The Dixie Group Inc.
03/26/2026 | Press release | Distributed by Public on 03/26/2026 12:48
Annual Report for Fiscal Year Ending December 27, 2025 (Form 10-K)
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 financial statements and related notes appearing elsewhere in this report.
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.
Our sales volumes continue to be impacted by softness in U.S. housing turnover and sluggish new home construction. Weak consumer confidence 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 near historically low levels, driven by affordability challenges and broader economic uncertainty. We have, to some extent, offset the impact of a soft housing market and decreased renovation activity through cost containment, price increases, 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 consumer confidence improves and home mortgage 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.
We continue to actively monitor trade policy and tariff announcements, including various executive orders issued by the current U.S. presidential administration. We have taken steps to mitigate the implemented tariffs through managing inventory of sourced products and adjusting prices as the tariff trade policy evolves. We continue to monitor changing tariff levels and adjust its strategies to mitigate their impact as trade policy evolves. These tariff actions, retaliatory measures, or other trade restrictions could materially and adversely impact our business, financial condition and results of operations.
Nasdaq Marketplace Rule 5550(a)(2) requires that, for continued listing on the exchange, we must 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.
RESULTS OF OPERATIONS
Fiscal Year Ended December 27, 2025 Compared with Fiscal Year Ended December 28, 2024
| Fiscal Year Ended (amounts in thousands) | ||||||||||||||||||||||||||
| December 27, 2025 | % of Net Sales | December 28, 2024 | % of Net Sales | Increase (Decrease) | % Change | |||||||||||||||||||||
| Net sales | $ | 257,429 | 100.0 | % | $ | 265,026 | 100.0 | % | $ | (7,597) | (2.9) | % | ||||||||||||||
| Cost of sales | 187,880 | 73.0 | % | 199,515 | 75.3 | % | (11,635) | (5.8) | % | |||||||||||||||||
| Gross profit | 69,549 | 27.0 | % | 65,511 | 24.7 | % | 4,038 | 6.2 | % | |||||||||||||||||
| Selling and administrative expenses | 67,673 | 26.3 | % | 69,850 | 26.4 | % | (2,177) | (3.1) | % | |||||||||||||||||
| Other operating expense, net | 1,209 | 0.5 | % | 200 | - | % | 1,009 | 504.5 | % | |||||||||||||||||
| Facility consolidation and severance expenses, net | 549 | 0.2 | % | 1,327 | 0.5 | % | (778) | (58.6) | % | |||||||||||||||||
| Operating income (loss) | 118 | - | % | (5,866) | (2.2) | % | 5,984 | (102.0) | % | |||||||||||||||||
| Interest expense | 7,309 | 2.8 | % | 6,380 | 2.4 | % | 929 | 14.6 | % | |||||||||||||||||
| Other (income) expense, net | 11 | - | % | (7) | - | % | 18 | (257.1) | % | |||||||||||||||||
| Loss from continuing operations before taxes | (7,202) | (2.8) | % | (12,239) | (4.6) | % | 5,037 | (41.2) | % | |||||||||||||||||
| Income tax provision (benefit) | 73 | - | % | (29) | - | % | 102 | (351.7) | % | |||||||||||||||||
| Loss from continuing operations | (7,275) | (2.8) | % | (12,210) | (4.6) | % | 4,935 | (40.4) | % | |||||||||||||||||
| Loss from discontinued operations, net of tax | (340) | (0.2) | % | (790) | (0.3) | % | 450 | (57.0) | % | |||||||||||||||||
| Net loss | $ | (7,615) | (3.0) | % | $ | (13,000) | (4.9) | % | $ | 5,385 | (41.4) | % | ||||||||||||||
Net Sales.Net sales for the year ended December 27, 2025 were $257.4 million compared with $265.0 in the prior period, a decrease of 2.9% for the year-over-year comparison. The lower net sales were attributed to continued lower demand within the floorcovering industry and related markets driven by continued high interest rates and inflation.
Gross Profit.Gross profit, as a percentage of net sales, increased 2.3 percentage points in 2025 compared with 2024. The increase in gross profit percentage in 2025 was primarily driven by lower raw material costs and cost reductions in our operations.
Selling and Administrative Expenses.Selling and administrative expenses were $67.7 million in 2025 compared with $69.9 million in 2024. Selling and administrative expenses as a percent of the net sales for 2025 and 2024 were 26.3% and 26.4% respectively. The decrease in selling and administrative expenses was primarily due to a reduction in sample and marketing expenses offset by an increase in legal expenses.
Other Operating Expense, Net.Net other operating expense was an expense of $1.2 million in 2025 compared with an expense of $200 thousand in 2024. Other operating expense, net includes estimated losses related to certain pending litigation.
Facility Consolidation and Severance Expenses, Net.Facility consolidation expenses were $549 thousand in 2025 compared with $1.3 million in 2024. The facility consolidation expenses incurred during 2025 and 2024 were primarily related to our plan for the consolidation of our east coast manufacturing to better align our production capacity with our sales volume and concentrate production into our lower cost facility.
Operating Income (Loss). The operating income in 2025 was $118 thousand compared to an operating loss of $5.9 million in 2024. The increase in operating income (loss) was primarily the result of cost reductions in our operations.
Interest Expense.Interest expense was $7.3 million in 2025 compared with $6.4 million in 2024. The increase is a result of higher interest rates through out 2025 compared to 2024.
Other (Income) Expense, Net.Net other (income) expense was an expense of $11 thousand in 2025 compared with income of $7 thousand in 2024. The 2025 expense included a loss of $66 thousand related to an extinguishment of a debt arrangement.
Income Tax Provision (Benefit).Our effective income tax rate was a provision of 1.01% in 2025. The provision relates to federal and state cash taxes paid offset by certain federal and state credits. In 2025, we increased our valuation allowance by $2.1 million related to our net deferred tax asset and specific federal and state net operating losses and federal and state tax credit carryforwards.
Our effective income tax rate was a benefit of 0.24% in 2024. The provision relates to federal and state cash taxes paid offset by certain federal and state credits. In 2024, we decreased our valuation allowance by $3.8 million related to our net deferred tax asset and specific federal and state net operating losses and federal and state tax credit carryforwards.
Net Loss.Continuing operations reflected a loss of $7.3 million, or $0.50 per diluted share in 2025, compared with a loss from continuing operations of $12.2 million, or $0.83 per diluted share in 2024. Our discontinued operations reflected a loss of $340 thousand, or $0.02 per diluted share in 2025 compared with a loss of $790 thousand, or $0.05 per diluted share in 2024. Including discontinued operations, we had a net loss of $7.6 million, or $0.52 per diluted share, in 2025 compared with net loss of $13.0 million, or $0.88 per diluted share, in 2024.
LIQUIDITY, CAPITAL RESOURCES AND GOING CONCERN
During the year ended December 27, 2025, cash provided by continuing operations was $9.6 million. A reduction in inventories generated $482 thousand and an increase in accounts payable and accrued expenses generated $9.3 million.
Net cash used in investing activities was $473 thousand during the year ended December 27, 2025. This amount was primarily the result of purchases of property, plant and equipment of $598 thousand.
During the year ended December 27, 2025, cash used in financing activities was $1.6 million. We had net borrowings of $2.7 million on our revolving credit facilities. We had payments of $2.1 million on building and other term loans and payments on notes payable, net of borrowings was $280 thousand and payments on finance leases of $152 thousand.
Nasdaq Marketplace Rule 5550(a)(2) requires that, for continued listing on the exchange, we must 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 it more difficult for us to raise additional capital if needed.
As described in Note 1 to the consolidated financial statements, we had $52.7 million of outstanding indebtedness under our senior credit facility that is classified as current as of December 27, 2025. 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.
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. However, our current forecast projects we may not be able to maintain compliance with certain of our financial covenants under our loan agreements. We have been able to obtain waivers in the past for such violations but it cannot be assured that such waivers will be obtained in the future. Refer to Note 1 in our consolidated financial statements for detail regarding our assessment as a going concern.
Availability under our MidCap Financial Senior Secured Revolving Credit Facility on December 27, 2025 was $8.2 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.
Debt Facilities
Revolving Credit Facility - MidCap Financial IV Trust. On February 25, 2025, we entered into a new $75.0 million 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 our Calhoun and Chatsworth, Georgia facilities. Our 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. We are 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. We are subject to a monthly rolling minimum EBITDA requirement if availability is under 20% of the principal amount of the loan. The credit agreement is subject to customary terms and conditions and annual administrative and unused line fees with pricing varying based on excess availability. As of December 27, 2025, the unused borrowing availability under the MidCap revolving credit agreement was $8.2 million which is subject to a $6.0 million minimum excess availability requirement. (See Note 22 Subsequent Events for information on our amended revolving credit agreement with MidCap Financial IV Trust.)
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. The loan requires certain compliance, affirmative, and financial covenants and, as of the reporting date, we are in compliance with or have received waivers or amendments for all such financial covenants.
Term Loans. Effective October 28, 2020, we entered into a $10.0 million 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 treasury, to be reset every 5 years at 3.5% above 5-year 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 our Atmore, Alabama and Roanoke, Alabama facilities. The loan requires certain compliance, affirmative, and financial covenants and, as of the reporting date, we are in compliance with or have received waivers for all such financial covenants.
Effective October 29, 2020, we entered into a $15.0 million 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 treasury, to be reset after 5 years at 3.5% above 5-year 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 our machinery and equipment, a certificate of deposit and a second lien on our Atmore and Roanoke facilities. The loan requires certain compliance, affirmative, and financial covenants and, as of the reporting date, we are in compliance with or have received waivers for all such financial covenants.
Notes Payable - Other.On January 14, 2019, we 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, we sold our Saraland facility, and approximately 17.12 acres of surrounding property located in Saraland, Alabama (the "Property") to the Purchaser for a purchase price of $11.5 million. Concurrent with the sale of the Property, we and the Purchaser entered into a twenty-year lease agreement (the "Lease Agreement"), whereby we leased back the Property at an annual rental rate of $977 thousand, subject to annual rent increases of 1.25%. Under the Lease Agreement, we have 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. We recorded a liability for the amounts received, continued to depreciate the asset, and imputed an interest rate so that the net carrying amount of the financial liability and remaining assets will be zero at the end of the lease term.
Our other financing notes have terms up to 1 year, bear interest ranging from 6.45% to 6.75% and are due in monthly installments through their maturity dates. Our other notes do not contain any financial covenants.
Finance Lease Obligations. Our finance lease obligations are due in monthly installments through their maturity dates. Our finance lease obligations are secured by the specific equipment leased. (See Note 9 to our Consolidated Financial Statements).
Stock-Based Awards
We recognize compensation expense related to share-based stock awards based on the fair value of the equity instrument over the period of vesting for the individual stock awards that were granted. At December 27, 2025, the total unrecognized compensation expense related to unvested restricted stock awards was $598 thousand with a weighted-average vesting period of 6.3 years.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements at December 27, 2025 or December 28, 2024.
Income Tax Considerations
For the year ended December 27, 2025, we increased our valuation allowances by $2.1 million related to our net deferred tax asset and specific federal and state net operating losses and federal and state credit carryforwards.
During 2026 and 2027, we do not anticipate cash outlays for income taxes to exceed $200 thousand. This is due to our tax loss carryforwards and tax credit carryforwards that will be used to partially offset taxable income. At December 27, 2025, we were in a net deferred tax liability position of $91 thousand, which was included in other long-term liabilities in our Consolidated Balance Sheets.
Discontinued Operations - Environmental Contingencies
We have reserves for environmental obligations established at four previously owned sites that were associated with our discontinued textile businesses. We have a reserve of $2.1 million for environmental liabilities at these sites as of December 27, 2025. The liability established represents our best estimate of 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 our 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.
Fair Value of Financial Instruments
At December 27, 2025, we had no assets or liabilities measured at fair value that fall under a level 3 classification in the hierarchy (those subject to significant management judgment or estimation).
Recent Accounting Pronouncements
See Note 2 to our Consolidated Financial Statements of this Form 10-K for a discussion of new accounting pronouncements which is incorporated herein by reference.
Critical Accounting Policies
Certain estimates and assumptions are made when preparing our consolidated financial statements. Estimates involve judgments with respect to, among other things, future economic factors that are difficult to predict. As a result, actual amounts could differ from estimates made when our financial statements are prepared.
The Securities and Exchange Commission requires management to identify its most critical accounting policies, defined as those that are both most important to the portrayal of our financial condition and operating results and the application of which requires our most difficult, subjective, and complex judgments. Although our estimates have not differed materially from our experience, such estimates pertain to inherently uncertain matters that could result in material differences in subsequent periods.
We believe application of the following accounting policies require significant judgments and estimates and represent our critical accounting policies. Other significant accounting policies are discussed in Note 1 to our Consolidated Financial Statements.
•Going concern and liquidity.Our consolidated 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, we make significant judgments about our expected liquidity, including projected cash flows from operations, capital expenditure requirements, availability and terms of external financing, compliance with financial covenants in our debt agreements, and other factors that could affect our 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 December 27, 2025, we had $52.7 million of outstanding indebtedness under our senior credit facility that is classified as a current liability, unrestricted cash and cash equivalents of $3.2 million and unused availability under our senior credit facility of $8.2 million, subject to a $6.0 million minimum excess availability requirement and continued compliance with applicable financial covenants. We are required to maintain certain financial ratios and other covenants, which, if not met, could result in an event of default and an acceleration of our outstanding indebtedness. Our going concern and liquidity assessment therefore requires significant judgment about our ability to meet these covenants over the next 12 months, including the effectiveness and timing of management's plans.
At the time of issuance of these financial statements, conditions and events, including recent operating losses, reduced availability under our credit facility, covenant violations and macroeconomic pressures, raised substantial doubt about our ability to continue as a going concern within one year 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. Our evaluation of these plans, and our assumptions regarding their execution and timing, requires significant judgment and is subject to inherent uncertainty.
If our actual operating results, cash flows, or access to capital differ materially from our estimates, or if we are unable to execute our plans as currently contemplated, we may be unable to meet our obligations as they become due or maintain compliance with our debt covenants. In that event, we 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 our judgments or assumptions regarding going concern and liquidity could have a material effect on our consolidated financial statements and related disclosures.
•Revenue recognition.We derive our revenues primarily from the sale of floorcovering products and processing services. Revenues are recognized when control of these products or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those products and services. Sales, value add, and other taxes we collect concurrent with revenue-producing activities are excluded from revenue. Shipping and handling fees charged to customers are reported within revenue. When we transfer control of our products to the customer prior to the related shipping and handling activities, we have 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 we pay sales commissions to certain personnel, we have not capitalized these costs as costs to obtain a contract as we have elected to expense costs as incurred when the expected amortization period is one year or less. We do not have any significant financing components as payment is received at or shortly after the point of sale. We determine 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
•Variable consideration. The nature of our 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.
•Customer claims and product warranties.We generally provide product warranties related to manufacturing defects and specific performance standards for our products for a period of up to two years. We accrue 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 Statements of Operations and the product warranty reserve is included in accrued expenses in the Consolidated Balance Sheets. We calculate our accrual using the portfolio approach based upon historical experience and known trends. We do not provide an additional service-type warranty.
•Inventories.Inventories are stated at the lower of cost or market. Cost is determined using the last-in, first-out method (LIFO), which generally matches current costs of inventory sold with current revenues, for substantially all inventories. Reserves are also established to adjust inventories that are off-quality, aged or obsolete to their lower of cost or market. Additionally, rates of recoverability per unit of off-quality, aged or obsolete inventory are estimated based on historical rates of recoverability and other known conditions or circumstances that may affect future recoverability. Actual results could differ from assumptions used to value our inventory.
•Self-insured accruals.We estimate costs required to settle claims related to our self-insured medical, dental and workers' compensation plans. These estimates include costs to settle known claims, as well as incurred and unreported claims. The estimated costs of known and unreported claims are based on historical experience. Actual results could differ from assumptions used to estimate these accruals.
•Income taxes.Our effective tax rate is based on income, statutory tax rates and tax planning opportunities available in the jurisdictions in which we operate. Tax laws are complex and subject to different interpretations by the taxpayer and respective governmental taxing authorities. Deferred tax assets represent amounts available to reduce income taxes payable on taxable income in a future period. We evaluate the recoverability of these future tax benefits by assessing the adequacy of future expected taxable income from all sources, including reversal of taxable temporary differences, forecasted operating earnings and available tax planning strategies. These sources of income inherently rely on estimates, including business forecasts and other projections of financial results over an extended period of time. In the event that we are not able to realize all or a portion of our deferred tax assets in the future, a valuation allowance is provided. We recognize such amounts through a charge to income in the period in which that determination is made or when tax law changes are enacted. We had valuation allowances of $26.8 million at December 27, 2025 and $24.7 million at December 28, 2024. At December 27, 2025, we were in a net deferred tax liability position of $91 thousand. For further information regarding our valuation allowances, see Note 13 to the Consolidated Financial Statements.
•Loss contingencies.We routinely assess our exposure related to legal matters, environmental matters, product liabilities or any other claims against our assets that may arise in the normal course of business. If we determine 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.
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