June 30
	2018					2017					2016
(Amounts in Thousands)	Amount			%		Amount			%		Amount			%
Tax computed at U.S. federal statutory rate	$	12,582		28.1	%	$	15,489		35.0	%	$	9,791		35.0	%
State income taxes, net of federal income tax benefit	(408		)	(0.9	)	(81		)	(0.2	)	(59		)	(0.2	)
Foreign tax rate differential	(1,615		)	(3.6	)	(3,832		)	(8.7	)	(2,998		)	(10.7	)
Impact of foreign exchange rates on foreign income taxes	180			0.4		(613		)	(1.4	)	1,026			3.7
Foreign subsidiary capitalization	—			—		—			—		(1,801		)	(6.4	)
Valuation allowance	638			1.4		—			—		—			—
Research credit	(378		)	(0.8	)	(348		)	(0.8	)	(320		)	(1.2	)
Deemed repatriation	13,436			30.0		—			—		—			—
Revaluation of net deferred tax assets	4,357			9.7		—			—		—			—
Other - net	(769		)	(1.7	)	(539		)	(1.1	)	50			0.1
Total provision for income taxes	$	28,023		62.6	%	$	10,076		22.8	%	$	5,689		20.3	%

During the year ended June 30, 2016, we recognized a foreign tax benefit, in thousands, of $1,801 as a result of a favorable tax ruling related to the fiscal year 2015 capitalization of our Romania subsidiary.

Net cash payments for income taxes were, in thousands, $14,724 , $5,896 and $8,975 in fiscal years 2018 , 2017 , and 2016 , respectively.

Changes in the unrecognized tax benefit, excluding accrued interest and penalties, during fiscal years 2018 , 2017 , and 2016 were as follows:



(Amounts in Thousands)	2018			2017		2016
Beginning balance - July 1	$	102		$	46	$	—
Tax positions related to prior fiscal years:
Additions	78			56		46
Reductions	(20		)	—		—
Tax positions related to current fiscal year:
Additions	—			—		—
Reductions	—			—		—
Settlements	—			—		—
Lapses in statute of limitations	—			—		—
Ending balance - June 30	$	160		$	102	$	46
Portion that, if recognized, would reduce tax expense and effective tax rate	$	137		$	85	$	37

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

Interest and penalties accrued for unrecognized tax benefits as of June 30, 2018 , 2017 , and 2016 and expenses related to interest and penalties in fiscal years 2018 , 2017 , and 2016 were not material.

In connection with the spin-off, the Company entered into a Tax Matters Agreement with former Parent that governs the Company’s rights and obligations after the spin-off with respect to tax liabilities and benefits, tax attributes, tax contests, and other tax sharing regarding income taxes, other tax matters, and related tax returns. The Company will continue to have joint and several liabilities with former Parent with the IRS and certain U.S. state tax authorities for U.S. federal income and state taxes for the taxable periods in which the Company was a part of former Parent’s consolidated group. For additional information, see Note 1 – Business Description and Summary of Significant Accounting Policies of Notes to Consolidated Financial Statements. The Company, former Parent, or one of our wholly-owned subsidiaries files U.S. federal income tax returns and income tax returns in various state, local, and foreign jurisdictions. Former Parent is no longer subject to any significant U.S. federal tax examinations by tax authorities for years before fiscal year 2015. We or former Parent are subject to various state and local income tax examinations by tax authorities for years after June 30, 2014 and various foreign jurisdictions for years after June 30, 2013.

Note 10 Share Owners’ Equity

On October 21, 2015 , the Company’s Board of Directors (the “Board”) authorized an 18 -month stock repurchase plan (the “Plan”) allowing a repurchase of up to $20 million worth of common stock. On September 29, 2016, the Board extended the Plan to allow the repurchase of up to an additional $20 million worth of common stock with no expiration date. On August 23, 2017, the Board increased the Plan to allow the repurchase of up to an additional $20 million worth of common stock with no expiration date. This latest increase brings the total authorized stock repurchases under the Plan to $60 million . Purchases may be made under various programs, including in open-market transactions, block transactions on or off an exchange, or in privately negotiated transactions, all in accordance with applicable securities laws and regulations. The Plan may be suspended or discontinued at any time.

During fiscal year 2018 , the Company repurchased $9.4 million of common stock under the Plan at an average price of $19.29 per share, which was recorded as Treasury stock, at cost in the Consolidated Balance Sheet. Since the inception of the Plan, the Company has repurchased $44.5 million of common stock under that Plan at an average cost of $13.92 per share.

During fiscal year 2016, the Company acquired an additional 78,000 shares of its common stock, recorded as Treasury stock, at cost. These shares were not acquired in open market purchases as part of the Plan but were acquired in connection with automatically withholding shares from employees upon the vesting of performance share awards to satisfy minimum statutory withholding tax obligations.

Note 11 Fair Value

The Company categorizes assets and liabilities measured at fair value into three levels based upon the assumptions (inputs) used to price the assets or liabilities. Level 1 provides the most reliable measure of fair value, whereas level 3 generally requires significant management judgment. The three levels are defined as follows:


•	Level 1: Unadjusted quoted prices in active markets for identical assets and liabilities.


•	Level 2: Observable inputs other than those included in level 1. For example, quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets or liabilities in inactive markets.


•	Level 3: Unobservable inputs reflecting management’s own assumptions about the inputs used in pricing the asset or liability.

Our policy is to recognize transfers between these levels as of the end of each quarterly reporting period. There were no transfers between these levels during fiscal years 2018 and 2017 . There were also no changes in the inputs or valuation techniques used to measure fair values during fiscal year 2018 .

Financial Instruments Recognized at Fair Value:

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



Financial Instrument	Level	Valuation Technique/Inputs Used
Cash Equivalents	1	Market - Quoted market prices
Derivative Assets: Foreign exchange contracts	2	Market - Based on observable market inputs using standard calculations, such as time value, forward interest rate yield curves, and current spot rates, considering counterparty credit risk
Trading securities: Mutual funds held in SERP	1	Market - Quoted market prices
Derivative Liabilities: Foreign exchange contracts	2	Market - Based on observable market inputs using standard calculations, such as time value, forward interest rate yield curves, and current spot rates adjusted for Kimball Electronics’ non-performance risk

Recurring Fair Value Measurements:

As of June 30, 2018 and 2017 , the fair values of financial assets and liabilities that are measured at fair value on a recurring basis using the market approach are categorized as follows:



	June 30, 2018
(Amounts in Thousands)	Level 1		Level 2		Total
Assets
Cash equivalents	$	1,099	$	—	$	1,099
Derivatives: foreign exchange contracts	—		1,713		1,713
Trading securities: mutual funds held in nonqualified SERP	8,769		—		8,769
Total assets at fair value	$	9,868	$	1,713	$	11,581
Liabilities
Derivatives: foreign exchange contracts	$	—	$	1,867	$	1,867
Total liabilities at fair value	$	—	$	1,867	$	1,867



	June 30, 2017
(Amounts in Thousands)	Level 1		Level 2		Total
Assets
Cash equivalents	$	1,087	$	—	$	1,087
Derivatives: foreign exchange contracts	—		1,810		1,810
Trading securities: mutual funds held in nonqualified SERP	7,607		—		7,607
Total assets at fair value	$	8,694	$	1,810	$	10,504
Liabilities
Derivatives: foreign exchange contracts	$	—	$	2,928	$	2,928
Total liabilities at fair value	$	—	$	2,928	$	2,928

We had no Level 3 assets or liabilities during fiscal years 2018 and 2017 .

The nonqualified supplemental employee retirement plan (“SERP”) assets consist primarily of equity funds, balanced funds, bond funds, and a money market fund. The SERP investment assets are offset by a SERP liability which represents the Company’s obligation to distribute SERP funds to participants. See Note 13 - Investments of Notes to Consolidated Financial Statements for further information regarding the SERP.

Financial Instruments Not Carried At Fair Value:

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



Financial Instrument	Level	Valuation Technique/Inputs Used
Notes receivable	2	Market - Price approximated based on the assumed collection of receivables in the normal course of business, taking into account non-performance risk
Borrowings under credit facilities	2	Market - Based on observable market rates, taking into account Kimball Electronics’ non-performance risk

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

Note 12 Derivative Instruments

Foreign Exchange Contracts:

We operate internationally and are therefore exposed to foreign currency exchange rate fluctuations in the normal course of our business. Our primary means of managing this exposure is to utilize natural hedges, such as aligning currencies used in the supply chain with the sale currency. To the extent natural hedging techniques do not fully offset currency risk, we use derivative instruments with the objective of reducing the residual exposure to certain foreign currency rate movements. Factors considered in the decision to hedge an underlying market exposure include the materiality of the risk, the volatility of the market, the duration of the hedge, the degree to which the underlying exposure is committed to, and the availability, effectiveness, and cost of derivative instruments. Derivative instruments are only utilized for risk management purposes and are not used for speculative or trading purposes.

We use forward contracts designated as cash flow hedges to protect against foreign currency exchange rate risks inherent in forecasted transactions denominated in a foreign currency. Foreign exchange contracts are also used to hedge against foreign currency exchange rate risks related to intercompany balances denominated in currencies other than the functional currencies. As of June 30, 2018 , we had outstanding foreign exchange contracts to hedge currencies against the U.S. dollar in the aggregate notional amount of $29.9 million and to hedge currencies against the Euro in the aggregate notional amount of 75.6 million Euro. The notional amounts are indicators of the volume of derivative activities but may not be indicators of the potential gain or loss on the derivatives.

In limited cases due to unexpected changes in forecasted transactions, cash flow hedges may cease to meet the criteria to be designated as cash flow hedges. Depending on the type of exposure hedged, we may either purchase a derivative contract in the opposite position of the undesignated hedge or may retain the hedge until it matures if the hedge continues to provide an adequate offset in earnings against the currency revaluation impact of foreign currency denominated liabilities.

The fair value of outstanding derivative instruments is recognized on the balance sheet as a derivative asset or liability. When derivatives are settled with the counterparty, the derivative asset or liability is relieved and cash flow is impacted for the net settlement. For derivative instruments that meet the criteria of hedging instruments under FASB guidance, the effective portions of the gain or loss on the derivative instrument are initially recorded net of related tax effect in Accumulated Other Comprehensive Income (Loss), a component of Share Owners’ Equity, and are subsequently reclassified into earnings in the period or periods during which the hedged transaction is recognized in earnings. The ineffective portion of the derivative gain or loss is reported in Non-operating income or expense on the Consolidated Statements of Income immediately. The gain or loss associated with derivative instruments that are not designated as hedging instruments or that cease to meet the criteria for hedging under FASB guidance is also reported in Non-operating income or expense on the Consolidated Statements of Income immediately.

Based on fair values as of June 30, 2018 , we estimate that approximately $1.4 million of pre-tax derivative loss deferred in Accumulated Other Comprehensive Income (Loss) will be reclassified into earnings, along with the earnings effects of related forecasted transactions, within the fiscal year ending June 30, 2019 . Losses on foreign exchange contracts are generally offset by gains in operating costs in the income statement when the underlying hedged transaction is recognized in earnings. Because gains or losses on foreign exchange contracts fluctuate partially based on currency spot rates, the future effect on earnings of the cash flow hedges alone is not determinable, but in conjunction with the underlying hedged transactions, the result is expected to be a decline in currency risk. The maximum length of time we had hedged our exposure to the variability in future cash flows was 12 months as of both June 30, 2018 and June 30, 2017 .

See Note 11 - Fair Value of Notes to Consolidated Financial Statements for further information regarding the fair value of derivative assets and liabilities and Note 17 - Accumulated Other Comprehensive Income (Loss) of Notes to Consolidated Financial Statements for the amount and changes in derivative gains and losses deferred in Accumulated Other Comprehensive Income (Loss).

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



Fair Values of Derivative Instruments on the Consolidated Balance Sheets
	Asset Derivatives					Liability Derivatives
		Fair Value As of					Fair Value As of
(Amounts in Thousands)	Balance Sheet Location	June 30 2018		June 30 2017		Balance Sheet Location	June 30 2018		June 30 2017
Derivatives Designated as Hedging Instruments:
Foreign exchange contracts	Prepaid expenses and other current assets	$	758	$	1,810	Accrued expenses	$	1,857	$	2,009

Derivatives Not Designated as Hedging Instruments:
Foreign exchange contracts	Prepaid expenses and other current assets	955		—		Accrued expenses	10		919
Total derivatives		$	1,713	$	1,810		$	1,867	$	2,928



The Effect of Derivative Instruments on Other Comprehensive Income (Loss)
	June 30
(Amounts in Thousands)	2018			2017		2016
Amount of Pre-Tax Gain or (Loss) Recognized in Other Comprehensive Income (Loss) (OCI) on Derivatives (Effective Portion):
Foreign exchange contracts	$	(2,669	)	$	779	$	(2,869	)



The Effect of Derivative Instruments on Consolidated Statements of Income

(Amounts in Thousands)		Year Ended June 30
Derivatives in Cash Flow Hedging Relationships	Location of Gain or (Loss)	2018			2017			2016
Amount of Pre-Tax Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion):
Foreign exchange contracts	Cost of Sales	$	(1,648	)	$	18		$	(3,535	)
Foreign exchange contracts	Non-operating income (expense)	(11		)	(5		)	(1		)
Total		$	(1,659	)	$	13		$	(3,536	)

Amount of Pre-Tax Gain or (Loss) Reclassified from Accumulated OCI into Income (Ineffective Portion):
Foreign exchange contracts	Non-operating income (expense)	$	(9	)	$	—		$	(1	)

Derivatives Not Designated as Hedging Instruments
Amount of Pre-Tax Gain or (Loss) Recognized in Income on Derivatives:
Foreign exchange contracts	Non-operating income (expense)	$	796		$	(42	)	$	381

Total Derivative Pre-Tax Gain (Loss) Recognized in Income		$	(872	)	$	(29	)	$	(3,156	)

Note 13 Investments

Supplemental Employee Retirement Plan Investments:

The Company maintains a self-directed supplemental employee retirement plan (“SERP”) for executive and other key employees. The Company SERP utilizes a rabbi trust, and therefore assets in the SERP portfolio are subject to creditor claims in the event of bankruptcy. We recognize SERP investment assets on the balance sheet at current fair value. A SERP liability of the same amount is recorded on the balance sheet representing an obligation to distribute SERP funds to participants. The SERP investment assets are classified as trading, and accordingly, realized and unrealized gains and losses are recognized in income in the Other Income (Expense) category. Adjustments made to revalue the SERP liability are also recognized in income as selling and administrative expenses and offset valuation adjustments on SERP investment assets. The change in net unrealized holding gains (losses) for the fiscal years ended June 30, 2018 , 2017 , and 2016 was, in thousands, $552 , $789 , and $(321) , respectively.

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



	June 30
(Amounts in Thousands)	2018		2017
SERP investments - current asset	$	294	$	258
SERP investments - other long-term asset	8,475		7,349
Total SERP investments	$	8,769	$	7,607
SERP obligation - current liability	$	294	$	258
SERP obligation - other long-term liability	8,475		7,349
Total SERP obligation	$	8,769	$	7,607

Note 14 Accrued Expenses

Accrued expenses consisted of:



	June 30
(Amounts in Thousands)	2018		2017
Taxes	$	2,803	$	6,412
Compensation	18,008		16,670
Derivatives	1,867		2,928
Retirement plan	1,791		1,506
Insurance	1,375		1,426
Other expenses	6,602		5,688
Total accrued expenses	$	32,446	$	34,630

Note 15 Geographic Information

The following geographic area data includes net sales based on the destination of the product shipped and long-lived assets based on physical location. Long-lived assets include property and equipment and other long-term assets such as software.



	At or For the Year Ended June 30
(Amounts in Thousands)	2018		2017		2016
Net Sales:
United States	$	448,785	$	403,830	$	383,678
China	160,175		152,817		150,080
Mexico	117,327		94,726		76,499
Other Foreign	345,774		279,541		231,803
Total net sales	$	1,072,061	$	930,914	$	842,060
Long-Lived Assets:
United States	$	66,660	$	67,817	$	53,596
Poland	33,629		32,315		34,588
China	14,546		17,106		15,922
Romania	19,394		16,468		12,249
Other Foreign	7,311		8,355		8,839
Total long-lived assets	$	141,540	$	142,061	$	125,194

Note 16 Earnings Per Share

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



(Amounts in thousands, except per share data)	Year Ended June 30
	2018		2017		2016
Basic and Diluted Earnings Per Share:
Net Income	$	16,752	$	34,179	$	22,287
Less: Net Income allocated to participating securities	9		15		—
Net Income allocated to common Share Owners	$	16,743	$	34,164	$	22,287

Basic weighted average common shares outstanding	26,745		27,413		28,916
Dilutive effect of average outstanding performance shares	255		110		260
Dilutive effect of average outstanding deferred stock units	7		7		—
Dilutive weighted average shares outstanding	27,007		27,530		29,176

Earnings Per Share of Common Stock:
Basic	$	0.63	$	1.25	$	0.77
Diluted	$	0.62	$	1.24	$	0.76

Note 17 Accumulated Other Comprehensive Income (Loss)

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



(Amounts in Thousands)	Foreign Currency Translation Adjustments			Derivative Gain (Loss)			Postemployment Benefits Net Actuarial Gain (Loss)			Accumulated Other Comprehensive Income (Loss)
Balance at June 30, 2016	$	(9,653	)	$	(3,137	)	$	600		$	(12,190	)
Other comprehensive income (loss) before reclassifications	2,777			523			178			3,478
Reclassification to (earnings) loss	—			(174		)	(198		)	(372		)
Net current-period other comprehensive income (loss)	$	2,777		$	349		$	(20	)	$	3,106
Balance at June 30, 2017	$	(6,876	)	$	(2,788	)	$	580		$	(9,084	)

Other comprehensive income (loss) before reclassifications	2,519			(1,965		)	345			899
Reclassification to (earnings) loss	—			1,455			(218		)	1,237
Net current-period other comprehensive income (loss)	2,519			(510		)	127			2,136
Tax Reform impact ⁽¹⁾	—			(81		)	130			49
Balance at June 30, 2018	$	(4,357	)	$	(3,379	)	$	837		$	(6,899	)

(1) During fiscal year 2018, the Company adopted a new accounting standard on accounting for the reclassification of certain tax effects from accumulated other comprehensive income related to Tax Reform. See Note 1 – Business Description and Summary of Significant Accounting Policies of Notes to Consolidated Financial Statements for further information on the adoption of new accounting standards and Tax Reform.

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



Reclassifications from Accumulated Other Comprehensive Income (Loss)							Affected Line Item in the Consolidated Statements of Income
	Year Ended June 30
(Amounts in Thousands)	2018			2017
Derivative Gain (Loss) ⁽¹⁾	$	(1,648	)	$	18		Cost of Sales
	(20		)	(5		)	Non-operating income (expense), net
	213			161			Benefit (Provision) for Income Taxes
	$	(1,455	)	$	174		Net of Tax
Postemployment Benefits:
Amortization of Actuarial Gain (Loss) ⁽²⁾	$	200		$	181		Cost of Sales
	158			136			Selling and Administrative Expenses
	(140		)	(119		)	Benefit (Provision) for Income Taxes
	$	218		$	198		Net of Tax

Total Reclassifications for the Period	$	(1,237	)	$	372		Net of Tax

Amounts in parentheses indicate reductions to income.

(1) See Note 12 - Derivative Instruments of Notes to Consolidated Financial Statements for further information on derivative instruments.

(2) See Note 7 - Employee Benefit Plans of Notes to Consolidated Financial Statements for further information on postemployment benefit plans.

Note 18 Quarterly Financial Information (Unaudited)



	Three Months Ended
(Amounts in Thousands, Except for Per Share Data)	September 30			December 31			March 31		June 30
Fiscal Year 2018:
Net Sales	$	253,204		$	258,151		$	283,938	$	276,768
Gross Profit	19,490			20,962			22,927		22,823
Net Income ⁽¹⁾	8,480			(8,347		)	10,835		5,784
Basic Earnings Per Share	$	0.32		$	(0.31	)	$	0.41	$	0.22
Diluted Earnings Per Share	$	0.31		$	(0.31	)	$	0.40	$	0.22
Fiscal Year 2017:
Net Sales	$	226,451		$	230,265		$	232,930	$	241,268
Gross Profit	18,322			20,553			18,718		18,002
Other General Income ⁽²⁾	(4,005		)	—			—		—
Net Income	10,122			7,812			8,117		8,128
Basic Earnings Per Share	$	0.36		$	0.29		$	0.30	$	0.30
Diluted Earnings Per Share	$	0.36		$	0.28		$	0.30	$	0.30

(1) Net income for the quarter ended December 31, 2017 included income tax expense of $16.6 million ( $0.62 per diluted share) due to the U.S. Tax Cuts and Jobs Act (“Tax Reform”) that was enacted into law in December 2017 and relates to the deemed repatriation of unremitted foreign earnings and the revaluation of net deferred tax assets.

(2) Other General Income of $4.0 million resulted from a payment received related to a class action lawsuit in which Kimball Electronics was a class member.

Note 19 Subsequent Events

On July 27, 2018, the Company entered into an amended and restated credit agreement (the “Credit Agreement”) among the Company, the lenders party thereto, and JPMorgan Chase Bank, National Association, as Administrative Agent, and Bank of America, N.A., as Documentation Agent. The Credit Agreement amends and restates the Company’s primary credit facility, which was scheduled to mature on October 31, 2019. The Credit Agreement has a maturity date of July 27, 2023 and allows for $150 million in borrowings, with an option to increase the amount available for borrowing to $225 million at the Company’s request, subject to the consent of each lender participating in such increase.

A commitment fee on the unused portion of principal amount of the credit facility is payable at a rate that ranges from 20.0 to 25.0 basis points per annum as determined by the Company’s ratio of consolidated total indebtedness to adjusted consolidated EBITDA, as defined in the Credit Agreement. The types of borrowings available, the interest rates on the borrowings, and the financial covenants under the amended and restated credit agreement were unchanged. The proceeds of the loans are to be used for working capital and general corporate purposes of the Company including capital expenditures and acquisitions. We intend to fund the pending GES acquisition with proceeds from the Credit Agreement, and on August 1, 2018, we borrowed $20.2 million on the Credit Agreement to fund a portion of the pending GES acquisition to be held in escrow until closing.

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

None.

Item 9A - Controls and Procedures

(a) Evaluation of disclosure controls and procedures.

Kimball Electronics maintains controls and procedures designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Based upon their evaluation of those controls and procedures performed, the Chief Executive Officer and Chief Financial Officer of the Company concluded that its disclosure controls and procedures were effective as of June 30, 2018 .

(b) Management’s report on internal control over financial reporting.

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 and the rules and regulations adopted pursuant thereto, the Company included a report of management’s assessment of the effectiveness of its internal control over financial reporting as part of this report. The effectiveness of the Company’s internal control over financial reporting as of June 30, 2018 has been audited by the Company’s independent registered public accounting firm. Management’s report and the independent registered public accounting firm’s attestation report are included in the Company’s Consolidated Financial Statements under the caption entitled “Management’s Report on Internal Control Over Financial Reporting” and “Report of Independent Registered Public Accounting Firm” and are incorporated herein by reference.

There have been no changes in our internal control over financial reporting that occurred during the quarter ended June 30, 2018 that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B - Other Information

None.

PART III

Item 10 - Directors, Executive Officers and Corporate Governance

Directors

The information required by this item with respect to Directors is incorporated by reference to the material contained in the Company’s Proxy Statement for its annual meeting of Share Owners to be held November 8, 2018 under the caption “Election of Directors.”

Committees

The information required by this item with respect to the Audit Committee and its financial expert and with respect to the Compensation and Governance Committee’s responsibility for establishing procedures by which Share Owners may recommend nominees to the Board of Directors is incorporated by reference to the material contained in the Company’s Proxy Statement for its annual meeting of Share Owners to be held November 8, 2018 under the caption “Corporate Governance at Kimball Electronics.”

Executive Officers of the Registrant

The information required by this item with respect to Executive Officers of the Registrant is included at the end of Part I of this Annual Report on Form 10-K and is incorporated herein by reference.

Compliance with Section 16(a) of the Exchange Act

The information required by this item with respect to compliance with Section 16(a) of the Securities Exchange Act of 1934 is incorporated by reference to the material contained in the Company’s Proxy Statement for its annual meeting of Share Owners to be held November 8, 2018 under the caption “Section 16(a) Beneficial Ownership Reporting Compliance.”

Code of Ethics

Kimball Electronics has a code of ethics that applies to all of its employees, including the Chief Executive Officer, the Chief Financial Officer, and the Corporate Controller (functioning as Principal Accounting Officer). The code of ethics is posted on the Company’s website at investors.kimballelectronics.com. It is our intention to disclose any amendments to the code of ethics on this website. In addition, any waivers of the code of ethics for directors or executive officers of the Company will be disclosed in a Current Report on Form 8-K.

Item 11 - Executive Compensation

The information required by this item for companies in their first year post emerging growth company status is incorporated by reference to the material contained in the Company’s Proxy Statement for its annual meeting of Share Owners to be held November 8, 2018 under the captions “Corporate Governance at Kimball Electronics” and “Executive Compensation.”

Item 12 - Security Ownership of Certain Beneficial Owners and Management and Related Share Owner Matters

Security Ownership

Securities Authorized for Issuance Under Equity Compensation Plans

The information required by this item is incorporated by reference to the material contained in the Company’s Proxy Statement for its annual meeting of Share Owners to be held November 8, 2018 under the captions “Equity Compensation Plan Information” and “Share Ownership Information.”

Item 13 - Certain Relationships and Related Transactions, and Director Independence

Relationships and Related Transactions

Director Independence

Item 14 - Principal Accounting Fees and Services

The information required by this item is incorporated by reference to the material contained in the Company’s Proxy Statement for its annual meeting of Share Owners to be held November 8, 2018 under the caption “Selection of Independent Registered Public Accounting Firm” and “Appendix A — Approval Process for Services Performed by the Independent Registered Public Accounting Firm.”

PART IV

Item 15 - Exhibits, Financial Statement Schedules


(a)	The following documents are filed as part of this report:

(1) Financial Statements:



The following consolidated financial statements of the Company are found in Item 8 and incorporated herein.

	Management’s Report on Internal Control Over Financial Reporting	37

	Report of Independent Registered Public Accounting Firm	38

	Consolidated Balance Sheets as of June 30, 2018 and 2017	40

	Consolidated Statements of Income for Each of the Three Years in the Period Ended June 30, 2018	41

	Consolidated Statements of Comprehensive Income for Each of the Three Years in the Period Ended June 30, 2018	42

	Consolidated Statements of Cash Flows for Each of the Three Years in the Period Ended June 30, 2018	43

	Consolidated Statements of Share Owners’ Equity for Each of the Three Years in the Period Ended June 30, 2018	44

	Notes to Consolidated Financial Statements	45

(2) Financial Statement Schedules:



		II. Valuation and Qualifying Accounts for Each of the Three Years in the Period Ended June 30, 2018	78

		Schedules other than those listed above are omitted because they are either not required or not applicable, or the required information is presented in the Consolidated Financial Statements.

(3) Exhibits

See the Index of Exhibits which immediately precedes the Signatures page in this Annual Report on Form 10-K for a list of the exhibits filed or incorporated herein as a part of this report.

Item 16 - Form 10-K Summary

None.

KIMBALL ELECTRONICS, INC.

INDEX OF EXHIBITS



Exhibit No.		Description
2.1		Separation and Distribution Agreement by and between Kimball International, Inc. and Kimball Electronics, Inc. (Incorporated by reference to Exhibit 2.1 to the Company’s Form 8-K filed November 3, 2014, File No. 001-36454)
2.2 ^(b)(d)(e)		Asset Purchase Agreement by and among Kimball Electronics Indiana, Inc., as Buyer; GES Holdings, Inc., Global Equipment Services and Manufacturing Inc., GES Infotek Pvt. Ltd., GES Japan KK, Global Equipment Services and Manufacturing (Suzhou) Co., Ltd., and Suzhou Global Equipment Services and Trading Co., Ltd., as Sellers; and GES Holdings, Inc., as the Sellers’ Representative, dated as of May 11, 2018
3.1		Amended and Restated Articles of Incorporation of the Company (Incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K/A filed October 23, 2014, File No. 001-36454)
3.2		Amended and Restated By-laws of the Company (Incorporated by reference to Exhibit 3.2 to the Company’s Form 8-K filed November 13, 2017, File No. 001-36454)
10.1 ^(a)(b)		Summary of Director and Named Executive Officer Compensation
10.2 ^(a)		Form of Employment Agreement (Incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed June 30, 2017, File No. 001-36454)
10.3 ^(a)		Form of Annual and/or Long-Term Performance Share Award Amendment (Incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on December 3, 2014, File No. 001-36454)
10.4 ^(a)		2014 Stock Option and Incentive Plan (Incorporated by reference to Exhibit 4.3 to the Company’s Form S-8 for the Company’s 2014 Stock Option and Incentive Plan filed on October 30, 2014, File No. 333-199728)
10.5 ^(a)		Form of Long-Term Performance Share Award Agreement, to be used for Long-Term Performance Share Awards granted prior to June 29, 2015 (Incorporated by reference to Exhibit 10.3 of Amendment 3 to the Company’s Form 10 filed on September 4, 2014, File No. 001-36454)
10.6		Tax Matters Agreement by and among Kimball International, Inc. and Kimball Electronics, Inc. (Incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed November 3, 2014, File No. 001-36454)
10.7		Employee Matters Agreement by and between Kimball International, Inc. and Kimball Electronics, Inc. (Incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K filed November 3, 2014, File No. 001-36454)
10.8		Transition Services Agreement by and between Kimball International, Inc. and Kimball Electronics, Inc. (Incorporated by reference to Exhibit 10.3 to the Company’s Form 8-K filed November 3, 2014, File No. 001-36454)
10.9		Credit Agreement among Kimball Electronics, Inc., the Lenders Party Hereto, and JPMorgan Chase Bank, National Association, as Administrative Agent (Incorporated by reference to Exhibit 10.4 to the Company’s Form 8-K filed November 3, 2014, File No. 001-36454)
10.10 ^(a)		Form of Long-Term Performance Share Award Agreement, as amended June 29, 2015, to be used for Long-Term Performance Share Awards granted on or subsequent to June 29, 2015 but prior to June 29, 2016 (Incorporated by reference to Exhibit 10.11 to the Company’s Form 10-K filed on August 28, 2015, File No. 001-36454)
10.11 ^(a)		Description of the Kimball Electronics, Inc. 2014 Profit Sharing Incentive Bonus Plan (Incorporated by reference to Exhibit 10.10 of Amendment 4 to the Company’s Form 10 filed on September 30, 2014, File No. 001-36454)
10.12 ^(a)		Kimball Electronics, Inc. Supplemental Employee Retirement Plan (“SERP”) (Incorporated by reference to Exhibit 10.8 of Amendment 3 to the Company’s Form 10 filed on September 4, 2014, File No. 001-36454)
10.13 ^(a)		Form of Long-Term Performance Share Award Agreement, as amended June 29, 2016, to be used for Long-Term Performance Share Awards granted on or subsequent to June 29, 2016 (Incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed June 27, 2016, File No. 001-36454)
10.14		First Amendment to Credit Agreement (Incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed October 3, 2016, File No. 001-36454)
10.15 ^(a)		Kimball Electronics, Inc. Non-Employee Directors Stock Compensation Deferral Plan (Incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed October 25, 2016, File No. 001-36454)



10.16 ^(a)		Form of Fee Deferral Election Agreement under the Kimball Electronics, Inc. Non-Employee Directors Stock Compensation Deferral Plan (Incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K filed October 25, 2016, File No. 001-36454)
10.17		Amended and Restated Credit Agreement among Kimball Electronics, Inc., the lenders party thereto, and JPMorgan Chase Bank, National Association, as Administrative Agent and Bank of America, N.A., as Documentation Agent (Incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed August 1, 2018, File No. 001-36454)
21 ^(b)		Subsidiaries of the Registrant
23 ^(b)		Consent of Independent Registered Public Accounting Firm
24 ^(b)		Power of Attorney
31.1 ^(b)		Certification filed by Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 ^(b)		Certification filed by Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 ^(b)(c)		Certification furnished by the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2 ^(b)(c)		Certification furnished by the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS ^(b)		XBRL Instance Document
101.SCH ^(b)		XBRL Taxonomy Extension Schema Document
101.CAL ^(b)		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF ^(b)		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB ^(b)		XBRL Taxonomy Extension Label Linkbase Document
101.PRE ^(b)		XBRL Taxonomy Extension Presentation Linkbase Document


^(a)	Constitutes management contract or compensatory arrangement


^(b)	Filed herewith

^(c)

In accordance with Item 601(b)(32)(ii) of Regulation S-K, the certifications furnished in Exhibit 32.1 and 32.2 will not be deemed “filed” for purposes of Section 18 of the Exchange Act. Such certifications will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference.


^(d)	Schedules and exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Registrant will supplementally furnish any of the omitted schedules or exhibits to the Securities and Exchange Commission upon request.


^(e)	Confidential treatment has been requested as to certain portions of this Exhibit.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



		KIMBALL ELECTRONICS, INC.

	By:	/s/ MICHAEL K. SERGESKETTER
		Michael K. Sergesketter
		Vice President,
		Chief Financial Officer
		August 28, 2018

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:



		/s/ DONALD D. CHARRON
		Donald D. Charron
		Chairman of the Board,
		Chief Executive Officer
		August 28, 2018

		/s/ MICHAEL K. SERGESKETTER
		Michael K. Sergesketter
		Vice President,
		Chief Financial Officer
		August 28, 2018

		/s/ MARK D. HODELL
		Mark D. Hodell
		Corporate Controller,
		(functioning as Principal Accounting Officer)
		August 28, 2018



Signature		Signature

GREGORY J. LAMPERT *		COLLEEN C. REPPLIER *
Gregory J. Lampert		Colleen C. Repplier
Director		Director

GEOFFREY L. STRINGER *		GREGORY A. THAXTON *
Geoffrey L. Stringer		Gregory A. Thaxton
Director		Director

THOMAS J. TISCHHAUSER *		CHRISTINE M. VUJOVICH *
Thomas J. Tischhauser		Christine M. Vujovich
Director		Director


*	The undersigned does hereby sign this document on my behalf pursuant to powers of attorney duly executed and filed with the Securities and Exchange Commission, all in the capacities as indicated:



Date
August 28, 2018		/s/ DONALD D. CHARRON
		Donald D. Charron
		As Attorney-In-Fact

KIMBALL ELECTRONICS, INC.

Schedule II. - Valuation and Qualifying Accounts



Description	Balance at Beginning of Year			Additions (Reductions) to Expense			Adjustments to Other Accounts				Write-offs and Recoveries				Balance at End of Year
(Amounts in Thousands)
Year Ended June 30, 2018
Valuation Allowances:
Short-Term Receivables		$	284		$	259		$	(51	)		$	(10	)		$	482
Deferred Tax Asset		$	—		$	638		$	—			$	—			$	638
Year Ended June 30, 2017
Valuation Allowances:
Short-Term Receivables		$	192		$	129		$	(37	)		$	—			$	284
Year Ended June 30, 2016
Valuation Allowances:
Short-Term Receivables		$	236		$	67		$	(96	)		$	(15	)		$	192

Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions marked [***].

Exhibit 2.2

ASSET PURCHASE AGREEMENT

by and among

Kimball Electronics Indiana, Inc.,
as Buyer,

GES Holdings, Inc.;

Global Equipment Services and Manufacturing Inc.;

GES Infotek Pvt. Ltd.;

GES Japan KK;

Global Equipment Services and Manufacturing (Suzhou) Co., Ltd.; and

Suzhou Global Equipment Services and Trading Co., Ltd.,

as Sellers

and

GES Holdings, Inc.,
as the Sellers’ Representative

Dated as of May 11, 2018



		TABLE OF CONTENTS	Page
1.	DEFINITIONS AND USAGE		1
	1.1	Definitions	1
	1.2	Additional Definitions	10
	1.3	Usage	13
2.	SALE AND TRANSFER OF ASSETS; CLOSING		13
	2.1	Assets to be Sold	13
	2.2	Excluded Assets	14
	2.3	Consideration	15
	2.4	Liabilities	16
	2.5	Allocation	18
	2.6	Closing	20
	2.7	Closing Deliveries	21
	2.8	Adjustment Procedure	23
	2.9	Escrow of Escrow Amount	25
	2.10	Third Party Consents	25
3.	REPRESENTATIONS AND WARRANTIES OF SELLERS		25
	3.1	Organization and Good Standing	25
	3.2	Enforceability; Authority; No Conflict	26
	3.3	Ownership of Sellers	26
	3.4	Financial Statements	27
	3.5	Books and Records	27
	3.6	Sufficiency of Assets	27
	3.7	Owned Real Property	27
	3.8	Leased Real Property	28
	3.9	Title to Assets; Encumbrances	28
	3.10	Condition of Facilities	29
	3.11	Accounts Receivable	29
	3.12	Inventories	29
	3.13	No Undisclosed Liabilities	29
	3.14	Taxes	30



	- i -



		TABLE OF CONTENTS (Continued)	Page
	3.15	No Material Adverse Effect	31
	3.16	Employee Benefits	31
	3.17	Compliance With Laws	32
	3.18	Legal Proceedings	33
	3.19	Absence of Certain Changes and Events	33
	3.20	Contracts; No Defaults	34
	3.21	Insurance	36
	3.22	Environmental Matters	36
	3.23	Employees	37
	3.24	Labor Disputes; Compliance	38
	3.25	Intellectual Property Assets	38
	3.26	No Options	39
	3.27	Certain Payments	39
	3.28	Customers and Suppliers	39
	3.29	Relationships with Related Persons	40
	3.30	Brokers or Finders	40
4.	REPRESENTATIONS AND WARRANTIES OF BUYER		40
	4.1	Organization and Good Standing	40
	4.2	Authority; No Conflict	40
	4.3	Certain Proceedings	41
	4.4	Brokers or Finders	41
5.	PRE-CLOSING COVENANTS		41
	5.1	Pre-Closing Covenants of Sellers	41
	5.2	Pre-Closing Covenants of Buyer	43
6.	CONDITIONS TO CLOSE		43
	6.1	Conditions Precedent to the Obligations of the Sellers	43
	6.2	Conditions Precedent to the Obligations of Buyer	44
	6.3	Conditions Precedent to the Obligations of Buyer and Sellers	44
7.	ADDITIONAL COVENANTS		44
	7.1	Employees	44



	- ii -



		TABLE OF CONTENTS (Continued)	Page
	7.2	Taxes	46
	7.3	Payment of Other Retained Liabilities	49
	7.4	Restrictions on Sellers’ Dissolution and Distributions	49
	7.5	Removing Excluded Assets	49
	7.6	Assistance in Proceedings	50
	7.7	Non-competition, Nonsolicitation, Non-disparagement and Confidentiality	50
	7.8	Customer and Other Business Relationships	51
	7.9	Change of Name	51
	7.10	Bulk Sales	51
	7.11	Collection of Accounts Receivable	51
	7.12	Further Assurances	52
	7.13	Transfer of Environmental Permits	52
	7.14	Local County Purchase Agreements; Transition Services Agreement	52
8.	INDEMNIFICATION; REMEDIES		53
	8.1	Survival	53
	8.2	Indemnification and Reimbursement by Sellers	53
	8.3	Indemnification and Reimbursement by Buyer	54
	8.4	Limitations on Amount – Sellers	54
	8.5	Limitations on Amount – Buyer	54
	8.6	Time Limitations	54
	8.7	Third-Party Claims	55
	8.8	Procedures for Direct Claims	56
	8.9	Calculation of Damages; Treatment of Indemnity Payments	56
	8.10	No Double Recovery	57
	8.11	Exclusion of Other Remedies	57
9.	TERMINATION		58
	9.1	Termination Events	58
	9.2	Effect of Termination	58
10.	GENERAL PROVISIONS		59
	10.1	Expenses	59



	- iii -



		TABLE OF CONTENTS (Continued)	Page
	10.2	Public Announcements	59
	10.3	Notices	59
	10.4	Enforcement of Agreement	60
	10.5	Waiver; Remedies Cumulative	60
	10.6	Entire Agreement	61
	10.7	Assignments, Successors and No Third-Party Rights	61
	10.8	Severability	61
	10.9	Construction	61
	10.10	Time of Essence	61
	10.11	Governing Law	61
	10.12	Alternative Dispute Resolution	61
	10.13	Exhibits and Schedules	64
	10.14	Amendments and Waivers	65
	10.15	Time Periods	65
	10.16	Execution of Agreement	65
	10.17	Appointment of Sellers’ Representative	65
11.	CONFIDENTIALITY		65
	11.1	Definition of Confidential Information	65
	11.2	Restricted Use of Confidential Information	66
	11.3	Exceptions	66
	11.4	Legal Proceedings	67
	11.5	Return or Destruction of Confidential Information	67
	11.6	Attorney-Client Privilege	67



	- iv -

* The following schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Registrant will supplementally furnish any of the omitted schedules to the Securities and Exchange Commission upon request.

Schedules

Schedule 1.1(a) Permitted Encumbrances

Schedule 2.1(b) Tangible Personal Property

Schedule 2.2(i) Excluded Assets

Schedule 2.4(a)(vi) Assumed Liabilities

Schedule 2.4(b)(xix) Retained Liabilities from Prior Acquisitions or Dispositions

Schedule 2.7(a)(viii) Non-Competition and Non-Solicitation Agreements

Schedule 2.7(a)(xi) Consents and Governmental Authorizations

Schedule 2.8 Target Working Capital

Schedule 3.1(a) Jurisdictions

Schedule 3.1(b) Subsidiaries

Schedule 3.2(c) Notices

Schedule 3.6 Sufficiency of Assets

Schedule 3.7 Owned Real Property

Schedule 3.8 Leased Real Property

Schedule 3.10(b) Tangible Personal Property Not in the Sellers’ Possession

Schedule 3.11 Accounts Receivable

Schedule 3.16(a) Company Benefit Plans

Schedule 3.16(b) ERISA Plan Compliance

Schedule 3.16(c) COBRA Compliance

Schedule 3.17(a) Governmental Authorizations

Schedule 3.17(b) Compliance with Governmental Authorizations

Schedule 3.18 Legal Proceedings

Schedule 3.19 Absence of Certain Changes and Events

Schedule 3.20(a) Contracts

Schedule 3.20(b) Related Person Contracts

Schedule 3.21 Insurance Policies

Schedule 3.22 Environmental Matters

Schedule 3.23(a) Employees

Schedule 3.23(b) Employment Agreements

Schedule 3.23(c) Certain Contracts with Employees

Schedule 3.25(a) Intellectual Property Rights

Schedule 3.25(d) Software

Schedule 3.28 Customers and Suppliers

Schedule 3.29 Relationships with Related Parties

Schedule 3.30 Brokers and Finders

Schedule 6.2(e) Certain Matters

Schedule 7.1(a) Employees Not to be Hired

Schedule 7.1(d) Employment Loss

Exhibit 1.1(a) Local Country Purchase Agreement (India)

Exhibit 1.1(b) Local Country Purchase Agreement (China)

Exhibit 1.1(c) Local Country Purchase Agreement (Vietnam)

Exhibit 1.1(d) Local Country Purchase Agreement (Japan)

Exhibit 1.1(e) Parent Guaranty

Exhibit 2.7(a)(i) Bill of Sale and Assignment and Assumption Agreement

Exhibit 2.7(a)(vii) Escrow Agreement

Exhibit 2.7(a)(viii) Non-Competition and Non-Solicitation Agreements



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ASSET PURCHASE AGREEMENT

This Asset Purchase Agreement (“ Agreement ”), dated as of May 11, 2018, is made by and among Kimball Electronics Indiana, Inc., an Indiana corporation (“ Buyer ”), on the one hand, and GES Holdings, Inc., a California corporation (“ GES Holdings ”); Global Equipment Services and Manufacturing, Inc., a California corporation (“ GES ”); GES Infotek Pvt. Ltd., a private limited company registered under the laws of India (“ GES Infotek ”); GES Japan KK, a kabushiki kaisha registered under the laws of Japan (“ GES Japan ”); Global Equipment Services and Manufacturing (Suzhou) Co., Ltd., a limited liability company registered under the laws of China (“ GES Suzhou ”); and Suzhou Global Equipment Services and Trading Co., Ltd. a limited liability company registered under the laws of China (“ Suzhou Trading ”), and each of GES Holdings, GES, GES Infotek, GES Japan, GES Suzhou and Suzhou Trading individually, a “ Seller ” and, collectively, “ Sellers ”); and GES Holdings, in its capacity as representative of each of the Sellers (“ Sellers’ Representative ”), on the other hand. Each of Buyer, Sellers and Sellers’ Representative are sometimes individually referred to herein as a “ Party ” and collectively as the “ Parties . ”

RECITALS

WHEREAS , Sellers and their affiliates are engaged in the business of production processing and test equipment design, volume manufacturing and global services and software for the semiconductor and smart electronics product manufacturing industry, and have significant business operations in China, India, Japan, United States and Vietnam (the “ Business ”);

WHEREAS , Buyer desires to purchase from Sellers, and Sellers desire to sell, assign, transfer and convey to Buyer, the Acquired Assets (as defined herein) for the consideration and upon the terms and conditions set forth herein; and

WHEREAS, simultaneously with the execution and delivery of this Agreement, Kimball Parent is executing and delivering to GES Holdings the Parent Guaranty.

The parties, intending to be legally bound, hereby agree as follows:

1. DEFINITIONS AND USAGE.

1.1 Definitions . For purposes of this Agreement, the following terms and variations thereof have the meanings specified to in this Section 1.1 :

“ Accounts Payable ” means (i) all trade accounts payable by Sellers and other rights of Third Parties to payments from Sellers, (ii) all other accounts or notes payable by Sellers, and (iii) any claim, remedy or other right related to any of the foregoing.

“ Accounts Receivable ” means (i) all trade accounts receivable of Sellers and other rights of Sellers to payments from their customers and the full benefit of all security for such accounts or rights to payment, including all trade accounts receivable representing amounts receivable in respect of goods shipped or products sold or services rendered, (ii) all other accounts or notes receivable of Sellers and the full benefit of all security for such accounts or notes, and (iii) any claim, remedy or other right related to any of the foregoing.

“Affiliate” means, with respect to any Person, any other Person controlling, controlled by or under common control with such Person. For purposes of this definition and the Agreement, the term “ control ” (and correlative terms) means the power, whether by contract, equity ownership or otherwise, to direct the policies or management of a Person.

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“ Allowance for Doubtful Accounts ” means the portion of Accounts Receivable which the Sellers does not reasonably expect to be collected.

“ Breach ” means any breach of, or any inaccuracy in, any representation or warranty or any breach of, or failure to perform or comply with, any covenant or obligation, or any event which with the passing of time or the giving of notice, or both, would constitute such a breach, inaccuracy or failure.

“ Business Day ” means any day other than Saturday or Sunday, or any other day on which banks in New York, New York are permitted or required to be closed.

“ COBRA ” means Part 6 of Subtitle B of Title 1 of ERISA, Section 4980B of the Code and similar state Legal Requirements.

“ Code ” means the Internal Revenue Code of 1986, as amended.

“ Company Benefit Plans ” means all of the following maintained by each of the Sellers, or to which any Seller(s) contributes or has any obligation to contribute, for the benefit of any current or former employee, officer, director, consultant or independent contractor (or any dependent of any such person) of Sellers or with respect to which the relevant Seller has any Liability: (i) any “employee benefit plan” within the meaning of Section 3(3) of ERISA, whether or not ERISA applies, or under any other applicable Legal Requirement; and (ii) all plans, agreements, policies, programs, or understandings providing for fringe benefits or perquisites, and each other bonus, incentive compensation, deferred compensation, retention, change in control, profit sharing, stock, severance, retirement, health, life, disability, sick leave, group insurance, employment, stock option, stock purchase, stock appreciation right, performance share, supplemental unemployment, layoff, vacation, holiday, or any other similar plans, agreements, policies, programs or understandings (whether written or oral, qualified or nonqualified).

“ Consent ” means any approval, consent, ratification, waiver, notice or other authorization.

“ Contemplated Transactions ” means all of the transactions contemplated by this Agreement.

“ Contract ” means any agreement, contract, lease, consensual obligation, promise or undertaking (whether written or oral and whether express or implied) pursuant to which Sellers are a party or any of the Acquired Assets are legally bound, including any and all amendments and modifications thereto.

“ Current Assets ” means all current assets of Sellers as of the Effective Time, including Accounts Receivable Net of Allowance for Doubtful Accounts of $5,000, Inventory, and Prepaid Expenses and Other Current Assets, to the extent included in the Acquired Assets, all as determined in accordance with GAAP.

“ Current Liabilities ” means all current liabilities of Sellers as of the Effective Time, including Accounts Payable, Accrued Expenses, Current Portions of Capital Lease Payable, and Current Portions of Deferred Revenue, to the extent included in the Assumed Liabilities, all as determined in accordance with GAAP.

“ Disclosure Schedules ” means the disclosure schedules delivered by Sellers to Buyer concurrently with the execution and delivery of this Agreement, as such Schedules may be updated by Sellers prior to the Closing with the consent of Buyer, not to be unreasonably withheld or delayed.

“ Effective Time ” means 12:01 A.M. (prevailing Eastern Time) on the Closing Date.



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“ Encumbrance ” means any charge, claim, community or other marital property interest, condition, equitable interest, lien, option, pledge, security interest, mortgage, right of way, easement, encroachment, servitude, or similar restriction.

“ Environment ” means soil, land surface or subsurface strata, surface waters (including navigable waters and ocean waters), groundwaters, drinking water supply, stream sediments, ambient air (including indoor air), plant and animal life and any other environmental medium or natural resource.

“ Environmental, Health and Safety Liabilities ” means any cost (including attorneys’ fees), damages, expense, fines, penalties, abatement costs, suits, orders, claims, demands, judgment, liability, obligation or other responsibility (collectively, “ EH&S Losses ”) arising from or under any Environmental Law or Occupational Safety and Health Law, including those EH&S Losses consisting or arising out of, or relating to:

(i) the Release of Hazardous Material on, in, under, to or from the Facilities;

(ii) the operation of the Business or actions or omissions of Sellers in violation of Environmental Laws or Occupational Safety and Health Laws, including any related Governmental Authorization and including the failure of Sellers to obtain any Governmental Authorization required under Environmental Laws or Occupational Safety and Health Laws related to the Operation of the Business;

(iii) any (a) “removal,” “remedial” or “response action” (as defined in the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (“ CERCLA ”); and (b) corrective action, monitoring, containment, prevention of Release or other cleanup activity (the preceding (a) and (b) are collectively defined as, “ Cleanup ”) required by or under, or necessary to comply with, any Environmental Law or Occupational Safety and Health Law (whether or not such Cleanup has been required or requested by any Governmental Body or any other Person) and for any natural resource damages, whether such Cleanup or damages are at the Facilities, or other properties to which Hazardous Materials have migrated from the Facilities;

(iv) the investigation, Cleanup, remediation or prevention of the Release of Hazardous Materials, in violation of environmental Laws or Occupational Safety and Health Laws, including any related Governmental Authorizations or Cleanup, arising from the presence of Hazardous Materials at any place other than the Facilities and real property at which the Business is or has been conducted, as a result of the shipment, transfer or other movement of such Hazardous Materials to that place by Sellers or anyone acting at its instigation or on its behalf; and/or arising from the existence of any Hazardous Materials in, on or under any Facilities or real property at which the Business is or has been conducted, including groundwater;

(v) an investigation, audit or citation by the Occupational Safety and Health Administration or a state equivalent; or

(vi) any other compliance, corrective or remedial measure required under any Environmental Law or Occupational Safety and Health Law.

“ Environmental Law ” means any current or future Legal Requirements relating to the protection of the Environment, human health and safety or the use, storage, treatment, generation, transportation, processing, handling, Release, production, distribution, Remedial Action, Cleanup, purchase, sale or disposal of Hazardous Materials, including but not limited to CERCLA, the Resource Conservation and Recovery Act of 1976, 42 U.S.C. § 6901 et seq., Federal Water Pollution Control Act, 33 U.S. C. § 1251,



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et seq., and the Toxic Substance Control Act, 15 U.S.C. § 2601 et seq., and similar state statutes, and the rules, regulations, decisions, orders and directives of any Governmental Body relating to the Environment.

“ Environmental Permit ” means any Permit, letter, clearance, consent, waiver, closure, exemption, decision or other action required under or issued, granted, given, authorized by or made pursuant to Environmental Law.

“ ERISA ” means the Employee Retirement Income Security Act of 1974, as amended.

“ ERISA Affiliate ” means any Person that at any relevant time is or was considered a single employer with Sellers under Section 414 of the Code or under ERISA Section 4001(b) or part of the same “controlled group” as Sellers for purposes of ERISA Section 302(d)(8)(C).

“ Escrow Agent ” means JPMorgan Chase.

“ Escrow Amount ” means $4,000,000.00.

“ Export Control Authority ” means the US Department of State, Directorate of Defense Trade Controls, the US Department of Commerce, Bureau of Industry and Security, the US Department of the Treasury, Office of Foreign Assets Control, and the US Department of Homeland Security, Customs and Border Protection.

“ Export Control Laws ” means the Arms Export Control Act (22 U.S.C. § 2778), the International Traffic in Arms Regulations (ITAR) (22 C.F.R. §§ 120 et seq.), the Export Administration Regulations (15 C.F.R. §§ 730 et seq.) and Executive Orders based on the authority vested in the President under the International Emergency Economic Powers Act (IEEPA), as amended, the Trading with the Enemy Act (TWEA) and other U.S. sanctions laws; sanctions administered by the U.S. Department of State and the sanctions implemented by the Office of Foreign Assets Controls (OFAC).

“ Facilities ” means any real property, leasehold or other interest in real property currently or formerly owned or operated by Sellers, together with the Tangible Personal Property used or operated by Sellers at the respective locations of the Owned Real Property set forth in Schedule 3.7 and Leased Real Property set forth in Schedule 3.8 .

“ GAAP ” means United States generally accepted accounting principles, as in effect from time to time, consistently applied in accordance with past practices.

“ GES Local Subsidiary ” means each of GES, GES Infotek, GES Japan, GES Suzhou, Suzhou Trading and GES Vietnam.

“ GES Vietnam ” means Global Equipment Services and Manufacturing Vietnam Co., Ltd., a limited liability company registered under the laws of Vietnam.

“ Governing Documents ” means, with respect to Buyer, its articles of incorporation and bylaws and, with respect to each of the Sellers, its respective articles of incorporation and bylaws (or equivalent or comparable constitutive documents with respect to any non-U.S. jurisdiction) and, in each case to the extent applicable, all equityholders’ agreements, voting agreements, voting trust agreements, joint venture agreements, registration rights agreements or other agreements or documents relating to the organization, management or operation of Buyer or Sellers, as the case may be, relating to the rights, duties and obligations of the equityholders of such Person, together with any amendment or supplement to any of the foregoing.



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“ Governmental Authorization ” means any Consent, license, registration or Permit or Environmental Permit issued, granted, given or otherwise made available by or under the authority of any Governmental Body or pursuant to any Legal Requirement.

“ Governmental Body ” means any:

(i) nation, state, county, city, town, borough, village, district or other jurisdiction;

(ii) federal, state, local, municipal, foreign or other government;

(iii) governmental or quasi-governmental authority of any nature (including any agency, branch, department, board, commission, court, tribunal or other entity exercising governmental or quasi-governmental powers);

(iv) multinational organization or body;

(v) body exercising, or entitled or purporting to exercise, any administrative, executive, judicial, legislative, police, regulatory or taxing authority or power; or

(vi) official of any of the foregoing.

“ Hazardous Material ” means any substance, material, pollutant or waste which is or will foreseeably be regulated by any Governmental Body, including, without limitation, any material, substance, pollutant or waste which is defined as a “hazardous waste,” “hazardous material,” “hazardous substance,” “extremely hazardous waste,” “restricted hazardous waste,” “contaminant,” “pollutant,” “toxic waste” or “toxic substance” under any provision of Environmental Law, and including petroleum, petroleum products, asbestos, presumed asbestos-containing material or asbestos-containing material, urea formaldehyde and polychlorinated biphenyls.

“ Improvements ” means all buildings, structures, fixtures and improvements located on real property, including those under construction.

“ Income Tax ” means any federal, state, local, or foreign income, franchise, net profits, or similar Tax (however denominated) measured in whole or part by income, including any interest, penalty, or addition thereto, whether disputed or not.

“ Income Tax Return ” means any return, declaration, report, claim for refund, or information return or statement relating to Income Taxes, including any schedule or attachment thereto, and including any amendment thereof.

“ Indebtedness ” means, with respect to each Seller (i) all indebtedness of such Seller, whether or not contingent, for borrowed money, (ii) all obligations of such Seller evidenced by notes, bonds or debentures, (iii) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Seller, (iv) all obligations, contingent or otherwise, of such Seller under acceptance, letter of credit or similar facilities, (v) all obligations of such Seller to purchase, redeem, retire, defease or otherwise acquire for value any capital stock or equity interest of such Seller or any warrants, rights or options to acquire such capital stock or equity interest, valued, in the case of redeemable preferred stock, at the greater of its voluntary or involuntary liquidation preference plus accrued and unpaid dividends, (vi) any Liabilities of such Seller arising from or related to securitized or factored Accounts Receivable arrangements, and (vii) all Indebtedness of others referred to in clauses (i)



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through (vi) above guaranteed directly or indirectly in any manner by such Seller or in effect guaranteed directly or indirectly by such Seller.

“ Intellectual Property ” means (i) all United States and foreign patents, patent applications and statutory invention registrations, (ii) all unpatented inventions that have not yet been the subject of a patent application, (iii) all United States and foreign trademark, trade name, service mark, collective mark, and certification mark registrations and applications therefor at the federal, state or local level, (iv) all trademarks, trade names, service marks, collective marks, and certification marks that have been used in commerce at any time in the last five years, (v) all United States and foreign and copyright registrations and applications therefor, (vi) all copyrightable works of authorship that have not been the subject of a copyright registration or application therefor, including but not limited to software (including proprietary software, source code, executable code, object code, firmware, development tools, test suites, design specs, files, records and data, processes, protocols, scripts, routines used to process data, web sites (including related computer code and content) data, databases and related documentation, media on which any of the foregoing is recorded, and improvements, modifications, enhancements, versions and releases relating thereto), software code, manuals and other text works, photographs, video recordings, and audio recordings, Admin rights and software support agreements (vii) all trade secrets, proprietary information, databases and data, (viii) all mask works, (ix) all proprietary data formulae, (x) all rights in internet web sites and internet domain names of the Business, and (xi) registrations and applications for registration of any of the foregoing.

“ Intellectual Property Rights ” means all Intellectual Property that each Seller owns in whole or in part and/or in which each Seller has a valid claim of ownership in whole or in part (such as a contract right of assignment from an employee or independent contractor).

“ Inventories ” means all inventories owned by any Seller, wherever located, including all finished goods, work in process, raw materials, spare parts and all other materials and supplies, to be used or consumed, or intended to be used or consumed, by a Seller in the production of finished goods.

“ IRS ” means the United States Internal Revenue Service and, to the extent relevant, the United States Department of the Treasury.

“Kimball Parent” means Kimball Electronics, Inc., an Indiana corporation.

“ Knowledge ” means, with respect to any Seller, the actual knowledge of Don Tran, James McCormick, Lawrence Wise, Seo Ping Ng and Gautam Shankar (collectively, the “ Knowledge Individuals ”) and the knowledge that each such person would reasonably be expected to obtain in the course of diligently performing his or her duties for any Seller. With respect to matters involving Intellectual Property, Knowledge does not require that the Knowledge Individuals have conducted, obtain or have obtained any freedom-to-operate opinions or similar opinions of counsel or any Intellectual Property clearance searches, and no knowledge of any third-party Intellectual Property that would have been revealed by such inquiries, opinions or searches will be imputed to the Knowledge Individuals; provided, that any such opinions or searches that have been conducted or obtained prior to the date of this Agreement will not be excluded from the term “Knowledge” as a result of this sentence.

“ Legal Requirement ” means any federal, state, local, municipal, foreign, international, multinational or other constitution, law, ordinance, principle of common law, code, regulation, statute, treaty, resolution, Order or directive.

“ Liability ” means, with respect to any Person, any liability or obligation of such Person of any kind, character or description, whether known or unknown, absolute or contingent, accrued or unaccrued,



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disputed or undisputed, liquidated or unliquidated, secured or unsecured, joint or several, due or to become due, vested or unvested, executory, determined, determinable or otherwise, and whether or not the same is required to be accrued on the financial statements of such Person.

“ Licensed Rights ” means all Intellectual Property in which a Seller owns a license or has other valid rights of use, other than Intellectual Property Rights.

“ Local Country Purchase Agreements ” means the following documents: (i) the Asset Purchase Agreement by and between Kimball Electronics India, Private Limited (the “ India Subsidiary ”) and GES Infotek Pvt. Ltd., as governed by the laws of India, in substantially the form attached hereto as Exhibit 1.1(a) , (ii) the Asset Purchase Agreement by and between Buyer’s designated Chinese Subsidiary (the “ China Subsidiary ”) and Global Equipment Services and Manufacturing (Suzhou) Co., Ltd. and Suzhou Global Equipment Services and Trading Co., Ltd., as governed by the laws of the People’s Republic of China, in substantially the form attached hereto as Exhibit 1.1(b) , (iii) the Stock Purchase Agreement by and between Kimball Electronics Netherlands II B.V. (the “ Vietnam Subsidiary ”) and Global Equipment Services and Manufacturing Vietnam Co., Ltd., as governed by the laws of Vietnam, in substantially the form attached hereto as Exhibit 1.1(c) , and (iv) the Asset Purchase Agreement by and between Kimball Electronics Japan GK (the “ Japan Subsidiary ”) and GES Japan KK, as governed by the laws of Japan, in substantially the form attached hereto as Exhibit 1.1(d) .

“ Local Subsidiary ” means each of the India Subsidiary, the China Subsidiary, the Vietnam Subsidiary and the Japan Subsidiary.

“ Material Adverse Effect ” means any change in, effect on or set of circumstances (regardless of whether foreseeable at the time of the Parties’ execution and delivery of this Agreement) that, individually or in the aggregate with any other changes in, effects on or set of circumstances relating to, the Business or the Acquired Assets, is, or could reasonably be expected to be, materially adverse to the Business, the results of operations or condition (financial or otherwise) of the Business or the Acquired Assets; provided , however , that none of the following shall be taken into account in determining whether there has been a Material Adverse Effect: (i) the effects of changes that are generally applicable to the industry and markets in which the Business operates, (ii) the effects of changes that are generally applicable to the United States economy or securities markets or the world economy or international securities markets or (iii) any effects on the employees, suppliers, licensors or customers of the Business directly resulting from the public announcement of this Agreement, the Contemplated Transactions or the consummation of the Contemplated Transactions; provided further , however , that any change in, effect on or set of circumstances referenced in clauses (i) through (iii) immediately above shall be taken into account in determining whether a “Material Adverse Effect” has occurred or could reasonably be expected to occur to the extent that such change in, effect on or set of circumstances has a disproportionate effect on the Business or the Acquired Assets compared to other participants in the industries in which the Business operates. Without limiting the generality of the foregoing, a “Material Adverse Effect” shall be deemed to have occurred if the applicable change, effect or set of circumstances (or aggregation of changes, effects or sets of circumstances) would be reasonably likely to result in liability to Buyer or any of its Related Persons or the diminution in the value of the Business or the Acquired Assets, of an amount equal to or greater than 10% of the Purchase Price in the aggregate.

“ Occupational Safety and Health Law ” means any Legal Requirement designed to provide safe and healthful working conditions and to reduce occupational safety and health hazards, including the Occupational Safety and Health Act, or state law equivalent, and any program, whether governmental or private (such as those promulgated or sponsored by industry associations and insurance companies), designed to provide safe and healthful working conditions.



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“ Off-the-Shelf Software ” means any software that is made generally and widely available to the public on a commercial basis and is licensed on a non-exclusive basis under standard terms and conditions.

“ Order ” means any order, injunction, judgment, decree, ruling, assessment or arbitration award of any Governmental Body or arbitrator.

“ Owned Real Property ” means all land, buildings, fixtures and appurtenances owned by each Seller.

“Parent Guaranty” means that certain Parent Guaranty between Kimball Parent and GES Holdings in substantially the form attached hereto as Exhibit 1.1(e) .

“ Permits ” means all permits, licenses, franchises, approvals, authorizations, registrations, certificates, variances and similar rights obtained, or required to be obtained, from Governmental Bodies.

“ Permitted Encumbrances ” means such of the following as to which no enforcement, collection, execution, levy or foreclosure proceeding shall have been commenced: (a) Encumbrances imposed by Legal Requirement, such as materialmen’s, mechanics’, carriers’, workmen’s and repairmen’s liens and other similar liens arising in the ordinary course of business, consistent with past practice, securing obligations that are not overdue for a period of more than thirty (30) days; and (b) minor survey exceptions, reciprocal easement agreements, utility easements and other customary Encumbrances on title to real property that (i) were not incurred in connection with any Indebtedness, (ii) do not render title to the property encumbered thereby unmarketable and (iii) do not, individually or in the aggregate, materially adversely affect the value or use of such property for its current purposes; and (c) Encumbrances, if any, set forth on Schedule 1.1(a) .

“ Person ” means an individual, partnership, corporation, business trust, limited liability company, limited liability partnership, joint stock company, trust, unincorporated association, joint venture or other entity or a Governmental Body.

“ Post-Closing Tax Period ” means any tax period beginning after the Closing Date and, with respect to any tax period beginning on or before the Closing Date and ending after the Closing Date, the portion of such period beginning after the Closing Date.

“ Pre-Closing Tax Obligations ” means any Taxes due and payable that are allocable to any Pre-Closing Tax Period pursuant to Section 7.2(a) .

“ Pre-Closing Tax Period ” means any tax period ending on or before the Closing Date and, with respect to any tax period beginning on or before the Closing Date and ending after the Closing Date, the portion of such period ending on and including the Closing Date.

“ Proceeding ” means any action, arbitration, audit, hearing, litigation, enforcement, investigation or suit (whether civil, criminal, administrative, judicial or investigative, whether public or private) commenced, brought, conducted or heard by or before, any Governmental Body or arbitrator.

“ Record ” means information that is inscribed on a tangible medium or that is stored in an electronic or other medium and is retrievable in perceivable form.

“ Registered Intellectual Property Rights ” means all Intellectual Property Rights for which registrations have been obtained or applications for registration have been filed with a Registration Office.



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“ Registration Office ” means, collectively, the United States Patent and Trademark Office, United States Copyright Office and all equivalent foreign patent, trademark, copyright offices or other Governmental Authority governing the registration of rights in Intellectual Property.

“ Related Person ” means, with respect to any Person:

(i) any other Person that directly or indirectly controls, or is directly or indirectly controlled by, such Person;

(ii) each other member of such Person’s Family, if such Person is an individual;

(iii) any other Person (and if such Person is an individual, such individual’s Family, individually or in the aggregate with such Person) that holds a Material Interest in such Person;

(iv) any other Person that serves as a director, officer, partner, executor or trustee (or in a similar capacity) of such Person; or

(v) any other Person in which such Person holds a Material Interest.

For purposes of this definition, (A) “control” (including “controlling,” “controlled by,” and “under common control with”) means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise, and shall be construed as such term is used in the rules promulgated under the Securities Act; (B) the “Family” of an individual includes (i) the individual, (ii) the individual’s spouse, (iii) any other natural person who is related to the individual or the individual’s spouse within the second degree and (iv) any other natural person who resides with such individual; and (C) ”Material Interest” means direct or indirect beneficial ownership (as defined in Rule 13d-3 under the Exchange Act of 1934, as amended) of voting securities or other voting interests representing at least ten percent (10%) of the outstanding voting power of a Person or equity securities or other equity interests representing at least ten percent (10%) of the outstanding equity securities or equity interests in a Person.

“ Release ” means any release, spill, emission, leaking, pumping, pouring, dumping, emptying, escaping, injection, deposit, disposal, discharge, dispersal, leaching or migration on or into the Environment or into or out of any property.

“ Remedial Action ” means all actions, including any capital expenditures, required or voluntarily undertaken (a) to Cleanup, remove, treat or in any other way address any Hazardous Material or other substance; (b) to prevent the Release or Threat of Release or to minimize the further Release of any Hazardous Material or other substance so it does not migrate or endanger or threaten to endanger public health or welfare or the Environment; (c) to perform pre-remedial studies and investigations or post-remedial monitoring and care; or (d) to bring all Facilities and the operations conducted thereon into compliance with Environmental Laws and environmental Governmental Authorizations.

“ Representative ” means, with respect to a particular Person, any director, officer, manager, employee, agent, consultant, advisor, accountant, financial advisor, legal counsel or other representative of that Person.

“ Subsidiary ” means, with respect to any Person (the “ Owner ”), each other Person that is a corporation, joint venture, trust, partnership, limited liability company or any other entity (i) of which the securities or other interests having the power to elect a majority of that other Person’s board of directors or similar governing body are held by the Owner or one or more of its Subsidiaries (other than securities



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or other interests having such power only upon the happening of a contingency that has not occurred), or (ii) over which the Owner has, directly or indirectly, the power to direct its business and policies.

“ Tangible Personal Property ” means all machinery, equipment, tools, furniture, office equipment, computer hardware, supplies, materials, vehicles and other items of tangible personal property (other than Inventories) of every kind owned or leased by a Seller or used in the Business (wherever located and whether or not carried on a Seller’s books), together with any express or implied warranty by the manufacturers or Sellers or lessors of any item or component part thereof, to the extent such warranty is transferable to Buyer, and all maintenance records and other documents relating thereto. Fixtures attached to the real estate shall not be considered Tangible Personal Property.

“ Target Working Capital ” means an amount equal to $8,274,720.00 calculated consistently in the manner of and reflecting the categories represented on Schedule 2.8 .

“ Tax ” or “ Taxes ” means any income, gross receipts, license, payroll, employment, excise, goods and services, severance, stamp, occupation, premium, property, environmental, windfall profit, customs, vehicle, airplane, boat, vessel or other title or registration, capital stock, franchise, employees’ income withholding, foreign or domestic withholding, social security, unemployment, disability, real property, personal property, sales, use, transfer, value added, alternative, add-on minimum and other tax, fee, assessment, levy, tariff, unclaimed property, government or other charges, or duty of any kind whatsoever and any interest, penalty, addition or additional amount thereon imposed, assessed or collected by or under the authority of any Governmental Body or payable under any tax-sharing agreement or any other Contract.

“ Tax Return ” means any return (including any information return), report, statement, schedule, notice, form, declaration, claim for refund or other document or information filed with or submitted to, or required to be filed with or submitted to, any Governmental Body in connection with the determination, assessment, collection or payment of any Tax or in connection with the administration, implementation or enforcement of or compliance with any Legal Requirement relating to any Tax.

“ Third Party ” means any Person other than the Parties.

“ Threat of Release ” means a reasonable likelihood of a Release that would reasonably be expected to require action in order to prevent or mitigate damage to the Environment that may result from such Release.

“ Treasury Regulations ” shall mean the regulations of the United States Treasury Department, as amended, and any successor provisions thereto.

“ Working Capital ” means the excess of the aggregate Current Assets (reduced by all applicable accruals and reserves in respect thereof as determined in a manner consistent with Sellers’ historical practices) over the aggregate Current Liabilities, calculated in accordance with GAAP.

1.2 Additional Definitions . In addition, the meanings of the following terms and variations thereof are specified in the Section set forth opposite such term:



Term	Section
“Acquired Assets”	2.1
“Agreement”	Introductory Paragraph
“Allocation”	2.5(a)



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Term	Section
“Assumed Liabilities”	2.4(a)
“Balance Sheet”	3.4
“Base Purchase Price”	2.3
“Bill of Sale and Assignment and Assumption Agreement”	2.7(a)(i)
“Business”	Recitals
“Buyer Contact”	11.2(a)
“Buyer Closing Documents”	4.2(a)
“Buyer Group”	5.1(a)
“Buyer Indemnified Persons”	8.2(a)
“Buyer’s Tax Contest”	7.2(c)
“Buyer”	Introductory Paragraph
“Buyer Plan”	7.1(e)
“Cap”	8.4
“Closing”	2.6
“Closing Adjustment Amount”	2.8(b)
“Closing Date”	2.6
“Closing Financial Statements”	2.8(b)
“Closing Working Capital”	2.8(b)
“Confidential Information”	11.1(a)
“Control Notice”	8.7(b)
“Current Employees”	3.23(a)
“Damages”	8.2(a)
“Deductible”	8.4
“Disclosing Party”	11.1(a)
“Dispute”	10.12(a)
“Earliest Initiation Date”	2.7(a)(viii)
“Employment Agreements”	2.7(a)(v)
“Escrow Agreement”	2.7(a)(vii)
“Estimated Closing Adjustment Amount”	2.8(a)
“Estimated Closing Financial Statements”	2.8(a)
“Estimated Closing Working Capital” “Excess Vietcom Bank Indebtedness”	2.8(a) 2.4(a)(vi)
“Excluded Assets”	2.2
“FIRPTA Certificate” “GES Purchase Price”	2.7(a)(vii) 2.5(a)
“GES Holdings Purchase Price”	2.5(a)
“GES Infotek Purchase Price”	2.5(a)
“GES Japan Purchase Price”	2.5(a)
“GES Suzhou Purchase Price”	2.5(a)
“GES Vietnam Purchase Price”	2.5(a)



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Term	Section
“First Meeting”	2.7(a)(viii)
“Fundamental Representations”	8.5
“Indemnified Person”	8.7(a)
“Indemnifying Person”	8.7(a)
“Independent Accountants”	2.5(b)
“Interim Balance Sheet”	3.4
“Independent Accounts”	3.4
“JAMS Rules”	2.7(a)(viii)
“Leased Real Property”	3.8
“Loan Payoff Amount”	2.7(a)(vi)
“Non-Competition and Non-Solicitation Agreements”	2.7(a)(viii)
“Notice”	10.12(a)
“Parties”	Introductory Paragraph
“Proprietary Information” “Pre-Closing Tax Return”	7.7(d) 7.2(b)
“Purchase Price”	2.3
“Real Property Lease”	3.8
“Receiving Party”	2.7(a)(viii)
“Restricted Period”	7.7(a)
“Retained Liabilities”	2.4(b)
“Securities Act”	3.3
“Seller Contact”	2.7(a)(viii)
“Sellers”	Introductory Paragraph
“Sellers Closing Documents”	3.2(a)
“Sellers Fundamental Representations”	8.4
“Sellers Indemnified Persons”	8.3
“Sellers’ Representative”	Introductory Paragraph
“Sellers’ Tax Contest”	7.2(c)
“Shared Tax Return”	7.2(b)
“Survival Period”	8.6(a)
“Tax Proceeding”	7.2(c)
“Tax Grant”	3.14(o)
“Tax Purchase Price”	2.5(a)
“Third-Party Claim”	8.7(a)
“Transfer Taxes”	7.2(f)
“Transferred Employees”	7.1(a)
“Transition Services Agreement”	7.14
“Union”	3.24(b)
“U.S. Allocation”	2.5(b)
“WARN Act”	7.1(d)



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1.3 Usage .

(a) Interpretation . In this Agreement, unless a clear contrary intention appears: (i) the singular number includes the plural number and vice versa; (ii) reference to any Person includes such Person’s successors and assigns but, if applicable, only if such successors and assigns are not prohibited by this Agreement, and reference to a Person in a particular capacity excludes such Person in any other capacity or individually; (iii) reference to any gender includes each other gender; (iv) reference to any agreement, document or instrument means such agreement, document or instrument as amended or modified and in effect from time to time in accordance with the terms thereof; (v) reference to any Legal Requirement means such Legal Requirement as amended, modified, codified, replaced or reenacted, in whole or in part, and in effect from time to time, including rules and regulations promulgated thereunder, and reference to any section or other provision of any Legal Requirement means that provision of such Legal Requirement from time to time in effect and constituting the substantive amendment, modification, codification, replacement or reenactment of such section or other provision; (vi) ”hereunder,” “hereof,” “hereto,” and words of similar import shall be deemed references to this Agreement as a whole and not to any particular Section or other provision hereof; (vii) “including” (and with correlative meaning “include”) means including without limiting the generality of any description preceding such term; (viii) ”or” is used in the inclusive sense of “and/or”; (ix) with respect to the determination of any period of time, “from” means “from and including” and “to” means “to but excluding”; and (x) references to documents, instruments or agreements shall be deemed to refer as well to all addenda, exhibits, schedules or amendments thereto.

(b) Accounting Terms and Determinations . Unless otherwise specified herein, all accounting terms used herein shall be interpreted and all accounting determinations hereunder shall be made in accordance with GAAP.

(c) Legal Representation of the Parties . This Agreement was negotiated by the Parties with the benefit of legal representation, and any rule of construction or interpretation otherwise requiring this Agreement to be construed or interpreted against any Party shall not apply to any construction or interpretation hereof.

2. SALE AND TRANSFER OF ASSETS; CLOSING.

2.1 Assets to be Sold . Upon the terms and subject to the conditions set forth in this Agreement, effective as of the Effective Time, each Seller hereby agrees to sell, convey, assign, transfer and deliver to Buyer or to Buyer’s Affiliate pursuant to the terms of a Local Country Purchase Agreement, and Buyer hereby agrees, either on its behalf or on behalf of its Affiliate pursuant to a Local Country Purchase Agreement, to purchase and acquire from each Seller, free and clear of any Encumbrances other than Permitted Encumbrances, all rights, title and interests in and to all property and assets (real, personal or mixed, tangible and intangible) of every kind and description, wherever located, owned, held or used in the conduct of the Business by such Seller, but excluding the Excluded Assets (all such assets to be transferred to Buyer or Buyer’s Affiliate, as applicable, hereunder or pursuant to a Local Country Purchase Agreement being herein referred to collectively as the “ Acquired Assets ”), including, except to the extent constituting Excluded Assets, the following:

(a) all interests of each Seller in real property, including the Owned Real Property listed on Schedule 3.7 and the Leased Real Property listed on Schedule 3.8 ;

(b) all Tangible Personal Property, including those items described in Schedule 2.1(b) , but excluding the items described in Schedule 2.2(i) ;



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(d) all Accounts Receivable;

(e) except as provided in Section 2.2(e) , all Seller Contracts, including those listed in Schedule 3.20(a) , and all outstanding sale orders, bids, offers or solicitations made by or to such Seller to enter into any Contract;

(f) all issued and outstanding equity interests in GES Vietnam;

(g) all Governmental Authorizations and all pending applications therefor or renewals thereof, in each case to the extent transferable to Buyer (but if any Governmental Authorization cannot be transferred, such Seller agrees to cooperate with and reasonably assist Buyer in obtaining such Governmental Authorization), including all Permits and Environmental Permits, which are held by Sellers and required for the conduct of the Business as currently conducted or for the ownership and use of the Acquired Assets, including, without limitation, those listed in Schedule 3.17(a) ;

(h) all data and Records related to the operations of such Seller, including client and customer lists and Records, referral sources, research and development reports and Records, production reports and Records, service and warranty Records, equipment logs, operating guides and manuals, financial and accounting Records, creative materials, advertising materials, promotional materials, studies, reports, correspondence and other similar documents and Records and, subject to Legal Requirements, copies of all personnel Records;

(i) all of the Intellectual Property owned or licensed by Sellers, any and all accompanying intangible rights of Sellers, including (i) all Intellectual Property Rights and Licensed Rights (ii) going concern value and (iii) goodwill, and those items listed in Schedules 3.25(a) and 3.25(d) .

(j) all insurance benefits, including rights and proceeds, arising from or relating to the Acquired Assets or the Assumed Liabilities prior to the Effective Time, unless expended in accordance with this Agreement;

(k) all goodwill relating to the Business and the Acquired Assets and all rights to enforce covenants of employees of the Business regarding noncompetition, nonsolicitation, proprietary rights, intellectual property and confidentiality agreements;

(l) all claims of such Seller against any other Person and relating to the Business or the Acquired Assets, whether choate or inchoate, known or unknown, contingent or non-contingent; and

(m) all rights of such Seller relating to deposits and prepaid expenses, claims for refunds and rights to offset in respect thereof.

Notwithstanding the foregoing, the transfer of the Acquired Assets pursuant to this Agreement shall not include the assumption of any Liability related to the Business or any of the Acquired Assets unless Buyer expressly assumes that Liability pursuant to Section 2.4(a) .

2.2 Excluded Assets . Notwithstanding anything to the contrary contained in Section 2.1 or elsewhere in this Agreement, the following assets or rights of each Seller at the Effective Time (collectively, the “ Excluded Assets ”) are not part of the sale and purchase contemplated hereunder, are excluded from the Acquired Assets and shall remain the property of each such Seller after the Closing:



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(a) all cash, cash equivalents and short-term investments held by such Seller, and deferred Tax assets;

(b) all minute books, stock Records and corporate seals of such Seller;

(d) all insurance policies and rights thereunder (except to the extent specified in Sections 2.1(j) and 2.1(l) );

(e) all of the Seller Contracts that are listed in Schedule 2.2(e) and any Seller Contract which would have been required to be disclosed on Schedule 3.20(a) and which is not so disclosed and which is not separately assumed in writing by Buyer;

(f) all personnel Records and other Records that such Seller is required by Legal Requirement to retain in its possession, all claims for refund of Taxes and other governmental charges of whatever nature, in each case, paid by Sellers with respect to Tax periods ending at or prior to the Effective Time;

(g) all Company Benefit Plans; all assets held in trust or otherwise relating to any Company Benefit Plan or the funding thereof; any insurance policy, Contract, trust, third party administrator Contract, or other funding arrangement for any Company Benefit Plan; any monies held by Sellers in any account dedicated to the payment of benefits or insurance premiums relating to any Company Benefit Plan; and the rights of such Seller to any such assets, Contracts, or monies;

(h) all rights of such Seller under this Agreement, the Bill of Sale and Assignment and Assumption Agreement, the Local Country Purchase Agreements and the Escrow Agreement and otherwise related to or arising from any other document or instrument executed or delivered in connection with this Agreement or the Contemplated Transactions;

(i) the Convertible Note receivable dated December 30, 2016 and issued in favor of GES by JOT Automation, Ltd., in the original principal amount of EUR 9,000,000.00; and

(j) the assets, if any, expressly designated in Schedule 2.2(j) .

2.3 Consideration . The consideration for the Acquired Assets (the “ Purchase Price ”) will be equal to (a) the sum of: (i) Fifty Million Dollars ($50,000,000) (the “ Base Purchase Price ”) and (ii) the Closing Adjustment Amount; plus (b) the aggregate amount of the Assumed Liabilities. The final Closing Adjustment Amount shall be determined and paid in accordance with the provisions of Section 2.8 . The Purchase Price shall be paid to GES Holdings by the Buyer in full on the Closing Date, it being understood that each GES Local Subsidiary shall be deemed to have received at the Closing the portion of the Purchase Price allocated to it pursuant to Section 2.5(a), and further, shall be deemed to have distributed such portion to GES Holdings on the Closing Date. Notwithstanding the foregoing sentence, if required by applicable law or as otherwise may be agreed between the Parties, the portion of the Purchase Price allocated to a particular Seller under a Local Country Purchase Agreement may be paid to an account designated by the Seller or GES Vietnam (in the case of the Local Country Purchase Agreement relating to the Vietnam Subsidiary).



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2.4 Liabilities .

(a) Assumed Liabilities . Effective as of the Effective Time, Buyer hereby agrees to assume and discharge only the following Liabilities of Sellers (the “ Assumed Liabilities ”):

(i) any trade account payable to the extent reflected on the Interim Balance Sheet or incurred by Sellers in the ordinary course of business, consistent with GAAP, between the date of the Interim Balance Sheet and the Effective Time that (A) is not payable to a Related Person of any Seller, and (B) remains unpaid at and is not delinquent as of the Effective Time;

(ii) those accrued expenses of Sellers to the extent reflected on the Interim Balance Sheet or incurred by Sellers in the ordinary course of business, consistent with GAAP, between the date of the Interim Balance Sheet and the Effective Time and, in each case, that remain unpaid at and are not delinquent as of the Effective Time;

(iii) any Liability to Sellers’ customers incurred by Sellers in the ordinary course of business, consistent with GAAP, for non-delinquent orders outstanding as of the Effective Time to the extent reflected on Sellers’ books (other than any Liability arising out of or relating to a Breach that occurred prior to the Effective Time);

(iv) any Liability to Sellers’ customers incurred by Sellers in the ordinary course of business, consistent with past practice, for customer warranties outstanding as of the Effective Time to the extent reflected on the Balance Sheet (other than any Liability arising out of or relating to a Breach that occurred prior to the Effective Time); and

(v) any Liability arising after the Effective Time under the Contracts described in Schedule 3.20(a) (except to the extent any such Liability is the result of a Breach that occurred prior to the Effective Time);

(vi) amounts outstanding in regards to the working capital facility issued by Vietcom Bank that were incurred in respect of Inventories held by GES Vietnam as of the Closing Date or Accounts Receivable of GES Vietnam or an Affiliate thereof, with amounts outstanding under such facility as of the Closing Date in excess of such amount (the “ Excess Vietcom Bank Indebtedness ”), if any, to be deducted from the Purchase Price;

(vii) any Liability described in Schedule 2.4(a)(vii) .

(b) Retained Liabilities . Each Seller hereby acknowledges and agrees that all Liabilities of Sellers other than the Assumed Liabilities (collectively, the “ Retained Liabilities ”) shall remain the sole responsibility of and shall be retained, paid, performed and discharged solely by such Seller. Without limiting the foregoing, Retained Liabilities include the following Liabilities of each Seller:

(i) any Liabilities of Sellers arising or incurred in connection with the negotiation, preparation, investigation and performance of this Agreement, the Local Country Purchase Agreements, the other transaction documents and the transactions contemplated hereby and thereby, including, without limitation, fees and expenses of counsel, accountants, consultants, advisers and others;

(ii) any Liabilities relating to or arising out of the Excluded Assets;



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(iii) any Liability arising out of or relating to products or services of Sellers to the extent manufactured, sold or provided prior to the Effective Time other than to the extent assumed under Section 2.4(a)(iii) , 2.4(a)(iv) or 2.4(a)(v) ;

(iv) any Liability under any Contract assumed by Buyer pursuant to Section 2.4(a)(v) , that either arose at or prior to the Effective Time or, to the extent that such Liability is the result of a Breach that occurred prior to the Effective Time, arises after the Effective Time;

(v) any Liability for Taxes, including (A) any Taxes arising as a result of such Sellers’ operation of the Business or ownership of the Acquired Assets prior to the Effective Time, (B) any Taxes that will arise as a result of the sale of the Acquired Assets pursuant to this Agreement, the Local Country Purchase Agreements, the other transaction documents and the transactions contemplated hereby and thereby, and (C) any deferred Taxes of any nature;

(vi) any Liability under any Contract not expressly assumed by Buyer under Section 2.4(a) , including any Liability arising out of or relating to any Indebtedness or any security interest or Encumbrance related thereto;

(vii) any Environmental, Health and Safety Liabilities arising out of or relating to the operation of the Business prior to Closing or such Seller’s leasing, ownership or operation of real property or the Facilities;

(viii) any obligation or Liability under or that relates to the Company Benefit Plans or that is incurred on or prior to the Effective Time that relates to payroll, wages (including overtime compensation), hours of work, vacation, leaves of absence (including sick leave), employment eligibility verification, immigration, workers’ compensation, or unemployment benefits, for such Seller’s current or former employees, officers, directors or other Persons;

(ix) any trade accounts payable of Sellers (A) to the extent not accounted for on the Interim Balance Sheet; (B) which constitute debt, loans or credit facilities to financial institutions; or (C) which did not arise in the ordinary course of business;

(x) any Liabilities of the Business relating or arising from unfulfilled commitments, quotations, purchase orders, customer orders or work orders that (i) do not constitute part of the Acquired Assets issued by the Business’ customers to Sellers on or before the Closing; (ii) did not arise in the ordinary course of business; or (iii) are not validly and effectively assigned to Buyer pursuant to this Agreement;

(xi) any Liability incurred under any collective bargaining, employment, services, severance, retention or termination agreement or arrangement that existed on or prior to the Effective Time with any current or former employee or contractor of such Seller or any of their Related Persons. For the avoidance of doubt, any Liability incurred after the Effective Time under any collective bargaining, employment services, severance, retention or termination agreement or arrangement maintained or entered into between Buyer and any current or former employee or contractor of such Seller or any of their Related Persons relating to services performed after the Effective Time shall be the sole responsibility of Buyer;

(xii) any Liability arising out of or relating to any current or former employee or contractor claim, charge, complaint, grievance, illness or injury with respect to an event or occurrence at or prior to the Effective Time whether or not the affected employees or contractors are hired by Buyer;



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(xiii) any Liability to any Related Person of such Seller;

(xiv) any Liability to indemnify, reimburse or advance amounts to any current or former officer, director, employee or agent of such Seller;

(xv) any Liability to distribute to any equity holders of such Seller or otherwise apply all or any part of the consideration received hereunder;

(xvi) any Liability arising out of any Proceeding by or against such Seller whether pending as of or commenced after the Effective Time;

(xvii) any Liability arising out of or resulting from such Seller’s compliance or noncompliance with any Legal Requirement or Order of any Governmental Body;

(xviii) any Liability under this Agreement or any other document executed in connection with the Contemplated Transactions, including for the performance of this Agreement or a Local Country Purchase Agreement;

(xix) all Liabilities, if any, arising out of or relating to any prior acquisition or disposition by such Seller, or as set forth on Schedule 2.4(b)(xix) ;

(xx) any Liability for brokerage or finder’s fees or commissions or similar payments based upon any agreement or understanding made, or alleged to have been made, by any Person with such Seller or any of its Related Persons (or any Person acting on behalf of any of them) in connection with any of the Contemplated Transactions; and

(xxi) any other Liability of such Seller or its Related Persons arising after the Effective Time.

2.5 Allocation .

(a) The Base Purchase Price, the Closing Adjustment Amount, the Assumed Liabilities and any liability or other amount that is properly included in the amount realized by Sellers or cost basis to the Buyer with respect to the sale and purchase of the Acquired Assets (the “ Tax Purchase Price ”) shall be allocated among the Acquired Assets as follows (subject to adjustment prior to the Closing as may be required by applicable law or otherwise agreed by the Parties, it being understood that it is the intention of the Parties to continue discussing and refining such allocations prior to the Closing):

(i) [***] to the portion of the Acquired Assets owned by GES Holdings, as adjusted for any portion of the Closing Adjustment Amount, the Assumed Liabilities (and any other liability or other amount that is properly included in the amount realized by Sellers or cost basis to Buyer), any indemnification claims under Article 8 and any other adjustment as set forth in Section 7.2(e) , in each case allocated to or otherwise attributable to the portion of the Acquired Assets owned by GES Holdings (the “ GES Holdings Purchase Price ”);

(ii) [***] to the portion of the Acquired Assets owned by GES, as adjusted for any portion of the Closing Adjustment Amount, the Assumed Liabilities (and any other liability or other amount that is properly included in the amount realized by Sellers or cost basis to Buyer), any indemnification claims under Article 8 and any other adjustment as set forth in Section 7.2(e) , in each case allocated to or otherwise attributable to the portion of the Acquired Assets owned by GES (the “ GES Purchase Price ”);



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(iii) [***] to the portion of the Acquired Assets owned by GES Infotek, as adjusted for any portion of the Closing Adjustment Amount, the Assumed Liabilities (and any other liability or other amount that is properly included in the amount realized by Sellers or cost basis to Buyer), any indemnification claims under Article 8 and any other adjustment as set forth in Section 7.2(e) , in each case allocated to or otherwise attributable to the portion of the Acquired Assets owned by GES Infotek (the “ GES Infotek Purchase Price ”);

(iv) [***] to the portion of the Acquired Assets owned by GES Japan, as adjusted for any portion of the Closing Adjustment Amount, the Assumed Liabilities (and any other liability or other amount that is properly included in the amount realized by Sellers or cost basis to Buyer), any indemnification claims under Article 8 and any other adjustment as set forth in Section 7.2(e) , in each case allocated to or otherwise attributable to the portion of the Acquired Assets owned by GES Japan (the “ GES Japan Purchase Price ”);

(v) [***] to the portion of the Acquired Assets owned by GES Suzhou, as adjusted for any portion of the Closing Adjustment Amount, the Assumed Liabilities (and any other liability or other amount that is properly included in the amount realized by Sellers or cost basis to Buyer), any indemnification claims under Article 8 and any other adjustment as set forth in Section 7.2(e) , in each case allocated to or otherwise attributable to the portion of the Acquired Assets owned by GES Suzhou (the “ GES Suzhou Purchase Price ”);

(vi) [***] to the portion of the Acquired Assets owned by Suzhou Trading, as adjusted for any portion of the Closing Adjustment Amount, the Assumed Liabilities (and any other liability or other amount that is properly included in the amount realized by Sellers or cost basis to Buyer), any indemnification claims under Article 8 and any other adjustment as set forth in Section 7.2(e) , in each case allocated to or otherwise attributable to the portion of the Acquired Assets owned by Suzhou Trading (the “ Suzhou Trading Purchase Price ”);

(vii) [***] to all issued and outstanding equity interests of GES Vietnam as adjusted for any portion of the Closing Adjustment Amount, the Assumed Liabilities (and any other liability or other amount that is properly included in the amount realized by Sellers or cost basis to Buyer), any indemnification claims under Article 8 and any other adjustment as set forth in Section 7.2(e) , in each case allocated to or otherwise attributable to the issued and outstanding equity interests of GES Vietnam (the “ GES Vietnam Purchase Price ”).

(b) GES Holdings Purchase Price and GES Purchase Price .

(i) The GES Holdings Purchase Price and GES Purchase Price shall be allocated in accordance with Treasury Regulations § 1.1060-1(c). Within sixty (60) days after the final determination of the Adjustment Amount pursuant to the provisions of Section 2.8 , Buyer shall prepare and deliver to Sellers’ Representative a draft IRS Form 8594 reflecting the allocation of the GES Holdings Purchase Price and GES Purchase Price consistent with the principles of this Section 2.5 and taking into account any allocation of the Purchase Price made pursuant to Section 7.2(f) . If Sellers’ Representative does not give written notice to Buyer within fifteen (15) days after receipt from Buyer of such draft IRS Form 8594 that Sellers’ Representative disagrees with any part or all of such allocation, then such allocation as so proposed by Buyer shall be deemed agreed by Sellers’ Representative and Buyer for purposes of this Section 2.5 . If Sellers’ Representative does so give notice of any such objection, then for a period of ten (10) days Buyer and Sellers’ Representative shall negotiate in good faith to reach mutual agreement regarding any matters subject to such objection and the allocation of the GES Holdings Purchase Price and GES Purchase Price consistent with the requirements of this Section 2.5 , and if Buyer and Sellers’



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Representative do reach such agreement within such period, then the allocation so agreed upon shall be deemed agreed by the Parties for purposes of this Section 2.5 . In the event that Sellers’ Representative does give notice of any such objection and Buyer and Sellers’ Representative are unable to reach agreement on all such matters, then the allocation of the GES Holdings Purchase Price and GES Purchase Price, to the extent not so agreed, shall be determined by Deloitte LLP, independent public accountants, provided that if Deloitte LLP is unable to serve, Buyer and Sellers’ Representative shall appoint by mutual agreement the office of a nationally recognized firm of independent certified public accountants other than the accountants of Buyer or Sellers’ Representative (the “ Independent Accountants ”). The Parties agree that they shall jointly instruct the Independent Accountants to (A) make their determination of the allocation of the GES Holdings Purchase Price and GES Purchase Price based on their independent review (which will be in accordance with the guidelines and procedures set forth in this Agreement) and, at the Independent Accountants discretion, a one-day conference, at which conference each of Buyer and Sellers’ Representative shall have the right to present its respective position with respect to such dispute and have present its respective advisors, counsel and accountants, (B) render a final resolution in writing to Buyer and Sellers’ Representative (which final resolution shall be requested by Buyer and Sellers’ Representative to be delivered not more than thirty (30) days following submission of such disputed matters), which shall be final, conclusive and binding on the Parties with respect to the allocation of the GES Holdings Purchase Price and GES Purchase Price as finally determined by the Independent Accountants, and (C) provide a written report to Buyer and Sellers’ Representative, if requested by either of them, which sets forth in reasonable detail the basis for the Independent Accountants’ final determination. No appeal from such determination shall be permitted. The fees and expenses of the Independent Accountants shall be borne 50% by each of Buyer and Sellers. Judgment upon any decision by the Independent Accountants may be enforced by any court having jurisdiction thereof. The final allocation of the GES Holdings Purchase Price and GES Purchase Price as agreed upon by Buyer and the Sellers’ Representative or as determined by the Independent Accounts is hereinafter referred to as the “ U.S. Allocation .”

(ii) The Buyer shall be entitled to revise the U.S. Allocation, in accordance with Code Section 1060 and the Treasury Regulations, to appropriately take into account any payments made under this Agreement treated as an adjustment to the consideration for the portion of the Acquired Assets owned by either GES Holdings or GES for federal, state and local income tax purposes and shall promptly provide the Sellers with such revisions to the U.S. Allocation.

(d) The Parties agree that the allocations set forth in Section 2.5 are reasonable and covenant and agree that they will (1) at their respective costs, report, act and file Tax Returns, and any other filings, declarations or reports with the IRS and/or other taxing authorities in respect thereof including the reports required to be filed under Code Section 1060, in all respects and for all purposes consistent with the allocation (including any adjustment thereto made pursuant to Section 2.5(b)(i) of this Agreement) unless otherwise required pursuant to a final determination (within the meaning of Code Section 1313(a) or corresponding provision of state, local or foreign Tax law); and (1) promptly advise each other regarding the existence of any Tax audit, controversy or litigation related to the allocations.

2.6 Closing . Unless this Agreement is earlier terminated pursuant to Section 9.1 , the closing of the Contemplated Transactions (the “ Closing ”) will be held by electronic exchange of documents (a) two (2) Business Days after the conditions set forth Section 6 are satisfied (other than those conditions that by their nature are normally satisfied at the Closing, but subject to the satisfaction of such conditions at the Closing) or waived, or (b) such other time and place as the Parties may agree (the “ Closing Date ”).



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2.7 Closing Deliveries . In addition to any other documents to be delivered or other conditions to be satisfied or obligations to be performed under other provisions of this Agreement and/or the Local Country Purchase Agreements, at or prior to the Closing:

(a) Sellers shall have delivered or otherwise provided (or caused to have been delivered or otherwise provided):

(i) the Bill of Sale and Assignment and Assumption Agreement for all the Acquired Assets and Assumed Liabilities in the form of Exhibit 2.7(a)(i) (the “ Bill of Sale and Assignment and Assumption Agreement ”), duly executed by each Seller;

(ii) assignments of all Intellectual Property Rights and Licensed Rights, if any, and separate assignments of all Registered Intellectual Property Rights, if any, in form and substance satisfactory to Buyer, duly executed by each Seller, as applicable;

(iii) for each interest in real property, a recordable general warranty deed, an Assignment and Assumption of Lease or such other appropriate document or instrument of transfer, as the case may require, each in form and substance satisfactory to Buyer and its legal counsel and executed by each Seller, as applicable;

(iv) such other customary deeds, bills of sale, assignments, certificates of title, documents, affidavits and other instruments of transfer and conveyance as may reasonably be requested by Buyer, each in form and substance satisfactory to Buyer and its legal counsel and executed by each Seller, as applicable;

(v) employment agreements in a form reasonably acceptable to Buyer, duly executed by each of [***] (collectively, the “ Employment Agreements ”);

(vi) a customary pay-off letter or letters for all Indebtedness secured by any Encumbrance (other than Permitted Encumbrances) on the Acquired Assets, evidencing the total pay-off amount thereof (the “ Loan Payoff Amount ”) and indicating the release, upon payment of the Loan Payoff Amount, of all such Encumbrances and otherwise in form and substance reasonably satisfactory to Buyer and its legal counsel;

(vii) an escrow agreement in the form of Exhibit 2.7(a)(vii) (the “ Escrow Agreement ”), duly executed by each Seller and the Escrow Agent;

(viii) non-competition and non-solicitation agreements in the form of Exhibit 2.7(a)(viii) (collectively, the “ Non-Competition and Non-Solicitation Agreements ”), duly executed by each of the individuals listed on Schedule 2.7(a)(viii) attached hereto.

(ix) a certificate pursuant to and in the form described in Treasury Regulations Section 1.1445-2(b)(2), certifying that each of GES and GES Holdings is not a foreign person within the meaning of Code Sections 1445 and 897 (a “ FIRPTA Certificate ”) (which FIRPTA Certificate shall be prepared by and provided to Sellers by Buyer). Notwithstanding anything to the contrary in this Agreement, if Buyer does not obtain the FIRPTA Certificate from GES and GES Holdings, Buyer shall be entitled to proceed with the Closing and withhold from the Purchase Price (and any adjustment thereto) otherwise payable to Sellers, as applicable, the appropriate amounts required to be withheld pursuant to Code Section 1445;



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(x) a certificate of the Secretary (or equivalent thereof) of each Seller certifying, as complete and accurate as of the Closing, attached copies of the Governing Documents of each Seller, certifying and attaching all requisite resolutions or actions of each Seller’s board of directors (or equivalent thereof) and equity holders approving the execution and delivery of this Agreement, the documents executed in connection with this Agreement and/or delivered hereby, the consummation of the Contemplated Transactions and the change of name of each Seller contemplated by Section 7.9 , and certifying to the incumbency and signatures of the officers of each Seller executing this Agreement and any other document relating to the Contemplated Transactions, accompanied by the requisite documents for amending the relevant Governing Documents of each Seller required to effect such change of name in form sufficient for filing with the appropriate Governmental Body;

(xi) the Consents and Governmental Authorizations set forth in Schedule 2.7(a)(xi) , duly executed by the applicable Governmental Body or other Third Party, or, if applicable, evidence, in a form and substance satisfactory to Buyer in its sole and absolute discretion, that Buyer will be able to operate the Business as normal, pending the issuance of any such Consent or Government Authorization that is not obtained prior to Closing;

(xii) if requested by Buyer, any Consents or other instruments that may be required to permit Buyer’s qualification in each jurisdiction in which Sellers are licensed or qualified to do business as a foreign corporation or entity under the name “GES” or any derivative thereof;

(xiii) releases of all Encumbrances on the Acquired Assets (other than Permitted Encumbrances) pursuant to release documents satisfactory to Buyer;

(xiv) certificates dated as of a date reasonably acceptable to Buyer as to the good standing of each Seller and payment of all applicable Taxes by Sellers, executed by the appropriate officials of the jurisdiction where each Seller is organized and each jurisdiction in which each Seller is licensed or qualified to do business as a foreign corporation or entity as specified in Schedule 3.1(a) ;

(xv) evidence satisfactory to Buyer that Sellers have terminated all Current Employees, other than the Current Employees of GES Vietnam;

(xvi) evidence that Sellers have assigned to Buyer, effective upon Closing, any existing non-compete agreements with current employees of Sellers; and

(xvii) [RESERVED.]

(xviii) a certificate, dated the Closing Date and signed by a duly authorized officer of each Seller, to the effect that each of the conditions set forth in Sections 6.2(b) and 6.2(c) have been satisfied.

(b) Buyer shall have delivered (or caused to have been delivered):

(i) to Sellers’ Representative, the Base Purchase Price plus the Estimated Closing Adjustment Amount, if any, less the Escrow Amount less one-half of the fees due to the Escrow Agent less the Loan Payoff Amount less the Excess Vietcom Bank Indebtedness, if any, by wire transfer to an account or accounts and in such amounts specified by Sellers’ Representative in writing;



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(ii) The Escrow Agreement, executed by Buyer and the Escrow Agent, together with the delivery to the Escrow Agent of the Escrow Amount plus the fees due to the Escrow Agent thereunder by wire transfer to an account specified by the Escrow Agent;

(iii) the Bill of Sale and Assignment and Assumption Agreement, the Employment Agreements, and the Non-Competition and Non-Solicitation Agreements, each duly executed by Buyer;

(iv) to the Persons specified, and as directed, in the applicable pay-off letters, the Loan Payoff Amount;

(v) to Sellers, a certificate of the Secretary of Buyer certifying, as complete and accurate as of the Closing, attached copies of the Governing Documents of Buyer and certifying and attaching all requisite resolutions or actions of Buyer’s board of directors approving the execution and delivery of this Agreement and the consummation of the Contemplated Transactions and certifying to the incumbency and signatures of the officers of Buyer executing this Agreement and any other document relating to the Contemplated Transactions; and

(vi) to Sellers, a certificate, dated the Closing Date and signed by a duly authorized officer of Buyer to the effect that each of the conditions set forth in Sections 6.1(a) and 6.1(b) has been satisfied.

2.8 Adjustment Procedure .

(a) At least three Business Days prior to the Closing Date, GES Holdings shall deliver to Buyer financial statements of the Acquired Assets and Assumed Liabilities as of the Effective Time (the “ Estimated Closing Financial Statements ”) on the same basis and applying the same accounting principles, policies and practices that were used preparing the Target Working Capital set forth on Schedule 2.8 hereof, and which sets forth Sellers’ estimate of the Working Capital as of the Closing Date (the “ Estimated Closing Working Capital ”). As set forth on the Estimated Closing Financial Statements, the “ Estimated Closing Adjustment Amount ” (which may be a positive or negative number) is equal to the amount determined by subtracting the Target Working Capital from the Estimated Closing Working Capital.

(i) If the Estimated Closing Adjustment Amount as determined is:

(1) less than the Target Working Capital by an amount that is greater than $413,736.00, then the Purchase Price shall be decreased by the amount of such shortfall;

(2) an amount that is not greater than the Target Working Capital by more than $413,736.00 or less than the Target Working Capital by more than $413,736.00 then the Purchase Price shall not be increased or decreased by any amount; or

(3) greater than the Target Working Capital by an amount that is greater than $413,736.00, then the Purchase Price shall be increased by the amount of such excess.

(b) Buyer shall prepare post-closing financial statements of the Acquired Assets and Assumed Liabilities as of the Effective Time (the “ Closing Financial Statements ”) on the same basis and



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applying the same accounting principles, policies and practices that were used preparing the Balance Sheet. Buyer shall then determine the Working Capital as of the Closing Date (the “ Closing Working Capital ”) based upon the Closing Financial Statements and using the same methodology as was used to calculate the Target Working Capital. As set forth on the Closing Financial Statements, the “ Closing Adjustment Amount ” (which may be a positive or negative number) will be equal the amount determined by subtracting the Target Working Capital from the Closing Working Capital. Buyer shall deliver the Closing Financial Statements and its determination of the Closing Working Capital and the Closing Adjustment Amount to Sellers’ Representative within ninety (90) days following the Closing Date.

(c) If within thirty (30) days following delivery to Sellers’ Representative of the Closing Financial Statements and, based thereon, Buyer’s determination of Closing Working Capital and the Closing Adjustment Amount Sellers’ Representative has not given Buyer written notice of Buyer’s objection to Sellers’ Representative’s determination of Closing Working Capital and the Closing Adjustment Amount (which notice shall state the basis of Sellers’ Representative’s objection in reasonable detail), then Closing Working Capital and the Closing Adjustment Amount as so determined by Buyer shall be binding and conclusive on the Parties.

(d) If Sellers’ Representative duly gives Buyer such notice of objection, and if Sellers’ Representative and Buyer fail to agree on the Closing Adjustment Amount within thirty (30) days of Buyer’s receipt of the objection notice from Sellers’ Representative, either Sellers’ Representative or Buyer may at any time thereafter elect, by written notice to the other Party, to have the Closing Adjustment Amount determined by the Independent Accountants. Upon delivery of such written notice, each of Sellers’ Representative and Buyer shall promptly (and, in any case, no later than ten (10) days thereafter) deliver to the Independent Accountants and to the other Party its proposed Closing Financial Statements and, based thereon, its determination of Closing Working Capital and the Closing Adjustment Amount. The Parties agree that they shall jointly instruct the Independent Accountants to (A) make their determination of the Closing Working Capital and the Closing Adjustment Amount based on their independent review (which will be in accordance with the guidelines and procedures set forth in this Agreement) and, at the Independent Accountants discretion, a one-day conference concerning the Amount in Dispute, at which conference each of Buyer and Sellers’ Representative shall have the right to present its respective position with respect to such dispute and have present its respective advisors, counsel and accountants, (B) render a final resolution in writing to Buyer and Sellers’ Representative (which final resolution shall be requested by Buyer and Sellers’ Representative to be delivered not more than thirty (30) days following submission of such disputed matters), which shall be final, conclusive and binding on the Parties with respect to the Closing Working Capital and the Closing Adjustment Amount as finally determined by the Independent Accountants, and (C) provide a written report to Buyer and Sellers’ Representative, if requested by either of them, which sets forth in reasonable detail the basis for the Independent Accountants’ final determination. No appeal from such determination shall be permitted. The fees and expenses of the Independent Accountants shall be borne 50% by each of Buyer and Sellers’ Representative. Judgment upon any decision by the Independent Accountants may be enforced by any court having jurisdiction thereof.

(e) If the Closing Adjustment Amount as finally determined is:

(i) less than the Target Working Capital by an amount that is greater than $413,736.00, then, within three (3) Business Days after such determination, Sellers shall pay or cause to be paid the amount, if any, by which the Closing Adjustment Amount is less than the Estimated Closing Adjustment Amount (and such payment shall result in an immediate downward adjustment to the Purchase Price by such amount) as directed by Buyer by wire transfer of immediately available funds to such bank account or accounts as Buyer shall specify to Sellers’ Representative in writing;



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(ii) an amount that is not greater than the Target Working Capital by more than $413,736.00 or less than the Target Working Capital by more than $413,736.00, then: (1) the Purchase Price shall not be increased or decreased by any amount, and (2) no payment shall be made to Buyer or Seller pursuant to this Section 2.8 , or otherwise on account of the Adjustment Amount; or

(iii) greater than the Target Working Capital by an amount that is greater than $413,736.00, then, within three (3) Business Days after such determination, the Buyer shall pay or cause to be paid the amount, if any, by which the Closing Adjustment Amount is greater than the Estimated Closing Adjustment Amount (and such payment shall result in an immediate upward adjustment to the Purchase Price by such amount) to or as directed by Sellers’ Representative by wire transfer of immediately available funds to such bank account or accounts as Sellers’ Representative shall specify to Buyer in writing.

2.9 Escrow of Escrow Amount . The Escrow Agreement will provide for, among other things, deposit of the Escrow Amount with the Escrow Agent and the maintenance and distribution thereof by the Escrow Agent for a period of twenty-four (24) months from and after the Closing.

2.10 Third Party Consents . To the extent that each Seller’s rights under any Contract or Governmental Authorization constituting an Acquired Asset, or any other Acquired Asset, may not be assigned to Buyer without the consent of another Person which has not been obtained, this Agreement shall not constitute an agreement to assign the same if an attempted assignment would constitute a breach thereof or be unlawful, and such Seller, at its expense, shall use its reasonable best efforts to obtain any such required consent(s) as promptly as possible. If any such consent shall not be obtained or if any attempted assignment would be ineffective or would impair Buyer’s rights under the Acquired Asset in question so that Buyer would not in effect acquire the benefit of all such rights, such Seller, to the maximum extent permitted by law and the Acquired Asset, shall act after Closing as Buyer’s agent in order to obtain for it the benefits thereunder and shall cooperate, to the maximum extent permitted by Legal Requirement and the Acquired Asset, with Buyer in any other reasonable arrangement designed to provide such benefits to Buyer.

3. REPRESENTATIONS AND WARRANTIES OF SELLERS.

Each Seller (including, for the avoidance of doubt, GES Holdings on behalf of and with respect to itself and with respect to GES Vietnam in each instance where the term Seller is used in this Section 3 ), as applicable, jointly and severally represents and warrants to Buyer that the statements contained in this Section 3 are true and correct as of the date hereof and as of the Closing Date, except as disclosed in the Disclosure Schedules.

3.1 Organization and Good Standing .

(a) Schedule 3.1(a) contains a complete and accurate list of such Seller’s jurisdictions of incorporation and any other jurisdictions in which it is qualified to do business as a foreign entity. Such Seller is duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation or organization, with full power and authority to conduct the Business, to own or use the assets or property that it purports to own or use, and to perform all its obligations under the Contracts. Such Seller is duly qualified to do business as a foreign entity and is in good standing under the laws of each state or other jurisdiction in which either the ownership or use of the assets or properties owned or used by it, or the nature of the activities conducted by it, requires such qualification.



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(b) Except as set forth in Schedule 3.1(b) , such Seller does not have any Subsidiaries and does not own any capital stock or other securities of any other Person.

(c) Such Seller has made available to Buyer complete and accurate copies of the Governing Documents of such Seller, each as currently in effect.

3.2 Enforceability; Authority; No Conflict .

(a) This Agreement and any other document executed in connection with this Agreement to which any Seller is a party constitutes the legal, valid and binding obligation of such Seller, enforceable against it in accordance with its terms. Upon the execution and delivery by such Seller of each agreement to be executed or delivered by such Seller at the Closing (collectively, the “ Sellers Closing Documents ”), each such Sellers Closing Document will constitute the legal, valid and binding obligation of such Seller, enforceable against it in accordance with its terms. Such Seller has the full right, power and authority to execute and deliver this Agreement, any other document executed in connection with this Agreement to which any Seller is a party, and each Sellers Closing Document to which it is a party and to perform its respective obligations under this Agreement, any other document executed in connection with this Agreement to which any Seller is a party, and Sellers Closing Documents, and such action has been duly authorized by all necessary action such Seller’s respective board of directors (or equivalent thereof) and no other authorizations or actions on the part of any Seller are necessary except for the approval of the equity holders of GES Holdings.

(b) Except as set forth in Schedule 3.2(b) , assuming that all consents, approvals, authorizations and other actions described in Section 3.2(c) are obtained, neither the execution and delivery of this Agreement and/or any other document executed in connection with this Agreement to which any Seller is a party nor the consummation or performance of any of the Contemplated Transactions will, directly or indirectly (with or without notice or lapse of time): (i) contravene or conflict with the Governing Documents of such Seller or any resolution adopted by such Seller’s board of directors (or equivalent thereof) or equity holders; (ii) contravene or conflict with or constitute a violation of any provision of any Legal Requirement, judgment, injunction, Order or decree binding upon or applicable to such Seller, the Acquired Assets or the Business; (iii) give any Governmental Body or other Person the right to challenge any of the Contemplated Transactions or to exercise any remedy or obtain any relief under any Legal Requirement or any Order to which such Seller or any of the Acquired Assets may be subject; (iv) contravene, conflict with or result in a violation or breach of any of the terms or requirements of, or give any Governmental Body the right to revoke, withdraw, suspend, cancel, terminate or modify, any Governmental Authorization that is held by such Seller or that otherwise relates to the Acquired Assets or to the Business; (v) Breach any provision of, or give any Person the right to declare a default or exercise any remedy under, or to accelerate the maturity or performance of, or payment under, or to cancel, terminate or modify, any Contract (excluding Company Benefit Plans retained by Sellers); or (vi) result in the imposition or creation of any Encumbrance upon or with respect to any of the Acquired Assets.

(c) Except as set forth in Schedule 3.2(c) , such Seller is not required to give any notice to or obtain any Consent from any Person, whether pursuant to a Contract, Governmental Authorization or Legal Requirement, in connection with the execution and delivery of this Agreement, any other document executed in connection with this Agreement to which any Seller is a party, and the Sellers Closing Documents or the consummation or performance of any of the Contemplated Transactions.

3.3 Ownership of Sellers . The authorized equity securities of GES Holdings consist of 42,000,000 shares of common stock, no par value per share, of which 11,752,462 shares are issued and



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outstanding, and 23,526,536 shares of preferred stock, no par value per share, all of which are issued and outstanding. Schedule 3.3 contains a complete and correct list of the owners of such equity securities. GES Holdings wholly owns GES, and GES wholly owns each of GES Infotek, GES Japan, GES Suzhou, Suzhou Trading and GES Vietnam. All the outstanding equity securities of each Seller have been duly authorized and validly issued, and are fully paid and non-assessable. There are no Contracts relating to the issuance, sale or transfer of any equity securities or other securities of Sellers. None of the outstanding equity securities of Sellers was issued in violation of the Securities Act of 1933, as amended (the “ Securities Act ”), or any other Legal Requirement.

3.4 Financial Statements . Each Seller has delivered to Buyer: (a) balance sheet of such Seller as at December 31, 2017 (including the notes thereto, the “ Balance Sheet ”), and the related statements of income, changes in owners’ equity and cash flows for the fiscal year then ended, including in each case the notes thereto, together with a report thereon of Abbott, Stringham & Lynch (in the U.S.), Roy Varghese & Associates (in India), Welsen CPA Company (in China), and Deloitte Vietnam (in Vietnam), independent certified public accountants (collectively, the “ Independent Accounts ”), such independent accounts to be audited to the extent the relevant audits have been completed and otherwise shall be management prepared statements; (b) audited balance sheets of each Seller as at December 31, 2016 and 2015, and the related audited statements of income, changes in owners’ equity and cash flows for the fiscal years then ended, including in each case the notes thereto together with the report thereon of the respective Independent Accountants; and (c) an unaudited, management prepared, balance sheet of each Seller at March 31, 2018, (the “ Interim Balance Sheet ”) and the related statement of income, for the two (2) month(s) then ended, including in each case the notes thereto certified by each Seller’s chief financial officer (or equivalent thereof). Such financial statements fairly present the financial condition and the results of operations, changes in owners’ equity and cash flows of each Seller as at the respective dates of and for the periods referred to in such financial statements, all in accordance with GAAP. The financial statements referred to in this Section 3.4 reflect the consistent application of such accounting principles throughout the periods involved, except as disclosed in the notes to such financial statements. The financial statements have been prepared from and are in accordance with the accounting Records of each Seller. Each Seller has delivered to Buyer all letters from such Seller’s auditors to such Seller’s board of directors or the audit committee thereof during the thirty-six (36) months preceding the execution of this Agreement, together with copies of all responses thereto.

3.5 Books and Records . The books of account and other financial Records of Sellers, all of which have been made available to Buyer, are complete and correct in all material respects and represent actual, bona fide transactions and have been maintained in accordance with sound business practices. The statutory registers and minute books of Sellers, all of which have been made available to Buyer, contain accurate and complete Records of all meetings held, and corporate action taken, by the equity holders, the boards of directors and committees thereof (and any similar governing bodies and committees) of Sellers.

3.6 Sufficiency of Assets . Except as set forth in Schedule 3.6 , the Acquired Assets (i) constitute all of the property and assets (real, personal or mixed, tangible and intangible) of every kind and description, necessary to operate the Business in the manner presently operated by such Seller, and (ii) include all of the operating assets and properties of such Seller.

3.7 Owned Real Property . Schedule 3.7 sets forth a correct and complete list of all Owned Real Property that Sellers own in connection with the Business, including all encumbrances, easements or rights of way of record (or, if not of record, of which any Seller has notice or Knowledge) granted on or appurtenant to or otherwise affecting the Owned Real Property. Other than the Owned Real Property described in Schedule 3.7 Sellers do not own, and have not at any time owned, any parcel of real property or other interest in real property used in the Business. To Sellers’ Knowledge, each of the Owned Real Property is in compliance with all restrictions, covenants and agreements related to the applicable Owned



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Real Property. To Sellers’ Knowledge, no variances are needed, and none have been granted, with respect to the Owned Real Property. No public improvements have been commenced and, to Sellers’ Knowledge, none are planned that may result in special assessments against or otherwise materially adversely affect any Owned Real Property (individually or in the aggregate). No portion of any Owned Real Property is subject to any rollback Taxes, recapture provisions, additional Taxes or assessments, or penalties as a result of having been at any time classified or zoned for agricultural, forest cropland, or similar use. To Sellers’ Knowledge, there is no (i) planned or proposed increase in assessed valuations of any Owned Real Property, (ii) order by any Governmental Body or Proceeding requiring repair, alteration or correction of any existing condition affecting any Owned Real Property or the systems or Improvements thereat; (iii) condition or defect that could give rise to an order by any Governmental Body or Proceeding of the type described in subclause (ii); or (iv) work that has been done or labor or materials that has or have been furnished to any Owned Real Property during the period of one year immediately preceding the date of this Agreement (or during the period between the date hereof and the Closing Date) for which Encumbrances could be filed against the Owned Real Property that has not been, or will not be, fully paid prior to Closing. To Sellers’ Knowledge, there is no existing, proposed or contemplated plan to construct, modify or realign any street, highway, power line or pipeline that would adversely affect the current or planned use or occupancy of any Owned Real Property. To Sellers’ Knowledge, here is not any claim of adverse possession or prescriptive rights involving or affecting any Owned Real Property. To Sellers’ Knowledge, no condition or matter exists (including any Legal Requirement) that would render any Owned Real Property unsuitable for or prohibit its current use or that would require material changes, remediation or improvements in order to continue its current use.

3.8 Leased Real Property . Schedule 3.8 contains a complete and correct list of each parcel of real property or interest in real property (collectively, “ Leased Real Property ”) held under lease, sublease, license or any other occupancy arrangement in which such Seller holds an interest (each, a “ Real Property Lease ”), together with a true, correct and complete list of all such Real Property Leases and all amendments and supplements thereto. Such Seller has good and valid leasehold title in all Real Property Leases, and, in each case, to the Knowledge of such Seller, free and clear of all Encumbrances other than Permitted Encumbrances. Such Seller has not assigned its interest under any Real Property Lease or to the Owned Real Property, or leased, subleased or sublicensed all or any part of the space demised thereby, to any Person (other than Buyer). No renewal or other option has been exercised under any of the Real Property Leases, except such renewal or other options whose exercise has been evidenced by a written document, a true, correct and complete copy of which has been delivered to Buyer with the corresponding Real Property Lease. Each Real Property Lease is valid and binding in all material respects upon such Seller and, to the Knowledge of such Seller, each other party thereto, and is in full force and effect and modified as of the date hereof. Such Seller is in compliance in all material respects with the terms of each Real Property Lease and to the Knowledge of such Seller, no event has occurred and no condition exists which, with the giving of notice or the lapse of time or both, would give rise to a right on the part of the landlord thereunder to terminate a Real Property Lease. Each landlord under the Real Property Leases is in compliance in all material respects with the terms of each Real Property Lease and to the Knowledge of such Seller, no event has occurred and no condition exists which, with the giving of notice or the lapse of time or both, would give rise to a default by the landlord of such Real Property Lease.

3.9 Title to Assets; Encumbrances . Sellers have good and marketable title to, or valid and subsisting leasehold interests in the Acquired Assets, including the Owned Real Property and Leased Real Property, free and clear of all Encumbrances, except for Permitted Encumbrances. Upon consummation of the Contemplated Transactions, Buyer will have acquired good and marketable title to, or a valid and subsisting leasehold interest in and to, each of the Acquired Assets, including the Owned Real Property and Leased Real Property, free and clear of all Encumbrances, except for Permitted Encumbrances.



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3.10 Condition of Facilities .

(a) Use of the Owned Real Property and Leased Real Property for the various purposes for which used is, and to the Sellers’ Knowledge at all times since January 1, 2015 has been, permitted as of right under all applicable zoning Legal Requirements. The Owned Real Property and Leased Real Property and all Improvements thereon are, and to the Sellers’ Knowledge at all times since January 1, 2015 has been, in compliance with all applicable Legal Requirements in all material respects, including those pertaining to zoning, building and the disabled, are in good repair and in good condition, ordinary wear and tear excepted, and are free from latent and patent defects. No part of any of such Improvements encroaches on any real property not included in the Owned Real Property or the Leased Real Property. All utility systems serving the Owned Real Property or Leased Real Property are adequate to operate the Business in the manner presently operated by Sellers. All Owned Real Property and all Leased Real Property have adequate access for ingress from and egress to a public way. There is no pending or, to the Knowledge of Sellers, threatened condemnation, eminent domain or similar proceeding with respect to any of the Owned Real Property or Leased Real Property. Neither the Owned Real Property nor the Leased Real Property is located within any flood plain or area subject to wetlands regulation or any similar restriction.

(b) Each item of Tangible Personal Property is in good repair and good operating condition, ordinary wear and tear excepted, is suitable for immediate use in the ordinary course of business, consistent with past practice, and is free from latent and patent defects. No item of Tangible Personal Property is in need of repair or replacement other than as part of routine maintenance in the ordinary course of business, consistent with past practice. Except as disclosed in Schedule 3.10(b) , as of Closing, all Tangible Personal Property used in the Business is in the possession of Sellers.

3.11 Accounts Receivable . Except as disclosed in Schedule 3.11 : (a) the Accounts Receivable reflected on the Interim Balance Sheet or, if arising since the date of the Interim Balance Sheet, the books of account of Sellers are bona fide, represent valid obligations owing to Sellers, and have arisen or were acquired in the ordinary course of business, and in a manner substantially consistent with past practice and with the regular credit practices of Sellers; (b) each Seller’s provision for doubtful accounts reflected on the Interim Balance Sheet has been determined in accordance with GAAP consistently applied; and (c) since the date of the Interim Balance Sheet, no Seller has not canceled, reduced, discounted, credited or rebated or agreed to cancel, reduce, discount, credit or rebate, in whole or in part, any Accounts Receivables, except in the ordinary course of business, consistent with past practice. Schedule 3.11 contains a complete and accurate list of all Accounts Receivable as of the date of the Interim Balance Sheet, which list sets forth the aging of each such Account Receivable.

3.12 Inventories . Except for reserves reflected on the Interim Balance Sheet, the Inventories of each Seller (including that reflected on the Interim Balance Sheet), taken as a whole, are in merchantable condition, are suitable and usable or, in the case of finished goods, salable in the ordinary course of business, consistent with past practice, for the purposes for which such Inventories were intended, and have been reflected on the Interim Balance Sheet and carried on the books of account of such Seller at the lower of cost or market value.

3.13 No Undisclosed Liabilities . Except for (a) Liabilities reflected on the Interim Balance Sheet and Current Liabilities that were incurred in the ordinary course of business, consistent with past practice, since the date of the Interim Balance Sheet, (b) obligations of future performance under executory Contracts and (c) obligations incurred pursuant to this Agreement, such Seller has no Liabilities.



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3.14 Taxes .

(a) All Tax Returns required to be filed and relating in any manner to any of the Acquired Assets or the Business have been timely filed with the appropriate Governmental Body in all jurisdictions in which such Tax Returns are required to be filed. All such Tax Returns (i) were prepared in the manner required by the applicable Legal Requirement and (ii) are true, correct and complete in all material respects.

(b) Such Seller has paid, or caused to be paid, all Taxes due with respect to all of the Acquired Assets or the Business whether or not shown (or required to be shown) on a Tax Return; and such Taxes paid include those for which such Seller may be liable in their own right, or as the transferee of the assets of, or as successor to, any other entity.

(c) There has been no notice of a deficiency or assessment or other claim relating in any manner to any of the Acquired Assets or the Business from any Governmental Body which has not been fully paid or finally settled. There are no current audits or examinations of, and no notice of audit or examination of, any Tax Return that relates to any of the Acquired Assets or the Business. Such Seller has not given nor has there been given on such Seller’s behalf a waiver or extension of any statute of limitations relating to the payment of Taxes relating to any of the Acquired Assets or the Business.

(d) Sellers have complied in all material respects with all Legal Requirements, rules and regulations relating to the withholding of Taxes and the payment thereof to the appropriate Governmental Body, including, without limitation, Taxes required to have been withheld and paid in connection with amounts paid or owing to any current or former employee or independent contractor, creditor, shareholder or other third party, and all IRS Forms W-2, 1099 or 1042-S required with respect thereto have been properly completed and filed.

(e) No claim has ever been made by any Governmental Body with respect to any of the Acquired Assets or the Business in a jurisdiction where a Seller does not file Tax Returns that a Seller may be subject to taxation in that jurisdiction.

(f) There are no Encumbrances on any of the Acquired Assets that arose in connection with any failure (or alleged failure) to pay any Taxes and there are no Encumbrances for any Tax upon any Acquired Asset other than for Taxes not yet due and payable. Buyer will not be liable for, and none of the Acquired Assets will be subject to an Encumbrance with respect to any Taxes arising out of, relating to or in respect of the Business or any of the Acquired Assets for any Tax period or portion thereof ending on or before the Closing Date.

(g) None of the Acquired Assets is (i) “tax-exempt use property” within the meaning of Section 168(h) of the Code, (ii) “tax-exempt bond financed property” within the meaning of Section 168(g)(5) of the Code or (iii) property that is required to be treated as owned by another Person pursuant to the provisions of Section 168(f)(8) of the Internal Revenue Code of 1954, as amended and in effect immediately prior to the enactment of the Tax Reform Act of 1986.

(h) Such Seller will not be required to include any item of income in, or exclude any item of deduction from, taxable income for any taxable period (or portion thereof) ending after the Closing Date as a result of any “closing agreement” as described in Code Section 7121 (or any corresponding provision of state, local or non-U.S. income Tax law).

(i) None of the Assumed Liabilities is an obligation to make a payment that is not deductible under Code Section 280G. Such Seller is not a party to any Tax allocation or sharing



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agreement. The Sellers (i) (other than the filing of a consolidated federal income Tax Return for 2017 by GES Holdings and GES) have not been a member of an affiliated group filing a consolidated federal income Tax Return; and (ii) have no liability for Taxes of any Person under Treasury Regulations 1.1502-6 (or any similar provision of state, local or non-U.S. law) as a transferee or successor, by contract or otherwise.

(j) Such Seller has not distributed stock of another Person, or has had its stock distributed by another Person, in a transaction that was purported or intended to be governed in whole or in part by Code Section 355 or Code Section 361.

(k) Such Seller has not been a party to any “reportable transaction” as defined in Code Section 6707A(c)(1) and Treasury Regulation Section 1.6011-4(b) or any “listed transaction,” as defined in Code Section 6707A(c)(2) and Treasury Regulation Section 1.6011-4(b)(2).

(l) Each Seller other than GES and GES Holdings is a “controlled foreign corporation” as defined in Code Section 957(a), has never been a “passive foreign investment company” as defined in Code Section 1297 and is not a “surrogate foreign corporation” as defined in Code Section 7874(a)(2)(B). No Seller has an investment in “United States property” within the meaning of Code Section 956.

(m) No Seller (i) has or has had a permanent establishment, office or fixed place of business, or otherwise been subject to Tax in any country other than the country in which it is organized. No Seller is subject to any gain recognition agreement under Code Section 367.

(n) No Seller has agreed to, or has been requested in writing to make, any material adjustments pursuant to Code Section 482 or any corresponding provision of state, local or non-U.S. Law with respect to any intercompany transaction, and no Seller has received any notice in writing from the Internal Revenue Service or other relevant Governmental Body proposing any such adjustment.

(o) All material documentation relating to any applicable Tax exemption, Tax holiday or reduced Tax rate granted by a Governmental Body with respect to the Acquired Assets or the Business that is not generally available to Persons without specific application therefor (each, a “ Tax Grant ”) that has current applicability to any of the Acquired Assets or the Business has been delivered or otherwise made available to Buyer. To the Seller’s Knowledge, each of the Sellers is in compliance with the terms and conditions of any Tax Grants in all material respects.

(p) The Acquired Assets do not include any shares of capital stock of, or any other interest in, any other Person.

3.15 No Material Adverse Effect . Since the date of the Balance Sheet, there has not been any Material Adverse Effect, and no event has occurred or circumstance exists that would reasonably be expected to have a Material Adverse Effect.

3.16 Employee Benefits .

(a) Schedule 3.16(a) sets forth a list of each material Company Benefit Plan.

(b) Neither Sellers nor any ERISA Affiliate have any Liability under any Company Benefit Plan or any other “employee benefit plan” (within the meaning of Section 3(3) of ERISA) maintained by or contributed to by Sellers or any ERISA Affiliate that will become a Liability of Buyer or Buyer’s affiliates or result in any lien or Encumbrance on the Acquired Assets.



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(c) Except as set forth in Schedule 3.16(c) , such Seller and its ERISA Affiliates have complied with COBRA, and Sellers have no obligation under any Company Benefit Plan or otherwise to provide life or health insurance benefits to current or future terminated or retired employees of such Seller, or any other Person, except as specifically provided by COBRA.

(d) With respect to each material Company Benefit Plan, complete and correct copies of the following documents (if applicable to such Company Benefit Plan) have previously been delivered or made available to Buyer: (i) all documents embodying or governing such Company Benefit Plan, and any funding medium for such Company Benefit Plan, trust agreement or insurance Contract, as they may have been amended to the date hereof; (ii) the most recent IRS determination or opinion letter with respect to any Company Benefit Plan that is a qualified retirement plan under Code Section 401(a).

(e) Neither Sellers nor any ERISA Affiliate has, within the six-year period ending on the date hereof, sponsored, maintained, contributed to or have any Liability or obligation with respect to any “multiemployer plan,” as such term is defined in Section 3(37) of ERISA, “multiple employer welfare association,” within the meaning of Section 3(40) of ERISA, or any plan of the type described in Sections 4063 and 4064 of ERISA or in Section 413 of the Code (and any regulations promulgated thereunder).

(f) No facts or circumstances exist with respect to any Company Benefit Plan, that is subject to Title IV of ERISA, which could or would give rise to an Encumbrance on the Acquired Assets under Section 4068 of ERISA or otherwise.

3.17 Compliance With Laws .

(a) Except as set forth on Schedule 3.17(a) , such Seller has, and the Acquired Assets include, all Governmental Authorizations, including all Permits and Environmental Permits, necessary to lawfully carry on the Business as it is currently being conducted, to own the assets it owns, including the Owned Real Property, or lease the assets it holds under lease, including the Leased Real Property, and to perform all of its obligations under the Contracts, and Schedule 3.17(a) correctly describes each such Governmental Authorization (including any application for grant of such Governmental Authorization), together with the name of the Governmental Body issuing such Governmental Authorization and their respective dates of issuance and expiration. All fees and charges with respect to such Governmental Authorizations as of the date hereof have been paid in full. Except as set forth on Schedule 3.17(a) , each such Governmental Authorization is valid and in full force and effect, and none of the Governmental Authorizations will be terminated or impaired or become terminable as a result of the Contemplated Transactions, unless, as noted on Schedule 3.17(a) , such termination and replacement is required by a Governmental Body in order to effectuate an approved transfer of such Governmental Authorization. Such Seller has not received notice that any Governmental Body intends to cancel or terminate any such Governmental Authorizations. Upon consummation of the Contemplated Transactions and upon obtaining any required approvals, authorizations, transfers and/or assignments by Governmental Bodies as noted on Schedule 3.17(a) , Buyer will have all of such Seller’s rights, title and interests in and to all of the Governmental Authorizations listed on Schedule 3.17(a) .

(b) Except as set forth on Schedule 3.17(b) , (i) the Business is being and has at all times since January 1, 2015 been conducted in compliance in all material respects with all applicable Legal Requirements and all Governmental Authorizations required to be set forth on Schedule 3.17(a) , and (ii) such Seller has not received any notice or other communication (whether oral or written) from any Governmental Body regarding (A) any actual, alleged, possible or potential violation of, or failure of Sellers or the Business to comply with, any applicable Legal Requirement or Governmental Authorizations required to be set forth on Schedule 3.17(a) or (B) any actual, alleged, possible or



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potential obligation on the part of such Seller to undertake, or to bear all or any portion of the cost of, any Remedial Action of any nature.

3.18 Legal Proceedings . Except as set forth in Schedule 3.18 , there is no Proceeding pending or, to such Seller’s Knowledge, threatened, that relates to, or that may affect the Acquired Assets, the Assumed Liabilities or the Business, or that challenges or may have the effect of preventing, delaying, making illegal or otherwise interfering with this Agreement or any agreement executed in connection with this Agreement or to be delivered hereby or any action taken or to be taken in connection with this Agreement or the Contemplated Transactions. There are no outstanding Orders, writs, decrees or settlements that apply, in whole or in part, to the Acquired Assets or the Business that restrict the ownership or use of the Acquired Assets or the Business. To the Knowledge of such Seller, no event has occurred or circumstance exists that would reasonably be expected to give rise to or serve as a basis for the commencement of any such Proceeding.

3.19 Absence of Certain Changes and Events . Except as set forth in Schedule 3.19 , since the date of the Balance Sheet, such Seller has conducted the Business only in the ordinary course, consistent with past practice, and there has not been any:

(a) event, occurrence or development that has had, or could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect;

(b) Issuance, sale, or entry into any agreements or commitments to issue or sell any equity securities or securities convertible into or exchangeable for equity;

(d) (i) increase (whether in cash, equity or property) in the base salary or other compensation payable by such Seller to any of its officers, directors or Current Employees (other than such increases to Current Employees of less than five percent (5%)), (ii) adoption of, increase in the payments to or benefits under, any savings, insurance, pension, retirement or other employee benefit plan or (iii) declaration, payment or commitment or obligation of any kind by such Seller for any severance or termination payment or any bonus, profit sharing, deferred compensation or other additional salary or compensation to any such person, other than pursuant to the terms of any existing written agreement, policy or plan of such Seller;

(e) material damage to or destruction or loss of any asset or property of such Seller, whether or not covered by insurance;

(f) entry into, termination of, or receipt of notice of termination of any license, distributorship, dealer, sales representative, joint venture, credit, or similar agreement;

(g) entry into, termination of, or receipt of notice of termination of any Contract or transaction other than in the ordinary course of business consistent with past practice;

(h) sale (other than sales of inventory in the ordinary course of business, consistent with past practice), lease or other disposition of, or mortgage, pledge or imposition of any Encumbrance on, any asset or property of such Seller, including any of the Intellectual Property Rights;

(i) material change in the accounting methods used by such Seller;

(j) commencement, settlement or agreement to settle any litigation or Proceeding; or



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(k) agreement or commitment by such Seller to do any of the foregoing.

3.20 Contracts; No Defaults .

(a) Schedule 3.20(a) contains an accurate and complete list, and such Seller has delivered to Buyer accurate and complete copies, of:

(i) each Contract or commitment that involves performance of services or delivery of goods or materials by, or indebtedness of, such Seller of an amount or value in excess of Twenty-Five Thousand and 00/100 Dollars ($25,000.00);

(ii) each Contract or commitment that involves performance of services or delivery of goods or materials to such Seller (other than employment or individual independent contractor agreements substantially in the Seller’s standard form made available to Buyer) of an amount or value in excess of Twenty-Five Thousand and 00/100 Dollars ($25,000.00);

(iii) each Contract that was not entered into in the ordinary course of business, consistent with past practice;

(iv) each lease, rental, occupancy, license, installment, conditional sale or other Contract or arrangement affecting the ownership of, leasing of, title to, use of, or any leasehold or other interest in, any real property providing for future monthly rental payments;

(v) each lease, rental, license, installment, conditional sale or other Contract or arrangement affecting the ownership of, leasing of, title to, use of, or any leasehold or other interest in, any Tangible Personal Property providing for future monthly rental payments (except personal property leases and installment and conditional sales agreements having a value per item or aggregate payments of less than Ten Thousand and 00/100 Dollars ($10,000.00) and with a term of less than one year);

(vi) each licensing agreement or other applicable Contract with respect to such Seller’s Intellectual Property Rights and Licensed Rights (whether inbound or outbound), including agreements with current or former employees, consultants, or contractors regarding the appropriation or the nondisclosure of any of the Intellectual Property Rights or Licensed Rights;

(vii) each collective bargaining, employment, deferred compensation, severance and other agreement or any other type of the Sellers;

(viii) each Contract or understanding with any of such Seller’s officers, directors, or employees, other than Employee Benefit Plans;

(ix) each franchise, joint venture, partnership, strategic alliance, co-marketing, co-promotion, co-packaging or joint development Contract or other Contract involving a sharing of profits, losses, costs or liabilities by such Seller with any other Person;

(x) each Contract containing covenants that in any way purport to restrict the business activity of such Seller or limit the freedom of such Seller to engage in any



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line of business or to compete with any Person or which contain any exclusivity, non-competition, non-solicitation or no-hire provisions;

(xi) each Contract providing for payments to or by any Person based on sales, purchases, or profits, other than direct payments for goods;

(xii) each Contract for capital expenditures in excess of Fifty Thousand and 00/100 Dollars ($50,000.00);

(xiii) each written warranty, guaranty, and or other similar undertaking with respect to contractual performance by such Seller extended by such Seller;

(xiv) each Contract with a Government Body;

(xv) each Contract pursuant to which such Seller or any Subsidiary of such Seller has guaranteed any obligations of such Seller;

(xvi) each Contract pursuant to which such Seller has a right of first option or right of first refusal with respect to material elements of the Contract or the transaction underlying the Contract; and

(xvii) each amendment, supplement, and modification (whether oral or written) in respect of any of the foregoing.

Schedule 3.20(a) sets forth reasonably complete details concerning such Contracts, including the parties to the Contracts.

(b) [INTENTIONALLY DELETED]

(c) (i) Each Contract included in the Acquired Assets or the Assumed Liabilities is legal, valid, binding and enforceable against such Seller, and to the Knowledge of such Seller, against each other party thereto, has been executed in compliance with all applicable Legal Requirements, is in full force and effect and will continue to be so legal, valid, binding and enforceable and in full force and effect following the assignment of such Contract at the Closing or pursuant to other arrangements in accordance with this Agreement, as the case may be, and (ii) such Seller is not and, to such Seller’s Knowledge, no other party is, in breach or default, and, to the Knowledge of such Seller, no event has occurred which would constitute (with or without notice or lapse of time or both) a Breach (or give rise to any right of termination, modification, cancellation or acceleration) under any such Contract.

(d) There are no renegotiations of, attempts to renegotiate or outstanding rights to renegotiate any material amounts paid or payable to such Seller under current or completed Contracts with any Person having the contractual or statutory right to demand or require such renegotiation and no such Person has made written demand for such renegotiation.

(e) Each Contract relating to the sale, design, manufacture or provision of products or services by such Seller has been entered into in the ordinary course of business, consistent with past practice, of such Seller and has been entered into without the commission of any act alone or in concert with any other Person, or any consideration having been paid or promised, that is or would be in violation of any Legal Requirement.



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3.21 Insurance . Such Seller has in place insurance policies with respect to the Acquired Assets and the Business in amounts and types that are customary in the industry for similar assets and sufficient to cover the full value of the Acquired Assets and the Business, and all such policies are valid and in full force and effect. Schedule 3.21 contains a complete and accurate list of all insurance policies currently maintained relating to the Acquired Assets or the Business. Such Seller has delivered to Buyer complete and accurate copies of all such policies together with (a) all riders and amendment thereto and (b) if completed, the applications for each of such policies. Such policies, as are current, are valid and in full force and effect, and such Seller and, if applicable, its Related Persons, have complied in all material respects with the provisions of such policies, and all such policies either specifically include such Seller as named insured or include omnibus named insured language which generally includes such Seller. All premiums due to date under such policies have been paid, no default exists thereunder and, with respect to any material claims made under such policies, no insurer has made any “reservation of rights” or refused to cover all or any portion of such claims except to the extent that it is disclosed in Schedule 3.21 . Such Seller has not received any notice of any proposed material increase in the premiums payable for coverage, or proposed reduction in the scope (or discontinuation) of coverage, under any insurance policy.

3.22 Environmental Matters . Except as set forth on Schedule 3.22 :

(a) Such Seller’s operation of the Business and Facilities is and at all times has been in compliance with all applicable Environmental Laws.

(b) Such Seller has obtained and complied with, and is and at all times has been in compliance with all Governmental Authorizations that are required pursuant to Environmental Laws for the occupation of its Facilities and the operation of its Business, and has timely filed all permit applications and renewals necessary for the occupation of the Facilities and the operation of the Business, each of which environmental Governmental Authorizations is set forth on Schedule 3.17(a) .

(c) There is no existing, pending or, to the Knowledge of such Seller, threatened Proceeding or Order under any Environmental Law with respect to such Seller, the Acquired Assets or any of the Facilities, and such Seller has not received written notice from any Person, including a Governmental Body, alleging such Seller is or was in violation of, or otherwise may be liable under, any Environmental Law.

(d) None of the following exists at any of the Facilities: (i) underground storage tanks, (ii) asbestos containing material in any form or condition, (iii) materials or equipment containing polychlorinated biphenyls, or (iv) landfills, surface impoundments, or disposal areas, other than disposal areas used in the normal course of Business in compliance with Environmental Laws.

(e) There have been no Releases of Hazardous Materials on or underneath any of the Facilities, or to the Knowledge of such Seller, at any other location, in amounts that would require or give rise to Remedial Action obligations on the part of such Seller or any Related Persons of such Seller under any applicable Environmental Laws.

(f) Such Seller has not disposed of, emitted, discharged, handled, treated, recycled, stored, transported, used or Released any Hazardous Materials, or arranged for the disposal, transportation, discharge, storage or Release of any Hazardous Materials other than in the ordinary course of Business and in material compliance with Environmental Laws. Nor has such Seller exposed any current or former employee or other individual to any Hazardous Materials in violation of Environmental Laws, Occupational Health and Safety Laws or in a manner that may otherwise generate Liability or a Proceeding.



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(g) Such Seller has provided to and made available for inspection by Buyer all environmental audits and environmental assessments, including “Phase I,” “Phase II” and “Baseline” environmental assessments, all Governmental Authorizations required under Environmental Laws, and each Order, judgment, decree, consent agreement, contract or similar document imposing obligations under Environmental Laws on such Seller or for or relating to the Facilities and the Business.

(h) To the Knowledge of such Seller, no event, condition, circumstance, activity, practice, action or plan of such Seller has occurred or exists which could reasonably be expected to prevent continued compliance of such Seller or Buyer, as applicable, in conducting the Business or operating any of the Facilities under applicable Environmental Law.

(i) Such Seller has no Knowledge or information that any Release of Hazardous Materials has occurred at the Facilities, or that any land or resource use restrictions may apply to the Facilities, requiring notification to Buyer pursuant to the respective environmental laws or regulations of the states in which the Facilities are located.

3.23 Employees .

(a) Schedule 3.23(a) sets forth a true and complete list of (i) the names, titles, locations, exemption status, active or non-active status (i.e. FMLA or other leave), hire date, full-time or part-time status, any accrued paid time off balance, annual salaries (or, for non-exempt employees, wage rates) and other compensation of all current employees of the Business (the “ Current Employees ”), as well as for all independent contractors of the Business (identified as such) who were paid at least $20,000 by Sellers in the prior calendar year, and (ii) the names, titles, and locations of any former employee of such Seller whose employment was terminated (whether voluntarily by such employee or otherwise) at any time since the date of the Balance Sheet; provided, however, that to the extent applicable privacy or data protection Legal Requirements would prohibit the disclosure of certain personally identifiable information without the individual's consent, Schedule 3.23(a) shall provide such information in a manner reasonably intended to comply with applicable Legal Requirements. To such Seller’s Knowledge and except as set forth on Schedule 3.23(a) , none of the Current Employees intends to not accept employment with Buyer or, upon accepting employment with Buyer, to discontinue such employment within the one year period beginning on Closing Date.

(b) Sellers have provided or made available to Buyer their standard forms of employment agreements, consulting and personal service agreements. Schedule 3.23(b) identifies any Current Employees who are subject to employment agreements, consulting and personal service agreements that differ in any material way from Sellers’ standard forms. Except as set forth on Schedule 3.23(b) and as dictated by applicable non-U.S. law, all Current Employees are “employees at will” and employed by such Seller.

(c) Except as set forth on Schedule 3.23(c) , there are no Contracts with respect to Current Employees that would restrict restructuring or outsourcing or require any severance payment or advance notice to the Current Employee prior to termination to which Buyer, after the Closing Date, would be bound.

(d) No officer, director, or, to the Knowledge of such Seller, Current Employee, agent, consultant, or contractor of such Seller is bound by any contract that purports to limit the ability of such officer, director, agent, Current Employee, consultant, or contractor to engage in or continue or perform any conduct, activity, duties or practice relating to the Business.



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3.24 Labor Disputes; Compliance .

(a) No written charge or complaint of employment discrimination or other employment law or contractual violation has been made against such Seller by or on behalf of employees or independent contractors of the Business during the last year, or is pending or, to the Knowledge of such Seller, overtly threatened.

(b) Such Seller is not, and has not been for the past five years, a party to, bound by, or negotiating any collective bargaining agreement or other Contract with a union, works council or labor organization (collectively, “ Union ”) in relation to the Business, and there is not, and has not been for the past five years, any Union representing or purporting to represent any employee of the Business, and no Union or group of employees is seeking or has sought to organize employees for the purpose of collective bargaining. During the past five years, there has not been, nor has there been any threat of, any strike, slowdown, work stoppage, lockout, concerted refusal to work overtime or other similar labor disruption or dispute affecting such Seller or any employees of the Business. Such Seller has no duty to bargain with any Union. With respect to the Business, such Seller is not experiencing nor has it in the twenty-four (24) months prior to the date hereof experienced any lawsuit or dispute with any union or other body or employee representatives pending before any Governmental Body and relating to labor relations or employment matters of a general nature (including layoffs, restructurings or general working conditions).

(c) All wages, including overtime wages, commissions and bonuses, and benefits due to the Current Employees have been paid in the normal course of business up to and including Closing and in compliance with applicable Legal Requirements and Contracts, and there are no other monies due from such Seller to any Current Employees or former employees (whether arising out of any formal or informal arrangement).

3.25 Intellectual Property Assets .

(a) Schedule 3.25(a) sets forth a true and complete list of all of such Seller’s Registered Intellectual Property Rights and Licensed Rights other than Off-the-Shelf Software. Such Seller’s own all right, title and interest in and to all such Intellectual Property Rights free and clear of any Encumbrances, except for Permitted Encumbrances.

(b) The Intellectual Property Rights and the Licensed Rights included in the Acquired Assets constitute all of the rights to Intellectual Property necessary to or used in the conduct of the Business as presently conducted. Neither the validity of the Intellectual Property Rights and such Seller’s title thereto nor the validity of such Seller’s use of the Licensed Rights (x) have been questioned in any prior Proceeding; (y) are being questioned in any Proceeding; and (z) are the subject(s) of any threatened or proposed Proceeding. To the Knowledge of such Seller, none of the Business, as presently conducted, the Intellectual Property Rights or the Licensed Rights conflict with and, to the Knowledge of such Seller, has not been alleged to conflict with, any patents, trademarks, trade names, service marks, copyrights or other intellectual property rights of any other Person. The consummation of the Contemplated Transactions will not result in the loss or impairment of any of the Intellectual Property Rights or the right to use any of the Licensed Rights in the Business. Except for those licensees set forth on Schedule 3.20(a) , there are no third parties authorized by such Seller to use any of the Intellectual Property Rights, and, to the Knowledge of such Seller, there are no third parties using any of the Intellectual Property Rights without authorization from such Seller. There are no infringement or misappropriation Proceedings pending or, to such Seller’s Knowledge, threatened against such Seller with respect to any Intellectual Property Rights or Leased Rights.



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(c) Such Seller has instituted, maintained and enforced commercially reasonable measures (including the entering into of appropriate written agreements with present employees and consultants of the Business) to maintain the ownership and confidentiality of the Intellectual Property Rights and other Intellectual Property of the Business, and all such Contracts are identified on Schedule 3.20(a) .

(d) Schedule 3.25(d) identifies each computer software program owned, held or used in the conduct of the Business, other than Off-the-Shelf Software, that assists with or relates to computer aided engineering, design, manufacturing or other analysis, archival or retrieval of technical information. Such Seller owns, or possesses sufficiently broad and valid rights to use, all computer software programs that are material to the conduct of, used or held for use in the Business. There are no infringement Proceedings pending or, to such Seller’s Knowledge, threatened against such Seller with respect to any software owned or licensed by such Seller or used by such Seller in the Business.

3.26 No Options . There are no existing agreements, options, commitments or rights with, of or to any Person to acquire control of a Seller or of any of such Seller’s assets or properties (including the Acquired Assets) or any rights or any interest in such assets or properties.

3.27 Certain Payments .

(a) Neither such Seller nor any of its Representatives has, whether directly or indirectly, offered, paid, promised to pay or authorized the payment of any contribution, gift, bribe, rebate, payoff, influence payment, kick back or other payment to any Person, private or public, regardless of form, whether in money, property, or services, in violation of any Legal Requirement, including the United States Foreign Corrupt Practices Act of 1977, as amended, in order to (a) to further the Business or (b) to assist such Seller in connection with any actual or proposed transaction in connection with the operations of such Seller.

(b) To the Seller’s Knowledge, each Seller is in compliance in all material respects with all statutory and regulatory requirements of the Export Control Laws to the extent applicable. Further, without limiting the preceding sentence, to the Seller’s Knowledge, each Seller has within the past five (5) years, in accordance with the Export Control Laws to the extent applicable: (i) determined the export classification of the products subject to the U.S. Export Administration Regulations (EAR) that Sellers have exported, including exports through release of technology in the United States to foreign persons, (ii) confirmed and obtained, as required, the export authority for all exports, and (iii) confirmed that no parties to any export transaction were on any restricted party list administered by any Export Control Authority or otherwise sanctioned or prohibited from participating in the export transaction resulting in the violation of Export Control Laws.

(c) No Seller has received written, or to the Seller’s Knowledge, oral communication from any Export Control Authority or any other Person of any actual or alleged violation, breach or noncompliance with the Export Control Laws. Sellers have not (i) entered into a Consent Agreement with, or (ii) had any fines or penalties imposed by, any Export Control Authority. The Target Companies do not have any open investigations, voluntary disclosures or enforcement actions that are currently being reviewed by any Export Control Authority.

3.28 Customers and Suppliers . Schedule 3.28 sets forth a complete and accurate list, for each of the fiscal years ended on December 31, 2016 and 2017, (a) each customer of each Seller with aggregate purchases from each Seller of $25,000 or more during such periods, and (b) each supplier or vendor of materials, products or services to each Seller with aggregate sales to each Seller of $25,000 for such periods, and (c) each delinquent Account Payable that is related to a dispute between each Seller and a



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supplier or vendor of materials, products or services. To the Knowledge of each Seller, the relationship of each Seller with each of its material current customers and suppliers is a good commercial working relationship and none of such customers or suppliers has canceled, terminated or otherwise materially altered (including any material reduction in the rate or amount of sales or purchases, material increase in the prices charged or material reduction in the prices paid, as the case may be) or notified such Seller of any intention to do any of the foregoing or otherwise threatened to cancel, terminate or materially alter (including any of the forgoing) its relationship with such Seller. Except as set forth in Schedule 3.28 , to the Knowledge of each Seller, (x) none of the material current customers or suppliers of the Business would be required to re-audit the such Seller’s status as a vendor or customer upon a change of control such as contemplated by this Agreement and (y) there exists no other condition or state of facts or circumstances involving existing or prospective customers or suppliers that would reasonably be expected to materially impair the conduct of the Business after the Closing.

3.29 Relationships with Related Persons . Schedule 3.29 contains a complete and correct list (and if oral, an accurate and complete description of all material terms) of all Contracts pursuant to which any loans, leases, goods, services, materials or supplies are, or at any time since January 1, 2015 have been, provided (a) by any Related Person of such Seller to such Seller or (b) by such Seller to any Related Person of such Seller, and each such Contract was executed and performed in accordance with applicable Legal Requirements and was/is on an arm’s length basis. No Related Person of any Seller has acquired any rights under, or is subject to any obligations or liability under, any Contract.

3.30 Brokers or Finders . Except as set forth in Schedule 3.30 , neither such Seller nor any of its Related Persons or Representatives has incurred any obligation or liability, contingent or otherwise, for brokerage or finders’ fees or agents’ commissions or other similar payments in connection with the sale of the Business or the Acquired Assets or consummation of the Contemplated Transactions.

4. REPRESENTATIONS AND WARRANTIES OF BUYER.

Buyer represents and warrants to Sellers as follows:

4.1 Organization and Good Standing . Buyer is a corporation duly organized, validly existing and in good standing under the laws of the State of Indiana with full corporate power and authority to conduct the Business.

4.2 Authority; No Conflict .

(a) This Agreement constitutes the legal, valid and binding obligation of Buyer, enforceable against Buyer in accordance with its terms. Upon the execution and delivery by Buyer of each agreement to be executed or delivered by Buyer at the Closing (collectively, the “ Buyer Closing Documents ”), each of the Buyer Closing Documents will constitute the legal, valid and binding obligation of Buyer, enforceable against Buyer in accordance with its terms. Buyer has the full power and authority to execute and deliver this Agreement and each Buyer Closing Document to which it is a party and to perform its obligations under this Agreement and the Buyer Closing Documents, and such action has been duly authorized by all necessary action by Buyer’s board of directors.

(b) Neither the execution and delivery of this Agreement nor the consummation or performance of any of the Contemplated Transactions will, directly or indirectly (with or without notice or lapse of time): (i) contravene or conflict with the Governing Documents of Buyer or any resolution adopted by Buyer’s board of directors or stockholders; (ii) contravene or conflict with or constitute a violation of any provision of any Legal Requirement, judgment, injunction, Order or decree binding upon or applicable to Buyer; (iii) give any Governmental Body or other Person the right to challenge any of the



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Contemplated Transactions or to exercise any remedy or obtain any relief under any Legal Requirement or any Order to which Buyer may be subject; (iv) contravene, conflict with or result in a violation or breach of any of the terms or requirements of, or give any Governmental Body the right to revoke, withdraw, suspend, cancel, terminate or modify, any Governmental Authorization that is held by Buyer; or (v) Breach any provision of, or give any Person the right to declare a default or exercise any remedy under, or to accelerate the maturity or performance of, or payment under, or to cancel, terminate or modify, any contract or agreement to which Buyer is a party or pursuant to which Buyer’s assets are bound; except with respect to the occurrences set forth in clauses (iii) through (v), where any such occurrence would not materially and adversely affect the ability of Buyer to consummate the Contemplated Transactions.

4.3 Certain Proceedings . There is no pending Proceeding that has been commenced against Buyer and that challenges, or may have the effect of preventing, delaying, making illegal or otherwise interfering with, any of the Contemplated Transactions. To Buyer’s knowledge, no such Proceeding has been threatened.

4.4 Brokers or Finders . Neither Buyer nor any of its Related Persons or Representatives has incurred any obligation or liability, contingent or otherwise, for brokerage or finders’ fees or agents’ commissions or other similar payment in connection with the consummation of the Contemplated Transactions.

5. PRE-CLOSING COVENANTS

5.1 Pre-Closing Covenants of Sellers . Each Seller (including, for the avoidance of doubt, GES Holdings on behalf of and with respect to itself and with respect to GES Vietnam in each instance where the term Seller is used in this Section 5.1 ) covenants and agrees that, prior to the Closing Date, except as otherwise consented to in writing by Buyer or as permitted by this Agreement:

(a) Access and Investigation . Between the date of this Agreement and the Closing Date, and upon reasonable advance notice received from Buyer, such Seller shall (i) afford Buyer and its Representatives and prospective lenders and their Representatives (collectively, “ Buyer Group ”) full and free access, during regular business hours, to such Seller’s personnel, properties (including subsurface testing), Contracts, Governmental Authorizations, books and Records and other documents and data, such rights of access to be exercised in a manner that does not unreasonably interfere with the operations of such Seller; (ii) furnish Buyer Group with copies of all such Contracts, Governmental Authorizations, books and Records and other existing documents and data as Buyer may reasonably request; (iii) furnish Buyer Group with such additional financial, operating and other relevant data and information as Buyer may reasonably request; and (iv) otherwise cooperate and assist, to the extent reasonably requested by Buyer, with Buyer’s investigation of the Acquired Assets and financial condition related to such Seller. In addition, Buyer shall have the right to have the Leased Real Property and Tangible Personal Property inspected by Buyer Group, at Buyer’s sole cost and expense, for purposes of determining the physical condition and legal characteristics thereof. In the event subsurface or other destructive testing is recommended by any of Buyer Group, Buyer shall be permitted to have the same performed.

(b) Operation of the Business . Between the date of this Agreement and the Closing, such Seller shall:

(i) conduct the Business only in the ordinary course consistent with past practice, provided, however, that notwithstanding anything to the contrary in this Agreement, such Seller shall be free to transfer or distribute any Excluded Asset (other than the assets described in Section 2.2(a);



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(ii) except as otherwise directed by Buyer in writing, and without making any commitment on Buyer’s behalf, use its best efforts to preserve intact its current business organization, keep available the services of its officers, employees and agents and maintain its relations and good will with suppliers, customers, landlords, creditors, employees, agents and others having business relationships with it;

(iii) confer with Buyer prior to implementing operational decisions of a material nature;

(iv) otherwise report periodically to Buyer concerning the status of the Business, including the operations thereof and finances related thereto;

(v) make no material changes in management personnel without the prior written consent of Buyer;

(vi) maintain the Acquired Assets in a state of repair and condition that complies with applicable Legal Requirements and is consistent with the requirements and normal conduct of the Business;

(vii) not remove any Acquired Assets from the Facilities in which they are presently situated, except in compliance with applicable Legal Requirements and in the ordinary course consistent with past practice;

(viii) keep in full force and effect, without amendment, all material rights relating to the Business;

(ix) comply with all Legal Requirements and contractual obligations applicable to the operations of the Business;

(x) continue in full force and effect the insurance coverage under the policies set forth in Schedule 3.21 ;

(xi) cooperate with Buyer and assist Buyer in identifying the Governmental Authorizations required by Buyer to operate the Business from and after the Closing Date and either transferring existing Governmental Authorizations of such Seller to Buyer, where permissible, or obtaining new Governmental Authorizations for Buyer, including cooperating with Buyer in transferring the Business’ Environmental Permits;

(xii) upon request from time to time, execute and deliver all documents, make all truthful oaths, testify in any Proceedings and do all other acts that may be reasonably necessary or desirable in the opinion of Buyer to consummate the Contemplated Transactions, all without further consideration;

(xiii) maintain all books and Records of such Seller relating to the Business in the ordinary course consistent with past practice; and

(xiv) not make any tax election or change in any accounting method used by such Seller.

(c) Co-operation . Such Seller shall cooperate with Buyer as necessary to obtain all consents and authorizations of third parties and to make all filings with and give all notices to third parties



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which may be necessary or reasonably required in order to effect the consummation of the Contemplated Transactions.

(d) Required Approvals . As promptly as practicable after the date of this Agreement (but, in any event, no later than the 3 ^rd Business Day thereafter), Seller shall (i) take all actions necessary, and (ii) make, or cause to be made, all filings, if any, required by Legal Requirements to be made by it to consummate the Contemplated Transactions.

(e) Best Efforts . Such Seller shall use its best efforts to cause the conditions in Section 6.2 to be satisfied.

(f) Further Disclosure . From time to time prior to the Closing Date, such Seller shall promptly disclose in writing to Buyer any matter hereafter arising which, if existing or occurring at the date of this Agreement, would have been required to be disclosed as an exception to the representations and warranties of such Seller. No such disclosure shall have the effect of curing any misrepresentation or breach of any warranty without the written consent of Buyer, notwithstanding Buyer’s consummation of the transactions contemplated by this Agreement following such disclosure.

5.2 Pre-Closing Covenants of Buyer . Buyer covenants and agrees that, prior to the Closing Date, except as otherwise consented to in writing by Sellers’ Representative or as permitted by this Agreement:

(a) Co-operation . Buyer shall cooperate with Sellers as necessary to obtain all consents and authorizations of third parties and to make all filings with and give all notices to third parties which may be necessary or reasonably required in order to effect the consummation of the Contemplated Transactions.

(b) Required Approvals . As promptly as practicable after the date of this Agreement, Buyer shall make, or cause to be made, all filings, if any, required by Legal Requirements to be made by it to consummate the Contemplated Transactions.

6. CONDITIONS TO CLOSE

6.1 Conditions Precedent to the Obligations of the Sellers . All obligations of Sellers under this Agreement are subject to the fulfillment, at or prior to the Closing Date, of each of the following conditions, which conditions may be waived only by Sellers’ Representative and, if not fulfilled, shall be deemed waived upon Closing:

(a) The representations and warranties of Buyer herein contained shall have been true and correct as of the date hereof in all material respects and shall continue to be true and correct as of the Closing Date in all material respects with the same force and effect as though made as of the Closing Date, in each case without giving effect to any supplement to the Disclosure Schedules; provided , however , that with respect to any representation or warranty that contains an express materiality limitation, such representation or warranty shall be true and correct in all respects.

(b) Buyer and each Affiliate of Buyer party to a Local Country Purchase Agreement shall have performed or complied with all the obligations, agreements and covenants of Buyer herein



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contained or contained in any other document executed in connection with this Agreement to which Buyer or any such Affiliate is a party to be performed by it prior to or as of the Closing Date.

(c) All deliveries required to be made by Buyer under Section 2.7(b) of this Agreement on or before the Closing Date, shall have been received by the Sellers’ Representative, in form and substance satisfactory to the Sellers’ Representative.

6.2 Conditions Precedent to the Obligations of Buyer . All obligations of Buyer under this Agreement are subject to the fulfillment, at or prior to the Closing Date, of each of the following conditions, which conditions may be waived only by Buyer and, if not fulfilled, shall be deemed waived upon Closing:

(a) The representations and warranties of each Seller herein contained shall have been true and correct as of the date hereof in all material respects and shall continue to be true and correct as of the Closing Date in all material respects with the same force and effect as though made as of the Closing Date; provided, however, that with respect to any representation or warranty that contains an express materiality limitation, such representation or warranty shall be true and correct in all respects.

(b) Each Seller shall have performed or complied with all the obligations, agreements and covenants of such Seller herein contained or contained in any other document executed in connection with this Agreement to which any Seller is a party to be performed by it prior to or as of the Closing Date.

(c) All deliveries required to be made by each Seller under Section 2.7(a) of this Agreement on or before the Closing Date shall have been received by Buyer.

(d) From the date of this Agreement, there shall not have occurred any Material Adverse Effect, nor shall any event or events have occurred that, individually or in the aggregate, with or without the lapse of time, could reasonably be expected to result in a Material Adverse Effect.

6.3 Conditions Precedent to the Obligations of Buyer and Sellers . All obligations of Buyer and Sellers under this Agreement are subject to the fulfillment, at or prior to the Closing Date, of each of the following conditions, which conditions may be waived only by both Buyer and Sellers’ Representative and, if not fulfilled, shall be deemed waived upon Closing:

(a) No Proceeding by or before any court or any Governmental Body shall have been commenced or threatened, and no investigation by any Governmental Body shall have been commenced or threatened, seeking to restrain, prevent or change the transactions contemplated by this Agreement or seeking judgments against any party hereto or awarding substantial damages in respect of the transactions contemplated by this Agreement.

(b) The Parties shall have entered into a Local Country Purchase Agreement for each of Vietnam, the People’s Republic of China, India and Japan, each in a form reasonably acceptable to each Party, or in lieu of a Local Country Purchase Agreement for a particular country, a Transition Services Agreement with respect to such country in a form reasonably acceptable to each Party.

7. ADDITIONAL COVENANTS.

7.1 Employees .



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(a) Each Seller, other than GES Vietnam, will terminate the employment of all of its Current Employees employed in connection with the Business other than those set forth on Schedule 7.1(a) contemporaneous with the Closing (or, if later, as soon after the date hereof as is permissible under applicable Legal Requirement regarding advance notice of employment termination). As promptly as practicable (and in any event no later than five Business Days) prior to the Closing Date, Buyer shall, or shall cause its applicable Subsidiary to, offer all Current Employees, except such Current Employees set forth on Schedule 7.1(a) , at-will employment on terms and conditions established by Buyer, with such employment to commence immediately after the Closing, subject to Buyer’s standard hiring procedures and criteria. The Current Employees who commence employment with Buyer, or one of its Subsidiaries, as of the Closing (or such later date specified by Buyer with respect to any Current Employees who are on leave from active work as of the Closing) shall be referred to herein collectively as “ Transferred Employees ,” which for the avoidance of doubt shall not include the employees of GES Vietnam. Notwithstanding anything to the contrary herein, each of the Transferred Employees shall be provided: (i) base salary and wages no less than the base salary or wages that he/she was receiving prior to the Closing, (ii) annual target incentive opportunities no less than the target opportunities he/she was eligible for prior to the Closing and (iii) the same level of vacation, sick and FMLA benefits that he/she was entitled prior to the Closing.

(b) Each Seller shall also (i) pay out to the Current Employees any bonuses, wages, commissions, or other compensation earned as of the Closing and (ii) be solely liable for any severance or other payments required to be made to its Current Employees due to the Contemplated Transactions. Sellers shall be solely responsible for (i) all Company Benefit Plans, including making requisite contributions as mandated under the terms thereof; (ii) all assets held in trust or otherwise relating to any Company Benefit Plan or the funding thereof; (iii) any insurance policy, contract, trust, Third Party administrator contract, or other funding arrangement, and all obligations thereunder, for any Company Benefit Plan; (iv) any monies held by or for the benefit of any Seller in any account dedicated to the payment of benefits or insurance premiums relating to any Company Benefit Plan; and (v) all severance payments and other Liabilities arising out of the employment and termination of its Current Employees and for all accrued compensation, vacation pay, sick pay and other benefits with respect to such Current Employees arising out of their employment or termination by a Seller on or prior to the Closing Date, whether or not such employees become employees of Buyer on or after the Closing Date.

(c) Each Seller shall be solely responsible to provide COBRA continuation coverage with respect to each “M&A qualified beneficiary” within the meaning of Treasury Regulation Section 54.4980B-9, Q&A-4(a) who has not accepted employment with Buyer or whose employment terminates prior to Buyer’s offered employment, or due to a qualifying event occurring on or before the Closing Date.

(d) Prior to the Closing Date, Sellers shall have responsibility for making any and all necessary employee notifications under the Worker Adjustment and Retraining Notification Act and comparable state Legal Requirements (collectively, “ WARN Act ”) in connection with any terminations of employment of Current Employees, and for any financial obligations and liabilities in connection therewith or otherwise required in connection with any terminations of employment of employees. Buyer shall have such responsibility with respect to employees to the extent such responsibility arises after the Closing Date. Schedule 7.1(d) contains a true, complete and correct list of the names and the sites of employment or facilities of those individuals who suffered an “employment loss” (as defined in the WARN Act) at any site of employment or facility of the Sellers during the 90-day period prior to the date of this Agreement. Schedule 7.1(d) shall be updated immediately prior to the Closing Date with respect to the 90-day period prior to the Closing Date. Buyer shall indemnify and hold harmless the Sellers from and against any liability, costs and attorneys’ fees arising under WARN arising out of, resulting from, or



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relating to, in whole or in part, the Buyer and its Subsidiaries’ actions or omissions occurring after the Closing with respect to the Transferred Employees.

(e) For purposes of each Transferred Employee’s participation in any employee benefit plan, program, policy or arrangement of Buyer or any of its Subsidiaries (each, a “ Buyer Plan ”) following the Effective Time, Buyer shall, or shall cause its Subsidiaries to use reasonable best efforts to: (i) waive any preexisting condition exclusions and waiting periods with respect to participation and coverage requirements applicable to such Transferred Employee (and any eligible dependents thereof) under any Buyer Plan providing medical, dental or vision benefits and (ii) provide such Transferred Employee with credit for any copayments, coinsurance and deductibles paid under a Seller Employee Plan prior to such Transferred Employee’s coverage under any Buyer Plan during the calendar year in which such amount was paid, to the same extent such credit was given under the Seller Employee Plan that such Transferred Employee participated in immediately to the Effective Time in satisfying any applicable deductible or out-of-pocket requirements under such Buyer Plan and (iii) recognize all service of each Transferred Employee prior to the Effective Time with the Seller and its Subsidiaries (or any predecessor entities of either) for all purposes including vesting, eligibility and benefit accrual purposes (except for benefit accrual under any defined benefit retirement plan.

(f) Sellers and Buyer agree that, pursuant to the “Alternative Procedures” provided in Section 5 of Internal Revenue Service Revenue Procedure 2004-53, with respect to the filing and furnishing of Internal Revenue Service Forms W-2, W-3 and 941 for the full calendar year in which the Closing occurs, (i) Sellers and Buyer shall report on a “predecessor-successor” basis, as set forth therein, (ii) Sellers shall be relieved from furnishing Forms W-2 to any Transferred Employees, and (iii) Buyer shall, conditioned on Sellers’ compliance with Sellers’ obligations herein, assume the obligations of Sellers to furnish Forms W-2 to such Transferred Employees and Forms W-2 and W-3 with respect to Transferred Employees to the Social Security Administration; provided, Sellers shall transfer to Buyer all Forms W-4 and W-5 with respect to the Transferred Employees, and such other data relating to Transferred Employees (including records of all (1) wages and bonuses paid and (2) Taxes withheld and paid) as shall be necessary for the Buyer to assume and satisfy such obligations accurately and in accordance with applicable Legal Requirements.

(g) The provisions of this Section 7.1 are solely for the benefit of the respective parties to this Agreement and nothing in this Section 7.1 , express or implied, shall confer upon any employee, or legal representative or beneficiary thereof, any rights or remedies, including any right to employment or continued employment for any specified period, or compensation or benefits of any nature or kind whatsoever under this Agreement.

7.2 Taxes .

(a) Responsibility for Taxes .

(i) In the case of any sales or use taxes, value-added taxes, employment taxes, withholding taxes, and any Tax based on or measured by income, receipts or profits, obligations shall be allocated to the Pre-Closing Tax Period or the Post-Closing Tax Period, as applicable, by assuming that the Pre-Closing Tax Period and the Post-Closing Tax Period consisted of two taxable years or periods, one which ended at the close of the Closing Date and the other which began at the beginning of the day following the Closing Date and items of income, gain, deduction, loss or credit shall be allocated between such two taxable years or periods on a “closing of the books basis” by assuming that the books were closed at the close of the Closing Date. In the case of any other Taxes obligations shall be allocated to the Pre-Closing Tax Period and the Post-Closing Tax Period based upon a fraction, the numerator of which is the number of



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calendar days in the period ending on the close of the Closing Date, in the case of an allocation to a Pre-Closing Tax Period, or the number of calendar days in the period beginning the day following the Closing Date and ending on the last day of the period, in the case of an allocation to a Post-Closing Tax Period, and in each case the denominator of which is the number of calendar days in the entire period.

(ii) Sellers shall be liable for and shall jointly and severally indemnify Buyer from and against, (1) all Taxes of any Seller; (2) all Taxes of entities other than Sellers imposed on any Seller, or for which any Seller may otherwise be liable, as a result of any Seller having been a member of an affiliated, combined or unitary group prior to the Closing Date (including such Taxes for which any Seller may otherwise be liable pursuant to Treasury Regulations § 1.1502-6 or any similar provision of any state, local, foreign or other Governmental Body); (3) all Taxes that are allocable to a Pre-Closing Tax Period; and (4) 50% of all Transfer Taxes as determined pursuant to Section 7.2(f) (with the remaining 50% to be borne by the Buyer).

(b) Tax Returns .

(i) With respect to Tax Returns, Sellers shall prepare or cause to be prepared and file or cause to be filed all Tax Returns with respect to the Acquired Assets that are required to be filed after the Closing Date that relate to a Tax period that ended on or prior to the Closing Date (each, a “ Pre-Closing Tax Return ”); provided, however, for the avoidance of doubt, a Pre-Closing Tax Return does not include Income Tax Returns required to be filed by Sellers or Sellers’ Representative. Buyer shall prepare or cause to be prepared and file or cause to be filed all Tax Returns with respect to the Acquired Assets that are filed after the Closing Date other than any Pre-Closing Tax Return.

(ii) Sellers’ Representative and Buyer shall cooperate with respect to the filing of any Pre-Closing Tax Returns. Sellers’ Representative shall prepare a draft of any such Pre-Closing Tax Return and deliver it to Buyer at least sixty-five (65) days prior to the due date (including valid extensions) for such Pre-Closing Tax Return (except in the case of a Tax Return where such 65-day period is not practical, in which case as soon as is reasonably practical). If Buyer does not give notice to Sellers’ Representative within thirty (30) days after receipt from Sellers’ Representative of such draft Pre-Closing Tax Return that Buyer disagrees with any part or all of such Pre-Closing Tax Return, then such Pre-Closing Tax Return as so proposed by Sellers’ Representative shall be deemed agreed by Sellers’ Representative and Buyer for purposes of this Section 7.2(b) . If Buyer does give notice of any such objection, then from that time until the expiration of thirty (30) days after Buyer’s receipt of the draft Pre-Closing Tax Return from Sellers’ Representative, Buyer and Sellers’ Representative shall negotiate in good faith to reach mutual agreement regarding any matters subject to such objection, and if Buyer and Sellers’ Representative do reach such agreement within such period, then the Pre-Closing Tax Return so agreed upon shall be deemed agreed by the Parties for purposes of this Section 7.2(b) . In the event that Buyer gives notice of any such objection and Buyer and Sellers’ Representative are unable to reach agreement on all such matters, then the items on the Pre-Closing Tax Return, to the extent not so agreed, shall be determined by the Independent Accountants; provided , Sellers’ Representative and Buyer shall each bear its own costs and expenses related to the Independent Accountants and any other costs and expenses associated with the resolution of the dispute. In no event shall the provision of comments by Buyer prevent Sellers’ Representative from timely filing any such Pre-Closing Tax Return, provided however, that in the event that the Independent Accountants have not resolved a dispute between Buyer and Sellers’ Representative prior to the deadline for filing such Tax Return (including valid extensions), Sellers’ Representative shall be



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entitled to file such Tax Return (or amendment) as prepared by Sellers’ Representative subject to amendment to reflect the resolution when rendered by the Independent Accountants.

(iii) Sellers’ Representative and Buyer shall cooperate with respect to the filing of any Tax Returns required to be filed after the Closing Date, which include Pre-Closing Tax Obligations (a “ Shared Tax Return ”). For the avoidance of doubt, the term “Shared Tax Return” shall not include Income Tax Returns required to be filed by Sellers or Sellers’ Representative. Buyer shall prepare a draft of any Shared Tax Return and deliver it to Sellers’ Representative at least sixty-five (65) days prior to the due date (including valid extensions) for such Shared Tax Return (except in the case of a Tax Return where such 65-day period is not practical, in which case as soon as is reasonably practical). If Sellers’ Representative does not give notice to Buyer within thirty (30) days after receipt from Buyer of such draft Shared Tax Return that Sellers’ Representative disagrees with any part or all of such Shared Tax Return, then such Shared Tax Return as so proposed by Buyer shall be deemed agreed by Sellers’ Representative and Buyer for purposes of this Section 7.2(b) . If Sellers’ Representative does give notice of any such objection, then from that time until the expiration of thirty (30) days after Sellers’ Representative’s receipt of the draft Shared Tax Return from Buyer, Buyer and Sellers’ Representative shall negotiate in good faith to reach mutual agreement regarding any matters subject to such objection, and if Buyer and Sellers’ Representative do reach such agreement within such period, then the Shared Tax Return so agreed upon shall be deemed agreed by the Parties for purposes of this Section 7.2(b) . In the event that Sellers’ Representative gives notice of any such objection and Buyer and Sellers’ Representative are unable to reach agreement on all such matters, then the items on the Shared Tax Return, to the extent not so agreed, shall be determined by the Independent Accountants; provided , Sellers’ Representative and Buyer shall each bear its own costs and expenses related to the Independent Accountants and any other costs and expenses associated with the resolution of the dispute. In no event shall the provision of comments by Sellers’ Representative prevent Buyer from timely filing any such Tax Return, provided however, that in the event that the Independent Accountants have not resolved a dispute between Buyer and Sellers’ Representative prior to the deadline for filing such Tax Return (including valid extensions), Buyer shall be entitled to file such Tax Return (or amendment) as prepared by Buyer subject to amendment to reflect the resolution when rendered by the Independent Accountants. Any Pre-Closing Tax Obligations owed by Sellers on a Shared Tax Return shall be paid by Sellers to Buyer by the due date of such Shared Tax Return.

(c) The Buyer shall promptly notify the Sellers’ Representative in writing upon receipt by the Buyer of any notice of any audits, examinations, adjustments, assessments, proceedings or other similar events relating to any Taxes imposed on the Acquired Assets relating to a Pre-Closing Tax Period (a “ Tax Proceeding ”). The Sellers’ Representative may elect, within thirty (30) days of receiving such notice, to direct any Tax Proceeding, at its expense, that relates solely to a Pre-Closing Tax Period and for which the Sellers would solely be liable pursuant to Section 7.2(a) for any Taxes that may result (a “ Sellers’ Tax Contest ”) and to employ counsel of its choice; provided, however, that the Buyer shall have the right, at its expense, to consult with the Sellers’ Representative regarding a Sellers’ Tax Contest. The Buyer, at its expense, shall have the right to control all other Tax Proceedings (a “ Buyer’s Tax Contest ”); provided, however, that the Sellers’ Representative shall have the right, at its expense, to consult with the Buyer regarding a Buyer’s Tax Contest if the Sellers would be liable pursuant to Section 7.2(a) for a portion of the Taxes that may result from the Buyer’s Tax Contest; and provided, further, that the Buyer may not agree to settle any Buyer’s Tax Contest without the Sellers’ Representative’s prior written consent, which consent shall not be unreasonably withheld, conditioned or delayed, unless the Buyer agrees to assume and become liable for all Taxes resulting from the Buyer’s Tax Contest.



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(d) Buyer and Sellers’ Representative shall cooperate fully, as and to the extent reasonably requested by the other party, in connection with the preparation and filing of Tax Returns pursuant to Section 7.2(b) or otherwise and any audit, litigation or other proceeding with respect to Taxes. Such cooperation shall include without limitation, the furnishing or making available during normal business hours of records, personnel (as reasonably required), books of account, powers of attorney or other materials or authorizations necessary or helpful for the preparation and filing of such Tax Returns or that are reasonably relevant to any audit, litigation or other proceeding.

(e) Tax Treatment of Payments . Any payments made under this Section 7.2 shall be deemed to be, and each of Buyer and Sellers shall treat them, as adjustments to the Purchase Price for federal, state, local and all other Tax purposes, in each case, as applicable.

(f) Sales, Use and Other Taxes . Buyer and Sellers’ Representative shall cooperate in preparing, executing and filing Tax Returns relating to any sales, use, real estate, transfer, stamp duty, value-added, documentary, title, registration, recording, and other similar Taxes (“ Transfer Taxes ”) relating to the purchase and sale of the Acquired Assets, and also shall cooperate to minimize or avoid any Transfer Taxes that might be imposed, to the extent permitted by Legal Requirements. Sellers will be responsible for the payment of any Transfer Taxes incurred in connection with the purchase and sale of the Acquired Assets and shall pay, or cause to be paid, all such Transfer Taxes to the applicable Governmental Body by the due date therefor. As part of the allocation of the Tax Purchase Price set forth in Section 2.5 , within fifteen (15) days after the Closing Date, Sellers’ Representative and Buyer shall execute and deliver an agreement between them regarding the allocation of the Tax Purchase Price (and any other consideration required to be taken into account for purposes of determining the amounts of such Transfer Taxes) with respect to the Acquired Asset subject to Transfer Taxes consistent with the principles and requirements as for allocating of the Tax Purchase Price as set forth in Section 2.5 .

7.3 Payment of Other Retained Liabilities . In addition to payment of Taxes pursuant to Section 7.2 , Sellers shall pay or otherwise satisfy, or make adequate provision for the payment or satisfaction, in full of all of the Retained Liabilities and other Liabilities of Sellers under this Agreement. If any such Liabilities are not so paid, satisfied or provided for, or if Buyer reasonably determines that failure to make any payments will impair Buyer’s use or enjoyment of the Acquired Assets or conduct of the Business, Buyer may, at any time after the Closing Date, elect to make all such payments directly (but shall have no obligation to do so) and set off and deduct the full amount of all such payments from any payments due to Sellers pursuant to this Agreement or may give notice of a claim in such amount under the Escrow Agreement.

7.4 Restrictions on Sellers’ Dissolution and Distributions .

(a) Sellers shall not dissolve until the later of (a) Sellers’ payment, or adequate provision for the payment, of all of its obligations pursuant to Sections 7.2 and 7.3 ; or (b) the lapse of more than five (5) years after the Closing Date.

(b) Seller shall not make any distribution of the proceeds received pursuant to this Agreement until thirty (30) days after the completion of all adjustment procedures contemplated by Section 2.8 .

7.5 Removing Excluded Assets . Within thirty (30) days after the Closing Date, Sellers shall, at their sole cost and expense, remove all Excluded Assets from all Facilities and other Owned Real Property and Leased Real Property to be occupied by Buyer. Such removal shall be done in such manner as to avoid any damage to the Facilities and other properties to be occupied by Buyer and any disruption of the business operations to be conducted by Buyer after the Closing. Any material damage to the



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Acquired Assets or to the Facilities resulting from such removal shall be paid by Sellers at the Closing. Should Sellers fail to remove the Excluded Assets as required by this Section, Buyer shall have the right, but not the obligation, (a) to remove the Excluded Assets at Sellers’ sole cost and expense; (b) to store the Excluded Assets and to charge Sellers all storage costs associated therewith; (c) to treat the Excluded Assets as unclaimed and to proceed to dispose of the same under the laws governing unclaimed property; or (d) to exercise any other right or remedy conferred by this Agreement or otherwise available at law or in equity. Sellers shall promptly reimburse Buyer for all costs and expenses incurred by Buyer in connection with any Excluded Assets not removed by Sellers on or before the Closing Date.

7.6 Assistance in Proceedings . Each of the Parties will cooperate with the other Parties and their counsel in the contest or defense of, and make available its personnel and provide any testimony and access to its books and Records in connection with, any Proceeding involving or relating to (a) any Contemplated Transaction or (b) the Business.

7.7 Non-competition, Nonsolicitation, Non-disparagement and Confidentiality .

(a) Non-competition . For a period of three (3) years after the Closing Date (the “ Restricted Period ”), each Seller shall not directly or indirectly, invest in, own, manage, operate, finance, control, advise, render services to or guarantee the obligations of any Person engaged in or planning to become engaged in any business or enterprise which distributes, provides, renders or sells products or services which compete with the Business in any respect anywhere in the United States, China, India, Japan or Vietnam.

(b) Non-solicitation . During the Restricted Period, Sellers shall not, and shall not permit their affiliates to, directly or indirectly, through another Person or entity:

(i) solicit the business of any Person who is a customer of Buyer or its Related Persons;

(ii) cause, induce or attempt to cause or induce any customer, supplier, licensee, licensor, franchisee, employee, consultant or other business relation of Buyer or any of its Related Persons to cease doing business with Buyer or any of its Related Persons, to deal with any competitor of Buyer or any of its Related Persons or in any way interfere with its relationship with Buyer or any of its Related Persons;

(iii) cause, induce or attempt to cause or induce any customer, supplier, licensee, licensor, franchisee, employee, consultant or other business relation of Sellers on the Closing Date or within the two years preceding the Closing Date to cease doing business with Buyer or its Related Persons, to deal with any competitor of Buyer or its Related Persons or in any way interfere with its relationship with Buyer or its Related Persons; or

(iv) hire, retain or attempt to hire or retain any employee or independent contractor of Buyer or its Related Persons or in any way interfere with the relationship between Buyer or its Related Persons and any of their respective employees or independent contractors.

(c) Non-disparagement . After the Closing Date, Sellers will not and will not cause its affiliates to disparage the Buyer or any of its shareholders, directors, officers, employees, agents or affiliates.

(d) Confidentiality . Each Seller understands and acknowledges that, during Sellers’ affiliation with the Acquired Assets, Sellers had access to and learned (i) confidential and proprietary



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information concerning the operation and methodology of the Business and (ii) other information proprietary to the Business, including trade secrets, processes, patent and trademark applications, product development, prices, customer and supply lists, pricing and marketing plans, policies and strategies, details of customer Contracts, operations methods, product development techniques, business acquisition plans, new personnel acquisition plans and all other information generally known by the management of Sellers as confidential information with respect to the Business of Sellers (collectively, “ Proprietary Information ”). Each Seller agrees to keep confidential and not disclose, directly or indirectly, any such Proprietary Information to any Third Party or the existence of this Agreement, or any Local Country Purchase Agreement to which any Seller is a party or the terms hereof or thereof, except as required by applicable law, both statutory and common, or in connection with any Proceedings. Each Seller agrees to not use or exploit, or misuse or misappropriate such Proprietary Information in any way. The restrictions contained herein shall not apply to any information which was already generally available to the public at the time of disclosure, or subsequently became available to the public, otherwise than by Breach of this Agreement.

(e) Modification of Covenant . If a final judgment of a court or tribunal of competent jurisdiction determines that any term or provision contained in Section 7.7(a) through 7.7(d) is invalid or unenforceable, then the parties agree that the court or tribunal will have the power to reduce the scope, duration or geographic area of the term or provision, to delete specific words or phrases or to replace any invalid or unenforceable term or provision with a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision. This Section 7.7 will be enforceable as so modified after the expiration of the time within which the judgment may be appealed. This Section 7.7 is reasonable and necessary to protect and preserve Buyer’s legitimate business interests and the value of the Acquired Assets and to prevent any unfair advantage conferred on Sellers.

7.8 Customer and Other Business Relationships . After the Closing, Sellers will cooperate with Buyer in its efforts to continue and maintain for the benefit of Buyer those business relationships of Sellers existing prior to the Closing and relating to the business to be operated by Buyer after the Closing, including relationships with lessors, employees, regulatory authorities, licensors, customers, suppliers and others, and Sellers will satisfy the Retained Liabilities in a manner that is not detrimental to any of such relationships. Sellers will refer to Buyer all inquiries relating to such business. Neither Sellers nor any of their officers, employees, or agents shall take any action that would tend to diminish the value of the Acquired Assets after the Closing or that would interfere with the business of Buyer to be engaged in after the Closing, including disparaging the name or business of Buyer.

7.9 Change of Name . Within thirty (30) days after the Closing Date or such other time as required pursuant to applicable Legal Requirement, each Seller shall amend its Governing Documents and take all other actions necessary to change its name to one sufficiently dissimilar to such Seller’s present name, in Buyer’s judgment, to avoid confusion. Immediately following Closing, each Seller shall cease the use of its present name except to the extent reasonably necessary and approved by Buyer in writing for such Seller to wind down its affairs. Each Seller shall take all actions reasonably requested by Buyer to enable Buyer to use such Seller’s present name.

7.10 Bulk Sales . Buyer and Sellers hereby waive compliance with the bulk-transfer provisions of any applicable Uniform Commercial Code (or any similar law) in connection with the Contemplated Transactions.

7.11 Collection of Accounts Receivable .



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(a) Sellers shall provide such assistance to Buyer as Buyer may reasonably request in connection with Buyer’s efforts to collect any Accounts Receivable, and shall promptly (but in no event later than three (3) Business Days after receipt thereof) deliver to Buyer (i) any cash, checks or other property that Sellers receive following the Closing to the extent relating to the Accounts Receivable or other Acquired Assets or the Business, and (ii) a true copy of any notice of a dispute as to the validity or enforceability of any Accounts Receivable received from the debtor thereof.

(b) Effective upon the Closing Date, each Seller hereby constitutes and appoints Buyer and its successors and assigns the true and lawful attorney in fact of such Seller with full power of substitution, in the name of Buyer, or the name of such Seller, to collect the Accounts Receivable, and to endorse, without recourse, checks, notes and other instruments constituting or relating to the Accounts Receivable in the name of such Seller. The foregoing power is coupled with an interest and shall be irrevocable by such Seller, directly or indirectly, whether by the dissolution of such Seller or in any manner or for any reason.

7.12 Further Assurances . The Parties shall cooperate reasonably with each other and with their respective Representatives in connection with any steps required to be taken as part of their respective obligations under this Agreement, and shall (a) furnish upon request to each other such further information; (b) execute and deliver to each other such other documents; and (c) do such other acts and things, all as any other Party may reasonably request for the purpose of carrying out the intent of this Agreement and the Contemplated Transactions.

7.13 Transfer of Environmental Permits . The Parties shall cooperate fully with each other and their respective Representatives to undertake all efforts necessary to ensure the timely and complete transfer of all Governmental Authorizations, if any, required under Environmental Laws for the ongoing conduct of the Business.

7.14 Local County Purchase Agreements; Transition Services Agreement .

(a) The applicable Parties shall use their reasonable best efforts to enter into (or in the case of Buyer, to cause its relevant Affiliate to enter into) the Local Country Purchase Agreement with respect to GES Vietnam within seven days following the date of execution of this Agreement, and with respect to each other Local Country Purchase Agreement, within fourteen days following the date of execution of this Agreement.

(b) If Buyer is unable to obtain the required Governmental Authorizations necessary to duly incorporate or form a Local Subsidiary as of the Closing Date or for any other reason the Parties do not enter into any Local Country Purchase Agreement on the Closing Date, then the Parties shall enter into a transition services agreement (each a “ Transition Services Agreement ”) with respect to each such Local Country Purchase Agreement, in a form reasonably acceptable to each Party, the term of which shall continue until such time as such Local Subsidiary is duly incorporated or formed, validly existing and in good standing under the laws of its jurisdiction of incorporation or organization, with full power and authority to enter into the Local Country Purchase Agreement, as applicable, and to perform all its obligations under such agreement, and such Local Country Purchase Agreement is entered into and the transactions thereunder are consummated. For the avoidance of doubt, while legal title to any Acquired Assets related to the Seller(s) with respect to a Local Country Purchase Agreement that is not entered into on the Closing Date will not be transferred, assigned or delivered as of the Closing Date, the beneficial ownership and all benefits and burdens of such Acquired Assets and such Assumed Liabilities shall be deemed to be transferred to the Buyer on the Closing Date.



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8. INDEMNIFICATION; REMEDIES.

8.1 Survival . All representations, warranties, covenants and obligations in this Agreement, the Disclosure Schedules, any supplements to the Disclosure Schedules, the certificates delivered pursuant to Section 2.7 and any other certificate or document delivered pursuant to this Agreement shall survive the Closing and the consummation of the Contemplated Transactions, subject to Section 8.6 . The waiver of any condition based upon the accuracy of any representation or warranty, or on the performance of or compliance with any covenant or obligation, will not affect the right to indemnification, reimbursement or other remedy based upon such representations, warranties, covenants and obligations.

8.2 Indemnification and Reimbursement by Sellers .

(a) Subject to Section 8.4 , Sellers shall jointly and severally indemnify and hold harmless Buyer and its Representatives, subsidiaries and Related Persons (collectively, the “ Buyer Indemnified Persons ”), and will reimburse the Buyer Indemnified Persons, for any loss, liability, claim, damage and expense (including costs of investigation and defense and reasonable attorneys’ fees and expenses), including any diminution of value, whether or not involving a Third-Party Claim (collectively, “ Damages ”), arising from or in connection with:

(i) any Breach of any representation or warranty made by any Seller in this Agreement (without taking into account any supplement to the Disclosure Schedules), the Disclosure Schedules or any Local Country Purchase Agreement, certificate, document, writing or instrument delivered by such Seller pursuant to this Agreement;

(ii) any Breach of any covenant or obligation of any Seller in this Agreement or in any Local Country Purchase Agreement, certificate, document, writing or instrument delivered by such Seller pursuant to this Agreement;

(iii) any Liability arising out of the ownership or operation of the Acquired Assets or Business prior to the Effective Time other than the Assumed Liabilities;

(iv) any Retained Liabilities;

(v) any Excluded Assets;

(vi) the litigation matters described on Schedule 8.2(a)(vi) ;

(vii) any Liability related to or arising out of disputes with shareholders or option holders of any Seller, including, without limitation, any claim that GES is not, or is not entitled to be, the registered holder and beneficial owner of all issued and outstanding equity interests in GES Vietnam; and

(viii) any Third-Party Claim based upon, resulting from or arising out of the business, operations, properties, assets or obligations of Sellers or for any such Seller, any of its Related Persons (other than the Acquired Assets or Assumed Liabilities), conducted, existing or arising on or prior to the Closing Date.

(b) Notwithstanding any other provision of this Agreement to the contrary, with the exceptions only of the Fundamental Representations, fraud on the part of any Seller or the indemnification obligations of the Sellers specified in Sections 8.2(a)(iv) , 8.2(a)(v) , 8.2(a)(vi) and



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8.2(a)(vii) , recovery from the Escrow Amount shall be the sole and exclusive remedy for the indemnification obligations of the Sellers under this Agreement.

8.3 Indemnification and Reimbursement by Buyer . Subject to Section 8.5 and 8.6 , Buyer shall indemnify and hold harmless Sellers, their Representatives and Related Persons (collectively, the “ Sellers Indemnified Persons ”) and will reimburse Sellers Indemnified Persons, for any Damages arising from or in connection with:

(a) any Breach of any representation or warranty made by Buyer or an Affiliate of Buyer in this Agreement or any Local Country Purchase Agreement or in any certificate, document, writing or instrument delivered by Buyer or an Affiliate of Buyer pursuant to this Agreement or any Local Country Purchase Agreement;

(b) any Breach of any covenant or obligation of Buyer or an Affiliate of Buyer in this Agreement or any Local Country Purchase Agreement or in any other certificate, document, writing or instrument delivered by Buyer or an Affiliate of Buyer pursuant to this Agreement or any Local Country Purchase Agreement; or

8.4 Limitations on Amount – Sellers . Sellers shall have no liability (for indemnification or otherwise) with respect to claims under Section 8.2(a)(i) until the total of all Damages with respect to such matters exceeds Five Hundred Thousand Dollars ($250,000.00) (the “ Deductible ”), and then only for the amount of such Damages that exceeds the Deductible, up to an amount equal to the Escrow Amount (the “ Cap ”). However, the limitations in the preceding sentence will not apply to claims under or to matters arising in respect of Sections 3.1 (only as to due organization), 3.2 (enforceability; authority; no conflict), 3.3 (ownership of Sellers) (collectively, the “ Sellers Fundamental Representations ”), or fraud on the part of any Seller; provided , however , that in no event shall the aggregate of such claims and liabilities exceed the Purchase Price.

8.5 Limitations on Amount – Buyer . Buyer shall have no liability (for indemnification or otherwise) with respect to claims under Section 8.3(a) until the total of all Damages with respect to such matters exceeds the Deductible, and then only for the amount of such Damages that exceeds the Deductible, up to an amount equal to the Cap. However, the limitations in this Section 8.5 will not apply to claims under or to matters arising in respect of Sections 4.1 (only as to due organization) and 4.2 (authority; no conflict) (together with Sellers Fundamental Representations, the “ Fundamental Representations ”), or to any Breach of any of Buyer’s representations and warranties of which Buyer had knowledge at any time prior to the date on which such representation and warranty is made or any intentional Breach by Buyer of any covenant or obligation, and Buyer will be liable for all Damages with respect to such Breaches. In no event shall the aggregate of such liability or any other liability under Section 8.3 exceed the Purchase Price.

8.6 Time Limitations .

(a) (i) No claim under Section 8.2(a)(i) or Section 8.3(a) shall be brought after the date that is twenty-four (24) months following the Closing Date, except for (A) claims arising out of the Fundamental Representations, which shall survive in perpetuity; (B) claims arising out of the representations and warranties set forth in Section 3.14 (Taxes), which shall survive until sixty (60) days following the expiration of the statute of limitations period (including all extensions thereof) applicable to the underlying subject matter being represented; and (C) claims of which Sellers has been notified with reasonable specificity by Buyer, or claims of which Buyer has been notified with reasonable specificity



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by Sellers, within the aforesaid survival period applicable to the underlying claim, (ii) no claim under Sections 8.2(a)(ii) through (iii) and (vi) through (viii) or Sections 8.3(b) and 8.3(c) shall be brought after the date that is twenty four (24) months following the Closing Date, and (iii) no claim under Sections 8.2(a)(iv) and (v) shall be brought after the date that is three (3) years following the Closing Date (as applicable, the “ Survival Period ”).

(b) For greater clarity, nothing contained in the foregoing sentence shall prevent recovery under this Section 8 after the expiration of the Survival Period so long as the party making a claim or seeking recovery complies with the provisions of clause (i) and (ii) of the following sentence. No party shall have any claim or right of recovery for any Breach of a representation, warranty, covenant or agreement unless (i) written notice is given in good faith by that party to the other party of the Breach of the representation, warranty, covenant or agreement pursuant to which the claim is made or right of recovery is sought setting forth in reasonable detail the basis for the purported Breach, the amount or nature of the claim being made, if then ascertainable, and the general basis therefor and (ii) such notice is given prior to the expiration of the Survival Period applicable to the underlying claim.

8.7 Third-Party Claims .

(a) In the event that subsequent to the Closing, any Person that is or may be entitled to indemnification under this Agreement (an “ Indemnified Person ”) either receives notice of the assertion of any claim, issuance of any Order or the commencement of any action or proceeding or otherwise learns of an assertion of a potential claim, Order or action by any Third Party (a “ Third-Party Claim ”), against such Indemnified Person, against which a Party to this Agreement is or may be required to provide indemnification under this Agreement (an “ Indemnifying Person ”), the Indemnified Person shall, as promptly as practicable, give written notice thereof together with a statement of any available information regarding such claim to the Indemnifying Person; provided, however, that the failure to notify the Indemnifying Person will not relieve the Indemnifying Person of any liability that it may have to any Indemnified Person, except to the extent that the Indemnifying Person demonstrates that the defense of such claim, order or action is prejudiced by the Indemnified Person’s failure to give such notice.

(b) If any Third-Party Claim referred to in this Section 8 is brought against an Indemnified Person and such Indemnified Person gives notice to the Indemnifying Person of the commencement of such Third-Party Claim, the Indemnifying Person will be entitled to participate in the defense of such Third-Party Claim and, to the extent that it wishes (unless (i) the Indemnifying Person is also a party to such Third-Party Claim and the Indemnified Person determines in good faith that joint representation would be inappropriate, or (ii) the Indemnifying Person fails to provide, upon request, reasonable assurance to the Indemnified Person of its financial capacity to defend such Third-Party Claim and provide indemnification with respect to such Third-Party Claim), to assume the defense of such Third-Party Claim with counsel reasonably satisfactory to the Indemnified Person and, after written notice (a “ Control Notice ”) from the Indemnifying Person to the Indemnified Person of its election to assume the defense of such Third-Party Claim, the Indemnifying Person will not, as long as it diligently conducts such defense, be liable to the Indemnified Person under this Section 8 for any fees of other counsel or any other expenses with respect to the defense of such Third-Party Claim, in each case subsequently incurred by the Indemnified Person in connection with the defense of such Third-Party Claim, other than reasonable costs of investigation. The Indemnifying Person will have fourteen (14) calendar days from receipt of a notice of a Third-Party Claim from an Indemnified Person pursuant to Section 8.7(a) to assume the defense thereof. If the Indemnifying Person does not, or is not pursuant to the preceding two sentences permitted to, assume the defense of a proceeding, the Indemnified Person shall have the right to assume the defense and employ separate counsel to represent such Indemnified Person and the reasonable fees and expenses of such separate counsel shall be paid by such Indemnifying Person. If the Indemnifying Person assumes the defense of a Third-Party Claim, (i) it will be conclusively established



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for purposes of this Agreement that the claims made in that Third-Party Claim are within the scope of and subject to indemnification under this Section 8 ; (ii) no compromise or settlement of such claims may be effected by the Indemnifying Person without the Indemnified Party’s consent unless (A) there is no finding or admission of any violation of Legal Requirements by or any violation of the rights of any Person and no effect on any other claims that may be made against the Indemnified Person, and (B) the sole relief provided is monetary damages that are paid in full by the Indemnifying Person; and (iii) the Indemnified Person will have no liability with respect to any compromise or settlement of such claims effected without its consent. If notice is given to an Indemnifying Person of the commencement of any Third-Party Claim and the Indemnifying Person does not, within fourteen (14) calendar days after the Indemnified Person’s notice is given, deliver a Control Notice to the Indemnified Person of its election to assume the defense of such Third-Party Claim, the Indemnifying Person will be bound by any determination made in such Third-Party Claim or any compromise or settlement effected by the Indemnified Person.

(c) Notwithstanding the foregoing, if an Indemnified Person determines in good faith that there is a reasonable probability that a Third-Party Claim may adversely affect it or its Related Persons other than as a result of monetary damages for which it would be entitled to indemnification under this Agreement, the Indemnified Person may, by notice to the Indemnifying Person, assume the exclusive right to defend, compromise, or settle such Third-Party Claim, but the Indemnifying Person will not be bound by any compromise or settlement effected without its consent (which may not be unreasonably withheld).

8.8 Procedures for Direct Claims . In the event any Indemnified Person should have a claim for indemnity against any Indemnifying Person that does not involve a Third-Party Claim, the Indemnified Person shall deliver notice of such claim with reasonable promptness to the Indemnifying Person. The failure by any Indemnified Person to so notify the Indemnifying Person shall not relieve the Indemnifying Person from any liability that it may have to such Indemnified Person with respect to any claim made pursuant to Sections 8.2 or 8.3 and in accordance with this Section 8.8 , it being understood that notices for claims in respect of a breach of a representation or warranty must be delivered prior to the expiration of the survival period for such representation or warranty under Section 8.6 . If the Indemnifying Person does not notify the Indemnified Person within sixty (60) calendar days following its receipt of such notice that the Indemnifying Person disputes its liability to the Indemnified Person under this Section 8 , or the amount thereof, the claim specified by the Indemnified Person in such notice shall be conclusively deemed a liability of the Indemnifying Person under this Section 8 , and the Indemnifying Person shall pay the amount of such liability to the Indemnified Person on demand or, in the case of any notice in which the amount of the claim (or any portion of the claim) is estimated, on such later date when the amount of such claim (or such portion of such claim) becomes finally determined. If the Indemnifying Person has timely disputed its liability with respect to such claim as provided above, or the amount thereof, the Indemnifying Person and the Indemnified Person shall resolve such dispute first by negotiation among Representatives of Buyer and Sellers and then by litigation, to the extent such dispute is not so resolved. Buyer may set off any amount to which it is entitled to under this Section 8 against amounts otherwise payable to Sellers after the Closing.

8.9 Calculation of Damages; Treatment of Indemnity Payments .

(a) The amount of any Damages payable under this Section 8 by the Indemnifying Person shall be net of any amounts actually received by the Indemnified Person under applicable insurance policies or from any other Person alleged to be responsible therefore or pursuant to any indemnity, contribution or other similar payment by any Person with respect thereto, net of any expenses reasonably incurred in connection with the collection thereof, including deductibles and self-insured retentions or from any other source. If the Indemnified Person receives any amounts under applicable



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insurance policies, or from any other source, or a Person alleged to be responsible for any Damages, subsequent to an indemnification payment by the Indemnifying Person, then such Indemnified Person shall promptly reimburse the Indemnifying Person for any payment made or expense incurred by such Indemnifying Person in connection with providing such indemnification payment up to the amount received by the Indemnified Person, net of any expenses reasonably incurred by such Indemnified Person in collecting such amount (including deductibles and self-insured retentions). The Indemnified Person shall use reasonable efforts to collect any amounts available under such insurance coverage or from such other Person alleged to have responsibility therefor; provided, however , that (i) doing so is commercially reasonable and (ii) such obligation shall not be a condition to, or a limitation on, indemnification rights hereunder prior to making any claim for indemnification under this Section 8 .

(b) The Indemnifying Person shall not be liable under this Section 8 for any (i) Damages to the extent that the amount thereof, if any, was reflected in the calculation of the Adjustment Amount, as finally determined pursuant to Section 2.8 , or (ii) Damages that are for punitive damages, except in the case of fraud and except to the extent such Damages were actually awarded, paid or incurred in a Third-Party Claim.

(c) Solely for purposes of calculating the amount of Damages incurred arising out of or relating to any breach of a representation or warranty (and not for purposes of determining whether or not a breach has occurred), the references to “material” or “Material Adverse Effect” shall be disregarded.

(d) The Indemnified Person shall take, and shall cause its respective Related Persons to take, all reasonable steps to mitigate and otherwise minimize their Damages to the maximum extent reasonably possible upon and after becoming aware of any event which would reasonably be expected to give rise to any Damages and an Indemnifying Person shall not be liable for any Damages to the extent that such Damages are attributable to the Indemnified Person’s failure to mitigate.

(e) If the Indemnified Person receives any payment from an Indemnifying Person in respect of any Damages and the Indemnified Person could have recovered all or a part of such Damages from a third party based on the underlying claim asserted against the Indemnified Person, the Indemnified Person shall assign such of its rights to proceed against such third party as are necessary to permit the Indemnifying Person to recover from such third party the amount of such indemnification payment.

(f) Any indemnity payment made under this Agreement shall be deemed to be, and each of Buyer and Sellers shall treat them, as adjustments to the Purchase Price for federal, state, local and all other Tax purposes.

8.10 No Double Recovery . Notwithstanding the fact that any party may have the right to assert claims for indemnification under or in respect of more than one provision of this Agreement or another agreement entered into in connection herewith in respect of any fact, event, condition or circumstance, no Indemnified Person shall be entitled to recover the amount of any Damages suffered by such Indemnified Person more than once under all such agreements in respect of such fact, event, condition or circumstance, and an Indemnifying Party shall not be liable for indemnification to the extent the Indemnified Person has otherwise been fully compensated on a dollar-for-dollar basis for such Damages pursuant to the Purchase Price adjustments under Section 2.8 .

8.11 Exclusion of Other Remedies . Notwithstanding anything to the contrary in this Agreement or any Local Country Purchase Agreement, the Parties agree that, from and after the Closing, the sole and exclusive remedies of the Parties for any Damages based upon, arising out of or otherwise in respect of the matters set forth in this Agreement or any Local Country Purchase Agreement (including representations, warranties, covenants and agreements) and the transactions contemplated hereby,



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whether based in contract or tort, are the indemnification and reimbursement obligations of the Parties set forth in this Section 8 . The provisions of this Section 8.11 shall not, however, prevent or limit a cause of action hereunder (a) with respect to fraud or (b) to obtain an injunction or injunctions to prevent breaches of this Agreement, to enforce specifically the terms and provisions hereof or to obtain other equitable remedies with respect hereto.

9. TERMINATION

9.1 Termination Events . By notice given prior to or at the Closing, subject to Section 9.2 , this Agreement may be terminated as follows:

(a) by the mutual written consent of Buyer and Sellers’ Representative;

(b) by Buyer, if there has been a material Breach by any Seller (through no fault of Buyer) of any covenant, representation or warranty contained in this Agreement which has prevented the satisfaction of any condition to the obligations of Buyer at the Closing and such Breach has not been waived by Buyer;

(c) by Buyer if any of the conditions set forth in Section 6.2 or Section 6.3 shall not have been, or if it becomes apparent that any of such conditions will not be, fulfilled by July 30, 2018, unless such failure shall be due to the failure of Buyer to perform or comply with any of the covenants, agreements or conditions hereof to be performed or complied with by it prior to the Closing;

(d) by Sellers’ Representative, if there has been a material Breach by Buyer (through no fault of Sellers) of any covenant, representation or warranty contained in this Agreement which has prevented the satisfaction of any condition to the obligations of Sellers at the Closing and such Breach has not been waived by Sellers’ Representative;

(e) by Sellers’ Representative if any of the conditions set forth in Section 6.1 or Section 6.3 shall not have been, or if it becomes apparent that any of such conditions will not be, fulfilled by July 30, 2018, unless such failure shall be due to the failure of Buyer to perform or comply with any of the covenants, agreements or conditions hereof to be performed or complied with by it prior to the Closing;

(f) by either Buyer or Sellers’ Representative if the Closing has not been consummated by July 30, 2018, provided that neither Buyer nor Sellers’ Representative shall be entitled to terminate this Agreement pursuant to this Section 9.1(f) if a willful Breach by Buyer or any Seller has prevented the consummation of the Contemplated Transactions; or

(g) by either Buyer or Sellers’ Representative if a Local Country Purchase Agreement has not been entered into or delivered by the intended parties thereto on or prior to the respective date specified for such agreement pursuant to Section 7.14(a) .

9.2 Effect of Termination . Each Party’s right of termination under Section 9.1 is in addition to any other rights it may have under this Agreement or otherwise, and the exercise of such right of termination will not be an election of remedies. If this Agreement is terminated pursuant to Section 9.1 , each Local Country Purchase Agreement shall be automatically terminated and all obligations of the parties under this Agreement or under such Local Country Purchase Agreement will terminate, except (i) that the obligations of the parties in this Section 9.2 and Section 10 (except for those in Section 10.4 ) will survive and (ii) for the survival provisions under the relevant Local Country Purchase Agreement; provided , however , that, if this Agreement is terminated because of a Breach of this Agreement by the



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non-terminating Party or because one or more of the conditions to the terminating Party’s obligations under this Agreement and/or any Local Country Purchase Agreement is not satisfied as a result of the non-terminating Party’s failure to comply with its obligations under this Agreement and/or any Local Country Purchase Agreement, the terminating Party’s right to pursue all legal remedies will survive such termination unimpaired.

10. GENERAL PROVISIONS.

10.1 Expenses . Except as otherwise provided in this Agreement, each Party will bear its respective fees and expenses incurred in connection with the preparation, negotiation, execution and performance of this Agreement and the Contemplated Transactions, including all fees and expense of its Representatives. Buyer will pay one-half and Sellers will pay one-half of the fees and expenses of the Escrow Agent under the Escrow Agreement. If this Agreement is terminated, the obligation of each Party to pay its own fees and expenses will be subject to any rights of such Party arising from a Breach of this Agreement by another Party.

10.2 Public Announcements . Sellers shall not, and shall not permit their Related Persons to, issue any press release or other public statements with respect to the Contemplated Transactions. Buyer and its Related Persons may issue, any press release or other public statements with respect to the Contemplated Transactions as its deems appropriate in its sole discretion including, without limitation (a) press releases issued or filings made by Buyer and/or its Related Persons, and (b) disclosures in satisfaction of, or otherwise required by, applicable Legal Requirements or securities exchange rules (including by making a public announcement through issuance of a press release, filing of a Current Report on Form 8-K or otherwise).

10.3 Notices . All notices, consents, waivers and other communications required or permitted by this Agreement shall be in writing and shall be deemed given to a party when (a) delivered to the appropriate address by hand or by nationally recognized overnight courier service (costs prepaid); (b) sent by facsimile or e-mail (to the facsimile numbers or e-mail addresses below or to such other facsimile number or e-mail address as a party may designate by notice to the other parties) with confirmation of transmission by the transmitting equipment; or (c) received or rejected by the addressee, if sent by certified mail, return receipt requested, in each case to the following addresses, and marked to the attention of the person (by name or title) designated below (or to such other address or person as a party may designate by notice to the other parties):



If to Buyer:	Kimball Electronics Indiana, Inc. 1205 Kimball Boulevard Jasper, Indiana 47546 Attention: John Kahle Telephone No.: (812) 634-4748 Facsimile No.: (812) 482-8060 E-mail: john.kahle@kimballelectronics.com



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with a copy to:	Squire Patton Boggs (US) LLP 221 E. Fourth Street, Suite 2900 Cincinnati, Ohio 45202 Attention: Stephen C. Mahon and Toby D. Merchant Telephone No.: (513) 361-1200 Facsimile No.: (513) 361-1201 E-mail: stephen.mahon@squirepb.com toby.merchant@squirepb.com
If to Sellers’ Representative:	GES Holdings, Inc. 5215 Hellyer Avenue, Suite #130 San Jose, CA 95138 Attention: James McCormick Telephone No.: (669) 234-1111 Facsimile No.: (669) 234-1099 E-mail: james@geservs.com
with a copy to:	Pillsbury Winthrop Shaw Pittman LLP 2550 Hanover Street Palo Alto, CA 94304-1115 Attention: Riaz Karamali Telephone No.: 650.233.4052 Facsimile No.: 650.233.4545
	E-mail.: riaz.karamali@pillsburylaw.com

10.4 Enforcement of Agreement . Sellers acknowledge and agree that Buyer would be irreparably damaged if any of the provisions of this Agreement and/or any Local Country Purchase Agreement are not performed in accordance with their specific terms and that any Breach of this Agreement by Sellers could not be adequately compensated in all cases by monetary damages alone. Accordingly, in addition to any other right or remedy to which Buyer may be entitled, at law or in equity, it shall be entitled to enforce any provision of this Agreement and/or the relevant Local Country Purchase Agreement by a decree of specific performance and to temporary, preliminary and permanent injunctive relief to prevent Breaches or threatened Breaches of any of the provisions of this Agreement and/or any Local Country Purchase Agreement, without posting any bond or other undertaking.

10.5 Waiver; Remedies Cumulative . The rights and remedies of the parties to this Agreement are cumulative and not alternative. Neither any failure nor any delay by any party in exercising any right, power or privilege under this Agreement or any of the documents referred to in this Agreement will operate as a waiver of such right, power or privilege, and no single or partial exercise of any such right, power or privilege will preclude any other or further exercise of such right, power or privilege or the exercise of any other right, power or privilege. To the maximum extent permitted by applicable law, (a) no claim or right arising out of this Agreement or any of the documents referred to in this Agreement can be discharged by one party, in whole or in part, by a waiver or renunciation of the claim or right unless in writing signed by the other party; (b) no waiver that may be given by a party will be applicable except in the specific instance for which it is given; and (c) no notice to or demand on one party will be deemed to be a waiver of any obligation of that party or of the right of the party giving such notice or demand to take further action without notice or demand as provided in this Agreement or the documents referred to in this Agreement.



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10.6 Entire Agreement . This Agreement supersedes all prior agreements, whether written or oral, between the parties with respect to its subject matter (including the letter of intent between Buyer and Sellers dated December 29, 2017) and constitutes (along with the Local Country Purchase Agreements, Disclosure Schedules, Exhibits and other documents delivered pursuant to this Agreement) a complete and exclusive statement of the terms of the agreement between the parties with respect to its subject matter.

10.7 Assignments, Successors and No Third-Party Rights . No party may assign any of its rights or delegate any of its obligations under this Agreement without the prior written consent of the other parties, except that Buyer may assign its rights hereunder, without consent of any other Party, for collateral security purposes to any lender or lenders providing financing to Buyer or any of its Related Persons in connection with the Contemplated Transactions. Subject to the preceding sentence, this Agreement will apply to, be binding in all respects upon and inure to the benefit of the successors and permitted assigns of the parties. Nothing expressed or referred to in this Agreement will be construed to give any Person other than the Parties any legal or equitable right, remedy or claim under or with respect to this Agreement or any provision of this Agreement, except such rights as shall inure to a successor or permitted assignee pursuant to this Section 10.7 .

10.8 Severability . Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement.

10.9 Construction . The headings of Sections or sub-Sections in this Agreement are provided for convenience only and will not affect its construction or interpretation. All references to “Sections” and “Schedules” refer to the corresponding Sections and Schedules of this Agreement and the Disclosure Schedules. The Parties acknowledge that they and their respective counsel have negotiated and drafted this Agreement jointly agree that no rule of strict construction shall be applied against any Person in the interpretation or construction of this Agreement.

10.10 Time of Essence . With regard to all dates and time periods set forth or referred to in this Agreement, time is of the essence.

10.11 Governing Law . All matters relating to the interpretation, construction, validity and enforcement of this Agreement shall be governed by and construed in accordance with the domestic laws of the State of Indiana without giving effect to any choice or conflict of law provision or rule (whether of the State of Indiana or any other jurisdiction) that would cause the application of laws of any jurisdiction other than the State of Indiana.

10.12 Alternative Dispute Resolution .

(a) Pre-Mediation Negotiation . The parties shall first attempt to resolve any Dispute arising out of or relating to this Agreement by negotiation between executives who have authority to settle the Dispute, subject to the approval by either party’s Board of Directors if required. A " Dispute " shall mean any action, dispute, claim or controversy of any kind, whether in contract or tort, statutory or common law, legal or equitable, now existing or hereafter arising under, in connection with, or in any way relating to this Agreement.

(i) Any party may give the other party written notice of any Dispute not resolved in the normal course of business (the “ Notice ”). Within 10 days after delivery of the Notice, the



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receiving party shall submit to the other a written response. The Notice and response shall include with reasonable detail a statement of the party’s position.

(ii) Within 20 days after delivery of the Notice or earlier if agreed, the executives of both parties shall confer telephonically or meet at a mutually acceptable time and place. Unless otherwise agreed in writing by the parties, the above-described negotiation shall end at the close of said meeting (the “ First Meeting ”). Such closure shall not preclude continuing or later negotiations, if desired. All offers, promises, conduct and statements, whether oral or written, made in the course of said negotiation following the Notice by any of the parties, their agents, employees, experts and attorneys are confidential, privileged and inadmissible for any purpose, including impeachment, in arbitration or other proceeding involving the parties, provided that evidence that is otherwise admissible or discoverable shall not be rendered inadmissible or non-discoverable as a result of its use in the negotiation.

(iii) At no time prior to the First Meeting shall either side initiate a mediation, arbitration or other legal proceeding related to any Dispute except to pursue a provisional remedy pursuant to Rule 2(c) of JAMS Comprehensive Arbitration Rules and Procedures (“ JAMS Rules ”), found at https://www.jamsadr.com/rules-comprehensive-arbitration/ or by agreement of the parties; however, this limitation is inapplicable to a party if the other party refuses to comply with the requirements of paragraphs (i) and (ii) above. All applicable statutes of limitation and defenses based upon the passage of time shall be tolled while the procedures specified in paragraphs (i) and (ii) above are pending and for 15 days thereafter. The parties will take such action, if any, required to effectuate such tolling.

(b) Mediation . Subject to paragraph (a) above, the parties agree that any and all Disputes shall be submitted to JAMS, or its successor, for mediation in New York, New York, and if the matter is not resolved thereby, then it shall be submitted to JAMS, or its successor, for final and binding arbitration in New York, New York pursuant to paragraph (c) below.

(i) Either party may commence mediation by providing to JAMS and the other party a written request for mediation, setting forth the subject of the Dispute and the relief requested.

(ii) The parties will cooperate with JAMS and with one another in selecting a mediator from the JAMS panel of neutrals practicing in New York, NY and in scheduling the mediation proceedings. The parties agree that they will participate in the mediation in good faith and that they will share equally in its costs.

(iii) All offers, promises, conduct and statements, whether oral or written, made in the course of the mediation by any of the parties, their agents, employees, experts and attorneys, and by the mediator or any JAMS employees, are confidential, privileged and inadmissible for any purpose, including impeachment, in any arbitration or other proceeding involving the parties, provided that evidence that is otherwise admissible or discoverable shall not be rendered inadmissible or non-discoverable as a result of its use in the mediation.

(iv) Either party may initiate arbitration with respect to the matters submitted to mediation by filing a written demand for arbitration at any time following the initial mediation session or at any time following 45 days from the date of filing the written request for mediation, whichever occurs first (“ Earliest Initiation Date ”). The mediation may continue after the commencement of arbitration if the parties so desire.

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(v) At no time prior to the Earliest Initiation Date shall either side initiate an arbitration or other legal proceeding arising out of or related to this Agreement except to pursue a provisional remedy that is authorized by JAMS Rules or by agreement of the parties. However, this limitation is inapplicable to a party if the other party refuses to comply with the requirements of Paragraph (ii) above.

(vi) All applicable statutes of limitation and defenses based upon the passage of time shall be tolled until 15 days after the Earliest Initiation Date. The parties will take such action, if any, required to effectuate such tolling.

(c) Arbitration . Subject to paragraphs (a) and (b) above, upon the demand of any party, any Dispute shall be resolved by binding arbitration in accordance with the terms of this section (c). Any party who fails or refuses to submit to arbitration following a lawful demand by any other party shall bear all costs and expenses incurred by such other party in compelling arbitration of any Dispute, and any party may, by summary proceedings, bring an action in court to compel arbitration of a Dispute against any other party that fails to comply with the provisions hereof. Each party shall pay its own costs and expenses of the arbitration proceeding and the cost of the arbitrator shall be divided equally between the parties.

(i) Proceedings . Arbitration proceedings shall be administered by JAMS, or its successor. Arbitration shall be conducted in accordance with the JAMS Rules. If there is any inconsistency between the terms hereof and any such rules, the terms and procedures set forth herein shall control. All Disputes submitted to arbitration shall be resolved in accordance with the Federal Arbitration Act (Title 9 of the United States Code) except to the extent, if any, inconsistent with the terms hereof. The arbitration shall be conducted in New York City, New York at a location selected by JAMS or by the parties’ mutual agreement. All statutes of limitation applicable to any Dispute shall apply to any arbitration proceeding. All discovery activities shall be expressly limited to matters directly relevant to the Dispute being arbitrated. Judgment upon any award rendered in an arbitration may be entered in any court of competent jurisdiction.

(ii) Arbitrator Qualifications and Powers; Awards . The arbitrator must be a retired judge of a state or federal court, with expertise in the substantive laws applicable to the subject matter of the Dispute. The arbitrator is empowered to resolve Disputes by summary rulings in response to motions filed prior to the final arbitration hearing. The arbitrator (i) shall resolve all Disputes in accordance with the substantive law of the State of Indiana, (ii) may grant any remedy or relief that a court of the State of Indiana could order or grant within the scope hereof and such ancillary relief as is necessary to make effective any award, and (iii) shall have the power to award recovery of all costs and fees, to impose sanctions and to take such other actions as the arbitrator deems necessary to the same extent a judge could pursuant to the Federal Rules of Civil Procedure, the state Rules of Civil Procedure or other applicable law. All Disputes shall be decided by a single arbitrator selected pursuant to JAMS Rules.

(d) Arbitral Awards and Appeals . In any arbitral award, the arbitrator shall make specific, written findings of fact and conclusions of law. Notwithstanding any provision of the Federal Arbitration Act or other law, t he parties agree to implement the JAMS Optional Arbitration Appeal Procedure (as it exists on the effective date of this Agreement) with respect to any final award in an arbitration arising out of or related to this Agreement.

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(e) Damages . The arbitrator will have no authority to award punitive or other damages not measured by the prevailing party’s actual damages, except as may be required by statute. The arbitrator shall not award consequential damages in any arbitration initiated under this Section.

(f) Miscellaneous . To the maximum extent practicable, JAMS, the arbitrator and the parties shall take all action required to conclude any arbitration proceeding within 180 days of the demand for arbitration of the Dispute with JAMS. No arbitrator or other party to an arbitration proceeding may disclose the existence, content or results thereof, except for disclosures of information by a party required in the ordinary course of its business or by applicable law or regulation. This arbitration provision shall survive termination, amendment or expiration of the Agreement or any relationship between the parties.

(g) Confidentiality . All arbitration proceedings, including testimony or evidence at hearings, will be kept confidential, although any award or order rendered by the arbitrator(s) pursuant to the terms of this Agreement may be submitted to, and confirmed as a judgment or order by, any state, federal or other court of competent jurisdiction.

(h) Enforcement . With respect to the enforcement within the United States of any arbitral award issued hereunder, enforcement shall be governed by the Federal Arbitration Act and, to the extent lawful, shall be commenced in one of the following courts first, any federal district court in New York, New York, or if such court’s jurisdiction is not available, any state court in New York, New York. The parties hereby consent to the jurisdiction of each of the foregoing court systems for proceedings brought in accordance with this Agreement. With respect to the enforcement outside the United States of any arbitral award issued hereunder, if any court of a foreign jurisdiction shall refuse, for any reason, to enforce the arbitral award pursuant to a final determination in such jurisdiction, after all appellate remedies have been exhausted, the parties shall return the Dispute to the arbitrator at JAMS who issued the award or, if such arbitrator is not available, then to a new arbitrator appointed pursuant to JAMS Rules, for the sole and exclusive purpose of resolving any defects or other issues in the award which have been identified by the foreign jurisdiction court as prohibiting enforcement in that jurisdiction. The parties shall meet-and-confer with themselves and with the arbitrator in establishing an expedited procedure for post-award briefings to the arbitrator to assist the arbitrator in addressing the pertinent issues, and the arbitration shall make such further findings of fact and conclusions or law, including without limitation to modify the language of the arbitral award, as the arbitrator deems appropriate in order to address the pertinent issues raised by the foreign jurisdiction court, whilst endeavoring to preserve the language, reasoning and substance of the original arbitral award to the maximum extent feasible.

(i) Jury Trial and Appellate Waiver . EACH PARTY HERETO HEREBY WAIVES, TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, TRIAL BY JURY IN ANY LITIGATION IN ANY COURT WITH RESPECT TO ANY DISPUTE ARISING OUT OF OR RELATED TO THIS AGREEMENT, OR THE VALIDITY, PROTECTION, INTERPRETATION, COLLECTION OR ENFORCEMENT THEREOF, AND EACH PARTY VOLUNTARILY WAIVES RIGHTS TO APPEAL IN COURT.

10.13 Exhibits and Schedules . The Exhibits and Schedules referred to in this Agreement shall be construed with and as an integral part of this Agreement to the same extent as if the same had been set forth in their entirety herein. It is understood and agreed that the specification of any dollar amount in the representations and warranties contained in this Agreement or the inclusion of any specific item in the Exhibits or Schedules is not intended to imply that such amounts or higher or lower amounts, or the items so included or other items, are or are not material. All Schedules attached hereto or referred to herein are hereby incorporated in and made a part of this Agreement as if set forth in full herein.

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10.14 Amendments and Waivers . No amendment or waiver of any provision of this Agreement shall be valid unless the same shall be in writing and signed by the Parties. Neither the failure nor any delay by any Party in exercising any right, power or privilege under this Agreement will operate as a waiver of such right, power or privilege. No waiver of any provision hereunder or any breach or default thereof shall extend to or affect in any way any other provision or prior or subsequent breach or default.

10.15 Time Periods . Unless specified otherwise, any action required hereunder to be taken within a certain number of days shall be taken within that number of calendar days (and not Business Days); provided, however, that if the last day for taking such action falls on a weekend or bank holiday in the United States, the period during which such action may be taken shall be automatically extended to the next Business Day.

10.16 Execution of Agreement . This Agreement may be executed in one or more counterparts, each of which will be deemed to be an original copy of this Agreement and all of which, when taken together, will be deemed to constitute one and the same agreement. Any party may execute this Agreement by electronic signature (including facsimile or scanned email), and the other parties will be entitled to rely on such signature as conclusive evidence that this Agreement has been duly executed by such party.

10.17 Appointment of Sellers’ Representative . Each Seller does hereby irrevocably appoint the Sellers’ Representative as its true and lawful attorney-in-fact and agent, with full power of substitution or resubstitution, to act solely and exclusivity on behalf of such Seller with respect to any matters relating to this Agreement and any related agreements (such appointment being coupled with an interest and irrevocable). Buyer shall, to the extent it elects to rely on such actions, if any, taken or authorized by the Sellers’ Representative, be entitled to rely on all such actions as being the binding acts of any Seller.

11. CONFIDENTIALITY.

11.1 Definition of Confidential Information .

(a) As used in this Article 11, the term “ Confidential Information ” includes any and all of the following information of any Seller or Buyer that has been or may hereafter be disclosed in any form, whether in writing, orally, electronically or otherwise, or otherwise made available by observation, inspection or otherwise by either party (Buyer on the one hand or Sellers, collectively, on the other hand) or its Representatives (collectively, a “ Disclosing Party ”) to the other party or its Representatives (collectively, a “ Receiving Party ”):


(i)	all information that is a trade secret under applicable trade secret or other law;

(ii)

all information concerning product specifications, data, know-how, formulae, compositions, processes, designs, sketches, photographs, graphs, drawings, samples, inventions and ideas, past, current and planned research and development, current and planned manufacturing or distribution methods and processes, customer lists, current and anticipated customer requirements, price lists, market studies, business plans, computer hardware, Software and computer software and database technologies, systems, structures and architectures;


(iii)	all information concerning the business and affairs of the Disclosing Party (which includes historical and current financial statements, financial projections and budgets, tax returns and accountants’ materials, historical, current and projected sales, capital spending budgets and plans, business plans, strategic



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plans, marketing and advertising plans, publications, client and customer lists and files, contracts, the names and backgrounds of key personnel and personnel training techniques and materials, however documented), and all information obtained from review of the Disclosing Party’s documents or property or discussions with the Disclosing Party regardless of the form of the communication; and


(iv)	all notes, analyses, compilations, studies, summaries and other material prepared by the Receiving Party to the extent containing or based, in whole or in part, upon any information included in the foregoing.

(b) Any trade secrets of a Disclosing Party shall also be entitled to all of the protections and benefits under applicable trade secret law and any other applicable law. If any information that a Disclosing Party deems to be a trade secret is found by a court of competent jurisdiction not to be a trade secret for purposes of this Article 11, such information shall still be considered Confidential Information of that Disclosing Party for purposes of this Article 11 to the extent included within the definition. In the case of trade secrets, each of Buyer and each Seller hereby waives any requirement that the other party submit proof of the economic value of any trade secret or post a bond or other security.

11.2 Restricted Use of Confidential Information .

(a) Each Receiving Party acknowledges the confidential and proprietary nature of the Confidential Information of the Disclosing Party and agrees that such Confidential Information (i) shall be kept confidential by the Receiving Party; (ii) shall not be used for any reason or purpose other than to evaluate and consummate the Contemplated Transactions; and (iii) without limiting the foregoing, shall not be disclosed by the Receiving Party to any Person, except in each case as otherwise expressly permitted by the terms of this Agreement or with the prior written consent of an authorized representative of Seller with respect to Confidential Information of Seller or Shareholders (each, a “ Seller Contact ”) or an authorized representative of Buyer with respect to Confidential Information of Buyer (each, a “ Buyer Contact ”). Each of Buyer and Seller and Shareholders shall disclose the Confidential Information of the other party only to its Representatives who require such material for the purpose of evaluating the Contemplated Transactions and are informed by Buyer, Seller or Shareholders, as the case may be, of the obligations of this Article 11 with respect to such information. Buyer and each Seller shall (iv) enforce the terms of this Article 11 as to its respective Representatives; (v) take such action to the extent necessary to cause its Representatives to comply with the terms and conditions of this Article 11; and (vi) be responsible and liable for any breach of the provisions of this Article 11 by it or its Representatives.

(b) From and after the Closing, subject to the provisions of Section 11.6, the provisions of Section 11.2(a) above shall not apply to or restrict in any manner Buyer’s use of any Confidential Information of the Sellers relating to any of the Assets or the Assumed Liabilities.

11.3 Exceptions . Section 11.2(a) does not apply to that part of the Confidential Information of a Disclosing Party that a Receiving Party demonstrates (a) was, is or becomes generally available to the public other than as a result of a breach by the Receiving Party or its Representatives of this Article 11 or that certain Nondisclosure Agreement dated August 7, 2017 between Global Equipment Services and Manufacturing, Inc. and Kimball Electronics, Inc.; (b) was or is developed by the Receiving Party independently of and without reference to any Confidential Information of the Disclosing Party; or (c) was, is or becomes available to the Receiving Party on a nonconfidential basis from a Third Party not bound by a confidentiality agreement or any legal, fiduciary or other obligation restricting disclosure. Neither Seller nor either Shareholder shall disclose any Confidential Information of Seller or



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Shareholders relating to any of the Assets or the Assumed Liabilities in reliance on the exceptions in clauses (b) or (c) above.

11.4 Legal Proceedings . If a Receiving Party becomes compelled in any Proceeding or is requested by a Governmental Body having regulatory jurisdiction over the Contemplated Transactions to make any disclosure that is prohibited or otherwise constrained by this Article 11, that Receiving Party shall provide the Disclosing Party with prompt notice of such compulsion or request so that it may seek an appropriate protective order or other appropriate remedy or waive compliance with the provisions of this Article 11. In the absence of a protective order or other remedy, the Receiving Party may disclose that portion (and only that portion) of the Confidential Information of the Disclosing Party that, based upon advice of the Receiving Party’s counsel, the Receiving Party is legally compelled to disclose or that has been requested by such Governmental Body, provided, however, that the Receiving Party shall use reasonable efforts to obtain reliable assurance that confidential treatment will be accorded by any Person to whom any Confidential Information is so disclosed. The provisions of this Section 11.4 do not apply to any Proceedings between the parties to this Agreement.

11.5 Return or Destruction of Confidential Information . If this Agreement is terminated, each Receiving Party shall (a) destroy all Confidential Information of the Disclosing Party prepared or generated by the Receiving Party without retaining a copy of any such material; (b) promptly deliver to the Disclosing Party all other Confidential Information of the Disclosing Party, together with all copies thereof, in the possession, custody or control of the Receiving Party or, alternatively, with the written consent of a Seller Contact or a Buyer Contact (whichever represents the Disclosing Party) destroy all such Confidential Information; and (c) certify all such destruction in writing to the Disclosing Party, provided, however, that the Receiving Party may retain a list that contains general descriptions of the information it has returned or destroyed to facilitate the resolution of any controversies after the Disclosing Party’s Confidential Information is returned.

11.6 Attorney-Client Privilege . The Disclosing Party is not waiving, and will not be deemed to have waived or diminished, any of its attorney work product protections, attorney-client privileges or similar protections and privileges as a result of disclosing its Confidential Information (including Confidential Information related to pending or threatened litigation) to the Receiving Party, regardless of whether the Disclosing Party has asserted, or is or may be entitled to assert, such privileges and protections. The parties (a) share a common legal and commercial interest in all of the Disclosing Party’s Confidential Information that is subject to such privileges and protections; (b) are or may become joint defendants in Proceedings to which the Disclosing Party’s Confidential Information covered by such protections and privileges relates; (c) intend that such privileges and protections remain intact should either party become subject to any actual or threatened Proceeding to which the Disclosing Party’s Confidential Information covered by such protections and privileges relates; and (d) intend that after the Closing the Receiving Party shall have the right to assert such protections and privileges. No Receiving Party shall admit, claim or contend, in Proceedings involving either party or otherwise, that any Disclosing Party waived any of its attorney work-product protections, attorney-client privileges or similar protections and privileges with respect to any information, documents or other material not disclosed to a Receiving Party due to the Disclosing Party disclosing its Confidential Information (including Confidential Information related to pending or threatened litigation) to the Receiving Party.

[ Signature page immediately follows .]



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IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of the date first written above.



SELLERS:
GES Holdings, Inc., a California corporation		Global Equipment Services and Manufacturing (Suzhou) Co., Ltd., a limited liability company registered under the laws of China

By:	/s/ Don Tran	By:	/s/ Seo Ping Ng
Name: Title:	Don Tran CEO	Name: Title:	Seo Ping Ng CEO/President Asia Pacific

Global Equipment Services and Manufacturing, Inc., a California Corporation		Suzhou Global Equipment Services and Trading Co., Ltd., a limited liability company registered under the laws of China

By:	/s/ Don Tran	By:	/s/ Seo Ping Ng
Name: Title:	Don Tran CEO	Name: Title:	Seo Ping Ng CEO/President Asia Pacific


GES Japan KK, a kabushiki kaisha registered under the laws of Japan		GES Infotek Pvt. Ltd., a private limited company registered under the laws of India

By:	/s/ Gautam Shankar	By:	/s/ Gautam Shankar
Name: Title:	Gautam Shankar CEO	Name: Title:	Gautam Shankar CEO


SELLERS’ REPRESENTATIVE:
GES Holdings, Inc., a California corporation

By:	/s/ Don Tran
Name: Title:	Don Tran CEO

[Signature Page to Asset Purchase Agreement]



BUYER:

Kimball Electronics Indiana, Inc., an Indiana corporation

By:	/s/ Donald D. Charron
Name: Title:	Donald D. Charron Chairman of the Board, Chief Executive Officer

[Signature Page to Asset Purchase Agreement]

Exhibit 10.1

SUMMARY OF DIRECTOR AND NAMED EXECUTIVE OFFICER COMPENSATION

This summary sets forth the compensation of the Directors of Kimball Electronics, Inc. (the “Company”). The summary also includes compensation of the Company’s current Chief Executive Officer, Chief Financial Officer, and the three other most highly compensated executive officers, who will be referred to herein as our “Named Executive Officers.”

Director Compensation

All Non-Employee Directors receive annual retainer fees of $75,000 plus an additional $40,000 of retainer fees paid in shares of Common Stock of the Company for service as Directors. As approved by the Board of Directors, effective November 1, 2018, the additional annual retainer fee of $40,000 paid in shares of Company Stock will increase to $65,000. The Lead Independent Director of the Board of Directors, the Chairperson of the Audit Committee of the Board of Directors, and the Chairperson of the Compensation and Governance Committee of the Board of Directors each receive an additional $10,000 annual retainer fee.

The Directors can elect to receive some or all of the $75,000 portion of their annual retainer fees and the additional $10,000 annual retainer fee, if applicable, in shares of the Company’s Common Stock. The additional $40,000 ($65,000 effective November 1, 2018) of annual retainer fees shall be paid in shares of the Company’s Common Stock. The Company maintains a Non-Employee Directors Stock Compensation Deferral Plan, which allows Non-Employee Directors to elect to defer all, or a portion of, their stock retainer fees until termination of service from the Board. Shares of Common Stock will be issued either under the Company’s 2014 Stock Option and Incentive Plan or the Non-Employee Directors Stock Compensation Deferral Plan. Directors are also reimbursed for reasonable travel expenses incurred in connection with Board and Committee meeting attendance.

Donald D. Charron, Chairman of the Board and Chief Executive Officer, is a Director and also an employee of the Company but does not receive compensation for his service as a Director.

Named Executive Officer Compensation

Base Pay

Periodically, the Compensation and Governance Committee of the Board of Directors reviews and approves the salaries that are paid to the Company’s executive officers. The following are the current annualized base salaries for the Company’s Named Executive Officers:



Donald D. Charron, Chairman of the Board, Chief Executive Officer	$	692,441
John H. Kahle, Vice President, General Counsel, Chief Compliance Officer, Secretary	$	397,800
Steven T. Korn, Vice President, North American Operations	$	315,297
Michael K. Sergesketter, Vice President, Chief Financial Officer	$	312,878
Christopher J. Thyen, Vice President, New Platforms	$	294,899

Cash Incentive Compensation

Each of the Named Executive Officers was eligible to participate in the Company’s 2014 Profit Sharing Incentive Bonus Plan (the “Plan”) during fiscal year 2018. Under the Plan, cash incentives are accrued annually and paid in five installments over the succeeding fiscal year. Except for provisions relating to retirement, death, permanent disability, and certain other circumstances described in a participant’s employment agreement, participants must be actively employed on each payment date to be eligible to receive any unpaid cash incentive installment. The total amount of cash incentives accrued and authorized to be paid to the Named Executive Officers based on fiscal year 2018 results is listed below. The Named Executive Officers received an installment of 50% of the payment in August 2018, and the remaining portion will be paid in equal installments of 12.5% each in September 2018, January 2019, April 2019, and June 2019.



Donald D. Charron, Chairman of the Board, Chief Executive Officer	$	461,584
John H. Kahle, Vice President, General Counsel, Chief Compliance Officer, Secretary	$	270,504
Steven T. Korn, Vice President, North American Operations	$	210,279
Michael K. Sergesketter, Vice President, Chief Financial Officer	$	207,871
Christopher J. Thyen, Vice President, New Platforms	$	196,675

Stock Compensation

The Named Executive Officers may also receive a variety of stock incentive benefits under the Company’s 2014 Stock Option and Incentive Plan consisting of: incentive stock options, stock appreciation rights, restricted shares, unrestricted shares, restricted share units, or performance shares and performance units.

The following table summarizes the long-term performance shares (“LTPS”) issued in the Company’s Common Stock during August 2018 to the Company’s Named Executive Officers pursuant to their fiscal year 2018 performance share awards:



		LTPS Grant (Shares Issued) ⁽¹⁾
Donald D. Charron, Chairman of the Board, Chief Executive Officer		74,351
John H. Kahle, Vice President, General Counsel, Chief Compliance Officer, Secretary		26,802
Steven T. Korn, Vice President, North American Operations		15,493
Michael K. Sergesketter, Vice President, Chief Financial Officer		14,948
Christopher J. Thyen, Vice President, New Platforms		14,590

(1) Shares have not been reduced by the number of shares withheld to satisfy tax withholding obligations.

During August 2018, the Compensation and Governance Committee awarded LTPS grants for fiscal year 2019 to key employees, including the Named Executive Officers, under the Company’s 2014 Stock Option and Incentive Plan. One-third (1/3) of the August 2018 LTPS awards will vest annually over the succeeding three-year period.

The following table summarizes the maximum number of performance shares granted in August 2018 to the Company’s Named Executive Officers for fiscal year 2019:



		LTPS Award (number of shares)
Donald D. Charron, Chairman of the Board, Chief Executive Officer		65,692
John H. Kahle, Vice President, General Counsel, Chief Compliance Officer, Secretary		16,746
Steven T. Korn, Vice President, North American Operations		13,181
Michael K. Sergesketter, Vice President, Chief Financial Officer		12,934
Christopher J. Thyen, Vice President, New Platforms		12,351

The number of shares to be issued to each participant is based upon a combination of the bonus percentage attainment component calculated under the Company’s profit sharing incentive bonus plan, adjusted to a three-year average bonus percentage, and a growth attainment component, which is the Company’s growth in sales revenue based on comparison of its three-year compounded annual growth rate (“CAGR”) with the Electronics Manufacturing Services Industry’s three-year CAGR.

Retirement Plans

The Named Executive Officers participate in a defined contribution, participant-directed retirement plan that all domestic employees are eligible to participate in (the “Retirement Plan”). The Retirement Plan provides for voluntary employee contributions as well as a discretionary Company contribution which is determined annually by the Compensation and Governance Committee of the Board of Directors. Each eligible employee’s Company contribution is defined as a percent of eligible compensation, the percent being identical for all eligible employees, including Named Executive Officers. Participant contributions are fully vested immediately, and Company contributions are fully vested after five years of participation. All Named Executive Officers are fully vested. The Retirement Plan is fully funded. For those eligible employees who, under the 1986 Tax Reform Act, are deemed to be highly compensated, their individual Company contribution under the Retirement Plan is reduced. For employees who are eligible, including all Named Executive Officers, there is a nonqualified, supplemental employee retirement plan (“SERP”) in which the Company contributes to the account of each individual an amount equal to the reduction in the contribution under the Retirement Plan arising from the provisions of the 1986 Tax Reform Act. The SERP investment is primarily composed of employee contributions.

Exhibit 21

KIMBALL ELECTRONICS, INC. AND SUBSIDIARIES

SUBSIDIARIES OF THE REGISTRANT

As of June 30, 2018 , the significant subsidiaries of the Registrant were as follows:



	Jurisdiction of Incorporation	Percent of Voting Stock Owned By the Registrant
Kimball Electronics Group, LLC	Indiana	100%
Kimball Electronics (Thailand) Ltd.	Thailand	100%
Kimball Electronics Poland Sp. z o.o.	Poland	100%
Kimball Electronics (Nanjing) Co. Ltd. (LLC)	China	100%
Kimball Electronics Tampa, Inc.	Florida	100%
Kimball Electronics Mexico, Inc.	Texas	100%
Kimball Electronics - Mexico S.A. de C.V.	Mexico	100%
Kimball Electronics Netherlands B.V.	Netherlands	100%
Kimball Electronics Romania S.R.L.	Romania	100%
Kimball Electronics Indianapolis, Inc.	Indiana	100%

Exhibit 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statement Nos. 333-199728, 333-199731, and 333-214233 on Form S-8 of our report dated August 28, 2018 , relating to the consolidated financial statements and financial statement schedules of Kimball Electronics, Inc. and subsidiaries, and the effectiveness of Kimball Electronics, Inc. and subsidiaries’ internal control over financial reporting, appearing in the Annual Report on Form 10-K of Kimball Electronics, Inc. for the year ended June 30, 2018 .

/s/ Deloitte & Touche LLP

DELOITTE & TOUCHE LLP

Indianapolis, Indiana

August 28, 2018

Exhibit 24

POWER OF ATTORNEY

The undersigned does hereby constitute and appoint DONALD D. CHARRON, his or her true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, in name, place and stead, to sign the Annual Report of Kimball Electronics, Inc. on Form 10-K (and each amendment thereto, if any) pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, for the fiscal year ended June 30, 2018 , and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto the attorney-in-fact full power and authority to sign such document on behalf of the undersigned and to make such filing, as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all that the attorney-in-fact, or their substitutes, may lawfully do or cause to be done by virtue hereof.

Date: July 27, 2018



/s/ Gregory J. Lampert	/s/ Colleen C. Repplier
Gregory J. Lampert	Colleen C. Repplier

/s/ Geoffrey L. Stringer	/s/ Gregory A. Thaxton
Geoffrey L. Stringer	Gregory A. Thaxton

/s/ Thomas J. Tischhauser	/s/ Christine M. Vujovich
Thomas J. Tischhauser	Christine M. Vujovich

Exhibit 31.1

CERTIFICATION PURSUANT TO

RULE 13a-14(a)/15d-14(a),

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Donald D. Charron, certify that:


1.	I have reviewed this Annual Report on Form 10-K of Kimball Electronics, Inc.;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;


(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and


5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):


(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and


(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.



Date:	August 28, 2018
		/s/ DONALD D. CHARRON
		DONALD D. CHARRON Chairman of the Board, Chief Executive Officer

Exhibit 31.2

CERTIFICATION PURSUANT TO

RULE 13a-14(a)/15d-14(a),

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Michael K. Sergesketter, certify that:


1.	I have reviewed this Annual Report on Form 10-K of Kimball Electronics, Inc.;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;


(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and


5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):


(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and


(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.



Date:	August 28, 2018
		/s/ MICHAEL K. SERGESKETTER
		MICHAEL K. SERGESKETTER Vice President, Chief Financial Officer

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Kimball Electronics, Inc. (the “Company”) on Form 10-K for the period ended June 30, 2018 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Donald D. Charron, Chairman of the Board and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:


(1)	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and


(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.



Date:	August 28, 2018
		/s/ DONALD D. CHARRON
		DONALD D. CHARRON Chairman of the Board, Chief Executive Officer

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Kimball Electronics, Inc. (the “Company”) on Form 10-K for the period ended June 30, 2018 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael K. Sergesketter, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:


(1)	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and


(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.



Date:	August 28, 2018
		/s/ MICHAEL K. SERGESKETTER
		MICHAEL K. SERGESKETTER Vice President, Chief Financial Officer