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DE 45-5538095 14000 Carlson Parkway Plymouth MN 55441 763 852-2950 Common Stock, $0.0001 par value TTSH NASDAQ Accelerated Filer false false true false 288587839 51925256 DOCUMENTS INCORPORATED BY REFERENCE Certain information required by Part III is incorporated by reference from the Company’s definitive Proxy Statement for the Annual Meeting of Stockholders, or an amendment to this Form 10-K, which the Company intends to file with the SEC within 120 days after the fiscal year end covered by this report.  42 Ernst & Young LLP Minneapolis, Minnesota 9358000 9617000 655000 655000 3202000 2975000 97175000 74296000 6923000 8116000 9769000 8995000 127082000 104654000 82285000 99035000 123101000 132374000 6953000 5341000 1337000 1286000 340758000 342690000 30884000 15382000 390000 93000 28190000 27223000 38249000 34106000 97713000 76804000 5000000 110261000 122678000 5560000 4146000 218534000 203628000 0.0001 0.0001 100000000 100000000 51963377 51963377 51701080 51701080 5000 5000 0.0001 0.0001 10000000 10000000 0 0 0 0 126920000 158556000 -4713000 -19487000 12000 -12000 122224000 139062000 340758000 342690000 370700000 325057000 340351000 117570000 103532000 104232000 253130000 221525000 236119000 232520000 215149000 237476000 20610000 6376000 -1357000 656000 1874000 3792000 12000 19954000 4502000 -5137000 5180000 -1529000 -674000 14774000 6031000 -4463000 0.29 0.12 -0.09 0.29 0.12 -0.09 50393980 49957356 50624309 51085463 50583742 50624309 14774000 6031000 -4463000 24000 58000 -14000 24000 58000 -14000 14798000 6089000 -4477000 52707879 5000 172255000 -25857000 -56000 146347000 4802000 4802000 781697 375879 2307023 10456000 10456000 2645000 2645000 256000 256000 0.15 7706000 7706000 -14000 -14000 -4463000 -4463000 50806674 5000 156482000 -25518000 -70000 130899000 1090759 116594 2241000 2241000 79759 167000 167000 58000 58000 6031000 6031000 51701080 5000 158556000 -19487000 -12000 139062000 421547 24018 2266000 2266000 135232 953000 953000 0.65 32949000 32949000 24000 24000 14774000 14774000 51963377 5000 126920000 -4713000 12000 122224000 14774000 6031000 -4463000 27379000 31336000 33546000 304000 473000 595000 -82000 -399000 720000 2155000 24832000 24025000 23230000 2266000 2241000 2645000 -1612000 1855000 -1621000 226000 -394000 286000 22879000 -23323000 -12475000 1128000 327000 184000 15873000 -3207000 -4503000 -1491000 5020000 -357000 -22185000 -17683000 -23627000 39691000 65596000 38563000 11070000 1968000 27000000 610000 -11070000 -1968000 -26390000 5000000 127262000 53204000 10000000 64100000 63000000 32949000 7706000 10456000 953000 167000 256000 -28902000 -63329000 -8622000 22000 54000 -14000 -259000 353000 3537000 10272000 9919000 6382000 10013000 10272000 9919000 9358000 9617000 9104000 655000 655000 815000 10013000 10272000 9919000 34000 407000 98000 632000 1976000 3735000 5298000 1608000 471000 Note 1: Summary of Significant Accounting Policies Nature of Business Tile Shop Holdings, Inc. (“Holdings”, and together with its wholly owned subsidiaries, the “Company”) was incorporated in Delaware in June 2012. On August 21, 2012, Holdings consummated the transactions contemplated pursuant to that certain Contribution and Merger Agreement dated as of June 27, 2012, among Holdings, JWC Acquisition Corp., a publicly-held Delaware corporation (“JWCAC”), The Tile Shop, LLC, a privately-held Delaware limited liability company (“The Tile Shop”), and certain other parties. Through a series of transactions, The Tile Shop was contributed to and became a subsidiary of Holdings and Holdings effected a business combination with and became a successor issuer to JWCAC. The Company is a specialty retailer of natural stone and man-made tiles, setting and maintenance materials, and related accessories in the United States. Natural stone products include marble, travertine, granite, quartz, sandstone, slate, and onyx tiles. Man-made products include ceramic, porcelain, glass, cement, wood look, and metal tiles. The majority of the tile products are sold under the Company's proprietary Rush River and Fired Earth brand names. The Company purchases tile products, accessories and tools directly from its network of suppliers. The Company manufactures its own setting and maintenance materials, such as thinset, grout and sealer, under the Superior brand name. As of December 31, 2021, the Company operated 143 stores in 31 states and the District of Columbia, with an average size of approximately 20,000 square feet. The Company also has a sourcing office located in China. Basis of Presentation The consolidated financial statements of Holdings include the accounts of its wholly owned subsidiaries and variable interest entities for which the Company is the primary beneficiary. See Note 12, “New Markets Tax Credit,” for the discussion of financing arrangements involving certain entities that are variable interest entities that are included in these consolidated financial statements. All significant intercompany transactions have been eliminated in consolidation. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles in the United States (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements. The Company’s estimates and judgments are based on historical experience and various other assumptions that it believes are reasonable under the circumstances. The Company considered the COVID-19 related impacts on its estimates, as appropriate, within its consolidated financial statements and there may be changes to those estimates in future periods. The Company believes that the accounting estimates are appropriate after giving consideration to the increased uncertainties surrounding the severity and duration of the COVID-19 pandemic. The amount of assets and liabilities reported on the Company's balance sheets and the amounts of income and expenses reported for each of the periods presented are affected by estimates and assumptions, which are used for, but not limited to, the accounting for revenue recognition and related reserves for sales returns, useful lives of property, plant and equipment, determining impairment of property, plant and equipment and right of use assets, accounting for leases, valuation of inventory, and income taxes. Actual results may differ from these estimates. Reclassification Certain amounts in the prior year financial statements have been reclassified for comparative purposes to conform to the presentation for the year ended December 31, 2021. Specifically, the Company elected to change the way it presents cash flows from operating leases in its Statement of Cash Flows. In the twelve months ended December 31, 2019, the Company presented the net change in the right of use asset and lease liabilities as a change in leases within the operating section of the Statement of Cash Flows. During the third quarter of 2020, the Company determined it would be more appropriate to disaggregate this activity. The amortization of the right of use assets is now presented as a non-cash lease expense within the operating section of the Statement of Cash Flows. Lease payments, net of the accretion of lease liabilities, are now presented as a change in accrued expenses and other liabilities within the operating section of the Statement of Cash Flows. Prior to the adoption of Accounting Standards Codification (“ASC”) 842, Leases, effective January 1, 2019, the Company presented the non-cash change in deferred rent as deferred rent within the operating section of the Statement of Cash Flows. This balance is now presented as a non-cash lease expense within the operating section of the Statement of Cash Flows. The impact of this change on the Statement of Cash Flows presented as of December 31, 2019 follows: For the year ended December 31, 2019 Previously Reported Adjustments As RevisedChange in leases $ (1,900) $ 1,900 $ -Non-cash lease expense - 23,230 23,230Changes in operating assets and liabilities: Accrued expenses and other liabilities 1,503 (25,130) (23,627)Net cash provided by operating activities $ 38,563 $ - $ 38,563 The change in classification had no impact on the Company’s pretax earnings, earnings per share, net cash provided by operating activities, or balance sheets in any period. Cash and Cash Equivalents The Company had cash and cash equivalents of $9.4 million and $9.6 million at December 31, 2021 and 2020, respectively. The Company considers all highly liquid investments with an original maturity date of three months or less when purchased to be cash equivalents. The Company accepts a range of debit and credit cards, and these transactions are generally transmitted to a bank for reimbursement within 24 hours. The payments due from the banks for these debit and credit card transactions are generally received, or settled, within 24 to 48 hours of the transmission date. The Company considers all debit and credit card transactions that settle in less than seven days to be cash and cash equivalents. Amounts due from the banks for these transactions classified as cash and cash equivalents totaled $1.7 million and $1.9 million at December 31, 2021 and 2020, respectively. Restricted Cash Cash and cash equivalents that are restricted as to withdrawal or are under the terms of use for current operations are included in the restricted balance on the balance sheet. Trade Receivables Trade receivables are carried at original invoice amount less an estimate made for doubtful accounts. Management determines the allowance for doubtful accounts on a specific identification basis and by leveraging information on historical losses, current conditions, and reasonable and supportable forecasts of future conditions. Trade receivables are written off when deemed uncollectible. Recoveries of trade receivables previously written off are recorded when received. The allowance for doubtful accounts was $0.2 million as of both December 31, 2021 and 2020. The Company does not accrue interest on accounts receivable. Inventories The Company’s 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. The Company capitalizes the cost of inbound freight, duties, and receiving and handling costs to bring purchased materials into its distribution network. The labor and overhead costs incurred in connection with the production process are included in the value of manufactured finished goods. Inventories were comprised of the following as of December 31: 2021 2020 (in thousands)Finished goods $95,869 $72,619Raw materials 1,306 1,677Total $97,175 $74,296 The Company provides 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. The provision for losses related to shrinkage and other amounts was $0.5 million and $0.6 million as of December 31, 2021 and 2020, respectively. Income Taxes The Company recognizes deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. 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. The Company estimates the degree to which tax assets and credit 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. The Company records interest and penalties relating to uncertain tax positions in income tax expense. As of December 31, 2021 and 2020, the Company has not recognized any liabilities for uncertain tax positions nor has the Company accrued interest and penalties related to uncertain tax positions. Revenue Recognition Revenues are recognized when control of the promised goods or services is transferred to the Company’s customers, in an amount that reflects the consideration received in exchange for those goods or services. The Company recognizes service revenue, which consists primarily of freight charges for home delivery, when the service has been rendered. The Company is required to charge and collect sales and other taxes on sales to the Company's customers and remit these taxes back to government authorities. Total revenues do not include sales tax because the Company is a pass-through conduit for collecting and remitting sales tax. Sales are reduced by an allowance for anticipated sales returns that the Company estimates based on historical returns. The Company generally requires customers to pay a deposit when purchasing inventory that is not regularly carried at the store location, or not currently in stock. These deposits are included in other current accrued liabilities until the customer takes possession of the merchandise. Sales Return Reserve Customers may return purchased items for an exchange or refund. The process to establish a sales return reserve contains uncertainties because it requires management to make assumptions and to apply judgment to estimate future returns and exchanges. The customer may receive a refund or exchange the original product for a replacement of equal or similar quality for a period of three months from the time of original purchase. Products received back under this policy are reconditioned pursuant to state laws and resold. The Company records a reserve for estimated product returns, based on historical return trends together with current product sales performance. Cost of Sales and Selling, General and Administrative Expenses The primary costs classified in each major expense category are: Cost of Sales Materials cost;Shipping and transportation expenses to bring products into the Company's distribution centers;Custom and duty expenses;Customer shipping and handling expenses;Physical inventory losses;Costs incurred at distribution centers in connection with the receiving process; andLabor and overhead costs incurred to manufacture inventory Selling, General & Administrative (sometimes referred to as “SG&A”) Expenses All compensation costs for store, corporate and distribution employees;Occupancy, utilities and maintenance costs of store and corporate facilities;Shipping and transportation expenses to move inventory from the Company's distribution centers to the Company's stores; Depreciation and amortization; andAdvertising costs  Stock Based Compensation The Company recognizes expense for its stock based compensation based on the fair value of the awards on the grant date. The Company may issue incentive awards in the form of stock options, restricted stock awards and other equity awards to employees and non-employee directors. Compensation expense is recognized on a straight-line basis over the requisite service period, net of actual forfeitures. Certain awards are also subject to forfeiture if the Company fails to attain its Adjusted EBITDA targets. The Company adjusts the cumulative expense recognized on awards with performance conditions based on a probability of achieving the performance condition. Concentration of Risk Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents and bank deposits. By their nature, all such instruments involve risks, including credit risks of non-performance by counterparties. A substantial portion of the Company's cash and cash equivalents and bank deposits are invested with banks with high investment grade credit ratings. Segments The Company’s operations consist primarily of retail sales of natural stone and man-made tiles, setting and maintenance materials, and related accessories in stores located in the United States. The Company’s chief operating decision maker only reviews the consolidated results of the Company and accordingly, the Company has concluded it has one reportable segment. Advertising Costs Advertising costs were $6.1 million, $4.6 million and $9.2 million for the years ended December 31, 2021, 2020 and 2019, respectively, and are included in selling, general and administrative expenses in the consolidated statements of operations. The Company’s advertising consists primarily of digital media, direct marketing, events, traditional print media and mobile advertisements and is expensed at the time the media is distributed. Pre-opening Costs The Company’s pre-opening costs are those typically associated with the opening of a new store and generally include rent expense, compensation costs and promotional costs. The Company expenses pre-opening costs as incurred which are recorded in selling, general and administrative expenses. During the years ended December 31, 2021, 2020 and 2019, the Company recorded pre-opening costs of $0.1 million, $0.1 million and $0.6 million, respectively. Property, Plant and Equipment Property, plant and equipment and leasehold improvements are recorded at cost. Improvements are capitalized while repairs and maintenance costs are charged to selling, general and administrative expenses when incurred. Property, plant and equipment are depreciated or amortized using the straight-line method over each asset’s estimated useful life. Leasehold improvements and fixtures at leased locations are amortized using the straight-line method over the shorter of the lease term or the estimated useful life of the asset. The cost and accumulated depreciation of assets sold or otherwise disposed of are removed from the accounts and any gain or loss thereon is included in other income and expense. Asset life (in years)Buildings and building improvements 40 Leasehold improvements 5–20Furniture and fixtures 2–7Machinery and equipment 5–10Computer equipment and software 3–7Vehicles 5 The Company evaluates potential impairment losses on long-lived assets used in operations at the individual retail store level, which is the lowest level at which cash flows can be identified, when events and circumstances indicate that the assets may be impaired, and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets. If impairment exists and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amount of those assets, an impairment loss is recorded based on the excess of the carrying value of the asset group over its fair value. Fair value is measured using discounted cash flows or independent opinions of value, as appropriate. During the fiscal years ended December 31, 2021 and 2020, the Company recorded asset impairment charges of $0.7 million and $2.2 million, respectively, which were classified in selling, general and administrative expenses. No impairment charges were recorded during the year ended December 31, 2019. Internal Use Software The Company capitalizes software development costs incurred during the application development stage related to new software or major enhancements to the functionality of existing software that is developed solely to meet the Company’s internal operational needs and when there are no plans to market the software externally. Costs capitalized include external direct costs of materials and services and internal compensation costs. Any costs during the preliminary project stage or related to training or maintenance are expensed as incurred. Capitalization ceases when the software project is substantially complete and ready for its intended use. The capitalization and ongoing assessment of recoverability of development costs requires judgment by management with respect to certain external factors, including, but not limited to, technological and economic feasibility, and estimated economic life. As of December 31, 2021 and 2020, $5.0 million and $6.0 million was included in computer equipment and software, respectively. The internal use software costs are amortized over estimated useful lives of three to seven years. There was $1.5 million, $1.5 million and $1.6 million of amortization expense related to capitalized software during the years ended December 31, 2021, 2020 and 2019, respectively. Leases The Company determines if an arrangement is a lease at inception. Operating leases are included in right of use assets and lease liabilities on the consolidated balance sheets. The right of use assets and lease liabilities are recognized as the present value of the future minimum lease payments over the lease term at commencement date. As most of the leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. The right of use asset is also adjusted for any lease payments made and lease incentives. The Company’s lease terms may include options to extend or terminate the lease typically at its own discretion. The Company regularly evaluates the renewal options and when such options are reasonably certain of exercise, the Company includes the renewal period in its lease term. The Company does not separate non-lease components from lease components by class of underlying assets and does not apply the recognition requirements to short term leases. Certain lease arrangements contain provisions requiring the Company to restore the leased property to its original condition at the end of the lease. The fair values of these obligations are recorded as liabilities on a discounted basis, which occurs at the time the Company enters into the lease arrangement. In the estimation of fair value, the Company uses assumptions and judgements regarding such factors as the existence of a legal obligation for an asset retirement obligation, estimated amounts and timing of settlements, discount rates and inflation rates. The costs associated with these liabilities are capitalized and depreciated over the lease term and the liabilities are accreted over the same period. Asset retirement obligations were $2.9 million and $1.9 million as of December 31, 2021 and 2020, respectively, and are included in other long-term liabilities. Self-Insurance The Company is self-insured for certain employee health and workers’ compensation claims. The Company estimates a liability for aggregate losses below stop-loss coverage limits based on estimates of the ultimate costs to be incurred to settle known claims and claims not reported as of the balance sheet date. The estimated liability is not discounted and is based on a number of assumptions and factors including historical trends, and economic conditions. As of December 31, 2021 and 2020, an accrual of $0.8 million and $0.6 million related to estimated employee health claims was included in other accrued liabilities, respectively. As of December 31, 2021 and 2020, an accrual of $2.2 million and $1.7 million related to estimated workers’ compensation claims was included in other accrued liabilities, respectively. The Company has standby letters of credit outstanding related to the Company's workers’ compensation and employee health insurance policies. As of both December 31, 2021 and 2020, the standby letters of credit totaled $2.4 million. Impact of COVID-19 Pandemic In March 2020, the World Health Organization declared the COVID-19 outbreak a global pandemic. COVID-19 has negatively impacted public health and the global economy, disrupted global supply chains, and created volatility in financial markets. The continuing implications of COVID-19 on the Company remain uncertain and will depend on certain future developments, including the duration, scope and severity of the pandemic and the effects of new variants of COVID-19, some of which may be more virulent or transmissible than the initial strain; its impact on the Company’s employees, customers and suppliers; the range and timing of government mandated restrictions and other measures; and the success of the deployment and widespread adoption of approved COVID-19 vaccines and their effectiveness against new variants of COVID-19. This uncertainty could have a material impact on the accounting estimates and assumptions utilized to prepare the Company’s consolidated financial statements in future reporting periods, which could result in a material adverse impact on the Company’s financial position, results of operations and cash flows. Recent Accounting Pronouncements Recently Adopted Accounting Pronouncements In February 2016, the Financial Accounting Standards Board (the “FASB”) issued a final standard that primarily requires organizations that lease assets to recognize the rights and obligations created by those leases on the consolidated balance sheet. This standard also requires expanded disclosures to help financial statement users better understand the amount, timing and uncertainty of cash flows arising from leases. We adopted this standard effective January 1, 2019, using a modified retrospective approach through a cumulative effect adjustment to retained earnings as of the beginning of the period of adoption. This standard provided a number of optional practical expedients in transition. The Company elected the package of three practical expedients permitted under the transition guidance within this standard, which, among other things, allowed the Company to carryforward the historical lease classification. The Company did not separate non-lease components from lease components by class of underlying assets and the Company did not apply the recognition requirements of the standard to short-term leases, as allowed by the standard. The Company also elected to apply the hindsight practical expedient. The election of the hindsight practical expedient resulted in the shortening of lease terms for certain existing leases and the useful lives of corresponding leasehold improvements. In the application of the hindsight practical expedient, the Company considered recent investments in leased properties and the overall real estate strategy, which resulted in the determination that most renewal options would not be reasonably certain in determining the expected lease term. Upon adopting this standard, the Company established a right of use asset of $147.2 million and lease liabilities of $169.9 million, reduced deferred rent by $44.6 million, and recorded a cumulative effect adjustment to retained earnings of $22.0 million. This retained earnings impact was due to the election of the hindsight practical expedient, which resulted in a decrease in the cumulative difference between the straight-line rent expense and rental payments that had been made between the inception of each lease and January 1, 2019. The change in the useful life assigned to certain leasehold improvements resulted in a $15.3 million reduction in fixed assets and retained earnings. The net impact of the cumulative effect adjustments also resulted in a $1.7 million reduction of deferred tax assets and a corresponding adjustment to retained earnings. The adoption of this standard did not have a material impact on net income or cash flows for the year ended December 31, 2019. In the first quarter of fiscal 2021, the Company adopted new accounting requirements related to the measurement of credit losses on financial instruments, including trade receivables. The new standard and subsequent amendments replaced the incurred loss impairment model with a forward-looking expected credit loss model, which will generally result in earlier recognition of credit losses. The Company’s allowance for doubtful accounts represents its estimate of expected credit losses related to its trade receivables. To estimate the allowance for doubtful accounts, the Company leverages information on historical losses, current conditions, and reasonable and supportable forecasts of future conditions. Account balances are written off against the allowance when the Company deems the amount is uncollectible. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements. In the first quarter of fiscal 2021, the Company adopted a new accounting standard that simplifies accounting for income taxes.  Specifically, the new standard simplifies aspects of accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill.  The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.  Accounting Pronouncements Not Yet Adopted In March 2020, the FASB issued guidance providing optional expedients and exceptions to account for the effects of reference rate reform to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued. The optional guidance is effective as of the beginning of the reporting period when the election is made through December 31, 2022. The Company is currently evaluating the impact this guidance will have on its consolidated financial statements.  Nature of Business Tile Shop Holdings, Inc. (“Holdings”, and together with its wholly owned subsidiaries, the “Company”) was incorporated in Delaware in June 2012. On August 21, 2012, Holdings consummated the transactions contemplated pursuant to that certain Contribution and Merger Agreement dated as of June 27, 2012, among Holdings, JWC Acquisition Corp., a publicly-held Delaware corporation (“JWCAC”), The Tile Shop, LLC, a privately-held Delaware limited liability company (“The Tile Shop”), and certain other parties. Through a series of transactions, The Tile Shop was contributed to and became a subsidiary of Holdings and Holdings effected a business combination with and became a successor issuer to JWCAC. The Company is a specialty retailer of natural stone and man-made tiles, setting and maintenance materials, and related accessories in the United States. Natural stone products include marble, travertine, granite, quartz, sandstone, slate, and onyx tiles. Man-made products include ceramic, porcelain, glass, cement, wood look, and metal tiles. The majority of the tile products are sold under the Company's proprietary Rush River and Fired Earth brand names. The Company purchases tile products, accessories and tools directly from its network of suppliers. The Company manufactures its own setting and maintenance materials, such as thinset, grout and sealer, under the Superior brand name. As of December 31, 2021, the Company operated 143 stores in 31 states and the District of Columbia, with an average size of approximately 20,000 square feet. The Company also has a sourcing office located in China. 143 31 20000 Basis of Presentation The consolidated financial statements of Holdings include the accounts of its wholly owned subsidiaries and variable interest entities for which the Company is the primary beneficiary. See Note 12, “New Markets Tax Credit,” for the discussion of financing arrangements involving certain entities that are variable interest entities that are included in these consolidated financial statements. All significant intercompany transactions have been eliminated in consolidation. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles in the United States (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements. The Company’s estimates and judgments are based on historical experience and various other assumptions that it believes are reasonable under the circumstances. The Company considered the COVID-19 related impacts on its estimates, as appropriate, within its consolidated financial statements and there may be changes to those estimates in future periods. The Company believes that the accounting estimates are appropriate after giving consideration to the increased uncertainties surrounding the severity and duration of the COVID-19 pandemic. The amount of assets and liabilities reported on the Company's balance sheets and the amounts of income and expenses reported for each of the periods presented are affected by estimates and assumptions, which are used for, but not limited to, the accounting for revenue recognition and related reserves for sales returns, useful lives of property, plant and equipment, determining impairment of property, plant and equipment and right of use assets, accounting for leases, valuation of inventory, and income taxes. Actual results may differ from these estimates. Reclassification Certain amounts in the prior year financial statements have been reclassified for comparative purposes to conform to the presentation for the year ended December 31, 2021. Specifically, the Company elected to change the way it presents cash flows from operating leases in its Statement of Cash Flows. In the twelve months ended December 31, 2019, the Company presented the net change in the right of use asset and lease liabilities as a change in leases within the operating section of the Statement of Cash Flows. During the third quarter of 2020, the Company determined it would be more appropriate to disaggregate this activity. The amortization of the right of use assets is now presented as a non-cash lease expense within the operating section of the Statement of Cash Flows. Lease payments, net of the accretion of lease liabilities, are now presented as a change in accrued expenses and other liabilities within the operating section of the Statement of Cash Flows. Prior to the adoption of Accounting Standards Codification (“ASC”) 842, Leases, effective January 1, 2019, the Company presented the non-cash change in deferred rent as deferred rent within the operating section of the Statement of Cash Flows. This balance is now presented as a non-cash lease expense within the operating section of the Statement of Cash Flows. The impact of this change on the Statement of Cash Flows presented as of December 31, 2019 follows: For the year ended December 31, 2019 Previously Reported Adjustments As RevisedChange in leases $ (1,900) $ 1,900 $ -Non-cash lease expense - 23,230 23,230Changes in operating assets and liabilities: Accrued expenses and other liabilities 1,503 (25,130) (23,627)Net cash provided by operating activities $ 38,563 $ - $ 38,563 The change in classification had no impact on the Company’s pretax earnings, earnings per share, net cash provided by operating activities, or balance sheets in any period. For the year ended December 31, 2019 Previously Reported Adjustments As RevisedChange in leases $ (1,900) $ 1,900 $ -Non-cash lease expense - 23,230 23,230Changes in operating assets and liabilities: Accrued expenses and other liabilities 1,503 (25,130) (23,627)Net cash provided by operating activities $ 38,563 $ - $ 38,563 -1900000 1900000 23230000 23230000 1503000 -25130000 -23627000 38563000 38563000 Cash and Cash Equivalents The Company had cash and cash equivalents of $9.4 million and $9.6 million at December 31, 2021 and 2020, respectively. The Company considers all highly liquid investments with an original maturity date of three months or less when purchased to be cash equivalents. The Company accepts a range of debit and credit cards, and these transactions are generally transmitted to a bank for reimbursement within 24 hours. The payments due from the banks for these debit and credit card transactions are generally received, or settled, within 24 to 48 hours of the transmission date. The Company considers all debit and credit card transactions that settle in less than seven days to be cash and cash equivalents. Amounts due from the banks for these transactions classified as cash and cash equivalents totaled $1.7 million and $1.9 million at December 31, 2021 and 2020, respectively. 9400000 9600000 1700000 1900000 Restricted Cash Cash and cash equivalents that are restricted as to withdrawal or are under the terms of use for current operations are included in the restricted balance on the balance sheet. Trade Receivables Trade receivables are carried at original invoice amount less an estimate made for doubtful accounts. Management determines the allowance for doubtful accounts on a specific identification basis and by leveraging information on historical losses, current conditions, and reasonable and supportable forecasts of future conditions. Trade receivables are written off when deemed uncollectible. Recoveries of trade receivables previously written off are recorded when received. The allowance for doubtful accounts was $0.2 million as of both December 31, 2021 and 2020. The Company does not accrue interest on accounts receivable. 200000 200000 Inventories The Company’s 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. The Company capitalizes the cost of inbound freight, duties, and receiving and handling costs to bring purchased materials into its distribution network. The labor and overhead costs incurred in connection with the production process are included in the value of manufactured finished goods. Inventories were comprised of the following as of December 31: 2021 2020 (in thousands)Finished goods $95,869 $72,619Raw materials 1,306 1,677Total $97,175 $74,296 The Company provides 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. The provision for losses related to shrinkage and other amounts was $0.5 million and $0.6 million as of December 31, 2021 and 2020, respectively. 2021 2020 (in thousands)Finished goods $95,869 $72,619Raw materials 1,306 1,677Total $97,175 $74,296 95869000 72619000 1306000 1677000 97175000 74296000 500000 600000 Income Taxes The Company recognizes deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. 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. The Company estimates the degree to which tax assets and credit 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. The Company records interest and penalties relating to uncertain tax positions in income tax expense. As of December 31, 2021 and 2020, the Company has not recognized any liabilities for uncertain tax positions nor has the Company accrued interest and penalties related to uncertain tax positions. 0 0 0 0 Revenue Recognition Revenues are recognized when control of the promised goods or services is transferred to the Company’s customers, in an amount that reflects the consideration received in exchange for those goods or services. The Company recognizes service revenue, which consists primarily of freight charges for home delivery, when the service has been rendered. The Company is required to charge and collect sales and other taxes on sales to the Company's customers and remit these taxes back to government authorities. Total revenues do not include sales tax because the Company is a pass-through conduit for collecting and remitting sales tax. Sales are reduced by an allowance for anticipated sales returns that the Company estimates based on historical returns. The Company generally requires customers to pay a deposit when purchasing inventory that is not regularly carried at the store location, or not currently in stock. These deposits are included in other current accrued liabilities until the customer takes possession of the merchandise. Sales Return Reserve Customers may return purchased items for an exchange or refund. The process to establish a sales return reserve contains uncertainties because it requires management to make assumptions and to apply judgment to estimate future returns and exchanges. The customer may receive a refund or exchange the original product for a replacement of equal or similar quality for a period of three months from the time of original purchase. Products received back under this policy are reconditioned pursuant to state laws and resold. The Company records a reserve for estimated product returns, based on historical return trends together with current product sales performance. P3M Cost of Sales and Selling, General and Administrative Expenses The primary costs classified in each major expense category are: Cost of Sales Materials cost;Shipping and transportation expenses to bring products into the Company's distribution centers;Custom and duty expenses;Customer shipping and handling expenses;Physical inventory losses;Costs incurred at distribution centers in connection with the receiving process; andLabor and overhead costs incurred to manufacture inventory Selling, General & Administrative (sometimes referred to as “SG&A”) Expenses All compensation costs for store, corporate and distribution employees;Occupancy, utilities and maintenance costs of store and corporate facilities;Shipping and transportation expenses to move inventory from the Company's distribution centers to the Company's stores; Depreciation and amortization; andAdvertising costs Stock Based Compensation The Company recognizes expense for its stock based compensation based on the fair value of the awards on the grant date. The Company may issue incentive awards in the form of stock options, restricted stock awards and other equity awards to employees and non-employee directors. Compensation expense is recognized on a straight-line basis over the requisite service period, net of actual forfeitures. Certain awards are also subject to forfeiture if the Company fails to attain its Adjusted EBITDA targets. The Company adjusts the cumulative expense recognized on awards with performance conditions based on a probability of achieving the performance condition. Concentration of Risk Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents and bank deposits. By their nature, all such instruments involve risks, including credit risks of non-performance by counterparties. A substantial portion of the Company's cash and cash equivalents and bank deposits are invested with banks with high investment grade credit ratings. Segments The Company’s operations consist primarily of retail sales of natural stone and man-made tiles, setting and maintenance materials, and related accessories in stores located in the United States. The Company’s chief operating decision maker only reviews the consolidated results of the Company and accordingly, the Company has concluded it has one reportable segment. 1 Advertising Costs Advertising costs were $6.1 million, $4.6 million and $9.2 million for the years ended December 31, 2021, 2020 and 2019, respectively, and are included in selling, general and administrative expenses in the consolidated statements of operations. The Company’s advertising consists primarily of digital media, direct marketing, events, traditional print media and mobile advertisements and is expensed at the time the media is distributed. 6100000 4600000 9200000 Pre-opening Costs The Company’s pre-opening costs are those typically associated with the opening of a new store and generally include rent expense, compensation costs and promotional costs. The Company expenses pre-opening costs as incurred which are recorded in selling, general and administrative expenses. During the years ended December 31, 2021, 2020 and 2019, the Company recorded pre-opening costs of $0.1 million, $0.1 million and $0.6 million, respectively. 100000 100000 600000 Property, Plant and Equipment Property, plant and equipment and leasehold improvements are recorded at cost. Improvements are capitalized while repairs and maintenance costs are charged to selling, general and administrative expenses when incurred. Property, plant and equipment are depreciated or amortized using the straight-line method over each asset’s estimated useful life. Leasehold improvements and fixtures at leased locations are amortized using the straight-line method over the shorter of the lease term or the estimated useful life of the asset. The cost and accumulated depreciation of assets sold or otherwise disposed of are removed from the accounts and any gain or loss thereon is included in other income and expense. Asset life (in years)Buildings and building improvements 40 Leasehold improvements 5–20Furniture and fixtures 2–7Machinery and equipment 5–10Computer equipment and software 3–7Vehicles 5 The Company evaluates potential impairment losses on long-lived assets used in operations at the individual retail store level, which is the lowest level at which cash flows can be identified, when events and circumstances indicate that the assets may be impaired, and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets. If impairment exists and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amount of those assets, an impairment loss is recorded based on the excess of the carrying value of the asset group over its fair value. Fair value is measured using discounted cash flows or independent opinions of value, as appropriate. During the fiscal years ended December 31, 2021 and 2020, the Company recorded asset impairment charges of $0.7 million and $2.2 million, respectively, which were classified in selling, general and administrative expenses. No impairment charges were recorded during the year ended December 31, 2019. Asset life (in years)Buildings and building improvements 40 Leasehold improvements 5–20Furniture and fixtures 2–7Machinery and equipment 5–10Computer equipment and software 3–7Vehicles 5 P40Y P5Y P20Y P2Y P7Y P5Y P10Y P3Y P7Y P5Y 700000 2200000 0 Internal Use Software The Company capitalizes software development costs incurred during the application development stage related to new software or major enhancements to the functionality of existing software that is developed solely to meet the Company’s internal operational needs and when there are no plans to market the software externally. Costs capitalized include external direct costs of materials and services and internal compensation costs. Any costs during the preliminary project stage or related to training or maintenance are expensed as incurred. Capitalization ceases when the software project is substantially complete and ready for its intended use. The capitalization and ongoing assessment of recoverability of development costs requires judgment by management with respect to certain external factors, including, but not limited to, technological and economic feasibility, and estimated economic life. As of December 31, 2021 and 2020, $5.0 million and $6.0 million was included in computer equipment and software, respectively. The internal use software costs are amortized over estimated useful lives of three to seven years. There was $1.5 million, $1.5 million and $1.6 million of amortization expense related to capitalized software during the years ended December 31, 2021, 2020 and 2019, respectively. 5000000.0 6000000.0 P7Y 1500000 1500000 1600000 Leases The Company determines if an arrangement is a lease at inception. Operating leases are included in right of use assets and lease liabilities on the consolidated balance sheets. The right of use assets and lease liabilities are recognized as the present value of the future minimum lease payments over the lease term at commencement date. As most of the leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. The right of use asset is also adjusted for any lease payments made and lease incentives. The Company’s lease terms may include options to extend or terminate the lease typically at its own discretion. The Company regularly evaluates the renewal options and when such options are reasonably certain of exercise, the Company includes the renewal period in its lease term. The Company does not separate non-lease components from lease components by class of underlying assets and does not apply the recognition requirements to short term leases. Certain lease arrangements contain provisions requiring the Company to restore the leased property to its original condition at the end of the lease. The fair values of these obligations are recorded as liabilities on a discounted basis, which occurs at the time the Company enters into the lease arrangement. In the estimation of fair value, the Company uses assumptions and judgements regarding such factors as the existence of a legal obligation for an asset retirement obligation, estimated amounts and timing of settlements, discount rates and inflation rates. The costs associated with these liabilities are capitalized and depreciated over the lease term and the liabilities are accreted over the same period. Asset retirement obligations were $2.9 million and $1.9 million as of December 31, 2021 and 2020, respectively, and are included in other long-term liabilities. 2900000 1900000 Self-Insurance The Company is self-insured for certain employee health and workers’ compensation claims. The Company estimates a liability for aggregate losses below stop-loss coverage limits based on estimates of the ultimate costs to be incurred to settle known claims and claims not reported as of the balance sheet date. The estimated liability is not discounted and is based on a number of assumptions and factors including historical trends, and economic conditions. As of December 31, 2021 and 2020, an accrual of $0.8 million and $0.6 million related to estimated employee health claims was included in other accrued liabilities, respectively. As of December 31, 2021 and 2020, an accrual of $2.2 million and $1.7 million related to estimated workers’ compensation claims was included in other accrued liabilities, respectively. The Company has standby letters of credit outstanding related to the Company's workers’ compensation and employee health insurance policies. As of both December 31, 2021 and 2020, the standby letters of credit totaled $2.4 million. 800000 600000 2200000 1700000 2400000 2400000 Impact of COVID-19 Pandemic In March 2020, the World Health Organization declared the COVID-19 outbreak a global pandemic. COVID-19 has negatively impacted public health and the global economy, disrupted global supply chains, and created volatility in financial markets. The continuing implications of COVID-19 on the Company remain uncertain and will depend on certain future developments, including the duration, scope and severity of the pandemic and the effects of new variants of COVID-19, some of which may be more virulent or transmissible than the initial strain; its impact on the Company’s employees, customers and suppliers; the range and timing of government mandated restrictions and other measures; and the success of the deployment and widespread adoption of approved COVID-19 vaccines and their effectiveness against new variants of COVID-19. This uncertainty could have a material impact on the accounting estimates and assumptions utilized to prepare the Company’s consolidated financial statements in future reporting periods, which could result in a material adverse impact on the Company’s financial position, results of operations and cash flows. Recent Accounting Pronouncements Recently Adopted Accounting Pronouncements In February 2016, the Financial Accounting Standards Board (the “FASB”) issued a final standard that primarily requires organizations that lease assets to recognize the rights and obligations created by those leases on the consolidated balance sheet. This standard also requires expanded disclosures to help financial statement users better understand the amount, timing and uncertainty of cash flows arising from leases. We adopted this standard effective January 1, 2019, using a modified retrospective approach through a cumulative effect adjustment to retained earnings as of the beginning of the period of adoption. This standard provided a number of optional practical expedients in transition. The Company elected the package of three practical expedients permitted under the transition guidance within this standard, which, among other things, allowed the Company to carryforward the historical lease classification. The Company did not separate non-lease components from lease components by class of underlying assets and the Company did not apply the recognition requirements of the standard to short-term leases, as allowed by the standard. The Company also elected to apply the hindsight practical expedient. The election of the hindsight practical expedient resulted in the shortening of lease terms for certain existing leases and the useful lives of corresponding leasehold improvements. In the application of the hindsight practical expedient, the Company considered recent investments in leased properties and the overall real estate strategy, which resulted in the determination that most renewal options would not be reasonably certain in determining the expected lease term. Upon adopting this standard, the Company established a right of use asset of $147.2 million and lease liabilities of $169.9 million, reduced deferred rent by $44.6 million, and recorded a cumulative effect adjustment to retained earnings of $22.0 million. This retained earnings impact was due to the election of the hindsight practical expedient, which resulted in a decrease in the cumulative difference between the straight-line rent expense and rental payments that had been made between the inception of each lease and January 1, 2019. The change in the useful life assigned to certain leasehold improvements resulted in a $15.3 million reduction in fixed assets and retained earnings. The net impact of the cumulative effect adjustments also resulted in a $1.7 million reduction of deferred tax assets and a corresponding adjustment to retained earnings. The adoption of this standard did not have a material impact on net income or cash flows for the year ended December 31, 2019. In the first quarter of fiscal 2021, the Company adopted new accounting requirements related to the measurement of credit losses on financial instruments, including trade receivables. The new standard and subsequent amendments replaced the incurred loss impairment model with a forward-looking expected credit loss model, which will generally result in earlier recognition of credit losses. The Company’s allowance for doubtful accounts represents its estimate of expected credit losses related to its trade receivables. To estimate the allowance for doubtful accounts, the Company leverages information on historical losses, current conditions, and reasonable and supportable forecasts of future conditions. Account balances are written off against the allowance when the Company deems the amount is uncollectible. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements. In the first quarter of fiscal 2021, the Company adopted a new accounting standard that simplifies accounting for income taxes.  Specifically, the new standard simplifies aspects of accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill.  The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.  Accounting Pronouncements Not Yet Adopted In March 2020, the FASB issued guidance providing optional expedients and exceptions to account for the effects of reference rate reform to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued. The optional guidance is effective as of the beginning of the reporting period when the election is made through December 31, 2022. The Company is currently evaluating the impact this guidance will have on its consolidated financial statements. 147200000 169900000 -44600000 22000000.0 -15300000 -15300000 1700000 1700000 Note 2: Revenues Revenues are recognized when control of the promised goods or services is transferred to the Company’s customers, in an amount that reflects the consideration received in exchange for those goods or services. Sales taxes are excluded from revenue. The following table presents revenues disaggregated by product category: Years Ended December 31, 2021 2020 Man-made tiles 48% 46%Natural stone tiles 28 29 Setting and maintenance materials 14 14 Accessories 8 9 Delivery service 2 2 100% 100% The Company generates revenues by selling tile products, setting and maintenance materials, accessories, and delivery services to its customers through its store locations. The timing of revenue recognition coincides with the transfer of control of goods and services ordered by the customer, which falls into one of three categories described below: Revenue recognized when an order is placed – If a customer places an order in a store and the contents of their order are available, the Company recognizes revenue concurrent with the exchange of goods for consideration from the customer.Revenue recognized when an order is picked up – If a customer places an order for items held in a centralized distribution center, the Company requests a deposit from the customer at the time they place the order. Subsequently when the contents of the customer’s order are delivered to the store, the customer returns to the store and picks up the items that were ordered. The Company recognizes revenue on this transaction when the customer picks up their order.Revenue recognized when an order is delivered – If a customer places an order in a store and requests delivery of their order, the Company prepares the contents of their order, initiates the delivery service, and recognizes revenue once the contents of the customer’s order are delivered. The Company determines the transaction price of its contracts based on the pricing established at the time a customer places an order. The transaction price does not include sales tax as the Company is a pass-through conduit for collecting and remitting sales tax. Any discounts applied to an order are allocated proportionately to the base price of the goods and services ordered. Deposits made by customers are recorded in other accrued liabilities. Deferred revenues associated with customer deposits are recognized at the time the Company transfers control of the items ordered or renders the delivery service. In the event an order is partially fulfilled as of the end of a reporting period, revenue will be recognized based on the transaction price allocated to the goods delivered and services rendered. The customer deposit balance was $13.8 million and $12.2 million as of December 31, 2021 and 2020, respectively. Revenues recognized during the year ended December 31, 2021 that were included in the customer deposit balance as of the beginning of the period were $12.2 million. The Company extends financing to qualified professional customers who apply for credit. The accounts receivable balance was $3.2 million and $3.0 million as of December 31, 2021 and 2020, respectively. Customers who qualify for an account receive 30-day payment terms. The Company expects that the customer will pay for the goods and services ordered within one year from the date the order is placed. Accordingly, the Company qualifies for the practical expedient outlined in ASC 606-10-32-18 and does not adjust the promised amount of consideration for the effects of the financing component. Customers may return purchased items for an exchange or refund. The Company records a reserve for estimated product returns based on the historical returns trends and the current product sales performance. The Company presents the sales returns reserve as an other current accrued liability and the estimated value of the inventory that will be returned as an other current asset in the Consolidated Balance Sheet. The components of the sales returns reserve reflected in the Consolidated Balance Sheet as of December 31, 2021 and 2020 are as follows: December 31, December 31, 2021 2020 (in thousands)Other current accrued liabilities $ 5,202 $ 4,957Other current assets 1,658 1,516Sales returns reserve, net $ 3,544 $ 3,441 Years Ended December 31, 2021 2020 Man-made tiles 48% 46%Natural stone tiles 28 29 Setting and maintenance materials 14 14 Accessories 8 9 Delivery service 2 2 100% 100% 0.48 0.46 0.28 0.29 0.14 0.14 0.08 0.09 0.02 0.02 1 1 13800000 12200000 12200000 3200000 3000000.0 December 31, December 31, 2021 2020 (in thousands)Other current accrued liabilities $ 5,202 $ 4,957Other current assets 1,658 1,516Sales returns reserve, net $ 3,544 $ 3,441 5202000 4957000 1658000 1516000 3544000 3441000 Note 3: Property, Plant and Equipment Property, plant and equipment consisted of the following at December 31: 2021 2020 (in thousands)Land $ 904 $ 904Building and building improvements 24,755 25,731Leasehold improvements 98,529 97,507Furniture and fixtures 142,161 142,501Machinery and equipment 30,461 30,205Computer equipment and software 47,003 45,217Vehicles 6,105 5,005Construction in progress 684 766Total property, plant and equipment 350,602 347,836Less accumulated depreciation (268,317) (248,801)Total property, plant and equipment, net $ 82,285 $ 99,035 Depreciation expense on property and equipment, including financing leases, was $27.4 million, $31.3 million and $33.5 million for the years ended December 31, 2021, 2020 and 2019, respectively. Property, plant and equipment is measured at fair value when an impairment is recognized and the related assets are written down to fair value. During the years ended December 31, 2021 and 2020, the Company recorded asset impairment charges of $0.7 million and $2.2 million, respectively. No impairment charges were recorded during the year ended December 31, 2019.  2021 2020 (in thousands)Land $ 904 $ 904Building and building improvements 24,755 25,731Leasehold improvements 98,529 97,507Furniture and fixtures 142,161 142,501Machinery and equipment 30,461 30,205Computer equipment and software 47,003 45,217Vehicles 6,105 5,005Construction in progress 684 766Total property, plant and equipment 350,602 347,836Less accumulated depreciation (268,317) (248,801)Total property, plant and equipment, net $ 82,285 $ 99,035 904000 904000 24755000 25731000 98529000 97507000 142161000 142501000 30461000 30205000 47003000 45217000 6105000 5005000 684000 766000 350602000 347836000 268317000 248801000 82285000 99035000 27400000 31300000 33500000 700000 2200000 0 Note 4: Other Accrued Liabilities Other accrued liabilities consisted of the following at December 31: 2021 2020 (in thousands)Customer deposits $13,792 $12,225Sales returns reserve 5,202 4,957Accrued wages and salaries 8,833 6,561Payroll and sales taxes 3,796 4,958Other current liabilities 6,626 5,405Total other accrued liabilities $38,249 $34,106  2021 2020 (in thousands)Customer deposits $13,792 $12,225Sales returns reserve 5,202 4,957Accrued wages and salaries 8,833 6,561Payroll and sales taxes 3,796 4,958Other current liabilities 6,626 5,405Total other accrued liabilities $38,249 $34,106 13792000 12225000 5202000 4957000 8833000 6561000 3796000 4958000 6626000 5405000 38249000 34106000 Note 5: Long-term Debt Long-term debt, net of debt issuance costs, consisted of the following at December 31: 2021 2020 (in thousands)Total debt obligations $ 5,000 $ -Less: current portion - -Debt obligations, net of current portion $ 5,000 $ - On September 18, 2018, Holdings and its operating subsidiary, The Tile Shop, entered into a credit agreement with Bank of America, N.A., Fifth Third Bank and Citizens Bank, which was amended November 16, 2021 (as amended, the “Credit Agreement”). The Credit Agreement provides the Company with a senior credit facility consisting of a $100.0 million revolving line of credit through September 18, 2023. Borrowings pursuant to the Credit Agreement initially bear interest at a LIBOR or base rate. The LIBOR-based rate ranges from LIBOR plus 1.50% to 2.25% depending on the Company’s rent adjusted leverage ratio. The base rate is equal to the greatest of (a) the Federal funds rate plus 0.50%, (b) the Bank of America “prime rate,” and (c) the Eurodollar rate plus 1.00%, in each case plus 0.50% to 1.25% depending on the Company’s rent adjusted leverage ratio. At December 31, 2021, the LIBOR-based interest rate was 1.60% and the base rate was 3.75%. The Credit Agreement is secured by virtually all of the assets of the Company, including but not limited to, inventory, receivables, equipment and real property. The Credit Agreement contains customary events of default, conditions to borrowings, and restrictive covenants, including restrictions on the Company’s ability to dispose of assets, make acquisitions, incur additional debt, incur liens, or make investments. The Credit Agreement also includes financial and other covenants, including covenants to maintain certain fixed charge coverage ratios and consolidated total rent adjusted leverage ratios. The Company was in compliance with the covenants as of December 31, 2021. The Company had $5.0 million of borrowings outstanding on the revolving line of credit as of December 31, 2021. The Company has standby letters of credit outstanding related to its workers’ compensation and medical insurance policies. As of both December 31, 2021 and 2020, the standby letters of credit totaled $2.4 million. There was $92.6 million available for borrowing on the revolving line of credit as of December 31, 2021, which may be used to support the Company’s growth and for working capital purposes. 2021 2020 (in thousands)Total debt obligations $ 5,000 $ -Less: current portion - -Debt obligations, net of current portion $ 5,000 $ - 5000000 5000000 100000000.0 2023-09-18 0.0150 0.0225 0.0050 0.0100 0.0050 0.0125 0.0160 0.0375 5000000.0 2400000 92600000 Note 6: Leases The Company leases its retail stores, certain distribution space, and office space. Leases generally have a term of ten to fifteen years, and contain renewal options. Assets acquired under operating leases are included in the Company’s right of use assets in the accompanying consolidated balance sheet. The Company’s lease agreements do not contain significant residual value guarantees, restrictions or covenants. The depreciable life of assets and leasehold improvements is limited by the expected lease term. Leases (in thousands)Classification December 31, 2021 December 31, 2020Assets Operating lease assetsRight of use asset $ 123,101 $ 132,374Total leased assets $ 123,101 $ 132,374 Liabilities Current OperatingCurrent portion of lease liability $ 28,190 $ 27,223Noncurrent OperatingLong-term lease liability, net 110,261 122,678Total lease liabilities $ 138,451 $ 149,901 Year Ended December 31,Lease cost (in thousands)Classification 2021 2020Operating lease costSG&A expenses $ 34,047 $ 33,167Financing lease cost Amortization of leased assetsSG&A expenses - 49Interest on lease liabilitiesInterest expense - 54Variable lease cost(1)SG&A expenses 14,325 13,854Short term lease costSG&A expenses 447 709Net lease cost $ 48,819 $ 47,833 (1) Variable lease costs consist primarily of taxes, insurance, and common area or other maintenance costs for the Company’s leased facilities. Maturity of Lease Liabilities (in thousands) Operating Leases2022 $ 37,4042023 34,8372024 28,2952025 22,0382026 16,982Thereafter 28,023Total lease payments 167,579Less: interest (29,128)Present value of lease liabilities $ 138,451 Year Ended December 31,Other Information (in thousands) 2021 2020Cash paid for amounts included in the measurement of lease liabilities Operating cash flows from operating leases $ (37,011) $ (37,242)Operating cash flows from financing leases $ - $ 43Financing cash flows from financing leases $ - $ (162)Lease right-of-use assets obtained or modified in exchange for lease obligations $ 15,681 $ 19,278 Lease Term and Discount Rate December 31, 2021 December 31, 2020 Weighted average remaining term (years) Operating leases 5.4 5.8 Weighted average discount rate Operating leases 6.64% 6.43%  P15Y Leases (in thousands)Classification December 31, 2021 December 31, 2020Assets Operating lease assetsRight of use asset $ 123,101 $ 132,374Total leased assets $ 123,101 $ 132,374 Liabilities Current OperatingCurrent portion of lease liability $ 28,190 $ 27,223Noncurrent OperatingLong-term lease liability, net 110,261 122,678Total lease liabilities $ 138,451 $ 149,901 123101000 132374000 123101000 132374000 28190000 27223000 110261000 122678000 138451000 149901000 Year Ended December 31,Lease cost (in thousands)Classification 2021 2020Operating lease costSG&A expenses $ 34,047 $ 33,167Financing lease cost Amortization of leased assetsSG&A expenses - 49Interest on lease liabilitiesInterest expense - 54Variable lease cost(1)SG&A expenses 14,325 13,854Short term lease costSG&A expenses 447 709Net lease cost $ 48,819 $ 47,833 (1) Variable lease costs consist primarily of taxes, insurance, and common area or other maintenance costs for the Company’s leased facilities. 34047000 33167000 49000 54000 14325000 13854000 447000 709000 48819000 47833000 Maturity of Lease Liabilities (in thousands) Operating Leases2022 $ 37,4042023 34,8372024 28,2952025 22,0382026 16,982Thereafter 28,023Total lease payments 167,579Less: interest (29,128)Present value of lease liabilities $ 138,451 37404000 34837000 28295000 22038000 16982000 28023000 167579000 29128000 138451000 Year Ended December 31,Other Information (in thousands) 2021 2020Cash paid for amounts included in the measurement of lease liabilities Operating cash flows from operating leases $ (37,011) $ (37,242)Operating cash flows from financing leases $ - $ 43Financing cash flows from financing leases $ - $ (162)Lease right-of-use assets obtained or modified in exchange for lease obligations $ 15,681 $ 19,278 37011000 37242000 43000 162000 15681000 19278000 Lease Term and Discount Rate December 31, 2021 December 31, 2020 Weighted average remaining term (years) Operating leases 5.4 5.8 Weighted average discount rate Operating leases 6.64% 6.43% P5Y4M24D P5Y9M18D 0.0664 0.0643 Note 7: Fair Value of Financial Instruments Fair value is the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. To measure fair value, the Company uses a three-tier valuation hierarchy based upon observable and non-observable inputs: Level 1 – Unadjusted quoted prices that are available in active markets for the identical assets or liabilities at the measurement date. Level 2 – Significant other observable inputs available at the measurement date, other than quoted prices included in Level 1, either directly or indirectly, including: Quoted prices for similar assets or liabilities in active markets;Quoted prices for identical or similar assets or liabilities in non-active markets;Inputs other than quoted prices that are observable for the asset or liability; andInputs that are derived principally from or corroborated by other observable market data. Level 3 – Significant unobservable inputs that cannot be corroborated by observable market data and reflect the use of significant management judgment. The following table sets forth by level within the fair value hierarchy the Company’s financial assets that were accounted for at fair value on a recurring basis at December 31, 2021 and 2020 according to the valuation techniques the Company uses to determine their fair values. There have been no transfers of assets among the fair value hierarchies presented. Pricing Fair Value at Category December 31, 2021 December 31, 2020Assets (in thousands)Cash and cash equivalents Level 1 $ 9,358 $ 9,617Restricted cash Level 1 655 655 The following methods and assumptions were used to estimate the fair value of each class of financial instrument. There have been no changes in the valuation techniques used by the Company to value the Company’s financial instruments. Cash and cash equivalents: Consists of cash on hand and bank deposits. The value was measured using quoted market prices in active markets. The carrying amount approximates fair value.Restricted cash: Consists of cash and cash equivalents held in bank deposit accounts restricted as to withdrawal or that are under the terms of use for current operations. The value was measured using quoted market prices in active markets. The carrying amount approximates fair value. The carrying value of accounts receivable and accounts payable approximates their estimated fair values due to the short maturities of these instruments. Fair value measurements also apply to certain non-financial assets and liabilities measured at fair value on a nonrecurring basis. Property, plant and equipment and right of use assets are measured at fair value when an impairment is recognized and the related assets are written down to fair value. During the years ended December 31, 2021 and 2020, the Company recognized charges in selling, general, and administrative expenses to write-down property, plant, and equipment and right of use assets to their estimated fair values of $0.7 million and $2.2 million, respectively. No impairment charges were recorded during the year ended December 31, 2019. The Company measured the fair value of these assets based on projected cash flows, an estimated risk-adjusted rate of return, and market rental rates for comparable properties. Projected cash flows are considered Level 3 inputs. Market rental rates for comparable properties are considered Level 2 inputs. During the twelve months ended December 31, 2021, the Company recorded a $1.1 million adjustment to reflect an increase in the fair value to restore leased property to its original condition at the end of the lease. The change in the estimated value of the Company’s asset retirement obligation resulted in a $1.1 million increase in property, plant and equipment, a $0.1 million increase in other current liabilities, and a $1.0 million increase in other long-term liabilities. The Company measured the fair value of its asset retirement obligation based on the estimated amounts and timing of settlements, an estimated risk adjusted rate of return, and expected inflation rates, which are considered Level 2 inputs. The carrying value of the Company’s borrowings under its Credit Agreement approximates fair value based upon Level 2 inputs of the market interest rates available to the Company for debt obligations with similar risks and maturities. 0 0 Pricing Fair Value at Category December 31, 2021 December 31, 2020Assets (in thousands)Cash and cash equivalents Level 1 $ 9,358 $ 9,617Restricted cash Level 1 655 655 9358000 9617000 655000 655000 700000 2200000 0 1100000 1100000 100000 1000000.0 Note 8: Related Party Transactions On July 9, 2018, Fumitake Nishi, a former Company employee and the brother-in-law of Robert A. Rucker, the Company’s former Interim Chief Executive Officer and President, former member of the Company’s Board of Directors, and former holder of more than 5% of the Company’s common stock, informed the Company he had reacquired a majority of the equity of one of its key vendors, Nanyang Helin Stone Co. Ltd (“Nanyang”). Mr. Nishi also has an ownership interest in Tilestyling Co. Ltd (“Tile Style”), a vendor from which the Company started acquiring product in 2020. Nanyang and Tile Style supply the Company with natural stone products, including hand-crafted mosaics, listellos and other accessories. The Company paid $9.3 million, $7.6 million, and $5.1 million to Nanyang in connection with purchases made during the years ended December 31, 2021, 2020 and 2019, respectively. As of December 31, 2021, there were no amounts payable due to Nanyang. As of December 31, 2020, the accounts payable due to Nanyang was $0.2 million. The Company paid $3.5 million and $0.7 million to Tile Style in connection with purchases made during the year ended December 31, 2021 and 2020, respectively. The Company did not make any purchases from Tile Style during the year ended December 31, 2019. As of December 31, 2021, there were no amounts payable due to Tile Style. As of December 31 2020, the accounts payable balance due to Tile Style was $0.1 million. Mr. Nishi’s employment with the Company was terminated on January 1, 2014 as a result of several violations of the Company’s code of business conduct and ethics policy. Certain of those violations involved his undisclosed ownership of Nanyang at that time. Management and the Audit Committee have evaluated these relationships and determined that it would be in the Company’s best interests to continue purchasing products from Nanyang and Tile Style. The Company believes Nanyang and Tile Style each provide an important combination of quality, product availability and pricing, and relying solely on other vendors to supply similar product to the Company would not be in the Company’s best interests.    9300000 7600000 5100000 200000 3500000 700000 0 0 100000 Note 9: Income (loss) per common share Basic earnings (loss) per share is calculated by dividing net income (loss) by the weighted average number of shares outstanding during the period. Diluted earnings (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding, after taking into consideration all dilutive potential common shares outstanding during the period. Dilutive shares were excluded from the calculation of diluted net loss per share for the year ended December 31, 2019, as their effect was antidilutive as a result of the net loss incurred for that period. Therefore, dilutive weighted average number of shares outstanding and diluted net loss per share were the same as basic weighted average number of shares outstanding and basic net loss per share for the year ended December 31, 2019. Basic and diluted net income (loss) per share was calculated as follows: 2021 2020 2019 (in thousands, except share and per share data)Net income (loss) $ 14,774 $ 6,031 $ (4,463)Weighted average shares outstanding - basic 50,393,980 49,957,356 50,624,309Effect of dilutive securities attributable to stock based awards 691,483 626,386 -Weighted average shares outstanding - diluted 51,085,463 50,583,742 50,624,309Basic net income (loss) per share $ 0.29 $ 0.12 $ (0.09)Diluted net income (loss) per share $ 0.29 $ 0.12 $ (0.09)Anti-dilutive securities excluded from earnings per share calculation 884,610 1,482,552 2,251,652  2021 2020 2019 (in thousands, except share and per share data)Net income (loss) $ 14,774 $ 6,031 $ (4,463)Weighted average shares outstanding - basic 50,393,980 49,957,356 50,624,309Effect of dilutive securities attributable to stock based awards 691,483 626,386 -Weighted average shares outstanding - diluted 51,085,463 50,583,742 50,624,309Basic net income (loss) per share $ 0.29 $ 0.12 $ (0.09)Diluted net income (loss) per share $ 0.29 $ 0.12 $ (0.09)Anti-dilutive securities excluded from earnings per share calculation 884,610 1,482,552 2,251,652 14774000 6031000 -4463000 50393980 49957356 50624309 691483 626386 51085463 50583742 50624309 0.29 0.12 -0.09 0.29 0.12 -0.09 884610 1482552 2251652 Note 10: Equity Incentive Plans Equity Plans: On July 20, 2021, the stockholders of the Company approved the Tile Shop Holdings, Inc. 2021 Omnibus Equity Compensation Plan (the “2021 Plan”). The 2021 Plan replaced the 2012 Omnibus Award Plan (the “Prior Plan”). Awards granted under the Prior Plan that were outstanding on the date of stockholder approval remained outstanding in accordance with their terms. The maximum number of shares that may be delivered with respect to awards under the 2021 Plan is 3,500,000 shares, subject to adjustment in certain circumstances. Shares tendered or withheld to pay the exercise price of a stock option or to cover tax withholding will not be added back to the number of shares available under the 2021 Plan. To the extent that any award under the 2021 Plan, or any award granted under the Prior Plan prior to stockholder approval of the 2021 Plan, is forfeited, canceled, surrendered or otherwise terminated without the issuance of shares or an award is settled only in cash, the shares subject to such awards granted but not delivered will be added to the number of shares available for awards under the 2021 Plan. Stock Options: During the years ended December 31, 2021 and 2020, the Company did not grant any stock options to its employees. During the year ended December 31, 2019, the Company granted stock options to its employees that included service condition requirements. The options provide for certain acceleration of vesting and cancellation of options under different circumstances, such as a change in control, death, disability and termination of service. The Company recognizes compensation expense on a straight-line basis over the requisite service period, net of actual forfeitures. The fair value of each option grant was estimated on the date of grant using the Black-Scholes option pricing model. The assumptions used in the option valuation models are outlined in the following table: 2019Risk-free interest rate2.50%Expected life (in years)6Expected volatility56%Dividend yield3% The computation of the expected volatility assumptions used in the option valuation models was based on historical volatilities of the Company. The Company used the “simplified” method to calculate the expected term of options granted due to the lack of adequate historical data. The risk-free interest rate was based on the U.S. Treasury yield at the time of grant. The expected dividend yield was determined using the historical dividend payout and a trailing twelve month closing stock price on the grant date. To the extent that actual outcomes differ from the Company's assumptions, the Company is not required to true up grant-date fair value-based expense to final intrinsic values. The weighted average fair value of stock options granted was $2.57 during the year ended December 31, 2019. Stock based compensation related to options for the years ended December 31, 2021, 2020 and 2019 was $0.3 million, $0.4 million, and $0.7 million, respectively, and was included in selling, general and administrative expenses in the consolidated statements of operations. As of December 31, 2021, the total future compensation cost related to non-vested options not yet recognized in the consolidated statement of operations was $0.1 million and is expected to be recognized over a weighted average period of 1.0 years. The following table summarizes stock option activity during the years ended December 31, 2021, 2020 and 2019: Shares Weighted‎Average‎Exercise‎Price WeightedAvg. GrantDate Fair Value Weighted Avg.‎Remaining‎Contractual‎Term (Years) Aggregate‎Intrinsic‎Value‎(in thousands)Balance, January 1, 2019 1,388,079 $ 12.34 $ 5.80 4.9 $ -Granted 334,134 $ 6.26 $ 2.57 Exercised - $ - $ - Cancelled/Forfeited (468,219) $ 10.66 $ 4.81 Balance, December 31, 2019 1,253,994 $ 11.34 $ 5.31 4.7 $ -Granted - $ - $ - Exercised - $ - $ - Cancelled/Forfeited (243,547) $ 12.91 $ 5.91 Balance, December 31, 2020 1,010,447 $ 10.96 $ 5.16 4.6 $ -Granted - $ - $ - Exercised - $ - $ - Cancelled/Forfeited (104,502) $ 11.03 $ 4.90 Balance, December 31, 2021 905,945 $ 10.96 $ 5.19 3.7 $ 238Exercisable at December 31, 2021 803,511 $ 11.53 $ 5.52 3.3 $ 141Vested and expected to vest, December 31, 2021 905,945 $ 10.96 $ 5.19 3.7 $ 238 The aggregate intrinsic value is the difference between the exercise price and the closing price of the Company’s stock on December 31. No stock options were exercised during fiscal year 2021. Options outstanding as of December 31, 2021 were as follows: Range of Exercise Price Weighted Average Options Exercise Price Remaining Contractual‎Life-Years$5.00to$10.00 654,687 $ 8.29 4.06$10.01to$15.00 76,758 $ 13.28 3.77$15.01to$20.00 115,500 $ 17.82 2.86$20.01to$25.00 51,000 $ 23.17 1.76$25.01to$30.00 8,000 $ 29.44 1.56 Restricted Stock: The Company awards restricted common shares to selected employees and non-employee directors. Recipients are not required to provide any consideration upon vesting of the award. Restricted stock awards are subject to certain restrictions on transfer, and all or part of the shares awarded may be subject to forfeiture upon the occurrence of certain events, including employment termination. Certain awards are also subject to forfeiture if the Company fails to attain its Adjusted EBITDA or other performance targets. The restricted common stock is valued at its grant date fair value and expensed over the requisite service period or the vesting term of the awards. The Company adjusts the cumulative expense recognized on awards with performance conditions based on the probability of achieving the performance condition. The following table summarizes restricted stock activity during the years ended December 31, 2021, 2020 and 2019: Shares Weighted Avg.‎Grant Date‎Fair ValueNonvested, January 1, 2019 762,517 $ 7.80Granted 781,697 $ 4.36Vested (170,677) $ 7.95Forfeited (375,879) $ 7.39Nonvested, December 31, 2019 997,658 $ 5.23Granted 1,090,759 $ 1.12Vested (329,326) $ 5.34Forfeited (116,594) $ 5.22Nonvested, December 31, 2020 1,642,497 $ 2.48Granted 421,547 $ 7.05Vested (742,392) $ 2.61Forfeited (24,018) $ 6.99Nonvested, December 31, 2021 1,297,634 $ 3.81 The total expense associated with restricted stock for the years ended December 31, 2021, 2020, and 2019 was $2.0 million, $1.8 million, and $1.9 million, respectively. During 2021, the Company granted 234,483 restricted share awards that are subject to forfeiture on the anniversary of the grant date if the Company fails to attain certain Adjusted EBITDA margin performance targets in 2021, 2022 and 2023. The Company did not achieve the Adjusted EBITDA margin target in 2021 and does not expect to achieve the Adjusted EBITDA margin targets in 2022 and 2023. As of December 31, 2021, there was $2.1 million of total unrecognized expense related to unvested restricted stock awards, which are expected to vest, and will be expensed over a weighted average period of 1.6 years. The fair value of restricted stock granted in fiscal years 2021 and 2020 was $3.0 million and $1.2 million, respectively. The total fair value of restricted stock that vested in fiscal years 2021 and 2020 was $5.4 million and $0.6 million, respectively. Using the closing stock price of $7.13 on December 31, 2021, the 1,063,151 restricted shares outstanding and expected to vest as of December 31, 2021 had an intrinsic value of $7.6 million.  3500000 0 0 2019Risk-free interest rate2.50%Expected life (in years)6Expected volatility56%Dividend yield3% 0.0250 P6Y 0.56 0.03 2.57 300000 400000 700000 100000 P1Y Shares Weighted‎Average‎Exercise‎Price WeightedAvg. GrantDate Fair Value Weighted Avg.‎Remaining‎Contractual‎Term (Years) Aggregate‎Intrinsic‎Value‎(in thousands)Balance, January 1, 2019 1,388,079 $ 12.34 $ 5.80 4.9 $ -Granted 334,134 $ 6.26 $ 2.57 Exercised - $ - $ - Cancelled/Forfeited (468,219) $ 10.66 $ 4.81 Balance, December 31, 2019 1,253,994 $ 11.34 $ 5.31 4.7 $ -Granted - $ - $ - Exercised - $ - $ - Cancelled/Forfeited (243,547) $ 12.91 $ 5.91 Balance, December 31, 2020 1,010,447 $ 10.96 $ 5.16 4.6 $ -Granted - $ - $ - Exercised - $ - $ - Cancelled/Forfeited (104,502) $ 11.03 $ 4.90 Balance, December 31, 2021 905,945 $ 10.96 $ 5.19 3.7 $ 238Exercisable at December 31, 2021 803,511 $ 11.53 $ 5.52 3.3 $ 141Vested and expected to vest, December 31, 2021 905,945 $ 10.96 $ 5.19 3.7 $ 238 1388079 12.34 5.80 P4Y10M24D 334134 6.26 2.57 468219 10.66 4.81 1253994 11.34 5.31 P4Y8M12D 243547 12.91 5.91 1010447 10.96 5.16 P4Y7M6D 104502 11.03 4.90 905945 10.96 5.19 P3Y8M12D 238000 803511 11.53 5.52 P3Y3M18D 141000 905945 10.96 5.19 P3Y8M12D 238000 0 Range of Exercise Price Weighted Average Options Exercise Price Remaining Contractual‎Life-Years$5.00to$10.00 654,687 $ 8.29 4.06$10.01to$15.00 76,758 $ 13.28 3.77$15.01to$20.00 115,500 $ 17.82 2.86$20.01to$25.00 51,000 $ 23.17 1.76$25.01to$30.00 8,000 $ 29.44 1.56 5.00 10.00 654687 8.29 P4Y21D 10.01 15.00 76758 13.28 P3Y9M7D 15.01 20.00 115500 17.82 P2Y10M9D 20.01 25.00 51000 23.17 P1Y9M3D 25.01 30.00 8000 29.44 P1Y6M21D Shares Weighted Avg.‎Grant Date‎Fair ValueNonvested, January 1, 2019 762,517 $ 7.80Granted 781,697 $ 4.36Vested (170,677) $ 7.95Forfeited (375,879) $ 7.39Nonvested, December 31, 2019 997,658 $ 5.23Granted 1,090,759 $ 1.12Vested (329,326) $ 5.34Forfeited (116,594) $ 5.22Nonvested, December 31, 2020 1,642,497 $ 2.48Granted 421,547 $ 7.05Vested (742,392) $ 2.61Forfeited (24,018) $ 6.99Nonvested, December 31, 2021 1,297,634 $ 3.81 762517 7.80 781697 4.36 170677 7.95 375879 7.39 997658 5.23 1090759 1.12 329326 5.34 116594 5.22 1642497 2.48 421547 7.05 742392 2.61 24018 6.99 1297634 3.81 2000000.0 1800000 1900000 234483 2100000 P1Y7M6D 3000000.0 1200000 5400000 600000 7.13 1063151 7600000 Note 11: Income Taxes The components of the provision for income taxes consisted of the following: Years Ended December 31, 2021 2020 2019 (in thousands)Current Federal $ (5,397) $ 3,632 $ (324)State (1,390) (190) (479)International (4) (31) (144)Total Current (6,791) 3,411 (947)Deferred Federal 1,698 (1,522) 1,296State (131) (377) 261International 44 17 64Total Deferred 1,611 (1,882) 1,621Total (Provision) Benefit for Income Taxes $ (5,180) $ 1,529 $ 674 A majority of the Company's income is from domestic operations. On March 27, 2020, the CARES Act was signed into law. The CARES Act includes a wide variety of tax and non-tax provisions aimed to provide relief to individuals and businesses adversely affected by the COVID-19 pandemic, including an array of tax benefits and incentives for businesses, including the deferral of certain employer payroll taxes. Additionally, the CARES Act modified the rules associated with net operating losses and made technical corrections to tax depreciation methods for qualified improvement property. As a result of the CARES Act tax law changes, for the year ended December 31, 2020, we recognized a $3.4 million tax benefit related to our ability to carryback net operating losses to prior years that had higher tax rates. The carryback claims of the 2019 U.S. federal income tax return are currently filed with the IRS, and the anticipated refund is $8.9 million. The following table reflects the effective income tax rate reconciliation for the years ended December 31, 2021, 2020 and 2019:  2021 2020 2019Federal statutory rate 21.0% 21.0% 21.0%State income taxes, net of the federal tax benefit 6.1 7.6 3.7 Stock based compensation (1.3) 12.6 (7.3) Remeasurement of deferred tax assets - (0.1) (1.1) Tax credits (0.2) (0.9) 2.6 Uncollectible state receivables - - (5.6) Impact of CARES Act - (76.1) - Other 0.4 1.9 (0.2) Effective tax rate 26.0% (34.0)% 13.1% The Company’s effective tax rate was 26.0%, (34.0)%, and 13.1% during the years ended December 31, 2021, 2020 and 2019, respectively. The increase in the effective tax rate in 2021 when compared to 2020 as well as the decrease in the effective tax rate in 2020 when compared to 2019 was due to the tax benefit recognized during 2020 following the enactment of the CARES Act, which gave the Company the ability to carry back federal net operating losses to years with a federal statutory tax rate of 35%.‎ Components of net deferred income taxes were as follows at December 31: 2021 2020 (in thousands)Deferred income tax assets: Section 743 carryforward $ 9,509 $ 11,215Inventory 1,624 1,324Stock based compensation 922 1,019Operating lease liabilities 36,004 38,981Net operating loss & credit carryforwards 98 362Other 3,604 3,520Total deferred income tax assets $ 51,761 $ 56,421 Deferred income tax liabilities Depreciation 9,168 12,642Operating lease right-of-use assets 34,104 36,516Other 1,536 1,922Total deferred income tax liabilities 44,808 51,080Net deferred income tax assets $ 6,953 $ 5,341 The Company has recognized the tax consequences of all foreign unremitted earnings and management has no specific plans to indefinitely reinvest the unremitted earnings of its foreign subsidiary as of December 31, 2021. As of December 31, 2021, the total undistributed earnings of the Company's non-U.S. subsidiary was approximately $0.5 million. The Company has provided no deferred taxes on withholding taxes, state taxes, and foreign currency gains and losses due on the repatriation of those earnings. The Company records interest and penalties through income tax relating to uncertain tax positions. As of December 31, 2021, 2020 and 2019, the Company has not recognized any liabilities for uncertain tax positions nor has the Company accrued interest and penalties related to uncertain tax positions. The Company's federal income tax returns for fiscal years 2018 through 2020 tax years are still subject to examination in the U.S. Various state and foreign jurisdiction tax years remain open to examination. The Company believes that any potential assessment would be immaterial to its consolidated financial statements.  Years Ended December 31, 2021 2020 2019 (in thousands)Current Federal $ (5,397) $ 3,632 $ (324)State (1,390) (190) (479)International (4) (31) (144)Total Current (6,791) 3,411 (947)Deferred Federal 1,698 (1,522) 1,296State (131) (377) 261International 44 17 64Total Deferred 1,611 (1,882) 1,621Total (Provision) Benefit for Income Taxes $ (5,180) $ 1,529 $ 674 5397000 -3632000 324000 1390000 190000 479000 4000 31000 144000 6791000 -3411000 947000 -1698000 1522000 -1296000 131000 377000 -261000 -44000 -17000 -64000 -1611000 1882000 -1621000 5180000 -1529000 -674000 3400000 8900000 2021 2020 2019Federal statutory rate 21.0% 21.0% 21.0%State income taxes, net of the federal tax benefit 6.1 7.6 3.7 Stock based compensation (1.3) 12.6 (7.3) Remeasurement of deferred tax assets - (0.1) (1.1) Tax credits (0.2) (0.9) 2.6 Uncollectible state receivables - - (5.6) Impact of CARES Act - (76.1) - Other 0.4 1.9 (0.2) Effective tax rate 26.0% (34.0)% 13.1% 0.210 0.210 0.210 0.061 0.076 0.037 -0.013 0.126 -0.073 -0.001 -0.011 -0.002 -0.009 0.026 -0.056 -0.761 0.004 0.019 -0.002 0.260 -0.340 0.131 0.260 -0.340 0.131 0.35 2021 2020 (in thousands)Deferred income tax assets: Section 743 carryforward $ 9,509 $ 11,215Inventory 1,624 1,324Stock based compensation 922 1,019Operating lease liabilities 36,004 38,981Net operating loss & credit carryforwards 98 362Other 3,604 3,520Total deferred income tax assets $ 51,761 $ 56,421 Deferred income tax liabilities Depreciation 9,168 12,642Operating lease right-of-use assets 34,104 36,516Other 1,536 1,922Total deferred income tax liabilities 44,808 51,080Net deferred income tax assets $ 6,953 $ 5,341 9509000 11215000 1624000 1324000 922000 1019000 36004000 38981000 98000 362000 3604000 3520000 51761000 56421000 9168000 12642000 34104000 36516000 1536000 1922000 44808000 51080000 6953000 5341000 500000 0 0 0 0 0 0 Note 12: New Markets Tax Credit 2016 New Markets Tax Credit In December 2016, the Company entered into a financing transaction with U.S. Bank Community, LLC (“U.S. Bank”) related to a $9.2 million expansion of the Company’s facility in Durant, Oklahoma. U.S. Bank made a capital contribution to, and Tile Shop Lending, Inc. (“Tile Shop Lending”) made a loan to, Twain Investment Fund 192 LLC (the “Investment Fund”) under a qualified New Markets Tax Credit (“NMTC”) program. The NMTC program was provided for in the Community Renewal Tax Relief Act of 2000 (the “Act”) and is intended to induce capital investment in qualified lower income communities. The Act permits taxpayers to claim credits against their federal income taxes for up to 39% of qualified investments in the equity of community development entities (“CDEs”). CDEs are privately managed investment institutions that are certified to make qualified low-income community investments. In this transaction, Tile Shop Lending loaned $6.7 million to the Investment Fund at an interest rate of 1.37% per year and with a maturity date of December 31, 2046. The Investment Fund then contributed the loan to a CDE, which, in turn, loaned the funds on similar terms to Tile Shop of Oklahoma, LLC, an indirect, wholly-owned subsidiary of Holdings. The proceeds of the loans from the CDEs (including loans representing the capital contribution made by U.S. Bank, net of syndication fees) were used to partially fund the distribution center project. In December 2016, U.S. Bank contributed $3.2 million to the Investment Fund and, by virtue of such contribution, is entitled to substantially all of the tax benefits derived from the NMTC, while the Company effectively received net loan proceeds equal to U.S. Bank’s contributions to the Investment Fund. This transaction includes a put/call provision whereby the Company may be obligated or entitled to repurchase U.S. Bank’s interest. The Company believes that U.S. Bank will exercise the put option in December 2023 at the end of the recapture period. The value attributed to the put/call is de minimis. The NMTC is subject to 100% recapture for a period of seven years as provided in the Internal Revenue Code. The Company is required to be in compliance with various regulations and contractual provisions that apply to the NMTC arrangement. Non-compliance with applicable requirements could result in projected tax benefits not being realized and, therefore, could require the Company to indemnify U.S. Bank for any loss or recapture of NMTCs related to the financing until such time as the obligation to deliver tax benefits is relieved. The Company does not anticipate any credit recaptures will be required in connection with this arrangement. The Company has determined that the financing arrangement with the Investment Fund and CDEs constitutes a variable interest entity (“VIE”). The ongoing activities of the Investment Fund – collecting and remitting interest and fees and NMTC compliance – were all considered in the initial design and are not expected to significantly affect economic performance throughout the life of the Investment Fund. Management considered the contractual arrangements that obligate the Company to deliver tax benefits and provide various other guarantees to the structure; U.S. Bank’s lack of a material interest in the underlying economics of the project; and the fact that the Company is obligated to absorb losses of the Investment Fund. The Company concluded that it is the primary beneficiary of the VIE and consolidated the Investment Fund, as a VIE, in accordance with the accounting standards for consolidation. In 2016, U.S. Bank contributed $3.2 million, net of syndication fees, to the Investment Fund. The Company incurred $1.3 million of syndication fees in connection with this transaction. The Company is recognizing the benefit of this net $1.9 million contribution over the seven-year compliance period as it is being earned through the on-going compliance with the conditions of the NMTC program. As of December 31, 2021, the balance of the contribution liability for this arrangement was $0.9 million, of which $0.5 million was classified as other accrued liabilities on the consolidated balance sheet and $0.4 million was classified as other long-term liabilities on the consolidated balance sheet. The Company is able to request reimbursement for certain expenditures made in connection with the expansion of the distribution center in Durant, Oklahoma from the Investment Fund. Expenditures that qualify for reimbursement include building costs, equipment purchases, and other expenditures tied to the expansion of the facility. As of December 31, 2021, the remaining balance in the Investment Fund available for reimbursement to the Company was $0.7 million.  9200000 0.39 6700000 0.0137 2046-12-31 3200000 P7Y 3200000 1300000 1900000 900000 500000 400000 700000 Note 13: Retirement Savings Plan The Company has a 401(k) profit sharing plan covering substantially all full-time employees. Employee contributions are limited to the maximum amount allowable by the Internal Revenue Code. The Company matched $1.8 million, $1.5 million, and $1.6 million of employee contributions in 2021, 2020, and 2019, respectively, and made no discretionary contributions for any of the years presented. 1800000 1500000 1600000 0 0 0 Note 14: Quarterly Financial Data (Unaudited) Quarterly results of operations for the years ended December 31, 2021 and 2020 are summarized below (in thousands, except per share amounts): First Quarter Second Quarter Third Quarter Fourth Quarter 2021 Net sales $ 92,084 96,193 92,240 90,183Gross profit 64,186 66,425 62,949 59,570Income from operations 6,908 7,614 3,158 2,930Net income 5,297 5,494 2,175 1,808Basic earnings per share 0.11 0.11 0.04 0.04Diluted earnings per share 0.10 0.11 0.04 0.04 2020 Net sales $ 94,279 67,730 81,492 81,556Gross profit 64,955 45,414 55,304 55,852Income (loss) from operations 2,594 (1,794) 2,901 2,675Net income (loss) 3,502 (760) 1,914 1,375Basic earnings (loss) per share 0.07 (0.02) 0.04 0.03Diluted earnings (loss) per share 0.07 (0.02) 0.04 0.03 First Quarter Second Quarter Third Quarter Fourth Quarter 2021 Net sales $ 92,084 96,193 92,240 90,183Gross profit 64,186 66,425 62,949 59,570Income from operations 6,908 7,614 3,158 2,930Net income 5,297 5,494 2,175 1,808Basic earnings per share 0.11 0.11 0.04 0.04Diluted earnings per share 0.10 0.11 0.04 0.04 2020 Net sales $ 94,279 67,730 81,492 81,556Gross profit 64,955 45,414 55,304 55,852Income (loss) from operations 2,594 (1,794) 2,901 2,675Net income (loss) 3,502 (760) 1,914 1,375Basic earnings (loss) per share 0.07 (0.02) 0.04 0.03Diluted earnings (loss) per share 0.07 (0.02) 0.04 0.03 92084000 96193000 92240000 90183000 64186000 66425000 62949000 59570000 6908000 7614000 3158000 2930000 5297000 5494000 2175000 1808000 0.11 0.11 0.04 0.04 0.10 0.11 0.04 0.04 94279000 67730000 81492000 81556000 64955000 45414000 55304000 55852000 2594000 -1794000 2901000 2675000 3502000 -760000 1914000 1375000 0.07 -0.02 0.04 0.03 0.07 -0.02 0.04 0.03