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 claims. The Company currently has a claim for approximately $7.6 mil- lion pending against it arising out of the bankruptcy of a customer filed  in 2001. The Company was named a critical vendor by the bankruptcy  court and, accordingly, was paid in full for all outstanding receivables.  The claim alleges that the Company received preferential payments  from the customer during the ninety days before the customer filed for  bankruptcy protection. The claim was brought in February 2003. The  Company has recorded an accrual with respect to this contingency, in  an amount substantially less than the full amount of the claim, which  represents the best estimate within the range of likely exposure and  intends to vigorously defend against the claim. Given the nature of this  claim, it is possible that the ultimate outcome could differ from the  recorded amount. It is our opinion, after consultation with legal coun- sel, that additional liabilities, if any, resulting from these matters, are  not expected to have a material adverse effect on our financial condi- tion, although such matters could have a material effect on our  quarterly or annual operating results and cash flows when resolved in  a future period. The Company is encouraged by indications that the economy is recov- ering and is cautiously optimistic that the office furniture industry will  begin to rebound in the second half of 2004. Global Insight, BIFMA’s  forecasting consultant, increased its estimate for the industry shipment  growth from 2.4% to 5.6% in 2004, with first quarter flat and improving  as the year progresses.  The hearth segment is impacted by the housing market,  which may experience a slight decline from record high levels, but is  expected to remain at healthy levels. Management believes its strong  brand recognition and new innovative product introductions in addition  to strengthening distribution will allow it to grow its hearth segment. On January 5, 2004, the Company completed the acquisition  of Paoli Inc., a leading provider of wood case goods and seating. The  Company intends to continue to build on Paoli’s strong position in the  market and excellent selling capabilities while leveraging its lean enter- prise practices to achieve greater cost efficiencies and improved  customer performance. The Company’s strategy is to grow its business through  aggressive investment in building its brands, enhancing its strong  member-owner culture, and remaining focused on its rapid continu- ous improvement program to continue to build best total cost. The  Company plans to reinvest a large portion of its cost savings from plant  consolidations and its rapid continuous improvement program to con- tinue to build brands, product solutions, and selling models.  Because of the following factors, as well as other variables  affecting the Company’s operating results, past financial performance  may not be a reliable indicator of future performance, and historical  trends should not be used to anticipate results or trends in future  periods: Looking Ahead 38 •  competition within the office furniture and fireplace industries,  including competition from imported products and competitive  pricing;  •  increases in the cost of raw materials, including steel, which is the  Company’s largest raw material category; •  increases in the cost of health care benefits provided by the  Company; •  reduced demand for the Company’s storage products caused by  changes in office technology, including the change from paper record  storage to electronic record storage;  •  the effects of economic conditions on demand for office furniture,  customer insolvencies and related bad debts, and claims against the  Company that it received preferential payments;  •  changes in demand and order patterns from the Company’s customers,  particularly its top ten customers, which represented approximately  36% of net sales in 2003;  •  issues associated with acquisitions and integration of acquisitions;  •  the ability of the Company to realize cost savings and productivity  improvements from its cost containment and business simplification  initiatives; •  the ability of the Company to realize financial benefits from invest- ments in new products;  •  the ability of the Company’s distributors and dealers to successfully  market and sell the Company’s products; and •  the availability and cost of capital to finance planned growth.