According to BIFMA, the U.S. office furniture market had $8.5 billion in shipments in 2003. The industry is divided into five primary categories: office systems, seating, files and storage, desks and casegoods, and tables.

Industry demand is largely driven by macroeconomic factors, including corporate profitability, business confidence and service-sector employment. Together, these factors impact commercial construction, business expansion, absorption of vacant office space and, ultimately, demand for furniture products.

In addition to these macroeconomic factors, the demand for office furniture is influenced by workplace trends, including changes in work processes such as increases in the use of technology and the number of knowledge workers. These workplace trends affect the style, features and functionality of new products.

The U.S. office furniture industry experienced positive growth in 23 of the 25 years preceding 2001. Moreover, in the four years from 1997 to 2000, the industry grew at an above-average compounded annual rate of 7.3%, driven by strong corporate profitability, business expansion and investment in infrastructure during the Y2K and “dot-com” booms. However, in 2001 through 2003, the economy suffered significant reductions in corporate profitability, business confidence, service-sector employment and commercial real estate occupancy rates. The economic recession, exacerbated by the tragic events of September 11, 2001, created economic hardships and uncertainty for a number of corporations, which cutback or eliminated investments in office space projects. As a result, furniture industry experienced a sales decline of more than 35% during that period. This steep decline had a particularly pronounced effect on office systems due to the deferral of infrastructure investments by the clients and a saturation of the market by “just new” used office systems created by the increase in vacated office space. As a consequence, industry-wide shipments in the office systems category declined by 48.7%, more than any other category in the three years from 2001 to 2003.

The Company offers products across five categories: office systems, which are typically modular and moveable workspaces with functionally integrated panels, work surfaces, desk components, pedestal and other storage units, power and data systems and lighting; specialty products, including high image side chairs, sofas, desks and tables for the office and home, textiles, accessories and leathers and related products; seating; files and storage; and desks, casegoods and tables.

The Company’s office systems furniture reflects the breadth of these segments with a variety of planning models and a corresponding depth of product features. The Company’s office systems furniture can define or adapt to virtually any office environment from collaborative spaces for team interaction to private executive offices.

Systems furniture consists principally of functionally integrated panels, work surfaces, desk components, pedestal and other storage units, power and data systems and lighting. These components are combined to create flexible, space-efficient work environments that can be moved, re-configured and re-used. The Company’s clients, often working with architects and designers, have the opportunity to select from the Company’s palette of laminates, paints, veneers and textiles to design workspaces appropriate to their organizations’ personality. The Company’s systems furniture product development strategy aims to insure that the Company’s product line enhancements can be added to clients’ existing installations, maximizing the value of the Company’s clients’ investments in the Company’s systems products.

Gross profit for the six months ended June 30, 2004 was $109.2 million, a decrease of 5.0% from gross profit of $115.0 million for the same period in 2003.

Operating income for the six months ended June 30, 2004 was $29.5 million, a decrease of 31.4% from gross profit of $43.0 million for the same period.

Other income for the six months ended June 30, 2004 includes a foreign exchange translation gain of $1.9 million and a gain of $0.8 million related to the Company’s interest rate collar agreement, which matured in February 2004.