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. 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. 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. Operating income increased 5% in 2003 and 16% in 2002, respectively.  The increase in 2003 is due to the additional week, strong sales volume  in the hearth segment, and improved gross margins in both segments,  offset by increased restructuring charges due to additional plant clo- sures and consolidations, increased investment in brand building and  selling initiatives, and increased freight costs. The increase in 2002  was due to a $24 million restructuring charge in 2001 compared to a  $3 million restructuring charge in 2002 and goodwill and indefinite- lived intangibles amortization of $9 million incurred in 2001 that is  not included in 2002 due to a change in accounting standards. 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.  Net income increased 7% in 2003 and 23% in 2002, respectively. Net  income in 2003 was favorably impacted by increased interest income due  to increased investments and decreased interest expense due to reduc- tion in debt. Net income in 2002 was favorably impacted by a decrease in  interest expense and a decrease in the effective tax rate to 35% in 2002  from 36% in 2001 mainly due to tax benefits associated with various  federal and state tax credits. The Company anticipates that its tax rate  will increase to 36% in 2004 due to increased state taxes and a reduced  benefit from federal and state tax credits. Net income per diluted share  increased by 8% to $1.68 in 2003 and by 23% to $1.55 in 2002, respec- tively. Due to the appreciation in the Company’s stock price,  outstanding options had a dilutive impact of $0.01 per share in 2003. 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.  35 NET INCOME OPERATING INCOME RESTRUCTURING CHARGES