## Management’s Discussion and Analysis of Results of Operations and Financial Condition 

(dollars in thousands) - continued - 

The profit performance measure of the Company’s business segments. is internal EBIT (earnings before interest, taxes and non-segment items). For purposes of the internal EBIT comparisons, the costs of the Company's accounts receivable securitization program are treated as expenses of the Company's business segments. For a reconciliation of internal EBIT to consolidated income (loss) from continu- ing operations before income taxes, see Note M to the Company's financial statements. 

Internal EBIT for 2001 was $15,605 for the carpet manufacturing segment and a loss of $1,098 for the floorcovering base materials segment. The comparable 2000 internal EBIT was a $1,244 loss for the carpet manufacturing segment and a $2,490 loss for the floorcovering base materials segment. 

The years 2001 and 2000 included unusual losses associated with facility consolidations, plant shut- downs, asset sales, severance and asset write-downs. Excluding the unusual items, internal EBIT for 2001 was $16,960, or 3.5% of sales, for carpet manufacturing and a $552 loss for floorcovering base materials. The comparable 2000 internal EBIT was $11,641, or 2.4% of sales, for carpet manufac- turing and $292, or .4% of sales, for floorcovering base materials. The improved profitability for carpet manufacturing in 2001 is primarily attributable to implementation of the Company’s consolidation and cost reduction strategy and the acquisition of Fabrica in July 2000. This improvement occurred despite the 4% decline in sales. This decrease in profitability for floorcovering base materials in 2001 was primarily the result of the 31% decline in sales volume. 

Selling and administrative expenses decreased $155 in 2001, despite the effect of the mid-year 2000 acquisition of Fabrica, which increased these costs compared to the prior year. Excluding the effect of the Fabrica acquisition, these expenses decreased approximately $8,000 in 2001 compared with 2000. Selling, general and administrative expenses increased by 1.0% of sales, principally as the result of lower sales volume and higher selling and administrative costs associated with Fabrica’s high-end operations. 

Other (income) expense – net included gains of $4,330 in 2001 and $2,661 in 2000 from the sale of non- critical assets. 

The Company’s effective tax rate was 51.9% in 2001 and 36.1% for 2000. The effective tax rates differ from the approximate 39% statutory tax rates principally due to the effect of non-deductible goodwill amortization and other expenses in 2001, and due to net operating losses that could not be carried back to prior years for state income tax purposes in 2000. 

2000 Compared to 1999 – Sales decreased 5% to $568,081 in 2000, compared to 1999. Sales improved $19,157, or 4.1%, in the Company’s carpet manufacturing segment and declined $48,948, or 39.7%, in the Company’s floorcovering base materials operations. The improved carpet manufac- turing sales reflect the acquisition of Fabrica International on July 1, 2000, which added $26,038 in revenue, as well as growth in both the Company’s high-end and home center markets. These additional sales more than offset the effect of significant weakness in the factory-built housing market, which began in 1999 and continued throughout the year 2000. 

The decrease in floorcovering base material sales to external customers in 2000 resulted from a greater utilization of the Company’s yarn production by its carpet manufacturing operations and changes in a number of the Company’s carpet yarn sales programs to a conversion basis in which the customer supplies fiber for yarn processing. During 2000, approximately 70% of the Company's carpet yarn production was utilized by the Company’s carpet manufacturing operations. 

Internal EBIT for 2000 was a $1,244 loss for carpet manufacturing and a $2,490 loss for floorcover- ing base materials. Excluding costs in 2000 related to facilities consolidations and asset write-downs, 

