HON Industries announced sales of $456.9 million for the fourth quarter ending January 3, 2004, and net income of $27.6 million.

Consolidated net sales for the fourth quarter increased 2 percent to $456.9 million, compared to $447.9 million for the same quarter last year. Net income was $27.6 million compared to $28.2 million in the same period in 2002. Net income per share was $0.47 per diluted share compared to $0.48 per diluted share in fourth quarter 2002.

Net income and net income per share were unfavorably impacted in fourth quarter 2003 by approximately $3.0 million or $0.03 per diluted share due to a charge for debenture earn outs related to a previous hearth acquisition. During the fourth quarter, the Company also substantially completed the closure and consolidation of two office furniture facilities. In connection with the shutdowns, the Company recorded $2.4 million of pre-tax charges or $0.03 per diluted share during the fourth quarter. These charges included $0.2 million for severance and $2.2 million of facility exit, production relocation and other costs.

Net income was favorably impacted in the fourth quarter 2002 by approximately $1 million or $0.02 per diluted share due to the year-to-date effect of a reduction in the annual effective tax rate from 36 percent to 35 percent from benefits associated with various federal and state tax credits.

Gross margins for the fourth quarter increased to 37.2 percent from 35.1 percent for the same quarter last year. "This improvement is due to benefits from restructuring initiatives, our rapid continuous improvement program, new products, and increased price realization," stated Jack Michaels, HON INDUSTRIES Chairman and CEO.

Total selling and administrative expenses, including restructuring charges, for the quarter totaled $128.2 million compared to $115.2 million for the same quarter last year. Included in fourth quarter 2003 were restructuring charges of $2.4 million related to the closure and consolidation of two office furniture facilities, investments of approximately $5 million in brand building and selling initiatives, $3 million of charges at the corporate level for debenture earn outs related to a previous hearth acquisition and increased freight costs of $1 million due to rate increases and fuel surcharges.

For the full year, net sales increased to $1.76 billion, a 3.7 percent increase from sales of $1.69 billion in 2002. The increase was due in part to the extra week in 2003 due to the Company's 52/53-week fiscal year. Net income was $98.1 million or $1.68 per diluted share compared to $91.4 million or $1.55 per diluted share last year. Due to the appreciation in the Company's stock price, outstanding options now have a dilutive impact of $0.01 per share in 2003. Included in the 2003 results were net pre-tax restructuring charges and accelerated depreciation of $15.2 million or approximately $0.16 per diluted share due to the plant closures and consolidations. The 2002 results included net pre-tax restructuring charges of $3 million or $0.03 per diluted share.

Gross margins for the year increased to 36.4 percent compared with 35.4 percent in 2002. Included in 2003 gross margins was $6.7 million of accelerated depreciation related to the plant closures, which reduced gross margins 0.4 percentage points.

Selling and administrative expenses for the year, including restructuring charges, totaled $489.3 million compared to $457.2 million in 2002. Included in 2003 were net restructuring charges of $8.5 million related to plant closures and consolidation, investments of approximately $14 million in brand building and selling initiatives, and increased freight costs of $7 million due to rate increases, fuel surcharges, and increased volume. Included in 2002 were net restructuring charges of $3 million.

Cash flow from operations for the year decreased to $141.3 million from $202.4 million last year. This decrease is due to the timing of vendor and marketing program payments and funding of the retiree medical portion of the postretirement benefit obligation. Capital expenditures increased from $26.0 million in 2002 to $37.5 million in 2003 driven by funding for the purchase of a previously leased hearth products plant, information systems improvements, and tooling and equipment for new products. The Company repurchased 762,300 shares of its common stock at a cost of approximately $21.5 million during the year compared to $15.7 million in 2002. The Company's cash position remains strong and totaled $204.2 million, including short-term investments, at January 3, 2004.

For the quarter, sales for HON INDUSTRIES' office furniture segment decreased 1.3 percent to $326.9 million from $331.2 million for the same quarter last year. Fourth quarter 2002 sales were impacted by a January 2003 price increase resulting in early orders in fourth quarter 2002 and fourth quarter 2003 sales were impacted by a decreased number of working days due to the timing of the holidays as a result of the 52/53 week fiscal year. Operating profit increased to $32.3 million compared to $31.8 million for the same quarter last year. Operating profit as a percent of net sales increased to 9.9 percent versus 9.6 percent in 2002. Included in 2003 are $2.4 million of charges related to the closure and consolidation of two office furniture facilities reducing operating margins by 0.7 percentage points. The increase in operating margins is due to increased gross profit due to benefits received from restructuring initiatives and the rapid continuous improvement program, new products, and increased price realization offset by additional investments in brand building and selling initiatives and increased freight expense.

Net sales for the year increased 2.0 percent to $1.30 billion from $1.28 billion in 2002 due in part to the additional week in the third quarter. Operating profit as a percent of sales decreased to 10.0 percent compared to 10.2 percent in 2002. Included in 2003 are $15.2 million of charges related to the closure and consolidation of two office furniture facilities which impacted operating margins by 1.1 percentage points. Included in 2002 are $3.0 million of restructuring charges which impacted operating margins by 0.2 percentage points.

The Business and Institutional Furniture Manufacturer's Association (BIFMA) reported 2003 shipments down 4.3 percent. "We believe that by building our brands and providing innovative products and services we offer a compelling value to the end user. This has contributed to our performance and allowed us to gain market share," said Stan Askren, HON INDUSTRIES President. "In 2003, our share of BIFMA shipments increased to 15.3 percent from 14.4 percent in 2002."

2003 Recap
In spite of the fact that the Company faced a challenging economic environment and the continued effects of an unprecedented three-year decline in the office furniture industry in 2003, both core businesses performed well. In addition to outperforming its peers, the Company gained market share, improved margins and generated strong cash flows. The Company continued to invest in its businesses for the long-term and returned cash to shareholders through increased dividends and share repurchases. "We thank each of our member-owners for their dedication and hard-work during these challenging times that made it possible for us to achieve these results," said Mr. Michaels.

2004 Outlook
"As we look forward, we are encouraged by indications that the economy is recovering and we are cautiously optimistic that the office furniture industry will begin to rebound in the second half of 2004," said Mr. Askren. Global Insight, BIFMA's forecasting consultant, recently increased its estimate for the industry shipment growth from 2.4% to 5.6% in 2004 mostly weighted toward the second half of the year.

The hearth segment is impacted by the housing market, which may experience a slight decline from the record high levels, but is expected to remain at healthy levels. "We believe that our strong brand recognition, and new innovative product introductions in addition to strengthening distribution will allow us to continue to grow this segment," stated Mr. Askren.

On January 5, 2004, the company completed the acquisition of Paoli Inc. a leading provider of wood case goods and seating. "We are excited about the opportunity to continue to build on Paoli's strong position in the market and excellent selling capabilities while leveraging HON INDUSTRIES' lean enterprise practices to achieve greater cost efficiencies and improved customer performance," said Mr. Michaels. The Company's strategy is to grow its businesses through aggressive investment in building brands, enhancing its strong member-owner culture and remaining focused on its rapid continuous improvement programs to continue to build best total cost. "We plan to reinvest a large portion of our cost savings from our plant consolidations and rapid continuous improvement program to continue to build brands, product solutions, and selling models," stated Mr. Askren.

HON INDUSTRIES Inc. was recognized for the third consecutive year as one of the 400 Best Big Companies in America by Forbes Magazine in 2003, and as America's Most Admired Company in the furniture industry by Fortune Magazine in 2003, and as one of the Best Managed Companies in America by Forbes Magazine in 2004. HON INDUSTRIES' common stock is traded on the New York Stock Exchange under the symbol HNI.