You should read the following discussion and analysis together with our consolidated financial statements and related notes included elsewhere in this report. Among other things, those historical consolidated financial statements include more detailed information regarding the basis of presentation for the financial data than is included in the following discussion. This report contains "forward-looking statements" within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. In some cases, you can identify these statements by words such as, but not limited to, "anticipate," "believe," "can," "continue," "could," "depend," "estimate," "expect," "intend," "may," "might," "plan," "predict," "project," "seek," "should," "target," "will," "will likely result," "would," and similar expressions or variations, although some forward-looking statements are expressed differently. All statements other than statements of historical fact are statements that could be deemed forward-looking statements. The forward-looking statements in this report relate to, among other things, our anticipated new store openings, remodeling plans, and growth opportunities; our business strengths, marketing strategies, competitive advantages and role in our industry and markets; an overall decline in the health of the economy, the tile industry, consumer confidence and spending, and the housing market, including as a result of rising inflation or interest rates, the possibility of an economic recession, or the COVID-19 pandemic; our expectations regarding the potential impacts on our business of the COVID-19 pandemic, including its effect on general economic conditions and credit markets, the supply chain and product availability, labor, and customer traffic to our stores; the impact of ongoing supply chain disruptions and inflationary cost pressures, including increased materials, labor, energy, and transportation costs and decreased discretionary consumer spending; our ability to successfully implement our strategic plan and realize the anticipated benefits of our strategic plan; our ability to successfully anticipate consumer trends; any statements with respect to dividends or stock repurchases and timing, methods, and payment of same; the effectiveness of our marketing strategy; potential fluctuations in our comparable store sales; our expectations regarding our and our customers' financing arrangements and our ability to obtain additional capital, including potential difficulties of obtaining financing due to market conditions resulting from the COVID-19 pandemic, geopolitical conditions, including any failure by theU.S. federal government to increase the debt ceiling, and other economic factors; supply costs and expectations, including the continued availability of sufficient products from our suppliers, risks related to relying on foreign suppliers, and the potential impact of the COVID-19 pandemic and theRussia -Ukraine conflict on, among other things, product availability and pricing and timing and cost of deliveries; our expectations with respect to ongoing compliance with the terms of the credit facility, including increasing interest rates; our ability to provide timely delivery to our customers; the effect of regulations on us and our industry, and our suppliers' compliance with such regulations, including any environmental or climate change-related requirements; the impact of corporate citizenship and ESG matters; labor shortages and our expectations regarding the effects of employee recruiting, training, mentoring, and retention on our ability to recruit and retain employees; tax-related risks; the potential impact of cybersecurity breaches or disruptions to our management information systems; our ability to successfully implement our information technology and other digital initiatives; our ability to effectively manage our online sales; costs and adequacy of insurance; the potential impact of natural disasters, which may worsen or increase due to the effects of climate change, and other catastrophic events; risks inherent in operating as a holding company; fluctuations in material and energy costs, including recent increases in, and ongoing volatility of, oil and gas prices; the potential outcome of any legal proceedings; and risks related to ownership of our common stock. These forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties, many of which are difficult to predict and are outside of our control, that may cause our actual results, performance, or achievements to differ materially from any expected future results, performance, or achievements expressed or implied by such forward-looking statements. These risks and uncertainties include, but are not limited to: ?the level of demand for our products; ?our ability to grow and remain profitable in the highly competitive retail tile industry; ?our ability to access additional capital when and as needed; ?our ability to attract and retain qualified personnel; ?changes in general economic, business and industry conditions, including any economic downturn or recession; ?our ability to introduce new products that satisfy market demand; and ?legal, regulatory, and tax developments, including additional requirements imposed by changes in domestic and foreign laws and regulations. 22
--------------------------------------------------------------------------------
Table of Contents There is no assurance that our expectations will be realized. If one or more of these risks or uncertainties materialize, or if our underlying assumptions prove incorrect, actual results may vary materially from those expected, estimated, or projected. Such risks and uncertainties also include those set forth in Part I, Item 1A. "Risk Factors," of this report. These statements are based on the beliefs and assumptions of our management based on information currently available to management. Our forward-looking statements speak only as of the time that they are made and do not necessarily reflect our outlook at any other point in time. Except as required by law, we undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events, or for any other reason. Overview We are a specialty retailer of natural stone and man-made tiles, setting and maintenance materials, and related accessories inthe United States . We offer a wide selection of products, attractive prices, and exceptional customer service in an extensive showroom setting. As ofDecember 31, 2022 , we operated 142 stores in 31 states and theDistrict of Columbia , with an average size of approximately 20,000 square feet. We purchase our tile products and accessories directly from suppliers and manufacture our own setting and maintenance materials, such as thinset, grout, and sealers. We believe that our long-term supplier relationships, together with our design and manufacturing and distribution capabilities, enable us to offer a broad assortment of high-quality products to our customers, who are primarily homeowners and professionals, at competitive prices. We have invested significant resources to develop our proprietary brands and product sources, and we believe that we are a leading retailer of natural stone and man-made tiles, setting and maintenance materials, and related accessories inthe United States . The table below sets forth information about our net sales, operating income and stores opened from 2020 to 2022. For the year ended December 31, 2022 2021 2020 (in thousands, except store data) Net sales$ 394,702 $ 370,700 $ 325,057 Income from operations$ 22,609 $ 20,610 $ 6,376
Net cash provided by operating activities
- 1 - Our operating results are heavily dependent upon the prices paid to acquire manmade and natural store products from our vendors around the world. The cost to source our products has increased over the last couple of years due to an increase in international freight rates and vendor price increases, due in part to higher labor costs, energy prices, and other inflationary pressures. In early 2022, we were able to take steps to raise prices to pass along the cost increases we were seeing. During the second half of 2022, we observed a slowing demand following increases in interest rates and a decrease in existing home sales. In response to the macroeconomic headwinds, we took a more conservative approach to adjusting prices during the second half of 2022. This dynamic contributed to a 6.5% increase in sales at comparable stores during 2022, which was largely due to an increase in average ticket and partially offset by a decrease in volume. Additionally, the cost increases experienced in 2022 outpaced the price increases that were passed on to our customers, which resulted in a decrease in gross margin rates from 68.3% in 2021 to 65.6% in 2022. While the inflationary backdrop created headwinds for our business, we were able to take steps to control selling, general and administrative spending. Overall, selling, general and administrative expenses increased by$3.8 million or 1.6% to$236.3 million for the year endedDecember 31, 2022 as compared to the year endedDecember 31, 2021 . The increase was largely driven by an$8.2 million increase in wages and benefits, primarily due to higher staffing levels, that was partially offset by a$6.5 million decrease in bonuses due to lower levels of annual incentives and sales bonuses. Additionally, marketing expenses increased by$2.1 million and IT related expenses increased by$1.4 million . These increases were partially offset by a$2.2 million decrease in depreciation expense. Asset impairment charges also decreased$0.3 million from$0.7 million in 2021 to$0.4 million in 2022. OnAugust 16, 2022 , we announced that our Board of Directors approved a$30.0 million share repurchase plan. We completed the repurchase plan during the fourth quarter. In total, 7.8 million shares were repurchased for$30.2 million , inclusive of brokerage commissions, or an average price of$3.87 per share. During 2022, our inventory balance increased by$23.8 million to$121.0 million as ofDecember 31, 2022 . Over the course of the year, we were able to successfully take steps to pull purchases forward ahead of announced price supplier price increases. We have seen significant improvements in our in-stock levels as compared to 2021; however, the increase in inventory combined with the share repurchase activity contributed to a$40.4 million increase in the debt balance fromDecember 31, 2021 to 2022. During the fourth quarter of 2022, we launched a new line of luxury vinyl tile products in all of our stores. Industry reports indicate that luxury vinyl tile has been the fastest growing hard surface product category over the last decade. Many of our customers have 23
--------------------------------------------------------------------------------
Table of Contents started to gravitate toward this offering for certain rooms in their home. While these lines typically carry a lower gross margin profile than other tile products we carry in our assortment, we believe the gross margin contraction that may occur will be beneficial if we are able to grow our overall gross profit dollars. Overall, we are pleased with the early results following the launch. As of the end of the quarter, luxury vinyl tile sales represented less than 5% of our overall sales mix. Key Components of our Consolidated Statements of OperationsNet Sales - Net sales represents total charges to customers, net of returns, and includes freight charged to customers. We recognize sales at the time that the customer takes control of the merchandise or final delivery of the product has occurred. We are required to charge and collect sales and other taxes on sales to our customers and remit these taxes back to government authorities. Total revenues do not include sales tax because we are a pass-through conduit for collecting and remitting sales tax. Sales are reduced by a reserve for anticipated sales returns that we estimate based on historical returns. Comparable store sales growth is the percentage change in sales of comparable stores period-over-period. A store is considered comparable on the first day of the 13th full month of operation. When a store is relocated, it is excluded from the comparable store sales growth calculation. Comparable store sales growth amounts include total charges to customers less any actual returns. We include the change in allowance for anticipated sales returns applicable to comparable stores in the comparable store sales calculation. Comparable store sales data reported by other companies may be prepared on a different basis and therefore may not be useful for purposes of comparing our results to those of other businesses. Company management believes the comparable store sales growth (decline) metric provides useful information to both management and investors to evaluate the Company's performance, the effectiveness of its strategy and its competitive position. Cost of Sales - Cost of sales consists primarily of material costs, freight, customs and duty fees, and storage and delivery of product to the customers, as well as physical inventory losses and costs associated with manufacturing of setting and maintenance materials. Gross Profit - Gross profit is net sales less cost of sales. Gross margin rate is the percentage determined by dividing gross profit by net sales. Selling, General and Administrative Expenses - Selling, general and administrative expenses consist primarily of compensation costs, occupancy, utilities, maintenance costs, advertising costs, shipping and transportation expenses to move inventory from our distribution centers to our stores, and depreciation and amortization. Pre-opening Costs - Our pre-opening costs are those typically associated with the opening of a new store and generally include rent expense, compensation costs and promotional costs. We expense pre-opening costs as incurred and include these costs in selling, general and administrative expenses. Income Taxes - We are subject to income tax inthe United States as well as other tax jurisdictions in which we conduct business. 24
--------------------------------------------------------------------------------
Table of Contents Comparison of the Year EndedDecember 31, 2022 to the Year EndedDecember 31, 2021 2022 % of sales 2021 % of sales ($ in thousands) Net sales$ 394,702 100.0 %$ 370,700 100.0 % Cost of sales 135,765 34.4 % 117,570 31.7 % Gross profit 258,937 65.6 % 253,130 68.3 % Selling, general and administrative expenses 236,328 59.9 % 232,520 62.7 % Income from operations 22,609 5.7 % 20,610 5.6 % Interest expense (1,579) (0.4) % (656) (0.2) % Income before income taxes 21,030 5.3 % 19,954 5.4 %
(Provision) benefit for income taxes (5,327) (1.3) % (5,180) (1.4) % Net income
$ 15,703 4.0 %$ 14,774 4.0 %
Comparison of the Year EndedDecember 31, 2021 to the Year EndedDecember 31, 2020 A detailed discussion of the fiscal year 2021 performance compared to fiscal year 2020 is set forth in Part II, Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations - Comparison of the Year EndedDecember 31, 2021 to the Year EndedDecember 31, 2020 ," in our Annual Report on Form 10-K for the year endedDecember 31, 2021 , as filed with theSEC onMarch 3, 2022 , which discussion is incorporated herein by reference. Non-GAAP Measures We calculate Adjusted EBITDA by taking net income calculated in accordance with GAAP and adjusting for interest expense, income taxes, depreciation and amortization, and stock based compensation expense. Adjusted EBITDA margin is equal to Adjusted EBITDA divided by net sales. We calculate pretax return on capital employed by taking income (loss) from operations divided by capital employed. Capital employed equals total assets less accounts payable, income taxes payable, other accrued liabilities, lease liability and other long-term liabilities. Other companies may calculate both Adjusted EBITDA and pretax return on capital employed differently, limiting the usefulness of these measures for comparative purposes. We believe that these non-GAAP measures of financial results provide useful information to management and investors regarding certain financial and business trends relating to our financial condition and results of operations. Our management uses these non-GAAP measures to compare our performance to that of prior periods for trend analyses, for purposes of determining management incentive compensation, for budgeting and planning purposes, and for assessing the effectiveness of capital allocation over time. These measures are used in monthly financial reports prepared for management and our Board of Directors. We believe that the use of these non-GAAP financial measures provides an additional tool for investors to use in evaluating ongoing operating results and trends and in comparing our financial measures with other specialty retailers, many of which present similar non-GAAP financial measures to investors. Our management does not consider these non-GAAP measures in isolation or as an alternative to financial measures determined in accordance with GAAP. The principal limitations of these non-GAAP financial measures are that they exclude significant expenses 25
--------------------------------------------------------------------------------
Table of Contents and income that are required by GAAP to be recognized in our consolidated financial statements. In addition, they are subject to inherent limitations as they reflect the exercise of judgments by management about which expenses and income are excluded or included in determining these non-GAAP financial measures. In order to compensate for these limitations, management presents non-GAAP financial measures in connection with GAAP results. We urge investors to review the reconciliation of our non-GAAP financial measures to the comparable GAAP financial measures and not to rely on any single financial measure to evaluate our business. The reconciliation of Adjusted EBITDA to net income for the years endedDecember 31, 2022 and 2021 follows: Years Ended December 31, 2022 2021 (in thousands) Net income$ 15,703 $ 14,774 Interest expense 1,579 656 Provision for income taxes 5,327 5,180 Depreciation & amortization 25,142 27,379 Stock based compensation 1,832 2,266 Adjusted EBITDA$ 49,583 $ 50,255 Adjusted EBITDA as a percentage of net sales for the years endedDecember 31, 2022 and 2021 follows: Years Ended December 31, 2022 2021 % of net sales Net income 4.0 % 4.0 % Interest expense 0.4 0.2 Provision for income taxes 1.3 1.4 Depreciation & amortization 6.4 7.4 Stock based compensation 0.5 0.6 Adjusted EBITDA 12.6 % 13.6 % The calculation of pretax return on capital employed is as follows: ($ in thousands) December 31, 2022(1) 2021(1) Income from operations$ 22,609 $ 20,610 Total Assets 348,720 353,008 Less: Accounts payable (28,752) (20,785) Less: Income tax payable (818) (297) Less: Other accrued liabilities (39,951) (41,358) Less: Lease liability (130,852) (141,925)
Less: Other long-term liabilities (4,618) (4,865) Capital Employed
$ 143,729 $ 143,778
Pretax Return on Capital Employed 15.7% 14.3%
(1)Income statement accounts represent the activity for the trailing twelve months ended as of each of the balance sheet dates. Balance sheet accounts represent the average account balance for the four quarters ended as of each of the balance sheet dates.
Liquidity and Capital Resources
Our principal sources of liquidity include
26
--------------------------------------------------------------------------------
Table of Contents Agreement), plus a margin ranging from 0.25% to 0.75%. The margin is determined based on the Rent Adjusted Leverage Ratio (as defined in the Credit Agreement). Borrowings outstanding as ofDecember 31, 2022 were SOFR-based interest rate loans. The SOFR-based interest rate was 5.80% onDecember 31, 2022 . The Credit Agreement is secured by virtually all of our assets, including but not limited to, inventory, accounts receivable, equipment and general intangibles. The Credit Agreement contains customary events of default, conditions to borrowing and restrictive covenants, including restrictions on our ability to dispose of assets, engage in acquisitions or mergers, make distributions on or repurchases of capital stock, incur additional debt, incur liens or make investments. The Credit Agreement also includes financial and other covenants, including covenants to maintain a Fixed Charge Coverage Ratio (as defined in the Credit Agreement) of no less than 1.20 to 1.00 and a Rent Adjusted Leverage Ratio (as defined in the Credit Agreement) of no greater than 3.50 to 1.00. We were in compliance with the covenants as ofDecember 31, 2022 . The Credit Agreement superseded and replaced in its entirety our prior senior credit facility withBank of America, N.A . datedSeptember 18, 2018 . We drew on the revolving line of credit pursuant to the Credit Agreement to refinance all of the existing revolving line of credit and interest outstanding under our prior credit facility, as well as pay$0.4 million in debt issuance costs in connection with the Credit Agreement. Debt issuance costs are classified as other current assets and other assets in the Consolidated Balance Sheet and amortized on a straight line basis over the life of the Credit Agreement. We recorded a$0.1 million charge in interest expense to write-off certain unamortized deferred financing fees associated with theSeptember 18, 2018 credit facility as of the date of the payoff. Borrowings outstanding consisted of$45.4 million on the revolving line of credit as ofDecember 31, 2022 . As ofDecember 31, 2022 , there was$28.3 million available for borrowing on the revolving line of credit, which may be used for purchasing additional merchandise inventory, maintaining our stores, and general corporate purposes. We also have standby letters of credit outstanding related to our workers' compensation and medical insurance policies. The standby letters of credit totaled$2.4 million on bothDecember 31, 2022 andDecember 31, 2021 . As ofDecember 31, 2022 ,$1.3 million of the standby letter of credit balance was secured by the revolving line of credit. The remaining$1.1 million letter of credit balance was secured by a$1.2 million deposit balance held by the issuing bank that has been classified as Restricted Cash on the Consolidated Balance Sheet as ofDecember 31, 2022 . During 2023, we expect to use cash for maintaining our existing stores, opening new stores, purchasing additional merchandise inventory, and general corporate purposes. Additionally, as described further in Note 6 of the Notes to the Consolidated Financial Statements, as ofDecember 31, 2022 , our lease liability under operating leases totaled$131.2 million . Contractual lease payments range from$16.9 million to$37.8 million on an annual basis over the next five years. We are also obligated to fund certain self-insured employee benefits, including our medical and workers' compensation plans. As ofDecember 31, 2022 , accrual balances related to our estimated workers' compensation claims and medical claims totaled$2.0 million and$1.1 million , respectively. Additionally, we have contractual obligations related to software service arrangements with suppliers for fixed or minimum amounts. Future minimum payments atDecember 31, 2022 for purchase obligations were$3.5 million . Amounts due under these arrangements in 2023 and 2024 total$1.7 million and$1.3 million , respectively. We currently believe that our cash and cash equivalents, cash flows from operations and access to cash under our credit facility will be adequate to meet our ongoing operating requirements over the next twelve months and our long-term liquidity requirements.
Capital Expenditures
The following table summarizes our capital expenditures during the years ended
Years Ended December 31, 2022 2021 2020 (in millions)
New store building, existing store remodels and store merchandising investments
$ 7.6 $ 7.1 $ 1.5 Information technology infrastructure 2.8 2.4 - Distribution and manufacturing facilities 3.6 1.6 0.5 General corporate - - -$ 14.0 $ 11.1 $ 2.0
Our future capital requirements will vary based on the number of additional
stores, distribution centers, and manufacturing facilities that we open and the
number of stores that we choose to renovate. Our decisions regarding opening,
relocating, or renovating stores, and whether to engage in strategic
acquisitions, will be based in part on macroeconomic factors and the general
state of the
27
--------------------------------------------------------------------------------
Table of Contents Cash Flows The following table summarizes our cash flow for the years endedDecember 31, 2022 , 2021 and 2020. For the year ended December 31, 2022 2021 2020 (in thousands) Net cash provided by operating activities$ 2,715 $ 39,691 $ 65,596 Net cash used in investing activities (14,027) (11,070) (1,968) Net cash provided by (used in) financing activities 9,114 (28,902) (63,329) Operating Activities Cash flows from operating activities provide us with a significant source of liquidity. Net cash provided by operating activities was$2.7 million ,$39.7 million , and$65.6 million in 2022, 2021 and 2020, respectively. The decrease in operating cash flows in 2022 compared to 2021 was primarily due an increase in inventory combined with lower levels of accounts payable, accrued expenses and other liabilities as ofDecember 31, 2022 when compared toDecember 31, 2021 . Investing Activities Net cash used in investing activities was$14.0 million ,$11.1 million and$2.0 million in 2022, 2021 and 2020, respectively. The increase in investing activities in 2022 was due to an increase in capital expenditures during 2022 to invest in store remodels, store merchandising, distribution, internal fleet and information technology assets. Financing Activities Net cash provided by (used in) financing activities was$9.1 million ,($28.9) million and($63.3) million in 2022, 2021 and 2020, respectively. Cash provided by financing activities during 2022 included$90.4 million of borrowings against our line of credit net of$50.0 million of payments against the line of credit and$30.2 million of share repurchases. Critical Accounting Policies and Estimates Our financial statements are prepared in accordance with GAAP. The preparation of our financial statements and related disclosures requires us to make estimates, assumptions, and judgments that affect the reported amount of assets, liabilities, revenues, costs and expenses, and related disclosures. We base our estimates and assumptions on historical experience and other factors that we believe to be reasonable under the circumstances, but all such estimates and assumptions are inherently uncertain and unpredictable. We evaluate our estimates and assumptions on an ongoing basis. Actual results may differ from those estimates and assumptions, and it is possible that other professionals, applying their own judgment to the same facts and circumstances, could develop and support alternative estimates and assumptions that would result in material changes to our operating results and financial condition. Our most critical accounting policies are summarized below. For further information on our critical and other significant accounting policies, see the notes to the consolidated financial statements included in this report. Recognition of Revenue Description: Revenues are recognized when control of promised goods or services is transferred to our customers, in an amount that reflects the consideration received in exchange for those goods or services. We recognize service revenue, which consists primarily of freight charges for home delivery, when the service has been rendered. We are required to charge and collect sales and other taxes on sales to our customers and remit these taxes back to government authorities. Total revenues do not include sales tax because we are a pass-through conduit for collecting and remitting sales tax. Judgement and uncertainties involved in the estimate: Net sales are reduced by an allowance for anticipated sales returns that we estimate based on historical returns. Our process to establish a sales return reserve contains uncertainties because it requires management to make assumptions and to apply judgment to estimate future sales returns and exchanges. Merchandise exchanges are not considered merchandise returns and, therefore, are excluded when calculating the sales returns reserve. Effect if actual results differ from the assumptions: Actual return trends have not varied significantly from estimated amounts in prior periods. However, if the nature of sales returns changes significantly, our sales could be adversely impacted. A 10% change in in our sales returns reserves and related return assets atDecember 31, 2022 would have had a$0.3 million net impact on operating income during fiscal 2022. 28
--------------------------------------------------------------------------------
Table of Contents Inventory Valuation and Shrinkage Description: Our inventory consists of manufactured items and purchased merchandise held for resale. Inventories are stated at the lower of cost (determined using the moving average cost method) or net realizable value. We capitalize the cost of inbound freight, duties, and receiving and handling costs to bring purchased materials into our distribution network. The labor and overhead costs incurred in connection with the production process are included in the value of manufactured finished goods. Judgement and uncertainties involved in the estimate: We provide provisions for losses related to shrinkage and other amounts that are otherwise not expected to be fully recoverable. These provisions are calculated based on historical shrinkage, selling price, margin and current business trends. These estimates have calculations that require management to make assumptions based on the current rate of sales, age, salability and profitability of inventory, historical percentages that can be affected by changes in our merchandising mix, customer preferences, rates of sell through and changes in actual shrinkage trends. Effect if actual results differ from the assumptions: We do not believe there is a reasonable likelihood that there will be a material change in the assumptions we use to calculate our inventory provisions. However, if actual results are not consistent with our estimates and assumptions, we may be exposed to losses that could be material. A 10% change in in our inventory valuation and shrinkage reserves atDecember 31, 2022 would have had a$0.1 million net impact on operating income during fiscal 2022. Property, Plant and Equipment Description: Property, plant and equipment are carried at cost less accumulated depreciation, which is amortized over the useful life of the assets. Leasehold improvements are amortized over the shorter of their estimated useful lives or lease period (including expected renewal periods). Property, plant, equipment, and right of use assets are evaluated for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The evaluation is performed at the lowest level of identifiable cash flows independent of other assets, which typically occurs at an individual store level. An impairment loss is recognized when estimated undiscounted future cash flows from the operations and/or disposition of the assets are less than the carrying amount. Judgement and uncertainties involved in the estimate: Significant assumptions used in developing undiscounted cash flow analyses include estimates of future sales, gross margin and operating expenses. Measurement of an impairment loss is based on the excess of the carrying amount of the asset group over its fair value. Fair value is measured using discounted cash flows or independent opinions of value, as appropriate. Significant assumptions used in the fair value analyses include estimates of future sales, gross margin, operating expenses, comparable market rents and discount rates. Effect if actual results differ from the assumptions: If actual results are not consistent with our estimates and assumptions used in determining future cash flows and asset fair values, we may be exposed to losses that could be material. During the fiscal years endedDecember 31, 2022 , 2021 and 2020, the Company recorded asset impairment charges of$0.4 million ,$0.7 million and$2.2 million , respectively, which were classified in selling, general and administrative expenses. Income Taxes Description: Deferred tax liabilities and assets are determined based on the difference between the financial statement basis and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Judgement and uncertainties involved in the estimate: We estimate the degree to which tax assets and loss carryforwards will result in a benefit based on expected profitability by tax jurisdiction. A valuation allowance for such tax assets and loss carryforwards is provided when it is determined to be more likely than not that the benefit of such deferred tax asset will not be realized in future periods. If it becomes more likely than not that a tax asset will be used, the related valuation allowance on such assets would be reduced. Effect if actual results differ from the assumptions: If future taxable income is insufficient to realize the benefit of tax assets and loss carryforwards, we may be exposed to losses that could be material.
© Edgar Online, source