(Mark One)

[x]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulations S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or other information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K   [  X  ]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).

Documents Incorporated By Reference.

Specified portions of the following documents are incorporated by reference:
     Proxy Statement of the registrant for annual meeting of shareholders to be held May 1, 2003 (PART III).

General

We are a leading floorcovering manufacturer and are currently ranked as the fifth largest carpet company in the United States. Our business is focused on meeting the special floorcovering needs of customers in a variety of markets, including high-end residential, high-end commercial, factory-built and modular housing, needlebond and tufted indoor/outdoor carpet, as well as recreational vehicle and exposition/trade show installations.

Our Recent History

Beginning with the acquisitions of Carriage Carpets, Bretlin, Inc. and Masland Carpets, Inc. in 1993, we embarked on a transition that included both the sale of all of our traditional textile products businesses and continuous expansion in the soft floorcovering industry. Subsequent acquisitions included Patrick Carpet Mills in 1994, Danube Carpet Mills, Inc. and certain needlebond assets of General Felt Industries, Inc. in 1997 and Ideal Fibers, Inc. in late 1998. In January 1999, we acquired the assets of Multitex Corporation of America, Inc. (Globaltex) and Graphic Technologies, Inc. In 2000, we acquired Fabrica International and an interest in the dyeing and finishing operations of Chroma Systems Partners. This process transformed us from a textile producer into a leading floorcovering manufacturer and supplier to customers in the specialty markets served by each of our business units.

From 1995 through 1999, the strategic realignment that drove our expansion into the soft floorcovering industry produced consistent growth for us, resulting in compounded annual growth rates of 13% in revenues and 18% in operating earnings.

This transformation of our company, however, did not come without its own significant challenges. During 2000 and 2001, our profitability was adversely impacted by a number of factors, including both operational inefficiencies in the assimilation of certain of our North Georgia carpet acquisitions and a significant decline in the factory-built and modular housing industry.

We responded to these challenges by consolidating our North Georgia manufacturing and distribution operations and reorganizing them under a streamlined management structure. We have succeeded in achieving significant sales growth in our high-end, higher margin businesses to reduce the impact on the Company of cyclical downturns in the factory-built and modular housing market. Since June of 2000 through the end of fiscal 2002, we have achieved significant reductions in our overall workforce (31%) and inventory levels (24%). Since its high point in August 2000, our indebtedness (including amounts advanced under our prior accounts receivable securitization program) was reduced by 44%. We believe these achievements have positioned us for more profitable growth in the periods ahead as we build on the competitive strengths that we have established in a variety of markets within the floorcovering industry.

Our Business Units

A recent independent study by Kurt Salmon Associates, a management consulting firm specializing in the consumer soft-goods industry, surveyed opinion within the domestic architectural and interior design communities. The results of this study support our belief that Masland and Fabrica are highly regarded, primary resources in the high-end and very high-end residential and high-end commercial markets, well known for innovative styling and color.

The carpet and rug industry has two primary markets, residential and commercial, with the residential market making up the largest portion of the industry's sales. A substantial portion of industry shipments is made in response to replacement demand. Residential products consist of broadloom carpets, rugs and bathmats in a broad range of styles, colors and textures. Commercial products consist primarily of broadloom carpets for a variety of institutional applications such as office buildings, restaurant chains, schools and other commercial establishments. The carpet industry also manufactures carpet for the automotive, recreational vehicle and small boat and other industries.

The Carpet and Rug Institute (the "CRI") is the national trade association representing carpet and rug manufacturers. Based on information compiled by the CRI, the domestic carpet and rug industry is composed of fewer than 100 manufacturers, with a significant majority of the industry's production concentrated in a limited number of manufacturers. The carpet industry has undergone substantial consolidation in recent years. We believe that these consolidations provide us with opportunities to capitalize on our competitive strengths in selected markets, as discussed in greater detail above, where styling, product differentiation and focused service can add value to selected customers.

Competition

The floorcovering industry is highly competitive. We compete with other carpet manufacturers and manufacturers of other types of floorcoverings. Although the industry recently has experienced consolidation, a large number of manufacturers remain. We believe that we are the largest manufacturer for the factory-built and modular housing market, a leading manufacturer of indoor/outdoor needlebond carpet and a design and market leader in the high-end residential and high-end commercial markets. However, a number of competitors manufacture these products and some of these competitors have greater financial resources than we do.

We believe the principal competitive factors in our primary floorcovering markets are quality, design, service, product performance and pricing. In the high-end residential and high-end commercial markets, carpet competes with various other types of floorcoverings. We compete with innovative styling, color, product design, quality and service with the Masland, Fabrica and Dixie Home brands. In the home center/mass merchant broadloom market, where we face several competitors, our Globaltex and Metro Mills brands compete on the basis of their product differentiation, service and speed of delivery. In the factory-built and modular housing and the recreational vehicle and exposition/trade show markets, Carriage competes with its ability to provide specialized floorcovering solutions and its own trucking fleet, which insures that the critical delivery schedules of its customers are met.

We believe we have competitive advantages in several areas. Our focus on diverse markets has allowed us to establish a strong presence in several specialized segments of the soft floorcovering industry and will make us less vulnerable to economic downturns affecting customers in any single market or industry. We have an attractive portfolio of brands that we believe are well known and highly regarded by customers in each of the markets in which we compete. In addition, we have established longstanding relationships with key suppliers in our industry and customers in most of our markets. Finally, our reputation for innovative design excellence and our experienced management team also enhances our competitive position.

Backlog

Sales order backlog is not material to an understanding of our business, due to relatively short lead times for order fulfillment for the markets served by the vast majority of our production.

Trademarks

Our floorcovering businesses own a variety of trademarks under which our products are marketed. Among such trademarks, the names "Masland" and "Fabrica" are of greatest importance to our business. We believe that we have taken adequate steps to protect our interest in all such trademarks. Trademark registrations in the United States are valid for a period of 10 years and are renewable for additional 10-year periods as long as the mark remains in actual use.

Customer and Product Concentration

We do not believe that we have any single class of products that accounts for more than 10 percent of our sales. However, our sales may be classified by significant markets, and such information for the past three years is summarized as follows:

Sales to The Home Depot were approximately 14% of our consolidated net sales in 2002 and 15% in 2001 and 2000.

Seasonality

Within the varied markets which we serve there are a number of seasonal production cycles, but our business, as a whole, is not considered to be significantly affected by seasonal factors. Our sales volume and working capital requirements have historically reached their highest levels in the second and third quarters of the year.

Environmental

Our operations are subject to federal, state and local laws and regulations relating to the generation, storage, handling, emission, transportation and discharge of materials into the environment. The costs of complying with environmental protection laws and regulations have not had a material adverse impact on our financial condition or results of operations in the past and are not expected to have a material adverse impact in the future. See "Certain Factors Affecting The Company's Performance" in Item 7 of this report.

Raw Materials

We obtain our raw materials from a number of domestic suppliers. Man-made fibers are purchased from major chemical companies. Where possible, we pass raw material price increases through to our customers; however, there can be no assurance that price increases can be passed through to customers and that increases in raw material prices will not have an adverse effect on profitability. See "Certain Factors Affecting The Company's Performance" in Item 7 of this report. Although our procurement of raw materials is subject to variations in price and availability, we believe that our sources of raw materials are adequate and that we are not materially dependent on any single supplier. See "Certain Factors Affecting The Company's Performance" in Item 7 of this report.

Utilities

We use electricity as our principal energy source, with oil or natural gas used in some facilities for finishing operations as well as heating. We have not experienced any material problem in obtaining adequate supplies of electricity, natural gas or oil. Energy shortages of extended duration could have an adverse effect on our operations, and price volatility could negatively impact future earnings. See "Certain Factors Affecting The Company's Performance" in Item 7 of this report.

Employment Level

As of December 28, 2002, we employ approximately 2,850 associates in our continuing operations.

Available Information

Our internet address is www.thedixiegroup.com. We make the following reports filed by us with the Securities and Exchange Commission available, free of charge, on our website under the heading "Investor Relations":

1. annual reports on Form 10-K;
2. quarterly reports on Form 10-Q;
3. current reports on Form 8-K; and
4. amendments to the foregoing reports.

The contents of our website are not a part of this report.

 ITEM 2.     PROPERTIES

The following table lists the Company's facilities according to location, type of operation and approximate total floor space as of March 7, 2003:

ITEM 3.    LEGAL PROCEEDINGS

There are no material pending legal proceedings to which the Company or its subsidiaries are a party or of which any of its property is the subject.

ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no matters submitted during the fourth quarter of 2002 to a vote of the shareholders.

Totals of the quarterly information for each of the years reflected above may not necessarily equal the annual totals. During the fourth quarter of 2002, the Company recorded a non-cash, after-tax charge of $3,705, or $0.32 per diluted share, on discontinued operations to fully reserve a note received in 1999 when the Company's textile cotton yarn and dyeing operations were sold.

The discussion of restrictions on payment of dividends is included in Note G and Note Q to the Consolidated Financial Statements included herein.

• Amounts reported for assets and liabilities in the Company's Consolidated Balance Sheets at the dates of the financial statements, and
• Amounts reported for revenues and expenses in the Company's Consolidated Statements of Operations during the reporting periods presented.

These estimates involve judgments with respect to, among other things, future economic factors that are difficult to predict and are often beyond management's control. As a result, actual amounts could differ from estimates made in preparing the financial statements.

The SEC issued disclosure guidance for accounting policies that management identifies as most critical. These critical accounting policies, as determined in accordance with the SEC guidance, are those that are both most important to the portrayal of a company's financial condition and results and require management's most difficult, subjective, and complex judgment, often as a result of the need to make estimates about inherently uncertain matters that may change in subsequent periods.

We believe the following accounting policies require us to use significant judgments and estimates in preparing our consolidated financial statements and represent our critical accounting policies as described above. Other significant accounting policies are discussed in Note A to our Consolidated Financial Statements.

• Revenue recognition. Revenues are recognized when legal title passes to the customer, which is at the time goods are shipped.
• Accounts receivable. We provide allowances for expected cash discounts, returns, claims and doubtful accounts based upon historical experience and periodic evaluation of the financial condition of our customers and the collectability of our accounts receivable. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to pay their debts, allowances recorded in our financial statements may not be adequate.
• Inventories are stated at the lower of cost or market. Cost is determined using the last-in, first-out method (LIFO), which matches current costs with current revenues. Inventories on hand are compared against anticipated future usage, which is based on historical usage, in order to evaluate obsolescence and excessive quantities. Additionally, rates of recoverability per unit of inventory related to inventory that is less than first quality, obsolete or excessive are estimated based on historical rates of recoverability. Actual results could differ from assumptions used to value our inventory.
• Goodwill is subject to annual impairment testing. The impairment tests are based on determining the fair value of our specified reporting units by estimating the reporting units' future cash flows, which requires management judgments and assumptions about future economic factors that are difficult to predict and often beyond management's control. These judgments and assumptions could materially change the value of the specified reporting units and, therefore, could materially impact our consolidated financial statements.
• We recognize deferred tax assets and liabilities for the future tax consequences related to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the future periods in which the temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities due to a change in the tax rates is recognized in earnings in the period that includes the effective date of the change. Also, taxing jurisdictions could retroactively disagree with our tax treatment of various items in a manner that could have tax effects on such items going forward. Accounting rules require these future effects to be evaluated using existing laws, rules and regulations, each of which is subject to change.

The following table sets forth certain elements of our operating results as a percentage of net sales for the periods indicated:

Results for the years ended December 28, 2002, December 29, 2001, and December 30, 2000 were affected by a number of unusual gains and losses associated with facility consolidations, plant shutdowns, workforce reductions, asset sales and asset write-downs. The following table summarizes the increase (decrease) in operating income, by cost category, as a result of these unusual items for each period presented:

Excluding the effect of these unusual items described above, the following table sets forth certain elements of our operating results as a percentage of net sales for the periods indicated:

Net Sales. Net sales for the year ended December 28, 2002 were $507.5 million, a decline of 5.1% from $534.6 million for the year ended December 29, 2001. Sales in our carpet business declined 2.7%. Carpet sales for the year ended December 28, 2002 were very soft in our home center/mass merchant markets principally due to a significant decline in sales to The Home Depot, and also soft in commercial markets. Sales improved in our high-end residential markets and factory-built and modular housing markets, compared with 2001 levels. Sales in our carpet yarn business declined 27.3%. The lower carpet yarn sales reflect our strategy to de-emphasize our external carpet yarn sales to supply raw materials to support our carpet operations. Our carpet manufacturing operations utilized approximately 78% of our carpet yarn production in the fiscal year 2002.

Cost of Sales. Despite the decline in sales, cost of sales decreased significantly as a percentage of sales in both our carpet and carpet yarn businesses. As a result, gross margin increased to 23.7% for the year ended December 28, 2002, compared to 21.3% for the year ended December 29, 2001. This improvement is principally attributable to cost reduction programs implemented during the year ending December 28, 2002 to reduce our workforce, and improve efficiencies and asset utilization. We also increased the portion of our total sales derived from higher margin products during fiscal 2002.

Selling and Administrative Expenses. Selling and administrative expenses decreased $4.3 million ($3.4 million, excluding severance costs incurred in 2001) in the twelve-month period ended December 28, 2002, compared with the same period in 2001. These costs as a percentage of sales were slightly higher in 2002 as a result of lower sales.

Other (Income) Expense - Net. Other (income) expense - net reflected a lower level of net gains from asset sales in the year ended December 28, 2002 compared with the year ended December 29, 2001. Excluding the non-recurring net gains of $0.7 million in fiscal 2002 and $3.8 million in fiscal 2001, other (income) expense - net improved $2.2 million. The improvement in fiscal 2002 is principally due to the elimination of goodwill amortization and the reduction in expenses associated with our prior accounts receivable securitization program.

Interest Expense. Interest expense decreased for the year ended December 28, 2002, compared with the same period in 2001 due to lower levels of debt.

Income Tax Provision (Benefit). Our effective income tax rate was 33.6% for the year ended December 28, 2002 and 51.9% for the year ended December 29, 2001. The change in the effective tax rates is principally due to the relationship of non-deductible goodwill amortization and other non-deductible costs to pre-tax earnings in each of these reporting periods. Additionally, the year 2002 included an income tax benefit of $0.4 million due to a contribution deduction, for income tax purposes, related to the sale of a carpet yarn facility that was closed.

Net Income. Income from continuing operations for fiscal 2002 was $8.3 million, or $0.70 per diluted share. Net income for fiscal 2002 was $4.6 million, or $0.39 per diluted share, and included a loss on disposal of discontinued operations of $3.7 million, or $0.31 per diluted share, to fully reserve a note received in 1999 when we sold our cotton yarn and dyeing textile operations. This compared with net income of $0.5 million, or $0.04 per diluted share, for fiscal 2001.

Net Sales. Net sales for the year ended December 29, 2001 were $534.6 million, down 5.9% from $568.1 million for the year ended December 30, 2000. Our 2001 fiscal year included 50 operating weeks versus 51 operating weeks in the 2000 fiscal year. The acquisition of Fabrica on July 1, 2000 increased fiscal year 2001 carpet sales by $26.4 million compared with fiscal year 2000. Excluding Fabrica's sales and adjusting for the number of operating weeks in each fiscal year, carpet sales declined 5.9%. The most significant decline in our fiscal 2001 carpet sales was in the factory-built and modular housing market, where sales declined over 20%. Our sales to the factory-built and modular housing industry began showing positive comparisons to the prior fiscal year in the fourth quarter of fiscal 2001.

During 2001, external carpet yarn sales declined 30.7%. The decline in our external carpet yarn sales reflects our strategy to de-emphasize our external carpet yarn sales to supply raw materials to support our carpet operations and softness in demand for carpet yarns throughout the carpet industry. Our carpet manufacturing operations, in fiscal 2001, utilized approximately 70% of our carpet yarn production.

Cost of Sales. Cost of sales as a percentage of net sales significantly declined in the fiscal year 2001 due to the effect on our cost structure of the consolidation of our North Georgia carpet operations, the acquisition of Fabrica on July 1, 2000 and the unusual costs incurred in the fiscal year 2000. As a result, gross margin increased to 21.3% for the fiscal year ended December 29, 2001, compared to 17.2% for the fiscal year ended December 30, 2000.

Selling and Administrative Expenses. Selling and administrative expenses decreased $0.2 million in the fiscal year 2001, compared with the fiscal year 2000. This decrease reflects an $8.1 million increase in cost due to a full year of Fabrica's results being included in the fiscal year 2001, which was more than offset by a $3.1 million reduction in cost in our other operations and a $5.2 million reduction in costs related to the restructuring and consolidation of operations in the fiscal year 2000. As a percentage of sales, these expenses increased due to the lower net sales and higher selling and administrative costs associated with Fabrica's high-end business.

Other (Income) Expense - Net. Other (income) expense - net improved to $0.9 million of income for the fiscal year 2001, compared with $0.2 million of income for the fiscal year 2000. This change is principally the result of larger net gains from the sale of assets in fiscal 2001.

Interest Expense. Interest expense increased in fiscal 2001 due to higher interest rates.

Income Tax Provision (Benefit). Our effective tax rate was 51.9% in fiscal 2001 and a benefit of 36.1% for fiscal 2000. The effective tax rates differ from the statutory tax rates principally due to the relationship of non-deductible goodwill amortization and other non-deductible expenses to pre-tax earnings in each fiscal year and due to net operating losses that could not be carried back to prior years for state income tax purposes in fiscal 2000.

Net Income. Net income for the fiscal year ending December 29, 2001 was $0.5 million, or $0.04 per diluted share, compared with a loss from continuing operations of $10.2 million, or $0.88 per diluted share, for the fiscal year ending December 30, 2000. The net loss for fiscal 2000 was $9.3 million, or $0.81 per diluted share, and included a gain on disposal of discontinued operations of $0.8 million, or $0.07 per diluted share.

The following table contains a summary of the Company's future minimum payments under contractual obligations as of December 28, 2002.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Standards No. 142 (SFAS 142) "Goodwill and Other Intangible Assets." SFAS 142 provides that goodwill and certain other intangible assets no longer will be amortized but be tested for impairment at least annually. SFAS 142 applies to all existing goodwill and intangible assets, beginning with fiscal years starting after December 15, 2001. During 2002, we tested our year-end 2001 goodwill for impairment and determined that there was no indication of impairment. Goodwill was also tested for impairment in the fourth quarter of 2002 and there was no indication of impairment. At December 28, 2002, our unamortized goodwill amounted to $100,492, representing 24.1% of total assets.

In April 2002, the FASB issued SFAS 145, which contains provisions that supercede previously issued accounting pronouncements. Among such provisions was new guidance related to income statement classification for debt extinguishment costs. Adoption is required for companies with fiscal years beginning after May 15, 2002, with early adoption encouraged. We adopted the provisions of SFAS 145 during the quarter ended June 29, 2002.

In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated With Exit or Disposal Activities". SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (Including Certain Costs Incurred in a Restructuring)". This Statement requires that a liability for a cost associated with an exit or disposal activity be recognized and measured initially at fair value only when the liability is incurred. The provisions of this Statement are effective for exit or disposal activities that are initiated after December 31, 2002, with early adoption encouraged. Adoption of this Statement is not expected to have a significant impact on the Company's financial statements.

During 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 148 (SFAS 148) "Accounting for Stock-Based Compensation - Transition and Disclosure". SFAS 148 amends SFAS 123, "Accounting for Stock-Based Compensation", to provide alternate methods of transition for an entity that voluntarily changes to the fair value based method of accounting for stock-based employee compensation. It also amends the disclosure provisions of that statement to require prominent disclosure about the effects on the reporting of net income of an entity's accounting policy decisions with respect to stock-based employee compensation. Finally, SFAS 148 amends APB Opinion No. 28, "Interim Financial Reporting", to require disclosure about these effects in interim financial information. The annual disclosure requirements of SFAS 148 are effective for fiscal years ending after December 15, 2002.

CERTAIN FACTORS AFFECTING THE COMPANY'S PERFORMANCE

In addition to the other information provided in this Report, the following risk factors should be considered when evaluating results of our operations, future prospects and an investment in shares of our Common Stock. Any of these factors could cause our actual financial results during any period to differ materially from our historical results, and could give rise to events that might have a material adverse effect on our business, financial condition and results of operations.

The floorcovering industry is cyclical and prolonged declines in residential or commercial construction activity, corporate remodeling and refurbishment, or in the factory-built housing industry, could have a material adverse effect on our business.

The U.S. floorcovering industry is cyclical and is influenced by a number of general economic factors. The floorcovering industry in general is dependent on residential and commercial construction activity, including new construction as well as remodeling. In addition, sales of certain of the Company's principal products are significantly influenced by sales of factory-built housing, recreational vehicles and yachts. New construction activity, as well as sales in the factory-built housing, recreational vehicle and yachting industries, all are cyclical in nature. To a somewhat lesser degree, this also is true with residential and commercial remodeling. A prolonged decline in any of these industries could have a material adverse effect on our business, financial condition and results of operations. The level of activity in these industries is significantly affected by numerous factors, all of which are beyond the our control, including:

• consumer confidence;
• housing demand;
• financing availability;
• national and local economic conditions;
• interest rates;
• employment levels;
• changes in disposable income;
• commercial rental vacancy rates; and
• federal and state income tax policies.

We believe we are the largest producer of carpeting for the factory-built housing industry. Approximately 20% of our total net sales being made to customers in the factory-built and modular housing industries. Production in the factory-built housing industry significantly declined during the years 2000 and 2001 and remained at depressed levels throughout 2002. There are indications that conditions in the industry could further deteriorate before they improve. The U.S. construction, factory-built housing and other industries have experienced significant downturns in the past, which have adversely affected suppliers to these industries, including suppliers of floorcoverings. These industries could experience similar downturns in the future, which could have a negative impact on our business, financial condition and results of operations.

We face intense competition in our industry, which could decrease demand for our products and could have a material adverse effect on our profitability.

The floorcovering industry is highly competitive. We face competition from a number of domestic manufacturers and independent distributors of floorcovering products and, in certain product areas, foreign manufacturers. There has been a significant consolidation within the floorcovering industry during recent years which has caused a number of our existing and potential competitors to be larger and have greater resources and access to capital than we do. Maintaining our competitive position may require us to make substantial investments in our product development efforts, manufacturing facilities, distribution network and sales and marketing activities, which may be limited by restrictions set forth in our credit facilities. Competitive pressures may also result in decreased demand for our products and in the loss of market share. In addition, we face, and will continue to face, pressure on sales prices of our products from competitors. As a result of any of these factors, there could be a material ad verse effect on our sales and profitability.

The loss of our business with The Home Depot, Inc. could have a material adverse effect on our sales and profitability.

Sales to The Home Depot, Inc. represented approximately 14% of the total dollar volume of our sales in the fiscal year 2002. We believe that our relationship with The Home Depot is good, but we cannot assure you that we will be able to maintain this relationship. Our reliance on The Home Depot may significantly influence our negotiations with them. We do not have long-term contracts with The Home Depot, and there can be no assurance that The Home Depot will continue to purchase our products in historical quantities or at all. The loss of, or a significant reduction in, this business could have a material adverse effect on our sales and profitability.

Raw material prices may increase.

The cost of raw materials has a significant impact on our profitability. In particular our business requires the purchase of large volumes of nylon fiber, filament, synthetic backing, polyester, polypropylene, wool fibers, latex and dyes. Increases in the cost of these raw materials could materially adversely affect our business, results of operations and financial condition if we are unable to pass these increases through to our customers. Prices of raw materials have increased in early 2003 and additional increases have been announced for many raw materials we use. We believe we will be successful in increasing prices to pass along raw material and other costs; however, it could take several months to recoup these increases in the marketplace, and there can be no assurance that we will successfully recover such raw material price increases.

Unanticipated termination or interruption of our arrangements with third-party suppliers of nylon yarn could have a material adverse effect on us.

Nylon yarn is the principal raw material used in our floorcovering products. The unanticipated termination or interruption of our supply arrangements could have a material adverse effect on us.

We may be responsible for environmental cleanup costs.

Various federal, state and local environmental laws govern the use of our facilities. These laws govern such matters as:

• Discharges to air and water;
• Handling and disposal of solid and hazardous substances and waste; and
• Remediation of contamination from releases of hazardous substances in our facilities and off-site disposal locations.

Our operations also are governed by laws relating to workplace safety and worker health, which, among other things, establish noise standards and regulate the use of hazardous materials and chemicals in the workplace. We have taken and will continue to take steps to comply with these laws. If we fail to comply with present or future environmental or safety regulations, we could be subject to future liabilities. However, we cannot insure that complying with these environmental or health and safety laws and requirements will not adversely affect our business, results of operations and financial condition. Future laws, ordinances or regulations could give rise to additional compliance or remediation costs, which could have a material adverse affect on our business, results of operations and financial condition.

Acts of Terrorism.

Our business could be materially adversely affected as a result of international conflicts or acts of terrorism. Terrorist acts or acts of war may cause damage or disruption to our facilities, employees, customers, suppliers, and distributors, which could have a material adverse affect on our business, results of operations or financial condition. Such conflicts also may cause damage or disruption to transportation and communication systems and to our ability to manage logistics in such an environment, including receipt of supplies and distribution of product.

FORWARD-LOOKING INFORMATION

This Report contains statements that may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. These statements include the use of terms or phrases that include such terms as "expects," "estimated," "projects," "believes," "anticipates," "intends," and similar terms and phrases. Such terms or phrases relate to, among other matters, our future financial performance, business prospects, growth, strategies or liquidity. The following important factors may affect our future results of and could cause those results to differ materially from our historical results. These risks include, in addition to those detailed above under the heading "Certain Factors Affecting the Company's Performance", the cost and availability of capital, raw material and transportation costs related to petroleum price levels, the cost and availability of energy supplies, the loss of a significant custom er or group of customers, materially adverse changes in economic conditions generally in carpet, rug and floorcovering markets we serve and other risks detailed from time to time in our filings with the Securities and Exchange Commission.

ITEM 7A.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is party to interest rate swap agreements through March 11, 2005. Under the interest rate swap agreements, the Company pays a fixed rate of interest times a notional principal amount, and receives in return an amount equal to a specified variable rate of interest times the same notional principal. The interest rate swap agreements' fair value is reflected on the balance sheet and related gains and losses are deferred in "Accumulated other comprehensive loss". As of December 28, 2002, the Company had an interest rate swap agreement outstanding for $70,000. Under the terms of the swap agreement, the Company paid a fixed rate of interest of 6.75% through March 10, 2003 and will pay 3.24% thereafter. Any interest rate differential realized is recognized as an adjustment to interest expense over the life of the swap agreement.

Unrealized losses in "Accumulated other comprehensive loss" at December 29, 2001 were $2,457, net of taxes. During 2002, losses in "Accumulated other comprehensive loss" decreased by amounts that were reclassified into earnings in the amount of $2,003, net of taxes, and increased by $1,035, net of taxes, related to a new interest rate swap agreement. This activity resulted in net unrealized losses in "Accumulated other comprehensive loss" of $1,489, net of taxes, at December 28, 2002. During the next 12 months, the Company expects this cost to impact earnings approximately $871, net of taxes. Based on the Company's $70,000 interest rate swap agreement, a 10% fluctuation in the variable rate would result in an annual after-tax economic impact of approximately $61.

ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The supplementary financial information required by ITEM 302 of Regulation S-K is included in PART II, ITEM 5 of this report and the Financial Statements are included in a separate section of this report.

ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

The Core Leadership Team Stock Subscription Plan is the Company's only non-shareholder approved equity compensation plan. The Plan allows certain non-executive management to subscribe at the then-current market price for shares of Common Stock up to that number of shares having a fair market value equal to one third of the participant's base salary. Each participant's subscription is due generally in 2004, subject to the Company's right to extend the subscription payment date for any participant.

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The section entitled "Certain Transactions Between the Company and Directors and Officers" in the Proxy Statement of the registrant for the annual meeting of shareholders to be held May 1, 2003 is incorporated herein by reference.

ITEM 14.    CONTROLS AND PROCEDURES

Within ninety (90) days prior to the date of this report, an evaluation was performed under the supervision and with the participation of the Company's management, including the President and Chief Executive Officer ("CEO"), and the Chief Financial Officer ("CFO"), of the effectiveness of the design and operation of the Company's disclosure controls and procedures. Based on that evaluation, the Company's management, including the CEO and CFO, concluded that the Company's disclosure controls and procedures were effective in bringing to their attention material information relating to the Company required to be included in the Company's periodic SEC filings. There have been no significant changes in the Company's internal controls or in other factors that could significantly affect internal controls subsequent to the most recent evaluation conducted by the CEO and CFO.

(a)  (1) and (2) - The response to this portion of Item 15 is submitted as a separate section of this report.

     (3) Listing of Exhibits:

        (i)  Exhibits Incorporated by Reference:

SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

I, Daniel K. Frierson, Chief Executive Officer of The Dixie Group, Inc. certify that:

I, Gary A. Harmon, Chief Financial Officer of The Dixie Group, Inc. certify that:

Board of Directors
The Dixie Group, Inc.


We have audited the accompanying consolidated balance sheets of The Dixie Group, Inc. as of December 28, 2002 and December 29, 2001, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 28, 2002. Our audits also include the financial statement schedule listed in the Index at Item 15(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of The Dixie Group, Inc. at December 28, 2002 and December 29, 2001, and the consolidated results of their operations and cash flows for each of the three years in the period ended December 28, 2002, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

As discussed in Note A to the consolidated financial statements, the Company changed its method of accounting for goodwill and other intangible assets in 2002, and as further discussed in Note A, the Company changed its method of accounting for derivative instruments and hedging activities in 2001.

Chattanooga, Tennessee
February 20, 2003, except for note Q,
as to which the date is March 14, 2003