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Acquisitions and Divestitures | 6 Months Ended
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Jul. 01, 2023
Business Combination and Asset Acquisition [Abstract] |
Acquisitions and Divestitures | Acquisitions and Divestitures Acquisition - Kimball International On June 1, 2023, the Corporation completed its previously announced acquisition of Kimball International, Inc. ("Kimball International"), a leading commercial furnishings company with expertise in workplace, health, and hospitality, resulting in Kimball becoming a wholly-owned subsidiary of the Corporation. Immediately following the close of the transaction, Kimball International shareholders owned approximately 10 percent of the combined company. The Corporation incurred acquisition-related expenses of $31.3 million and $34.7 million in the three months and six months ended July 1, 2023, respectively, that are included in "Selling and administrative expenses" in the Condensed Consolidated Statements of Comprehensive Income. Additionally, acquisition-related financing costs of $2.7 million and $0.2 million were recorded to the Condensed Consolidated Balance Sheet in "Long-term debt" and "Other assets", respectively, while $0.3 million of acquisition-related stock issuance costs were recorded to "Additional paid-in capital". The acquired assets and assumed liabilities and results of Kimball International's operations are included in the Corporation's Workplace Furnishings reportable segment. The excess of purchase consideration over the fair value of net assets acquired was recorded as goodwill, which is not expected to be tax-deductible, and has not yet been assigned to the new reporting units created. Goodwill is primarily attributed to the assembled workforce of Kimball International and anticipated synergies. Under the terms of the Agreement and Plan of Merger, the Corporation acquired all outstanding shares of Kimball International's common stock and holders of Kimball International’s outstanding common stock received $9.00 in cash and 0.1301 shares of the Corporation’s common stock for each share of Kimball International’s common stock. For fair value purposes, shares of the Corporation's common stock were valued at $25.50, the closing market price on May 31, 2023 the day preceding the transaction's close. The total preliminary fair market value of consideration is approximately $503.7 million, which is allocated as follows:
| Kimball International Shares |  | HNI Shares Exchanged |  | Fair Value |  |
Cash Consideration: |  |  |  |  |  |  |
Shares of Kimball International stock issued and outstanding as of June 1, 2023 | 36.4 |  |  |  | $ | 327.8 |  |  |
Kimball International equivalent shares | 0.2 |  |  |  | 2.3 |  |  |
Total number of Kimball International shares for cash consideration | 36.6 |  |  |  | 330.0 |  |  |
Consideration for payment to settle Kimball International's outstanding debt |  |  |  |  | 50.2 |  |  |
Share Consideration: |  |  |  |  |  |  |
Shares of Kimball International stock issued and outstanding as of June 1, 2023 | 36.4 |  | 4.7 |  | 120.8 |  |  |
Replacement Share-Based Awards: |  |  |  |  |  |  |
Outstanding awards of Kimball International restricted stock units relating to Kimball International Common Stock as of June 1, 2023 | 0.5 |  | 0.2 |  | 2.6 |  |  |
Total preliminary acquisition date fair value of purchase consideration |  |  |  |  | $ | 503.7 |  |  |
Consideration provided in the form of HNI Corporation shares and HNI Corporation replacement share-based awards represent non-cash consideration and thus are not included in the acquisition spending presented in the Condensed Consolidated Statement of Cash Flows. The preliminary purchase price allocation of identifiable tangible and intangible assets and liabilities as of the date of acquisition is as follows:
| Fair Value
Assets |
Cash and cash equivalents | $ | 10.5 |
Short-term investments | 4.2 |
Receivables | 46.1 |
Inventories, net | 52.3 |
Prepaid expenses and other current assets | 13.3 |
Assets held for sale | 17.5 |
Property, plant, and equipment | 218.4 |
Right-of-use operating leases | 16.0 |
Goodwill | 187.3 |
Intangible assets | 88.0 |
Other assets | 12.2 |
Total Assets | $ | 665.9 |
Liabilities |
Accounts payable and accrued expenses | $ | 91.2 |
Current lease obligations - operating | 5.8 |
Liabilities held for sale | 14.4 |
Long-term lease obligations - operating | 16.2 |
Other long-term liabilities | 13.3 |
Deferred income taxes | 21.3 |
Total Liabilities | $ | 162.2 |
Net Assets and Liabilities | $ | 503.7 |
The following table summarizes the acquired identified intangible assets and weighted average useful lives:
Category |  | Weighted-average useful life |  | Fair Value
Software |  | 3 years |  | $ | 13.9 |
Customer lists and other |  | 10 years |  | 40.7 |
Acquired technology |  | 16 years |  | 14.9 |
Trademarks and trade names |  | 16 years |  | 18.5 |
Total intangible assets |  |  |  | $ | 88.0 |
The valuation analysis requires the use of complex management estimates and assumptions such as property appraisals, future cash flows, discount rates, royalty rates, long-term growth rates, and technology build costs. At this time, assets and liabilities are recorded based on preliminary assumptions, and the Corporation has not obtained all of the information necessary to finalize the determination of the fair values. The provisional assets and liabilities may be adjusted to reflect the finally determined amounts, and those adjustments may be material. The Corporation expects to finalize the purchase price allocation in the first half of 2024. See "Note 17. Held for Sale" for information on certain assets and liabilities acquired of Kimball International's Poppin business unit, which were determined to meet the held for sale accounting criteria. The Corporation's Condensed Consolidated Statements of Comprehensive Income for the period ended July 1, 2023, include Net sales of $56.0 million and Net loss of $21.3 million attributable to results of operations of Kimball International from the acquisition date thru July 1, 2023. These amounts include the results of Poppin, which was determined not to require discontinued operations presentation as this entity is not material to the consolidated results of the periods presented, and also since the planned divestiture does not represent a strategic shift in the Corporation's business. Pro Forma Results of Operations - Kimball International Acquisition: The following table provides pro forma results of operations for the three and six month periods ended July 1, 2023 and July 2, 2022, as if Kimball International had been acquired as of January 2, 2022, the first day of the Corporation's 2022 fiscal year. The pro forma results include certain purchase accounting adjustments such as: reclassifications to conform Kimball International's results to HNI's financial statement presentation; estimated depreciation and amortization expense on acquired tangible and intangible assets; estimated share based compensation expense for Kimball International awards converted to HNI awards; interest associated with additional borrowings to finance the acquisition; non-recurring transaction costs as outlined above; and the impact to income tax expense. This pro forma information is not necessarily reflective of what the Corporation's results would have been had the acquisition occurred on the date indicated, nor is it indicative of future results.
| Three Months Ended |  | Six Months Ended
| July 1, 2023 |  | July 2, 2022 |  | July 1, 2023 |  | July 2, 2022
Net sales | $ | 666.3 |  |  | $ | 793.3 |  |  | $ | 1,306.6 |  |  | $ | 1,541.7 |
Net income | $ | 11.2 |  |  | $ | 32.2 |  |  | $ | 15.4 |  |  | $ | 22.9 |
Acquisition - Dickerson In June 2022, the Corporation acquired Dickerson Hearth Products ("Dickerson"), an installing fireplace distributor in the Raleigh, North Carolina area, for approximately $8 million. The transaction, which aligns with the Corporation’s vertical integration strategy in the residential building products market, was structured as an asset acquisition and was consummated entirely in cash. The purchase price allocation includes $7.6 million of goodwill. The remaining assets and liabilities acquired were not material to the consolidated financial statements. The purchase accounting was finalized in the second quarter of 2023. The above acquisitions were accounted for using the acquisition method pursuant to ASC 805, with goodwill being recorded as a result of the purchase price exceeding the fair value of identifiable tangible and intangible assets and liabilities. Divestiture In July 2022, the Corporation closed on the sale of its China- and Hong Kong-based Lamex office furniture business ("Lamex"), which was a component of the workplace furnishings segment, to Kokuyo Co., Ltd, a leading manufacturer and provider of office furniture in Japan and across Asia. The transaction was valued at approximately $75 million plus standard post-closing working capital adjustments, net of cash acquired by the buyer. The Corporation recorded a pre-tax gain on sale in the second half of 2022 of $50.4 million that included transaction-related expenses of approximately $6 million as well as a cumulative foreign currency translation benefit of $3.3 million that was reclassified from accumulated other comprehensive income. The assets and liabilities of Lamex which were disposed of in conjunction with the sale are as follows:
| As of July 20, 2022
Assets: |
Cash and cash equivalents | $ | 5.5 |
Receivables | 20.1 |
Allowance for doubtful accounts | (0.5) |
Inventories, net | 6.9 |
Prepaid expenses and other current assets | 6.4 |
Buildings | 6.2 |
Machinery and equipment | 25.9 |
Accumulated depreciation | (17.0) |
Right-of-use - Operating Leases | 5.8 |
Goodwill and Other Intangible Assets, net | 10.9 |
Total Assets | $ | 70.4 |
Liabilities: |
Accounts payable and accrued expenses | $ | 36.1 |
Current lease obligations - Operating | 1.7 |
Long-Term Lease Obligations - Operating | 4.9 |
Deferred Income Taxes | 0.1 |
Total Liabilities | $ | 42.7 |

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- Definition The entire disclosure for business combinations, including leverage buyout transactions (as applicable), and divestitures. This may include a description of a business combination or divestiture (or series of individually immaterial business combinations or divestitures) completed during the period, including background, timing, and assets and liabilities recognized and reclassified or sold. This element does not include fixed asset sales and plant closings. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 805 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//805/tableOfContent Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 205 -SubTopic 20 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//205-20/tableOfContent + Details
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