Dixie Restates Financial Results

Chattanooga, TN, July 13, 2007--The Dixie Group today reported that the company had received comments from the Securities and Exchange Commission regarding its Annual Report on Form 10-K for the fiscal year ended December 30, 2006. As a result of those comments, the company amended and restated its Annual Report on Form 10-K for the year ended December 30, 2006, and its Quarterly Reports on Form 10-Q for the quarterly periods ended July 1, 2006, and September 30, 2006.

The amendments did not affect the Company's net income, net income per share, total cash flow, balance sheets, or stockholders' equity, for any periods. The Company filed amended reports for the affected periods today to correct the following classification errors:

-- The classification of certain pension expenses as costs of discontinued operations; and

-- The classification of certain income tax payments as investing activities.

The amendments reclassified certain pension expenses from discontinued operations to continuing operations in the Company's Consolidated Statements of Operations and Consolidated Statements of Cash Flows for the fiscal year ended December 30, 2006 and December 31, 2005, and the Company's Consolidated Condensed Statements of Operations and Consolidated Condensed Statements of Cash Flows for the three and six months ended July 1, 2006, and the nine months ended September 30, 2006.

The Company had classified pension expenses related to employees of its textile operations based on its interpretation that APB 30 requires that such expenses be accounted for as costs of discontinued operations. The pension expenses included in discontinued operations related to former employees of the Company's textile operations, which were discontinued in 1998 and sold in 1999 and prior years. The Company's original classification of such pension costs and their presentation in its consolidated financial statements was reviewed with Ernst & Young, LLP, the Company's independent registered public accounting firm, which concurred with the Company's presentation. Based on a review of its presentation, the Company reclassified these expenses as cost of continuing operations in accordance with the requirements of SFAS 88, as clarified by the answer to Question 37 in the FASB Special Report, "A Guide to Implementation of Statement 88 on Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits: Questions and Answers."

In determining its original classification for the income tax payments, as cash flows from investing activities, the Company considered the fact that these income tax payments directly related to the sale of a business and discussed the presentation with its independent registered public accounting firm, which concurred with that presentation. The amendment reclassified these income tax payments as cash flows from operating activities in accordance with paragraph 23(c) of SFAS 95.

The Company revised its presentation of comprehensive income to prominently display the details of comprehensive income in its Consolidated Statements of Stockholders' Equity and Comprehensive Income and also made other conforming changes to the Company's Annual Report on Form 10-K and Quarterly Reports on Form 10-Q.

The Company also revised its discussion of disclosure controls and procedures and its report on internal control over financial reporting in its Report on Form 10-K for the fiscal year ended December 30, 2006, to discuss the above-referenced restatement and how such restatement affected its CEO's and CFO's conclusion regarding its disclosure controls and procedures and internal control over financial reporting. Solely because of the restatement, current interpretations of PCAOB Auditing Standard No. 2 require that the Company conclude, and it has concluded, that its internal control over financial reporting was not effective as of December 30, 2006. The Company has remediated the control deficiency represented by its classification of the pension costs and income tax payments by the restatement, and the Company's CEO and CFO have concluded that, as of the date hereof, its internal control over financial reporting is effective.