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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
O F F I C E  F U R N I T U R E
Office furniture comprised 74% of consolidated net sales for 2003 and 
76% of consolidated net sales for 2002 and 2001. Net sales for office 
furniture increased 2% in 2003 and decreased 6% in 2002. The 
increase in 2003 is due to the increased week from the Company’s 
52/53-week fiscal year. The office furniture industry has experienced an 
unprecedented three-year decline in shipments. The Business and 
Institutional Furniture Manufacturer’s Association (BIFMA) reported 
2003 shipments down over 5% and 2002 shipments down 19%. The 
Company’s estimated share of the market based on reported office 
furniture shipments increased to 15.3% in 2003 compared to 14.4% 
in 2002 and 12.4% in 2001. This increase was achieved by provid-
ing strong brands, innovative products and services, and greater value 
to end-users.
Operating profit as a percent of sales was 10.0% in 2003, 
10.2% in 2002, and 8.2% in 2001. Included in 2003 were $15.2 million 
of net pretax charges related to the closure of two office furniture 
facilities, which impacted operating margins by 1.1 percentage points. 
Included in 2002 were $3.0 million of restructuring charges, which 
impacted operating margins by 0.2 percentage points, and 2001 
included $22.5 million of restructuring charges, which impacted oper-
ating margins by 1.7 percentage points. The increase in operating 
margins is due to increased gross profit from the benefits of restructur-
ing initiatives, rapid continuous improvement programs, and increased 
price realization, offset by additional investments in brand building and 
selling initiatives and increased freight expense.
H E A R T H  P R O D U C T S
Hearth products sales increased 9% in 2003 and decreased 3% in 2002, 
respectively. The growth in 2003 was attributable to strong housing 
starts, growth in market share in both the new construction and retail 
channels, strengthening alliances with key distributors and dealers, as 
well as focused new product introductions. The decrease in 2002 was 
mainly due to pruning out less profitable product lines.
Operating profit as a percent of sales in 2003 was 12.1% com-
pared to 10.8% and 9.2% in 2002 and 2001, respectively. The improved 
profitability in 2003 was the result of leveraging fixed costs over a 
higher sales volume and increased sales through company-owned dis-
tribution offset by increased freight costs and higher labor costs from 
increased use of overtime and temporary labor to meet record levels of 
demand. The increase in 2002 was mainly due to discontinuance of 
goodwill and indefinite-lived intangible amortization of approximately 
$7 million due to the adoption of SFAS 142.
Liquidity and Capital Resources
During 2003, cash flow from operations was $141.3 million, which 
along with funds from stock option exercises under employee stock 
plans, provided the funds necessary to meet working capital needs, 
invest in capital improvements, repay long-term debt, repurchase com-
mon stock, and pay increased dividends.
Cash, cash equivalents, and short-term investments totaled 
$204.2 million at the end of 2003 compared to $155.5 million at the 
end of 2002 and $78.8 million at the end of 2001. The Company used 
approximately $80 million of cash to acquire Paoli Inc. on January 5, 
2004. These remaining funds, coupled with cash from future opera -
tions and additional long-term debt, if needed, are expected to be 
adequate to finance operations, planned improvements, and internal 
growth. The Company is not aware of any known trends or demands, 
commitments, events, or uncertainties that are reasonably likely to 
result in its liquidity increasing or decreasing in any material way.
The Company places special emphasis on the management 
and reduction of its working capital with a particular focus on trade 
receivables and inventory levels. The success achieved in managing