DXYN 10-Q
Dixie Group Inc (DXYN)
10-Q
2026-08-06
For: 2026-06-27
View Original
Added on
August 06, 2026
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form | ||||||||
(Mark One)
For the quarterly period ended June 27, 2026
OR
For the transition period from ___________ to __________
Commission File Number: 0-2585
(Exact name of Registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||||||||
( | ||||||||||||||
| (Address of principal executive offices) | (zip code) | (Registrant's telephone number, including area code) | ||||||||||||
| Not Applicable | ||||||||||||||
| (Former name, former address and former fiscal year, if changed since last report) | ||||||||||||||
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||
| OTCQB | ||||||||||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. R Yes o No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). R Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | o | Accelerated filer | o | ||||||||||||||
| o | Smaller reporting company | ||||||||||||||||
| Emerging growth company | |||||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) ☐ Yes R No
The number of shares outstanding of each of the issuer's classes of Common Stock as of the latest practicable date.
| Class | Outstanding as of July 31, 2026 | |||||||
| Common Stock, $3 Par Value | ||||||||
| Class B Common Stock, $3 Par Value | ||||||||
| Class C Common Stock, $3 Par Value | ||||||||
THE DIXIE GROUP, INC.
Table of Contents
| PART I. FINANCIAL INFORMATION | Page | |||||||||||||
| Item 1. | Financial Statements | |||||||||||||
| Item 2. | ||||||||||||||
| Item 3. | ||||||||||||||
| Item 4. | ||||||||||||||
| PART II. OTHER INFORMATION | ||||||||||||||
| Item 1. | ||||||||||||||
| Item 1A. | ||||||||||||||
| Item 2. | ||||||||||||||
| Item 3. | ||||||||||||||
| Item 4. | ||||||||||||||
| Item 5. | ||||||||||||||
| Item 6. | ||||||||||||||
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
THE DIXIE GROUP, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(amounts in thousands, except share data)
| June 27, 2026 | December 27, 2025 | ||||||||||
| ASSETS | (Unaudited) | ||||||||||
| CURRENT ASSETS | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
Receivables, net of allowances for expected credit losses of $ | |||||||||||
| Receivables - tariff refunds | |||||||||||
| Inventories, net | |||||||||||
| Prepaid and other current assets | |||||||||||
| TOTAL CURRENT ASSETS | |||||||||||
| PROPERTY, PLANT AND EQUIPMENT, NET | |||||||||||
| OPERATING LEASE RIGHT-OF-USE ASSETS | |||||||||||
| RESTRICTED CASH | |||||||||||
| OTHER ASSETS | |||||||||||
| LONG-TERM ASSETS OF DISCONTINUED OPERATIONS | |||||||||||
| TOTAL ASSETS | $ | $ | |||||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||||||
| CURRENT LIABILITIES | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Accrued expenses | |||||||||||
| Current portion of long-term debt | |||||||||||
| Current portion of operating lease liabilities | |||||||||||
| Current liabilities of discontinued operations | |||||||||||
| TOTAL CURRENT LIABILITIES | |||||||||||
| LONG-TERM DEBT, NET | |||||||||||
| OPERATING LEASE LIABILITIES | |||||||||||
| OTHER LONG-TERM LIABILITIES | |||||||||||
| LONG-TERM LIABILITIES OF DISCONTINUED OPERATIONS | |||||||||||
| TOTAL LIABILITIES | |||||||||||
| COMMITMENTS AND CONTINGENCIES (See Note 17) | |||||||||||
| STOCKHOLDERS' EQUITY | |||||||||||
Common Stock ($ | |||||||||||
Class B Common Stock ($ | |||||||||||
| Additional paid-in capital | |||||||||||
| Accumulated deficit | ( | ( | |||||||||
| Accumulated other comprehensive income | |||||||||||
| TOTAL STOCKHOLDERS' EQUITY | |||||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | $ | |||||||||
See accompanying notes to the consolidated condensed financial statements.
THE DIXIE GROUP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
(amounts in thousands, except per share data)
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| June 27, 2026 | June 28, 2025 | June 27, 2026 | June 28, 2025 | ||||||||||||||||||||
| NET SALES | $ | $ | $ | $ | |||||||||||||||||||
| Cost of sales | |||||||||||||||||||||||
| GROSS PROFIT | |||||||||||||||||||||||
| Selling and administrative expenses | |||||||||||||||||||||||
| Other operating income, net | ( | ( | ( | ( | |||||||||||||||||||
| Facility consolidation and severance expenses, net | |||||||||||||||||||||||
| OPERATING INCOME | |||||||||||||||||||||||
| Interest expense | |||||||||||||||||||||||
| Other (income) expense, net | ( | ( | ( | ||||||||||||||||||||
| INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE TAXES | ( | ||||||||||||||||||||||
| Income tax provision | |||||||||||||||||||||||
| INCOME (LOSS) FROM CONTINUING OPERATIONS | ( | ||||||||||||||||||||||
| Loss from discontinued operations, net of tax | ( | ( | ( | ( | |||||||||||||||||||
| NET INCOME (LOSS) | $ | $ | $ | $ | ( | ||||||||||||||||||
| BASIC EARNINGS (LOSS) PER SHARE: | |||||||||||||||||||||||
| Continuing operations | $ | $ | $ | $ | ( | ||||||||||||||||||
| Discontinued operations | ( | ( | ( | ( | |||||||||||||||||||
| Net income (loss) | $ | $ | $ | $ | ( | ||||||||||||||||||
| BASIC SHARES OUTSTANDING | |||||||||||||||||||||||
| DILUTED EARNINGS (LOSS) PER SHARE: | |||||||||||||||||||||||
| Continuing operations | $ | $ | $ | $ | ( | ||||||||||||||||||
| Discontinued operations | ( | ( | ( | ( | |||||||||||||||||||
| Net income (loss) | $ | $ | $ | $ | ( | ||||||||||||||||||
| DILUTED SHARES OUTSTANDING | |||||||||||||||||||||||
| DIVIDENDS PER SHARE: | |||||||||||||||||||||||
| Common Stock | $ | $ | $ | $ | |||||||||||||||||||
| Class B Common Stock | |||||||||||||||||||||||
See accompanying notes to the consolidated condensed financial statements.
THE DIXIE GROUP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
(amounts in thousands)
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| June 27, 2026 | June 28, 2025 | June 27, 2026 | June 28, 2025 | ||||||||||||||||||||
| NET INCOME (LOSS) | $ | $ | $ | $ | ( | ||||||||||||||||||
| OTHER COMPREHENSIVE LOSS, NET OF TAX: | |||||||||||||||||||||||
| Reclassification of net actuarial gain into earnings from postretirement benefit plans (1) | ( | ( | ( | ( | |||||||||||||||||||
| Income taxes | |||||||||||||||||||||||
| Reclassification of net actuarial gain into earnings from postretirement benefit plans, net | ( | ( | ( | ( | |||||||||||||||||||
| TOTAL OTHER COMPREHENSIVE LOSS, NET OF TAX | ( | ( | ( | ( | |||||||||||||||||||
| COMPREHENSIVE INCOME (LOSS) | $ | $ | $ | $ | ( | ||||||||||||||||||
(1) Amounts for postretirement plans reclassified from accumulated other comprehensive income to net income (loss) were included in selling and administrative expenses in the Company's consolidated condensed statements of operations.
See accompanying notes to the consolidated condensed financial statements.
THE DIXIE GROUP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(amounts in thousands)
| Six Months Ended | |||||||||||
| June 27, 2026 | June 28, 2025 | ||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | |||||||||||
| Income (loss) from continuing operations | $ | $ | ( | ||||||||
| Loss from discontinued operations | ( | ( | |||||||||
| Net income (loss) | ( | ||||||||||
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | |||||||||||
| Depreciation and amortization | |||||||||||
| Net gain on property, plant and equipment disposals | ( | ||||||||||
| Stock-based compensation expense | |||||||||||
| Expense for expected credit losses | |||||||||||
| Loss on extinguishment of debt | |||||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Receivables | ( | ( | |||||||||
| Receivables - tariff refunds | ( | ||||||||||
| Inventories | ( | ( | |||||||||
| Prepaid and other current assets | ( | ( | |||||||||
| Accounts payable and accrued expenses | |||||||||||
| Other operating assets and liabilities | ( | ||||||||||
| NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES | ( | ||||||||||
| NET CASH USED IN OPERATING ACTIVITIES - DISCONTINUED OPERATIONS | ( | ( | |||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | |||||||||||
| Net proceeds from sales of property, plant and equipment | |||||||||||
| Purchase of property, plant and equipment | ( | ( | |||||||||
| NET CASH USED IN INVESTING ACTIVITIES | ( | ( | |||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | |||||||||||
| Net payments on previous revolving credit facility | ( | ||||||||||
| Borrowings on current revolving credit facility | |||||||||||
| Payments on current revolving credit facility | ( | ( | |||||||||
| Payments on notes payable - buildings and other term loans | ( | ( | |||||||||
| Payments on notes payable - other | ( | ( | |||||||||
| Payments on finance leases | ( | ( | |||||||||
| Change in outstanding checks in excess of cash | ( | ( | |||||||||
| Repurchases of Common Stock | ( | ( | |||||||||
| Payments for debt issuance costs | ( | ||||||||||
| NET CASH PROVIDED BY FINANCING ACTIVITIES | |||||||||||
| INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH | ( | ||||||||||
| CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF PERIOD | |||||||||||
| CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD | $ | $ | |||||||||
| RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH: | |||||||||||
| Cash and cash equivalents | |||||||||||
| Restricted cash | |||||||||||
| Total cash, cash equivalents and restricted cash | $ | $ | |||||||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | |||||||||||
| Interest paid | $ | $ | |||||||||
| Income taxes paid, net of tax refunds | |||||||||||
| Right-of-use assets obtained in exchange for new operating lease liabilities | |||||||||||
| Equipment purchased under finance lease | |||||||||||
See accompanying notes to the consolidated condensed financial statements.
THE DIXIE GROUP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
(amounts in thousands, except share data)
| Common Stock | Class B Common Stock | Additional Paid-In Capital | Accumulated Deficit | Accumulated Other Comprehensive Income | Total Stockholders' Equity | ||||||||||||||||||||||||||||||
| Balance at December 27, 2025 | $ | $ | $ | $ | ( | $ | $ | ||||||||||||||||||||||||||||
Restricted stock grants issued - | ( | — | — | ||||||||||||||||||||||||||||||||
Restricted stock grants forfeited - | ( | — | — | — | |||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | |||||||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Balance at March 28, 2026 | $ | $ | $ | $ | ( | $ | $ | ||||||||||||||||||||||||||||
Repurchases of Common Stock - | ( | — | — | — | ( | ||||||||||||||||||||||||||||||
Class B converted into Common Stock - | ( | — | — | — | |||||||||||||||||||||||||||||||
Restricted stock grants issued - | — | ( | — | — | |||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | |||||||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Balance at June 27, 2026 | $ | $ | $ | $ | ( | $ | $ | ||||||||||||||||||||||||||||
| Common Stock | Class B Common Stock | Additional Paid-In Capital | Accumulated Deficit | Accumulated Other Comprehensive Income | Total Stockholders' Equity | ||||||||||||||||||||||||||||||
| Balance at December 28, 2024 | $ | $ | $ | $ | ( | $ | $ | ||||||||||||||||||||||||||||
Restricted stock grants forfeited - | ( | — | — | — | |||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | |||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Balance at March 29, 2025 | $ | $ | $ | $ | ( | $ | $ | ||||||||||||||||||||||||||||
Repurchases of Common Stock - | ( | — | — | — | ( | ||||||||||||||||||||||||||||||
Class B converted into Common Stock - | ( | — | — | — | |||||||||||||||||||||||||||||||
Restricted stock grants issued - | — | ( | — | — | |||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | |||||||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Balance at June 28, 2025 | $ | $ | $ | $ | ( | $ | $ | ||||||||||||||||||||||||||||
See accompanying notes to the consolidated condensed financial statements.
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(amounts in thousands, except per share data)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP") for interim financial statements which do not include all the information and notes required by such accounting principles for annual financial statements. In the opinion of management, all adjustments (generally consisting of normal recurring accruals) considered necessary for a fair presentation have been included in the accompanying financial statements. The accompanying financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in The Dixie Group, Inc.'s and its wholly-owned subsidiaries (the "Company") 2025 Annual Report on Form 10-K filed with the Securities and Exchange Commission for the fiscal year ended December 27, 2025. Significant intercompany accounts and transactions have been eliminated in consolidation. The balance sheet as of December 27, 2025 has been derived from the audited financial statements at that date but does not include all of the information and notes required by U.S. GAAP for complete financial statements. Operating results for the three and six month periods ended June 27, 2026 is not necessarily indicative of the results that may be expected for the entire 2026 year.
The consolidated condensed financial statements separately report discontinued operations and the results of continuing operations. Unless specifically noted otherwise, disclosures reflect the results of continuing operations only. The results of discontinued operations are presented in Note 20.
Restricted Cash
Restricted cash represents cash serving as collateral for letters of credit issued for the Company's self-insured workers' compensation program, a lease on one of its facilities and a utility deposit.
Going Concern
The Company's consolidated condensed financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the ordinary course of business. Under U.S. GAAP, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued. If substantial doubt is raised, management must also assess whether its plans to mitigate those conditions or events will alleviate that substantial doubt.
In performing this assessment, the Company makes significant judgments about its expected liquidity, including projected cash flows from operations, capital expenditure requirements, availability and terms of external financing, compliance with financial covenants in its debt agreements, and other factors that could affect its ability to meet obligations as they become due. These estimates involve assumptions regarding, among other things, future sales volumes and pricing, gross margin performance, timing of collections from customers, payment terms with suppliers, cost‑reduction initiatives, and access to capital markets or other funding sources.
As of June 27, 2026, the Company has $55,679 of outstanding indebtedness under its senior credit facility that is classified as a current liability, unrestricted cash and cash equivalents of $2,095 and unused availability under its senior credit facility of $5,398 , when reduced for the $6,000 minimum excess availability requirement and continued compliance with applicable financial covenants. The Company is required to maintain certain financial ratios and other covenants, which, if not met, could result in an event of default and an acceleration of its outstanding indebtedness. The Company's going concern and liquidity assessment therefore requires significant judgment about its ability to meet these covenants over the next twelve months, including the effectiveness and timing of management’s plans. The Company received waivers or amendments for certain financial covenant violations prior to quarter-end. Compliance with future financial covenants will be dependent on operating performance.
At the time of issuance of these financial statements, conditions and events, including recent operating losses, reduced availability under its credit facility, macroeconomic pressures, past covenant violations cured by waivers and uncertainty of future covenant violations, raised substantial doubt about its ability to continue as a going concern within twelve months after the date the financial statements are issued. Management has developed plans that are intended to improve liquidity and address these conditions, including profit improvement initiatives and seeking additional debt financing. Management is also evaluating opportunities to sale an existing building, subject to customary closing conditions and lender payoff requirements, which would be expected to generate net cash proceeds that would improve liquidity; however, because of the uncertainty of closing on such a sale, management has not assumed the full benefit in concluding whether substantial doubt is alleviated. The Company's evaluation of these plans, and its assumptions regarding their execution and timing, requires significant judgment and is subject to inherent uncertainty, therefore management has concluded that these plans do not alleviate the substantial doubt about the Company’s ability to continue as a going concern. The Company’s consolidated condensed financial statements do not include adjustments, if any, that may arise from the outcome of this uncertainty.
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(amounts in thousands, except per share data)
If the Company's actual operating results, cash flows, or access to capital differ materially from its estimates, or if the Company is unable to execute its plans as currently contemplated, the Company may be unable to meet its obligations as they become due or maintain compliance with its debt covenants. In that event, the Company could be required to seek additional financing on less favorable terms, further reduce or delay capital expenditures and other spending, dispose of assets, or pursue other strategic alternatives. Changes in the Company's judgments or assumptions regarding going concern and liquidity could have a material effect on its consolidated condensed financial statements and related disclosures.
Variable Interest Entities
The Company determines at the inception of each arrangement whether an entity in which it has made an investment or in which the Company has other variable interests is considered a variable interest entity (“VIE”). The Company consolidates VIEs when it is the primary beneficiary. The Company is the primary beneficiary of a VIE when it has the power to direct activities that most significantly affect the economic performance of the VIE and has the obligation to absorb the majority of their losses or benefits. If the Company is not the primary beneficiary in a VIE, the Company accounts for the investment or other variable interests in a VIE in accordance with applicable U.S. GAAP. At each reporting period, the Company assesses whether any changes in our interest or relationship with the entity affect our determination of whether the entity is a VIE and, if so, whether the Company is the primary beneficiary.
The Company entered into an arrangement to pool extrusion machinery whereby the Company and an independent entity, "the Entity", separately purchased machinery to concurrently produce fiber to reduce manufacturing costs. The Entity purchases the raw materials, employs the staff and owns and manages the facility and the production of the fiber. The Company receives all fiber produced on its own machines and pays the Entity an amount equal to the cost of raw materials and an agreed upon allocation of direct and indirect production and overhead costs of the fiber operations. The Company accounts for all amounts paid to the Entity as the cost of raw material inventory.
The Company determined that the Entity is a VIE and the Company's arrangement represents a variable interest in the Entity. The Company has determined that the governance and operating structures of this VIE do not allow it to direct the activities that would significantly affect the Entity's economic performance. In addition, the Company does not have an obligation to absorb losses of the Entity. Therefore, the Company is not the primary beneficiary, and the results of operations and financial position of this VIE are not included in the Company's consolidated condensed financial statements. The Company believes its maximum exposure of this unconsolidated VIE is the current carrying value of the equipment at the Entity's location. The carrying value and maximum exposure of this unconsolidated VIE was $6,240 as of June 27, 2026, and is included within property, plant and equipment, net on the Company’s consolidated condensed balance sheets.
NOTE 2 - RECENT ACCOUNTING PRONOUNCEMENTS
Accounting Standards Yet to Be Adopted
In November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, which requires disclosures about certain categories of expenses (including purchases of inventory, employee compensation, depreciation and intangible asset amortization) that are included in the expense captions presented on the face of the income statement, as well as disclosures about selling expenses. This new guidance is intended to provide investors with more detailed expense information in order to better understand an entity's cost structure and forecast future cash flows. This ASU is effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods within annual reporting periods beginning after December 15, 2027 on a prospective basis. Early adoption and retrospective application is permitted. The Company is currently evaluating the impact of the new guidance on its financial statements and related disclosures.
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(amounts in thousands, except per share data) (Continued)
NOTE 3 - REVENUE
Revenue Recognition Policy
The Company derives its revenues primarily from the sale of floorcovering products and processing services. Revenues are recognized when control of these products or services is transferred to its customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those products and services. Sales, value add, and other taxes the Company collects concurrent with revenue-producing activities are excluded from revenue. Shipping and handling fees charged to customers are reported within revenue. When the Company transfers control of its products to the customer prior to the related shipping and handling activities, the Company has adopted a policy of accounting for shipping and handling activities as a fulfillment cost rather than a performance obligation. Incidental items that are immaterial in the context of the contract are recognized as expense. While the Company pays sales commissions to certain personnel, the Company has not capitalized these costs as costs to obtain a contract as the Company has elected to expense costs as incurred when the expected amortization period is one year or less. The Company does not have any significant financing components as payment is received at or shortly after the point of sale. The Company determined revenue recognition through the following steps:
•Identification of the contract with a customer
•Identification of the performance obligations in the contract
•Determination of the transaction price
•Allocation of the transaction price to the performance obligations in the contract
•Recognition of revenue when, or as, the performance obligation is satisfied
Disaggregation of Revenue from Contracts with Customers
The following table disaggregates the Company’s revenue by end-user markets for the three and six month periods ended June 27, 2026 and June 28, 2025:
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| June 27, 2026 | June 28, 2025 | June 27, 2026 | June 28, 2025 | ||||||||||||||||||||
| Residential floorcovering products | $ | $ | $ | $ | |||||||||||||||||||
| Other services | |||||||||||||||||||||||
| Total net sales | $ | $ | $ | $ | |||||||||||||||||||
Residential floorcovering products. Residential floorcovering products include broadloom carpet, rugs, luxury vinyl flooring and engineered hardwood. These products are sold into the designer, retailer, mass merchant and builder markets.
Other services. Other services include carpet yarn processing and carpet dyeing services.
Contract Balances
Other than receivables that represent an unconditional right to consideration, which are presented separately (See Note 4), the Company does not recognize any contract assets which give conditional rights to receive consideration, as the Company does not incur costs to obtain customer contracts that are recoverable. The Company may receive cash payments from customers in advance of the Company’s performance for limited production run orders resulting in contract liabilities. These contract liabilities are classified in accrued expenses in the consolidated condensed balance sheets based on the timing of when the Company expects to recognize revenue, which is typically less than a year. The net decrease or increase in the contract liabilities is primarily driven by order activity for limited runs requiring deposits offset by the recognition of revenue and the application of deposit on the receivables ledger for such activity during the period. The activity in the advanced deposits for the three and six month periods ended June 27, 2026 and June 28, 2025 is as follows:
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(amounts in thousands, except per share data) (Continued)
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| June 27, 2026 | June 28, 2025 | June 27, 2026 | June 28, 2025 | ||||||||||||||||||||
| Beginning contract liability | $ | $ | $ | $ | |||||||||||||||||||
| Revenue recognized from contract liabilities included in the beginning balance | ( | ( | ( | ( | |||||||||||||||||||
| Increases due to cash received, net of amounts recognized in revenue during the period | |||||||||||||||||||||||
| Ending contract liability | $ | $ | $ | $ | |||||||||||||||||||
Performance Obligations
For performance obligations related to residential floorcovering products, control transfers at a point in time. To indicate the transfer of control, the Company must have a present right to payment, legal title must have passed to the customer and the customer must have the significant risks and rewards of ownership. The Company’s principal terms of sale are FOB Shipping Point and FOB Destination and the Company transfers control and records revenue for product sales either upon shipment or delivery to the customer, respectively. Revenue is allocated to each performance obligation based on its relative stand-alone selling prices. Stand-alone selling prices are based on observable prices at which the Company separately sells the products or services.
Cost to Fulfill a Contract
The Company recognizes assets for the costs to fulfill a contract with a customer if the costs are specifically identifiable, generate or enhance resources used to satisfy future performance obligations, and are expected to be recovered in accordance with ASC 340-40 Other Assets and Deferred Costs: Contracts with Customers. The assets related to costs to fulfill contracts with customers are capitalized and amortized over the period the related performance obligations are satisfied which is generally a three year period. The Company changed the terms and conditions on its invoices so that it now recovers the cost of marketing display structures. These assets are capitalized, with the amount recorded in other assets on the accompanying consolidated condensed balance sheets. Capitalized costs to fulfill contracts were $652 and $0 as of June 27, 2026 and December 27, 2025, respectively. Straight-line amortization expense related to these capitalized costs was $10 and $0 during the three months ended June 27, 2026 and June 28, 2025, respectively and $12 and $0 in the six months ended June 27, 2026 and June 28, 2025, respectively. This expense is included in selling and administrative expenses in the Company's consolidated condensed statements of operations.
Variable Consideration
The nature of the Company’s business gives rise to variable consideration, including rebates, allowances, and returns that generally decrease the transaction price, which reduces revenue. These variable amounts are generally credited to the customer, based on achieving certain levels of sales activity, product returns, or price concessions.
Variable consideration is estimated at the most likely amount using a portfolio approach that is expected to be earned. Estimated amounts are included in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. Estimates of variable consideration are estimated based upon historical experience and known trends.
Warranties
The Company generally provides product warranties related to manufacturing defects and specific performance standards for its products for a period of up to two years . The Company accrues for estimated future assurance warranty costs in the period in which the sale is recorded. The costs are included in cost of sales in the consolidated condensed statements of operations and the product warranty reserve is included in accrued expenses in the consolidated condensed balance sheets. The Company calculates its accrual using the portfolio approach based upon historical experience and known trends. The Company does not provide an additional service-type warranty (See Note 8).
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(amounts in thousands, except per share data) (Continued)
NOTE 4 - RECEIVABLES, NET
The Company grants credit to its customers with defined payment terms, performs ongoing evaluations of the credit worthiness of its customers and generally does not require collateral. Accounts receivable are carried at their outstanding principal amounts, less an anticipated amount for discounts and an allowance for expected credit losses, which management believes is sufficient to cover potential credit losses based on historical experience and periodic evaluation of the financial condition of the Company's customers. The Company's allowance for expected credit losses is computed using a number of factors including past credit loss experience and the aging of amounts due from our customers, in addition to other customer-specific factors. The Company also considers recent trends and developments related to the current macroeconomic environment such as unemployment rates, interest rates and inflation in determining its ending allowance for credit losses for accounts receivable. If the financial condition of the Company's customers were to deteriorate, resulting in a change in their ability to make payments, or if additional changes in macroeconomic factors occur, additional allowances may be required. Receivables are summarized as follows:
| June 27, 2026 | December 27, 2025 | ||||||||||
| Customers, trade | $ | $ | |||||||||
| Other receivables | |||||||||||
| Gross receivables | |||||||||||
| Less: allowance for expected credit losses | |||||||||||
| Receivables, net | $ | $ | |||||||||
The activity related to the allowance for expected credit losses is as follows:
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| June 27, 2026 | June 28, 2025 | June 27, 2026 | June 28, 2025 | ||||||||||||||||||||
| Beginning balance | $ | $ | $ | $ | |||||||||||||||||||
| Expense for expected credit losses | |||||||||||||||||||||||
| Less amounts written-off, net of recoveries | |||||||||||||||||||||||
| Ending balance | $ | $ | $ | $ | |||||||||||||||||||
NOTE 5 - INVENTORIES, NET
Inventories are summarized as follows:
| June 27, 2026 | December 27, 2025 | ||||||||||
| Raw materials | $ | $ | |||||||||
| Work-in-process | |||||||||||
| Finished goods | |||||||||||
| Supplies and other | |||||||||||
| LIFO reserve | ( | ( | |||||||||
| Inventories, net | $ | $ | |||||||||
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(amounts in thousands, except per share data) (Continued)
NOTE 6 - PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment consists of the following:
| June 27, 2026 | December 27, 2025 | ||||||||||
| Land and improvements | $ | $ | |||||||||
| Buildings and improvements | |||||||||||
| Machinery and equipment | |||||||||||
| Assets under construction | |||||||||||
| Accumulated depreciation | ( | ( | |||||||||
| Property, plant and equipment, net | $ | $ | |||||||||
Depreciation of property, plant and equipment, including amounts for finance leases, totaled $1,237 and $1,294 in the three months ended June 27, 2026 and June 28, 2025, respectively and $2,470 and $2,587 in the six months ended June 27, 2026 and June 28, 2025, respectively.
NOTE 7 - ACCRUED EXPENSES
Accrued expenses are summarized as follows:
| June 27, 2026 | December 27, 2025 | ||||||||||
| Compensation and benefits | $ | $ | |||||||||
| Provision for customer rebates, claims and allowances | |||||||||||
| Advanced customer deposits | |||||||||||
| Outstanding checks in excess of cash | |||||||||||
| Other | |||||||||||
| Accrued expenses | $ | $ | |||||||||
NOTE 8 - PRODUCT WARRANTY RESERVES
The Company generally provides product warranties related to manufacturing defects and specific performance standards for its products. Product warranty reserves are included in accrued expenses in the Company's consolidated condensed balance sheets. The following is a summary of the Company's product warranty activity for continuing operations:
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| June 27, 2026 | June 28, 2025 | June 27, 2026 | June 28, 2025 | ||||||||||||||||||||
| Product warranty reserve at beginning of period | $ | $ | $ | $ | |||||||||||||||||||
| Warranty liabilities accrued | |||||||||||||||||||||||
| Warranty liabilities settled | ( | ( | ( | ( | |||||||||||||||||||
| Product warranty reserve at end of period | $ | $ | $ | $ | |||||||||||||||||||
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(amounts in thousands, except per share data) (Continued)
NOTE 9 - LONG-TERM DEBT AND CREDIT ARRANGEMENTS
Long-term debt consists of the following:
| June 27, 2026 | December 27, 2025 | ||||||||||
| Revolving credit facility - MidCap Financial IV Trust | $ | $ | |||||||||
| Term loans | |||||||||||
| Notes payable - other | |||||||||||
| Finance lease obligations | |||||||||||
| Deferred financing costs, net | ( | ( | |||||||||
| Total debt | |||||||||||
| Less: current portion of long-term debt | |||||||||||
| Long-term debt | $ | $ | |||||||||
Revolving Credit Facility - Fifth Third Bank
On October 30, 2020, the Company entered into a $75,000 Senior Secured Revolving Credit Facility with Fifth Third Bank National Association as lender. The loan was secured by a first priority security interest on all accounts receivable, cash, and inventory, and provides for borrowing limited by certain percentages of values of the accounts receivable and inventory. The revolving credit facility was due to mature on October 30, 2025; however, on February 25, 2025, the Company refinanced its senior revolving credit facility with MidCap Financial IV Trust and the Company’s existing revolving credit facility with Fifth Third was terminated in accordance with its terms. The Company recognized a $66 loss on the extinguishment of the Fifth Third debt which was included in other expense, net in the Company's consolidated condensed statements of operations.
Revolving Credit Facility - MidCap Financial IV Trust
On February 25, 2025, the Company entered into a new $75,000 revolving credit agreement with MidCap Financial IV Trust, as agent, and lenders from time-to-time party thereto (collectively, “MidCap”). The credit agreement is secured by a security interest on all accounts receivable, inventory, and other assets other than certain excluded assets, including a deed to secure debt lien on the Company’s Calhoun and Chatsworth, Georgia facilities. The Company’s borrowing capacity is based on certain percentages of values/sub-limits of the accounts receivable, inventory, and other assets (including the real properties serving as collateral for the loan). The agreement matures on February 25, 2028.
Advances under the revolving credit facility bear interest at annual rates equal to SOFR (plus a 0.11448 % SOFR adjustment) for a 1 month period, as defined with a floor of 1.00 % or published SOFR, plus an applicable margin ranging between 3.75 % and 4.25 %. The applicable margin is determined based on the revolving loan availability percentage under the revolving credit facility with margins increasing as availability decreases. The Company is subject to a minimum excess availability covenant that is based upon a fixed charge coverage ratio which must be above a 1.10 to 1.00 ratio. The Company is subject to a monthly rolling minimum EBITDA requirement if availability is under 20 % of the principal amount of the loan. The weighted-average interest rate on borrowings outstanding under the revolving credit facility was 7.98 % for June 27, 2026. The credit agreement is subject to customary terms and conditions and annual administrative and unused line fees with pricing varying based on excess availability.
The revolving credit facility requires a lockbox arrangement, which provides for all cash receipts to be swept daily to reduce the balance outstanding. This arrangement, combined with the existence of a “subjective acceleration clause” (as defined by U.S. GAAP) in the revolving credit facility, requires the balance on the revolving credit facility to be classified as a current liability. The “subjective acceleration clause” allows the lender to declare an event of default if there is a material adverse change in the Company's business or financial condition. Upon the occurrence of an event of default, the lender may, among other things, declare all obligations payable in full.
On March 24, 2026, the Company entered into its First Amendment to its Senior Secured Revolving Credit Facility (the “Amendment”). The Amendment, among other things, amends the Defined Periods for a certain financial covenant and amends availability requirements and provides for the payment of an amendment fee.
Under the Amendment, the lenders amended the springing minimum trailing twelve-month EBITDA covenant such that the covenant was not applicable for the Defined Periods ending August 30, 2025, November 1, 2025, November 29, 2025, December 27, 2025, January 31, 2026 and February 28, 2026. The Amendment does not otherwise change the minimum trailing twelve‑fiscal‑month EBITDA requirement of $8,969 for each Defined Period ending after February 28, 2026.
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(amounts in thousands, except per share data) (Continued)
The Amendment also adds a new minimum Availability requirement that applies at all times, including when the Company is not in a “Minimum Excess Availability Period.” Prior to the real estate financing trigger date (as defined in the Credit Agreement), the Company is required to maintain Availability of at least $3,000 . On and after the real estate financing trigger date, the Company is required to maintain Availability of at least 6.25 % of the revolving commitment.
During any Minimum Excess Availability Period (as defined in the Credit Agreement), the existing higher Availability thresholds continue to apply and are unchanged by the Amendment. In such periods, the Company must maintain Availability of at least the greater of (i) $6,000 and (ii) 12.5 % of the revolving commitment. As of June 27, 2026, the unused borrowing availability under the MidCap revolving credit facility was $5,398 when reduced for the $6,000 minimum excess availability requirement.
In addition, the Amendment increases the minimum Fixed Charge Coverage Ratio that applies in connection with the Availability‑based covenant regime from 1.10 to 1.00 to 1.25 to 1.00, effective as of the Amendment date.
Term Loans
Effective October 28, 2020, the Company entered into a $10,000 principal amount USDA Guaranteed term loan with AmeriState Bank as lender. The term of the loan is 25 years and bears interest at a minimum 5.00 % rate or 4.00 % above 5-year U.S. Treasury, to be reset every 5 years at 3.5 % above 5-year U.S. Treasury. The interest rate reset at 7.11 % on October 26, 2025 and will reset every 5 years thereafter. The loan is secured by a first mortgage on the Company’s Atmore, Alabama and Roanoke, Alabama facilities.
Effective October 29, 2020, the Company entered into a $15,000 principal amount USDA Guaranteed term loan with the Greater Nevada Credit Union as lender. The term of the loan is 10 years and bears interest at a minimum 5.00 % rate or 4.00 % above 5-year U.S. Treasury, to be reset after 5 years at 3.5 % above 5-year U.S. Treasury. The interest rate reset at 7.11 % on October 29, 2025. Payments on the loan are interest only over the first three years and principal and interest over the remaining seven years . The loan is secured by a first lien on a substantial portion of the Company’s machinery and equipment and a second lien on the Company’s Atmore and Roanoke facilities.
Debt Covenant Compliance
The Company's agreements for its Revolving Credit Facility and its term loans include certain compliance, affirmative, and financial covenants and, as of the reporting date, the Company is in compliance with or has received waivers or amendments for all such applicable financial covenants.
Notes Payable - Other
On January 14, 2019, the Company, entered into a purchase and sale agreement (the “Purchase and Sale Agreement”) with Saraland Industrial, LLC, an Alabama limited liability company (the “Purchaser”). Pursuant to the terms of the Purchase and Sale Agreement, the Company sold its Saraland facility, and approximately 17.12 acres of surrounding property located in Saraland, Alabama (the “Property”) to the Purchaser for a purchase price of $11,500 . Concurrent with the sale of the Property, the Company and the Purchaser entered into a twenty-year lease agreement (the “Lease Agreement”), whereby the Company will lease back the Property at an annual rental rate of $977 , subject to annual rent increases of 1.25 %. Under the Lease Agreement, the Company has two (2 ) consecutive options to extend the term of the Lease by ten years for each such option. This transaction was recorded as a failed sale and leaseback. The Company recorded a liability for the amounts received, will continue to depreciate the asset, and has imputed an interest rate of 7.07 % so that the net carrying amount of the financial liability and remaining assets will be zero at the end of the twenty-year lease term.
The Company has other financing notes that has terms up to 1 year, bear interest ranging from 6.45 % to 6.75 % and are due in monthly installments through their maturity dates. The Company's other notes do not contain any financial covenants.
Finance Lease Obligations
The Company's finance lease obligations are due in monthly installments through their maturity dates. The Company's finance lease obligations are secured by the specific equipment leased.
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(amounts in thousands, except per share data) (Continued)
Debt Maturities
Maturities of long-term debt for periods following June 27, 2026 are as follows:
| Long-Term Debt | Finance Leases (See Note 10) | Total | |||||||||||||||
Remaining for 2026 (1) | $ | $ | $ | ||||||||||||||
| 2027 | |||||||||||||||||
| 2028 | |||||||||||||||||
| 2029 | |||||||||||||||||
| 2030 | |||||||||||||||||
| Thereafter | |||||||||||||||||
| Total maturities of long-term debt | $ | $ | $ | ||||||||||||||
| Deferred financing costs, net | ( | ( | |||||||||||||||
| Total long-term debt | $ | $ | $ | ||||||||||||||
(1) This includes $55,679 for the revolving credit facility which requires a lockbox arrangement, which provides for all cash receipts to be swept daily to reduce the balance outstanding. This arrangement, combined with the existence of a “subjective acceleration clause” (as defined by U.S. GAAP) in the revolving credit facility, requires the balance on the revolving credit facility to be classified as a current liability. The “subjective acceleration clause” allows the lender to declare an event of default if there is a material adverse change in the Company's business or financial condition. Upon the occurrence of an event of default, the lender may, among other things, declare all obligations payable in full. The Company does not expect these amounts related to the revolving credit facility to be paid in 2026.
NOTE 10 - LEASES
Leases as Lessee
Balance sheet information related to right-of-use assets and liabilities is as follows:
| Balance Sheet Location | June 27, 2026 | December 27, 2025 | ||||||||||||
| Operating Leases: | ||||||||||||||
| Operating lease right-of-use assets | Operating lease right-of-use assets | $ | $ | |||||||||||
| Current portion of operating lease liabilities | Current portion of operating lease liabilities | $ | $ | |||||||||||
| Noncurrent portion of operating lease liabilities | Operating lease liabilities | |||||||||||||
| Total operating lease liabilities | $ | $ | ||||||||||||
| Finance Leases: | ||||||||||||||
| Finance lease right-of-use assets | $ | $ | ||||||||||||
| Current portion of finance lease liabilities | $ | $ | ||||||||||||
| Noncurrent portion of finance lease liabilities | ||||||||||||||
| Total financing lease liabilities | $ | $ | ||||||||||||
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(amounts in thousands, except per share data) (Continued)
Lease cost recognized in the consolidated condensed financial statements is summarized as follows:
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| June 27, 2026 | June 28, 2025 | June 27, 2026 | June 28, 2025 | ||||||||||||||||||||
| Operating lease cost | $ | $ | $ | $ | |||||||||||||||||||
| Variable lease cost | |||||||||||||||||||||||
| Total lease costs | $ | $ | $ | $ | |||||||||||||||||||
| Finance lease cost: | |||||||||||||||||||||||
| Amortization of lease assets | $ | $ | $ | $ | |||||||||||||||||||
| Interest on lease liabilities | |||||||||||||||||||||||
| Total finance lease costs | $ | $ | $ | $ | |||||||||||||||||||
Other supplemental information related to leases is summarized as follows:
| June 27, 2026 | June 28, 2025 | |||||||||||||
| Weighted average remaining lease term (in years): | ||||||||||||||
| Operating leases | ||||||||||||||
| Finance leases | ||||||||||||||
| Weighted average discount rate: | ||||||||||||||
| Operating leases | % | % | ||||||||||||
| Finance leases | % | % | ||||||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||||||||
| Operating cash flows from operating leases | $ | $ | ||||||||||||
| Operating cash flows from finance leases | ||||||||||||||
| Financing cash flows from finance leases | ||||||||||||||
The following table summarizes the Company's future minimum lease payments under non-cancellable contractual obligations for operating and financing liabilities as of June 27, 2026:
| Fiscal Year | Operating Leases | Finance Leases | |||||||||
| Remaining for 2026 | $ | $ | |||||||||
| 2027 | |||||||||||
| 2028 | |||||||||||
| 2029 | |||||||||||
| 2030 | |||||||||||
| Thereafter | |||||||||||
| Total future minimum lease payments (undiscounted) | |||||||||||
| Less: Present value discount | |||||||||||
| Total lease liability | $ | $ | |||||||||
Leases as Lessor
The Company leases or subleases to third parties certain excess space in its facilities, which are included as fixed assets. The leases are accounted for as operating leases and the lease or sublease income is included in other operating income, net. The Company recognizes lease income on a straight-line basis as collectability is probable, including any escalation or lease incentives, as applicable, and the Company continues to recognize the underlying asset which is included in property, plant and
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(amounts in thousands, except per share data) (Continued)
equipment, net on the Company's consolidated condensed balance sheets. The leases do not have any residual value guarantees. The Company has elected the practical expedient to combine all non-lease components as a combined component. The nature of the Company’s sublease agreements do not provide for variable lease payments or options to purchase.
Lease income and sublease income related to fixed lease payments is recognized in other operating income, net in the consolidated condensed statement of operations because they are not ordinary activities of the Company and is summarized as follows:
| Three Months Ended | Six Months Ended | |||||||||||||||||||||||||
| June 27, 2026 | June 28, 2025 | June 27, 2026 | June 28, 2025 | |||||||||||||||||||||||
| Operating lease income | $ | $ | $ | $ | ||||||||||||||||||||||
The following table summarizes the Company's undiscounted lease payments to be received under operating leases including amounts to be paid by the Company to the head lessor for the next five years and thereafter as of June 27, 2026:
| Fiscal Year | Gross Lease Payments | Payments to Head Lessor | Net Lease Payments | ||||||||
| 2026 | $ | $ | $ | ||||||||
| 2027 | |||||||||||
| 2028 | |||||||||||
| 2029 | |||||||||||
| 2030 | |||||||||||
| Thereafter | |||||||||||
| Total | $ | $ | $ | ||||||||
NOTE 11 - FAIR VALUE MEASUREMENTS
Fair value is defined as the exchange value of an asset or a liability in an orderly transaction between market participants. The fair value guidance outlines a valuation framework and establishes a fair value hierarchy in order to increase the consistency and comparability of fair value measurements and disclosures. The hierarchy consists of three levels as follows:
Level 1 - Quoted market prices in active markets for identical assets or liabilities as of the reported date;
Level 2 - Other than quoted market prices in active markets for identical assets or liabilities, quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and other than quoted prices for assets or liabilities and prices that are derived principally from or corroborated by market data by correlation or other means; and
Level 3 - Measurements using management's best estimate of fair value, where the determination of fair value requires significant management judgment or estimation.
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(amounts in thousands, except per share data) (Continued)
The carrying amounts and estimated fair values of the Company's financial instruments are summarized as follows:
| June 27, 2026 | December 27, 2025 | ||||||||||||||||||||||
| Carrying | Fair | Carrying | Fair | ||||||||||||||||||||
| Amount | Value | Amount | Value | ||||||||||||||||||||
| Financial assets: | |||||||||||||||||||||||
| Cash and cash equivalents | $ | $ | $ | $ | |||||||||||||||||||
| Restricted cash | |||||||||||||||||||||||
| Financial liabilities: | |||||||||||||||||||||||
| Long-term debt, including current portion | $ | $ | $ | $ | |||||||||||||||||||
| Finance leases, including current portion | |||||||||||||||||||||||
The fair values of the Company's long-term debt and finance leases were estimated using market rates the Company believes would be available for similar types of financial instruments and represent level 2 measurements. The fair values of cash and cash equivalents and restricted cash approximate their carrying amounts due to the short-term nature of the financial instruments.
NOTE 12 - EMPLOYEE BENEFIT PLANS
Defined Contribution Plans
The Company sponsors a 401(k) defined contribution plan that covers approximately 98 % of the Company's current associates. This plan includes a mandatory Company match on the first 1 % of participants' contributions. The Company matches the next 2 % of participants' contributions if the Company meets prescribed earnings levels. The plan also provides for additional Company contributions above the 3 % level if the Company attains certain additional performance targets. Matching contribution expense for this 401(k) plan was $247 and $85 for the three months ended June 27, 2026 and June 28, 2025, respectively and $327 and $173 for the six months ended June 27, 2026 and June 28, 2025, respectively.
Additionally, the Company sponsors a 401(k) defined contribution plan that covers associates at one facility who are under a collective-bargaining agreement. The number of associates under the plan represents approximately 2 % of the Company's total current associates. Under this plan, the Company generally matches participants' contributions, on a sliding scale, up to a maximum of 2.75 % of the participant's earnings. Matching contribution expense for the collective-bargaining 401(k) plan was $1 and $1 for the three months ended June 27, 2026 and June 28, 2025, respectively and $2 and $2 for the six months ended June 27, 2026 and June 28, 2025, respectively.
Non-Qualified Retirement Savings Plan
The Company sponsors a non-qualified retirement savings plan that allows eligible associates to defer a specified percentage of their compensation. The obligations for continuing operations owed to participants under this plan were $15,484 at June 27, 2026 and $16,350 at December 27, 2025 and are included in other long-term liabilities in the Company's consolidated condensed balance sheets. The obligations are unsecured general obligations of the Company and the participants have no right, interest or claim in the assets of the Company, except as unsecured general creditors. The Company utilizes a Rabbi Trust to hold, invest and reinvest deferrals and contributions under the plan. Amounts are invested in Company-owned life insurance in the Rabbi Trust and the cash surrender value of the policies for continuing operations was $15,012 at June 27, 2026 and $16,225 at December 27, 2025 and is included in other assets in the Company's consolidated condensed balance sheets.
Multi-Employer Pension Plan
The Company contributes to a multi-employer pension plan under the terms of a collective-bargaining agreement that covers its union-represented employees. Expenses related to the multi-employer pension plan were $7 and $7 for the three months ended June 27, 2026 and June 28, 2025, respectively and $12 and $13 for the six months ended June 27, 2026 and June 28, 2025, respectively. If the Company were to withdraw from the multi-employer plan, a withdrawal liability would be due, the amount of which would be determined by the plan. The withdrawal liability, as determined by the plan, would be a function of contribution rates, fund status, discount rates and various other factors at the time of any such withdrawal.
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(amounts in thousands, except per share data) (Continued)
NOTE 13 - INCOME TAXES
The effective tax rate was 4.40 % and 5.07 % for the three months ended June 27, 2026 and June 28, 2025, respectively and was 3.50 % and 31.73 % for the six months ended June 27, 2026 and June 28, 2025, respectively. Because the Company maintains a full valuation allowance against its deferred income tax balances, the Company is only able to recognize refundable credits and a small amount of state taxes in the tax expense for the three months of 2026 and 2025. The Company is in a net deferred tax liability position of $91 and $91 at June 27, 2026 and December 27, 2025, respectively, which is included in other long-term liabilities in the Company's consolidated condensed balance sheets.
The Company accounts for uncertainty in income tax positions according to FASB guidance relating to uncertain tax positions. Unrecognized tax benefits were $583 and $576 at June 27, 2026 and December 27, 2025, respectively. Such benefits, if recognized, would affect the Company's effective tax rate. There were no
The Company and its subsidiaries are subject to United States federal income taxes, as well as income taxes in a number of state jurisdictions. The tax years subsequent to 2021 remain open to examination for U.S. federal income taxes, including the Company's fiscal 2023 income tax return which was recently selected by the IRS for examination. The majority of state jurisdictions remain open for tax years subsequent to 2021. A few state jurisdictions remain open to examination for tax years subsequent to 2020.
NOTE 14 - EARNINGS (LOSS) PER SHARE
The Company's unvested stock awards that contain non-forfeitable rights to dividends or dividend equivalents, whether paid or unpaid, are considered participating securities and are included in the computation of earnings per share. The Company calculates basic and diluted earnings per common share using the two-class method. The accounting guidance requires disclosure of EPS for common stock and unvested share-based payment awards, separately disclosing distributed and undistributed earnings. Undistributed earnings represent earnings that were available for distribution but were not distributed. Common stock and unvested share-based payment awards earn dividends equally. All earnings were undistributed in all periods presented.
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(amounts in thousands, except per share data) (Continued)
The following table sets forth the computation of basic and diluted earnings (loss) per share from continuing operations:
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| June 27, 2026 | June 28, 2025 | June 27, 2026 | June 28, 2025 | ||||||||||||||||||||
| Basic earnings (loss) per share: | |||||||||||||||||||||||
| Income (loss) from continuing operations | $ | $ | $ | $ | ( | ||||||||||||||||||
| Less: Allocation of earnings to participating securities | ( | ( | ( | ||||||||||||||||||||
| Income (loss) from continuing operations available to common shareholders - basic | $ | $ | $ | $ | ( | ||||||||||||||||||
| Basic weighted-average shares outstanding (1) | |||||||||||||||||||||||
| Basic income (loss) per share - continuing operations | $ | $ | $ | $ | ( | ||||||||||||||||||
| Diluted earnings (loss) per share: | |||||||||||||||||||||||
| Income (loss) from continuing operations available to common shareholders - basic | $ | $ | $ | $ | ( | ||||||||||||||||||
| Add: Undistributed earnings reallocated to unvested shareholders | |||||||||||||||||||||||
| Income (loss) from continuing operations available to common shareholders - basic | $ | $ | $ | $ | ( | ||||||||||||||||||
| Basic weighted-average shares outstanding (1) | |||||||||||||||||||||||
| Effect of dilutive securities: | |||||||||||||||||||||||
| Stock options (2) | |||||||||||||||||||||||
| Directors' stock performance units (2) | |||||||||||||||||||||||
| Diluted weighted-average shares outstanding (1)(2) | |||||||||||||||||||||||
| Diluted earnings (loss) per share - continuing operations | $ | $ | $ | $ | ( | ||||||||||||||||||
(1)Includes Common and Class B Common shares, excluding unvested participating securities of 779 thousand as of June 27, 2026 and 690 thousand as of June 28, 2025.
(2)Shares issuable under stock option plans where the exercise price is greater than the average market price of the Company's Common Stock during the relevant period and directors' stock performance units have been excluded to the extent they are anti-dilutive. There were 315 469
NOTE 15 - STOCK-BASED COMPENSATION EXPENSE
The Company recognizes compensation expense relating to share-based payments based on the fair value of the equity instrument issued and records such expense in selling and administrative expenses in the Company's consolidated condensed statements of operations. The Company's stock compensation expense was $46 and $61 for the three months ended June 27, 2026 and June 28, 2025, respectively and $88 and $162 for the six months ended June 27, 2026 and June 28, 2025, respectively.
On March 12, 2026, the Company issued 247,458 shares of restricted stock to certain key employees. The grant-date fair value of the awards was $105 , or $0.425 per share, and is expected to be recognized as stock compensation expense over a weighted-average period of 5.7 years from the date the awards were granted. Each award is subject to a continued service condition. The fair value of each restricted stock awarded was equal to the market value of a share of the Company's Common Stock on the grant date.
On May 6, 2026, the Company issued 32,000 shares of restricted stock to the Company's non-employee directors. The grant-date fair value of the awards was $12 , or $0.360 per share, and is expected to be recognized as stock compensation expense over a weighted-average period of 1.0 year from the date the awards were granted. Each award is subject to a continued service condition. The fair value of each restricted stock awarded was equal to the market value of a share of the Company's Common Stock on the grant date.
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(amounts in thousands, except per share data) (Continued)
NOTE 16 - ACCUMULATED OTHER COMPREHENSIVE INCOME
Components of accumulated other comprehensive income, net of tax, are as follows:
| Post-Retirement Liabilities | |||||
| Balance at December 27, 2025 | $ | ||||
| Reclassification of net actuarial gain into earnings from postretirement benefit plans | ( | ||||
| Balance at June 27, 2026 | $ | ||||
NOTE 17 - COMMITMENTS AND CONTINGENCIES
Contingencies
The Company assesses its exposure related to legal matters, including those pertaining to product liability, safety and health matters and other items that arise in the regular course of its business. If the Company determines that it is probable a loss has been incurred, the amount of the loss, or an amount within the range of loss, that can be reasonably estimated will be recorded. There are no pending or threatened legal matters for which a reasonably estimated range of losses can be determined except as described below, and accordingly, the Company has not identified any such legal matters that could have a material adverse effect on its consolidated condensed results of operations, financial position or cash flows.
Legal Proceedings
During the first six months of 2026, the Company settled all claims pending against it in the previously reported lawsuit styled Moss Land Company, LLC, et al. v City of Calhoun, et al., in the Superior Court of Gordon County Georgia, case No. 24CV74289, including all claims and counter-claims asserted against the Company in that case by the City of Calhoun, Georgia. Those claims have been dismissed with prejudice.
Additionally, the claims asserted against the Company in the previously reported lawsuit styled the City of Chatsworth, Georgia and Chatsworth Water Works Commission v. 3M Company, et al. in the Superior Court of Murray County, Georgia, Case No. 25-CI-0245, have been dismissed without prejudice.
The Company has settled all claims against it in the previously reported lawsuits styled William Hartwell Brooks, et al. v City of Calhoun Georgia, et al., in the Superior Court of Gordon County Georgia, Case No. 25CV74289, and James Haley Stephens and Pamela J. Stephens v 3M Company, et al., in the Superior Court of Gordon County Georgia, case No. 25CV75072. Accordingly, the Company expects a prompt dismissal of those claims with prejudice.
Environmental Remediation
The Company accrues for losses associated with environmental remediation obligations when such losses are probable and estimable. Remediation obligations are accrued based on the latest available information and are recorded at undiscounted amounts. The Company regularly monitors the progress of environmental remediation. If studies indicate that the cost of remediation has changed from the previous estimate, an adjustment to the liability would be recorded in the period in which such determination is made (see Note 20).
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(amounts in thousands, except per share data) (Continued)
NOTE 18 - OTHER OPERATING EXPENSE, NET
Other operating expense, net is summarized as follows:
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| June 27, 2026 | June 28, 2025 | June 27, 2026 | June 28, 2025 | ||||||||||||||||||||
| Other operating expense, net: | |||||||||||||||||||||||
| Gain on property, plant and equipment disposals | $ | $ | ( | $ | $ | ( | |||||||||||||||||
| Loss on currency exchanges | |||||||||||||||||||||||
| Retirement expense | ( | ||||||||||||||||||||||
| Lease income | ( | ( | ( | ( | |||||||||||||||||||
| Lease expenses | |||||||||||||||||||||||
| Miscellaneous (income) expense | ( | ( | |||||||||||||||||||||
| Other operating expense, net | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
The Company allocates direct expenses associated with the leases to lease expense in other operating (income) expense, net on the Company's consolidated condensed statements of operations.
NOTE 19 - FACILITY CONSOLIDATION AND SEVERANCE EXPENSES, NET
2022 Consolidation of East Coast Manufacturing Plan
During 2022, the Company implemented a plan to consolidate its East Coast manufacturing in order to reduce its manufacturing costs. Under this plan, the Company consolidated its East Coast tufting operations into one plant in North Georgia, relocated the distribution of luxury vinyl flooring from its Saraland, Alabama facility to its Atmore, Alabama facility and identified space in its Saraland, Alabama and Atmore, Alabama facilities as available for lease or sublease. Costs for the plan include machinery and equipment relocation, inventory relocation, staff reductions and unabsorbed fixed costs during conversion of the Atmore facility.
Costs related to this consolidation plan were $111 and $117 for the three months ended June 27, 2026 and June 28, 2025, respectively and $223 and $232 for the six months ended June 27, 2026 and June 28, 2025, respectively.
2026 Consolidation of West Coast Yarn Processing Plan
During 2026, the Company implemented a plan to begin consolidation of a portion of its West Coast yarn processing facility into its Roanoke, Alabama facility in order to reduce its manufacturing costs. Costs for the plan include machinery relocation, inventory relocation, staff reductions and professional fees. Costs related to this consolidation plan were $389 for the three months ended June 27, 2026 and $389 for the six months ended June 27, 2026. Expected costs for this consolidation are expected to be approximately $500 .
NOTE 20 - DISCONTINUED OPERATIONS
The Company has either sold or discontinued certain operations that are accounted for as "Discontinued Operations" under applicable accounting guidance. Discontinued operations are summarized as follows:
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| June 27, 2026 | June 28, 2025 | June 27, 2026 | June 28, 2025 | ||||||||||||||||||||
| Loss from discontinued operations: | |||||||||||||||||||||||
| Workers' compensation costs from former textile operations | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Commercial business operations | ( | ( | ( | ( | |||||||||||||||||||
| Loss from discontinued operations, before taxes | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Income tax expense | ( | ( | |||||||||||||||||||||
| Loss from discontinued operations, net of tax | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
Workers' compensation costs from former textile operations
Undiscounted reserves are maintained for the self-insured workers' compensation obligations related to the Company's former textile operations. These reserves are administered by a third-party workers' compensation service provider under the supervision of Company personnel. Such reserves are reassessed on a quarterly basis. Pre-tax cost incurred for workers' compensation as a component of discontinued operations primarily represents a change in estimate for each period from unanticipated medical costs associated with the Company's obligations.
Environmental remediation costs from former textile operations
Reserves for environmental remediation obligations are established on an undiscounted basis. The Company has an accrual for environmental remediation obligations related to discontinued operations of $2,083 as of June 27, 2026 and $2,120 as of December 27, 2025. The liability established represents the Company's best estimate of possible loss and is the reasonable amount to which there is any meaningful degree of certainty given the periods of estimated remediation and the dollars applicable to such remediation for those periods. The actual timeline to remediate, and thus, the ultimate cost to complete such remediation through these remediation efforts, may differ significantly from the Company's estimates. Pre-tax cost for environmental remediation obligations classified as discontinued operations were primarily a result of specific events requiring action and additional expense in each period.
For the three and six months ended June 27, 2026 and June 28, 2025, the Company reclassified the following operations of the Commercial business included in discontinued operations in the accompanying consolidated condensed statements of operations:
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| June 27, 2026 | June 28, 2025 | June 27, 2026 | June 28, 2025 | ||||||||||||||||||||
| Cost of sales | $ | $ | $ | $ | |||||||||||||||||||
| Gross profit | ( | ( | ( | ( | |||||||||||||||||||
| Loss from discontinued Commercial business operations | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
NOTE 21 - SEGMENT REPORTING
Based on applicable accounting standards, the Company has determined that it has one reportable segment, Floorcovering. The Floorcovering segment derives revenues from customers through the sale of residential floorcovering products which include broadloom carpet, rugs, luxury vinyl flooring and engineered hardwood. These products are sold into the designer, retailer, mass merchant and builder markets. The Company derives revenues primarily in the United States and Canada and manages the business activities on a consolidated basis. No customer accounted for more than 10% of net sales in 2026 or 2025, nor did the Company make a significant amount of sales to foreign countries outside of Canada during 2026 or 2025.
The accounting policies of the Floorcovering segment are the same as those described in the summary of significant accounting policies. The chief operating decision maker ("CODM"), which is the Company's Chief Executive Officer, assesses performance of the Floorcovering segment and decides how to allocate resources based on segment operating income (loss). The CODM uses segment operating income to monitor budget versus actual results and is used in assessing the performance of the segment. The measure of segment assets is reported on the balance sheet as total assets.
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(amounts in thousands, except per share data) (Continued)
The following table outlines information about the reported segment including net sales, significant segment expenses, and segment operating income for the three and six months ended June 27, 2026 and June 28, 2025.
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| June 27, 2026 | June 28, 2025 | June 27, 2026 | June 28, 2025 | ||||||||||||||||||||
| Net sales | $ | $ | $ | $ | |||||||||||||||||||
| Less: significant segment expenses (1) | |||||||||||||||||||||||
| Cost of sales | |||||||||||||||||||||||
| Selling expenses | |||||||||||||||||||||||
| Administrative expenses | |||||||||||||||||||||||
| Segment operating income | |||||||||||||||||||||||
| Reconciliation of segment operating income to operating income | |||||||||||||||||||||||
| Other operating income, net | ( | ( | ( | ( | |||||||||||||||||||
| Facility consolidation and severance expenses, net | |||||||||||||||||||||||
| Operating income | $ | $ | $ | $ | |||||||||||||||||||
(1)Significant segment expense categories and amounts align with the information that is regularly provided to the CODM, included in the measure of segment profit, and considered to be significant. Amounts include the allocation of corporate overhead.
Geographical Disclosures
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| June 27, 2026 | June 28, 2025 | June 27, 2026 | June 28, 2025 | ||||||||||||||||||||
| Geographical net sales: | |||||||||||||||||||||||
| United States | $ | $ | $ | $ | |||||||||||||||||||
| Canada | |||||||||||||||||||||||
| Other | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
| June 27, 2026 | December 27, 2025 | ||||||||||||||||||||||
| Long-lived assets: (1) | |||||||||||||||||||||||
| United States | $ | $ | |||||||||||||||||||||
| Other | |||||||||||||||||||||||
| Total | $ | $ | |||||||||||||||||||||
(1)Long-lived assets are comprised of property, plant and equipment - net and operating lease right-of-use assets.
NOTE 22 - RECEIVABLE - TARIFF REFUNDS
On February 20, 2026, the U.S. Supreme Court ruled that the International Emergency Economic Powers Act (“IEEPA”), which the U.S. administration relied on to impose certain tariffs, does not authorize the administration to impose tariffs. On March 4, 2026, the U.S. Court of International Trade ("CIT") issued an order directing the U.S. Customs and Border Protection (“CBP”) agency to begin formalizing a process for refunds. On April 20, 2026, the CBP launched an online portal that can be used to submit IEEPA tariff refund requests. All requests will be reviewed by the CBP to determine validity prior to the issuance of refunds. The Company was able to submit its IEEPA tariff refund request on April 20, 2026 through the portal. The Company has
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(amounts in thousands, except per share data) (Continued)
paid IEEPA tariffs to the U.S. government since the enactment on February 1, 2025, and accordingly the Company submitted its request for refund of $3,318 related to IEEPA tariffs paid during the period from February 1, 2025 to February 20, 2026.
Based on the U.S. Supreme Court's ruling, related CIT proceedings, and the Company's submission of tariff refund requests and assessment of the recoverability of amounts paid, the Company concluded that the recovery of previously incurred IEEPA tariffs is probable. Under a loss recovery accounting method, the Company recognized a receivable of $3,318 for the IEEPA tariffs incurred in Receivables - tariff refund within the condensed consolidated balance sheet and a corresponding reversal of Cost of sales for $3,318 within the condensed consolidated statement of income for the six-month period ended June 27, 2026. During the quarter-ended June 27, 2026, the Company received partial payments of $261 plus an immaterial amount of interest of previously paid tariffs. The Company will continue to monitor regulatory guidance regarding the refund process.
NOTE 23 - SUBSEQUENT EVENTS
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with our consolidated condensed financial statements and related notes appearing elsewhere in this report.
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. Such statements include the use of terms or phrases such as "expects," "estimates," "projects," "believes," "anticipates," "intends," and similar terms and phrases. Such forward-looking statements relate to, among other matters, our future financial performance, business prospects, growth strategies or liquidity. The following important factors may affect our future results and could cause those results to differ materially from our historical results; these factors include, in addition to those “Risk Factors” detailed in item 1A of this report, and described elsewhere in this document, 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 customer or group of customers, the ability to attract, develop and retain qualified personnel, 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.
OVERVIEW
Our business consists principally of marketing, manufacturing and selling floorcovering products to high-end customers through our various sales forces and brands. We focus primarily on the upper end of the floorcovering market where we believe we have strong brands and competitive advantages with our style and design capabilities and customer relationships. Our Fabrica, Masland, DH Floors and TRUCOR brands have a significant presence in the high-end residential floorcovering markets. Dixie International sells all of our brands outside of the North American market.
Middle East Conflict
The Middle East conflict that began in late February 2026 has contributed to increased U.S. interest rate volatility, primarily through its effect on energy markets. As oil prices rose sharply amid concerns about potential supply disruptions, particularly through the Strait of Hormuz, market participants reassessed the inflation outlook and the likely path of monetary policy. We expect volatility to remain elevated until the conflict is definitively resolved. In addition, higher gasoline and diesel prices impact the cost of many of our products and contribute to a more cautious consumer outlook. Depending on the duration of the conflict, the economic impact will vary across our markets, with increased inflation reducing consumer sentiment and discretionary spending. We will continue monitoring the situation during this period of heightened uncertainty.
Housing Market Update
We continue to be impacted by soft consumer demand driven by persistent inflationary pressures and elevated interest rates. Persistent inflation continues to hinder consumer discretionary spending, which has caused consumers to postpone large purchases of durable goods such as flooring. Macroeconomic factors continue to impact new home construction and residential renovation and remodeling activity. Residential remodeling is a primary sales driver of flooring products, and most flooring is replaced before a home is listed for sale or just after a home purchase is completed. The current housing market conditions have suppressed remodeling activity as home sales remain soft. Housing turnover rates remain suppressed due to high home mortgage rates and consumers continue to face a higher cost of living. We have, to some extent, offset the impact of a soft housing market and decreased renovation activity through cost containment, improved productivity and lower input costs. Due to low housing availability, aging stock and greater household formation, we believe demand in our markets will accelerate when interest rates decline. However, the ongoing impact of soft consumer demand, inflationary pressures and high interest rates to our business, financial condition, and results of operations cannot be determined at this time.
Trade and Tariffs Update
On February 20, 2026, the U.S. Supreme Court ruled that the International Emergency Economic Powers Act (“IEEPA”), which the U.S. administration relied on to impose certain tariffs, does not authorize the administration to impose tariffs. On March 4, 2026, the U.S. Court of International Trade ("CIT") issued an order directing the U.S. Customs and Border Protection (“CBP”) agency to begin formalizing a process for refunds. On April 20, 2026, the CBP launched an online portal that can be used to submit IEEPA tariff refund requests. All requests will be reviewed by the CBP to determine validity prior to the issuance of refunds. We were able to submit our IEEPA tariff refund request on April 20, 2026 through the portal. We have paid IEEPA tariffs to the U.S. government since the enactment on February 1, 2025, and accordingly we submitted our request for refund of $3.3 million related to IEEPA tariffs paid during the period from February 1, 2025 to February 20, 2026. Based on the U.S. Supreme Court's ruling, related CIT proceedings, and our submission of tariff refund requests and assessment of the recoverability of
amounts paid, we concluded that the recovery of previously incurred IEEPA tariffs is probable. Under a loss recovery accounting method, we recognized a receivable of $3.3 million for the IEEPA tariffs incurred in Receivables - tariff refund within the condensed consolidated balance sheet and a corresponding reversal of cost of sales for $3.3 million within the condensed consolidated statement of income for the six-month period ended June 27, 2026. Prior to June 27, 2026, we received partial payments of $261 thousand plus an immaterial amount of interest of previously paid tariffs. Subsequent to June 27, 2026, we received additional partial refunds totaling $3.0 million plus an immaterial amount of interest which leaves only $21 thousand remaining of the original receivable. We will continue to monitor regulatory guidance regarding the refund process.
We continue to monitor trade policy and tariff announcements, including various executive orders issued by the current U.S. presidential administration. Increased restrictions on global trade, including an increase in U.S. tariffs and any retaliatory responses thereto, could result in, among other things, increased input costs, supply chain disruptions, and decreased consumer demand, any of which may adversely affect our business financial condition and results of operations.
RESULTS OF OPERATIONS
The following tables provide information derived from our unaudited condensed consolidated financial statements for the periods indicated. Percentages used are expressed as a percent of net sales. The discussion that follows each table should be read in conjunction with our unaudited consolidated condensed financial statements as well as our 2025 Annual Report on Form 10-K for the year ended December 27, 2025.
Three Months Ended June 27, 2026 Compared with the Three Months Ended June 28, 2025
Net Sales
| Three Months Ended | |||||||||||||||||
| ($ in thousands) | June 27, 2026 | June 28, 2025 | Inc./(Dec.) | Inc./(Dec.) | |||||||||||||
| Net Sales | $ | 68,614 | $ | 68,573 | $41 | 0.1% | |||||||||||
For the second quarter of 2026, our net sales from continuing operations were slightly above levels of the second quarter of 2025.
| Three Months Ended | |||||||||||
| June 27, 2026 | June 28, 2025 | ||||||||||
| Net sales | 100.0 | % | 100.0 | % | |||||||
| Cost of sales | 70.5 | % | 70.8 | % | |||||||
| Gross profit | 29.5 | % | 29.2 | % | |||||||
| Selling and administrative expenses | 24.4 | % | 24.5 | % | |||||||
| Other operating Income, net | (0.1) | % | (0.1) | % | |||||||
| Facility consolidation and severance expenses, net | 0.7 | % | 0.2 | % | |||||||
| Operating income | 4.5 | % | 4.6 | % | |||||||
Gross Profit
Gross profit as a percentage of net sales was 29.5% in the second quarter of 2026 compared with 29.2% in the second quarter of 2025. The gross profit percentage in 2026 reflects both cost reductions and improved operating efficiencies in our operations.
Selling and Administrative Expenses
Selling and administrative expenses were $16.7 million, or 24.4% of net sales, in the second quarter of 2026 compared with $16.8 million, or 24.5% of net sales in the year earlier period. Selling and administrative expenses as a percentage of net sales decreased in the second quarter of 2026 as compared to the second quarter of 2025 due to lower selling expenses.
Other Operating income, Net
Net other operating income was $90 thousand in the second quarter of 2026 compared with income of $68 thousand in the second quarter of 2025.
Facility Consolidation and Severance Expenses, Net
Facility consolidation and severance expenses in the second quarter of 2026 were $500 thousand compared with $117 thousand in the second quarter of 2025. The expenses in 2026 included costs related to our restructuring plan for the consolidation of a portion of our west coast yarn processing into our east coast yarn processing and costs related to our east coast consolidation plan.
Operating Income
We reported operating income of $3.1 million in the second quarter of 2026 compared with operating income of $3.2 million in the second quarter of 2025. The decrease in operating income was due to costs associated with the consolidation of our yarn processing facilities during the second quarter of 2026. Costs associated with the consolidation of our yarn processing facilities during the second quarter of 2026 affected operating income in the second quarter.
Interest Expense
Interest expense increased $94 thousand in the second quarter of 2026 compared with the second quarter of 2025. The increase is primarily the result of higher interest rates in 2026 on our debt.
Other (Income) Expense, Net
Net other (income) expense was income of $55 thousand in the second quarter of 2026 compared with income of $4 thousand in the second quarter of 2025. Net other (income) expense includes interest income of $51 thousand in the second quarter of 2026.
Income Tax Provision
We recorded an income tax expense from continuing operations of $52 thousand in the second quarter of 2026 compared to an income tax expense of $67 thousand in the second quarter of 2025.
The effective tax rate for the three months ended June 27, 2026 was 4.40% compared with an effective tax rate of 5.07% for the three months ended June 28, 2025. Because we maintain a full valuation allowance against our deferred tax balances, we are only able to recognize refundable credits and a small amount of state taxes in the tax expense for the second quarter of 2026 and 2025. We are in a net deferred tax liability position of $91 thousand at June 27, 2026 and December 27, 2025, which is included in other long-term liabilities in our consolidated condensed balance sheets.
We account for uncertainty in income tax positions according to FASB guidance relating to uncertain tax positions. Unrecognized tax benefits were $583 thousand and $576 thousand at June 27, 2026 and December 27, 2025, respectively. Such benefits, if recognized, would affect our effective tax rate. There were no significant interest or penalties accrued as of June 27, 2026 and December 27, 2025.
Net Income (Loss)
Continuing operations reflected income of $1.1 million, or $0.07 per diluted share, in the second quarter of 2026 compared with income of $1.3 million, or $0.08 per diluted share, in the same period in 2025. The loss from discontinued operations was $42 thousand in the second quarter of 2026 compared to a loss of $94 thousand in the second quarter of 2025. See Note 20 to the consolidated condensed financial statements for additional details related to discontinued operations.
Six Months Ended June 27, 2026 Compared with the Six Months Ended June 28, 2025
Net Sales
| Six Months Ended | |||||||||||||||||
| ($ in thousands) | June 27, 2026 | June 28, 2025 | Inc./(Dec.) | Inc./(Dec.) | |||||||||||||
| Net Sales | $ | 127,995 | $ | 131,563 | $(3,568) | (2.7)% | |||||||||||
For the first six months of 2026, our net sales from continuing operations decreased 2.7% compared with the first six months of 2025. The lower net sales were attributed to continued lower demand driven by continued high interest rates and inflation.
| Six Months Ended | |||||||||||
| June 27, 2026 | June 28, 2025 | ||||||||||
| Net sales | 100.0 | % | 100.0 | % | |||||||
| Cost of sales | 69.1 | % | 71.9 | % | |||||||
| Gross profit | 30.9 | % | 28.1 | % | |||||||
| Selling and administrative expenses | 25.6 | % | 25.6 | % | |||||||
| Other operating Income, net | (0.1) | % | (0.1) | % | |||||||
| Facility consolidation and severance expenses, net | 0.4 | % | 0.2 | % | |||||||
| Operating income | 5.0 | % | 2.4 | % | |||||||
Gross Profit
Gross profit as a percentage of net sales was 30.9% in the first six months of 2026 compared with 28.1% in the first six months of 2025. The higher gross profit percentage in 2026 is attributable to the $3.3 million in IEEPA tariff refunds recorded during the first six months of 2026 as well as careful management of costs and improved efficiencies.
Selling and Administrative Expenses
Selling and administrative expenses were $32.7 million, or 25.6% of net sales, in the first six months of 2026 compared with $33.7 million, or 25.6% of net sales in the year earlier period. Selling and administrative expenses as a percentage of net sales remained relatively flat in the first six months of 2026 as compared to the first six months of 2025 due to lower sales volumes offset by lower selling expenses.
Other Operating income, Net
Net other operating income was $174 thousand in the first six months of 2026 compared with income of $166 thousand in the first six months of 2025.
Facility Consolidation and Severance Expenses, Net
Facility consolidation and severance expenses in the first six months of 2026 were $612 thousand compared with $232 thousand in the first six months of 2025. The expenses in 2026 included costs related to our restructuring plan for the consolidation of our yarn processing facilities and costs related to our east coast consolidation plan.
Operating Income
We reported operating income of $6.4 million in the first six months of 2026 compared with operating income of $3.2 million in the first six months of 2025. The increase in operating income was due to $3.3 million in IEEPA tariff refunds recorded during the first six months of 2026.
Interest Expense
Interest expense increased $506 thousand in the first six months of 2026 compared with the first six months of 2025. The increase is primarily the result of higher interest rates in 2026 on our debt.
Other (Income) Expense, Net
Net other (income) expense was income of $87 thousand in the first six months of 2026 compared with expense of $84 thousand in the first six months of 2025. Net other (income) expense includes interest income of $85 thousand in the first six months of 2026. Net other (income) expense included a loss of $66 thousand related to an extinguishment of a debt arrangement in the first six months of 2025.
Income Tax Provision
We recorded an income tax expense from continuing operations of $90 thousand in the first six months of 2026 compared to an income tax expense of $79 thousand in the first six months of 2025.
The effective tax rate for the six months ended June 27, 2026 was 3.50% compared with an effective tax rate of 31.73% for the six months ended June 28, 2025. Because we maintain a full valuation allowance against our deferred tax balances, we are only able to recognize refundable credits and a small amount of state taxes in the tax expense for the first six months of 2026 and 2025. We are in a net deferred tax liability position of $91 thousand at June 27, 2026 and December 27, 2025, which is included in other long-term liabilities in our consolidated condensed balance sheets.
We account for uncertainty in income tax positions according to FASB guidance relating to uncertain tax positions. Unrecognized tax benefits were $583 thousand and $576 thousand at June 27, 2026 and December 27, 2025, respectively. Such benefits, if recognized, would affect our effective tax rate. There were no significant interest or penalties accrued as of June 27, 2026 and December 27, 2025.
Net Income (Loss)
Continuing operations reflected income of $2.5 million, or $0.16 per diluted share, in the first six months of 2026 compared with a loss of $328 thousand, or $0.02 per diluted share, in the same period in 2025. The loss from discontinued operations was $245 thousand in the first six months of 2026 compared to a loss of $209 thousand in the first six months of 2025. See Note 20 to the consolidated condensed financial statements for additional details related to discontinued operations.
LIQUIDITY AND CAPITAL RESOURCES
During the six months ended June 27, 2026, cash used in operating activities in continuing operations was $1.4 million. An increase in accounts receivable and receivables for tariffs used $8.1 million during the first six months of 2026. Prepaid and other current assets used $1.3 million primarily as a result of prepaid sample and marketing expenses. An increase in inventory used $559 thousand and an increase in accounts payable and accrued expenses generated $3.4 million of cash during the first six months.
Purchases of capital assets for the six months ended June 27, 2026 resulted in a $175 thousand cash out flow to the business. Depreciation and amortization for the six months ended June 27, 2026 were $2.6 million. We expect capital expenditures to be approximately $2.0 million in 2026 while depreciation and amortization is expected to be approximately $5.5 million.
During the six months ended June 27, 2026, cash provided by financing activities was $758 thousand. We had net borrowings on our current revolving credit facility of $3.0 million. We had net payments on notes payable and financing leases of $2.2 million.
As described in Note 9 to the consolidated condensed financial statements, as of June 27, 2026, we had $55.7 million of indebtedness under our senior credit facility classified as current, due to a subjective acceleration clause in the related loan agreement. Although the debt is classified as current for financial reporting purposes, management does not currently expect repayment of the full outstanding balance within the next twelve months absent an acceleration event. If such an event were to occur, our existing cash and cash equivalents would not be sufficient to satisfy the debt in full and meet our operating needs.
We have evaluated our liquidity position over the next twelve months. In our evaluation we considered recent operating losses, reduced availability under our credit facility, covenant violations and macroeconomic pressures. Management has developed plans that are intended to improve liquidity and address these conditions, including profit improvement initiatives and seeking additional debt financing. Our evaluation of these plans, and our assumptions regarding their execution and timing, requires
significant judgment and is subject to inherent uncertainty. We believe, after having reviewed various financial scenarios, our operating cash flows, credit availability under our revolving credit facility and other sources of financing are adequate to finance our anticipated liquidity requirements under current operating conditions. Our evaluation of these plans, and its assumptions regarding their execution and timing, requires significant judgment and is subject to inherent uncertainty, therefore we have concluded that these plans do not alleviate the substantial doubt about our ability to continue as a going concern. Refer to Note 1 in our consolidated condensed financial statements for detail regarding our assessment as a going concern.
Availability under our MidCap Financial Senior Secured Revolving Credit Facility on June 27, 2026 was $11.4 million which is subject to a $6.0 million minimum excess availability requirement. Significant additional cash expenditures above our normal liquidity requirements, significant deterioration in economic conditions or continued operating losses could affect our business and require supplemental financing or other funding sources.
Changes to Critical Accounting Policies
Our critical accounting policies were outlined in Management's Discussion and Analysis of Financial Condition and Results of Operations in our 2025 Annual Report on Form 10-K filed with the Securities and Exchange Commission. There have been no changes in our critical accounting policies during 2026.
Recent Accounting Pronouncements
Recent accounting pronouncements are disclosed in Note 2 to the consolidated condensed financial statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk (Dollars in thousands)
Our earnings, cash flows and financial position are exposed to market risks relating to interest rates, among other factors. It is our policy to minimize our exposure to adverse changes in interest rates and manage interest rate risks inherent in funding our Company with debt. We address this financial exposure through a risk management program that includes maintaining a mix of fixed and floating rate debt.
At June 27, 2026, $64,462, or approximately 76% of our total debt, was subject to short-term floating interest rates. A one-hundred basis point fluctuation in the variable interest rates applicable to this floating rate debt would have an annual after-tax impact of approximately $645. Included in the $64,462, is the amount outstanding for a term loan of $8,783. The term loan bears interest of 5% for the first five years. The interest rates reset at 7.11% for the term loan in 2025. The term loan rate will continue to reset every 5 years to reflect the then current 5-year treasury rate plus a margin. A one-hundred basis point fluctuation in the interest rate applicable to this floating rate debt would have an annual after-tax impact of approximately $88. See Note 9 to the consolidated condensed financial statements for further discussion of the term loan.
Item 4. Controls and Procedures
We maintain disclosure controls and procedures to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms and is accumulated and communicated to management, including our principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Our management, under the supervision and with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as such terms are defined in Rules 13(a)-15(e) and 15(d)-15(e)) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of June 27, 2026, the date of the financial statements included in this Form 10-Q (the “Evaluation Date”). Based on that evaluation, our CEO and CFO concluded that, as of the Evaluation Date, due to the existence of a material weakness in our internal control over financial reporting described below, that our disclosure controls and procedures were not effective. However, giving full consideration to the deficiency, we have concluded that the Consolidated Condensed Financial Statements included in this interim report present fairly, in all material respects our financial position, results of operations and cash flows for the periods disclosed in conformity with U.S. generally accepted principles.
Material Weakness in Internal Control Over Financial Reporting
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our interim or annual financial statements will not be prevented or detected on a timely basis. During our assessment of internal control over financial reporting in our prior fiscal year and recurring in the current fiscal year, we identified the following material weaknesses:
•Inadequate presentation and disclosure requirements of debt - Our revolving credit facility required a reclassification to a current liability as the refinanced credit facility subsequent to year-end included a subjective acceleration clause and
lockbox arrangement which required the financial statement presentation as current. We originally calculated a covenant in a method that differed from the contractual terms, which is included in our going concern assessment. In preparing the fair value of debt disclosure, we did not formally re-evaluate our credit rating. With the refinance of the revolving credit facility, we had an observable transaction to provide supporting evidence. The current conditions and this transaction indicated a credit rating that was different than was originally used by us and resulted in a re-evaluation of our credit rating used and an adjustment to the disclosure.
•Inadequate evidence of a formal evaluation of lessor accounting - We did not retain a formal assessment of our lessor lease classification evaluation, and associated support, for the operating lease classification determinations under Topic 842 for a lease arrangement. We subsequently performed procedures that included a valuation for the net present value considerations. While the subsequent procedures did not change the lease classification determination, the change in presentation, if necessary, would have resulted in a materially different accounting result.
Remediation Efforts
We are committed to maintaining a strong internal control environment. In response to the material weaknesses described above, we will enhance our processes to evaluate and review debt transactions as they relate to the presentation and disclosure requirements of debt by designating an individual to be responsible for the review who has the expertise in these matters or will consult with outside professionals with the expertise. In addition, the designated individual will perform the necessary formal documentation as it relates to lessor accounting transactions. In order to fully document effective remediation, new transactions similar to the items above would need to occur. Such lessor transactions did not occur in the current year. We continue to evaluate and work to improve our disclosure controls and procedures and internal control over financial reporting. We plan to continue the implementation of these and other remediation efforts, such as the addition of more resources, to address the identified material weaknesses in the future.
Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures, as well as diverse interpretation of U.S. generally accepted accounting principles by accounting professionals. It is also possible that internal control over financial reporting can be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. Furthermore, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. These inherent limitations are known features of the financial reporting process; therefore, while it is possible to design into the process safeguards to reduce such risk, it is not possible to eliminate all risk.
Changes in Internal Control over Financial Reporting
Other than the material weaknesses and the remediation plan described above, there were no changes in our internal control over financial reporting during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
During the first six months of 2026, we settled all claims pending against us in the previously reported lawsuit styled Moss Land Company, LLC, et al. v City of Calhoun, et al., in the Superior Court of Gordon County Georgia, case No. 24CV74289, including all claims and counter-claims asserted against us in that case by the City of Calhoun, Georgia. Those claims have been dismissed with prejudice.
Additionally, the claims asserted against us in the previously reported lawsuit styled the City of Chatsworth, Georgia and Chatsworth Water Works Commission v. 3M Company, et al. in the Superior Court of Murray County, Georgia, Case No. 25-CI-0245, have been dismissed without prejudice.
We have settled all claims against us in the previously reported lawsuits styled William Hartwell Brooks, et al. v City of Calhoun Georgia, et al., in the Superior Court of Gordon County Georgia, Case No. 25CV74289, and James Haley Stephens and Pamela J. Stephens v 3M Company, et al., in the Superior Court of Gordon County Georgia, case No. 25CV75072. Accordingly, we expect a prompt dismissal of those claims with prejudice.
Item 1A. Risk Factors
In addition to the other information provided in this Report, the following risk factors should be considered when evaluating the 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 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.
We have significant levels of indebtedness that includes covenants that we must comply with and if unable to comply with such covenants, it could cause us to be unable to continue as a going concern.
We have a significant amount of indebtedness relative to our equity. Insufficient cash flow, profitability, or the value of our assets securing our loans could have a material adverse effect on our ability to generate sufficient funds to satisfy the terms of our senior loan agreement and other debt obligations. Our senior loan agreement and term loans include certain compliance, affirmative, and financial covenants. The impact of continued operating losses on our liquidity position could affect our ability to comply with these covenants and could cause us to be unable to continue to operate as a going concern. Additionally, the inability to access debt or equity markets at competitive rates in sufficient amounts to satisfy our obligations could adversely impact our business. Significant increases in interest rates tied to our floating rate debt could have a material adverse effect on our financial results. Further, our trade relations depend on our economic viability and insufficient capital could harm our ability to attract and retain customers and or supplier relationships.
Additional tariffs on product imported to the U.S., retaliatory trade actions taken by other countries and resulting trade wars may have a material adverse impact on our business.
Our business is subject to risks related to tariffs and other trade policies put in place by the U.S. or other countries. The recent enactment of tariffs by the U.S. government, along with the unpredictability of such rates, pose a significant risk to our business operations and may materially increase our costs and reduce our margins. The tariffs may also lead to higher pricing for our products, potentially reducing consumer demand and impacting our sales volume. We are actively monitoring the impact of any tariffs that become effective, as well as potential retaliatory tariffs imposed by other countries. We are currently analyzing strategies that can be taken to moderate or minimize the effects of these trade actions, including evaluating the country of origin for sourcing product into the U.S., negotiating with suppliers and raising prices. However, there can be no assurance that these measures will be successful, or that they will offset the negative impact of the tariffs on our business.
On February 20, 2026, the U.S. Supreme Court ruled that the International Emergency Economic Powers Act (“IEEPA”), which the U.S. administration relied on to impose certain tariffs, does not authorize the administration to impose tariffs. On March 4, 2026, the U.S. Court of International Trade ("CIT") issued an order directing the U.S. Customs and Border Protection (“CBP”) agency to begin formalizing a process for refunds. On April 20, 2026, the CBP launched an online portal that can be used to submit IEEPA tariff refund requests. All requests will be reviewed by the CBP to determine validity prior to the issuance of refunds. We were able to submit our IEEPA tariff refund request on April 20, 2026 through the portal. We have paid IEEPA tariffs to the U.S. government since the enactment on February 1, 2025, and accordingly we submitted our request for refund of $3.3 million related to IEEPA tariffs paid during the period from February 1, 2025 to February 20, 2026. Based on the U.S. Supreme Court's ruling, related CIT proceedings, and our submission of tariff refund requests and assessment of the recoverability of amounts paid, we have concluded as of March 28, 2026 that the recovery of previously incurred IEEPA tariffs is probable. Under a loss recovery accounting method, we recognized a receivable of $3.3 million for the IEEPA tariffs incurred in Receivables - tariff refund within the condensed consolidated balance sheet and a corresponding reversal of cost of sales for $3.3 million within the condensed consolidated statement of income for the six-month period ended June 27, 2026. Prior to June 27, 2026, we
received partial payments of $261 thousand plus an immaterial amount of interest of previously paid tariffs. Subsequent to June 27, 2026, we received additional partial refunds totaling $3.0 million plus an immaterial amount of interest which leaves only $21 thousand remaining of the original receivable. We will continue to monitor regulatory guidance regarding the refund process.
Given the uncertainty regarding scope and duration of the current and potential tariffs, as well as the potential for additional trade actions by the U.S. or other countries, the specific impact to our business, results of operations, cash flows and financial condition is uncertain but could be material.
The floorcovering industry is sensitive to changes in general economic conditions and a further decline in residential activity or home remodeling and refurbishment could have a material adverse effect on our business.
The floorcovering industry, in which we participate, is highly dependent on general economic conditions, such as interest rate levels, consumer confidence and income, corporate and government spending, availability of credit and demand for housing. We derive a majority of our sales from the replacement segment of the market. Therefore, unfavorable economic changes, such as an economic recession, could result in a significant or prolonged decline in spending for remodeling and replacement activities which could have a material adverse effect on our business and results of operations.
The residential floorcovering market is highly dependent on housing activity, including remodeling. The U.S. and global economies, along with the residential markets in such economies, can negatively impact the floorcovering industry and our business. Although the impact of a decline in new housing activity is typically accompanied by an increase in remodeling and replacement activity, these activities typically lag during a cyclical downturn. Additional or extended downturns could cause prolonged deterioration. A significant or prolonged decline in residential housing activity could have a material adverse effect on our business and results of operations.
Our Common Stock was delisted from the Nasdaq Stock Market, which could make trading in our Common Stock more difficult for investors, potentially leading to declines in our share price and liquidity and could limit our ability to raise additional capital.
Nasdaq Marketplace Rule 5550(a)(2) required that, for continued listing on the exchange, we had to maintain a minimum bid price of $1 per share. We received notice from Nasdaq on September 27, 2023 that our closing bid price was below $1 per share for 30 consecutive business days. We requested, and were granted, an additional 180 calendar days from March 25, 2024 to September 24, 2024 to meet the applicable minimum bid price requirement. On September 24, 2024, the Company received a letter from Nasdaq notifying the Company that it had not regained compliance with the bid price requirement by the required compliance date and, as a result, the Company's Common Stock was subject to delisting. Effective at the opening of business on October 3, 2024, our Common Stock was suspended and delisted from Nasdaq and began trading on the Over-the-Counter Market pink sheets under the stock symbol DXYN. Effective October 4, 2024, we were upgraded to the Over-the-Counter OTCQB Market ("the OTCQB") trading under the same symbol DXYN. On February 12, 2025, Nasdaq filed a Form 25 with the SEC notifying the SEC of Nasdaq's determination to remove our securities from listing on Nasdaq. The delisting was effective February 21, 2025.
Our delisting from Nasdaq could make trading in our common stock more difficult for investors, potentially leading to declines in our share price and liquidity. Shareholders may have a difficult time getting a quote for the sale or purchase of our stock, the sale or purchase of our stock will likely be made more difficult and the trading volume and liquidity of our stock could decline. Our delisting from Nasdaq could also result in negative publicity and could also make it more difficult for us to raise additional capital. The absence of such a listing may adversely impact the acceptance of our Common Stock as currency or the value accorded by other parties.
Uncertainty in the credit market or downturns in the economy and our business could affect our overall availability and cost of credit.
Economic factors, including an economic recession, could have a material adverse effect on demand for our products and on our financial condition and operating results. Uncertainty in the credit markets could affect the availability and cost of credit. If banks and financial institutions with whom we have banking relationships enter receivership or become insolvent in the future, we may be unable to access, and we may lose, some or all of our existing cash and cash equivalents to the extent those funds are not insured or otherwise protected by the FDIC. Market conditions could impact our ability to obtain financing in the future, including any financing necessary to refinance existing indebtedness. The cost and terms of such financing is uncertain. Continued operating losses could affect our ability to continue to access the credit markets under our current terms and conditions.
Our stock price has been and could remain volatile, which could further adversely affect the market price of our stock, our ability to raise additional capital.
The market price of our common stock has historically experienced and may continue to experience significant volatility. Our progress in restructuring our business, our quarterly operating results, our perceived prospects, lack of securities analysts’
recommendations or earnings estimates, changes in general conditions in the economy or the financial markets, adverse events related to our strategic relationships, significant sales of our common stock by existing stockholders, and other developments affecting us or our competitors could cause the market price of our common stock to fluctuate substantially. In addition, in recent years, the stock market has experienced significant price and volume fluctuations. This volatility has affected the market prices of securities issued by many companies for reasons unrelated to their operating performance and may adversely affect the price of our common stock. Such market price volatility could adversely affect our ability to raise additional capital.
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. Significant consolidation within the floorcovering industry has caused a number of our existing and potential competitors to grow significantly larger and have greater access to resources and capital than we do. Maintaining our competitive position may require us to make substantial additional investments in our product development efforts, manufacturing facilities, distribution network and sales and marketing activities. These additional investments may be limited by our access to capital, as well as restrictions set forth in our credit facilities. Competitive pressures and the accelerated growth of hard surface alternatives have resulted in decreased demand for our soft floorcovering products and in the loss of market share to hard surface products. As a result, competition from providers of other soft surfaces has intensified and may result in lower demand for our products. In addition, we face, and will continue to face, competitive pressures on our sales prices and cost of our products. As a result of any of these factors, there could be a material adverse effect on our sales and profitability.
If we are unable to anticipate consumer preferences and successfully develop and introduce new, innovative and updated products, we may not be able to maintain or increase our net revenues and profitability.
Our success depends on our ability to identify and originate product trends as well as to anticipate and react to changing consumer demands in a timely manner. All of our products are subject to changing consumer preferences that cannot be predicted with certainty. In addition, long lead times for certain products may make it hard for us to quickly respond to changes in consumer demands. New products may not receive consumer acceptance as consumer preferences could shift rapidly to different types of flooring products or away from these types of products altogether, and our future success depends in part on our ability to anticipate and respond to these changes. Failure to anticipate and respond in a timely manner to changing consumer preferences could lead to, among other things, lower sales and excess inventory levels, which could have a material adverse effect on our financial condition.
Raw material prices will vary and the inability to either offset or pass on such cost increases or avoid passing on decreases larger than the cost decrease to our customers could have a material adverse effect on our business, results of operations and financial condition.
We require substantial amounts of raw materials to produce our products, including nylon and polyester yarn, as well as wool yarns, synthetic backing, latex, and dyes. Substantially all of the raw materials we require are purchased from outside sources. The prices of raw materials and fuel-related costs have increased significantly due to market conditions and inflationary pressures, the duration and extent of which is difficult to predict. The fact that we source a significant amount of raw materials means that several months of raw materials and work in process are moving through our supply chain at any point in time. We are sourcing the majority of our new luxury vinyl flooring and wood product lines from overseas. We are not able to predict whether commodity costs will significantly increase or decrease in the future. If commodity costs continue to increase in the future and we are not able to reduce or eliminate the effect of the cost increases by reducing production costs or implementing price increases, our profit margins could decrease. If commodity costs decline, we may experience pressures from customers to reduce our selling prices. The timing of any price reductions and decreases in commodity costs may not align. As a result, our margins could be affected.
Disruption to suppliers of raw materials could have a material adverse effect on us.
Nylon yarn is the principal raw material used in our floorcovering products. The supply of all nylon yarn and yarn systems has been negatively impacted by a variety of overall market factors. The cost of nylon yarns has risen significantly and availability of nylon yarns has been restricted. An interruption in the supply of these or other raw materials or sourced products used in our business or in the supply of suitable substitute materials or products would disrupt our operations, which could have a material adverse effect on our business. Supply constraints may impact our ability to successfully develop products and effectively service our customers. We have developed and are developing products and product offerings using fiber systems from multiple external fiber suppliers as well as from vertically integrated production of our yarn supply through dedicated internal extrusion operations. There can be no certainty as to the success of our efforts to develop and market such products. We continually evaluate our sources of yarn and other raw materials for competitive costs, performance characteristics, brand value, and diversity of supply.
We rely on information systems in managing our operations and any system failure, cyber incident or deficiencies of such systems may have an adverse effect on our business.
Our businesses rely on sophisticated systems to obtain, rapidly process, analyze and manage data. We rely on these systems to, among other things, facilitate the purchase, manufacture and distribution of our products; receive, process and ship orders on a timely basis; and to maintain accurate and up-to-date operating and financial data for the compilation of management information. We rely on our computer hardware, software and network for the storage, delivery and transmission of data to our sales and distribution systems, and certain of our production processes are managed and conducted by computer. Any damage by unforeseen events or system failure which causes interruptions to the input, retrieval and transmission of data or increase in the service time, whether caused by human error, natural disasters, power loss, computer viruses, intentional acts of vandalism, various forms of cyber crimes including and not limited to hacking, ransomware, intrusions and malware or otherwise, could disrupt our normal operations. Depending upon the severity of the incident, there can be no assurance that we can effectively carry out our disaster recovery plan to handle a failure of our information systems, or that we will be able to restore our operational capacity within sufficient time to avoid material disruption to our business. The occurrence of any of these events could cause unanticipated disruptions in service, decreased customer service and customer satisfaction and harm to our reputation, which could result in loss of customers, increased operating expenses and financial losses. Any such events could in turn have a material adverse effect on our business, financial condition, results of operations, and prospects.
The long-term performance of our business relies on our ability to attract, develop and retain qualified personnel.
To be successful, we must attract, develop and retain qualified and talented personnel in management, sales, marketing, product design and operations. We compete with other floorcovering companies for these employees and invest resources in recruiting, developing, motivating and retaining them. The failure to attract, develop, motivate and retain key employees could negatively affect our business, financial condition and results of operations.
We are subject to various governmental actions that may interrupt our supply of materials.
We import most of our luxury vinyl flooring ("LVF"), some of our wood offering, some of our rugs and broadloom offerings. Though currently a small part of our business, the growth in LVF products is an important product offering to provide our customers a complete selection of flooring alternatives. There have been trade proposals that threatened these product categories with added tariffs which would make our offerings less competitive compared to those manufactured in other countries or produced domestically. These proposals, if enacted, or if expanded, or imposed for a significant period of time, would materially interfere with our ability to successfully enter into these product categories and could have a material adverse effect upon our cost of sales and results of operations.
Regulatory efforts to monitor political, social, and environmental conditions in foreign countries that produce products or components of products purchased by us will necessarily add complexity and cost to our products and processes and may reduce the availability of certain products. Regulatory efforts to prevent or reduce the risk that certain flooring products or elements of such products are produced in regions where forced or involuntary labor are known or believed to occur will result in increased cost to us as we attempt to ensure that none of our products or components of our products are produced in such regions. Such increased cost may make our products less competitive.
We may experience certain risks associated with internal expansion, acquisitions, joint ventures and strategic investments.
We continually look for strategic and tactical initiatives, including internal expansion, acquisitions and investment in new products, to strengthen our future and to enable us to return to sustained growth and to achieve profitability. Growth through expansion and acquisition involves risks, many of which may continue to affect us after the acquisition or expansion. An acquired company, operation or internal expansion may not achieve the levels of revenue, profitability and production that we expect. The combination of an acquired company’s business with ours involves risks. Further, internally generated growth that involves expansion involves risks as well. Such risks include the integration of computer systems, alignment of human resource policies and the retention of valued talent. Reported earnings may not meet expectations because of goodwill and intangible asset impairment, other asset impairments, increased interest costs and issuance of additional securities or debt as a result of these acquisitions. We may also face challenges in consolidating functions and integrating our organizations, procedures, operations and product lines in a timely and efficient manner.
The diversion of management attention and any difficulties encountered in the transition and integration process could have a material adverse effect on our revenues, level of expenses and operating results. Failure to successfully manage and integrate an acquisition with our existing operations or expansion of our existing operations could lead to the potential loss of customers of the acquired or existing business, the potential loss of employees who may be vital to the new or existing operations, the potential loss of business opportunities or other adverse consequences that could have a material adverse effect on our business, financial condition and results of operations. Even if integration occurs successfully, failure of the expansion or
acquisition to achieve levels of anticipated sales growth, profitability or productivity, or otherwise perform as expected, may have a material adverse effect on our business, financial condition and results of operations.
We are subject to various environmental, safety and health regulations that may subject us to costs, liabilities and other obligations, which could have a material adverse effect on our business, results of operations and financial condition.
We are subject to various environmental, safety and health and other regulations that may subject us to costs, liabilities and other obligations which could have a material adverse effect on our business. The applicable requirements under these laws are subject to amendment, to the imposition of new or additional requirements and to changing interpretations of agencies or courts. We could incur material expenditures to comply with new or existing regulations, including fines and penalties and increased costs of our operations. Additionally, future laws, ordinances, regulations or regulatory guidelines could give rise to additional compliance or remediation costs that could have a material adverse effect on our business, results of operations and financial condition. For example, producer responsibility regulations regarding end-of-life disposal could impose additional cost and complexity to our business.
The Environmental Protection Agency ("EPA") has declared an intent to focus on perceived risks posed by certain chemicals (principally PFOA and PFOAS) previously used by the carpet industry. Recently, such chemicals have been declared to be hazardous substances by the EPA. New or revised regulatory actions could result in requirements that industry participants, including us, incur costs related to testing and cleanup of areas affected by such chemical usage. Other chemicals or materials historically used by the industry and us could become the focus of similar governmental action.
Various federal, state and local environmental laws govern the use of our current and former facilities. These laws govern such matters as:
•Discharge 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.
We are a manufacturer and distributor of flooring products which require processes and materials that necessarily utilize substantial amounts of carbon-based energy and accordingly involve the emission of “greenhouse gasses.” Regulatory monitoring, reporting and, more generally, efforts to eliminate or substantially reduce “greenhouse gasses” will necessarily add complexity and cost to our products and processes decreasing profitability and consumer demand. Additionally, consumer preferences may be affected by publicly announced issues related to “greenhouse gasses” which may negatively affect demand for our products. There can be no assurance that we can cost effectively respond to any such regulatory efforts or that demand for our products can be sustained under such pressures.
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 ensure that complying with these environmental or health and safety laws and requirements will not adversely affect our business, results of operations and financial condition.
We may be exposed to litigation, claims and other legal proceedings in the ordinary course of business relating to our products or business, which could have a material adverse effect on our business, results of operations and financial condition.
In the ordinary course of business, we are subject to a variety of work-related and product-related claims, lawsuits and legal proceedings, including those relating to product liability, product warranty, product recall, personal injury, and other matters that are inherently subject to many uncertainties regarding the possibility of a loss to our business. Such matters could have a material adverse effect on our business, results of operations and financial condition if we are unable to successfully defend against or resolve these matters or if our insurance coverage is insufficient to satisfy any judgments against us or settlements relating to these matters. Although we have product liability insurance, the policies may not provide coverage for certain claims against us or may not be sufficient to cover all possible liabilities. Further, we may not be able to maintain insurance at commercially acceptable premium levels. Additionally, adverse publicity arising from claims made against us, even if the claims are not successful, could adversely affect our reputation or the reputation and sales of our products.
Since 2016, the Company has been named as a defendant in multiple lawsuits filed by various individual plaintiffs against chemical manufacturers, distributors, and several other carpet manufacturers and finishers in connection with the past use of surfactants containing or alleged to contain chemicals associated with PFAS and PFOS. Additionally, and as noted above, there
is an increased regulatory focus on the use and past use of such chemicals. Such regulatory focus may result in governmental litigation related to use of such chemicals.
To date, the Company has managed the defense and settlement of lawsuits related to the alleged past use of PFOA, PFOS and related chemicals by expenditure of amounts deemed not to be material. Nevertheless, the future costs of such litigation are unpredictable. The management time spent on such matters and the distraction caused by such litigation has been and is likely to be significant. Accordingly, there can be no assurance that costs related to defending such lawsuits will not be material in the future and will not have a material adverse impact upon the Company.
Our business operations could suffer significant losses from natural disasters, catastrophes, fire or other unexpected events.
Many of our business activities involve substantial investments in manufacturing facilities and many products are produced at a limited number of locations. These facilities could be materially damaged by natural disasters, such as floods, tornadoes, hurricanes and earthquakes, or by fire or other unexpected events such as adverse weather conditions or other disruptions to our facilities, supply chain or our customer's facilities. We could incur uninsured losses and liabilities arising from such events, including damage to our reputation, and/or suffer material losses in operational capacity, which could have a material adverse impact on our business, financial condition and results of operations.
Our financial condition and results of operations have been and could likely be adversely impacted in the future by COVID-19 or other pandemics and the related negative impact on economic conditions.
Global and/or local pandemics, such as COVID-19, could negatively impact areas where we operate and sell our products and services. The COVID-19 outbreak in 2020 had a material adverse effect on our ability to operate and our results of operations as public health organizations recommended, and many governments implemented, measures to slow and limit the transmission of the virus, including shelter in place and social distancing ordinances. Although the accessibility of vaccines and other preventive measures have lessened the impact, new variants or other pandemics may necessitate a return of such restrictive, preventive measures which may have a material adverse effect on our business for an indefinite period of time, such as the potential shut down of certain locations, decreased employee availability, disruptions to the businesses of our selling channel partners, and others. Our suppliers and customers may also face these and other challenges, which could lead to a disruption in our supply chain as well as decreased construction and renovation spending and consumer demand for our products and services.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Repurchases of Common Stock
The following table provides information regarding our repurchases of our Common Stock Shares during the three months ended June 27, 2026:
| Fiscal Month Ending | Total Number of Shares Purchased (1) | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2) | Maximum Number (or approximate dollar value) of Shares That May Yet Be Purchased Under Plans or Programs (2) | ||||||||||||||||||||||
| May 2, 2026 | 33,580 | $ | 0.40 | — | ||||||||||||||||||||||
| May 30, 2026 | — | — | — | |||||||||||||||||||||||
| June 27, 2026 | — | — | — | |||||||||||||||||||||||
| Three Months Ended June 27, 2026 | 33,580 | $ | 0.40 | — | $ | — | ||||||||||||||||||||
(1)During the three months ended June 27, 2026, 33,580 shares were withheld from employees in lieu of cash payments for withholding taxes due for a total amount of $13,432 pursuant to the terms of the applicable incentive plans.
(2)We currently do not have an active stock repurchase plan.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not Applicable.
Item 5. Other Information
Item 6. Exhibits
(a.)Exhibits
101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
SIGNATURES
Pursuant to the requirements 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.
| THE DIXIE GROUP, INC. | ||||||||
| (Registrant) | ||||||||
| Date: August 6, 2026 | By: /s/ Allen L. Danzey | |||||||
| Allen L. Danzey Vice President and Chief Financial Officer | ||||||||