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 N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S Nature of Operations Summary of Significant Accounting Policies PRINCIPLES OF CONSOLIDATION AND FISCAL YEAR-END CASH, CASH EQUIVALENTS, AND INVESTMENTS RECEIVABLES HON INDUSTRIES Inc., with its subsidiaries (the “Company”), is a  provider of office furniture and hearth products. Both industries are  reportable segments; however, the Company’s office furniture business  is its principal line of business. Refer to the Operating Segment  Information note for further information. Office furniture products are  sold through a national system of dealers, wholesalers, mass merchan- disers, warehouse clubs, retail superstores, end-user customers, and to  federal and state governments. Dealer, wholesaler, and retail super- stores are the major channels based on sales. Hearth products include  electric, wood-, pellet-, and gas-burning factory-built fireplaces, fire- place inserts, stoves, and gas logs. These products are sold through a  national system of dealers, wholesalers, large regional contractors, and  Company-owned retail outlets. The Company’s products are marketed  predominantly in the United States and Canada. The Company exports  select products to a limited number of markets outside North America,  principally Latin America and the Caribbean, through its export subsid- iary; however, based on sales, these activities are not significant. The consolidated financial statements include the accounts and trans- actions of the Company and its subsidiaries. Intercompany accounts  and transactions have been eliminated in consolidation. The Company follows a 52/53-week fiscal year which ends  on the Saturday nearest December 31. Fiscal year 2003 ended on  January 3, 2004; 2002 ended on December 28, 2002; and 2001 ended  on December 29, 2001. The financial statements for fiscal year 2003  are based on a 53-week period; fiscal years 2002 and 2001 are on a  52-week basis. Cash and cash equivalents generally consist of cash, money market  accounts, and debt securities. These securities have original maturity  dates not exceeding three months from date of purchase. The Company  has short-term investments with maturities of less than one year  and also has investments with maturities greater than one year that  are included in Other Assets on the consolidated balance sheet.  Management classifies investments in marketable securities at the time  of purchase and reevaluates such classification at each balance sheet  date. Equity securities are classified as available-for-sale and are stated  at current market value with unrealized gains and losses included as a  separate component of equity, net of any related tax effect. Debt securi- ties are classified as held-to-maturity and are stated at amortized cost.  The specific identification method is used to determine realized gains  and losses on the trade date. Short-term investments include municipal  bonds, money market preferred stock, and U.S. treasury notes. Long- term investments include U.S. government securities, municipal bonds,  certificates of deposit, and asset- and mortgage-backed securities. At January 3, 2004, and December 28, 2002, cash, cash  equivalents and investments consisted of the following (cost approxi- mates market value): The 2001 cash and cash equivalents generally consisted of cash and  commercial paper. Accounts receivable are presented net of an allowance for doubtful  accounts of $10,859,000, $9,570,000, and $16,576,000 for 2003,  2002, and 2001, respectively. The allowance for receivables is devel- oped based on several factors including overall customer credit quality,  historical write-off experience and specific account analyses that  Cash and  Short-  Long-  cash term term (In thousands) equivalents  investments  investments YEAR-END 2003 Held-to-maturity securities  Municipal bonds  $ 31,000  $  –  $ 2,396 U.S. government securities  – – – Certificates of deposit  – – 400 Available-for-sale securities  U.S. treasury notes  – 4,259 – Money market preferred stock  – – – Asset- and mortgage-backed securities  – 60,949  12,835 Cash and money market accounts 107,982 – – Total $138,982  $ 65,208  $ 15,631 YEAR-END 2002 Held-to-maturity securities  Municipal bonds  $ 82,300  $  1,900  $ 5,396 U.S. government securities  –  –  11,995 Certificates of deposit  –  –  400 Available-for-sale securities  U.S. treasury notes  –  3,478  – Money market preferred stock  –  11,000  – Asset- and mortgage-backed securities  –  –  7,098 Cash and money market accounts 56,865  –  – Total $ 139,165  $  16,378  $ 24,889 43