15  Business: The Company's business consists of manufacturing, selling and distributing finished carpet, rugs and carpet yarns. Principles of Consolidation: The consolidated financial statements include the accounts of The Dixie Group, Inc. and its wholly-owned subsidiaries (the "Company"), except for the Company’s special purpose accounts receivable financing subsidiary (see Note D). Significant intercompany accounts and transactions have been eliminated in consolidation. The Company’s 50% interest in Chroma Systems Partners is accounted for on the equity method. Use of Estimates in the Preparation of Financial Statements: The preparation of financial state- ments in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompa- nying notes. Actual results could differ from those estimates. Discontinued Operations: The financial statements separately report discontinued operations and the results of continuing operations (see Note C). Disclosures included herein pertain to the Company’s continuing operations unless noted otherwise.  Cash and Cash Equivalents:  Cash and highly liquid investments with original maturities of three months or less when purchased are reported as cash equivalents. Credit and Market Risk: The Company sells floorcovering products and, prior to July 1999, sold textile/apparel products to a wide variety of manufacturers and retailers located primarily throughout the United States. The Company performs ongoing credit evaluations of its customers and generally does not require collateral. An allowance for doubtful accounts is maintained at a level which management believes is sufficient to cover potential credit losses, including potential losses on receiv- ables sold (see Note D). The Company invests its excess cash in short-term investments and has not experienced any losses on those investments. Inventories: Inventories are stated at the lower of cost or market. The last-in, first-out (LIFO) cost method was used to determine cost for substantially all inventories at December 29, 2001 and December 30, 2000. Inventories resulting from a business combination in 1999 comprised 21% of total inventories at December 25, 1999. Such inventories are valued using the first-in first-out (FIFO) method in 1999 and using the LIFO method in 2000 and 2001 (see Note N). Inventories are summarized as follows: Property, Plant and Equipment:  Property, plant and equipment is stated at the lower of cost or impaired value. Provision for depreciation and amortization of property, plant and equipment has been computed for financial reporting purposes using the straight-line method over the estimated useful lives of the related assets, ranging from 10 to 40 years for buildings and improvements, and 3 2001 2000  Raw materials $ 24,018 $ 33,541 Work-in-process 15,855 16,559 Finished goods 50,767 62,908 Supplies, repair parts and other 2,259 1,936 Total inventories $ 92,899 $ 114,944 THE DIXIE GROUP  / 2001 ANNUAL REPORT (dollars in thousands, except per share data) NOTE A – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Notes to Consolidated Financial Statements