Kimball Electronics, Inc. (KE), a contract manufacturer serving the automotive, medical, and industrial markets, now estimates its Surface Mount Technology production equipment has a useful life of 10 years, up from the previous estimate of 5-7 years. The change, which was made in November 2021, slashed Kimball’s depreciation expense by $6.9 million and increased net income $4.9 million in the year ended June 30, 2022.

The change accounted for 15.7% of FY22 net income and 15.3% of EPS.

Kimball acknowledges the change helped offset higher material, freight, and wage costs that resulted in a YoY decline in gross margin.

The new estimate, according to our estimate, will increase FY23 operating income by $9.45 million.