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 invests these funds in high grade money market instru-
ments. Prior to 2003 the plan was not funded. The discount rates at 
fiscal year-end 2003, 2002, and 2001 were 6.0%, 6.5%, and 6.5%, 
respectively. The Company payment for these benefits has reached the 
maximum amounts per the plan; therefore, healthcare trend rates have 
no impact on company cost. 
In December 2003, the United States enacted into law the 
Medicare Prescription Drug, Improvement and Modernization Act of 
2003 (the “Act”). The Act established a prescription drug benefit under 
Medicare, known as “Medicare Part D,” and a federal subsidy to spon-
sors of retiree health care benefit plans that provide a benefit that is at 
least actuarially equivalent to Medicare Part D.
In January 2004, the FASB issued FASB Staff Position 
No. 106-1, “Accounting and Disclosure Requirements Related to the 
Medicare Prescription Drug, Improvement and Modernization Act of 
2003” (“FSP 106-1”). The Company has elected to defer accounting for 
the economic effects of the Act, as permitted by FSP 106-1. Therefore, 
in accordance with FSP 106-1, the accumulated postretirement benefit 
obligation or net period postretirement benefit cost included in the 
consolidated financial statements and disclosed above do not reflect the 
effects of the Act. Specific authoritative guidance on accounting for the 
federal subsidy is pending. The final issued guidance could require a 
change to previously reported information.
Leases
The Company leases certain warehouses. Commitments for minimum 
rentals under noncancelable leases at the end of 2003 are as follows:
     Capitalized  Operating
(In thousands)  Leases  Leases
2004      $  523 $ 13,012 
2005        515  10,742
2006        284  8,424
2007       215  5,430
2008       211  4,080
Thereafter     590  9,062
Total minimum lease payments   $ 2,338  $ 50,750
Less: amount representing interest   487 
Present value of net minimum lease payments, 
 including current maturities of $415  $ 1,851
Property, plant, and equipment at year-end include the following 
amounts for capitalized leases:
(In thousands) 2003 2002 2001
Buildings  $ 3,299 $ 3,299 $ 3,299
Machinery and equipment  196  196  15,805
Office equipment  761  –  –
      4,256  3,495  19,104
Less: allowances for depreciation  2,879   2,514  17,052
     $ 1,377 $ 981 $ 2,052
Rent expense for the years 2003, 2002, and 2001 amounted to approx-
imately $13,592,000, $13,683,000, and $13,387,000, respectively. 
Contingent rent expense under both capitalized and operating leases 
(generally based on mileage of transportation equipment) amounted to 
$313,000, $787,000, and $869,000 for the years 2003, 2002, and 
2001, respectively.
Guarantees, Commitments, and Contingencies
During the second quarter ended June 28, 2003, the Company entered 
into a one-year financial agreement for the benefit of one of its distribu-
tion chain partners. The maximum financial exposure assumed by the 
Company as a result of this arrangement totals $3 million of which over 
75% is secured by collateral. In accordance with the provisions of FIN 
45, the Company has recorded the fair value of this guarantee, which is 
estimated to be less than $0.1 million.
The Company utilizes letters of credit in the amount of 
$24 million to back certain financing instruments, insurance policies, 
and payment obligations. The letters of credit reflect fair value as a 
condition of their underlying purpose and are subject to fees competi-
tively determined.
The Company is contingently liable for future minimum pay-
ments totaling $9.7 million under a transportation service contract. 
The transportation agreement is for a three-year period and is auto -
matically renewable for periods of one year unless either party gives 
sixty days’ written notice of its intent to terminate at the end of the