DIXIE GROUP INC

Previous wording

The Middle East conflict that began in late February 2026 materially 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. Expectations shifted toward a more prolonged “higher for longer” Federal Reserve stance, with the anticipated number of rate cuts for 2026 falling close to zero. Although the ceasefire announced on April 8, 2026 has partially reversed the most severe effects on interest rates, we expect volatility to remain elevated until the conflict is more 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.

Current wording

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.

Previous wording

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

Current wording

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

Previous wording

Table of Contents 25 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 three-month period ended March 28, 2026.

Current wording

Table of Contents 26 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.

Previous wording

Interest expense increased $412 thousand in the first quarter of 2026 compared with the first quarter of 2025. The increase is primarily the result of higher interest rates in 2026 on our higher levels of debt.

Current wording

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.

Previous wording

We recorded an income tax expense from continuing operations of $37 thousand in the first quarter of 2026 compared to an income tax expense of $12 thousand in the first quarter of 2025.

Current wording

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.

Previous wording

The effective tax rate for the three months ended March 28, 2026 was 2.66% compared with an effective tax rate of 0.76% for the three months ended March 29, 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 quarter of 2026 and 2025. We are in a net deferred tax liability position of $91 thousand at March 28, 2026 and December 27, 2025, which is included in other long-term liabilities in our consolidated condensed balance sheets.

Current wording

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.

Previous wording

We account for uncertainty in income tax positions according to FASB guidance relating to uncertain tax positions. Unrecognized tax benefits were $589 thousand and $576 thousand at March 28, 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 March 28, 2026 and December 27, 2025.

Current wording

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.

Previous wording

Continuing operations reflected income of $1.4 million, or $0.09 per diluted share, in the first quarter of 2026 compared with a loss of $1.6 million, or $0.11 per diluted share, in the same period in 2025. The loss from discontinued operations was $203 thousand in the first quarter of 2026 compared to a loss of $115 thousand in the first quarter of 2025. See Note 20 to the consolidated condensed financial statements for additional details related to discontinued operations.

Current wording

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.

Previous wording

For the first quarter of 2026, our net sales from continuing operations decreased 5.7% compared with the first quarter of 2025. The lower net sales were attributed to continued lower demand driven by continued high interest rates and inflation.

Current wording

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.

Previous wording

Gross profit as a percentage of net sales was 32.5% in the first quarter of 2026 compared with 26.8% in the first quarter of 2025. The higher gross profit percentage in 2026 includes the impact of $3.3 million in IEEPA tariff refunds recorded during the first quarter of 2026.

Current wording

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.

Previous wording

Selling and administrative expenses were $16.0 million, or 26.9% of net sales, in the first quarter of 2026 compared with $16.9 million, or 26.8% of net sales in the year earlier period. Selling and administrative expenses as a percentage of net sales increased in the first quarter of 2026 as compared to the first quarter of 2025 due to lower sales volumes offset by lower selling expenses.

Current wording

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.

Previous wording

Facility consolidation and severance expenses in the first quarter of 2026 were $112 thousand compared with $115 thousand in the first quarter of 2025. The expenses in 2026 and 2025 were related to our restructuring plan for the consolidation of our east coast manufacturing.

Current wording

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.

Previous wording

We reported operating income of $3.3 million in the first quarter of 2026 compared with operating income of $11 thousand in the first quarter of 2025. The increase in operating income was due to $3.3 million in IEEPA tariff refunds recorded during the first quarter of 2026.

Current wording

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.

Previous wording

Net other (income) expense was income of $32 thousand in the first quarter of 2026 compared with an expense of $88 thousand in the first quarter of 2025. Net other (income) expense included a loss of $66 thousand related to an extinguishment of a debt arrangement in the first quarter of 2025.

Current wording

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.

Previous wording

During the three months ended March 28, 2026, cash used in operating activities in continuing operations was $2.6 million. An increase in accounts receivable and receivables for tariffs used $7.0 million during the first three months of 2026. Prepaid and other current assets used $782 thousand primarily as a result of prepaid sample and marketing expenses. An increase in inventory used $1.7 million and an increase in accounts payable and accrued expenses generated $4.3 million of cash during the first three months.

Current wording

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.

Previous wording

Purchases of capital assets for the three months ended March 28, 2026 resulted in a $59 thousand cash out flow to the business. Depreciation and amortization for the three months ended March 28, 2025 were $1.4 million. We expect capital expenditures to be approximately $2.9 million in 2026 while depreciation and amortization is expected to be approximately $5.5 million.

Current wording

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.

Previous wording

During the three months ended March 28, 2026, cash provided by financing activities was $1.9 million. 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 $1.1 million.

Current wording

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.

Previous wording

As described in Note 9 to the consolidated condensed financial statements, we had $55.7 million of outstanding indebtedness under our senior credit facility that is classified as current as of March 28, 2026. As of the date of these financial statements, the Company’s existing cash and cash equivalents would not be sufficient to satisfy this debt in whole and meet the Company’s operating needs for at least one year after the issuance of these financial statements.

Current wording

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.

Previous wording

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. Refer to Note 1 in our consolidated condensed financial statements for detail regarding our assessment as a going concern.

Current wording

Table of Contents 30 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.

Previous wording

Availability under our MidCap Financial Senior Secured Revolving Credit Facility on March 28, 2026 was $10.3 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.

Current wording

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.