34 35
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
sales volume, offset by increased investment in brand equity build-
ing and new product development of approximately $7 million, and 
increased incentive compensation of which approximately $4 million 
was for a debenture earn out related to a prior acquisition. 
Selling and administrative expenses include freight expense 
for shipments to customers, product development costs, and amortiza-
tion expense of intangible assets. The Selling and Administrative 
Expenses note included in the Notes to Consolidated Financial 
Statements provides further information regarding the comparative 
expense levels for these major expense items.
R E S T R U C T U R I N G  C H A R G E S
During 2003, the Company closed two office furniture facilities and 
consolidated production into other U.S. manufacturing locations to 
increase efficiencies, streamline processes, and reduce overhead costs. 
The two facilities were located in Hazleton, Pennsylvania, and Milan, 
Tennessee. In connection with the closures, the Company recorded 
$15.7 million of pre-tax charges or $0.17 per diluted share. These 
charges included $6.7 million of accelerated depreciation of machinery 
and equipment which was recorded in cost of sales, $3.4 million of sev-
erance, and $5.6 million of facility exit, production relocation, and other 
costs which were recorded as restructuring costs. A total of 316 members 
were terminated and received severance due to these shutdowns. The 
closures are substantially complete. The Company anticipates additional 
costs of $0.3 to $0.5 million during the first quarter of 2004 related to 
these closures.
The Hazleton, Pennsylvania, facility is an owned facility and 
has been reclassified to current assets as it is currently being held as 
available for sale. It is included in the “Prepaid expenses and other cur-
rent assets” in the January 3, 2004, condensed consolidated balance 
sheet at its carrying value of $2.1 million. The Milan, Tennessee, facility 
is a leased facility that is no longer being used in the production of 
goods. The restructuring expense for 2003 included $1.4 million of 
costs that will continue to be incurred under the lease contract reduced 
by estimated sublease rentals that could be reasonably obtained. 
During 2002, the Company recorded a pretax charge of 
approximately $5.4 million due to the shutdown of an office furniture 
facility in Jackson, Tennessee. A total of 125 members were terminated 
and received severance due to this shutdown. During the second quarter 
of 2003, a restructuring credit of approximately $0.6 million or $0.01 
per diluted share was taken back into income relating to this charge. 
This was due to the fact that the Company was able to exit a lease with 
the lessor at more favorable terms than previously estimated.
During the second quarter of 2001, the Company recorded a 
pretax charge of $24 million or $0.26 per diluted share for a restructur-
ing plan that involved consolidating physical facilities, discontinuing 
low-volume product lines, and reductions of workforce. Included in the 
charge was the closedown of three of its office furniture facilities located 
in Williamsport, Pennsylvania; Tupelo, Mississippi; and Santa Ana, 
California. Approximately 500 members were terminated and received 
severance due to the closedown of these facilities. During the second 
quarter of 2002, a restructuring credit of approximately $2.4 million 
was taken back into income relating to this charge. This was mainly due 
to the fact that the Company was able to exit a lease with a lessor at 
more favorable terms than originally estimated and the Company’s 
ability to minimize the number of members terminated as compared to 
the original plan.
O P E R A T I N G  I N C O M E
Operating income increased 5% in 2003 and 16% in 2002, respectively. 
The increase in 2003 is due to the additional week, strong sales volume