52 53
H O N  I N D U S T R I E S  I n c .  a n d  S U B S I D I A R I E S
The Company has contingent liabilities, which have arisen in 
the course of its business, including pending litigation, preferential 
payment claims in customer bankruptcies, environmental remediation, 
taxes, and other claims. The Company currently has a claim for approx-
imately $7.6 million pending against it, arising out of the bankruptcy of 
a customer filed in 2001. The Company was named a critical vendor by 
the bankruptcy court and, accordingly, was paid in full for all out-
standing receivables. The claim alleges that the Company received 
preferential payments from the customer during the ninety days before 
the customer filed for bankruptcy protection. The claim was brought in 
February 2003. The Company has recorded an accrual with respect to 
this contingency, in an amount substantially less than the full amount 
of the claim, which represents the best estimate within the range of 
likely exposure, and intends to vigorously defend against the claim. 
Given the nature of this claim, it is possible that the ultimate outcome 
could differ from the recorded amount.
Significant Customer
One office furniture customer accounted for approximately 13% of con-
solidated net sales in 2003 and 14% in 2002 and 2001.
Operating Segment Information
In accordance with SFAS No. 131, “Disclosures about Segments of an 
Enterprise and Related Information,” management views the Company 
as being in two operating segments: office furniture and hearth prod -
ucts, with the former being the principal segment. The office furniture 
segment manufactures and markets a broad line of metal and wood 
commercial and home office furniture, which includes storage prod -
ucts, desks, credenzas, chairs, tables, bookcases, freestanding office 
partitions and panel systems, and other related products. The hearth 
products segment manufactures and markets a broad line of manufac-
tured gas-, pellet-, and wood-burning fireplaces and stoves, fireplace 
inserts, gas logs, and chimney systems, principally for the home.
The Company’s hearth products segment is somewhat sea -
sonal, with the third (July-September) and fourth (October-December) 
fiscal quarters historically having higher sales than the prior quarters. 
In fiscal 2003, 56% of consolidated net sales of hearth products were 
generated in the third and fourth quarters.
For purposes of segment reporting, intercompany sales 
transfers between segments are not material, and operating profit is 
income before income taxes exclusive of certain unallocated corporate 
expenses. These unallocated corporate expenses include the net costs of 
the Company’s corporate operations, interest income, and interest 
expense. Management views interest income and expense as corporate 
financing costs and not as an operating segment cost. In addition, man-
agement applies an effective income tax rate to its consolidated income 
before income taxes so income taxes are not reported or viewed inter-
nally on a segment basis. Identifiable assets by segment are those assets 
applicable to the respective industry segments. Corporate assets consist 
principally of cash and cash equivalents, short-term investments, and 
corporate office real estate and related equipment.
No geographic information for revenues from external cus -
tomers or for long-lived assets is disclosed, since the Company’s primary 
market and capital investments are concentrated in the United States.
Reportable segment data reconciled to the consolidated finan-
cial statements for the years ended 2003, 2002, and 2001 is as follows:
(In thousands) 2003 2002 2001
Net sales:
 Office furniture $ 1,304,054 $ 1,279,059 $ 1,366,312
 Hearth products  451,674  413,563   426,126
     $ 1,755,728 $ 1,692,622 $ 1,792,438
Operating profit:
 Office furniture(a) $ 130,080 $ 130,014 $ 112,405
 Hearth products(a)  54,433   44,852   39,282
Total operating profit   184,513   174,866   151,687