item 14 principal accounting fees services information required item set forth following caption proxy statement incorporated herein reference “audit committee mattersernst young’s fees services” part iv item 15 item 14 principal accounting fees services information required item incorporated reference information set forth section titled “independent registered public accounting firm fees services” proxy statement part iv item 15 item 14 principal accounting fees services information required item included definitive proxy statement 2019 annual meeting stockholders incorporated herein reference file definitive proxy statement sec pursuant regulation 14a within 120 days fiscal year ended january 26 2019 part iv item 15 item 14 principal accounting fees services information required item included definitive proxy statement 2018 annual meeting stockholders incorporated herein reference file definitive proxy statement sec pursuant regulation 14a within 120 days fiscal year ended january 27 2018 part iv item 15 item 7 management’s discussion analysis financial condition results operations discussion analysis financial condition results operations read conjunction “item 6 selected financial operating data” consolidated financial statements related notes home group inc included item 15 annual report form 10k review “item 1a risk factors” section filing discussion important factors could cause actual results differ materially results described implied forwardlooking statements contained following discussion analysis discussion related changes financial condition results operations fiscal year 2018related items refer part ii item 7 managements discussion analysis financial condition results operations annual report form 10k fiscal year ended january 26 2019 filed securities exchange commission march 27 2019 operate fiscal calendar widely used retail industry results given fiscal year consisting 52 53week period ending last saturday january 52week fiscal year quarter contains 13 weeks operations 53week fiscal year first second third quarters includes 13 weeks operations fourth quarter includes 14 weeks operations references fiscal year mean year fiscal year ends references herein “fiscal year 2020” relate 52 weeks ending january 25 2020 references herein “fiscal year 2019” relate 52 weeks ending january 26 2019 references herein “fiscal year 2018” relate 52 weeks ending january 27 2018 overview home leading home décor superstore based number locations large format stores believe dedicate space per store home décor player industry focused providing broadest assortment products room style budget utilize space advantage outassort competition offering 50000 skus throughout stores differentiated merchandising strategy allows us identify ontrend products value engineer products provide desirable aesthetics attractive price points customers 70 products unbranded private label specifically designed us believe broad comprehensive offering compelling value proposition combine create leading destination home décor opportunity continue taking market share highly fragmented growing industry founded 1979 garden ridge texas suburb san antonio acquired 2011 group investors led certain affiliates aea starr investments began series strategic investments business believe laid foundation continued profitable growth management team brand identity real estate capabilities automated distribution centers information systems continue enable us expand store base maintaining profitability january 25 2020 store base comprised 212 large format stores across 39 states averaging approximately 105000 square feet per store past five completed fiscal years opened 142 new stores believe significant whitespace opportunity increase store count existing new markets recent developments global covid19 pandemic resulted significant disruptions global economy substantially impacting business results operations financial condition following government mandates certain locations well increasing advice centers disease control prevention persons united states take extraordinary health precautions march 20 2020 announced would temporarily close stores nationwide one week began reopen stores regions required remain closed state local mandates approximately 80 stores fully open foot traffic fewer 10 stores remain closed foot traffic curbside pickup filing report time covid19 pandemic resulting store closures causing decline revenue cash flow operations adverse effects store traffic supply chain disruption ability maintain appropriate staffing levels resulted incremental costs disrupted operations adversely affected business results operations financial condition fiscal year 2021 plans fully reopening remaining stores future plans depend number factors including applicable regulatory restrictions substantial uncertainty regarding manner timing return business normal operations temporary closure stores decline store traffic due covid19 pandemic resulted significantly declined cash flows operations assurance required landlords authorities local state federal level reinstate extend store closures long closure would continue general closure would still obligated make payments landlords routine operating costs utilities insurance may sufficient cash flows operations sources liquidity continue making payments due efforts reduce offset defer obligations entering deferral agreements landlords creditors may successful march 12 2020 precautionary measure provide financial flexibility maintain liquidity response covid19 pandemic elected borrow additional 55 million abl facility additionally seeking amend abl facility provide incremental borrowings assurance successful borrowing incremental funds additional borrowings may lead fees increased interest rates interest expense additional restrictive covenants lender protections customers may also negatively affected layoffs work reductions financial hardship result global outbreak covid19 could negatively impact demand products customers delay reduce discretionary purchases even able fully reopen stores health concerns could continue could cause employees customers avoid gathering public places could adverse effect store traffic ability adequately staff stores significant reduction customer visits spending stores caused directly indirectly covid19 would continue result loss revenue profits could result material adverse effects negative impact outbreak covid19 could result adverse impact manufacturing activity supply chains including result work stoppages factory business closings slowdowns delays fail make timely payments suppliers addition may restrictions limitations placed workers factories including shelterinplace stayathome orders limitations ability travel return work could result shortages delays production shipment products extent impact covid19 business results operations financial results depend largely future developments including duration spread outbreak within united states related impact consumer confidence spending highly uncertain cannot predicted continue explore options preserving increasing sources liquidity potential increases existing financing facilities entry new facilities expense reduction initiatives negotiation counterparties landlords suppliers extend otherwise revise payment terms expect efforts fully offset adverse impact us prolonged disruption business ultimate extent outbreak covid19 may impact business uncertain full effect may financial performance cannot quantified time accordingly historical financial information may indicative future performance financial condition results operations also implemented number measures help mitigate operating financial impact pandemic including furloughing significant number employees ii temporary tiered salary reductions corporate employees including executive officers iii deferring annual merit increases bonuses iv executing substantial reductions expenses store occupancy costs capital expenditures overall costs including reduced inventory purchases v extending payment terms vendors vi negotiating rent deferrals rent abatements portion leases vii working maximize participation eligible government initiatives available businesses employees impacted covid19 pandemic trends factors affecting business various trends factors affect affected operating results including overall economic trends overall economic environment related changes consumer behavior significant impact business general positive conditions broader economy promote customer spending stores economic weakness results reduction customer spending macroeconomic factors affect customer spending patterns thereby results operations include employment rates business conditions changes housing market availability credit interest rates tax rates fuel energy costs localized global events outbreak epidemic pandemic disease consumer preferences demand ability maintain appeal existing customers attract new customers depends ability originate develop offer compelling product assortment responsive customer preferences design trends misjudge market products may faced excess inventories products may required become promotional selling activities would impact net sales gross profit new store openings expect new stores key driver growth sales operating profit future results operations continue materially affected timing number new store openings continue open new stores competition among stores within adjacent geographic regions may impact performance comparable store base performance new stores may vary depending various factors store opening date time year particular opening amount store opening costs amount store occupancy costs location new store including whether located new existing market example typically incur higher normal employee costs time new store opening associated setup opening costs addition response interest excitement generated open new store new stores generally experience higher net sales initial period one three months new store’s net sales begin normalize reaches maturity within six months opening discussed planned store expansion place increased demands operational managerial administrative resources managing growth effectively require us continue enhance inventory management distribution systems financial management controls information systems also required hire train retain store management store personnel together increased marketing costs affect operating margins new store typically reaches maturity meaning store’s annualized targeted sales volume reached within six months opening new stores included comparable store base sixteenth full fiscal month following store’s opening believe represents appropriate comparison also periodically explore opportunities relocate limited number existing stores improve location lease terms store layout customer experience relocated stores typically achieve level operating profitability comparable companywide average existing stores quickly new stores fiscal year 2021 suspended new store openings remodeling projects response covid19 pandemic exception seven stores near completion time outbreak ultimate duration impact suspension currently unknown infrastructure investment historical operating results reflect impact ongoing investments support growth past seven fiscal years made significant investments business believe laid foundation continued profitable growth believe strong management team brand identity upgraded distribution centers enhanced information systems including warehouse order management ecommerce pos merchandise planning inventory allocation systems enabled us replicate profitable store format differentiated shopping experience made investments relating second distribution center pennsylvania opened beginning fiscal year 2020 incurred net operating costs connection therewith fiscal year 2020 impacted operating margins expect make additions upgrades infrastructure investments future continue support successful operating model significantly expanded store base pricing strategy committed providing products everyday low prices value engineer products collaboration suppliers recreate “look” believe customer wants eliminating costly construction elements customer value believe customer views shopping home inperson experience customer see feel quality products physically assemble desired aesthetic design approach allows us deliver attractive value customer products typically less expensive branded products similar look employ simple everyday low pricing strategy consistently delivers savings customer without need extensive promotions evidenced 80 net sales occurring full price ability source distribute products effectively net sales gross profit affected ability purchase products sufficient quantities competitive prices believe vendors adequate capacity meet current anticipated demand level net sales could adversely affected event constraints supply chain including inability vendors produce sufficient quantities merchandise manner able match market demand customers leading lost sales tariffs could also impact vendors’ ability source product efficiently create supply chain disruptions tariffs enacted fiscal year 2019 material impact gross margin due combination supplier negotiations direct sourcing strategic price increases however additional tariffs enacted fiscal year 2020 led us institute strategic price increases direct negative impact comparable store sales addition supply change disruption reasons outbreak persistence epidemic pandemic disease including global covid19 pandemic could negative impact results operations fluctuation quarterly results quarterly results historically varied depending upon variety factors including product offerings promotional events store openings shifts timing holidays among things result factors working capital requirements demands product distribution delivery network may fluctuate year inflation deflation trends financial results expected directly impacted substantial increases product costs due commodity cost increases general inflation including respect freight costs could lead reduction sales well greater margin pressure costs may able passed consumers date changes commodity prices general inflation materially impacted business faced continue face inflationary pressure freight costs heightened tariffrelated shipment surges port congestion supply chain disruptions relating global outbreak covid19 response increasing commodity prices freight costs general inflation seek minimize impact events sourcing merchandise different vendors changing product mix increasing pricing necessary assess performance business assessing performance consider variety performance financial measures key measures include net sales gross profit gross margin selling general administrative expenses addition also review important metrics adjusted ebitda storelevel adjusted ebitda adjusted net income net sales net sales derived direct retail sales customers stores net merchandise returns discounts growth net sales impacted opening new stores increases decreases comparable store sales new store openings number new store openings reflects new stores opened particular reporting period including relocations existing stores period open new stores incur preopening costs described total number new stores per year timing store openings continue impact results described “trends factors affecting business” comparable store sales store included comparable store sales calculation first day sixteenth full fiscal month following stores opening believe comparability achieved store relocated remodeled exclude sales store calculation comparable store sales first day sixteenth full fiscal month reopens addition applicable adjust effect 53rd week may variations way competitors retailers calculate comparable “same store” sales result data report regarding comparable store sales may comparable similar data made available retailers comparable store sales allow us evaluate store base performing measuring change periodoverperiod net sales stores open applicable period various factors affect comparable store sales including ●consumer preferences including changing consumer preferences response unforeseen events global covid19 pandemic buying trends overall economic trends ●our ability identify respond effectively customer preferences trends ●our ability provide assortment high quality trendright product offerings generate new repeat visits stores ●the customer experience provide stores ●our ability source receive products accurately timely ●changes product pricing including promotional activities ●the number items purchased per store visit ●weather ●competition including among stores within adjacent geographic regions ●timing length holiday shopping periods continue execute growth strategy anticipate portion net sales come stores included comparable store sales calculation however comparable store sales one measure use assess success growth strategy gross profit gross margin gross profit determined subtracting cost sales net sales gross margin measures gross profit percentage net sales cost sales consists various expenses related cost selling merchandise cost sales consists following 1 cost merchandise net inventory shrinkage damages vendor allowances 2 inbound freight internal transportation costs distribution centertostore freight costs 3 costs operating distribution centers including labor occupancy costs supplies depreciation 4 store occupancy costs including rent insurance taxes common area maintenance utilities repairs maintenance depreciation components cost sales expenses may comparable retailers selling general administrative expenses selling general administrative expenses “sga” consist various expenses related supporting facilitating sale merchandise stores costs include payroll benefits personnel expenses corporate store employees including stockbased compensation expense consulting legal professional services expenses marketing advertising expenses occupancy costs corporate headquarters various expenses sga includes fixed variable components therefore directly correlated net sales addition components sga expenses may comparable retailers expect sga expenses increase future periods due continuing store growth particular expanded marketing advertising spend percentage net sales fiscal years since initial public offering expect continue make investments marketing advertising spend future fiscal years addition increase future stock option stockbased grants modifications increase stockbased compensation expense included sga particular onetime bonus grant stock options certain members senior management connection initial public offering resulted incremental noncash stockbased compensation expense approximately 200 million expensed derived service period beginning third quarter fiscal year 2017 continued second quarter fiscal year 2019 additionally onetime grant stock options chairman chief executive officer made second fiscal quarter 2019 resulted incremental noncash stockbased compensation expense approximately 415 million vested immediately fully recognized second fiscal quarter 2019 adjusted ebitda adjusted ebitda key metric used management board directors assess financial performance adjusted ebitda also basis performance evaluation current executive compensation programs addition adjusted ebitda frequently used analysts investors interested parties evaluate companies industry addition covenant compliance executive performance evaluations use adjusted ebitda supplement generally accepted accounting principles united states america “gaap” measures performance evaluate effectiveness business strategies make budgeting decisions compare performance peer companies using similar measures adjusted ebitda defined net loss income net interest expense income tax provision depreciation amortization adjusted impact certain items defined debt agreements including certain legal settlements consulting professional fees stockbased compensation expense impairment charges gain saleleaseback noncash rent initial public offering related noncash stockbased compensation expense noncash stockbased compensation expense related nonqualified stock option purchase 1988255 shares common stock exercise price per share 3835 “onetime ceo grant” previously granted mr bird june 12 2018 adjustments fiscal year 2019 recast show illustrative impact asc 842 noncash nature reconciliation adjusted ebitda net loss income directly comparable gaap measure see “results operations” storelevel adjusted ebitda use storelevel adjusted ebitda supplemental measure performance represents adjusted ebitda excluding impact costs associated new store openings certain corporate overhead expenses consider evaluation ongoing operating performance stores period calculation storelevel adjusted ebitda supplemental measure operating performance stores may comparable similar measures reported companies believe storelevel adjusted ebitda important measure evaluate performance profitability stores individually aggregate especially given level investments made home office infrastructure past seven years support future growth also believe storelevel adjusted ebitda useful measure evaluating operating performance removes impact general administrative expenses incurred store level costs opening new stores nonrecurring store level thereby enables comparability operating performance stores period use storelevel adjusted ebitda information benchmark performance versus competitors storelevel adjusted ebitda used substitute consolidated measures profitability performance reflect corporate overhead expenses necessary allow us effectively operate stores generate storelevel adjusted ebitda fiscal year 2019 recast show illustrative impact asc 842 noncash nature reconciliation storelevel adjusted ebitda net loss income directly comparable gaap measure see “results operations” adjusted net income adjusted net income represents net loss income adjusted impairment charges gain saleleaseback initial public offering related noncash stockbased compensation expense related payroll tax expenses income tax impact associated special onetime initial public offering bonus stock option exercises noncash stockbased compensation expense related onetime ceo grant deferred tax expense related cancellation thereof costs associated resignation former chief financial officer “cfo transition” costs associated restructuring merchandising department losses incurred due modification debt loss disposal certain buildings tax impacts associated tax act costs related registration sale shares common stock behalf certain existing stockholders transaction costs fiscal year 2019 recast show illustrative impact asc 842 noncash nature present adjusted net income believe assists investors analysts comparing performance across reporting periods consistent basis excluding items believe indicative core operating performance reconciliation adjusted net income net loss income directly comparable gaap measure see “results operations” results operations following tables summarize key components results operations periods indicated dollars thousands percentage net sales operational data 1we present adjusted ebitda adjusted ebitda margin storelevel adjusted ebitda storelevel adjusted ebitda margin adjusted net income recognized financial measures gaap believe assist investors analysts comparing operating performance across reporting periods consistent basis excluding items believe indicative core operating performance interest depreciation amortization loss extinguishment debt impairment charges taxes encouraged evaluate adjustments reasons consider appropriate supplemental analysis evaluating adjusted ebitda storelevel adjusted ebitda adjusted net income aware future may incur expenses similar adjustments presentation adjusted ebitda storelevel adjusted ebitda adjusted net income particular storelevel adjusted ebitda reflect costs associated new store openings incurred limited basis respect particular store opened indicative ongoing core operating performance corporate overhead expenses necessary allow us effectively operate stores generate storelevel adjusted ebitda presentation adjusted ebitda storelevel adjusted ebitda adjusted net income construed inference future results unaffected unusual nonrecurring items assurance modify presentation adjusted ebitda storelevel adjusted ebitda adjusted net income future modification may material addition adjusted ebitda adjusted ebitda margin storelevel adjusted ebitda storelevel adjusted ebitda margin adjusted net income may comparable similarly titled measures used companies industry across different industries management believes adjusted ebitda helpful highlighting trends core operating performance measures differ significantly depending longterm strategic decisions regarding capital structure tax jurisdictions companies operate capital investments also use adjusted ebitda connection performance evaluations executives supplement gaap measures performance evaluation effectiveness business strategies make budgeting decisions compare performance peer companies using similar measures addition utilize adjusted ebitda certain calculations 4250 million senior secured assetbased revolving credit facility “abl facility” defined therein “consolidated ebitda” 3500 million term loan “term loan” defined therein “consolidated cash ebitda” management believes storelevel adjusted ebitda helpful highlighting trends facilitates comparisons store operating performance period excluding impact costs associated new store openings certain corporate overhead expenses certain costs associated management finance accounting legal centralized corporate functions addition periods prior adoption asc 842 adjusted show illustrative impact accounting standard noncash nature management believes adjusted net income assists investors analysts comparing performance across reporting periods consistent basis excluding items believe indicative core operating performance 2the following table reconciles net loss income ebitda adjusted ebitda storelevel adjusted ebitda periods presented thousands aincludes portion depreciation amortization expenses classified cost sales consolidated statements operations bfor fiscal year 2020 represents noncash impairment charges 2500 million related impairment goodwill 52 million connection store closure relocation decisions fiscal year 2018 represents impairment charge 24 million following resolution legal matter cas january 27 2019 fully recognized gains saleleaseback transactions consolidated statements operations accordance asc 842 dprimarily consists consulting professional fees respect projects enhance merchandising human resource capabilities company initiatives ii charges incurred connection sale shares common stock behalf certain existing stockholders transaction costs enoncash stockbased compensation expense related ongoing equity incentive program place incentivize retain motivate employees officers consultants nonemployee directors fnoncash stockbased compensation expense associated special onetime initial public offering bonus grant certain members senior management “ipo grant” consider evaluation ongoing performance ipo grant made addition ongoing equity incentive program place incentivize retain motivate employees officers consultants nonemployee directors made reward certain senior executives historical performance allow benefit future successful outcomes certain existing stockholders gnoncash stockbased compensation expense associated onetime ceo grant vested fully recognized second fiscal quarter 2019 consider evaluation ongoing performance september 12 2019 onetime ceo grant cancelled consideration see note 14 “stockbased compensation” consolidated financial statements hconsists noncash portion rent reflects extent gaap straightline rent expense recognized exceeds less cash rent payments partially offset ii amortization deferred gains saleleaseback transactions recognized rent expense straightline basis applicable lease term offsetting amounts relating amortization deferred gains saleleaseback transactions 88 million 63 million fiscal years 2019 2018 respectively recognize deferred gains saleleaseback transactions fiscal year 2020 recognize deferred gains going forward per adoption new lease accounting standards set asc 842 gaap straightline rent expense adjustment vary depending average age lease portfolio impacted significant growth newer leases rent expense recognized typically exceeds cash rent payments mature leases rent expense recognized typically less cash rent payments iother adjustments include amounts management believes representative ongoing operations including ●for fiscal year 2020 costs incurred 14 million related restructuring merchandising department ●for fiscal year 2019 costs incurred 24 million related cfo transition payroll tax expense 08 million related exercise stock options 05 million related onetime loss incurred related acquisition land purposes building new store fiscal year 2020 preexisting unusable structure premises demolished jrepresents necessary adjustments reflect management’s estimates impact adoption asc 842 fiscal year 2019 results requires among things change accounting treatment saleleaseback transactions reclassification certain financing obligations kreflects noncapital expenditures associated opening new stores including marketing advertising labor cash occupancy expenses costs related new store openings represent cash costs aware future may incur expenses similar costs anticipate continue incur cash costs open new stores future opened 36 34 28 new stores fiscal years 2020 2019 2018 respectively lreflects corporate overhead expenses directly related profitability stores facilitate comparisons store operating performance consider corporate overhead expenses evaluating ongoing performance stores period corporate overhead expenses component selling general administrative expenses comprised various home office general administrative expenses payroll expenses occupancy costs marketing advertising consulting professional fees see discussion changes selling general administrative expenses presented “results operations” storelevel adjusted ebitda used substitute consolidated measures profitability performance reflect corporate overhead expenses necessary allow us effectively operate stores generate storelevel adjusted ebitda anticipate continue incur corporate overhead expenses future periods 3the following table reconciles net loss income adjusted net income periods presented thousands afor fiscal year 2020 represents noncash impairment charges 2500 million related impairment goodwill 52 million connection store closure relocation decisions fiscal year 2018 represents impairment charge 24 million following resolution legal matter bas january 27 2019 fully recognized gains saleleaseback transactions consolidated statements operations accordance asc 842 cnoncash loss due change abl facility lenders abl amendment resulting immediate recognition portion related unamortized deferred debt issuance costs dnoncash stockbased compensation expense associated ipo grant consider evaluation ongoing performance ipo grant made addition ongoing equity incentive program place incentivize retain motivate employees officers consultants nonemployee directors made reward certain senior executives historical performance allow benefit future successful outcomes certain existing stockholders epayroll tax expense related stock option exercises associated ipo grant consider evaluation ongoing performance fnoncash stockbased compensation expense associated onetime ceo grant consider evaluation ongoing performance onetime ceo grant vested fully recognized second fiscal quarter 2019 onetime ceo grant cancelled consideration resulting recognition 93 million deferred tax expense third quarter fiscal year 2020 gcosts related cfo transition third fourth quarters fiscal year 2019 honetime loss incurred related acquisition land purposes building new store fiscal year 2020 preexisting unusable structure premises demolished iincludes certain employee related costs incurred part restructuring merchandising department jother adjustments include amounts management believes representative ongoing operations including charges incurred connection sale shares common stock behalf certain existing stockholders transaction costs krepresents income tax impact adjusted expenses using annual effective tax rate excluding discrete items fiscal years 2020 2019 excluding revaluation net deferred tax assets result tax act fiscal year 2018 giving effect adjustments net loss income adjusted effective tax rate fiscal years 2020 2019 2018 237 117 261 respectively lrepresents income tax benefit related stock option exercises associated ipo grant mrepresents tax impact revaluation net deferred tax assets accordance tax act nrepresents necessary adjustments reflect management’s estimates impact asc 842 fiscal year 2019 results requires among things change accounting treatment saleleaseback transactions reclassification certain financing obligations fiscal year ended january 25 2020 compared fiscal year ended january 26 2019 net sales net sales increased 1991 million 171 13650 million fiscal year ended january 25 2020 11659 million fiscal year ended january 26 2019 increase primarily driven approximately 2165 million incremental revenue net addition 32 new stores opened since january 26 2019 well number stores opened fiscal year 2018 open long enough included comparable store base increase net sales partially offset comparable store sales decreased 174 million 17 fiscal year ended january 25 2020 driven primarily shorter holiday selling season resulting promotional environment fourth quarter adverse weather conditions first half fiscal year 2020 lesser extent fiscal year 2020 comparable store sales also impacted unfavorable customer response certain categories tariffrelated strategic price increases cost sales cost sales increased 1971 million 253 9771 million fiscal year ended january 25 2020 7800 million fiscal year ended january 26 2019 increase primarily driven 171 increase net sales fiscal year ended january 25 2020 compared fiscal year ended january 26 2019 resulted 1150 million increase merchandise costs addition fiscal year ended january 25 2020 recognized 547 million increase store occupancy costs 116 million increase depreciation amortization case result new store openings since january 26 2019 gross profit gross margin gross profit 3880 million fiscal year ended january 25 2020 increase 21 million 3859 million fiscal year ended january 26 2019 increase gross profit primarily driven increased sales volume net addition 32 new stores opened since january 26 2019 partially offset unfavorability product profit related increased markdowns fiscal year ended january 25 2020 17 decrease comparable store sales increased occupancy costs impact adoption asc 842 costs associated opening operating second distribution center gross margin decreased 470 basis points 284 fiscal year ended january 25 2020 331 net sales fiscal year ended january 26 2019 decrease primarily driven decrease product profit related increased markdowns fiscal year ended january 25 2020 increased occupancy costs adoption asc 842 costs associated opening operating second distribution center decrease gross margin partially offset improvement inventory shrink selling general administrative expenses selling general administrative expenses 3023 million fiscal year ended january 25 2020 compared 3035 million fiscal year ended january 26 2019 decrease 12 million 04 percentage sales sga decreased 390 basis points fiscal year ended january 25 2020 221 260 fiscal year ended january 26 2019 primarily due nonrecurrence prior fiscal year stockbased compensation expense 415 million associated onetime ceo grant decrease incentive compensation decrease largely offset increased store labor advertising expenses support growth strategies selling general administrative expenses include corporate overhead expenses decreased 456 million primarily result nonrecurrence 415 million onetime ceo grant decrease incentive compensation decrease partially offset increased payroll expenses support growth strategies selling general administrative expenses also include expenses related store operations increased 344 million primarily driven additional headcount new stores incremental store labor hours increase preopening expenses due timing new store openings including initial indirect costs longer capitalized due adoption asc 842 remaining change selling general administrative expenses related marketing advertising expenses total marketing advertising expenses 449 million year ended january 25 2020 compared 349 million year ended january 26 2019 increase 100 million 286 increase driven efforts increase traffic build brand awareness impairment charges fiscal year ended january 25 2020 recognized noncash impairment charges 2500 million related impairment goodwill 52 million connection store closure relocation decisions see critical accounting policies use estimates information impairment charges incurred fiscal year ended january 26 2019 interest expense net interest expense net increased 318 million fiscal year ended january 25 2020 271 million fiscal year ended january 26 2019 increase 47 million increase interest expense primarily due increased borrowings term loan abl facility support growth strategies partially offset reduction interest expense related adoption asc 842 income tax provision income tax expense 232 million fiscal year ended january 25 2020 compared income tax benefit 00 million fiscal year ended january 26 2019 effective tax rate fiscal year ended january 25 2020 121 compared 00 fiscal year ended january 26 2019 effective tax rate fiscal year ended january 25 2020 differs federal statutory rate 210 primarily due recognition 525 million permanent differences tax expense related impairment charges 98 million tax expense realized connection stockbased compensation lesser extent impact state local income taxes effective tax rate fiscal year ended january 26 2019 differs federal statutory rate 210 primarily due recognition 98 million excess tax benefit realized connection stockbased compensation lesser extent impact state local income taxes liquidity capital resources principal sources liquidity historically cash generated operating activities proceeds saleleaseback transactions borrowings abl facility term loan facilities described “term loan facilities” historically financed operations primarily cash generated operations periodic borrowings abl facility primary cash needs daytoday operations provide infrastructure investments stores invest future projects ecommerce finance new store openings pay interest principal indebtedness fund working capital requirements seasonal inventory builds new store inventory purchases response global covid19 pandemic temporarily closed stores nationwide approximately 80 fully open foot traffic fewer 10 stores remain closed foot traffic curbside pickup filing report extent duration closure reinstatements could significantly adversely affect cash flows operations event obligations exceed cash generated operations currently available sources liquidity borrowings abl facility ability meet obligations due could adversely affected assurance additional alternative sources liquidity amendments extensions existing credit facilities financing new lenders investors financing capital markets transactions would available us event needed currently exploring alternative sources liquidity including seeking amend abl facility provide incremental borrowings drawn 55 million abl facility march 12 2020 cover anticipated nearterm cash needs assurance efforts successful additional borrowings may lead fees increased interest rates interest expense additional restrictive covenants lender protections anticipated incremental borrowings remain outstanding remainder fiscal year 2021 following additional 55 million borrowings abl facility remaining borrowing capacity approximately 513 million abl facility april 25 2020 current weighted average interest rate borrowings abl facility approximately 218 availability liquidity sources described herein subject range risks uncertainties including discussed “item 1a risk factors” january 25 2020 121 million cash equivalents 1507 million borrowing availability abl facility date 01 million face amount letters credit issued abl facility agreement governing abl facility “abl credit agreement” amended currently provides aggregate revolving commitments 4250 million sublimit issuance letters credit 500 million sublimit issuance swingline loans 200 million availability abl facility determined accordance borrowing base decline due various factors therefore amounts abl facility may available need june 2015 entered term loan facilities interest rate term loan facilities variable based london interbank offered rate “libor” effect january 25 2020 obligations term loan facilities bore interest rate 54 term loan repayable equal quarterly installments approximately 09 million capital expenditures vary depending timing new store openings infrastructurerelated investments capital expenditures fiscal year ended january 25 2020 approximately 1235 million consisted primarily new store openings 55 million invested second distribution center net proceeds sale property equipment includes saleleaseback proceeds approximately 1233 million plan invest infrastructure necessary support development business continued growth fiscal year 2020 opened 32 new stores net three relocated stores one store closure net capital expenditures incurred date substantially financed cash operating activities saleleaseback transactions proceeds abl facility response covid19 pandemic taken swift decisive action preserve liquidity including temporarily suspending new store openings collaborating vendors payment terms reducing nonessential expenses inventory flows ultimate duration impact suspension new store openings unknown could material adverse effect execution growth strategy business financial condition results operations additionally march 12 2020 elected borrow additional 55 million abl facility precautionary cash flow measure believe current cash position net cash provided operating activities borrowings abl facility saleleaseback transactions taking consideration actions preserve liquidity adequate finance operations planned capital expenditures working capital requirements debt service obligations next twelve months foreseeable future thereafter however cash flows operations borrowings abl facility sufficient available meet operating requirements including result restrictions store operations future periods could required obtain additional debt financing near future may able obtain equity debt financing future need available terms may satisfactory us could dilutive shareholders indebtedness could adversely affect ability raise additional capital limit ability react changes economy industry expose us interest rate risk prevent us meeting obligations management reacts strategically changes economic conditions monitors compliance debt covenants seek mitigate potential material impacts financial condition flexibility saleleaseback transactions part flexible real estate strategy utilize saleleaseback transactions finance investments previously made purchase second generation properties construction new store locations enhances ability access range locations facilities efficiently factor saleleaseback transactions capital allocation decisions order support execution saleleaseback transactions relationships certain reits lenders demonstrated interest portfolio assets august 2017 sold six properties hoover alabama lafayette louisiana moore oklahoma olathe kansas orange park florida wichita kansas total 626 million contemporaneously closing sale entered lease pursuant leased back properties cumulative initial annual rent 42 million subject annual escalations february 2018 sold four properties blaine minnesota fort worth texas jackson mississippi memphis tennessee total 503 million contemporaneously closing sale entered lease pursuant leased back properties cumulative initial annual rent 34 million subject annual escalations july 2018 sold three properties clarksville tennessee shreveport louisiana wixom michigan total 436 million contemporaneously closing sale entered lease pursuant leased back properties cumulative initial annual rent 30 million subject annual escalations october 2018 sold four properties gilbert arizona pearland texas richmond texas rogers arkansas total 565 million contemporaneously closing sale entered two leases pursuant leased back properties cumulative initial annual rent 38 million subject annual escalations march 2019 sold five properties frederick maryland live oak texas mansfield texas plano texas whitehall pennsylvania total 747 million contemporaneously closing sale entered lease pursuant leased back properties cumulative initial annual rent 50 million subject annual escalations september 2019 sold four properties tempe arizona avon indiana mount juliet tennessee cypress texas total 505 million contemporaneously closing sale entered lease pursuant leased back properties cumulative initial annual rent 37 million subject annual escalations see “risk factorsrisks relating businesswe subject risks associated saleleaseback strategy” term loan facilities june 5 2015 indirect wholly owned subsidiary home holding iii inc “borrower” entered first lien credit agreement “first lien agreement” among borrower home holding ii inc “at home ii” direct wholly owned subsidiary guarantor certain indirect subsidiaries home ii various lenders bank america na administrative agent collateral agent subsequently amended first lien agreement time giving effect amendments first lien agreement provides term loan aggregate principal amount 3500 million term loan mature june 3 2022 repayable equal quarterly installments approximately 09 million annual aggregate amount equal 1 principal amount borrower option paying interest 1month 2month quarterly basis term loan annual rate libor subject 1 floor plus 400 subject 050 reduction borrower achieves specified secured net leverage ratio level met fiscal year ended january 28 2017 borrower continued qualify fiscal year ended january 25 2020 term loan prepayable whole part without premium option term loan permits us add one incremental term loans amounts subject compliance first lien net leverage ratio test first lien net leverage ratio test calculated using adjusted ebitda defined “consolidated ebitda” credit agreement november 27 2018 home ii borrower entered second amendment “term loan amendment” lenders party thereto bank america na administrative agent collateral agent amended first lien agreement amended first amendment dated july 27 2017 pursuant term loan amendment among things borrower borrowed additional 500 million incremental term loans increasing principal amount outstanding first lien agreement date 3395 million net proceeds incremental term loans used repay approximately 496 million borrowings abl facility january 25 2020 approximately 3360 million outstanding term loan term loan various nonfinancial covenants customary representations warranties events defaults remedies substantially similar described respect abl facility financial maintenance covenants term loan january 25 2020 january 26 2019 compliance covenants prescribed term loan assetbased lending credit facility october 2011 entered abl facility originally provided cash borrowings issuances letters credit 800 million based defined percentages eligible inventory credit card receivable balances subsequently amended abl credit agreement time among things increase aggregate commitments available thereunder june 2019 connection abl credit agreement entered letter agreement certain lenders party abl credit agreement “commitment increase letter agreement” pursuant lenders agreed increase respective commitments 750 million aggregate effect june 14 2019 “abl commitment increase” following abl commitment increase amount aggregate commitments available abl credit agreement 4250 million terms abl facility changed commitment increase letter agreement giving effect amendments abl commitment increase january 25 2020 amount aggregate commitments available abl credit agreement 4250 million sublimit issuance letters credit 500 million sublimit issuance swingline loans 200 million july 2017 connection seventh amendment abl credit agreement maturity abl facility extended earlier july 27 2022 date 91 days prior maturity date first lien agreement date may extended borrowings abl facility bear interest rate per annum equal option x higher federal funds rate plus 12 100 ii agent banks prime rate iii libor plus 100 plus case applicable margin 025 075 based availability agent banks libor plus applicable margin 125 175 based availability effective interest rate approximately 400 380 290 fiscal years ended january 25 2020 january 26 2019 january 27 2018 respectively january 25 2020 approximately 2357 million outstanding abl facility approximately 01 million face amount letters credit issued availability approximately 1507 million march 12 2020 precautionary measure provide financial flexibility maintain liquidity response covid19 pandemic elected borrow additional 55 million abl facility additionally seeking amend abl facility provide incremental borrowings assurance successful borrowing incremental funds additional borrowings may lead fees increased interest rates interest expense additional restrictive covenants lender protections abl facility contains number covenants among things restrict ability subject specified exceptions incur additional debt incur additional liens contingent liabilities sell dispose assets merge acquire companies liquidate dissolve engage businesses related line business make loans advances guarantees pay dividends engage transactions affiliates make investments addition abl facility contains certain crossdefault provisions financial maintenance covenants abl facility however existence event default fail maintain availability greater 150 million 10 loan cap consolidated fixed charge coverage ratio rolling 12 month basis end fiscal month must 100 higher january 25 2020 january 26 2019 compliance covenants abl facility april 24 2020 entered consent letter lenders abl facility extend deadline delivery required audited financial statements fiscal year ended january 25 2020 may need seek consents waivers lenders coming months due impact earnings covid19 pandemic additional covenant waivers may required may lead fees associated obtaining waiver increased costs increased interest rates additional restrictive covenants available lender protections would applicable us debt facilities increased costs restrictions modifications may vary among debt facilities addition ability provide additional lender protections facilities necessary including granting security interests collateral limited restrictions debt facilities collateral abl facility term loan abl facility secured first priority lien cash equivalents deposit accounts receivable receivables tax refunds inventory ii extent relating arising evidencing governing items referred preceding clause chattel paper documents instruments general intangibles securities accounts related thereto iii books records relating foregoing iv supporting obligations products proceeds foregoing collateral security guarantees given person respect foregoing case subject certain exceptions collectively “abl priority collateral” b second priority lien remaining assets constituting abl priority collateral subject certain exceptions collectively “term priority collateral” provided however since amendment abl facility july 2017 real property may secure term loan time longer forms part collateral abl facility term loan secured first priority lien term priority collateral b second priority lien abl priority collateral summary cash flows summary cash flows operating investing financing activities presented following table thousands net cash provided operating activities net cash provided operating activities 1056 million fiscal year ended january 25 2020 compared 863 million fiscal year ended january 26 2019 193 million increase cash provided operating activities primarily due reduction purchases inventory 764 million partially offset changes timing payments operating activities approximately 430 million increase approximately 122 million cash paid income taxes increase approximately 67 million cash paid interest net cash used investing activities net cash used investing activities 1235 million fiscal year ended january 25 2020 compared 2091 million fiscal year ended january 26 2019 856 million decrease cash used investing activities driven decrease net capital expenditures capital expenditures 2468 million fiscal year ended january 25 2020 consisted 2210 million invested new store growth approximately 55 million invested second distribution center remaining 203 million primarily related investments information technology maintenance expenditures existing stores net cash provided financing activities net cash provided financing activities 165 million fiscal year ended january 25 2020 compared 1277 million fiscal year ended january 26 2019 decrease 1112 million primarily due nonrecurrence fiscal year 2020 additional borrowings 500 million term loan effected 2019 444 million decrease net borrowings abl facility 157 million decrease proceeds exercise stock options contractual obligations enter longterm obligations commitments normal course business primarily debt obligations noncancelable operating leases january 25 2020 contractual cash obligations next several periods follows thousands 1our operating finance lease commitments include leases property used operations 2longterm debt obligations include principal payments due term loan note payable 3revolving credit facility includes principal payments due abl facility 4interest expense longterm debt includes future interest payments outstanding obligations term loan notes payable well payments due abl facility abl facility bears interest variable rates table based rates effect january 25 2020 5includes commitments related future inventory purchases 6represents liability reported accordance provisions asc 740 topic 740 “income taxes” information related unrecognized tax benefits see note 9 income taxes consolidated financial statements included report offbalance sheet arrangements historically entered offbalance sheet arrangements letters credit purchase obligations normal course operations critical accounting policies use estimates preparation financial statements accordance gaap requires management make estimates assumptions affect reported amounts assets liabilities revenues expenses well related disclosures contingent assets liabilities date financial statements management evaluates accounting policies estimates judgments ongoing basis management bases estimates judgments historical experience various factors believed reasonable circumstances actual results may differ estimates different assumptions conditions management evaluated development selection critical accounting policies estimates believes following involve higher degree judgment complexity significant reporting results operations financial position therefore discussed critical following critical accounting policies reflect significant estimates judgments used preparation consolidated financial statements respect critical accounting policies even relatively minor variance actual expected experience potentially materially favorable unfavorable impact subsequent results operations estimates include subsequent impact covid19 outbreak information significant accounting policies found note 1nature operations summary significant accounting policies audited consolidated financial statements included elsewhere report inventories comprised finished merchandise stated lower cost net realizable value cost determined using weightedaverage method cost inventories include actual landed cost item time received distribution center point shipment certain international shipments well transportation costs distribution center retail stores applicable net inventory cost recognized cost sales inventory sold vendor allowances primarily represent volume rebates cooperative advertising funds recorded reduction cost merchandise inventories subsequent reduction cost sales inventory sold generally earn vendor allowances percentage certain merchandise purchases minimum purchase requirements typically vendor allowance programs extend period twelve months physical inventory counts performed stores least per year thirdparty inventory counting service stores operation least one year inventory records adjusted reflect actual inventory counts resulting shortage “shrinkage” recognized reserves shrinkage estimated recorded throughout fiscal year percentage net sales based recent physical inventory combination historical experience loss prevention programs policies place intended mitigate shrinkage 10 increase estimated shrinkage reserve rate would affected net loss approximately 15 million fiscal year 2020 also evaluate merchandise ensure expected net realizable value merchandise held exceeds cost event expected net realizable value less cost reduce value inventory accordingly goodwill tested impairment operating segment level least annually frequently events occur indicate potential reduction fair value reporting units net assets carrying value regular annual goodwill impairment testing performed fourth quarter fiscal year effect beginning fourth quarter one operating segment reporting unit exists operating segment implied fair value goodwill lower carrying amount goodwill impairment indicated goodwill written implied fair value assess business enterprise value using combination income approach market approach determine fair value company compared carrying value net assets income approach using discounted cash flow method includes key factors used valuation company level 3 valuation include limited managements plans future operations recent operating results income tax rates discounted projected future cash flows projected cash flows used income approach assessing goodwill valuation include numerous assumptions sales projections assuming positive comparable store sales growth operating margins store count capital expenditures derived longterm forecasts additionally assumptions regarding weighted average cost capital used information comparable companies managements judgment related risks associated operations reporting unit option perform qualitative assessment goodwill rather completing quantitative assessment determine whether likely fair value operating segment less carrying amount including goodwill intangible assets conclude case must perform quantitative assessment otherwise may forego quantitative assessment need perform testing third quarter fiscal year 2020 experienced decline operating performance uncertainty regarding impact tariffs margins coupled decision reduce nearterm growth model conducted interim impairment testing goodwill based test results concluded impairment necessary 5697 million implied fair value goodwill balance sheet time testing annual testing date october 27 2019 determined significant change facts circumstances since interim impairment testing date warrant different conclusion fair value reporting unit however fourth quarter fiscal year 2020 continued experience decline operating performance sustained decline market capitalization downgrade term loan certain rating agencies conducted additional interim impairment testing goodwill based results impairment test performed recognized goodwill impairment charge 2500 million fiscal year ended january 25 2020 impairment goodwill recognized fiscal years ended january 26 2019 january 27 2018 believe made reasonable estimates assumptions calculate fair value reporting unit use different assumptions estimates judgments respect estimation projected future cash flows determination discount rate sales growth rate used calculate net present value projected future cash flows could materially increase decrease estimates fair value 10 decrease projected net cash flows would resulted additional impairment charge approximately 110 million 100 basis point increase discount rate would resulted additional impairment charge approximately 85 million additionally future impairment charges could required achieve current net sales profitability projections would occur able meet new store growth targets weighted average cost capital increases moreover changes market capitalization may impact certain assumptions used income approach calculations goodwill impairment charge fiscal year ended january 25 2020 include subsequent impact covid19 outbreak conditions exist january 25 2020 future economic conditions continue deteriorate especially given uncertainty impact global covid19 pandemic weighted average cost capital increases additional impairment charges could required future end first quarter fiscal year 2021 market capitalization indicated goodwill would fully impaired impairment longlived indefinitelived assets evaluate recoverability carrying value longlived assets whenever events changes circumstances indicate carrying amount may recoverable evaluation compares carrying value assets estimated future undiscounted cash flows expected result use eventual disposition assets evaluate longlived intangible assets individual store level lowest level identifiable cash flows evaluate corporate assets longlived assets storespecific consolidated level estimate storespecific future cash flows make assumptions key store variables including sales growth rate gross margin payroll controllable expenses stores owned us meet initial criteria evaluated taking consideration fair market value property compared carrying value assets furthermore management considers factors evaluating stores impairment including individual stores execution operating plan local market conditions estimates subject uncertainty may affected number factors outside control including general economic conditions competitive environment impairment recognized factors noted taken consideration determined carrying amount stores assets recoverable impairment loss would recognized amount carrying amount longlived asset exceeds fair value excluding assets redeployed fiscal year ended january 25 2020 recognized noncash impairment charge 52 million connection store closure relocation decisions based upon review storelevel assets fiscal year ended january 27 2018 identified impairment connection certain property equipment following resolution legal matter recognized charge 24 million impairment longterm assets recognized fiscal year ended january 26 2019 test indefinitelived trade name intangible asset annually impairment frequently impairment indicators arise fair value indefinitelived intangible asset lower carrying amount asset written fair value fair value trade name level 3 valuation calculated using relieffromroyalty approach assumes value trade name discounted cash flows amount would paid hypothetical market participant owned trade name instead licensed trade name another company carrying value home trade name january 25 2020 approximately 15 million impairment indefinitelived trade name intangible asset recognized fiscal years ended january 25 2020 january 26 2019 january 27 2018 stockbased compensation account stockbased compensation accordance asc 718 topic 718 “compensationstock compensation” requires stockbased payments employees including grants employee stock options restricted stock units recognized consolidated financial statements requisite service period compensation expense based upon fair value awards recognized straightline basis requisite service period awards actually vest stockbased compensation expense recorded selling general administrative expenses consolidated statements operations estimate fair value stock option grant date grant based upon blackscholes option pricing model exception special onetime initial public offering transaction bonus grant valued date grant using monte carlo simulation method restricted stock unit awards performance stock unit awards grant date fair value determined based upon closing trading value common stock nyse date grant forfeiture assumptions estimated based historical experience blackscholes option pricing model requires various significant judgmental assumptions order derive final fair value determination type award including following ●expected termthe expected term options represents period time grant date options date options either exercised canceled ●expected volatilitythe expected volatility calculated based partially historical volatility common stock partially historical volatility common stock comparable companies ●expected dividend yieldthe expected dividend yield based expectation paying dividends common stock foreseeable future ●riskfree interest ratethe riskfree interest rate average us treasury rate effect time grant maturity approximates expected term 10 increase expected volatility would increased fair value options granted fiscal year 2020 approximately 07 million used monte carlo simulation model determine fair value special onetime initial public offering transaction bonus grant subject marketbased conditions stock option grants subject marketbased conditions cliff vesting began third quarter fiscal year 2017 continued second quarter fiscal year 2019 subject achievement market conditions valued stock option grants single award related compensation cost recognized using straightline method derived service period expected volatility based combination historical implied volatilities common stock comparable companies grants stock options exercise price equal greater fair market value common stock date grant item 7a item 7 management’s discussion analysis financial condition results operations discussion analysis financial condition results operations read conjunction “item 6 selected financial operating data” consolidated financial statements related notes home group inc included item 15 annual report form 10k review “item 1a risk factors” section filing discussion important factors could cause actual results differ materially results described implied forwardlooking statements contained following discussion analysis operate fiscal calendar widely used retail industry results given fiscal year consisting 52 53week period ending last saturday january 52week fiscal year quarter contains 13 weeks operations 53week fiscal year first second third quarters includes 13 weeks operations fourth quarter includes 14 weeks operations references fiscal year mean year fiscal year ends references herein “fiscal year 2017” relate 52 weeks ending january 28 2017 references herein “fiscal year 2016” relate 52 weeks ended january 30 2016 references herein “fiscal year 2015” relate 53 weeks ended january 31 2015 references herein “fiscal year 2014” relate 52 weeks ended january 25 2014 overview home leading home décor superstore based number locations large format stores believe dedicate space per store home décor player industry focused providing broadest assortment products room style budget utilize space advantage outassort competition offering 50000 skus throughout stores differentiated merchandising strategy allows us identify ontrend products value engineer products provide desirable aesthetics attractive price points customers 70 products unbranded private label specifically designed us believe broad comprehensive offering compelling value proposition combine create leading destination home décor opportunity continue taking market share large fragmented growing market founded 1979 garden ridge texas suburb san antonio acquired 2011 group investors led aea including affiliates starr investments began series strategic investments business believe laid foundation continued profitable growth fiscal years 2014 2015 invested approximately 85 million capital connection following strategic initiatives · moved company headquarters houston plano take advantage concentration retail talent dallas fort worth area · significantly increased number people within functional areas resulting wellrounded team deep bench experience addition building executive team · implemented rigorous systematic processes allowed us accelerate new store openings delivering strong financial results · upgraded automated distribution center expanded capacity service growing store base · completed rebranding company garden ridge home fiscal year 2015 important milestone strengthened brand message better communicates position leading home décor superstore strengthened management team new brand identity improved real estate capabilities upgraded automated distribution center enhanced information systems enable us expand store base maintaining industryleading profitability january 28 2017 store base comprised 123 large format stores across 30 states averaging approximately 115000 square feet per store past five completed fiscal years opened 77 new stores believe significant whitespace opportunity increase store count existing new markets trends factors affecting business various trends factors affect affected operating results including overall economic trends overall economic environment related changes consumer behavior significant impact business general positive conditions broader economy promote customer spending stores economic weakness results reduction customer spending macroeconomic factors affect customer spending patterns thereby results operations include employment rates business conditions changes housing market availability credit interest rates tax rates fuel energy costs consumer preferences demand ability maintain appeal existing customers attract new customers depends ability originate develop offer compelling product assortment responsive customer preferences design trends misjudge market products may faced excess inventories products may required become promotional selling activities would impact net sales gross profit new store openings expect new stores key driver growth sales operating profit future results operations continue materially affected timing number new store openings performance new stores may vary depending various factors store opening date time year particular opening amount store opening costs amount store occupancy costs location new store including whether located new existing market example typically incur higher normal employee costs time new store opening associated setup opening costs addition response interest excitement generated open new store new stores generally experience higher net sales initial period one three months new store’s net sales begin normalize reaches maturity within six months opening discussed planned store expansion place increased demands operational managerial administrative resources managing growth effectively require us continue enhance store management systems financial management controls information systems also required hire train retain store management store personnel together increased marketing costs affect operating margins new store typically reaches maturity meaning store’s annualized targeted sales volume reached within six months opening new stores included comparable store base sixteenth full fiscal month following store’s opening believe represents appropriate comparison also periodically explore opportunities relocate limited number existing stores improve location lease terms store layout customer experience relocated stores typically achieve level operating profitability comparable companywide average existing stores quickly new stores rebranding initiative fiscal year ended january 31 2015 launched significant rebranding initiative spent 20 million capital expenses change brand corporate name convert refresh stores changed name “garden ridge” “at home” name believe better communicates positioning leading home décor superstore completed rebranding initiative first nine months fiscal year 2015 stores operate home brand infrastructure investment historical operating results reflect impact ongoing investments support growth made significant investments business believe laid foundation continued profitable growth believe strengthened management team new brand identity upgraded automated distribution center enhanced information systems including warehouse management pos systems enable us replicate profitable store format differentiated shopping experience addition fiscal year 2016 implemented merchandise planning system upgraded inventory allocation system better manage inventory store corresponding customer base expect infrastructure investments support successful operating model significantly expanded store base pricing strategy committed providing products everyday low prices value engineer products collaboration suppliers recreate “look” believe customer wants eliminating costly construction elements customer value believe customer views shopping home inperson experience customer see feel quality products physically assemble desired aesthetic design approach allows us deliver attractive value customers products typically less expensive branded products similar look employ simple everyday low pricing strategy consistently delivers savings customers without need extensive promotions evidenced 80 net sales occurring full price ability source distribute products effectively net sales gross profit affected ability purchase products sufficient quantities competitive prices believe vendors adequate capacity meet current anticipated demand level net sales could adversely affected event constraints supply chain including inability vendors produce sufficient quantities merchandise manner able match market demand customers leading lost sales fluctuation quarterly results quarterly results historically varied depending upon variety factors including product offerings promotional events store openings shifts timing holidays among things result factors working capital requirements demands product distribution delivery network may fluctuate year inflation deflation trends financial results expected directly impacted substantial increases product costs due commodity cost increases general inflation could lead reduction sales well greater margin pressure costs may able passed consumers date changes commodity prices general inflation materially impacted business response increasing commodity prices general inflation seek minimize impact events sourcing merchandise different vendors changing product mix increasing pricing necessary refinancings june 2015 entered term loan second lien term loan together term loan “term loan facilities” proceeds term loans used refinance redeem full 1075 senior secured notes due 2019 reduced overall cost capital addition used net proceeds initial public offering partial exercise overallotment option repay full 1300 million principal amount indebtedness outstanding second lien term loan reduced cost capital debt service obligations information please see “liquidity capital resources” 53rd week fiscal year 2015 consisted 53 weeks fiscal years 2017 2016 consisted 52 weeks 53rd week fiscal year 2015 contributed 78 million net sales please see “results operations” discussion impact 53rd week net sales assess performance business assessing performance consider variety performance financial measures key measures include net sales gross profit gross margin selling general administrative expenses addition also review important metrics adjusted ebitda storelevel adjusted ebitda adjusted net income loss net sales net sales derived direct retail sales customers stores net merchandise returns discounts growth net sales impacted opening new stores increases comparable store sales new store openings number new store openings reflects new stores opened particular reporting period including relocations existing stores period open new stores incur preopening costs described total number new stores per year timing store openings continue impact results described “trends factors affecting business” comparable store sales store included comparable store sales calculation first day sixteenth full fiscal month following stores opening believe comparability achieved store relocated remodeled exclude sales store calculation comparable store sales first day sixteenth full fiscal month reopens addition applicable adjust effect 53rd week may variations way competitors retailers calculate comparable “same store” sales result data report regarding comparable store sales may comparable similar data made available retailers comparable store sales allow us evaluate store base performing measuring change periodoverperiod net sales stores open applicable period various factors affect comparable store sales including · consumer preferences buying trends overall economic trends · ability identify respond effectively customer preferences trends · ability provide assortment high quality trendright product offerings generate new repeat visits stores · customer experience provide stores · ability source receive products accurately timely · changes product pricing including promotional activities · number items purchased per store visit · weather · timing length holiday shopping periods opening new stores important part growth strategy continue pursue growth strategy anticipate increasing percentage net sales come stores included comparable store sales calculation accordingly comparable store sales one measure use assess success growth strategy gross profit gross margin gross profit determined subtracting cost sales net sales gross margin measures gross profit percentage net sales cost sales consists various expenses related cost selling merchandise cost sales consists following 1 cost merchandise net inventory shrinkage damages vendor allowances 2 inbound freight internal transportation costs distribution centertostore freight costs 3 costs operating distribution center including labor occupancy costs supplies depreciation 4 store occupancy costs including rent insurance taxes common area maintenance utilities repairs maintenance depreciation components cost sales expenses may comparable retailers selling general administrative expenses selling general administrative expenses “sga” consist various expenses related supporting facilitating sale merchandise stores costs include payroll benefits personnel expenses corporate store employees including stockbased compensation expense consulting legal professional services expenses marketing advertising expenses occupancy costs corporate headquarters various expenses sga includes fixed variable components therefore directly correlated net sales addition components sga expenses may comparable retailers expect sga expenses increase future periods due continuing store growth addition increase future stock option stockbased grants modifications increase stockbased compensation expense included sga particular onetime bonus grant stock options certain members senior management connection initial public offering result incremental noncash stockbased compensation expense approximately 200 million expensed derived service period beginning third quarter fiscal 2017 continuing following eight quarters adjusted ebitda adjusted ebitda key metric used management board directors assess financial performance adjusted ebitda also basis performance evaluation current executive compensation programs addition adjusted ebitda frequently used analysts investors interested parties evaluate companies industry addition covenant compliance executive performance evaluations use adjusted ebitda supplement generally accepted accounting principles united states america “gaap” measures performance evaluate effectiveness business strategies make budgeting decisions compare performance peer companies using similar measures adjusted ebitda defined net income loss interest expense net loss early extinguishment debt income tax benefit provision depreciation amortization adjusted impact certain items defined debt agreements including certain legal settlements consulting professional fees costs associated new store openings relocation employee recruiting incentives management fees expenses stockbased compensation expense impairment trade name noncash rent reconciliation adjusted ebitda net income loss directly comparable gaap measure see “results operations” storelevel adjusted ebitda use storelevel adjusted ebitda supplemental measure performance represents adjusted ebitda excluding impact certain corporate overhead expenses consider evaluation ongoing operating performance stores period calculation storelevel adjusted ebitda supplemental measure operating performance stores may comparable similar measures reported companies believe storelevel adjusted ebitda important measure evaluate performance profitability stores individually aggregate especially given level investments made home office infrastructure past four years support future growth also believe storelevel adjusted ebitda useful measure evaluating operating performance removes impact general administrative expenses incurred store level costs opening new stores nonrecurring storelevel thereby enables comparability operating performance stores period use storelevel adjusted ebitda information benchmark performance versus competitors storelevel adjusted ebitda used substitute consolidated measures profitability performance reflect corporate overhead expenses necessary allow us effectively operate stores generate storelevel adjusted ebitda reconciliation storelevel adjusted ebitda net income loss directly comparable gaap measure see “results operations” adjusted net income loss adjusted net income loss represents net income loss adjusted loss extinguishment debt initial public offering related noncash stockbased compensation expense initial public offering transaction costs present adjusted net income loss believe assists investors analysts comparing performance across reporting periods consistent basis excluding items believe indicative core operating performance reconciliation adjusted net income loss net income loss directly comparable gaap measure see “results operations” results operations following tables summarize key components results operations periods indicated dollars percentage net sales 1 present adjusted ebitda adjusted ebitda margin storelevel adjusted ebitda storelevel adjusted ebitda margin adjusted net income loss recognized financial measures gaap believe assist investors analysts comparing operating performance across reporting periods consistent basis excluding items believe indicative core operating performance interest depreciation amortization loss extinguishment debt taxes well costs related new store openings incurred limited basis respect particular store opened indicative ongoing core operating performance encouraged evaluate adjustments reasons consider appropriate supplemental analysis evaluating adjusted ebitda storelevel adjusted ebitda adjusted net income loss aware future may incur expenses similar adjustments presentation adjusted ebitda storelevel adjusted ebitda adjusted net income loss particular storelevel adjusted ebitda reflect corporate overhead expenses necessary allow us effectively operate stores generate storelevel adjusted ebitda presentation adjusted ebitda storelevel adjusted ebitda adjusted net income loss construed inference future results unaffected unusual nonrecurring items assurance modify presentation adjusted ebitda storelevel adjusted ebitda adjusted net income loss future modification may material addition adjusted ebitda adjusted ebitda margin storelevel adjusted ebitda storelevel adjusted ebitda margin adjusted net income loss may comparable similarly titled measures used companies industry across different industries management believes adjusted ebitda helpful highlighting trends core operating performance measures differ significantly depending longterm strategic decisions regarding capital structure tax jurisdictions companies operate capital investments also use adjusted ebitda connection performance evaluations executives supplement gaap measures performance evaluation effectiveness business strategies make budgeting decisions compare performance peer companies using similar measures addition utilize adjusted ebitda certain calculations abl facility defined therein “consolidated ebitda” term loan facilities defined therein “consolidated cash ebitda” management believes storelevel adjusted ebitda helpful highlighting trends facilitates comparisons store operating performance period excluding impact certain corporate overhead expenses certain costs associated management finance accounting legal centralized corporate functions management believes adjusted net income loss assists investors analysts comparing performance across reporting periods consistent basis excluding items believe indicative core operating performance 2 following table reconciles net income loss ebitda excluding loss extinguishment debt adjusted ebitda storelevel adjusted ebitda periods presented thousands includes portion depreciation amortization expenses classified cost sales consolidated statements operations b primarily consists consulting professional fees respect tax consulting services well completed projects enhance accounting finance capabilities public company readiness initiatives 25 million 35 million 28 million fiscal years 2017 2016 2015 respectively ii litigation settlement charges related legal fees certain claims legal costs matters relating events arose prior acquisition sponsors concluded amounts 18 million fiscal year 2015 adjustments related items periods presented material c noncapital expenditures associated opening new stores including marketing advertising labor cash occupancy expenses anticipate continue incur cash costs open new stores future opened 24 20 16 new stores fiscal years 2017 2016 2015 respectively primarily reflects employee recruiting relocation costs connection buildout management team e reflects management fees paid sponsors accordance management agreement connection initial public offering management agreement terminated august 3 2016 sponsors longer receive management fees us f noncash stockbased compensation related ongoing equity incentive program place incentivize retain management g noncash stockbased compensation associated special onetime initial public offering bonus grant senior executives consider evaluation ongoing performance grant made addition ongoing equity incentive program place incentivize retain management made reward certain senior executives historical performance allow benefit future successful outcomes sponsors h consists noncash portion rent reflects extent gaap straightline rent expense recognized exceeds less cash rent payments partially offset ii amortization deferred gains saleleaseback transactions recognized rent expense straightline basis applicable lease term offsetting amounts relating amortization deferred gains saleleaseback transactions 47 million 32 million 18 million fiscal years 2017 2016 2015 respectively gaap straightline rent expense adjustment vary depending average age lease portfolio impacted significant growth newer leases rent expense recognized typically exceeds cash rent payments mature leases rent expense recognized typically less cash rent payments adjustments include amounts management believes representative ongoing operations including · fiscal year 2017 loss 03 million recognized sale land connection expansion distribution center · fiscal year 2016 gain sale property houston texas 18 million 03 million related various refunds prior period taxes audits partially offset 05 million expenses incurred store closure · fiscal year 2015 asset retirements related rebranding 06 million 04 million store relocation j reflects corporate overhead expenses directly related profitability stores facilitate comparisons store operating performance consider corporate overhead expenses evaluating ongoing performance stores period corporate overhead expenses component selling general administrative expenses comprised various home office general administrative expenses payroll expenses occupancy costs marketing advertising consulting professional fees see discussion changes selling general administrative expenses presented “results operations” storelevel adjusted ebitda used substitute consolidated measures profitability performance reflect corporate overhead expenses necessary allow us effectively operate stores generate storelevel adjusted ebitda anticipate continue incur corporate overhead expenses future periods 3 following table reconciles net income loss adjusted net income loss periods presented thousands noncash stockbased compensation associated special onetime initial public offering bonus grant senior executives consider evaluation ongoing performance grant made addition ongoing equity incentive program place incentivize retain management made reward certain senior executives historical performance allow benefit future successful outcomes sponsors b charges incurred connection initial public offering expect recur consider evaluation ongoing performance c represents tax impact associated adjusted expenses utilizing effective tax rate effect periods presented effective tax rate fiscal years 2017 2016 2015 367 1338 1111 respectively fiscal year ended january 28 2017 compared fiscal year ended january 30 2016 net sales net sales increased 1434 million 231 7656 million fiscal year ended january 28 2017 6222 million fiscal year ended january 30 2016 increase primarily driven approximately 1228 million incremental revenue net addition 23 new stores opened since january 30 2016 well number stores opened fiscal year 2016 yet open 15 months included comparable store base remaining 206 million increase net sales attributable comparable store sales increased 37 fiscal year ended january 28 2017 driven primarily merchandising initiatives cost sales cost sales increased 964 million 229 5182 million fiscal year ended january 28 2017 4218 million fiscal year ended january 30 2016 increase primarily driven 231 increase net sales fiscal year ended january 28 2017 compared fiscal year ended january 30 2016 resulted 659 million increase merchandise costs addition fiscal year ended january 28 2017 recognized 65 million increase depreciation amortization 200 million increase store occupancy costs case result new store openings since january 30 2016 well throughout fiscal year 2016 gross profit gross margin gross profit 2475 million 323 net sales fiscal year ended january 28 2017 increase 2004 million 322 net sales fiscal year ended january 30 2016 increase gross profit primarily driven increased sales volume net addition 23 new stores opened since january 30 2016 well 37 increase comparable stores sales gross margin increased 10 basis points fiscal year ended january 28 2017 compared fiscal year ended january 30 2016 10 basis point increase primarily due reduction productrelated costs shrink damages freight driven operational improvements increase partially offset higher occupancy costs resulting saleleaseback transactions occurred fiscal year 2017 fiscal year 2016 discussed “liquidity capital resources” addition gross margin also impacted higher distribution center costs associated incremental investments lowpriced inventory fiscal year ended january 28 2017 compared fiscal year ended january 30 2016 gross margins new stores differ materially comparable stores fiscal year ended january 28 2017 compared fiscal year ended january 30 2016 primarily result short six month period maturity new stores following performance new stores consistent comparable stores period selling general administrative expenses selling general administrative expenses 1706 million fiscal year ended january 28 2017 compared 1357 million fiscal year ended january 30 2016 increase 349 million 257 percentage sales sga increased 50 basis points fiscal year ended january 28 2017 223 218 fiscal year ended january 30 2016 primarily due stockbased compensation expenses associated special onetime ipo bonus grant issued home group inc equity incentive plan subsequently amended restated approved board july 2016 “2016 equity plan” transaction costs related initial public offering increase advertising expenses partially offset leverage recurring corporate overhead expenses sga expenses include corporate overhead expenses represented 103 million increase attributable additional home office support capabilities well increased payroll expenses incurred support growth strategies stockbased compensation expenses associated special onetime ipo bonus grant issued 2016 equity plan transaction costs related initial public offering consulting professional fees relating public company readiness initiatives addition recognized 03 million loss sale land connection expansion distribution center fiscal year ended january 28 2017 sga expenses also include expenses related store operations represented 196 million increase primarily driven 112 million increase payroll expenses due new store headcount labor cost associated incremental investments lowpriced inventory additionally 22 million increase store preopening costs due increased number new store openings timing new store openings fiscal year ended january 28 2017 compared fiscal year ended january 30 2016 well increases various administrative costs support continued growth store base addition recognized 18 million gain sale property houston texas fiscal year ended january 30 2016 remaining increase selling general administrative expenses related advertising expenses included sga total advertising expenses 174 million fiscal year ended january 28 2017 compared 124 million fiscal year ended january 30 2016 increase 50 million 403 increase driven efforts continue build brand awareness store preopening costs include additional marketing advertising expenses 22 million 10 million fiscal years ended january 28 2017 january 30 2016 respectively fiscal year 2017 expanded marketing advertising spend 26 net sales 22 net sales fiscal year 2016 interest expense net interest expense net decreased 272 million fiscal year ended january 28 2017 368 million fiscal year ended january 30 2016 decrease 96 million decrease interest expense primarily resulted june 2015 refinancing repayment 1300 million senior secured second lien term loan facility net proceeds obtained initial public offering “second lien repayment” see “liquidity capital resources” loss extinguishment debt fiscal year ended january 28 2017 recognized loss extinguishment debt 27 million resulting second lien repayment compared 360 million resulting june 2015 refinancing fiscal year ended january 30 2016 loss extinguishment debt fiscal year ended january 28 2017 primarily relates writeoff unamortized deferred debt issuance costs loss extinguishment debt fiscal year ended january 30 2016 includes writeoff 70 million unamortized deferred debt issuance costs income tax provision income tax expense 157 million fiscal year ended january 28 2017 compared benefit 142 million fiscal year ended january 30 2016 effective tax rate fiscal year ended january 28 2017 367 compared 1338 fiscal year ended january 30 2016 effective tax rate fiscal year ended january 28 2017 differs federal statutory rate primarily due impact state local income taxes release unrecognized tax benefits valuation state net operating losses nondeductible transaction costs nondeductible interest expense effective income tax rate differs significantly federal statutory rate fiscal year ended january 30 2016 primarily due impact state income taxes changes valuation allowance deferred tax assets fiscal year ended january 30 2016 compared fiscal year ended january 31 2015 net sales net sales increased 1245 million 250 6222 million fiscal year ended january 30 2016 4977 million fiscal year ended january 31 2015 increase primarily driven approximately 1148 million incremental revenue net addition 19 new stores since january 31 2015 well approximately 175 million increase comparable store sales increased 39 fiscal year ended january 30 2016 driven primarily merchandising initiatives fiscal year ended january 31 2015 53 weeks additional week contributed approximately 78 million additional net sales period excluding impact 53rd week net sales increased 270 fiscal year ended january 30 2016 compared fiscal year ended january 31 2015 addition comparable store sales fiscal year ended january 31 2015 reflected impact rebranding initiative fiscal year 2015 resulted 83 increase comparable store sales compared fiscal year ended january 25 2014 cost sales cost sales increased 862 million 257 4218 million fiscal year ended january 30 2016 3356 million fiscal year ended january 31 2015 increase primarily driven 250 increase net sales fiscal year ended january 30 2016 compared fiscal year ended january 31 2015 resulted 555 million increase merchandise costs addition fiscal year ended january 30 2016 recognized 82 million increase depreciation amortization 142 million increase store occupancy costs case result new store openings period gross profit gross margin gross profit 2004 million 322 net sales fiscal year ended january 30 2016 increase 1621 million 326 net sales fiscal year ended january 31 2015 increase gross profit primarily driven increased sales volume net addition 19 new stores opened since january 31 2015 well 39 increase comparable stores sales gross margin declined 40 basis points fiscal year ended january 30 2016 primarily due increased depreciation expense period result purchased stores ground builds opened throughout fiscal year 2015 fiscal year 2016 gross margins new stores materially differ comparable stores fiscal year ended january 30 2016 fiscal year ended january 31 2015 primarily result short six month period maturity new stores discussed “trends factors affecting businessnew store openings” following performance new stores consistent comparable stores period selling general administrative expenses selling general administrative expenses 1357 million fiscal year ended january 30 2016 compared 1105 million fiscal year ended january 31 2015 increase 252 million 228 percentage sales sga fiscal year ended january 30 2016 218 compared 222 fiscal year ended january 31 2015 sga expenses include corporate overhead expenses represented 143 million increase resulting additional home office support capabilities well increased marketing advertising expenses occupancy consulting professional fees incurred support growth strategies addition corporate overhead expenses fiscal year ended january 31 2015 reflected impact 21 million reduction due proceeds received insurance matter remaining 109 million increased selling general administrative expenses contributed store operations primarily driven 75 million increase payroll expenses resulting new store headcount additionally 33 million increase store preopening costs new stores opening fiscal years 2016 2017 various administrative costs support continued growth store base increases partially offset 18 million gain recognized sale property houston texas fiscal year ended january 30 2016 interest expense net interest expense net decreased 368 million fiscal year ended january 30 2016 424 million fiscal year ended january 31 2015 decrease 56 million decrease interest expense resulted june 2015 refinancing see “liquidity capital resources” loss extinguishment debt fiscal year ended january 30 2016 recognized loss extinguishment debt approximately 360 million resulting june 2015 refinancing loss extinguishment debt also includes writeoff 70 million unamortized deferred debt issuance costs income tax provision income tax benefit 142 million fiscal year ended january 30 2016 compared income tax expense 44 million fiscal year ended january 31 2015 effective tax rate fiscal year ended january 30 2016 1338 compared 1111 fiscal year ended january 31 2015 effective tax rate fiscal year ended january 30 2016 differs significantly federal statutory rate primarily due impact reversal valuation allowance historically maintained deferred tax assets lesser extent reduction reserve uncertain tax positions effective tax rate fiscal year ended january 31 2015 differs federal statutory rate impact state income taxes well changes reserves uncertain tax positions changes federal valuation allowance deferred tax assets evaluating valuation allowance required assess available positive negative evidence estimate sufficient future income generated utilize deferred tax assets making assessment january 30 2016 considered four sources taxable income described accounting standards codification “asc” 740103018 determined three sources future income available 1 future taxable income exclusive reversing temporary differences carryforwards 2 reversing taxable temporary differences 3 carryback losses resulting reversals deductible temporary differences excess reversing taxable temporary differences however identify tax planning strategies would serve source future income believe cumulative pretax income significant piece positive evidence allows us consider subjective evidence future forecasted pretax income fiscal year ended january 31 2015 determined three years cumulative pretax income excluding 375 million tradename impairment recognized fiscal year 2014 consider unusual nature result rebranding initiative however believe three year cumulative pretax income position positive evidence could consider rebranding efforts still early stages yet demonstrated ability forecast results operations fiscal year ended january 30 2016 excluding tradename impairment determined continued three years cumulative pretax income addition taxable income loss exceeded pretax income loss fiscal year ended january 30 2016 two preceding fiscal years january 30 2016 completed approximately 18 months operations following rebranding initiative well demonstrated ability accurately forecast results operations concluded positive evidence along taxable income prior two fiscal years absorb loss carrybacks would generated reversing deductible differences excess reversing taxable differences well cumulative pretax income exclusive tradename impairment recent fiscal years likely deferred tax assets would realized future years accordingly fiscal year 2016 reversed 60 million valuation allowance deferred tax assets offsetting credit provision income taxes concluded deferred tax assets 06 million related state income tax net operating loss carryforwards would likely realizable future valuation allowance state deferred tax assets appropriate january 30 2016 liquidity capital resources principal sources liquidity cash generated operating activities proceeds saleleaseback transactions borrowings abl facility historically financed operations primarily cash generated operations periodic borrowings abl facility primary cash needs daytoday operations provide infrastructure investments stores finance new store openings pay interest principal indebtedness fund working capital requirements seasonal inventory builds new store inventory purchases january 28 2017 71 million cash equivalents 1084 million borrowing availability abl facility 36 million face amount letters credit issued abl facility date june 2016 amended agreement governing abl facility “abl credit agreement” exercise 750 million accordion feature increased aggregate revolving commitments 1400 million 2150 million availability abl facility determined accordance borrowing base decline due various factors therefore amounts abl facility may available need june 2015 entered term loan facilities portion proceeds term loan facilities used refinance redeem senior secured notes reduced interest expense interest rates term loan facilities variable based libor rates effect june 5 2015 subject interest payments term loans blended effective rate 62 additional details debt agreements entered june 2015 see “term loan facilities” historically subject principal amortization payments indenture governing senior secured notes term loan repayable equal quarterly installments approximately 08 million prior repayment second lien term loan require periodic principal payments august 3 2016 registration statement form s1 relating initial public offering declared effective sec pursuant registered aggregate 9967050 shares common stock including 1300050 shares subject underwriters overallotment option issued sold 8667000 shares registered price 1500 per share august 9 2016 resulting net proceeds 1209 million deducting underwriters discounts commissions 91 million also incurred offering expenses 60 million connection initial public offering included additional paidin capital consolidated balance sheets january 28 2017 september 8 2016 issued sold 863041 shares common stock pursuant underwriters’ partial exercise overallotment option exercise overallotment option resulted net proceeds us 120 million deducting underwriters’ discounts commissions 09 million used net proceeds initial public offering partial exercise overallotment option deducting underwriters’ discounts commissions repay full 1300 million principal amount indebtedness outstanding second lien term loan capital expenditures vary depending timing new store openings infrastructurerelated investments capital expenditures fiscal year ended january 28 2017 approximately 621 million net proceeds sale property equipment includes saleleaseback proceeds approximately 621 million estimate capital expenditures fiscal year ending january 27 2018 range 110 million 130 million net proceeds saleleaseback transactions 100 million plan invest infrastructure necessary support development business continued growth fiscal year 2017 opened 23 new stores net one relocated store net capital expenditures incurred date substantially financed cash operating activities saleleaseback transactions proceeds abl facility expect fiscal year 2018 net capital expenditures financed manner based growth plans believe cash position net cash provided operating activities borrowings abl facility adequate finance planned capital expenditures working capital requirements debt service obligations next twelve months foreseeable future thereafter cash flows operations borrowings abl facility sufficient available meet capital requirements required obtain additional equity debt financing future assurance equity debt financing available us need available terms satisfactory us dilutive thencurrent shareholders indebtedness could adversely affect ability raise additional capital limit ability react changes economy industry expose us interest rate risk prevent us meeting obligations management reacts strategically changes economic conditions monitors compliance debt covenants seek mitigate potential material impacts financial condition flexibility saleleaseback transactions part flexible real estate strategy utilize saleleaseback transactions finance investments previously made purchase second generation properties construction new store locations enhances ability access range locations facilities efficiently factor saleleaseback transactions capital allocation decisions order support execution saleleaseback transactions relationships publicly traded reits many demonstrated interest portfolio assets certain cases sale treated likekind exchange transaction us federal income tax purposes accordance section 1031 internal revenue code “code” section 1031 code allows companies defer taxable gain realized sale certain “relinquished” real property proceeds reinvested timely manner qualifying likekind “replacement” property addition section 1031 code requires sale proceeds relinquished property held restricted cash account thirdparty qualified intermediary pending utilization thereof acquisition qualifying replacement property september 2014 sold four properties raleigh north carolina mesa arizona lubbock texas louisville kentucky total 409 million contemporaneously closing sale entered four leases pursuant leased back properties cumulative initial annual rent 28 million subject annual escalations sale properties located lubbock texas louisville kentucky treated likekind exchanges us federal income tax purposes accordance section 1031 code january 2015 sold property located omaha nebraska approximately 80 million contemporaneously closing sale entered lease pursuant leased back property cumulative initial annual rent 05 million subject annual escalations september 2015 sold five properties grand prairie texas toledo ohio pharr texas new braunfels texas gulfport mississippi total 402 million contemporaneously closing sale entered lease pursuant leased back properties cumulative initial annual rent 27 million subject annual escalations approximately 55 million proceeds sale used pay notes payable related grand prairie new braunfels properties august 2016 sold four properties broomfield colorado corpus christi texas jenison michigan buford georgia total 326 million contemporaneously closing sale entered lease pursuant leased back properties cumulative initial annual rent 22 million subject annual escalations approximately 37 million proceeds sale used pay note payable related corpus christi property september 2016 sold three properties colorado springs colorado kissimmee florida o’fallon illinois total 306 million contemporaneously closing sale entered lease pursuant leased back properties cumulative initial annual rent 21 million subject annual escalations see “risk factorsrisks relating businesswe subject risks associated saleleaseback strategy” summary cash flows summary cash flows operating investing financing activities presented following table thousands net cash provided used operating activities net cash provided operating activities 435 million fiscal year ended january 28 2017 compared 149 million fiscal year ended january 30 2016 286 million increase cash provided operating activities primarily due decrease payments accounts payable 306 million well decrease payments accrued liabilities 248 million related timing payments decrease cash paid interest 191 million increase operating income 105 million sources cash partially offset increase purchases merchandise inventories 333 million increase cash paid income taxes 297 million inventory levels end fiscal year 2017 2438 million increase 674 million 382 end fiscal year 2016 increase inventories primarily due new store growth fiscal year 2016 fiscal year 2017 acceleration inventory purchases late fiscal year 2017 includes impact earlier chinese new year incremental investments lowpriced inventory net cash provided operating activities 149 million fiscal year ended january 30 2016 compared 153 million fiscal year ended january 31 2015 04 million decrease cash provided operating activities primarily due 92 million 178 million decrease inventory transit accounts payable respectively primarily driven build inventory preparation new store openings early fiscal year 2017 well shift timing chinese new year resulting acceleration inventory purchases late fiscal year 2016 additionally accrued interest decreased 64 million due timing interest payments due senior secured notes compared term loan facilities end fiscal year 2016 decreases cash provided operating activities offset 159 million increase operating income well 120 million decrease cash paid income taxes net cash used investing activities net cash used investing activities 632 million fiscal year ended january 28 2017 compared 397 million fiscal year ended january 30 2016 235 million increase cash used investing activities primarily driven decrease 177 million net restricted cash proceeds attributable saleleaseback transactions sale treated likekind exchange accordance section 1031 code well increase capital expenditures 52 million net proceeds sale property equipment capital expenditures 1243 million fiscal year ended january 28 2017 consisted 962 million invested new store growth remaining 281 million primarily related investments information technology distribution center existing stores capital expenditures 1025 million fiscal year ended january 30 2016 consisted 864 million invested new store growth remaining 161 million primarily related investments maintenance expenditures information technology net cash used investing activities 397 million fiscal year ended january 30 2016 compared 1001 million fiscal year ended january 31 2015 604 million decrease cash used primarily driven additional 182 million capital expenditures fiscal year ended january 31 2015 result purchased stores ground builds period compared leased stores fiscal year ended january 30 2016 well 171 million capital expenditures incurred fiscal year ended january 31 2015 support rebranding initiative capital expenditures 1025 million fiscal year ended january 30 2016 consisted 864 million invested new store growth remaining 161 million primarily related maintenance expenditures investments information technology capital expenditures fiscal year ended january 30 2016 offset 172 million net restricted cash proceeds primarily related saleleaseback transactions consummated sale treated likekind exchange transaction accordance section 1031 code addition fiscal year ended january 30 2016 received 63 million proceeds sale property houston texas well 392 million net proceeds resulting saleleaseback transaction sold five properties grand prairie texas toledo ohio pharr texas new braunfels texas gulfport mississippi fiscal year ended january 31 2015 received 368 million net proceeds saleleaseback transactions sold property omaha nebraska well four properties raleigh north carolina mesa arizona lubbock texas louisville kentucky net cash provided financing activities net cash provided financing activities 213 million fiscal year ended january 28 2017 compared 255 million fiscal year ended january 30 2016 decrease 42 million primarily due 273 million net proceeds borrowings term loan facilities payment related debt issuance costs redemption senior secured notes fiscal year ended january 30 2016 decrease partially offset net proceeds borrowings abl facility increasing 158 million fiscal year ended january 28 2017 payments longterm debt decreasing 44 million due payoff notes payable fiscal year 2016 fiscal year 2017 net proceeds financing activities fiscal year 2017 due initial public offering 1329 million deducting underwriters discounts commissions mostly offset use 1300 million effect second lien repayment 1300 million net cash provided financing activities 255 million fiscal year ended january 30 2016 compared 845 million fiscal year ended january 31 2015 decrease 590 million primarily due 582 million decrease net proceeds borrowings abl facility financing obligations cases assets lease require construction order ready space intended use certain cases involved construction leased assets construction period typically begins execute lease agreement landlord continues space substantially complete ready intended use accordance asc 8404055 topic 840 “leases” must consider nature extent involvement construction period cases involvement results considered accounting owner construction project completing construction key structural components leased building deemed participated construction landlords asset cases capitalize landlords construction costs including value costs incurred date execute lease costs incurred remainder construction period costs incurred additionally asc 8404055 requires us recognize financing obligation construction costs incurred landlord construction complete required perform saleleaseback analysis pursuant asc 84040 determine remove landlords assets associated financing obligations consolidated balance sheets certain leases maintain various forms “prohibited continuing involvement” property thereby precluding us derecognizing asset associated financing obligations following construction completion cases continue account landlords asset legal owner financing obligation similar debt lease expires modified remove continuing involvement prohibits derecognition permitted would required account lease either operating capital accordance asc 840 january 28 2017 derecognized landlord assets associated financing obligations term loan facilities june 5 2015 home holding iii inc “borrower” entered first lien credit agreement “first lien agreement” among borrower home holding ii inc “at home ii” certain indirect subsidiaries home ii various lenders bank america na administrative agent collateral agent first lien agreement provides term loan amount borrowed june 5 2015 term loan mature june 3 2022 repayable equal quarterly installments approximately 08 million annual aggregate amount equal 1 original principal amount 3000 million borrower option paying interest 1month 2month quarterly basis term loan annual rate libor subject 1 floor plus 400 subject qualifying initial public offering 050 reduction borrower achieves specified secured net leverage ratio level met subsequent initial public offering fiscal year ended january 28 2017 term loan permits us add one incremental term loans 500 million plus additional amounts subject compliance first lien net leverage ratio test first lien net leverage ratio test calculated using adjusted ebitda defined “consolidated ebitda” credit agreement term loan various nonfinancial covenants customary representations warranties events defaults remedies substantially similar described respect abl facility financial maintenance covenants term loan january 28 2017 january 30 2016 compliance covenants prescribed term loan option term loan prepayable prior june 5 2016 subject case repricing transaction prepayment premium equal principal amount term loan subject prepayment multiplied 1 prepayment portion outstanding term loan june 5 2016 subject premium june 5 2015 borrower entered second lien credit agreement “second lien agreement” among borrower home ii dynasty financial ii llc administrative agent collateral agent lender second lien agreement provided second lien term loan amount borrowed june 5 2015 second lien term loan maturity date june 5 2023 require periodic principal payments total amount outstanding plus accrued interest due maturity borrower option paying interest 1month 2month quarterly basis second lien term loan annual rate libor subject 1 floor plus 800 compliance covenants prescribed second lien term loan january 30 2016 discussed second lien term loan longer outstanding january 28 2017 refer term loan second lien repayment second lien term loan collectively “term loan facilities” borrower used net proceeds term loan facilities effect refinancing outstanding indebtedness senior secured notes ii pay fees expenses connection term loan facilities approximately 136 million iii repay 292 million amounts outstanding abl facility iv general corporate purposes used net proceeds initial public offering partial exercise overallotment option deducting underwriters’ discounts commissions effect second lien repayment total cash consideration 1304 million including 04 million accrued interest repayment resulted loss extinguishment debt amount 27 million recognized fiscal year ended january 28 2017 1075 senior secured notes due 2019 may 2012 home holding iii inc “at home iii” issued 3600 million aggregate principal amount 1075 senior secured notes scheduled mature june 1 2019 “senior secured notes” terms senior secured notes governed indenture “indenture” dated may 16 2012 among home iii guarantors party thereto wells fargo national association “trustee” interest payable semiannually arrears june 1st december 1st commencing december 1 2012 senior secured notes fully unconditionally guaranteed jointly severally senior secured basis domestic restricted subsidiaries senior secured notes related guarantees secured subject certain exceptions first priority lien substantially guarantors assets inventory accounts receivable related assets secure abl facility first priority basis “abl priority collateral” including first priority liens capital stock held us guarantor ii second priority lien abl priority collateral indenture contained customary covenants limiting home iiis restricted subsidiaries operations also provided events default certain circumstances permitted acceleration payment principal premium interest outstanding senior secured notes june 5 2015 home iii completed redemption senior secured notes price equal 108063 total cash consideration 3894 million includes 290 million early redemption premium 04 million accrued interest redemption resulted loss extinguishment debt amount 360 million includes writeoff 70 million unamortized deferred debt issuance costs assetbased lending credit facility october 2011 entered abl facility provided cash borrowings issuances letters credit based defined percentages eligible inventory credit card receivable balances maximum facility limit 800 million may 2012 entered first amendment abl credit agreement amended abl facility among things permit senior secured notes may 2013 entered second amendment abl credit agreement amended abl facility increase facility limit 900 million extend maturity october 2016 may 2018 reduce interest rate fees amended various covenants related definitions july 2014 entered third amendment abl credit agreement amended abl facility modify certain financial terms covenants modifications included increasing facility 900 million 1400 million extending scheduled maturity date may 2018 july 2019 reducing margin borrowings 025 providing release certain real property collateral specified circumstances adding wells fargo bank national association new lender facility amending various covenants terms related definitions provide additional flexibility facility september 2014 entered assumption ratification agreement updated names loan parties reflect corporate restructuring rebranding june 5 2015 home iii also entered fourth amendment abl credit agreement amended abl facility modify certain provisions agreement among things permit term loan facilities issued amend certain terms abl facility consistent terms set forth term loan facilities june 2016 amended abl facility exercise 750 million accordion feature abl facility increased aggregate revolving commitments 1400 million 2150 million increased sublimit issuance letters credit 100 million 250 million terms abl facility changed amendment abl facility secured substantially assets first priority lien abl priority collateral second priority lien abl facility lenders term loan facility lenders nonabl priority collateral borrowings abl facility bear interest rate per annum equal option x higher federal funds rate plus 12 100 ii banks prime rate iii libor plus 100 plus case applicable margin 025 075 based availability banks libor rate plus applicable margin 125 175 based availability effective interest rate approximately 200 fiscal years ended january 28 2017 january 30 2016 january 31 2015 respectively january 28 2017 approximately 1016 million outstanding abl facility approximately 36 million face amount letters credit issued availability approximately 1084 million abl facility contains number covenants among things restrict ability subject specified exceptions incur additional debt incur additional liens contingent liabilities sell dispose assets merge acquire companies liquidate dissolve engage businesses related line business make loans advances guarantees pay dividends engage transactions affiliates make investments addition abl facility contains certain crossdefault provisions financial maintenance covenants abl facility however existence event default fail maintain availability least greater 100 million 10 line cap consolidated fixed charge coverage ratio recently completed period four consecutive quarters must 100 higher january 28 2017 january 30 2016 compliance covenants abl facility contractual obligations enter longterm obligations commitments normal course business primarily debt obligations noncancelable operating leases january 28 2017 contractual cash obligations next several periods follows thousands 1 operating lease commitments include leases property used operations amounts shown reflect operating leases classified financing obligations 2 capital lease commitments include leases property used operations 3 longterm debt obligations include principal payments due term loan note payable 4 revolving credit facility includes principal payments due abl facility 5 interest expense longterm debt includes future interest payments outstanding obligations term loan notes payable well payments due abl facility abl facility bears interest variable rates table based rates effect january 28 2017 6 includes base lease terms properties deemed accounting owner landlords property accordance accounting guidance related leases 7 represents liability reported accordance provisions asc 740 topic 740 “income taxes” information related unrecognized tax benefits see note 9 income taxes consolidated financial statements included report offbalance sheet arrangements historically entered offbalance sheet arrangements enter operating lease commitments letters credit purchase obligations normal course operations critical accounting policies use estimates preparation financial statements accordance gaap requires management make estimates assumptions affect reported amounts assets liabilities revenues expenses well related disclosures contingent assets liabilities date financial statements management evaluates accounting policies estimates judgments ongoing basis management bases estimates judgments historical experience various factors believed reasonable circumstances actual results may differ estimates different assumptions conditions management evaluated development selection critical accounting policies estimates believes following involve higher degree judgment complexity significant reporting results operations financial position therefore discussed critical following critical accounting policies reflect significant estimates judgments used preparation consolidated financial statements respect critical accounting policies even relatively minor variance actual expected experience potentially materially favorable unfavorable impact subsequent results operations information significant accounting policies found note 1nature operations summary significant accounting policies audited consolidated financial statements included elsewhere report inventories comprised finished merchandise stated lower cost net realizable value cost determined using weightedaverage method cost inventories include actual landed cost item time received distribution center point shipment certain international shipments well transportation costs distribution center retail stores applicable net inventory cost recognized cost sales inventory sold vendor allowances primarily represent volume rebates cooperative advertising funds recorded reduction cost merchandise inventories subsequent reduction cost sales inventory sold generally earn vendor allowances percentage certain merchandise purchases minimum purchase requirements typically vendor allowance programs extend period twelve months physical inventory counts performed stores least per year thirdparty inventory counting service stores operation least one year inventory records adjusted reflect actual inventory counts resulting shortage “shrinkage” recognized reserves shrinkage estimated recorded throughout period percentage net sales based recent physical inventory combination current events historical experience loss prevention programs policies place intended mitigate shrinkage 10 increase estimated shrinkage reserve rate would affected net income approximately 09 million fiscal year 2017 also evaluate merchandise ensure expected net realizable value merchandise held end fiscal period exceeds cost event expected net realizable value less cost reduce value inventory accordingly goodwill tested impairment least annually operating segment level one operating segment reporting unit exists operating segment implied fair value goodwill lower carrying amount goodwill impairment indicated goodwill written implied fair value assess business enterprise value using combination income approach market approach determine fair value company compared carrying value net assets income approach using discounted cash flow method includes key factors used valuation company level 3 valuation include limited managements plans future operations recent operating results income tax rates discounted projected future cash flows impairment goodwill recognized fiscal years ended january 28 2017 january 30 2016 january 31 2015 however use different assumptions estimates judgments respect estimation projected future cash flows determination discount rate sales growth rate used calculate net present value projected future cash flows could materially increase decrease estimates fair value additionally future impairment charges could required achieve current net sales profitability projections would occur able meet new store growth targets weighted average cost capital increases impairment longlived assets evaluate recoverability carrying value longlived assets whenever events changes circumstances indicate carrying amount may recoverable evaluation compares carrying value assets estimated future undiscounted cash flows expected result use eventual disposition assets evaluate longlived intangible assets individual store level lowest level identifiable cash flows evaluate corporate assets longlived assets storespecific consolidated level estimate storespecific future cash flows make assumptions key store variables including sales growth rate gross margin payroll controllable expenses stores owned us meet initial criteria evaluated taking consideration fair market value property compared carrying value assets furthermore management considers factors evaluating stores impairment including individual stores execution operating plan local market conditions estimates subject uncertainty may affected number factors outside control including general economic conditions competitive environment impairment recognized factors noted taken consideration determined carrying amount stores assets recoverable impairment loss would recognized amount carrying amount longlived asset exceeds fair value excluding assets redeployed impairment longterm assets recognized fiscal years ended january 28 2017 january 30 2016 january 31 2015 test indefinitelived trade name intangible assets annually impairment frequently impairment indicators arise fair value indefinitelived intangible asset lower carrying amount asset written fair value fair value trade name level 3 valuation calculated using relieffromroyalty approach assumes value trade name discounted cash flows amount would paid hypothetical market participant owned trade name instead licensed trade name another company january 31 2015 garden ridge trade name definitelived intangible asset fully amortized carrying value home trade name january 28 2017 approximately 15 million impairment indefinitelived trade name intangible asset recognized fiscal years ended january 28 2017 january 30 2016 january 31 2015 revenue recognition revenue sales merchandise recognized customer takes possession merchandise revenue presented net sales taxes collected allow merchandise returned within 60 days purchase date provide reserve estimated returns use historical customer return behavior estimate reserve requirements accounted reduction revenue also reduce cost sales reflect estimates inventory cost products returned january 28 2017 january 30 2016 sales returns reserves approximately 11 million 08 million respectively record gift card liability date issue gift card customer record revenue reduce gift card liability customer redeems gift card january 28 2017 january 30 2016 gift card liability approximately 41 million 24 million respectively addition recognize gift card breakage revenue 60 months nonuse recognized revenue related breakage gift card balances immaterial amount revenue fiscal years ended january 28 2017 january 30 2016 approximately 01 million fiscal year ended january 31 2015 stockbased compensation account stockbased compensation accordance asc 718 topic 718 “compensationstock compensation” requires stockbased payments employees including grants employee stock options recognized consolidated financial statements requisite service period compensation expense based upon fair value awards recognized straightline basis requisite service period awards actually vest stockbased compensation expense recorded selling general administrative expenses consolidated statements operations estimate fair value stock option grant date grant based upon blackscholes option pricing model exception special onetime initial public offering transaction bonus grant valued date grant using monte carlo simulation method blackscholes option pricing model requires various significant judgmental assumptions order derive final fair value determination type award including following · expected termthe expected term options represents period time grant date options date options either exercised canceled · expected volatilitythe expected volatility calculated based historical volatility common stock comparable companies · expected dividend yieldthe expected dividend yield based expectation paying dividends common stock foreseeable future · riskfree interest ratethe riskfree interest rate average 3year 5year us treasury rate effect time grant maturity approximates expected term used monte carlo simulation model determine fair value special onetime initial public offering transaction bonus grant subject marketbased conditions stock option grants subject marketbased conditions cliff vesting beginning third quarter fiscal year 2017 continuing following eight quarters subject achievement market conditions valued stock option grants single award related compensation cost recognized using straightline method derived service period expected volatility based combination historical implied volatilities common stock comparable companies grants stock options exercise price equal greater fair market value common stock date grant based foregoing estimates assumptions privately held company prior august 4 2016 public market common stock fair value equity approved board time option grants awarded estimating fair value common stock considered factors believed material valuation process including limited actual projected financial results risks prospects economic market conditions valuations utilized projections future performance estimates weighted average cost capital metrics based performance peer group similar companies including valuation multiples stock price volatility believe combination methods provides appropriate estimate expected fair value considered valuation analyses determine best estimate fair value common stock option grant date estimates used determining fair value common stock prior ipo highly complex subject significant judgment assumptions similar make respect goodwill described include selection revenue growth rates discount rates comparable public companies used guideline public company analysis nonmarketability discount used also inherent uncertainty forecasts projections made different assumptions estimates described previously amount stockbased compensation expense net income loss net income loss per share amounts could materially different following initial public offering estimates longer needed determine fair value new awards due publiclyavailable trading price common stock income taxes account provision income taxes asset liability method prescribed asc 740 topic 740 “income taxes” deferred tax assets liabilities recognized future tax consequences attributable differences financial statement carrying amounts existing assets liabilities respective tax bases operating losses tax credit carryforwards deferred tax assets liabilities measured using enacted tax rates expected apply taxable income years temporary differences expected recovered settled effect deferred tax assets liabilities change tax rates recognized income period tax rate changes enacted record valuation allowance reduce carrying amounts amount believed likely realized required assess available positive negative evidence estimate sufficient future income generated utilize deferred tax assets significant piece positive negative evidence consider cumulative income losses generally defined losses income taxes incurred recent threeyear period evidence supplemented four sources taxable income described asc 740103018 considered available positive negative evidence january 31 2015 concluded valuation allowance appropriate extent deferred tax assets would realized future reversals existing taxable temporary differences carry back resultant loss excess reversing deferred tax assets reversing deferred liabilities assessment available positive negative evidence january 30 2016 concluded valuation allowance longer appropriate except related certain state net operating loss carryforwards january 30 2016 excluding items considered unusual nature determined three years cumulative pretax income believed significant piece positive evidence allowed us consider subjective evidence future forecasted pretax income concluded positive evidence along taxable income prior two fiscal years absorb loss carrybacks would generated reversing deductible differences excess reversing taxable differences well cumulative pretax income exclusive unusual items recent fiscal years likely deferred tax assets would realized future years valuation allowances totaled 03 million 06 million 66 million january 28 2017 january 30 2016 january 31 2015 respectively deferred tax assets solely relate temporary differences periodic changes amount net deferred tax assets fiscal year ended january 31 2015 directly impacted income tax provision fiscal year made effective tax rate difficult predict example change required federal valuation allowance fiscal year 2015 impacted income tax provision 10 million recent accounting pronouncements may 2014 financial accounting standards board “fasb” issued asu 201409 “revenue contracts customers” “asu 201409” asu 201409 supersedes revenue recognition requirements “topic 605 revenue recognition” requires entities recognize revenue way depicts transfer promised goods services customers amount reflects consideration entity expects entitled exchange goods services asu 201409 effective annual reporting periods beginning december 15 2017 including interim periods within reporting period completed initial impact assessment believe adopting asu materially impact timing revenue recognition expect adopt new guidance using full retrospective method first quarter fiscal year 2019 february 2016 fasb issued asu 201602 “leases” supersedes asc 840 “leases” creates new topic asc 842 “leases” “asu 201602” asu 201602 entity required recognize rightofuse assets lease liabilities balance sheet disclose key information leasing arrangements asu 201602 offers specific accounting guidance lessee lessor sale leaseback transactions lessees lessors required disclose qualitative quantitative information leasing arrangements enable user financial statements assess amount timing uncertainty cash flows arising leases asu 201602 effective annual reporting periods beginning december 15 2018 including interim periods within reporting period early adoption permitted adoption update applied using modified retrospective approach currently evaluating impact asu 201602 expect upon adoption recognize rightofuse assets liabilities could material financial statements march 2016 fasb issued asu 201604 “recognition breakage certain prepaid storedvalue products” “asu 201604” asu 201604 requires breakage prepaid storedvalue product liabilities example prepaid gift cards accounted consistent breakage guidance “topic 606 revenue contracts customers” asu 201604 effective annual reporting periods beginning december 15 2017 including interim reporting periods within reporting period early adoption permitted standard applied either using modified retrospective approach retrospectively period presented expect adopt new guidance using full retrospective method first quarter fiscal year 2019 march 2016 fasb issued asu 201609 “improvements employee sharebased payment accounting” “asu 201609” asu 201609 intended simplify various aspects accounting employee sharebased payment award transactions effective annual reporting periods beginning december 15 2016 including interim periods within reporting period early adoption permitted plan adopt asu 201609 prospectively annual reporting periods beginning first quarter fiscal year 2018 evaluated asu 201609 expect impact guidance immediate material impact consolidated financial statements given historical exercises stock options january 28 2017 however certain circumstances guidance impact effective tax rate future adoption asu 201609 also requires income tax adjustments recorded consolidated statements operations changes tax book treatment equity compensation recognized provision income taxes beginning fiscal year 2018 adoption asu 201609 management elect accounting policy continue estimate number awards expected forfeited adjust estimates longer probable period august 2016 fasb issued asu 201615 “classification certain cash receipts cash payments” “asu 201615” asu 201615 intended reduce diversity practice around certain transactions classified within statement cash flows asu 201615 effective annual reporting periods beginning december 15 2017 including interim periods within reporting period early adoption permitted currently evaluating impact asu 201615 november 2016 fasb issued asu 201618 “restricted cash” “asu 201618” asu 201618 intended reduce diversity practice around restricted cash classified within statement cash flows asu 201618 effective annual reporting periods beginning december 15 2017 including interim periods within reporting period early adoption permitted currently evaluating impact asu 201618 january 2017 fasb issued asu 201704 “simplifying test goodwill impairment” “asu 201704” asu 201704 simplifies measurement goodwill impairment removing second step goodwill impairment test requires determination fair value individual assets liabilities reporting unit asu 201704 goodwill impairment measured amount reporting unit’s carrying value exceeds fair value loss recognized exceed total amount goodwill allocated reporting unit asu 201704 effective fiscal years beginning december 15 2019 early adoption permitted interim annual goodwill impairment tests performed january 1 2017 standard applied prospective basis currently evaluating impact asu 201704 anticipate material impact consolidated financial statements implemented jumpstart business act 2012 “emerging growth company” defined jumpstart business startups act 2012 refer jobs act remain emerging growth company earlier 1 last day fiscal year following fifth anniversary completion initial public offering b total annual gross revenue least 10 billion c deemed large accelerated filer means market value common stock held nonaffiliates exceeds 7000 million last business day recently completed second fiscal quarter 2 date issued 10 billion nonconvertible debt securities prior threeyear period emerging growth company may take advantage specified reduced reporting burdens otherwise applicable generally public companies emerging growth company jobs act allows us take advantage extended transition period comply new revised accounting standards applicable public companies choosing irrevocably ‘‘opt out’’ provision result comply new revised accounting standards required adopted item 7a item 7 management’s discussion analysis financial condition results operations discussion analysis financial condition results operations read conjunction “item 6 selected financial operating data” consolidated financial statements related notes home group inc included item 15 annual report form 10k review “item 1a risk factors” section filing discussion important factors could cause actual results differ materially results described implied forwardlooking statements contained following discussion analysis operate fiscal calendar widely used retail industry results given fiscal year consisting 52 53week period ending last saturday january 52week fiscal year quarter contains 13 weeks operations 53week fiscal year first second third quarters includes 13 weeks operations fourth quarter includes 14 weeks operations references fiscal year mean year fiscal year ends references herein “fiscal year 2019” relate 52 weeks ending january 26 2019 references herein “fiscal year 2018” relate 52 weeks ending january 27 2018 references herein “fiscal year 2017” relate 52 weeks ended january 28 2017 overview home leading home décor superstore based number locations large format stores believe dedicate space per store home décor player industry focused providing broadest assortment products room style budget utilize space advantage outassort competition offering 50000 skus throughout stores differentiated merchandising strategy allows us identify ontrend products value engineer products provide desirable aesthetics attractive price points customers 70 products unbranded private label specifically designed us believe broad comprehensive offering compelling value proposition combine create leading destination home décor opportunity continue taking market share highly fragmented growing industry founded 1979 garden ridge texas suburb san antonio acquired 2011 group investors led certain affiliates aea starr investments began series strategic investments business believe laid foundation continued profitable growth strengthened management team new brand identity improved real estate capabilities upgraded automated distribution center enhanced information systems continue enable us expand store base maintaining industryleading profitability january 26 2019 store base comprised 180 large format stores across 37 states averaging approximately 110000 square feet per store past five completed fiscal years opened 122 new stores believe significant whitespace opportunity increase store count existing new markets trends factors affecting business various trends factors affect affected operating results including overall economic trends overall economic environment related changes consumer behavior significant impact business general positive conditions broader economy promote customer spending stores economic weakness results reduction customer spending macroeconomic factors affect customer spending patterns thereby results operations include employment rates business conditions changes housing market availability credit interest rates tax rates fuel energy costs consumer preferences demand ability maintain appeal existing customers attract new customers depends ability originate develop offer compelling product assortment responsive customer preferences design trends misjudge market products may faced excess inventories products may required become promotional selling activities would impact net sales gross profit new store openings expect new stores key driver growth sales operating profit future results operations continue materially affected timing number new store openings performance new stores may vary depending various factors store opening date time year particular opening amount store opening costs amount store occupancy costs location new store including whether located new existing market example typically incur higher normal employee costs time new store opening associated setup opening costs addition response interest excitement generated open new store new stores generally experience higher net sales initial period one three months new store’s net sales begin normalize reaches maturity within six months opening discussed planned store expansion place increased demands operational managerial administrative resources managing growth effectively require us continue enhance inventory management distribution systems financial management controls information systems also required hire train retain store management store personnel together increased marketing costs affect operating margins new store typically reaches maturity meaning store’s annualized targeted sales volume reached within six months opening new stores included comparable store base sixteenth full fiscal month following store’s opening believe represents appropriate comparison also periodically explore opportunities relocate limited number existing stores improve location lease terms store layout customer experience relocated stores typically achieve level operating profitability comparable companywide average existing stores quickly new stores infrastructure investment historical operating results reflect impact ongoing investments support growth past six fiscal years made significant investments business believe laid foundation continued profitable growth believe strengthened management team new brand identity upgraded automated distribution center enhanced information systems including warehouse management pos systems enable us replicate profitable store format differentiated shopping experience addition implemented merchandise planning system upgraded inventory allocation system better manage inventory store corresponding customer base made investments relating second distribution center opened beginning fiscal year 2020 expect infrastructure investments support successful operating model significantly expanded store base pricing strategy committed providing products everyday low prices value engineer products collaboration suppliers recreate “look” believe customer wants eliminating costly construction elements customer value believe customer views shopping home inperson experience customer see feel quality products physically assemble desired aesthetic design approach allows us deliver attractive value customer products typically less expensive branded products similar look employ simple everyday low pricing strategy consistently delivers savings customer without need extensive promotions evidenced 80 net sales occurring full price ability source distribute products effectively net sales gross profit affected ability purchase products sufficient quantities competitive prices believe vendors adequate capacity meet current anticipated demand level net sales could adversely affected event constraints supply chain including inability vendors produce sufficient quantities merchandise manner able match market demand customers leading lost sales recently enacted tariffs could also impact vendors’ ability source product efficiently create supply chain disruptions believe direct effect recently enacted tariffs would material impact business due combination supplier negotiations direct sourcing strategic price increases gross profit could adversely affected initiatives successful new proposed tariffs adopted fluctuation quarterly results quarterly results historically varied depending upon variety factors including product offerings promotional events store openings shifts timing holidays among things result factors working capital requirements demands product distribution delivery network may fluctuate year inflation deflation trends financial results expected directly impacted substantial increases product costs due commodity cost increases general inflation including respect freight costs could lead reduction sales well greater margin pressure costs may able passed consumers date changes commodity prices general inflation materially impacted business currently facing inflationary pressure freight costs believe heightened tariffrelated shipment surges port congestion response increasing commodity prices freight costs general inflation seek minimize impact events sourcing merchandise different vendors changing product mix increasing pricing necessary assess performance business assessing performance consider variety performance financial measures key measures include net sales gross profit gross margin selling general administrative expenses addition also review important metrics adjusted ebitda storelevel adjusted ebitda adjusted net income net sales net sales derived direct retail sales customers stores net merchandise returns discounts growth net sales impacted opening new stores increases comparable store sales new store openings number new store openings reflects new stores opened particular reporting period including relocations existing stores period open new stores incur preopening costs described total number new stores per year timing store openings continue impact results described “trends factors affecting business” comparable store sales store included comparable store sales calculation first day sixteenth full fiscal month following stores opening believe comparability achieved store relocated remodeled exclude sales store calculation comparable store sales first day sixteenth full fiscal month reopens addition applicable adjust effect 53rd week may variations way competitors retailers calculate comparable “same store” sales result data report regarding comparable store sales may comparable similar data made available retailers comparable store sales allow us evaluate store base performing measuring change periodoverperiod net sales stores open applicable period various factors affect comparable store sales including · consumer preferences buying trends overall economic trends · ability identify respond effectively customer preferences trends · ability provide assortment high quality trendright product offerings generate new repeat visits stores · customer experience provide stores · ability source receive products accurately timely · changes product pricing including promotional activities · number items purchased per store visit · weather · timing length holiday shopping periods opening new stores important part growth strategy continue pursue growth strategy anticipate increasing percentage net sales come stores included comparable store sales calculation accordingly comparable store sales one measure use assess success growth strategy gross profit gross margin gross profit determined subtracting cost sales net sales gross margin measures gross profit percentage net sales cost sales consists various expenses related cost selling merchandise cost sales consists following 1 cost merchandise net inventory shrinkage damages vendor allowances 2 inbound freight internal transportation costs distribution centertostore freight costs 3 costs operating distribution center including labor occupancy costs supplies depreciation 4 store occupancy costs including rent insurance taxes common area maintenance utilities repairs maintenance depreciation components cost sales expenses may comparable retailers selling general administrative expenses selling general administrative expenses “sga” consist various expenses related supporting facilitating sale merchandise stores costs include payroll benefits personnel expenses corporate store employees including stockbased compensation expense consulting legal professional services expenses marketing advertising expenses occupancy costs corporate headquarters various expenses sga includes fixed variable components therefore directly correlated net sales addition components sga expenses may comparable retailers expect sga expenses increase future periods due continuing store growth particular expanded marketing advertising spend percentage net sales fiscal years since initial public offering expect marketing advertising spend continue increase percentage net sales future fiscal years fiscal year 2019 total marketing advertising expense increased approximately 31 net sales addition increase future stock option stockbased grants modifications increase stockbased compensation expense included sga particular onetime bonus grant stock options certain members senior management connection initial public offering resulted incremental noncash stockbased compensation expense approximately 200 million expensed derived service period beginning third quarter fiscal year 2017 continuing third quarter fiscal year 2019 additionally onetime grant stock options chairman chief executive officer made second fiscal quarter 2019 resulted incremental noncash stockbased compensation expense approximately 415 million vested immediately fully recognized second fiscal quarter 2019 adjusted ebitda adjusted ebitda key metric used management board directors assess financial performance adjusted ebitda also basis performance evaluation current executive compensation programs addition adjusted ebitda frequently used analysts investors interested parties evaluate companies industry addition covenant compliance executive performance evaluations use adjusted ebitda supplement generally accepted accounting principles united states america “gaap” measures performance evaluate effectiveness business strategies make budgeting decisions compare performance peer companies using similar measures adjusted ebitda defined net income net interest expense loss early extinguishment debt income tax provision depreciation amortization adjusted impact certain items defined debt agreements including certain legal settlements consulting professional fees relocation employee recruiting incentives management fees expenses stockbased compensation expense impairment trade name noncash rent reconciliation adjusted ebitda net income directly comparable gaap measure see “results operations” storelevel adjusted ebitda use storelevel adjusted ebitda supplemental measure performance represents adjusted ebitda excluding impact costs associated new store openings certain corporate overhead expenses consider evaluation ongoing operating performance stores period calculation storelevel adjusted ebitda supplemental measure operating performance stores may comparable similar measures reported companies believe storelevel adjusted ebitda important measure evaluate performance profitability stores individually aggregate especially given level investments made home office infrastructure past five years support future growth also believe storelevel adjusted ebitda useful measure evaluating operating performance removes impact general administrative expenses incurred store level costs opening new stores nonrecurring store level thereby enables comparability operating performance stores period use storelevel adjusted ebitda information benchmark performance versus competitors storelevel adjusted ebitda used substitute consolidated measures profitability performance reflect corporate overhead expenses necessary allow us effectively operate stores generate storelevel adjusted ebitda reconciliation storelevel adjusted ebitda net income directly comparable gaap measure see “results operations” adjusted net income adjusted net income represents net income adjusted impairment charges loss extinguishment debt initial public offering related noncash stockbased compensation expense related payroll tax expenses income tax impact associated special onetime initial public offering bonus stock option exercises noncash stockbased compensation expense related special onetime grant stock options chairman chief executive officer costs associated resignation former chief financial officer “cfo transition” transaction costs related initial public offering registration sale shares common stock behalf certain existing stockholders losses incurred due modification debt loss disposal certain buildings tax impacts associated tax act present adjusted net income believe assists investors analysts comparing performance across reporting periods consistent basis excluding items believe indicative core operating performance reconciliation adjusted net income net income directly comparable gaap measure see “results operations” results operations following tables summarize key components results operations periods indicated dollars thousands percentage net sales operational data 1 present adjusted ebitda adjusted ebitda margin storelevel adjusted ebitda storelevel adjusted ebitda margin adjusted net income recognized financial measures gaap believe assist investors analysts comparing operating performance across reporting periods consistent basis excluding items believe indicative core operating performance interest depreciation amortization loss extinguishment debt impairment charges taxes encouraged evaluate adjustments reasons consider appropriate supplemental analysis evaluating adjusted ebitda storelevel adjusted ebitda adjusted net income aware future may incur expenses similar adjustments presentation adjusted ebitda storelevel adjusted ebitda adjusted net income particular storelevel adjusted ebitda reflect costs associated new store openings incurred limited basis respect particular store opened indicative ongoing core operating performance corporate overhead expenses necessary allow us effectively operate stores generate storelevel adjusted ebitda presentation adjusted ebitda storelevel adjusted ebitda adjusted net income construed inference future results unaffected unusual nonrecurring items assurance modify presentation adjusted ebitda storelevel adjusted ebitda adjusted net income future modification may material addition adjusted ebitda adjusted ebitda margin storelevel adjusted ebitda storelevel adjusted ebitda margin adjusted net income may comparable similarly titled measures used companies industry across different industries management believes adjusted ebitda helpful highlighting trends core operating performance measures differ significantly depending longterm strategic decisions regarding capital structure tax jurisdictions companies operate capital investments also use adjusted ebitda connection performance evaluations executives supplement gaap measures performance evaluation effectiveness business strategies make budgeting decisions compare performance peer companies using similar measures addition utilize adjusted ebitda certain calculations 3500 million senior secured assetbased revolving credit facility “abl facility” defined therein “consolidated ebitda” 3500 million term loan “term loan” defined therein “consolidated cash ebitda” management believes storelevel adjusted ebitda helpful highlighting trends facilitates comparisons store operating performance period excluding impact costs associated new store openings certain corporate overhead expenses certain costs associated management finance accounting legal centralized corporate functions management believes adjusted net income assists investors analysts comparing performance across reporting periods consistent basis excluding items believe indicative core operating performance 2 following table reconciles net income ebitda excluding loss extinguishment debt adjusted ebitda storelevel adjusted ebitda periods presented thousands includes portion depreciation amortization expenses classified cost sales consolidated statements income b primarily consists consulting professional fees respect projects enhance merchandising human resource capabilities company initiatives ii charges incurred connection sale shares common stock behalf certain existing stockholders c primarily reflects employee recruiting relocation costs connection buildout management team reflects management fees paid sponsors accordance management agreement connection initial public offering management agreement terminated august 3 2016 sponsors longer receive management fees us e noncash stockbased compensation expense related ongoing equity incentive program place incentivize retain motivate employees officers consultants nonemployee directors f noncash stockbased compensation expense associated special onetime initial public offering bonus grant certain members senior management “ipo grant” consider evaluation ongoing performance ipo grant made addition ongoing equity incentive program place incentivize retain motivate employees officers consultants nonemployee directors made reward certain senior executives historical performance allow benefit future successful outcomes certain existing stockholders g noncash stockbased compensation expense associated special onetime grant stock options chairman chief executive officer vested fully recognized second fiscal quarter 2019 “ceo grant” consider evaluation ongoing performance h consists noncash portion rent reflects extent gaap straightline rent expense recognized exceeds less cash rent payments partially offset ii amortization deferred gains saleleaseback transactions recognized rent expense straightline basis applicable lease term offsetting amounts relating amortization deferred gains saleleaseback transactions 88 million 63 million 47 million fiscal years 2019 2018 2017 respectively gaap straightline rent expense adjustment vary depending average age lease portfolio impacted significant growth newer leases rent expense recognized typically exceeds cash rent payments mature leases rent expense recognized typically less cash rent payments adjustments include amounts management believes representative ongoing operations including · fiscal year 2019 costs incurred 24 million related cfo transition payroll tax expense 08 million related exercise stock options 05 million related onetime loss incurred related acquisition land purposes building new store fiscal year 2020 preexisting unusable structure premises demolished · fiscal year 2018 impairment charge 24 million following resolution legal matter · fiscal year 2017 loss 03 million recognized sale land connection expansion distribution center j reflects noncapital expenditures associated opening new stores including marketing advertising labor cash occupancy expenses costs related new store openings represent cash costs aware future may incur expenses similar costs anticipate continue incur cash costs open new stores future opened 34 28 24 new stores fiscal years 2019 2018 2017 respectively k reflects corporate overhead expenses directly related profitability stores facilitate comparisons store operating performance consider corporate overhead expenses evaluating ongoing performance stores period corporate overhead expenses component selling general administrative expenses comprised various home office general administrative expenses payroll expenses occupancy costs marketing advertising consulting professional fees see discussion changes selling general administrative expenses presented “results operations” storelevel adjusted ebitda used substitute consolidated measures profitability performance reflect corporate overhead expenses necessary allow us effectively operate stores generate storelevel adjusted ebitda anticipate continue incur corporate overhead expenses future periods 3 following table reconciles net income adjusted net income periods presented thousands noncash loss due change abl facility lenders abl amendment resulting immediate recognition portion related unamortized deferred debt issuance costs b noncash stockbased compensation expense associated ipo grant consider evaluation ongoing performance ipo grant made addition ongoing equity incentive program place incentivize retain motivate employees officers consultants nonemployee directors made reward certain senior executives historical performance allow benefit future successful outcomes certain existing stockholders c payroll tax expense related stock option exercises associated ipo grant consider evaluation ongoing performance noncash stockbased compensation expense associated ceo grant consider evaluation ongoing performance ceo grant vested fully recognized second fiscal quarter 2019 e costs related cfo transition third fourth fiscal quarter 2019 f onetime loss incurred related acquisition land purposes building new store fiscal year 2020 preexisting unusable structure premises demolished g charges incurred connection sale shares common stock behalf certain existing stockholders consider evaluation ongoing performance h represents income tax impact adjusted expenses using annual effective tax rate excluding discrete items fiscal year 2019 excluding revaluation net deferred tax assets result tax act fiscal year 2018 giving effect adjustments net income adjusted effective tax rate fiscal years 2019 2018 117 261 respectively effective tax rate fiscal year 2017 367 represents income tax impact benefit related stock option exercises associated ipo grant j represents tax impact revaluation net deferred tax assets accordance tax act fiscal year ended january 26 2019 compared fiscal year ended january 27 2018 net sales net sales increased 2154 million 227 11659 million fiscal year ended january 26 2019 9505 million fiscal year ended january 27 2018 increase primarily driven approximately 1934 million incremental revenue net addition 31 new stores opened since january 27 2018 well number stores opened fiscal year 2017 open long enough included comparable store base remaining 220 million increase net sales attributable comparable store sales increased 27 fiscal year ended january 26 2019 driven primarily merchandising marketing initiatives cost sales cost sales increased 1364 million 212 7800 million fiscal year ended january 26 2019 6436 million fiscal year ended january 27 2018 increase primarily driven 227 increase net sales fiscal year ended january 26 2019 compared fiscal year ended january 27 2018 resulted 852 million increase merchandise costs addition fiscal year ended january 26 2019 recognized 75 million increase depreciation amortization 305 million increase store occupancy costs case result new store openings since january 27 2018 gross profit gross margin gross profit 3859 million 331 net sales fiscal year ended january 26 2019 increase 789 million 3070 million 323 net sales fiscal year ended january 27 2018 increase gross profit primarily driven increased sales volume net addition 31 new stores opened since january 27 2018 well 27 increase comparable stores sales gross margin increased 80 basis points fiscal year ended january 26 2019 compared fiscal year ended january 27 2018 increase primarily driven product margin improvement included benefits direct sourcing nonrecurrence fiscal year ended january 26 2019 distribution center costs associated investments incremental inventory incurred fiscal year ended january 27 2018 increase gross margin partially offset increased occupancy costs resulting fiscal year 2019 2018 saleleaseback transactions discussed “liquidity capital resources” selling general administrative expenses selling general administrative expenses 3035 million fiscal year ended january 26 2019 compared 2111 million fiscal year ended january 27 2018 increase 924 million 438 percentage sales sga increased 380 basis points fiscal year ended january 26 2019 260 222 fiscal year ended january 27 2018 primarily due 415 million stockbased compensation expense associated ceo grant increase labor expense related increased store labor hours increased marketing advertising expenses partially offset nonrecurrence stockbased compensation expenses associated ipo grant derived service period ended second fiscal quarter 2019 sga expenses include corporate overhead expenses represented 560 million increase primarily attributable 415 million onetime ceo grant well increased consulting preopening costs related second distribution center increased payroll administrative expenses support growth strategies transaction costs related secondary offerings partially offset decrease stockbased compensation expenses associated ipo grant sga expenses also include expenses related store operations represented 258 million increase primarily driven additional headcount new stores increased store labor hours well increases administrative costs support continued growth store base remaining increase selling general administrative expenses related marketing advertising expenses total marketing advertising expenses 349 million fiscal year ended january 26 2019 compared 243 million fiscal year ended january 27 2018 increase 106 million 438 increase driven efforts continue build brand awareness drive traffic stores store preopening costs include additional marketing advertising expenses 07 million 17 million fiscal years ended january 26 2019 january 27 2018 respectively fiscal year 2019 expanded marketing advertising spend 31 net sales 27 net sales fiscal year 2018 impairment charges fiscal year ended january 27 2018 recognized impairment charge 24 million following resolution legal matter impairment charges incurred fiscal year ended january 26 2019 interest expense net interest expense net increased 271 million fiscal year ended january 26 2019 217 million fiscal year ended january 27 2018 increase 54 million increase interest expense primarily due increases average interest rates applicable variable rate debt period addition increased borrowings abl facility support growth strategies effective interest rate abl facility approximately 380 290 fiscal years ended january 26 2019 january 27 2018 respectively income tax provision income tax benefit 00 million fiscal year ended january 26 2019 compared income tax expense 338 million fiscal year ended january 27 2018 effective tax rate fiscal year ended january 26 2019 00 compared 515 fiscal year ended january 27 2018 effective tax rate fiscal year ended january 26 2019 differs federal statutory rate 210 primarily due recognition 98 million excess tax benefit realized connection stockbased compensation lesser extent impact state local income taxes effective tax rate fiscal year ended january 27 2018 differs prorated federal statutory rate 340 primarily due impact state local income taxes effect tax act lowered federal statutory income tax rate effect period january 1 2018 january 27 2018 35 21 net excess tax benefit related stock options exercised fiscal year ended january 27 2018 compared fiscal year ended january 28 2017 net sales net sales increased 1849 million 241 9505 million fiscal year ended january 27 2018 7656 million fiscal year ended january 28 2017 increase primarily driven approximately 1412 million incremental revenue net addition 26 new stores opened since january 28 2017 well number stores opened fiscal year 2017 open long enough included comparable store base remaining 437 million increase net sales attributable comparable store sales increased 65 fiscal year ended january 27 2018 driven primarily merchandising marketing initiatives cost sales cost sales increased 1254 million 242 6436 million fiscal year ended january 27 2018 5182 million fiscal year ended january 28 2017 increase primarily driven 241 increase net sales fiscal year ended january 27 2018 compared fiscal year ended january 28 2017 resulted 790 million increase merchandise costs addition fiscal year ended january 27 2018 recognized 100 million increase depreciation amortization 213 million increase store occupancy costs case result new store openings since january 28 2017 gross profit gross margin gross profit 3070 million 323 net sales fiscal year ended january 27 2018 increase 595 million 2475 million 323 net sales fiscal year ended january 28 2017 increase gross profit primarily driven increased sales volume net addition 26 new stores opened since january 28 2017 well 65 increase comparable stores sales gross margin remained consistent fiscal year ended january 27 2018 compared fiscal year ended january 28 2017 primarily result product margin improvement leverage store occupancy costs achieved higher sales growth increase offset higher distribution center costs associated strategic investments incremental inventory completed first half fiscal year 2018 higher occupancy costs resulting saleleaseback transactions occurred fiscal year 2018 fiscal year 2017 discussed “liquidity capital resources” selling general administrative expenses selling general administrative expenses 2111 million fiscal year ended january 27 2018 compared 1706 million fiscal year ended january 28 2017 increase 405 million 237 percentage sales sga decreased 10 basis points fiscal year ended january 27 2018 222 223 fiscal year ended january 28 2017 primarily driven leverage recurring corporate overhead expenses decrease partially offset stockbased compensation expenses associated special onetime ipo bonus grant issued home group inc equity incentive plan approved board july 2016 “2016 equity plan” increase marketing advertising expenses sga expenses include corporate overhead expenses represented 146 million increase attributable additional home office support capabilities increased payroll expenses incurred support growth strategies stockbased compensation expenses associated special onetime ipo bonus grant issued 2016 equity plan consulting professional fees relating company initiatives transaction costs related secondary offering partially offset nonrecurrence transaction costs related ipo occurred prior year sga expenses also include expenses related store operations represented 190 million increase primarily driven 111 million increase labor costs due additional headcount new stores additionally 32 million increase store preopening costs due increased number new store openings timing new store openings fiscal year ended january 27 2018 compared fiscal year ended january 28 2017 well increases administrative costs support continued growth store base remaining increase selling general administrative expenses related marketing advertising expenses total marketing advertising expenses 243 million fiscal year ended january 27 2018 compared 174 million fiscal year ended january 28 2017 increase 69 million 395 increase driven efforts continue build brand awareness store preopening costs include additional marketing advertising expenses 17 million 20 million fiscal years ended january 27 2018 january 28 2017 respectively fiscal year 2018 expanded marketing advertising spend 27 net sales 25 net sales fiscal year 2017 impairment charges fiscal year ended january 27 2018 recognized impairment charge 24 million following resolution legal matter impairment charges incurred fiscal year ended january 28 2017 interest expense net interest expense net decreased 217 million fiscal year ended january 27 2018 272 million fiscal year ended january 28 2017 decrease 55 million decrease interest expense primarily resulted repayment 1300 million senior secured second lien term loan facility using net proceeds initial public offering “second lien repayment” see “liquidity capital resources” decrease partially offset increased borrowings abl facility support growth strategies loss extinguishment debt fiscal year ended january 28 2017 recognized loss extinguishment debt 27 million resulting primarily writeoff unamortized deferred debt issuance costs connection second lien repayment incur losses extinguishment debt fiscal year ended january 27 2018 income tax provision income tax expense 338 million fiscal year ended january 27 2018 compared income tax expense 157 million fiscal year ended january 28 2017 effective tax rate fiscal year ended january 27 2018 515 compared 367 fiscal year ended january 28 2017 effective tax rate fiscal year ended january 27 2018 differs prorated federal statutory rate 340 primarily due impact state local income taxes effect tax act lowered federal statutory income tax rate effect period january 1 2018 january 27 2018 35 21 net excess tax benefit related stock options exercised effective tax rate fiscal year ended january 28 2017 differs federal statutory rate 350 primarily due impact state local income taxes release unrecognized tax benefits valuation allowance state net operating losses nondeductible transaction costs nondeductible interest expense liquidity capital resources principal sources liquidity cash generated operating activities proceeds saleleaseback transactions borrowings abl facility historically financed operations primarily cash generated operations periodic borrowings abl facility primary cash needs daytoday operations provide infrastructure investments stores finance new store openings pay interest principal indebtedness fund working capital requirements seasonal inventory builds new store inventory purchases january 26 2019 110 million cash equivalents 1205 million borrowing availability abl facility date 05 million face amount letters credit issued abl facility agreement governing abl facility “abl credit agreement” amended currently provides aggregate revolving commitments 3500 million sublimit issuance letters credit 500 million sublimit issuance swingline loans 200 million availability abl facility determined accordance borrowing base decline due various factors therefore amounts abl facility may available need june 2015 entered term loan facilities described “term loan facilities” interest rates term loan facilities variable based libor rates effect january 26 2019 obligations term loan facilities bore interest rate 60 term loan repayable equal quarterly installments approximately 09 million capital expenditures vary depending timing new store openings infrastructurerelated investments capital expenditures fiscal year ended january 26 2019 approximately 2091 million inclusive 130 million invested second distribution center net proceeds sale property equipment includes saleleaseback proceeds approximately 1484 million estimate capital expenditures fiscal year ending january 25 2020 range 215 million 235 million net proceeds saleleaseback transactions 70 million also plan invest infrastructure necessary support development business continued growth fiscal year 2019 opened 31 new stores net two relocated stores one store closure net capital expenditures incurred date substantially financed cash operating activities saleleaseback transactions proceeds abl facility expect fiscal year 2020 net capital expenditures primarily financed manner based growth plans believe cash position net cash provided operating activities borrowings abl facility saleleaseback transactions adequate finance planned capital expenditures working capital requirements debt service obligations next twelve months foreseeable future thereafter cash flows operations borrowings abl facility sufficient available meet capital requirements required obtain additional equity debt financing future assurance equity debt financing available us need available terms satisfactory us dilutive thencurrent shareholders indebtedness could adversely affect ability raise additional capital limit ability react changes economy industry expose us interest rate risk prevent us meeting obligations management reacts strategically changes economic conditions monitors compliance debt covenants seek mitigate potential material impacts financial condition flexibility saleleaseback transactions part flexible real estate strategy utilize saleleaseback transactions finance investments previously made purchase second generation properties construction new store locations enhances ability access range locations facilities efficiently factor saleleaseback transactions capital allocation decisions order support execution saleleaseback transactions relationships certain publicly traded reits lenders demonstrated interest portfolio assets certain cases sale treated likekind exchange transaction us federal income tax purposes accordance section 1031 internal revenue code “code” section 1031 code allows companies defer taxable gain realized sale certain “relinquished” real property proceeds reinvested timely manner qualifying likekind “replacement” property addition section 1031 code requires sale proceeds relinquished property held restricted cash account thirdparty qualified intermediary pending utilization thereof acquisition qualifying replacement property august 2016 sold four properties broomfield colorado corpus christi texas jenison michigan buford georgia total 326 million contemporaneously closing sale entered lease pursuant leased back properties cumulative initial annual rent 22 million subject annual escalations approximately 37 million proceeds sale used pay note payable related corpus christi property september 2016 sold three properties colorado springs colorado kissimmee florida o’fallon illinois total 306 million contemporaneously closing sale entered lease pursuant leased back properties cumulative initial annual rent 21 million subject annual escalations august 2017 sold six properties hoover alabama lafayette louisiana moore oklahoma olathe kansas orange park florida wichita kansas total 626 million contemporaneously closing sale entered lease pursuant leased back properties cumulative initial annual rent 42 million subject annual escalations february 2018 sold four properties blaine minnesota fort worth texas jackson mississippi memphis tennessee total 503 million contemporaneously closing sale entered lease pursuant leased back properties cumulative initial annual rent 34 million subject annual escalations july 2018 sold three properties clarksville tennessee shreveport louisiana wixom michigan total 436 million contemporaneously closing sale entered lease pursuant leased back properties cumulative initial annual rent 30 million subject annual escalations october 2018 sold four properties gilbert arizona pearland texas richmond texas rogers arkansas total 565 million contemporaneously closing sale entered two leases pursuant leased back properties cumulative initial annual rent 38 million subject annual escalations see “risk factorsrisks relating businesswe subject risks associated saleleaseback strategy” summary cash flows summary cash flows operating investing financing activities presented following table thousands net cash provided operating activities net cash provided operating activities 863 million fiscal year ended january 26 2019 compared 1060 million fiscal year ended january 27 2018 197 million decrease cash provided operating activities primarily due 861 million increase purchases merchandise inventories decrease cash provided operating activities partially offset 260 million decrease cash paid income taxes 322 million increase cash portion operating income impacted period noncash stockbased compensation expense 358 million depreciation amortization 78 million net cash provided operating activities 1060 million fiscal year ended january 27 2018 compared 435 million fiscal year ended january 28 2017 625 million increase cash provided operating activities primarily due 414 million decrease purchase merchandise inventories 147 million increase operating income partially offset increase cash paid income taxes 122 million net cash used investing activities net cash used investing activities 2091 million fiscal year ended january 26 2019 compared 1703 million fiscal year ended january 27 2018 388 million increase cash used investing activities driven increase net capital expenditures capital expenditures 3575 million fiscal year ended january 26 2019 consisted 3104 million invested new store growth approximately 130 million invested second distribution center remaining 341 million primarily related investments information technology maintenance expenditures existing stores net cash used investing activities 1703 million fiscal year ended january 27 2018 compared 627 million fiscal year ended january 28 2017 1076 million increase cash used investing activities primarily driven increase net capital expenditures 1081 million capital expenditures 2327 million fiscal year ended january 27 2018 consisted 2064 million invested new store growth remaining 263 million primarily related investments information technology existing distribution center existing stores net cash provided financing activities net cash provided financing activities 1277 million fiscal year ended january 26 2019 compared 652 million fiscal year ended january 27 2018 increase 625 million primarily due 500 million increase borrowings term loan 113 million increase proceeds exercise stock options net cash provided financing activities 652 million fiscal year ended january 27 2018 compared 213 million fiscal year ended january 28 2017 increase 439 million primarily due 355 million increase net borrowings abl facility 104 million proceeds exercise stock options fiscal year ended january 27 2018 financing obligations cases assets lease require construction order ready space intended use certain cases involved construction leased assets construction period typically begins execute lease agreement landlord continues space substantially complete ready intended use accordance asc 8404055 topic 840 “leases” must consider nature extent involvement construction period cases involvement results considered accounting owner construction project completing construction key structural components leased building deemed participated construction landlords asset cases capitalize fair value landlord’s building construction costs including value costs incurred date execute lease costs incurred remainder construction period costs incurred additionally asc 8404055 requires us recognize financing obligation construction costs incurred landlord construction complete required perform saleleaseback analysis pursuant asc 84040 determine remove landlords assets associated financing obligations consolidated balance sheets certain leases maintain various forms “prohibited continuing involvement” property thereby precluding us derecognizing asset associated financing obligations following construction completion cases continue account landlords asset legal owner financing obligation similar debt lease expires modified remove continuing involvement prohibits derecognition permitted would required account lease either operating capital accordance asc 840 january 26 2019 derecognized landlord assets associated financing obligations term loan facilities june 5 2015 indirect wholly owned subsidiary home holding iii inc “borrower” entered first lien credit agreement “first lien agreement” among borrower home holding ii inc “at home ii” direct wholly owned subsidiary guarantor certain indirect subsidiaries home ii various lenders bank america na administrative agent collateral agent subsequently amended first lien agreement time giving effect amendments first lien agreement provides term loan aggregate principal amount 3500 million term loan mature june 3 2022 repayable equal quarterly installments approximately 09 million annual aggregate amount equal 1 original principal amount borrower option paying interest 1month 2month quarterly basis term loan annual rate libor subject 1 floor plus 400 subject 050 reduction borrower achieves specified secured net leverage ratio level met fiscal year ended january 28 2017 borrower continued qualify fiscal year ended january 26 2019 term loan prepayable whole part option subject prepayment premium equal 1 aggregate principal amount term loan outstanding may 27 2019 inclusive may 27 2019 term loan may prepaid without premium term loan permits us add one incremental term loans amounts subject compliance first lien net leverage ratio test first lien net leverage ratio test calculated using adjusted ebitda defined “consolidated ebitda” credit agreement november 27 2018 home ii borrower entered second amendment “term loan amendment” lenders party thereto bank america na administrative agent collateral agent amended first lien agreement amended first amendment dated july 27 2017 pursuant term loan amendment among things borrower borrowed additional 500 million incremental term loans increasing principal amount outstanding first lien agreement date 3395 million net proceeds incremental term loans used repay approximately 496 million borrowings abl facility january 26 2019 approximately 3395 million outstanding term loan term loan various nonfinancial covenants customary representations warranties events defaults remedies substantially similar described respect abl facility financial maintenance covenants term loan january 26 2019 january 27 2018 compliance covenants prescribed term loan assetbased lending credit facility october 2011 entered abl facility originally provided cash borrowings issuances letters credit 800 million based defined percentages eligible inventory credit card receivable balances subsequently amended abl credit agreement time giving effect amendments january 27 2018 aggregate revolving commitments abl facility 3500 million sublimit issuance letters credit 500 million sublimit issuance swingline loans 200 million july 2017 connection seventh amendment abl credit agreement maturity abl facility extended earlier july 27 2022 date 91 days prior maturity date first lien agreement date may extended borrowings abl facility bear interest rate per annum equal option x higher federal funds rate plus 12 100 ii agent banks prime rate iii libor plus 100 plus case applicable margin 025 075 based availability agent banks libor rate plus applicable margin 125 175 based availability effective interest rate approximately 380 290 200 fiscal years ended january 26 2019 january 27 2018 january 28 2017 respectively january 26 2019 approximately 2210 million outstanding abl facility approximately 05 million face amount letters credit issued availability approximately 1205 million abl facility contains number covenants among things restrict ability subject specified exceptions incur additional debt incur additional liens contingent liabilities sell dispose assets merge acquire companies liquidate dissolve engage businesses related line business make loans advances guarantees pay dividends engage transactions affiliates make investments addition abl facility contains certain crossdefault provisions financial maintenance covenants abl facility however existence event default fail maintain availability greater 150 million 10 loan cap consolidated fixed charge coverage ratio rolling 12 month basis end fiscal month must 100 higher january 26 2019 january 27 2018 compliance covenants abl facility collateral abl facility term loan abl facility secured first priority lien cash equivalents deposit accounts receivable receivables tax refunds inventory ii extent relating arising evidencing governing items referred preceding clause chattel paper documents instruments general intangibles securities accounts related thereto iii books records relating foregoing iv supporting obligations products proceeds foregoing collateral security guarantees given person respect foregoing case subject certain exceptions collectively “abl priority collateral” b second priority lien remaining assets constituting abl priority collateral subject certain exceptions collectively “term priority collateral” provided however since amendment abl facility july 2017 real property may secure term loan time longer forms part collateral abl facility term loan secured first priority lien term priority collateral b second priority lien abl priority collateral contractual obligations enter longterm obligations commitments normal course business primarily debt obligations noncancelable operating leases january 26 2019 contractual cash obligations next several periods follows thousands 1 operating lease commitments include leases property used operations amounts shown reflect operating leases classified financing obligations 2 capital lease commitments include leases property used operations 3 longterm debt obligations include principal payments due term loan note payable 4 revolving credit facility includes principal payments due abl facility 5 interest expense longterm debt includes future interest payments outstanding obligations term loan notes payable well payments due abl facility abl facility bears interest variable rates table based rates effect january 26 2019 6 includes base lease terms properties deemed accounting owner landlords property accordance accounting guidance related leases 7 represents liability reported accordance provisions asc 740 topic 740 “income taxes” information related unrecognized tax benefits see note 10 income taxes consolidated financial statements included report offbalance sheet arrangements historically entered offbalance sheet arrangements operating lease commitments letters credit purchase obligations normal course operations critical accounting policies use estimates preparation financial statements accordance gaap requires management make estimates assumptions affect reported amounts assets liabilities revenues expenses well related disclosures contingent assets liabilities date financial statements management evaluates accounting policies estimates judgments ongoing basis management bases estimates judgments historical experience various factors believed reasonable circumstances actual results may differ estimates different assumptions conditions management evaluated development selection critical accounting policies estimates believes following involve higher degree judgment complexity significant reporting results operations financial position therefore discussed critical following critical accounting policies reflect significant estimates judgments used preparation consolidated financial statements respect critical accounting policies even relatively minor variance actual expected experience potentially materially favorable unfavorable impact subsequent results operations information significant accounting policies found note 1nature operations summary significant accounting policies audited consolidated financial statements included elsewhere report inventories comprised finished merchandise stated lower cost net realizable value cost determined using weightedaverage method cost inventories include actual landed cost item time received distribution center point shipment certain international shipments well transportation costs distribution center retail stores applicable net inventory cost recognized cost sales inventory sold vendor allowances primarily represent volume rebates cooperative advertising funds recorded reduction cost merchandise inventories subsequent reduction cost sales inventory sold generally earn vendor allowances percentage certain merchandise purchases minimum purchase requirements typically vendor allowance programs extend period twelve months physical inventory counts performed stores least per year thirdparty inventory counting service stores operation least one year inventory records adjusted reflect actual inventory counts resulting shortage “shrinkage” recognized reserves shrinkage estimated recorded throughout fiscal year percentage net sales based recent physical inventory combination historical experience loss prevention programs policies place intended mitigate shrinkage 10 increase estimated shrinkage reserve rate would affected net income approximately 15 million fiscal year 2019 also evaluate merchandise ensure expected net realizable value merchandise held end fiscal year exceeds cost event expected net realizable value less cost reduce value inventory accordingly goodwill tested impairment least annually operating segment level one operating segment reporting unit exists operating segment implied fair value goodwill lower carrying amount goodwill impairment indicated goodwill written implied fair value assess business enterprise value using combination income approach market approach determine fair value company compared carrying value net assets income approach using discounted cash flow method includes key factors used valuation company level 3 valuation include limited managements plans future operations recent operating results income tax rates discounted projected future cash flows option perform qualitative assessment goodwill rather completing twostep process determine whether likely fair value operating segment less carrying amount including goodwill intangible assets conclude case must perform twostep process otherwise may forego twostep process need perform testing performed qualitative assessment goodwill fiscal year ended january 26 2019 based qualitative assessment concluded likely fair value operating segment substantially exceeded carrying value therefore quantitative analysis required impairment goodwill recognized fiscal years ended january 26 2019 january 27 2018 january 28 2017 however use different assumptions estimates judgments respect estimation projected future cash flows determination discount rate sales growth rate used calculate net present value projected future cash flows could materially increase decrease estimates fair value additionally future impairment charges could required achieve current net sales profitability projections would occur able meet new store growth targets weighted average cost capital increases impairment longlived indefinitelived assets evaluate recoverability carrying value longlived assets whenever events changes circumstances indicate carrying amount may recoverable evaluation compares carrying value assets estimated future undiscounted cash flows expected result use eventual disposition assets evaluate longlived intangible assets individual store level lowest level identifiable cash flows evaluate corporate assets longlived assets storespecific consolidated level estimate storespecific future cash flows make assumptions key store variables including sales growth rate gross margin payroll controllable expenses stores owned us meet initial criteria evaluated taking consideration fair market value property compared carrying value assets furthermore management considers factors evaluating stores impairment including individual stores execution operating plan local market conditions estimates subject uncertainty may affected number factors outside control including general economic conditions competitive environment impairment recognized factors noted taken consideration determined carrying amount stores assets recoverable impairment loss would recognized amount carrying amount longlived asset exceeds fair value excluding assets redeployed based upon review storelevel assets identified impairment connection certain property equipment following resolution legal matter recognized charge 24 million fiscal year ended january 27 2018 impairment longterm assets recognized fiscal years ended january 26 2019 january 28 2017 test indefinitelived trade name intangible assets annually impairment frequently impairment indicators arise fair value indefinitelived intangible asset lower carrying amount asset written fair value fair value trade name level 3 valuation calculated using relieffromroyalty approach assumes value trade name discounted cash flows amount would paid hypothetical market participant owned trade name instead licensed trade name another company carrying value home trade name january 26 2019 approximately 15 million impairment indefinitelived trade name intangible asset recognized fiscal years ended january 26 2019 january 27 2018 january 28 2017 revenue recognition revenue sales merchandise recognized customer takes possession merchandise revenue presented net sales taxes collected allow merchandise returned within 60 days purchase date provide reserve estimated returns see note 2revenue recognition audited consolidated financial statements included elsewhere report stockbased compensation account stockbased compensation accordance asc 718 topic 718 “compensationstock compensation” requires stockbased payments employees including grants employee stock options restricted stock units recognized consolidated financial statements requisite service period compensation expense based upon fair value awards recognized straightline basis requisite service period awards actually vest stockbased compensation expense recorded selling general administrative expenses consolidated statements income estimate fair value stock option grant date grant based upon blackscholes option pricing model exception special onetime initial public offering transaction bonus grant valued date grant using monte carlo simulation method restricted stock unit awards grant date fair value determined based upon closing trading value common stock nyse date grant forfeiture assumptions estimated based historical experience blackscholes option pricing model requires various significant judgmental assumptions order derive final fair value determination type award including following · expected termthe expected term options represents period time grant date options date options either exercised canceled · expected volatilitythe expected volatility calculated based historical volatility common stock comparable companies · expected dividend yieldthe expected dividend yield based expectation paying dividends common stock foreseeable future · riskfree interest ratethe riskfree interest rate average 3year 5year us treasury rate effect time grant maturity approximates expected term used monte carlo simulation model determine fair value special onetime initial public offering transaction bonus grant subject marketbased conditions stock option grants subject marketbased conditions cliff vesting began third quarter fiscal year 2017 continued third quarter fiscal year 2019 subject achievement market conditions valued stock option grants single award related compensation cost recognized using straightline method derived service period expected volatility based combination historical implied volatilities common stock comparable companies grants stock options exercise price equal greater fair market value common stock date grant based foregoing estimates assumptions privately held company prior august 4 2016 public market common stock fair value equity approved board time option grants awarded estimating fair value common stock considered factors believed material valuation process including limited actual projected financial results risks prospects economic market conditions valuations utilized projections future performance estimates weighted average cost capital metrics based performance peer group similar companies including valuation multiples stock price volatility believe combination methods provided appropriate estimate expected fair value prior ipo considered valuation analyses determine best estimate fair value common stock option grant date following ipo estimates longer needed determine fair value new awards due publiclyavailable trading price common stock estimates used determining fair value common stock prior ipo highly complex subject significant judgment assumptions similar make respect goodwill described include selection revenue growth rates discount rates comparable public companies used guideline public company analysis nonmarketability discount used also inherent uncertainty forecasts projections made different assumptions estimates described previously amount stockbased compensation expense net income net income per share amounts could materially different following initial public offering estimates longer needed determine fair value new awards due publiclyavailable trading price common stock income taxes provision income taxes accounted asset liability method prescribed asc 740 topic 740 “income taxes” deferred tax assets liabilities recognized future tax consequences attributable differences financial statement carrying amounts existing assets liabilities respective tax bases operating losses tax credit carryforwards deferred tax assets liabilities measured using enacted tax rates expected apply taxable income years temporary differences expected recovered settled effect deferred tax assets liabilities change tax rates recognized income period tax rate changes enacted necessary valuation allowance may recorded deferred tax assets order properly reflect amount likely realized recognize tax benefit uncertain tax position likely tax position sustained examination taxing authorities based technical merits position tax benefits recognized financial statements positions measured based largest benefit greater 50 likelihood realized upon settlement december 22 2017 tax act adopted law tax act makes broad complex changes internal revenue code 1986 including limited reducing us federal corporate tax rate 35 21 ii eliminating corporate alternative minimum tax “amt” changing existing amt credits realized iii creating new limitation deductible interest expense iv changing rules related use limitation net operating loss carryforwards created tax years beginning december 31 2017 result adoption tax act fiscal year ended january 27 2018 statutory federal corporate tax rate prorated 340 statutory rate fiscal year ended january 26 2019 beyond 210 december 2017 securities exchange commission staff issued state accounting bulletin 118 income tax accounting implications tax cuts jobs act “sab 118” allowed us record provisional amounts measurement period extend beyond one year enactment date recorded provisional amounts impact tax act fourth fiscal quarter 2018 fiscal year 2019 completed accounting income tax effects tax act material adjustments required provisional amounts recorded fiscal year 2018 required assess available positive negative evidence estimate sufficient future income generated utilize deferred tax assets significant piece positive negative evidence consider cumulative income losses generally defined losses income taxes incurred recent threeyear period evidence supplemented four sources taxable income described asc 740103018 valuation allowances totaled 03 million january 28 2017 fiscal year 2018 analyzing ability utilize state net operating losses determined positive evidence outweighed negative evidence remaining valuation allowance released valuation allowances recorded fiscal year 2019 recent accounting pronouncements february 2016 fasb issued asu 201602 “leases” supersedes asc 840 “leases” creates new topic asc 842 “leases” “asu 201602” asu 201602 entity required recognize rightofuse assets lease liabilities balance sheet disclose key information leasing arrangements asu 201602 offers specific accounting guidance lessee lessor sale leaseback transactions lessees lessors required disclose qualitative quantitative information leasing arrangements enable user financial statements assess amount timing uncertainty cash flows arising leases asu 201602 effective annual reporting periods beginning december 15 2018 including interim periods within reporting period early adoption permitted adoption update applied using modified retrospective approach standard provides number optional practical expedients transition elect package three practical expedients permitted transition guidance within new standard among things allows us carryforward historical lease classification elect hindsight practical expedient separate nonlease components lease components class underlying assets apply recognition requirements standard shortterm leases allowed standard process finalizing initial impact assessment adoption asu 201602 estimate following material impacts financial statements recognition rightofuse liabilities approximately 10 billion recognition corresponding rightofuse assets ii derecognition deferred gains saleleasebacks cumulativeeffect adjustment opening retained earnings fiscal year ended january 25 2020 “fiscal year 2020” previously resulted amortization reduced occupancy costs 88 million fiscal year 2019 iii recognition immediate gains losses saleleasebacks within operating income beginning fiscal year 2020 iv reclassification financing obligations amount 352 million operating leases corresponding rightofuse assets liabilities noted difference recorded cumulativeeffect adjustment opening retained earnings nonrecurrence financing obligation interest expense 24 million fiscal year 2020 related increase occupancy costs fiscal year 2020 v recognition additional expense certain initial direct costs incurred prior existence lease beginning fiscal year 2020 january 2017 fasb issued asu 201704 “simplifying test goodwill impairment” “asu 201704” asu 201704 simplifies measurement goodwill impairment removing second step goodwill impairment test requires determination fair value individual assets liabilities reporting unit asu 201704 goodwill impairment measured amount reporting unit’s carrying value exceeds fair value loss recognized exceed total amount goodwill allocated reporting unit asu 201704 effective fiscal years beginning december 15 2019 early adoption permitted interim annual goodwill impairment tests performed january 1 2017 standard applied prospective basis currently evaluating impact asu 201704 anticipate material impact consolidated financial statements implemented august 2018 fasb issued asu 201815 “customers accounting implementation costs incurred cloud computing arrangement service contract” “asu 201815” asu 201815 issued align requirements capitalizing implementation costs incurred hosting arrangement service contract requirements capitalizing implementation costs incurred develop obtain internaluse software hosting arrangements include internaluse software license amendments asu 201815 effective annual periods beginning december 15 2019 including interim periods within reporting period early adoption permitted expect adopt new guidance using prospective method first quarter fiscal year 2020 currently evaluating impact consolidated financial statements implemented item 7a item 7 management’s discussion analysis financial condition results operations discussion analysis financial condition results operations read conjunction “item 6 selected financial operating data” consolidated financial statements related notes home group inc included item 15 annual report form 10k review “item 1a risk factors” section filing discussion important factors could cause actual results differ materially results described implied forwardlooking statements contained following discussion analysis operate fiscal calendar widely used retail industry results given fiscal year consisting 52 53week period ending last saturday january 52week fiscal year quarter contains 13 weeks operations 53week fiscal year first second third quarters includes 13 weeks operations fourth quarter includes 14 weeks operations references fiscal year mean year fiscal year ends references herein “fiscal year 2018” relate 52 weeks ending january 27 2018 references herein “fiscal year 2017” relate 52 weeks ending january 28 2017 references herein “fiscal year 2016” relate 52 weeks ended january 30 2016 overview home leading home décor superstore based number locations large format stores believe dedicate space per store home décor player industry focused providing broadest assortment products room style budget utilize space advantage outassort competition offering 50000 skus throughout stores differentiated merchandising strategy allows us identify ontrend products value engineer products provide desirable aesthetics attractive price points customers 70 products unbranded private label specifically designed us believe broad comprehensive offering compelling value proposition combine create leading destination home décor opportunity continue taking market share highly fragmented growing industry founded 1979 garden ridge texas suburb san antonio acquired 2011 group investors led certain affiliates aea starr investments began series strategic investments business believe laid foundation continued profitable growth strengthened management team new brand identity improved real estate capabilities upgraded automated distribution center enhanced information systems continue enable us expand store base maintaining industryleading profitability january 27 2018 store base comprised 149 large format stores across 34 states averaging approximately 110000 square feet per store past five completed fiscal years opened 98 new stores believe significant whitespace opportunity increase store count existing new markets trends factors affecting business various trends factors affect affected operating results including overall economic trends overall economic environment related changes consumer behavior significant impact business general positive conditions broader economy promote customer spending stores economic weakness results reduction customer spending macroeconomic factors affect customer spending patterns thereby results operations include employment rates business conditions changes housing market availability credit interest rates tax rates fuel energy costs consumer preferences demand ability maintain appeal existing customers attract new customers depends ability originate develop offer compelling product assortment responsive customer preferences design trends misjudge market products may faced excess inventories products may required become promotional selling activities would impact net sales gross profit new store openings expect new stores key driver growth sales operating profit future results operations continue materially affected timing number new store openings performance new stores may vary depending various factors store opening date time year particular opening amount store opening costs amount store occupancy costs location new store including whether located new existing market example typically incur higher normal employee costs time new store opening associated setup opening costs addition response interest excitement generated open new store new stores generally experience higher net sales initial period one three months new store’s net sales begin normalize reaches maturity within six months opening discussed planned store expansion place increased demands operational managerial administrative resources managing growth effectively require us continue enhance inventory management distribution systems financial management controls information systems also required hire train retain store management store personnel together increased marketing costs affect operating margins new store typically reaches maturity meaning store’s annualized targeted sales volume reached within six months opening new stores included comparable store base sixteenth full fiscal month following store’s opening believe represents appropriate comparison also periodically explore opportunities relocate limited number existing stores improve location lease terms store layout customer experience relocated stores typically achieve level operating profitability comparable companywide average existing stores quickly new stores infrastructure investment historical operating results reflect impact ongoing investments support growth made significant investments business believe laid foundation continued profitable growth believe strengthened management team new brand identity upgraded automated distribution center enhanced information systems including warehouse management pos systems enable us replicate profitable store format differentiated shopping experience addition fiscal year 2016 implemented merchandise planning system upgraded inventory allocation system better manage inventory store corresponding customer base recently begun make investments relating second distribution center currently plan open fiscal year 2020 expect infrastructure investments support successful operating model significantly expanded store base pricing strategy committed providing products everyday low prices value engineer products collaboration suppliers recreate “look” believe customer wants eliminating costly construction elements customer value believe customer views shopping home inperson experience customer see feel quality products physically assemble desired aesthetic design approach allows us deliver attractive value customers products typically less expensive branded products similar look employ simple everyday low pricing strategy consistently delivers savings customers without need extensive promotions evidenced 80 net sales occurring full price ability source distribute products effectively net sales gross profit affected ability purchase products sufficient quantities competitive prices believe vendors adequate capacity meet current anticipated demand level net sales could adversely affected event constraints supply chain including inability vendors produce sufficient quantities merchandise manner able match market demand customers leading lost sales fluctuation quarterly results quarterly results historically varied depending upon variety factors including product offerings promotional events store openings shifts timing holidays among things result factors working capital requirements demands product distribution delivery network may fluctuate year inflation deflation trends financial results expected directly impacted substantial increases product costs due commodity cost increases general inflation could lead reduction sales well greater margin pressure costs may able passed consumers date changes commodity prices general inflation materially impacted business response increasing commodity prices general inflation seek minimize impact events sourcing merchandise different vendors changing product mix increasing pricing necessary refinancings june 2015 entered term loan second lien term loan together term loan “term loan facilities” proceeds term loans used refinance redeem full 1075 senior secured notes due 2019 reduced overall cost capital addition used net proceeds initial public offering partial exercise overallotment option repay full 1300 million principal amount indebtedness outstanding second lien term loan reduced cost capital debt service obligations information please see “liquidity capital resources” assess performance business assessing performance consider variety performance financial measures key measures include net sales gross profit gross margin selling general administrative expenses addition also review important metrics adjusted ebitda storelevel adjusted ebitda adjusted net income net sales net sales derived direct retail sales customers stores net merchandise returns discounts growth net sales impacted opening new stores increases comparable store sales new store openings number new store openings reflects new stores opened particular reporting period including relocations existing stores period open new stores incur preopening costs described total number new stores per year timing store openings continue impact results described “trends factors affecting business” comparable store sales store included comparable store sales calculation first day sixteenth full fiscal month following stores opening believe comparability achieved store relocated remodeled exclude sales store calculation comparable store sales first day sixteenth full fiscal month reopens addition applicable adjust effect 53rd week may variations way competitors retailers calculate comparable “same store” sales result data report regarding comparable store sales may comparable similar data made available retailers comparable store sales allow us evaluate store base performing measuring change periodoverperiod net sales stores open applicable period various factors affect comparable store sales including · consumer preferences buying trends overall economic trends · ability identify respond effectively customer preferences trends · ability provide assortment high quality trendright product offerings generate new repeat visits stores · customer experience provide stores · ability source receive products accurately timely · changes product pricing including promotional activities · number items purchased per store visit · weather · timing length holiday shopping periods opening new stores important part growth strategy continue pursue growth strategy anticipate increasing percentage net sales come stores included comparable store sales calculation accordingly comparable store sales one measure use assess success growth strategy gross profit gross margin gross profit determined subtracting cost sales net sales gross margin measures gross profit percentage net sales cost sales consists various expenses related cost selling merchandise cost sales consists following 1 cost merchandise net inventory shrinkage damages vendor allowances 2 inbound freight internal transportation costs distribution centertostore freight costs 3 costs operating distribution center including labor occupancy costs supplies depreciation 4 store occupancy costs including rent insurance taxes common area maintenance utilities repairs maintenance depreciation components cost sales expenses may comparable retailers selling general administrative expenses selling general administrative expenses “sga” consist various expenses related supporting facilitating sale merchandise stores costs include payroll benefits personnel expenses corporate store employees including stockbased compensation expense consulting legal professional services expenses marketing advertising expenses occupancy costs corporate headquarters various expenses sga includes fixed variable components therefore directly correlated net sales addition components sga expenses may comparable retailers expect sga expenses increase future periods due continuing store growth addition increase future stock option stockbased grants modifications increase stockbased compensation expense included sga particular onetime bonus grant stock options certain members senior management connection initial public offering result incremental noncash stockbased compensation expense approximately 200 million expensed derived service period beginning third quarter fiscal 2017 continuing third quarter fiscal 2019 adjusted ebitda adjusted ebitda key metric used management board directors assess financial performance adjusted ebitda also basis performance evaluation current executive compensation programs addition adjusted ebitda frequently used analysts investors interested parties evaluate companies industry addition covenant compliance executive performance evaluations use adjusted ebitda supplement generally accepted accounting principles united states america “gaap” measures performance evaluate effectiveness business strategies make budgeting decisions compare performance peer companies using similar measures adjusted ebitda defined net income interest expense net loss early extinguishment debt income tax benefit provision depreciation amortization adjusted impact certain items defined debt agreements including certain legal settlements consulting professional fees relocation employee recruiting incentives management fees expenses stockbased compensation expense impairment trade name noncash rent reconciliation adjusted ebitda net income directly comparable gaap measure see “results operations” storelevel adjusted ebitda use storelevel adjusted ebitda supplemental measure performance represents adjusted ebitda excluding impact costs associated new store openings certain corporate overhead expenses consider evaluation ongoing operating performance stores period calculation storelevel adjusted ebitda supplemental measure operating performance stores may comparable similar measures reported companies believe storelevel adjusted ebitda important measure evaluate performance profitability stores individually aggregate especially given level investments made home office infrastructure past four years support future growth also believe storelevel adjusted ebitda useful measure evaluating operating performance removes impact general administrative expenses incurred store level costs opening new stores nonrecurring store level thereby enables comparability operating performance stores period use storelevel adjusted ebitda information benchmark performance versus competitors storelevel adjusted ebitda used substitute consolidated measures profitability performance reflect corporate overhead expenses necessary allow us effectively operate stores generate storelevel adjusted ebitda reconciliation storelevel adjusted ebitda net income directly comparable gaap measure see “results operations” adjusted net income adjusted net income represents net income adjusted impairment charges loss extinguishment debt initial public offering related noncash stockbased compensation expense transaction costs related initial public offering registration shares common stock behalf sponsors losses incurred due modification debt tax impacts associated federal tax reform legislation enacted december 22 2017 “tax act” present adjusted net income believe assists investors analysts comparing performance across reporting periods consistent basis excluding items believe indicative core operating performance reconciliation adjusted net income net income directly comparable gaap measure see “results operations” results operations following tables summarize key components results operations periods indicated dollars percentage net sales 1 present adjusted ebitda adjusted ebitda margin storelevel adjusted ebitda storelevel adjusted ebitda margin adjusted net income recognized financial measures gaap believe assist investors analysts comparing operating performance across reporting periods consistent basis excluding items believe indicative core operating performance interest depreciation amortization loss extinguishment debt impairment charges taxes encouraged evaluate adjustments reasons consider appropriate supplemental analysis evaluating adjusted ebitda storelevel adjusted ebitda adjusted net income aware future may incur expenses similar adjustments presentation adjusted ebitda storelevel adjusted ebitda adjusted net income particular storelevel adjusted ebitda reflect costs associated new store openings incurred limited basis respect particular store opened indicative ongoing core operating performance corporate overhead expenses necessary allow us effectively operate stores generate storelevel adjusted ebitda presentation adjusted ebitda storelevel adjusted ebitda adjusted net income construed inference future results unaffected unusual nonrecurring items assurance modify presentation adjusted ebitda storelevel adjusted ebitda adjusted net income future modification may material addition adjusted ebitda adjusted ebitda margin storelevel adjusted ebitda storelevel adjusted ebitda margin adjusted net income may comparable similarly titled measures used companies industry across different industries management believes adjusted ebitda helpful highlighting trends core operating performance measures differ significantly depending longterm strategic decisions regarding capital structure tax jurisdictions companies operate capital investments also use adjusted ebitda connection performance evaluations executives supplement gaap measures performance evaluation effectiveness business strategies make budgeting decisions compare performance peer companies using similar measures addition utilize adjusted ebitda certain calculations abl facility defined therein “consolidated ebitda” term loan facilities defined therein “consolidated cash ebitda” management believes storelevel adjusted ebitda helpful highlighting trends facilitates comparisons store operating performance period excluding impact costs associated new store openings certain corporate overhead expenses certain costs associated management finance accounting legal centralized corporate functions management believes adjusted net income assists investors analysts comparing performance across reporting periods consistent basis excluding items believe indicative core operating performance 2 following table reconciles net income ebitda excluding loss extinguishment debt adjusted ebitda storelevel adjusted ebitda periods presented thousands includes portion depreciation amortization expenses classified cost sales consolidated statements income b primarily consists consulting professional fees respect projects enhance merchandising human resource capabilities company initiatives c primarily reflects employee recruiting relocation costs connection buildout management team reflects management fees paid sponsors accordance management agreement connection initial public offering management agreement terminated august 3 2016 sponsors longer receive management fees us e noncash stockbased compensation related ongoing equity incentive program place incentivize retain management f noncash stockbased compensation associated special onetime initial public offering bonus grant senior executives consider evaluation ongoing performance grant made addition ongoing equity incentive program place incentivize retain management made reward certain senior executives historical performance allow benefit future successful outcomes sponsors g consists noncash portion rent reflects extent gaap straightline rent expense recognized exceeds less cash rent payments partially offset ii amortization deferred gains saleleaseback transactions recognized rent expense straightline basis applicable lease term offsetting amounts relating amortization deferred gains saleleaseback transactions 63 million 47 million 32 million fiscal years 2018 2017 2016 respectively gaap straightline rent expense adjustment vary depending average age lease portfolio impacted significant growth newer leases rent expense recognized typically exceeds cash rent payments mature leases rent expense recognized typically less cash rent payments h adjustments include amounts management believes representative ongoing operations including · fiscal year 2018 impairment charge 24 million following resolution legal matter · fiscal year 2017 loss 03 million recognized sale land connection expansion distribution center · fiscal year 2016 gain sale property houston texas 18 million 03 million related various refunds prior period taxes audits partially offset 05 million expenses incurred store closure reflects noncapital expenditures associated opening new stores including marketing advertising labor cash occupancy expenses costs related new store openings represent cash costs aware future may incur expenses similar costs anticipate continue incur cash costs open new stores future opened 28 24 20 new stores fiscal years 2018 2017 2016 respectively j reflects corporate overhead expenses directly related profitability stores facilitate comparisons store operating performance consider corporate overhead expenses evaluating ongoing performance stores period corporate overhead expenses component selling general administrative expenses comprised various home office general administrative expenses payroll expenses occupancy costs marketing advertising consulting professional fees see discussion changes selling general administrative expenses presented “results operations” storelevel adjusted ebitda used substitute consolidated measures profitability performance reflect corporate overhead expenses necessary allow us effectively operate stores generate storelevel adjusted ebitda anticipate continue incur corporate overhead expenses future periods 3 following table reconciles net income adjusted net income periods presented thousands noncash loss due change abl facility lenders abl amendment resulting immediate recognition portion related unamortized deferred debt issuance costs b noncash stockbased compensation associated special onetime initial public offering bonus grant senior executives consider evaluation ongoing performance grant made addition ongoing equity incentive program place incentivize retain management made reward certain senior executives historical performance allow benefit future successful outcomes sponsors c charges incurred connection initial public offering registration shares common stock behalf sponsors consider evaluation ongoing performance represents tax impact associated adjusted expenses utilizing adjusted effective tax rate excludes revaluation net deferred tax assets result tax act fiscal year 2018 effective tax rate effect fiscal years 2017 2016 adjusted effective tax rate 261 compared effective tax rate 515 fiscal year 2018 reflecting tax impact revaluation net deferred tax assets tax act effective tax rate fiscal years 2017 2016 367 1338 respectively e represents tax impact revaluation net deferred tax assets accordance tax act fiscal year ended january 27 2018 compared fiscal year ended january 28 2017 net sales net sales increased 1849 million 241 9505 million fiscal year ended january 27 2018 7656 million fiscal year ended january 28 2017 increase primarily driven approximately 1412 million incremental revenue net addition 26 new stores opened since january 28 2017 well number stores opened fiscal year 2017 open long enough included comparable store base remaining 437 million increase net sales attributable comparable store sales increased 65 fiscal year ended january 27 2018 driven primarily merchandising marketing initiatives cost sales cost sales increased 1254 million 242 6436 million fiscal year ended january 27 2018 5182 million fiscal year ended january 28 2017 increase primarily driven 241 increase net sales fiscal year ended january 27 2018 compared fiscal year ended january 28 2017 resulted 790 million increase merchandise costs addition fiscal year ended january 27 2018 recognized 100 million increase depreciation amortization 213 million increase store occupancy costs case result new store openings since january 28 2017 gross profit gross margin gross profit 3070 million 323 net sales fiscal year ended january 27 2018 increase 595 million 2475 million 323 net sales fiscal year ended january 28 2017 increase gross profit primarily driven increased sales volume net addition 26 new stores opened since january 28 2017 well 65 increase comparable stores sales gross margin remained consistent fiscal year ended january 27 2018 compared fiscal year ended january 28 2017 primarily result product margin improvement leverage store occupancy costs achieved higher sales growth increase offset higher distribution center costs associated strategic investments incremental inventory completed first half fiscal year 2018 higher occupancy costs resulting saleleaseback transactions occurred fiscal year 2018 fiscal year 2017 discussed “liquidity capital resources” selling general administrative expenses selling general administrative expenses 2111 million fiscal year ended january 27 2018 compared 1706 million fiscal year ended january 28 2017 increase 405 million 237 percentage sales sga decreased 10 basis points fiscal year ended january 27 2018 222 223 fiscal year ended january 28 2017 primarily driven leverage recurring corporate overhead expenses decrease partially offset stockbased compensation expenses associated special onetime ipo bonus grant issued home group inc equity incentive plan approved board july 2016 “2016 equity plan” increase marketing advertising expenses sga expenses include corporate overhead expenses represented 146 million increase attributable additional home office support capabilities increased payroll expenses incurred support growth strategies stockbased compensation expenses associated special onetime ipo bonus grant issued 2016 equity plan consulting professional fees relating company initiatives transaction costs related secondary offering partially offset nonrecurrence transaction costs related ipo occurred prior year sga expenses also include expenses related store operations represented 190 million increase primarily driven 111 million increase labor costs due additional headcount new stores additionally 32 million increase store preopening costs due increased number new store openings timing new store openings fiscal year ended january 27 2018 compared fiscal year ended january 28 2017 well increases administrative costs support continued growth store base remaining increase selling general administrative expenses related marketing advertising expenses total marketing advertising expenses 243 million fiscal year ended january 27 2018 compared 174 million fiscal year ended january 28 2017 increase 69 million 395 increase driven efforts continue build brand awareness store preopening costs include additional marketing advertising expenses 17 million 20 million fiscal years ended january 27 2018 january 28 2017 respectively fiscal year 2018 expanded marketing advertising spend 27 net sales 25 net sales fiscal year 2017 impairment charges fiscal year ended january 27 2018 recognized impairment charge 24 million following resolution legal matter impairment charges incurred fiscal year ended january 28 2017 interest expense net interest expense net decreased 217 million fiscal year ended january 27 2018 272 million fiscal year ended january 28 2017 decrease 55 million decrease interest expense primarily resulted repayment 1300 million senior secured second lien term loan facility using net proceeds initial public offering “second lien repayment” see “liquidity capital resources” decrease partially offset increased borrowings abl facility support growth strategies loss extinguishment debt fiscal year ended january 28 2017 recognized loss extinguishment debt 27 million resulting primarily writeoff unamortized deferred debt issuance costs connection second lien repayment incur losses extinguishment debt fiscal year ended january 27 2018 income tax provision income tax expense 338 million fiscal year ended january 27 2018 compared income tax expense 157 million fiscal year ended january 28 2017 effective tax rate fiscal year ended january 27 2018 515 compared 367 fiscal year ended january 28 2017 effective tax rate fiscal year ended january 27 2018 differs prorated federal statutory rate 340 primarily due impact state local income taxes effect tax act lowered federal statutory income tax rate effect period january 1 2018 january 27 2018 35 21 net excess tax benefit related stock options exercised effective tax rate fiscal year ended january 28 2017 differs federal statutory rate 350 primarily due impact state local income taxes release unrecognized tax benefits valuation allowance state net operating losses nondeductible transaction costs nondeductible interest expense fiscal year ended january 28 2017 compared fiscal year ended january 30 2016 net sales net sales increased 1434 million 231 7656 million fiscal year ended january 28 2017 6222 million fiscal year ended january 30 2016 increase primarily driven approximately 1228 million incremental revenue net addition 23 new stores opened since january 30 2016 well number stores opened fiscal year 2016 yet open 15 months included comparable store base remaining 206 million increase net sales attributable comparable store sales increased 37 fiscal year ended january 28 2017 driven primarily merchandising initiatives cost sales cost sales increased 964 million 229 5182 million fiscal year ended january 28 2017 4218 million fiscal year ended january 30 2016 increase primarily driven 231 increase net sales fiscal year ended january 28 2017 compared fiscal year ended january 30 2016 resulted 659 million increase merchandise costs addition fiscal year ended january 28 2017 recognized 65 million increase depreciation amortization 200 million increase store occupancy costs case result new store openings since january 30 2016 well throughout fiscal year 2016 gross profit gross margin gross profit 2475 million 323 net sales fiscal year ended january 28 2017 increase 2004 million 322 net sales fiscal year ended january 30 2016 increase gross profit primarily driven increased sales volume net addition 23 new stores opened since january 30 2016 well 37 increase comparable stores sales gross margin increased 10 basis points fiscal year ended january 28 2017 compared fiscal year ended january 30 2016 10 basis point increase primarily due reduction productrelated costs shrink damages freight driven operational improvements increase partially offset higher occupancy costs resulting saleleaseback transactions occurred fiscal year 2017 fiscal year 2016 discussed “liquidity capital resources” addition gross margin also impacted higher distribution center costs associated incremental investments lowpriced inventory fiscal year ended january 28 2017 compared fiscal year ended january 30 2016 selling general administrative expenses selling general administrative expenses 1706 million fiscal year ended january 28 2017 compared 1357 million fiscal year ended january 30 2016 increase 349 million 257 percentage sales sga increased 50 basis points fiscal year ended january 28 2017 223 218 fiscal year ended january 30 2016 primarily due stockbased compensation expenses associated special onetime ipo bonus grant issued 2016 equity plan transaction costs related initial public offering increase advertising expenses partially offset leverage recurring corporate overhead expenses sga expenses include corporate overhead expenses represented 103 million increase attributable additional home office support capabilities well increased payroll expenses incurred support growth strategies stockbased compensation expenses associated special onetime ipo bonus grant issued 2016 equity plan transaction costs related initial public offering consulting professional fees relating public company readiness initiatives addition recognized 03 million loss sale land connection expansion distribution center fiscal year ended january 28 2017 sga expenses also include expenses related store operations represented 196 million increase primarily driven 112 million increase payroll expenses due new store headcount labor cost associated incremental investments lowpriced inventory additionally 22 million increase store preopening costs due increased number new store openings timing new store openings fiscal year ended january 28 2017 compared fiscal year ended january 30 2016 well increases various administrative costs support continued growth store base addition recognized 18 million gain sale property houston texas fiscal year ended january 30 2016 remaining increase selling general administrative expenses related marketing advertising expenses included sga total marketing advertising expenses 174 million fiscal year ended january 28 2017 compared 124 million fiscal year ended january 30 2016 increase 50 million 403 increase driven efforts continue build brand awareness store preopening costs include additional marketing advertising expenses 20 million 10 million fiscal years ended january 28 2017 january 30 2016 respectively fiscal year 2017 expanded marketing advertising spend 25 net sales 22 net sales fiscal year 2016 interest expense net interest expense net decreased 272 million fiscal year ended january 28 2017 368 million fiscal year ended january 30 2016 decrease 96 million decrease interest expense primarily resulted june 2015 refinancing second lien repayment see “liquidity capital resources” loss extinguishment debt fiscal year ended january 28 2017 recognized loss extinguishment debt 27 million resulting second lien repayment compared 360 million resulting june 2015 refinancing fiscal year ended january 30 2016 loss extinguishment debt fiscal year ended january 28 2017 primarily relates writeoff unamortized deferred debt issuance costs loss extinguishment debt fiscal year ended january 30 2016 includes writeoff 70 million unamortized deferred debt issuance costs income tax provision income tax expense 157 million fiscal year ended january 28 2017 compared benefit 142 million fiscal year ended january 30 2016 effective tax rate fiscal year ended january 28 2017 367 compared 1338 fiscal year ended january 30 2016 effective tax rate fiscal year ended january 28 2017 differs federal statutory rate primarily due impact state local income taxes release unrecognized tax benefits valuation allowance state net operating losses nondeductible transaction costs nondeductible interest expense effective income tax rate differs significantly federal statutory rate fiscal year ended january 30 2016 primarily due impact state income taxes changes valuation allowance deferred tax assets liquidity capital resources principal sources liquidity cash generated operating activities proceeds saleleaseback transactions borrowings abl facility primary cash needs daytoday operations provide infrastructure investments stores finance new store openings pay interest principal indebtedness fund working capital requirements seasonal inventory builds new store inventory purchases january 27 2018 85 million cash equivalents 778 million borrowing availability abl facility date 05 million face amount letters credit issued abl facility agreement governing abl facility “abl credit agreement” amended currently provides aggregate revolving commitments 3500 million sublimit issuance letters credit 500 million sublimit issuance swingline loans 200 million availability abl facility determined accordance borrowing base decline due various factors therefore amounts abl facility may available need june 2015 entered term loan facilities described “term loan facilities” interest rates term loan facilities variable based libor rates effect january 27 2018 obligations term loan facilities bore interest rate 49 term loan repayable equal quarterly installments approximately 08 million august 3 2016 registration statement form s1 relating initial public offering declared effective sec pursuant registered aggregate 9967050 shares common stock including 1300050 shares subject underwriters overallotment option issued sold 8667000 shares registered price 1500 per share august 9 2016 resulting net proceeds 1209 million deducting underwriters discounts commissions 91 million also incurred offering expenses 60 million connection initial public offering included additional paidin capital consolidated balance sheets january 28 2017 september 8 2016 issued sold 863041 shares common stock pursuant underwriters’ partial exercise overallotment option exercise overallotment option resulted net proceeds us 120 million deducting underwriters’ discounts commissions 09 million used net proceeds initial public offering partial exercise overallotment option deducting underwriters’ discounts commissions repay full 1300 million principal amount indebtedness outstanding second lien term loan described “term loan facilities” capital expenditures vary depending timing new store openings infrastructurerelated investments capital expenditures fiscal year ended january 27 2018 approximately 1703 million net proceeds sale property equipment includes saleleaseback proceeds approximately 624 million estimate capital expenditures fiscal year ending january 26 2019 includes investments expected second distribution center range 170 million 190 million net proceeds saleleaseback transactions 110 million also plan invest infrastructure necessary support development business continued growth fiscal year 2018 opened 26 new stores net two relocated stores net capital expenditures incurred date substantially financed cash operating activities saleleaseback transactions proceeds abl facility expect fiscal year 2019 net capital expenditures primarily financed manner based growth plans believe cash position net cash provided operating activities borrowings abl facility adequate finance planned capital expenditures working capital requirements debt service obligations next twelve months foreseeable future thereafter cash flows operations borrowings abl facility sufficient available meet capital requirements required obtain additional equity debt financing future assurance equity debt financing available us need available terms satisfactory us dilutive thencurrent shareholders indebtedness could adversely affect ability raise additional capital limit ability react changes economy industry expose us interest rate risk prevent us meeting obligations management reacts strategically changes economic conditions monitors compliance debt covenants seek mitigate potential material impacts financial condition flexibility saleleaseback transactions part flexible real estate strategy utilize saleleaseback transactions finance investments previously made purchase second generation properties construction new store locations enhances ability access range locations facilities efficiently factor saleleaseback transactions capital allocation decisions order support execution saleleaseback transactions relationships publicly traded reits many demonstrated interest portfolio assets certain cases sale treated likekind exchange transaction us federal income tax purposes accordance section 1031 internal revenue code “code” section 1031 code allows companies defer taxable gain realized sale certain “relinquished” real property proceeds reinvested timely manner qualifying likekind “replacement” property addition section 1031 code requires sale proceeds relinquished property held restricted cash account thirdparty qualified intermediary pending utilization thereof acquisition qualifying replacement property september 2015 sold five properties grand prairie texas toledo ohio pharr texas new braunfels texas gulfport mississippi total 402 million contemporaneously closing sale entered lease pursuant leased back properties cumulative initial annual rent 27 million subject annual escalations approximately 55 million proceeds sale used pay notes payable related grand prairie new braunfels properties august 2016 sold four properties broomfield colorado corpus christi texas jenison michigan buford georgia total 326 million contemporaneously closing sale entered lease pursuant leased back properties cumulative initial annual rent 22 million subject annual escalations approximately 37 million proceeds sale used pay note payable related corpus christi property september 2016 sold three properties colorado springs colorado kissimmee florida o’fallon illinois total 306 million contemporaneously closing sale entered lease pursuant leased back properties cumulative initial annual rent 21 million subject annual escalations august 2017 sold six properties hoover alabama lafayette louisiana moore oklahoma olathe kansas orange park florida wichita kansas total 626 million contemporaneously closing sale entered lease pursuant leased back properties cumulative initial annual rent 42 million subject annual escalations see “risk factorsrisks relating businesswe subject risks associated saleleaseback strategy” summary cash flows summary cash flows operating investing financing activities presented following table thousands net cash provided operating activities net cash provided operating activities 1060 million fiscal year ended january 27 2018 compared 435 million fiscal year ended january 28 2017 625 million increase cash provided operating activities primarily due 414 million decrease purchase merchandise inventories 147 million increase operating income partially offset increase cash paid income taxes 122 million net cash provided operating activities 435 million fiscal year ended january 28 2017 compared 149 million fiscal year ended january 30 2016 286 million increase cash provided operating activities primarily due decrease payments accounts payable 306 million well decrease payments accrued liabilities 248 million related timing payments decrease cash paid interest 191 million increase operating income 105 million sources cash partially offset increase purchases merchandise inventories 333 million increase cash paid income taxes 297 million inventory levels end fiscal year 2017 2438 million increase 674 million 382 end fiscal year 2016 increase inventories primarily due new store growth fiscal year 2016 fiscal year 2017 acceleration inventory purchases late fiscal year 2017 includes impact earlier chinese new year incremental investments lowpriced inventory net cash used investing activities net cash used investing activities 1698 million fiscal year ended january 27 2018 compared 632 million fiscal year ended january 28 2017 1066 million increase cash used investing activities primarily driven increase net capital expenditures 1081 million capital expenditures 2327 million fiscal year ended january 27 2018 consisted 2064 million invested new store growth remaining 263 million primarily related investments information technology distribution center existing stores net cash used investing activities 632 million fiscal year ended january 28 2017 compared 397 million fiscal year ended january 30 2016 235 million increase cash used investing activities primarily driven decrease 177 million net restricted cash proceeds attributable saleleaseback transactions sale treated likekind exchange accordance section 1031 code well increase net capital expenditures 52 million capital expenditures 1243 million fiscal year ended january 28 2017 consisted 962 million invested new store growth remaining 281 million primarily related investments information technology distribution center existing stores capital expenditures 1025 million fiscal year ended january 30 2016 consisted 864 million invested new store growth remaining 161 million primarily related investments maintenance expenditures information technology net cash provided financing activities net cash provided financing activities 652 million fiscal year ended january 27 2018 compared 213 million fiscal year ended january 28 2017 increase 439 million primarily due 355 million increase net borrowings abl facility 104 million proceeds exercise stock options fiscal year ended january 27 2018 net cash provided financing activities 213 million fiscal year ended january 28 2017 compared 255 million fiscal year ended january 30 2016 decrease 42 million primarily due 273 million net proceeds borrowings term loan facilities payment related debt issuance costs redemption senior secured notes fiscal year ended january 30 2016 decrease partially offset net proceeds borrowings abl facility increasing 158 million fiscal year ended january 28 2017 payments longterm debt decreasing 44 million due payoff notes payable fiscal year 2016 fiscal year 2017 net proceeds financing activities fiscal year 2017 due initial public offering 1329 million deducting underwriters discounts commissions mostly offset use 1300 million effect second lien repayment 1300 million financing obligations cases assets lease require construction order ready space intended use certain cases involved construction leased assets construction period typically begins execute lease agreement landlord continues space substantially complete ready intended use accordance asc 8404055 topic 840 “leases” must consider nature extent involvement construction period cases involvement results considered accounting owner construction project completing construction key structural components leased building deemed participated construction landlords asset cases capitalize landlords construction costs including value costs incurred date execute lease costs incurred remainder construction period costs incurred additionally asc 8404055 requires us recognize financing obligation construction costs incurred landlord construction complete required perform saleleaseback analysis pursuant asc 84040 determine remove landlords assets associated financing obligations consolidated balance sheets certain leases maintain various forms “prohibited continuing involvement” property thereby precluding us derecognizing asset associated financing obligations following construction completion cases continue account landlords asset legal owner financing obligation similar debt lease expires modified remove continuing involvement prohibits derecognition permitted would required account lease either operating capital accordance asc 840 january 27 2018 derecognized landlord assets associated financing obligations term loan facilities june 5 2015 home holding iii inc “borrower” entered first lien credit agreement “first lien agreement” among borrower home holding ii inc “at home ii” certain indirect subsidiaries home ii various lenders bank america na administrative agent collateral agent first lien agreement provides term loan original aggregate principal amount 3000 million term loan mature june 3 2022 repayable equal quarterly installments approximately 08 million annual aggregate amount equal 1 original principal amount borrower option paying interest 1month 2month quarterly basis term loan annual rate libor subject 1 floor plus 400 subject 050 reduction borrower achieves specified secured net leverage ratio level met fiscal year ended january 28 2017 borrower continued qualify fiscal year ended january 27 2018 term loan prepayable without premium option whole part term loan permits us add one incremental term loans 500 million plus additional amounts subject compliance first lien net leverage ratio test first lien net leverage ratio test calculated using adjusted ebitda defined “consolidated ebitda” credit agreement term loan various nonfinancial covenants customary representations warranties events defaults remedies substantially similar described respect abl facility financial maintenance covenants term loan january 27 2018 january 28 2017 compliance covenants prescribed term loan june 5 2015 borrower entered second lien credit agreement “second lien agreement” among borrower home ii dynasty financial ii llc administrative agent collateral agent lender second lien agreement provided second lien term loan amount borrowed june 5 2015 second lien term loan maturity date june 5 2023 require periodic principal payments total amount outstanding plus accrued interest due maturity borrower option paying interest 1month 2month quarterly basis second lien term loan annual rate libor subject 1 floor plus 800 refer term loan second lien repayment second lien term loan collectively “term loan facilities” borrower used net proceeds term loan facilities 2015 effect refinancing outstanding indebtedness thenoutstanding senior secured notes ii pay fees expenses connection term loan facilities redemption senior secured notes approximately 136 million iii repay 292 million amounts outstanding abl facility iv general corporate purposes fiscal year ended january 28 2017 used net proceeds initial public offering partial exercise overallotment option deducting underwriters’ discounts commissions effect second lien repayment total cash consideration 1304 million including 04 million accrued interest repayment resulted loss extinguishment debt amount 27 million recognized fiscal year ended january 28 2017 1075 senior secured notes due 2019 may 2012 home holding iii inc “at home iii” issued 3600 million aggregate principal amount 1075 senior secured notes scheduled mature june 1 2019 “senior secured notes” terms senior secured notes governed indenture “indenture” dated may 16 2012 among home iii guarantors party thereto wells fargo national association “trustee” interest payable semiannually arrears june 1st december 1st commencing december 1 2012 june 5 2015 home iii completed redemption senior secured notes price equal 108063 total cash consideration 3894 million includes 290 million early redemption premium 04 million accrued interest redemption resulted loss extinguishment debt amount 360 million includes writeoff 70 million unamortized deferred debt issuance costs assetbased lending credit facility october 2011 entered abl facility originally provided cash borrowings issuances letters credit 800 million based defined percentages eligible inventory credit card receivable balances subsequently amended abl credit agreement time giving effect amendments january 27 2018 aggregate revolving commitments abl facility 3500 million sublimit issuance letters credit 500 million sublimit issuance swingline loans 200 million july 2017 connection seventh amendment abl credit agreement maturity abl facility extended earlier july 27 2022 date 91 days prior maturity date first lien agreement date may extended borrowings abl facility bear interest rate per annum equal option x higher federal funds rate plus 12 100 ii agent banks prime rate iii libor plus 100 plus case applicable margin 025 075 based availability agent banks libor rate plus applicable margin 125 175 based availability effective interest rate approximately 290 fiscal year ended january 27 2018 approximately 200 fiscal years ended january 28 2017 january 30 2016 january 27 2018 approximately 1620 million outstanding abl facility approximately 05 million face amount letters credit issued availability approximately 778 million abl facility contains number covenants among things restrict ability subject specified exceptions incur additional debt incur additional liens contingent liabilities sell dispose assets merge acquire companies liquidate dissolve engage businesses related line business make loans advances guarantees pay dividends engage transactions affiliates make investments addition abl facility contains certain crossdefault provisions financial maintenance covenants abl facility however existence event default fail maintain availability greater 150 million 10 loan cap consolidated fixed charge coverage ratio rolling 12 month basis end fiscal month must 100 higher january 27 2018 january 28 2017 compliance covenants abl facility collateral abl facility term loan abl facility secured first priority lien cash equivalents deposit accounts receivable receivables tax refunds inventory ii extent relating arising evidencing governing items referred preceding clause chattel paper documents instruments general intangibles securities accounts related thereto iii books records relating foregoing iv supporting obligations products proceeds foregoing collateral security guarantees given person respect foregoing case subject certain exceptions collectively “abl priority collateral” b second priority lien remaining assets constituting abl priority collateral subject certain exceptions collectively “term priority collateral” provided however since amendment abl facility july 2017 real property may secure term loan time longer forms part collateral abl facility term loan secured first priority lien term priority collateral b second priority lien abl priority collateral contractual obligations enter longterm obligations commitments normal course business primarily debt obligations noncancelable operating leases january 28 2017 contractual cash obligations next several periods follows thousands 1 operating lease commitments include leases property used operations amounts shown reflect operating leases classified financing obligations 2 capital lease commitments include leases property used operations 3 longterm debt obligations include principal payments due term loan note payable 4 revolving credit facility includes principal payments due abl facility 5 interest expense longterm debt includes future interest payments outstanding obligations term loan notes payable well payments due abl facility abl facility bears interest variable rates table based rates effect january 27 2018 6 includes base lease terms properties deemed accounting owner landlords property accordance accounting guidance related leases 7 represents liability reported accordance provisions asc 740 topic 740 “income taxes” information related unrecognized tax benefits see note 9 income taxes consolidated financial statements included report offbalance sheet arrangements historically entered offbalance sheet arrangements enter operating lease commitments letters credit purchase obligations normal course operations critical accounting policies use estimates preparation financial statements accordance gaap requires management make estimates assumptions affect reported amounts assets liabilities revenues expenses well related disclosures contingent assets liabilities date financial statements management evaluates accounting policies estimates judgments ongoing basis management bases estimates judgments historical experience various factors believed reasonable circumstances actual results may differ estimates different assumptions conditions management evaluated development selection critical accounting policies estimates believes following involve higher degree judgment complexity significant reporting results operations financial position therefore discussed critical following critical accounting policies reflect significant estimates judgments used preparation consolidated financial statements respect critical accounting policies even relatively minor variance actual expected experience potentially materially favorable unfavorable impact subsequent results operations information significant accounting policies found note 1nature operations summary significant accounting policies audited consolidated financial statements included elsewhere report inventories comprised finished merchandise stated lower cost net realizable value cost determined using weightedaverage method cost inventories include actual landed cost item time received distribution center point shipment certain international shipments well transportation costs distribution center retail stores applicable net inventory cost recognized cost sales inventory sold vendor allowances primarily represent volume rebates cooperative advertising funds recorded reduction cost merchandise inventories subsequent reduction cost sales inventory sold generally earn vendor allowances percentage certain merchandise purchases minimum purchase requirements typically vendor allowance programs extend period twelve months physical inventory counts performed stores least per year thirdparty inventory counting service stores operation least one year inventory records adjusted reflect actual inventory counts resulting shortage “shrinkage” recognized reserves shrinkage estimated recorded throughout fiscal year percentage net sales based recent physical inventory combination current events historical experience loss prevention programs policies place intended mitigate shrinkage 10 increase estimated shrinkage reserve rate would affected net income approximately 11 million fiscal year 2018 also evaluate merchandise ensure expected net realizable value merchandise held end fiscal year exceeds cost event expected net realizable value less cost reduce value inventory accordingly goodwill tested impairment least annually operating segment level one operating segment reporting unit exists operating segment implied fair value goodwill lower carrying amount goodwill impairment indicated goodwill written implied fair value assess business enterprise value using combination income approach market approach determine fair value company compared carrying value net assets income approach using discounted cash flow method includes key factors used valuation company level 3 valuation include limited managements plans future operations recent operating results income tax rates discounted projected future cash flows option perform qualitative assessment goodwill rather completing twostep process determine whether likely fair value operating segment less carrying amount including goodwill intangible assets conclude case must perform twostep process otherwise may forego twostep process need perform testing performed qualitative assessment goodwill fiscal year ended january 27 2018 based qualitative assessment concluded likely fair value operating segment substantially exceeded carrying value therefore quantitative analysis required impairment goodwill recognized fiscal years ended january 27 2018 january 28 2017 january 30 2016 however use different assumptions estimates judgments respect estimation projected future cash flows determination discount rate sales growth rate used calculate net present value projected future cash flows could materially increase decrease estimates fair value additionally future impairment charges could required achieve current net sales profitability projections would occur able meet new store growth targets weighted average cost capital increases impairment longlived indefinitelived assets evaluate recoverability carrying value longlived assets whenever events changes circumstances indicate carrying amount may recoverable evaluation compares carrying value assets estimated future undiscounted cash flows expected result use eventual disposition assets evaluate longlived intangible assets individual store level lowest level identifiable cash flows evaluate corporate assets longlived assets storespecific consolidated level estimate storespecific future cash flows make assumptions key store variables including sales growth rate gross margin payroll controllable expenses stores owned us meet initial criteria evaluated taking consideration fair market value property compared carrying value assets furthermore management considers factors evaluating stores impairment including individual stores execution operating plan local market conditions estimates subject uncertainty may affected number factors outside control including general economic conditions competitive environment impairment recognized factors noted taken consideration determined carrying amount stores assets recoverable impairment loss would recognized amount carrying amount longlived asset exceeds fair value excluding assets redeployed based upon review storelevel assets identified impairment connection certain property equipment following resolution legal matter recognized charge 24 million fiscal year ended january 27 2018 impairment longterm assets recognized fiscal years ended january 28 2017 january 30 2016 test indefinitelived trade name intangible assets annually impairment frequently impairment indicators arise fair value indefinitelived intangible asset lower carrying amount asset written fair value fair value trade name level 3 valuation calculated using relieffromroyalty approach assumes value trade name discounted cash flows amount would paid hypothetical market participant owned trade name instead licensed trade name another company carrying value home trade name january 27 2018 approximately 15 million impairment indefinitelived trade name intangible asset recognized fiscal years ended january 27 2018 january 28 2017 january 30 2016 revenue recognition revenue sales merchandise recognized customer takes possession merchandise revenue presented net sales taxes collected allow merchandise returned within 60 days purchase date provide reserve estimated returns use historical customer return behavior estimate reserve requirements accounted reduction revenue also reduce cost sales reflect estimates inventory cost products returned january 27 2018 january 28 2017 sales returns reserves approximately 11 million fiscal year 2018 launched credit card included loyalty program credit extended eligible customers private label cobranded credit cards synchrony bank “synchrony” launch credit card program received reimbursement costs associated launch credit card program well onetime payment deferred initial sevenyear term agreement synchrony receive ongoing payments synchrony based sales transacted credit cards reimbursement joint marketing advertising activities fiscal year ended january 27 2018 recorded immaterial amount income credit card program within net sales earned credit card loyalty program allows customers earn points qualifying purchases upon reaching specified levels points redeemed certificates usable stores estimates costs associated credit card loyalty program require us make assumptions related customer purchasing levels redemption rates time qualifying sales giving rise credit card loyalty program points made defer portion revenues qualifying sales transactions equal estimated retail value certificates redeemed upon conversion earned points certificates fiscal year ended january 27 2018 recorded immaterial amount deferral revenues related loyalty program reduction revenues record gift card liability date issue gift card customer record revenue reduce gift card liability customer redeems gift card january 27 2018 january 28 2017 gift card liability approximately 58 million 41 million respectively addition recognize gift card breakage revenue 60 months nonuse recognized revenue related breakage gift card balances immaterial amount revenue fiscal years ended january 27 2018 january 28 2017 january 30 2016 stockbased compensation account stockbased compensation accordance asc 718 topic 718 “compensationstock compensation” requires stockbased payments employees including grants employee stock options restricted stock units recognized consolidated financial statements requisite service period compensation expense based upon fair value awards recognized straightline basis requisite service period awards actually vest stockbased compensation expense recorded selling general administrative expenses consolidated statements income estimate fair value stock option grant date grant based upon blackscholes option pricing model exception special onetime initial public offering transaction bonus grant valued date grant using monte carlo simulation method restricted stock unit awards grant date fair value determined based upon closing trading value common stock nyse date grant forfeiture assumptions estimated based historical experience blackscholes option pricing model requires various significant judgmental assumptions order derive final fair value determination type award including following · expected termthe expected term options represents period time grant date options date options either exercised canceled · expected volatilitythe expected volatility calculated based historical volatility common stock comparable companies · expected dividend yieldthe expected dividend yield based expectation paying dividends common stock foreseeable future · riskfree interest ratethe riskfree interest rate average 3year 5year us treasury rate effect time grant maturity approximates expected term used monte carlo simulation model determine fair value special onetime initial public offering transaction bonus grant subject marketbased conditions stock option grants subject marketbased conditions cliff vesting beginning third quarter fiscal year 2017 continuing third quarter fiscal 2019 subject achievement market conditions valued stock option grants single award related compensation cost recognized using straightline method derived service period expected volatility based combination historical implied volatilities common stock comparable companies grants stock options exercise price equal greater fair market value common stock date grant based foregoing estimates assumptions privately held company prior august 4 2016 public market common stock fair value equity approved board time option grants awarded estimating fair value common stock considered factors believed material valuation process including limited actual projected financial results risks prospects economic market conditions valuations utilized projections future performance estimates weighted average cost capital metrics based performance peer group similar companies including valuation multiples stock price volatility believe combination methods provided appropriate estimate expected fair value prior ipo considered valuation analyses determine best estimate fair value common stock option grant date following ipo estimates longer needed determine fair value new awards due publiclyavailable trading price common stock estimates used determining fair value common stock prior ipo highly complex subject significant judgment assumptions similar make respect goodwill described include selection revenue growth rates discount rates comparable public companies used guideline public company analysis nonmarketability discount used also inherent uncertainty forecasts projections made different assumptions estimates described previously amount stockbased compensation expense net income net income per share amounts could materially different following initial public offering estimates longer needed determine fair value new awards due publiclyavailable trading price common stock january 29 2017 adopted financial accounting standards board “fasb” accounting standards update “asu” 201609 “improvements employee sharebased payment accounting” “asu 201609” asu 201609 intended simplify various aspects accounting employee sharebased payment award transactions effective annual reporting periods beginning december 15 2016 adoption asu 201609 also requires income tax adjustments recorded consolidated statements income changes tax book treatment equity compensation recognized provision income taxes adopted asu 201609 prospectively management elected accounting policy continue estimate number awards expected forfeited adjust estimates longer probable period due adoption asu 201609 recorded 58 million tax benefit consolidated financial statements fiscal year ended january 27 2018 income taxes provision income taxes accounted asset liability method prescribed asc 740 topic 740 “income taxes” deferred tax assets liabilities recognized future tax consequences attributable differences financial statement carrying amounts existing assets liabilities respective tax bases operating losses tax credit carryforwards deferred tax assets liabilities measured using enacted tax rates expected apply taxable income years temporary differences expected recovered settled effect deferred tax assets liabilities change tax rates recognized income period tax rate changes enacted record valuation allowance reduce carrying amounts amount believed likely realized recognize tax benefit uncertain tax position likely tax position sustained examination taxing authorities based technical merits position tax benefits recognized financial statements positions measured based largest benefit greater 50 likelihood realized upon settlement december 22 2017 tax act adopted law tax act makes broad complex changes internal revenue code 1986 including limited reducing us federal corporate tax rate 35 21 ii eliminating corporate alternative minimum tax “amt” changing existing amt credits realized iii creating new limitation deductible interest expense iv changing rules related uses limitation net operating loss carryforwards created tax years beginning december 31 2017 result adoption tax act fiscal year ended january 27 2018 statutory federal corporate tax rate prorated 340 statutory rate fiscal year 2019 beyond 210 december 2017 securities exchange commission staff issued state accounting bulletin 118 income tax accounting implications tax cuts jobs act “sab 118” allows us record provisional amounts measurement period extend beyond one year enactment date since tax act enacted fourth quarter fiscal year ended january 27 2018 ongoing guidance accounting interpretations expected next 12 months consider accounting deferred tax remeasurements items cost recovery state tax considerations incomplete due forthcoming guidance ongoing analysis final yearend data tax positions expect complete analysis within measurement period accordance sab 118 required assess available positive negative evidence estimate sufficient future income generated utilize deferred tax assets significant piece positive negative evidence consider cumulative income losses generally defined losses income taxes incurred recent threeyear period evidence supplemented four sources taxable income described asc 740103018 assessment available positive negative evidence january 30 2016 concluded valuation allowance longer appropriate except related certain state net operating loss carryforwards january 30 2016 excluding items considered unusual nature determined three years cumulative pretax income believed significant piece positive evidence allowed us consider subjective evidence future forecasted pretax income concluded positive evidence along taxable income prior two fiscal years absorb loss carrybacks would generated reversing deductible differences excess reversing taxable differences well cumulative pretax income exclusive unusual items recent fiscal years likely deferred tax assets would realized future years valuation allowances totaled 03 million january 28 2017 fiscal year 2018 analyzing ability utilize state net operating losses determined positive evidence outweighed negative evidence remaining valuation allowance released recent accounting pronouncements may 2014 fasb issued asu 201409 “revenue contracts customers” “asu 201409” asu 201409 supersedes revenue recognition requirements “topic 605 revenue recognition” requires entities recognize revenue way depicts transfer promised goods services customers amount reflects consideration entity expects entitled exchange goods services asu 201409 effective annual reporting periods beginning december 15 2017 including interim periods within reporting period completed initial impact assessment believe adopting asu materially impact timing revenue recognition anticipate impact guidance material consolidated financial statements believe guidance impact estimated cost returns recorded current asset rather netted sales return reserves ii timing revenue recognition related gift card breakage income recognized proportion historical pattern redemptions rather redemption considered remote expect adopt new guidance using full retrospective method first quarter fiscal year ending january 26 2019 “fiscal year 2019” february 2016 fasb issued asu 201602 “leases” supersedes asc 840 “leases” creates new topic asc 842 “leases” “asu 201602” asu 201602 entity required recognize rightofuse assets lease liabilities balance sheet disclose key information leasing arrangements asu 201602 offers specific accounting guidance lessee lessor sale leaseback transactions lessees lessors required disclose qualitative quantitative information leasing arrangements enable user financial statements assess amount timing uncertainty cash flows arising leases asu 201602 effective annual reporting periods beginning december 15 2018 including interim periods within reporting period early adoption permitted adoption update applied using modified retrospective approach currently evaluating impact asu 201602 expect upon adoption recognize rightofuse assets liabilities material financial statements march 2016 fasb issued asu 201604 “recognition breakage certain prepaid storedvalue products” “asu 201604” asu 201604 requires breakage prepaid storedvalue product liabilities example prepaid gift cards accounted consistent breakage guidance “topic 606 revenue contracts customers” asu 201604 effective annual reporting periods beginning december 15 2017 including interim reporting periods within reporting period early adoption permitted standard applied either using modified retrospective approach retrospectively period presented completed initial impact assessment believe adopting asu materially impact timing revenue recognition expect adopt new guidance using full retrospective method first quarter fiscal year 2019 august 2016 fasb issued asu 201615 “classification certain cash receipts cash payments” “asu 201615” asu 201615 intended reduce diversity practice around certain transactions classified within statement cash flows asu 201615 effective annual reporting periods beginning december 15 2017 including interim periods within reporting period early adoption permitted evaluated impact asu 201615 believe material impact consolidated financial statements implemented first quarter fiscal year 2019 november 2016 fasb issued asu 201618 “restricted cash” “asu 201618” asu 201618 intended reduce diversity practice around restricted cash classified within statement cash flows asu 201618 effective annual reporting periods beginning december 15 2017 including interim periods within reporting period early adoption permitted evaluated impact asu 201618 upon adopting new standard first quarter fiscal year 2019 longer present release restricted cash investing activity cash inflow instead restricted cash balances included beginning ending cash equivalents restricted cash balances statement cash flows expect adopt new guidance using full retrospective method first quarter fiscal year ending january 25 2020 january 2017 fasb issued asu 201704 “simplifying test goodwill impairment” “asu 201704” asu 201704 simplifies measurement goodwill impairment removing second step goodwill impairment test requires determination fair value individual assets liabilities reporting unit asu 201704 goodwill impairment measured amount reporting unit’s carrying value exceeds fair value loss recognized exceed total amount goodwill allocated reporting unit asu 201704 effective fiscal years beginning december 15 2019 early adoption permitted interim annual goodwill impairment tests performed january 1 2017 standard applied prospective basis currently evaluating impact asu 201704 anticipate material impact consolidated financial statements implemented jumpstart business act 2012 “emerging growth company” defined jumpstart business startups act 2012 refer jobs act remain emerging growth company earlier 1 last day fiscal year following fifth anniversary completion initial public offering b total annual gross revenue least 107 billion c deemed large accelerated filer means market value common stock held nonaffiliates exceeds 7000 million last business day recently completed second fiscal quarter 2 date issued 10 billion nonconvertible debt securities prior threeyear period emerging growth company may take advantage specified reduced reporting burdens otherwise applicable generally public companies emerging growth company jobs act allows us take advantage extended transition period comply new revised accounting standards applicable public companies choosing irrevocably ‘‘opt out’’ provision result comply new revised accounting standards required adopted item 7a item 7a quantitative qualitative disclosures market risks interest rate risk market risk exposure arising changes interest rates abl facility term loan facilities bear interest rates benchmarked libor based overall interest rate exposure variable rate debt outstanding january 25 2020 1 increase decrease interest rates would increase decrease income taxes approximately 57 million 1 increase decrease interest rates would impact fair value longterm fixed rate debt immaterial amount change interest rates would materially affect fair value variable rate debt reprices periodically furthermore certain variable rate indebtedness uses libor benchmark establishing rate interest libor subject recent regulatory guidance proposals reform currently expected libor discontinued 2021 material financing arrangements indexed libor provide procedures determining alternative base rate event libor discontinued assurances whether alternative base rate less favorable libor impact inflation results operations financial condition presented based historical cost difficult accurately measure impact inflation due imprecise nature estimates required believe effects inflation results operations financial condition immaterial cannot assure however results operations financial condition materially impacted inflation future foreign currency risk fiscal year ended january 25 2020 purchased approximately 65 merchandise suppliers foreign countries however purchases made exclusively us dollars therefore believe foreign currency fluctuation material impact financial performance periods presented report item 8 item 7a quantitative qualitative disclosures market risks interest rate risk market risk exposure arising changes interest rates abl facility term loan facilities bear interest rates benchmarked london interbank offered rates “libor” based overall interest rate exposure variable rate debt outstanding january 28 2017 1 increase decrease interest rates would increase decrease income taxes approximately 40 million 1 increase decrease interest rates would impact fair value longterm fixed rate debt immaterial amount change interest rates would materially affect fair value variable rate debt reprices periodically impact inflation results operations financial condition presented based historical cost difficult accurately measure impact inflation due imprecise nature estimates required believe effects inflation results operations financial condition immaterial cannot assure however results operations financial condition materially impacted inflation future foreign currency risk fiscal year ended january 28 2017 purchase approximately 60 merchandise suppliers foreign countries however purchases made exclusively us dollars therefore believe foreign currency fluctuation material impact financial performance periods presented report item 8 item 7a quantitative qualitative disclosures market risks interest rate risk market risk exposure arising changes interest rates abl facility term loan facilities bear interest rates benchmarked london interbank offered rates “libor” based overall interest rate exposure variable rate debt outstanding january 26 2019 1 increase decrease interest rates would increase decrease income taxes approximately 56 million 1 increase decrease interest rates would impact fair value longterm fixed rate debt immaterial amount change interest rates would materially affect fair value variable rate debt reprices periodically impact inflation results operations financial condition presented based historical cost difficult accurately measure impact inflation due imprecise nature estimates required believe effects inflation results operations financial condition immaterial cannot assure however results operations financial condition materially impacted inflation future foreign currency risk fiscal year ended january 26 2019 purchased approximately 65 merchandise suppliers foreign countries however purchases made exclusively us dollars therefore believe foreign currency fluctuation material impact financial performance periods presented report item 8 item 7a quantitative qualitative disclosures market risks interest rate risk market risk exposure arising changes interest rates abl facility term loan facilities bear interest rates benchmarked london interbank offered rates “libor” based overall interest rate exposure variable rate debt outstanding january 27 2018 1 increase decrease interest rates would increase decrease income taxes approximately 45 million 1 increase decrease interest rates would impact fair value longterm fixed rate debt immaterial amount change interest rates would materially affect fair value variable rate debt reprices periodically impact inflation results operations financial condition presented based historical cost difficult accurately measure impact inflation due imprecise nature estimates required believe effects inflation results operations financial condition immaterial cannot assure however results operations financial condition materially impacted inflation future foreign currency risk fiscal year ended january 27 2018 purchase approximately 60 merchandise suppliers foreign countries however purchases made exclusively us dollars therefore believe foreign currency fluctuation material impact financial performance periods presented report item 8 item 8 consolidated financial statements supplementary data see index consolidated financial statements supplementary data page consolidated financial statements supplementary data included pages incorporated herein reference item 9 item 8 financial statements supplementary data see index consolidated financial statements supplementary data page consolidated financial statements supplementary data included pages incorporated herein reference item 9 item 8 consolidated financial statements supplementary data see index consolidated financial statements supplementary data page consolidated financial statements supplementary data included pages incorporated herein reference item 9 item 8 financial statements supplementary data see index consolidated financial statements supplementary data page consolidated financial statements supplementary data included pages incorporated herein reference item 9 item 15 exhibits financial statement schedules following documents filed part report 1consolidated financial statements see index consolidated financial statements page 2financial statement schedules financial statement schedules omitted required applicable required information provided consolidated financial statements notes described 151 3exhibits exhibits listed accompanying index exhibits attached hereto filed incorporated reference annual report form 10k item 16 form 10k summary none index consolidated financial statements page report independent registered public accounting firm consolidated balance sheets january 25 2020 january 26 2019 consolidated statements operations fiscal years ended january 25 2020 january 26 2019 january 27 2018 consolidated statements shareholders’ equity fiscal years ended january 25 2020 january 26 2019 january 27 2018 consolidated statements cash flows fiscal years ended january 25 2020 january 26 2019 january 27 2018 notes consolidated financial statements schedule condensed financial information registrant report independent registered public accounting firm shareholders board directors home group inc opinion financial statements audited accompanying consolidated balance sheets home group inc company january 25 2020 january 26 2019 related consolidated statements operations shareholders’ equity cash flows three years period ended january 25 2020 related notes financial statement schedule listed index item 15 collectively referred “consolidated financial statements” opinion consolidated financial statements present fairly material respects financial position company january 25 2020 january 26 2019 results operations cash flows three years period ended january 25 2020 conformity us generally accepted accounting principles also audited accordance standards public company accounting oversight board united states pcaob company’s internal control financial reporting january 25 2020 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission 2013 framework report dated may 19 2020 expressed unqualified opinion thereon adoption new accounting standards discussed note 10 consolidated financial statements company changed method accounting leases fiscal 2020 result modified retrospective adoption accounting standards update asu 201602 leases topic 842 amended discussed note 1 consolidated financial statements company changed method accounting goodwill impairments fiscal 2020 due adoption asu 201704 simplifying test goodwill impairment basis opinion financial statements responsibility company’s management responsibility express opinion company’s financial statements based audits public accounting firm registered public company accounting oversight board united states pcaob required independent respect company accordance us federal securities laws applicable rules regulations securities exchange commission pcaob conducted audits accordance standards pcaob standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement whether due error fraud audits included performing procedures assess risks material misstatement financial statements whether due error fraud performing procedures respond risks procedures included examining test basis evidence regarding amounts disclosures financial statements audits also included evaluating accounting principles used significant estimates made management well evaluating overall presentation financial statements believe audits provide reasonable basis opinion ernst young llp served company’s auditor since 2013 dallas texas may 19 2020 report independent registered public accounting firm shareholders board directors home group inc opinion internal control financial reporting audited home group inc’s internal control financial reporting january 25 2020 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission 2013 framework coso criteria opinion home group inc company maintained material respects effective internal control financial reporting january 25 2020 based coso criteria also audited accordance standards public company accounting oversight board united states pcaob balance sheets company january 25 2020 january 26 2019 related statements operations shareholders’ equity cash flows three years period ended january 25 2020 related notes financial statement schedules listed index item 15 report dated may 19 2020 expressed unqualified opinion thereon basis opinion company’s management responsible maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included accompanying report management responsibility express opinion company’s internal control financial reporting based audit public accounting firm registered pcaob required independent respect company accordance us federal securities laws applicable rules regulations securities exchange commission pcaob conducted audit accordance standards pcaob standards require plan perform audit obtain reasonable assurance whether effective internal control financial reporting maintained material respects audit included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk performing procedures considered necessary circumstances believe audit provides reasonable basis opinion definition limitations internal control financial reporting company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate ernst young llp dallas texas may 19 2020 home group inc consolidated balance sheets thousands except share per share data see notes consolidated financial statements home group inc consolidated statements operations thousands except share per share data see notes consolidated financial statements home group inc consolidated statements shareholders’ equity thousands except share data see notes consolidated financial statements home group inc consolidated statements cash flows thousands see notes consolidated financial statements home group inc notes consolidated financial statements 1 nature operations summary significant accounting policies description business home décor superstore focused exclusively providing broad assortment products room style budget january 25 2020 operated 212 home décor superstores 39 states primarily south central southeastern midatlantic midwestern regions united states home owned operated home group inc whollyowned subsidiaries references “we” “us” “our” “company” similar expressions references home group inc consolidated whollyowned subsidiaries unless otherwise expressly stated context otherwise requires initial secondary public offerings august 3 2016 registration statement form s1 relating initial public offering “ipo” declared effective sec pursuant registered aggregate 9967050 shares common stock including 1300050 shares subject underwriters overallotment option common stock began trading new york stock exchange “nyse” august 4 2016 ticker symbol “home” following ipo august 4 2016 completed several secondary equity offerings shares common stock held aea investors lp collectively “aea” starr investment holdings llc “starr investments sell shares common stock receive proceeds secondary offerings january 25 2020 aea held approximately 164 outstanding common stock starr investments held approximately 67 outstanding common stock fiscal year report basis 52 53week fiscal year ends last saturday january references fiscal year mean year fiscal year ends references herein “fiscal year 2020” relate 52 weeks ended january 25 2020 references herein “fiscal year 2019” relate 52 weeks ended january 26 2019 references herein “fiscal year 2018” relate 52 weeks ended january 27 2018 consolidation accompanying consolidated financial statements include accounts home group inc “at home group” consolidated whollyowned subsidiaries intercompany balances transactions eliminated consolidation company components comprehensive income recorded within consolidated financial statements therefore separately present statement comprehensive income consolidated financial statements use estimates preparing financial statements conformity us generally accepted accounting principles requires us make estimates assumptions affect reported amounts certain assets liabilities revenues expenses related disclosure contingent assets liabilities date financial statements base estimates historical experience various assumptions believe reasonable circumstances results form basis making judgments carrying values assets liabilities readily apparent sources use estimates inherent financial reporting process actual results may differ estimates home group inc notes consolidated financial statements continued reclassification certain prior period amounts reclassified conform current period presentation within consolidated financial statements accompanying notes including ●loss disposal fixed assets included within noncash losses net consolidated statement cash flows ●the disaggregation net sales adjusted product categories within note 8 revenue recognition reclassifications effect previously reported results operations retained earnings segment information management determined one operating segment therefore one reportable segment chief operating decision maker “codm” chief executive officer codm reviews financial performance allocates resources consolidated level recurring basis assets located revenue derived united states cash equivalents cash equivalents consist highly liquid investments original maturities three months less well credit card receivables january 25 2020 january 26 2019 cash equivalents comprised primarily credit card receivables restricted cash restricted cash consists cash equivalents reserved specific purpose readily available immediate general business use following table provides reconciliation cash equivalents restricted cash reported within consolidated balance sheets sum total amounts shown consolidated statements cash flows thousands inventories comprised finished merchandise stated lower cost net realizable value cost determined using weightedaverage method cost inventories include actual landed cost item time received distribution center point shipment certain international shipments well transportation costs distribution center retail stores applicable net inventory cost recognized cost sales inventory sold physical inventory counts performed stores least per year thirdparty inventory counting service inventory records adjusted reflect actual inventory counts resulting shortage “shrinkage” recognized reserves shrinkage estimated recorded throughout fiscal year percentage sales based recent physical inventory combination historical experience also evaluate merchandise ensure expected net realizable value merchandise held end fiscal year exceeds home group inc notes consolidated financial statements continued cost event expected net realizable value less cost reduce value inventory accordingly consideration received vendors receive vendor support form cash payments allowances variety vendorsponsored programs volume rebates markdown allowances advertising also receive consideration certain compliance programs agreements place vendor setting forth specific conditions allowance generally earn vendor allowances percentage certain merchandise purchases minimum purchase requirements typically vendor allowance programs extend period twelve months vendor support reduces inventory costs based underlying provisions agreement vendor compliance charges recorded reduction cost merchandise inventories subsequent reduction cost sales inventory sold property equipment property equipment recorded cost less accumulated depreciation amortization depreciation property equipment leasehold improvements recorded straightline basis estimated useful lives assets ranging 3 40 years leasehold improvements amortized straightline basis shorter remaining lease term including renewals determined reasonably assured estimated useful life related improvement amortization property capital leases straightline basis lease term included depreciation expense costs internaluse software hosting arrangements related service contract incurred preliminary project stage certain direct costs incurred later stages associated development purchase internaluse software hosting arrangements related service contract including external costs services internal payroll costs related software project capitalized within property equipment accompanying consolidated balance sheets capitalized costs amortized straightline basis estimated useful lives asset generally three five years fiscal years ended january 25 2020 january 26 2019 january 27 2018 capitalized costs 97 million 31 million 43 million respectively amortization expense related capitalized costs totaled 60 million 49 million 44 million fiscal years ended january 25 2020 january 26 2019 january 27 2018 respectively capitalize major replacements improvements expense routine maintenance repairs incurred remove cost assets sold retired related accumulated depreciation amortization consolidated balance sheets include resulting gain loss accompanying consolidated statements operations capitalized interest capitalize interest borrowings active construction period major capital projects capitalized interest added cost underlying assets amortized useful lives assets capitalized interest cost approximately 21 million 31 million 13 million fiscal years ended january 25 2020 january 26 2019 january 27 2018 respectively home group inc notes consolidated financial statements continued fair value measurements follow provisions accounting standards codification “asc” 820 topic 820 “fair value measurements disclosures” asc 820 establishes threetiered fair value hierarchy prioritizes inputs valuation techniques used fair value calculations ●level 1 unadjusted quoted market prices identical assets liabilities active markets ability access ●level 2 quoted prices similar assets liabilities active markets quoted prices identical similar assets liabilities inactive markets valuations based models significant inputs observable eg interest rates yield curves prepayment speeds default rates loss severities etc corroborated observable market data ●level 3 valuations based models significant inputs observable unobservable inputs reflect assumptions market participants would use asc 820 requires us maximize use observable inputs minimize use unobservable inputs financial instrument uses inputs fall different levels hierarchy instrument categorized based upon lowest level input significant fair value calculation fair value current financial instruments including cash equivalents accounts payable approximates carrying value shortterm nature instruments variable fixed rates longterm debt fair value longterm debt variable rates approximates carrying value interest rates amounts approximate market rates determine fair value fixed rate debt using quoted market prices current interest rates january 25 2020 fair value fixed rate mortgage due august 22 2022 60 million approximately 02 million carrying value 58 million fair value fixed rate mortgage determined using level 2 inputs goodwill tested impairment operating segment level least annually frequently events occur indicate potential reduction fair value reporting units net assets carrying value regular annual goodwill impairment testing performed fourth quarter fiscal year effect beginning fourth quarter one operating segment reporting unit exists operating segment implied fair value goodwill lower carrying amount goodwill impairment indicated goodwill written implied fair value assess business enterprise value using combination income approach market approach determine fair value company compared carrying value net assets income approach using discounted cash flow method includes key factors used valuation company level 3 valuation include limited managements plans future operations recent operating results income tax rates discounted projected future cash flows projected cash flows used income approach assessing goodwill valuation include numerous assumptions sales projections assuming positive comparable store sales growth operating margins store count capital expenditures derived longterm forecasts additionally assumptions regarding weighted average cost capital used information comparable companies managements judgment related risks associated operations reporting unit option perform qualitative assessment goodwill rather completing quantitative assessment determine whether likely fair value operating segment less home group inc notes consolidated financial statements continued carrying amount including goodwill intangible assets conclude case must perform quantitative assessment otherwise may forego quantitative assessment need perform testing third quarter fiscal year 2020 experienced decline operating performance uncertainty regarding impact tariffs margins coupled decision reduce nearterm growth model conducted interim impairment testing goodwill based test results concluded impairment necessary 5697 million implied fair value goodwill balance sheet time testing annual testing date october 27 2019 determined significant change facts circumstances since interim impairment testing date warrant different conclusion fair value reporting unit however fourth quarter fiscal year 2020 continued experience decline operating performance sustained decline market capitalization downgrade term loan certain rating agencies conducted additional interim impairment testing goodwill based results impairment test performed recognized goodwill impairment charge 2500 million fiscal year ended january 25 2020 impairment goodwill recognized fiscal years ended january 26 2019 january 27 2018 believe made reasonable estimates assumptions calculate fair value reporting unit use different assumptions estimates judgments respect estimation projected future cash flows determination discount rate sales growth rate used calculate net present value projected future cash flows could materially increase decrease estimates fair value goodwill impairment charge fiscal year ended january 25 2020 include subsequent impact global outbreak covid19 conditions exist january 25 2020 additionally future impairment charges could required achieve current net sales profitability projections would occur able meet new store growth targets future economic conditions deteriorate especially given uncertainty impact global outbreak covid19 weighted average cost capital increases moreover changes market capitalization may impact certain assumptions used income approach calculations 10 decrease projected net cash flows would resulted additional impairment charge approximately 110 million 100 basis point increase discount rate would resulted additional impairment charge approximately 85 million impairment longlived indefinitelived assets evaluate recoverability carrying value longlived assets whenever events changes circumstances indicate carrying amount may recoverable evaluation compares carrying value assets estimated future undiscounted cash flows expected result use eventual disposition assets evaluate longlived intangible assets individual store level lowest level identifiable cash flows evaluate corporate assets longlived assets storespecific consolidated level estimate storespecific future cash flows make assumptions key store variables including sales growth rate gross margin payroll controllable expenses stores owned us meet initial criteria evaluated taking consideration fair market value property compared carrying value assets furthermore management considers factors evaluating stores impairment including individual stores execution operating plan local market conditions estimates subject uncertainty may affected number factors outside control including general economic conditions competitive environment impairment recognized factors noted taken consideration determined carrying amount stores assets recoverable impairment loss would recognized amount carrying amount longlived asset exceeds fair value excluding assets redeployed fiscal year ended january 25 2020 recognized noncash impairment charge 52 million home group inc notes consolidated financial statements continued connection store closure relocation decisions based upon review storelevel assets fiscal year ended january 27 2018 identified impairment connection certain property equipment following resolution legal matter recognized charge 24 million impairment longterm assets recognized fiscal year ended january 26 2019 test indefinitelived trade name intangible asset annually impairment frequently impairment indicators arise fair value indefinitelived intangible asset lower carrying amount asset written fair value fair value trade name level 3 valuation calculated using relieffromroyalty approach assumes value trade name discounted cash flows amount would paid hypothetical market participant owned trade name instead licensed trade name another company carrying value home trade name january 25 2020 approximately 15 million impairment indefinitelived trade name intangible asset recognized fiscal years ended january 25 2020 january 26 2019 january 27 2018 debt issuance costs debt issuance costs incurred connection obtaining modifying financing arrangements costs capitalized direct deduction carrying value debt costs incurred conjunction line credit capitalized asset amortized term respective debt agreements total amortization expense related debt issuance costs approximately 22 million 18 million 19 million fiscal years ended january 25 2020 january 26 2019 january 27 2018 respectively insurance liabilities period december 1 2013 january 25 2020 fully insured workers compensation commercial general liability claims prior period used combination commercial insurance selfinsurance workers compensation commercial general liability claims purchased insurance coverage limited aggregate exposure individual claims 250000 per workers compensation commercial general liability claim utilize combination commercial insurance selfinsurance employeerelated health care plans cost health care plan borne part employees purchase insurance coverage limits aggregate exposure individual claims 175000 per employeerelated health care claim health care reserves based actual claims experience estimate claims incurred reported reserves commercial general liability workers compensation determined use actuarial studies due judgments estimates utilized determining reserves subject high degree variability event insurance carriers unable pay claims submitted would record liability estimated payments expect incur revenue recognition revenue sales merchandise recognized customer takes possession merchandise revenue presented net sales taxes collected allow merchandise returned within 60 days purchase date provide reserve estimated returns see note 8revenue recognition cost sales cost sales included merchandise inventories expensed merchandise sold include following expenses cost sales home group inc notes consolidated financial statements continued ●cost merchandise net inventory shrinkage damages vendor allowances ●inbound freight internal transportation costs distribution centertostore freight costs ●costs operating distribution center including labor occupancy costs supplies depreciation ●store occupancy costs including rent insurance taxes common area maintenance utilities repairs maintenance depreciation selling general administrative expenses selling general administrative expenses include payroll benefits personnel expenses corporate store employees including stockbased compensation expense consulting legal professional services expenses advertising expenses occupancy costs corporate headquarters various expenses store preopening costs expense preopening costs new stores incurred fiscal years ended january 25 2020 january 26 2019 january 27 2018 store preopening costs approximately 267 million 217 million 179 million respectively store preopening costs occupancy expenses advertising labor primarily included selling general administrative expenses marketing advertising marketing advertising costs exclusive store preopening marketing advertising expenses discussed include billboard newspaper radio digital advertising mediums marketing advertising costs expensed first run included selling general administrative expenses total marketing advertising expenses approximately 449 million 349 million 243 million fiscal years ended january 25 2020 january 26 2019 january 27 2018 respectively stockbased compensation account stockbased compensation accordance asc 718 topic 718 “compensationstock compensation” requires stockbased payments employees including grants employee stock options restricted stock units recognized consolidated financial statements requisite service period compensation expense based upon fair value awards recognized straightline basis requisite service period awards actually vest stockbased compensation expense recorded selling general administrative expenses consolidated statements operations estimate fair value stock option grant date grant based upon blackscholes option pricing model exception special onetime initial public offering transaction bonus grant valued date grant using monte carlo simulation method restricted stock unit awards performance stock unit awards grant date fair value determined based upon closing trading value common stock nyse date grant forfeiture assumptions estimated based historical experience blackscholes option pricing model requires various significant judgmental assumptions order derive final fair value determination type award including following ●expected termthe expected term options represents period time grant date options date options either exercised canceled home group inc notes consolidated financial statements continued ●expected volatilitythe expected volatility calculated based partially historical volatility common stock partially historical volatility common stock comparable companies ●expected dividend yieldthe expected dividend yield based expectation paying dividends common stock foreseeable future ●riskfree interest ratethe riskfree interest rate average us treasury rate effect time grant maturity approximates expected term used monte carlo simulation model determine fair value special onetime initial public offering transaction bonus grant subject marketbased conditions stock option grants subject marketbased conditions cliff vesting began third quarter fiscal year 2017 continued second quarter fiscal year 2019 subject achievement market conditions valued stock option grants single award related compensation cost recognized using straightline method derived service period expected volatility based combination historical implied volatilities common stock comparable companies grants stock options exercise price equal greater fair market value common stock date grant income taxes provision income taxes accounted asset liability method prescribed asc 740 topic 740 “income taxes” deferred tax assets liabilities recognized future tax consequences attributable differences financial statement carrying amounts existing assets liabilities respective tax bases operating losses tax credit carryforwards deferred tax assets liabilities measured using enacted tax rates expected apply taxable income years temporary differences expected recovered settled effect deferred tax assets liabilities change tax rates recognized income period tax rate changes enacted necessary valuation allowance may recorded deferred tax assets order properly reflect amount likely realized recognize tax benefit uncertain tax position likely tax position sustained examination taxing authorities based technical merits position tax benefits recognized financial statements positions measured based largest benefit greater 50 likelihood realized upon settlement december 22 2017 federal tax reform legislation adopted law us government “tax act” tax act makes broad complex changes internal revenue code 1986 including limited reducing us federal corporate tax rate 35 21 ii eliminating corporate alternative minimum tax “amt” changing existing amt credits realized iii creating new limitation deductible interest expense iv changing rules related use limitation net operating loss carryforwards created tax years beginning december 31 2017 result adoption tax act fiscal year ended january 27 2018 statutory federal corporate tax rate prorated 340 statutory rate fiscal year ended january 26 2019 beyond 210 recently adopted accounting standards january 27 2019 adopted asu 201815 “customers accounting implementation costs incurred cloud computing arrangement service contract” “asu 201815” using prospective method asu 201815 aligns requirements capitalizing implementation costs incurred hosting arrangement related service contract requirements capitalizing implementation costs incurred develop obtain home group inc notes consolidated financial statements continued internaluse software hosting arrangements include internaluse software license january 25 2020 incurred implementation costs 39 million related hosting arrangements related service contract would meet capitalization policy january 27 2019 adopted asu 201602 “leases” supersedes asc 840 “leases” creates new topic asc 842 “leases” “asu 201602” “asc 842” using modified retrospective approach information see note 10 commitments contingencies july 28 2019 early adopted asu 201704 “simplifying test goodwill impairment” “asu 201704” using prospective method asu 201704 simplifies measurement goodwill impairment removing second step goodwill impairment test requires determination fair value individual assets liabilities reporting unit asu 201704 goodwill impairment measured amount reporting unit’s carrying value exceeds fair value loss recognized exceed total amount goodwill allocated reporting unit 2 property equipment property equipment consists following thousands depreciation amortization expense fiscal years ended january 25 2020 january 26 2019 january 27 2018 totaled approximately 694 million 565 million 488 million respectively approximately 618 million 502 million 427 million depreciation amortization expense included cost sales fiscal years ended january 25 2020 january 26 2019 january 27 2018 respectively addition recorded 52 million impairment charges connection store closure relocation decisions fiscal year ended january 25 2020 24 million impairment charges property equipment following resolution legal matter fiscal year ended january 27 2018 3 saleleaseback transactions september 2019 sold four properties tempe arizona avon indiana mount juliet tennessee cypress texas total 505 million resulting net gain 11 million contemporaneously closing sale entered lease pursuant leased back properties cumulative initial annual rent 37 million subject annual escalations lease accounted operating lease march 2019 sold five properties frederick maryland live oak texas mansfield texas plano texas whitehall pennsylvania total 747 million resulting net gain 166 million contemporaneously closing sale entered lease pursuant leased back properties cumulative initial annual rent 50 million subject annual escalations lease accounted operating lease home group inc notes consolidated financial statements continued october 2018 sold four properties gilbert arizona pearland texas richmond texas rogers arkansas total 565 million resulting net gain 31 million contemporaneously closing sale entered two leases pursuant leased back properties cumulative initial annual rent 38 million subject annual escalations leases accounted operating leases prior adoption asc 842 deferred net gain sale properties included deferred rent liabilities condensed consolidated balance sheet amortized gain rent expense straight line basis upon adoption asc 842 remaining deferred net gain recognized cumulativeeffect adjustment opening retained earnings fiscal year 2020 july 2018 sold three properties clarksville tennessee shreveport louisiana wixom michigan total 436 million resulting net gain 107 million contemporaneously closing sale entered lease pursuant leased back properties cumulative initial annual rent 30 million subject annual escalations lease accounted operating lease prior adoption asc 842 deferred net gain sale properties included deferred rent liabilities condensed consolidated balance sheet amortized gain rent expense straight line basis upon adoption asc 842 remaining deferred net gain recognized cumulativeeffect adjustment opening retained earnings fiscal year 2020 february 2018 sold four properties blaine minnesota fort worth texas jackson mississippi memphis tennessee total 503 million resulting net gain 226 million contemporaneously closing sale entered lease pursuant leased back properties cumulative initial annual rent 34 million subject annual escalations lease accounted operating lease prior adoption asc 842 deferred net gain sale properties included deferred rent liabilities condensed consolidated balance sheet amortized gain rent expense straight line basis upon adoption asc 842 remaining deferred net gain recognized cumulativeeffect adjustment opening retained earnings fiscal year 2020 august 2017 sold six properties hoover alabama lafayette louisiana moore oklahoma olathe kansas orange park florida wichita kansas total 626 million resulting net gain 154 million contemporaneously closing sale entered lease pursuant leased back properties cumulative initial annual rent 42 million subject annual escalations lease accounted operating lease prior adoption asc 842 deferred net gain sale properties included deferred rent liabilities condensed consolidated balance sheet amortized gain rent expense straight line basis upon adoption asc 842 remaining deferred net gain recognized cumulativeeffect adjustment opening retained earnings fiscal year 2020 home group inc notes consolidated financial statements continued 4 accrued liabilities accrued liabilities consist following thousands 5 revolving line credit october 2011 home holding iii inc “at home iii” home stores llc collectively “abl borrowers” entered assetbased revolving line credit “abl facility” originally provided cash borrowings issuances letters credit 800 million based defined percentages eligible inventory credit card receivable balances june 2019 connection agreement governing abl facility “abl credit agreement” entered letter agreement certain lenders party abl credit agreement “commitment increase letter agreement” pursuant lenders agreed increase respective commitments 750 million aggregate effective june 14 2019 “abl commitment increase” following abl commitment increase amount aggregate commitments available abl credit agreement 4250 million terms abl facility changed commitment increase letter agreement amended abl credit agreement time giving effect amendments abl commitment increase january 25 2020 amount aggregate commitments available abl credit agreement 4250 million sublimit issuance letters credit 500 million sublimit issuance swingline loans 200 million july 2017 connection seventh amendment abl credit agreement “abl amendment” maturity abl facility extended earlier july 27 2022 date 91 days prior maturity date term loan entered june 5 2015 first lien credit agreement “first lien agreement” date may extended interest borrowings abl facility computed based average daily availability option x higher federal funds rate plus 12 100 ii agent banks prime rate iii libor plus 100 plus case applicable margin 025 075 agent banks libor rate plus applicable margin 125 175 effective interest rate approximately 400 380 290 fiscal years ended january 25 2020 january 26 2019 january 27 2018 respectively january 25 2020 approximately 2357 million outstanding abl facility approximately 01 million face amount letters credit issued availability approximately 1507 million abl facility includes restrictions customarily found agreements ability abl borrowers subsidiary guarantors incur additional liens indebtedness make investments dispositions home group inc notes consolidated financial statements continued pay dividends home holding ii inc “at home ii” enter transactions among restrictions case subject certain exceptions abl facility abl borrowers subsidiary guarantors permitted pay dividends home ii long giving effect payment availability equal greater 15 loan cap ie lesser x aggregate lender commitments abl facility borrowing base ii availability less 20 loan cap consolidated fixed charge coverage ratio equal greater 10 b pursuant certain limited exceptions january 25 2020 january 26 2019 compliance covenants prescribed abl facility abl facility secured first priority lien cash equivalents deposit accounts receivable receivables tax refunds inventory ii extent relating arising evidencing governing items referred preceding clause chattel paper documents instruments general intangibles securities accounts related thereto iii books records relating foregoing iv supporting obligations products proceeds foregoing collateral security guarantees given person respect foregoing case subject certain exceptions collectively “abl priority collateral” b second priority lien remaining assets constituting abl priority collateral subject certain exceptions collectively “term priority collateral” provided however since amendment abl facility july 2017 real property may secure term loan time longer forms part collateral abl facility 6 longterm debt longterm debt consists following thousands amatures august 22 2022 345 payable monthly including interest 450 remaining balance due maturity secured location’s land building aggregate annual maturities longterm debt excluding finance lease obligations follows thousands home group inc notes consolidated financial statements continued term loan facilities june 5 2015 indirect wholly owned subsidiary home holding iii inc “borrower” entered first lien agreement among borrower home holding ii inc “at home ii” direct wholly owned subsidiary guarantor certain indirect subsidiaries home ii various lenders bank america na administrative agent collateral agent subsequently amended first lien agreement time giving effect amendments first lien agreement provides term loan aggregate principal amount 3500 million “term loan” term loan mature june 3 2022 repayable equal quarterly installments approximately 09 million annual aggregate amount equal 1 original principal amount borrower option paying interest 1month 2month quarterly basis term loan annual rate libor subject 1 floor plus 400 subject 050 reduction borrower achieves specified secured net leverage ratio level met fiscal year ended january 28 2017 borrower continued qualify fiscal year ended january 25 2020 term loan prepayable whole part without premium option term loan various nonfinancial covenants customary representations warranties events defaults remedies substantially similar described respect abl facility financial maintenance covenants term loan january 25 2020 january 26 2019 compliance covenants prescribed term loan term loan secured first priority lien term priority collateral b second priority lien abl priority collateral november 27 2018 home ii borrower entered second amendment “term loan amendment” lenders party thereto bank america na administrative agent collateral agent amended first lien agreement amended first amendment dated july 27 2017 pursuant term loan amendment among things borrower borrowed additional 500 million incremental term loans increasing principal amount outstanding first lien agreement date 3395 million net proceeds incremental term loans used repay approximately 496 million borrowings abl facility restricted net assets home groups consolidated subsidiaries 6086 million january 25 2020 7 related party transactions merry mabbett inc “mmi” owned merry mabbett dean mother lewis l bird iii chairman chief executive officer fiscal years ended january 25 2020 january 26 2019 january 27 2018 mmi purchased certain fixtures furniture equipment owned used us home office new store offices product vignettes stores addition ms dean mmi provided certain design services us including design home office well design stores paid mmi approximately 03 million year ended january 25 2020 06 million fiscal years ended january 26 2019 january 27 2018 primarily fixtures furniture equipment fourth quarter fiscal year 2020 made decision longer utilize services purchase fixtures furniture equipment mmi home group inc notes consolidated financial statements continued 8 revenue recognition sell broad assortment home décor including home furnishings accent décor recognize revenue customer takes possession control goods time sale completed store register accordingly implicitly enter contract customers point sale addition retail store sales also generate revenue sale gift cards incentive arrangements associated credit card program noted note 1 nature operations summary significant accounting policies business consists one reportable segment accordance asc 606 disaggregate net sales following product categories contract liabilities recognized primarily gift card sales cash received sale gift cards recorded contract liability accrued current liabilities recognize revenue upon customer’s redemption gift card gift card breakage recognized revenue proportion pattern customer redemptions applying estimated breakage rate takes account historical patterns redemptions deactivations gift cards recognized approximately 163 million 163 million 129 million gift card redemption revenue fiscal years ended january 25 2020 january 26 2019 january 27 2018 respectively recognized immaterial amount gift card breakage revenue fiscal years ended january 25 2020 january 26 2019 january 27 2018 total gift card redemption revenue 36 million 30 million 22 million fiscal years ended january 25 2020 january 26 2019 january 27 2018 respectively related gift cards issued prior periods outstanding gift card liabilities 92 million 78 million january 25 2020 january 26 2019 respectively included accrued current liabilities fiscal year 2018 launched credit card program credit extended eligible customers home branded credit cards synchrony bank “synchrony” launch credit card program received reimbursement costs associated launch credit card program well onetime payment deferred initial sevenyear term agreement synchrony receive ongoing payments synchrony based sales transacted credit cards reimbursement joint marketing advertising activities fiscal years ended january 25 2020 january 26 2019 january 27 2018 recognized approximately 37 million 32 million 12 million respectively revenue credit card program within net sales earned customers may return purchased items exchange refund utilize expected value methodology different scenarios including current sales return data historical quarterly sales return rates used develop estimated sales return rate present sales returns reserve within current liabilities estimated value inventory returned within current assets consolidated balance sheets home group inc notes consolidated financial statements continued 9 income taxes income tax provision follows thousands december 22 2017 tax act adopted law tax act makes broad complex changes internal revenue code 1986 including limited reducing us federal corporate tax rate 35 21 ii eliminating corporate alternative minimum tax amt changing existing amt credits realized iii creating new limitation deductible interest expense iv changing rules related use limitation net operating loss carryforwards created tax years beginning december 31 2017 result adoption tax act fiscal year ended january 27 2018 statutory federal corporate tax rate prorated 340 statutory rate fiscal year ended january 26 2019 beyond 210 deferred tax assets liabilities determined based estimated future tax effects difference financial statement tax basis asset liability balances using statutory tax rates tax effects temporary differences give rise significant components deferred tax assets liabilities follows thousands required assess available positive negative evidence estimate sufficient future income generated utilize deferred tax assets believe cumulative pretax income significant piece positive evidence allows us consider subjective evidence future forecasted pretax income fiscal year ended january 25 2020 excluding impairment charges fiscal years ended january 26 2019 home group inc notes consolidated financial statements continued january 27 2018 continued three years cumulative pretax income addition taxable income exceeded pretax income fiscal years ended january 25 2020 january 26 2019 january 27 2018 concluded positive evidence well cumulative pretax income recent fiscal years likely deferred tax assets would realized future years accordingly fiscal year 2020 determined valuation allowance required approximately 30 million 64 million state net operating loss carryforwards january 25 2020 january 26 2019 respectively state net operating losses begin expire fiscal year 2024 fiscal year 2018 determined valuation allowance state net operating losses longer necessary expect fully utilize net operating loss carryforward prior expiration reconciliation actual income tax provision income tax provision calculated federal statutory tax rate follows dollars thousands uncertain tax positions operate number tax jurisdictions subject examination income tax returns tax authorities jurisdictions may challenge item returns tax matters challenged tax authorities typically complex ultimate outcome challenges uncertain accordance asc 740 topic 740 “income taxes” recognize benefits uncertain tax positions consolidated financial statements determining likely uncertain tax positions sustained total amount unrecognized tax benefits january 25 2020 06 million 04 million would favorably impact effective tax rate resolved favor reconciliation beginning ending amount unrecognized tax benefits follows thousands home group inc notes consolidated financial statements continued recognize accrued interest penalties related unrecognized tax benefits provision income taxes january 25 2020 january 26 2019 immaterial amount accrued penalties january 25 2020 january 26 2019 approximately 01 million accrued interest addition released approximately 01 million interest expense penalties fiscal years ended january 25 2020 january 26 2019 recognized immaterial amount interest expense penalties fiscal year ended january 27 2018 normal course business subject examination taxing authorities us federal us state jurisdictions period subject examination federal return fiscal year 2017 later fiscal year 2016 later major state tax returns believe adequate provision made adjustments may result tax examinations however outcome tax audits cannot predicted certainty issues addressed tax audits resolved manner consistent managements expectations could required adjust provision income tax period resolution occurs 10 commitments contingencies leases february 2016 fasb issued asu 201602 supersedes asc 840 creates new topic asc 842 asc 842 requires lessees recognize rightofuse asset operating lease liability balance sheet operating leases exception shortterm leases defined asc 842 lease commencement date recognize expenses income statement similar manner legacy guidance asc 840 operating lease liability measured present value unpaid lease payments rightofuse asset derived calculation operating lease liability adopted provisions asc 842 effective january 27 2019 using modified retrospective adoption method resulted adjustment opening retained earnings 986 million net 327 million deferred taxes utilized simplified transition option available asc 842 allows entities continue apply legacy guidance asc 840 including disclosure requirements comparative periods presented year adoption related adoption asc 842 policy elections follows home group inc notes consolidated financial statements continued addition asc 842 eliminated previous saleleaseback buildtosuit lease accounting guidance resulted derecognition following thousands abuildtosuit assets related financing obligation liabilities remained balance sheet end construction period leases terms 12 months greater asset liability initially recorded amount equal present value unpaid lease payments lease term determining lease term lease include options extend lease reasonably certain exercise option use interest rate implicit lease known estimated incremental borrowing rate derived information available lease commencement date including prevailing financial market conditions determining present value unpaid lease payments assess whether contract contains lease execution date contract contains lease classification assessed upon commencement date asc 842 leases determined qualify treatment operating leases rent expense recognized straightline basis lease term leases determined qualify treatment finance leases recognize interest expense determined using effective interest method corresponding amortization rightofuse assets enter leases primarily real estate assets support operations normal course business january 25 2020 material operating leases consist corporate headquarters distribution centers majority store properties also two real estate leases store properties qualify treatment finance leases generally terms 5 20 years renewal options generally range 5 20 years aggregate subject escalating rent increases leases may include variable charges discretion lessor certain leases include rent escalations based inflation indexes andor contingent rental provisions include fixed base rent plus additional percentage respective stores’ sales excess stipulated amounts operating lease liabilities calculated using prevailing index rate commencement lease subsequent escalations index rate contingent rental payments recognized variable lease expenses lease agreements contain material residual value guarantees material restrictive covenants home group inc notes consolidated financial statements continued components lease cost follows thousands anet immaterial amount sublease income bshortterm lease cost fiscal year ended january 25 2020 immaterial table presents additional information related leases january 25 2020 supplemental disclosures cash flow information related leases follows thousands maturities lease liabilities follows january 25 2020 thousands january 25 2020 operating lease payments excluded approximately 1730 million legally binding minimum lease payments leases signed yet commenced home group inc notes consolidated financial statements continued litigation subject claims lawsuits arise primarily ordinary course business opinion management disposition ultimate resolution claims lawsuits material adverse effect consolidated financial position results operations liquidity 11 employee benefit plan effective october 1 2014 sponsor 401k savings plan eligible employees participation 401k savings plan voluntary available employee least 18 years age completed six months service participants may elect contribute 100 compensation pretax basis subject internal revenue service “irs” limitations accordance provisions 401k savings plan make safe harbor matching cash contribution account participant amount equal 100 participants pretax contributions exceed 3 participants considered annual compensation plus 50 participants pretax contributions 3 5 participants considered annual compensation also subject regulatory limits matching contributions actual earnings thereon vest participants immediately matching contribution expenses 16 million 13 million 10 million fiscal years ended january 25 2020 january 26 2019 january 27 2018 respectively 12 capital stock january 25 2020 500000000 shares common stock authorized par value 001 64106061 issued outstanding additionally january 25 2020 50000000 shares preferred stock authorized par value 001 shares issued outstanding 13 earnings per share accordance asc 260 topic 260 “earnings per share” basic earnings per share computed dividing net loss income available common stockholders weighted average number common shares outstanding period diluted earnings per share computed dividing net loss income available common stockholders weighted average shares outstanding period include dilutive impact potential shares exercise stock options potentially dilutive securities excluded computation diluted net loss income per share effect antidilutive following table sets forth calculation basic diluted earnings per share follows dollars thousands except share per share data home group inc notes consolidated financial statements continued fiscal years ended january 25 2020 january 26 2019 january 27 2018 approximately 7695386 2029602 146457 respectively stock options restricted stock units “rsu” excluded calculation diluted net income per common share since effect antidilutive 601672 stock options rsus would included dilutive recognized net loss fiscal year ended january 25 2020 14 stockbased compensation account stockbased compensation accordance asc 718 topic 718 “compensationstock compensation” requires stockbased payments employees including grants employee stock options rsus recognized consolidated financial statements requisite service period compensation expense based upon fair value awards recognized straightline basis requisite service period awards actually vest stockbased compensation expense recorded selling general administrative expenses consolidated statements operations two equity compensation plans “equity plans” grant equity awards grd holding corporation stock option plan may amended time “2012 option plan” home group inc equity incentive plan subsequently amended restated approved board july 2016 “2016 equity plan” pursuant 2012 option plan 5648525 shares common stock reserved issuance options purchase shares issued 2012 option plan expire cancelled otherwise terminate without issuance shares shall available issuance january 25 2020 11278 shares available future grant 2012 option plan september 2015 adopted 2016 equity plan subsequently amended restated approved board july 2016 equity plan subject adjustment provided 2016 equity plan equity awards respect 6196755 shares common stock initially authorized issuance consisting 2478702 shares “ipo bonus pool” issuable pursuant awards granted 2016 equity plan senior executives company connection consummation initial public offering ii 3718053 shares pursuant awards granted 2016 equity plan ipo bonus pool “postipo share pool” june 2018 2016 equity plan amended increase number shares authorized granted within postipo share pool defined 3500000 shares resulting aggregate 9696755 shares common stock authorized issuance 2016 equity plan 7218053 postipo share pool january 25 2020 4906331 shares available future grant 2016 plan part postipo share pool june 12 2018 made grant 1988255 options chairman chief executive officer lewis l bird iii options vested immediately upon june 12 2018 grant date however shares resulting exercise options generally subject transfer restrictions lapse fourth anniversary date grant earlier change control defined 2016 equity plan subject certain service conditions could affect transferability result immediate vesting awards noncash stockbased compensation expense amount approximately 415 million fully recognized second fiscal quarter 2019 september 24 2019 entered nonqualified stock option cancellation agreement mr bird cancelled consideration onetime ceo grant recognized 93 million deferred tax expense related cancellation onetime ceo grant fiscal year ended january 25 2020 result cancellation shares underlying onetime ceo grant become available future awards 2016 equity plan mr bird received consideration connection cancellation onetime ceo grant september 12 2019 made grants 165650 options 125250 performance share units “psus” collectively rsus “awards” certain employees include mr bird 2016 equity plan noncash stockbased compensation expense associated grant options approximately 08 million home group inc notes consolidated financial statements continued expensed requisite service period ending january 29 2022 noncash stockbased compensation expense associated grant psus approximately 10 million expensed requisite service period ending january 29 2022 options cliff vest ie 100 january 29 2022 subject optionee’s continued employment date earlier upon termination without “cause” resignation “good reason” terms defined option agreement within one year following “change control” defined 2016 equity plan psus vest based achievement following two performance metrics eight fiscal quarters ending january 29 2022 subject continued employment january 29 2022 comparable store sales growth 50 ii percentage expansion adjusted net income 50 case based comparable store sales adjusted net income reported number shares deliverable upon settlement psus equal 50 target achievement threshold performance levels 100 target achievement target performance levels 200 target achievement maximum performance levels vesting threshold target maximum performance levels determined based linear interpolation grantee remains employed “change control” defined 2016 equity plan occurs prior end performance period number performance share units would vested based actual performance determined date change control greater based target performance remain issued outstanding eligible vest subject grantee’s continued employment company january 29 2022 earlier termination without cause resignation good reason occurs within one year following consummation change control forfeiture assumptions grants estimated based historical experience option awards granted exercise price equal fair market value common stock date grant option awards 2012 option plans generally vest based four years continuous service 10year contractual terms ipo grant subject market conditions vesting occurs closing price company’s common stock achieves preestablished targets time specified performance period seven years date grant exceeds targets twenty consecutive trading days disregarding sixmonth period immediately following august 3 2016 certain option share awards provide accelerated vesting change control defined equity plans determined fair value ipo grant subject market conditions using monte carlo simulation method ipo grant date fair value approximately 200 million incremental ongoing stockbased compensation expense stockbased compensation expense ipo grant expensed derived service period began third fiscal quarter 2017 continued second fiscal quarter 2019 estimate fair value service condition stock option grant equity plans date grant based upon blackscholes optionpricing model includes following variables 1 exercise price instrument 2 fair market value underlying stock date grant 3 expected term 4 expected volatility 5 riskfree interest rate utilized following assumptions estimating fair value option grants home group inc notes consolidated financial statements continued summary option activity equity plans january 25 2020 changes fiscal year ended presented total grant date fair value options vested fiscal years ended january 25 2020 january 26 2019 january 27 2018 13 million 524 million 122 million respectively intrinsic value options exercised fiscal years ended january 25 2020 january 26 2019 january 27 2018 34 million 513 million 208 million respectively weightedaverage fair value options granted fiscal years ended january 25 2020 january 26 2019 january 27 2018 687 1903 1038 respectively awards issued value less fair market value common stock date grant rsus granted date vest ratably one four years awards subject employment vesting transferable upon death summary company’s awards activity related information january 25 2020 changes fiscal year ended presented recognized stockbased compensation expense related stock options awards approximately 74 million 495 million 138 million fiscal years ended january 25 2020 january 26 2019 january 27 2018 respectively january 25 2020 approximately 151 million total unrecognized compensation expense related nonvested sharebased compensation arrangements grated plans expected recognized weightedaverage period 21 years 26 years stock options awards respectively home group inc notes consolidated financial statements continued 15 quarterly results operations unaudited quarterly results operations fiscal years ended january 25 2020 january 26 2019 follows thousands except per share data 1the sum quarters equal total fiscal year due rounding 2includes 2500 million noncash impairment charges related goodwill fourth fiscal quarter 2020 3includes 415 million stockbased compensation expense associated grant stock options chairman chief executive officer vested fully recognized second fiscal quarter 2019 16 subsequent events covid19 pandemic significant negative impact financial performance pandemic ongoing dynamic nature march 20 2020 temporarily closed stores nationwide one week began reopen stores regions required remain closed state local mandates approximately 80 stores fully open foot traffic fewer 10 stores remain closed foot traffic curbside pickup may 19 2020 unable determine degree accuracy length severity crisis expect material impact consolidated balance sheets consolidated statements operations consolidated statement cash flows fiscal year 2021 extent duration crisis remains uncertain results fiscal year ending january 30 2021 could impacted ways able predict today including limited noncash writedowns impairments valuation allowances potential declines liquidity response covid19 pandemic elected borrow additional 55 million abl facility mitigate potential future impacts market conditions covid19 business operations march 12 2020 following additional borrowings remaining borrowing capacity approximately 513 million abl facility april 25 2020 current weighted average interest rate borrowings abl facility approximately 218 home group inc notes consolidated financial statements continued suspended new store openings remodeling projects fiscal year 2021 exception seven stores near completion time outbreak ultimate duration impact suspension unknown could material adverse effect execution growth strategy business sales results operations also implemented number measures help mitigate operating financial impact pandemic including furloughing significant number employees ii temporary tiered salary reductions corporate employees including executive officers iii deferring annual merit increases bonuses iv executing substantial reductions expenses store occupancy costs capital expenditures overall costs including reduced inventory purchases v extending payment terms vendors vi negotiating rent deferrals rent abatements portion leases vii working maximize participation eligible government initiatives available businesses employees impacted covid19 pandemic based operating plans actions preserve liquidity believe cash position net cash provided operating activities borrowings abl facility saleleaseback transactions adequate finance planned capital expenditures working capital requirements debt service obligations next twelve months foreseeable future thereafter schedule condensed financial information registrant home group inc parent company condensed balance sheets thousands except share per share data see notes condensed financial statements schedule condensed financial information registrant home group inc parent company condensed statements operations thousands see notes condensed financial statements schedule condensed financial information registrant home group inc parent company notes condensed financial statements 1 basis presentation parentcompanyonly financial statements home group incs “parent” investment subsidiaries stated cost plus equity undistributed earnings subsidiaries since date acquisition parentcompanyonly financial statements read conjunction companys consolidated financial statements condensed statement cash flows presented home group incs net operating activities cash impact investing financing cash flow activities fiscal years ended january 25 2020 january 26 2019 january 27 2018 2 guarantees restrictions home holding iii inc “at home iii” subsidiary parent indirect whollyowned subsidiary home stores llc coborrowers capacities “abl borrowers” abl facility january 25 2020 121 million cash equivalents 1507 million borrowing availability abl facility provides commitments 4250 million revolving loans letters credit january 25 2020 home holding ii inc “holdings” direct parent home iii direct indirect domestic subsidiaries abl borrowers certain immaterial subsidiariesthe “abl subsidiary guarantors” together holdings “abl guarantors” guaranteed obligations abl borrowers abl facility event default abl facility abl borrowers guarantors directly liable lenders abl facility abl facility matures earlier july 27 2022 date 91 days prior maturity date may extended term loan entered june 5 2015 first lien credit agreement includes restrictions ability abl borrowers abl subsidiary guarantors incur additional liens indebtedness make investments dispositions pay dividends holdings enter transactions among restrictions case subject certain exceptions abl facility abl borrowers abl subsidiary guarantors permitted pay dividends holdings long giving effect payment availability equal greater 15 loan cap ie lesser x aggregate lender commitments abl facility borrowing base ii availability less 20 loan cap consolidated fixed charge coverage ratio equal greater 10 b pursuant certain limited exceptions january 25 2020 january 26 2019 compliance covenants abl facility june 5 2015 indirect wholly owned subsidiary home holding iii inc “borrower” entered first lien credit agreement “first lien agreement” among borrower home holding ii inc “at home ii” direct wholly owned subsidiary guarantor certain indirect subsidiaries home ii various lenders bank america na administrative agent collateral agent subsequently amended first lien agreement time giving effect amendments first lien agreement provides term loan aggregate principal amount 3500 million “term loan” term loan mature june 3 2022 repayable equal quarterly installments approximately 09 million annual aggregate amount equal 1 original principal amount borrower option paying interest 1month 2month quarterly basis term loan annual rate libor subject 1 floor plus 400 subject 050 reduction borrower achieves specified secured net leverage ratio level met fiscal year ended january 28 2017 borrower continued qualify fiscal year ended january 25 2020 term loan prepayable whole part without premium option term loan includes restrictions ability borrower restricted subsidiaries incur additional liens indebtedness make investments dispositions pay dividends holdings enter transactions among restrictions case subject certain exceptions first lien agreement borrower permitted pay dividends holdings amount equal long immediately giving effect thereto default event default occurred continuing 10 million plus ii basket builds based 30 million plus 50 borrowers restricted subsidiaries consolidated net income defined schedule condensed financial information registrant home group inc parent company notes condensed financial statements continued first lien agreement certain amounts subject various conditions including compliance minimum cash interest coverage ratio 20 10 plus iii unlimited amount subject pro forma compliance 30 10 total leverage ratio b certain additional limited amounts subject certain limited exceptions january 25 2020 january 26 2019 compliance covenants prescribed term loan november 27 2018 home ii borrower entered second amendment “term loan amendment” lenders party thereto bank america na administrative agent collateral agent amended first lien agreement amended first amendment dated july 27 2017 pursuant term loan amendment among things borrower borrowed additional 500 million incremental term loans increasing principal amount outstanding first lien agreement date 3395 million index exhibits following exhibits filed furnished part report exhibit description 31 second amended restated certificate incorporation company incorporated reference exhibit 31 amendment 6 registrants registration statement form s1 filed july 25 2016 file 333206772 32 amended restated bylaws company incorporated reference exhibit 32 amendment 6 registrants registration statement form s1 filed july 25 2016 file 333206772 41 specimen common stock certificate company incorporated reference exhibit 41 amendment 6 registrants registration statement form s1 filed july 25 2016 file 333206772 42 second amended restated stockholders’ agreement dated july 22 2016 among home group inc starr investment fund ii llc sph grd holdings llc grd holding lp grd holding aea llc grd holdinga lp incorporated reference exhibit 42 amendment 6 registrants registration statement form s1 filed july 25 2016 file 333206772 43 registration rights agreement dated july 22 2016 among home group inc starr investment fund ii llc sph grd holdings llc grd holding lp grd holding aea llc grd holdinga lp incorporated reference exhibit 43 amendment 6 registrants registration statement form s1 filed july 25 2016 file 333206772 44 description securities registered pursuant section 12 securities exchange act 1934 101 senior secured asset based revolving credit facility dated october 5 2011 among home holding iii inc home stores llc home holding ii inc parent guarantor certain home holding ii inc’s indirect whollyowned domestic subsidiaries subsidiary guarantors lenders party thereto bank america na administrative agent collateral agent incorporated reference exhibit 101 amendment 1 registrants registration statement form s1 filed september 25 2015 file 333206772 1011 first amendment credit agreement dated may 9 2012 among home holding iii inc home stores llc home holding ii inc parent guarantor certain home holding ii inc’s indirect whollyowned domestic subsidiaries subsidiary guarantors lenders party thereto bank america na administrative agent collateral agent incorporated reference exhibit 1011 amendment 1 registrants registration statement form s1 filed september 25 2015 file 333206772 1012 second amendment credit agreement dated may 23 2013 among home holding iii inc home stores llc home holding ii inc parent guarantor certain home holding ii inc’s indirect whollyowned domestic subsidiaries subsidiary guarantors lenders party thereto bank america na administrative agent collateral agent incorporated reference exhibit 1012 amendment 1 registrants registration statement form s1 filed september 25 2015 file 333206772 exhibit description 1013 third amendment credit agreement dated july 28 2014 among home holding iii inc home stores llc home holding ii inc parent guarantor certain home holding ii inc’s indirect whollyowned domestic subsidiaries subsidiary guarantors lenders party thereto bank america na administrative agent collateral agent incorporated reference exhibit 1013 amendment 1 registrants registration statement form s1 filed september 25 2015 file 333206772 1014 assumption ratification agreement dated september 29 2014 among home holding iii inc home stores llc home holding ii inc parent guarantor certain home holding ii inc’s indirect whollyowned domestic subsidiaries subsidiary guarantors lenders party thereto bank america na administrative agent collateral agent incorporated reference exhibit 1014 amendment 1 registrants registration statement form s1 filed september 25 2015 file 333206772 1015 fourth amendment credit agreement dated june 5 2015 among home holding iii inc home stores llc home holding ii inc parent guarantor certain home holding ii inc’s indirect whollyowned domestic subsidiaries subsidiary guarantors lenders party thereto bank america na administrative agent collateral agent incorporated reference exhibit 1015 amendment 1 registrants registration statement form s1 filed september 25 2015 file 333206772 1016 fifth amendment credit agreement dated june 15 2016 among home holding iii inc home stores llc home holding ii inc parent guarantor certain home holding ii inc’s indirect whollyowned domestic subsidiaries subsidiary guarantors lenders party thereto bank america na administrative agent collateral agent incorporated reference exhibit 1016 amendment 6 registrants registration statement form s1 filed july 25 2016 file 333206772 1017 sixth amendment credit agreement dated june 2 2017 among home holding iii inc home stores llc home holding ii inc parent guarantor certain home holding ii inc’s indirect whollyowned domestic subsidiaries subsidiary guarantors lenders party thereto bank america na administrative agent collateral agent incorporated reference exhibit 1017 registrants quarterly report form 10q filed june 7 2017 file no00137849 1018 seventh amendment credit agreement dated july 27 2017 among home holding iii inc home stores llc home holding ii inc parent guarantor certain home holding ii inc’s indirect whollyowned domestic subsidiaries subsidiary guarantors lenders party thereto bank america na administrative agent collateral agent incorporated reference exhibit 1018 registrants current report form 8k filed august 1 2017 file 00137849 102 senior secured term loan facility dated june 5 2015 home holding iii inc home holding ii inc parent guarantor certain home holding ii inc’s indirect whollyowned domestic subsidiaries subsidiary guarantors lenders party thereto bank america na administrative agent collateral agent incorporated reference exhibit 102 amendment 1 registrants registration statement form s1 filed september 25 2015 file 333206772 1021 first amendment senior secured term loan facility dated july 27 2017 home holding iii inc home holding ii inc parent guarantor certain home holding ii inc’s indirect whollyowned domestic subsidiaries subsidiary guarantors lenders party thereto bank america na administrative agent collateral agent incorporated reference exhibit 1021 registrants current report form 8k filed august 1 2017 file 00137849 exhibit description 1022 second amendment senior secured term loan facility dated november 27 2018 home holding iii inc borrower home holding ii inc parent guarantor lenders party thereto bank america na administrative agent collateral agent incorporated reference exhibit 101 registrant’s current report form 8k filed november 29 2018 file 00137849 104† employment agreement garden ridge corporation home group inc fka grd holding corporation lewis l bird iii dated november 15 2012 incorporated reference exhibit 104 amendment 1 registrants registration statement form s1 filed september 25 2015 file 333206772 1041† amendment employment agreement garden ridge corporation home group inc fka grd holding corporation lewis l bird iii dated november 1 2013 incorporated reference exhibit 1041 amendment 1 registrants registration statement form s1 filed september 25 2015 file 333206772 105† employment agreement garden ridge corporation home group inc fka grd holding corporation judd nystrom dated january 25 2013 incorporated reference exhibit 105 amendment 1 registrants registration statement form s1 filed september 25 2015 file 333206772 1051† amendment employment agreement garden ridge corporation home group inc fka grd holding corporation judd nystrom dated november 1 2013 incorporated reference exhibit 1051 amendment 1 registrants registration statement form s1 filed september 25 2015 file 333206772 1052† amendment employment agreement home rms inc judd nystrom dated june 7 2018 incorporated reference exhibit 106 registrant’s quarterly report form 10q filed june 7 2018 file 00137849 1053† separation release agreement judd nystrom home rms inc dated november 8 2018 incorporated reference exhibit 102 registrant’s current report form 8k filed november 9 2018 file 00137849 106† employment agreement garden ridge corporation home group inc fka grd holding corporation peter sg corsa dated february 2 2013 incorporated reference exhibit 106 amendment 1 registrants registration statement form s1 filed september 25 2015 file 333206772 1061† amendment employment agreement garden ridge corporation home group inc fka grd holding corporation peter sg corsa dated november 1 2013 incorporated reference exhibit 1061 amendment 1 registrants registration statement form s1 filed september 25 2015 file 333206772 107† home group inc fka grd holding corporation stock option plan effective november 12 2012 incorporated reference exhibit 107 amendment 1 registrants registration statement form s1 filed september 25 2015 file 333206772 108† nonqualified stock option agreement home group inc fka grd holding corporation lewis l bird iii dated november 26 2012 incorporated reference exhibit 108 amendment 1 registrants registration statement form s1 filed september 25 2015 file 333206772 exhibit description 1081† letter agreement home group inc fka grd holding corporation lewis l bird iii dated november 26 2012 incorporated reference exhibit 1081 amendment 1 registrants registration statement form s1 filed september 25 2015 file 333206772 1082† amendment nonqualified stock option agreement home group inc fka grd holding corporation lewis l bird iii dated december 4 2012 incorporated reference exhibit 1082 amendment 1 registrants registration statement form s1 filed september 25 2015 file 333206772 109† nonqualified stock option agreement home group inc fka grd holding corporation judd nystrom dated january 31 2013 incorporated reference exhibit 109 amendment 1 registrants registration statement form s1 filed september 25 2015 file 333206772 1091† amendment nonqualified stock option agreement home group inc fka grd holding corporation judd nystrom dated february 18 2013 incorporated reference exhibit 1091 amendment 1 registrants registration statement form s1 filed september 25 2015 file 333206772 1010† nonqualified stock option agreement home group inc fka grd holding corporation judd nystrom dated june 3 2014 incorporated reference exhibit 1010 amendment 1 registrants registration statement form s1 filed september 25 2015 file 333206772 1011† nonqualified stock option agreement home group inc fka grd holding corporation peter sg corsa dated january 10 2013 incorporated reference exhibit 1011 amendment 1 registrants registration statement form s1 filed september 25 2015 file 333206772 10111† amendment nonqualified stock option agreement home group inc fka grd holding corporation peter sg corsa dated march 25 2013 incorporated reference exhibit 10111 amendment 1 registrants registration statement form s1 filed september 25 2015 file 333206772 1012† nonqualified stock option agreement home group inc fka grd holding corporation peter sg corsa dated june 3 2014 incorporated reference exhibit 1012 amendment 1 registrants registration statement form s1 filed september 25 2015 file 333206772 1013† home group inc annual bonus plan incorporated reference exhibit 1013 amendment 6 registrants registration statement form s1 filed july 25 2016 file 333206772 1014† amended restated home group inc equity incentive plan 1015† home group inc form option award agreement incorporated reference exhibit 1015 amendment 6 registrants registration statement form s1 filed july 25 2016 file 333206772 1016 form indemnification agreement incorporated reference exhibit 1016 amendment 6 registrants registration statement form s1 filed july 25 2016 file 333206772 exhibit description 1017† home group inc form nonqualified stock option award agreement director incorporated reference exhibit 101 registrants current report form 8k filed december 5 2016 file 00137849 1018† form employment agreement entered home stores llc fka garden ridge corporation certain executive officers company incorporated reference exhibit 1021 registrants annual report form 10k filed april 5 2017 file no00137849 1019† home group inc form restricted stock unit notice grant award agreement director form incorporated reference exhibit 1022 registrants quarterly report form 10q filed september 6 2017 file no00137849 1020† home group inc form restricted stock unit notice grant award agreement standard form incorporated reference exhibit 1023 registrants annual report form 10k filed march 23 2018 file no00137849 1021† home group inc form nonstatutory stock option notice grant award agreement timevesting incorporated reference exhibit 1024 registrants annual report form 10k filed march 23 2018 file no00137849 1022 cobrand private label consumer credit card agreement dated september 7 2016 among home stores llc synchrony bank incorporated reference exhibit 101 registrant’s amendment 1 quarterly report form 10q filed april 5 2017 file 00137849 10221 first amendment program agreement dated july 7 2017 among home stores llc synchrony bank incorporated reference exhibit 1011 registrants current report form 8k filed july 13 2017 file 00137849 1023† form employment agreement home rms inc used employment agreements entered march 23 2018 certain executive officers home group inc incorporated reference exhibit 1026 registrants annual report form 10k filed march 23 2018 file no00137849 1024† home group inc form notice grant nonqualified stock option agreement ceo special option grant incorporated reference exhibit 101 registrant’s quarterly report form 10q filed june 7 2018 file 00137849 1025† home group inc form notice grant nonqualified stock option agreement timevesting annual grant incorporated reference exhibit 102 registrant’s quarterly report form 10q filed june 7 2018 file 00137849 1026† home group inc form notice grant restricted stock unit agreement annual grant incorporated reference exhibit 103 registrant’s quarterly report form 10q filed june 7 2018 file 00137849 1027† home group inc form notice grant nonqualified stock option agreement special transition grant incorporated reference exhibit 104 registrant’s quarterly report form 10q filed june 7 2018 file 00137849 1028† home group inc form notice grant restricted stock unit agreement director annual grant incorporated reference exhibit 105 registrant’s quarterly report form 10q filed june 7 2018 file 00137849 exhibit description 1029† form employment agreement home rms inc sumit anand elizabeth galloway wendy fritz incorporated reference exhibit 107 registrant’s quarterly report form 10q filed august 30 2018 file 00137849 1030† offer letter home group inc jeff knudson dated august 27 2018 incorporated reference exhibit 101 registrant’s current report form 8k filed august 30 2018 file 00137849 1031† employment agreement home rms inc jeffrey r knudson dated november 8 2018 incorporated reference exhibit 101 registrant’s current report form 8k filed november 9 2018 file 00137849 1032† form employment agreement home rms inc home procurement inc applicable sumit anand elizabeth galloway wendy fritz chad stauffer incorporated reference exhibit 101 registrant’s quarterly report form 10q filed june 6 2019 file 00137849 1033 commitment increase letter agreement dated june 14 2019 among home holding iii inc home stores llc home holding ii inc parent guarantor certain home holding ii inc’s indirect wholly owned domestic subsidiaries subsidiary guarantors lenders party thereto bank america na administrative agent collateral agent incorporated reference exhibit 101 registrant’s current report form 8k filed june 18 2019 file 00137849 1034† home group inc nonqualified stock option cancellation agreement incorporated reference exhibit 101 registrant’s current report form 8k filed september 24 2019 file 00137849 1035† home group inc notice grant performance share unit award agreement incorporated reference exhibit 102 registrant’s current report form 8k filed september 24 2019 file 00137849 1036† home group inc form notice grant nonqualified stock option agreement annual grant 2020 1037† home group inc form notice grant restricted stock unit agreement annual grant 2020 1038† home group inc form notice grant performance share unit agreement annual grant 2020 211 list subsidiaries home group inc 231 consent ernst young llp independent registered accounting firm 232 consent buxton company 233 consent cooper roberts research inc 311 certification chief executive officer pursuant rule 13a14a 15d14a securities exchange act 1934 amended adopted pursuant section 302 sarbanesoxley act 2002 exhibit description 312 certification chief financial officer pursuant rule 13a14a 15d14a securities exchange act 1934 amended adopted pursuant section 302 sarbanesoxley act 2002 321 certification chief executive officer chief financial officer pursuant 18 usc section 1350 adopted pursuant section 906 sarbanesoxley act 2002 101ins inline xbrl instance document 101sch inline xbrl taxonomy extension schema document 101cal inline xbrl taxonomy extension calculation linkbase document 101def inline xbrl taxonomy extension definition linkbase document 101lab inline xbrl taxonomy extension label linkbase document 101pre 104 inline xbrl taxonomy extension presentation linkbase document cover page interactive data file cover page xbrl tags embedded within inline instance xbrl document filed herewith † indicates management contracts compensatory plans arrangements executive officers directors participate confidential treatment requested respect certain portions exhibit confidential portions exhibit redacted filed separately sec signatures pursuant requirements securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized home group inc date may 19 2020 lewis l bird iii lewis l bird iii chairman board chief executive officer principal executive officer pursuant requirements securities exchange act 1934 report signed following persons capacities dates indicated steve k barbarick director may 19 2020 steve k barbarick paula l bennett director may 19 2020 paula l bennett joanne c crevoiserat director may 19 2020 joanne c crevoiserat sjohn j butcher director may 19 2020 john j butcher item 15 exhibits financial statement schedules following documents filed part report 1 consolidated financial statements see index consolidated financial statements page 2 financial statement schedules financial statement schedules omitted required applicable required information provided consolidated financial statements notes described 151 3 exhibits listed accompanying index exhibits attached hereto filed incorporated reference annual report form 10k index consolidated financial statements page report independent registered public accounting firm consolidated balance sheets january 28 2017 january 30 2016 consolidated statements operations fiscal years ended january 28 2017 january 30 2016 january 31 2015 consolidated statements shareholders’ equity fiscal years ended january 28 2017 january 30 2016 january 31 2015 consolidated statements cash flows fiscal years ended january 28 2017 january 30 2016 january 31 2015 notes consolidated financial statements schedule condensed financial information registrant report independent registered public accounting firm board directors shareholders home group inc audited accompanying consolidated balance sheets home group inc january 28 2017 january 30 2016 related consolidated statements operations shareholders’ equity cash flows three years period ended january 28 2017 audits also included accompanying financial statement schedule financial statements schedule responsibility company’s management responsibility express opinion financial statements schedule based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement engaged perform audit company’s internal control financial reporting audits included consideration internal control financial reporting basis designing audit procedures appropriate circumstances purpose expressing opinion effectiveness company’s internal control financial reporting accordingly express opinion audit also includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation believe audits provide reasonable basis opinion financial statements referred present fairly material respects consolidated financial position home group inc january 28 2017 january 30 2016 consolidated results operations cash flows three years period ended january 28 2017 conformity us generally accepted accounting principles also opinion related financial statement schedule considered relation basic financial statements taken whole presents fairly material respects information set forth therein ernst young llp dallas texas april 5 2017 home group inc consolidated balance sheets thousands except share per share data see notes consolidated financial statements home group inc consolidated statements operations thousands except share per share data see notes consolidated financial statements home group inc consolidated statements shareholders’ equity thousands except share data see notes consolidated financial statements home group inc consolidated statements cash flows thousands see notes consolidated financial statements home group inc notes consolidated financial statements 1 nature operations summary significant accounting policies description business home décor superstore focused exclusively providing broad assortment products room style budget january 28 2017 operated 123 home décor superstores 30 states primarily south central southeastern midatlantic midwestern regions united states home owned operated home group inc whollyowned subsidiaries references “we” “us” “our” “company” similar expressions references home group inc consolidated whollyowned subsidiaries unless otherwise expressly stated context otherwise requires stock split july 22 2016 company’s board directors approved 128157393forone stock split existing class common stock class b common stock class c common stock conversion class common stock class b common stock class c common stock single class common stock historical share per share information retroactively adjusted reflect stock split conversion effective july 22 2016 companys total authorized share capital comprised 500000000 shares common stock 50000000 shares preferred stock initial public offering august 3 2016 registration statement form s1 relating initial public offering declared effective sec pursuant registered aggregate 9967050 shares common stock including 1300050 shares subject underwriters overallotment option issued sold 8667000 shares registered price 1500 per share august 9 2016 resulting net proceeds 1209 million deducting underwriters discounts commissions 91 million also incurred offering expenses 60 million connection initial public offering included additional paidin capital consolidated balance sheet january 28 2017 september 8 2016 issued sold 863041 shares common stock pursuant underwriters’ partial exercise overallotment option exercise overallotment option resulted net proceeds us 120 million deducting underwriters’ discounts commissions 09 million used net proceeds initial public offering partial exercise overallotment option deducting underwriters’ discounts commissions repay full 1300 million principal amount indebtedness outstanding 1300 million second lien term loan “second lien term loan” rebranding initiative fiscal year ended january 31 2015 launched significant rebranding initiative changed brand corporate name redesigned stores changed merchandise part initiative changed name “garden ridge” “at home” completed rebranding initiative first nine months fiscal year 2015 stores operate home brand corporate restructuring home group inc formed delaware corporation june 30 2011 name grd holding corporation “grd i” upon incorporation grd became parent grd holding ii corporation “grd ii” owned 100 grd holding iii corporation “grd iii” grd iii organized purpose acquiring outstanding common stock garden holdings inc delaware corporation garden holdings inc owned home group inc notes consolidated financial statements continued directly indirectly 100 garden ridge corporation entities september 29 2014 grd ii grd iii affiliates completed entity restructuring amended various corporate names reflect “at home” brand particular grd holding corporation renamed home group inc “at home group” ii grd holding ii corporation renamed home holding ii inc “at home ii” iii grd holding iii corporation renamed home holding iii inc “at home iii” iv garden holdings inc converted delaware corporation delaware limited liability company named home companies llc “at home llc” v garden ridge corporation garden ridge lp merged garden ridge management llc vi garden ridge management llc renamed home stores llc “at home stores” fiscal year report basis 52 53week fiscal year ends last saturday january references fiscal year mean year fiscal year ends references herein “fiscal year 2017” relate 52 weeks ended january 28 2017 references “fiscal year 2016” relate 52 weeks ended january 30 2016 references “fiscal year 2015” relate 53 weeks ended january 31 2015 consolidation accompanying consolidated financial statements include accounts home group inc consolidated whollyowned subsidiaries intercompany balances transactions eliminated consolidation company components comprehensive income recorded within consolidated financial statements therefore separately present statement comprehensive income consolidated financial statements use estimates preparing financial statements conformity us generally accepted accounting principles requires us make estimates assumptions affect reported amounts certain assets liabilities revenues expenses related disclosure contingent assets liabilities date financial statements base estimates historical experience various assumptions believe reasonable circumstances results form basis making judgments carrying values assets liabilities readily apparent sources use estimates inherent financial reporting process actual results may differ estimates segment information management determined one operating segment therefore one reportable segment chief operating decision maker “codm” chief executive officer codm reviews financial performance allocates resources consolidated level recurring basis assets located united states revenue derived united states impracticable us disclose revenue group similar products cash equivalents cash equivalents consists highly liquid investments original maturities three months less well credit card receivables january 28 2017 january 30 2016 cash equivalents comprised primarily credit card receivables home group inc notes consolidated financial statements continued restricted cash time consummate saleleaseback transactions sale treated likekind exchange transaction us federal income tax purposes accordance section 1031 internal revenue code section 1031 code allows deferral recognition taxable gain realized sale property taxpayer timely reinvests proceeds qualifying likekind property addition section 1031 code requires sale proceeds relinquished property held thirdparty intermediary pending utilization thereof acquisition qualifying likekind property 173 million restricted cash balance january 31 2015 related sale proceeds used qualifying property acquisitions completed second quarter fiscal year 2016 inventories comprised finished merchandise stated lower cost net realizable value cost determined using weightedaverage method cost inventories include actual landed cost item time received distribution center point shipment certain international shipments well transportation costs distribution center retail stores applicable net inventory cost recognized cost sales inventory sold physical inventory counts performed stores least per year thirdparty inventory counting service inventory records adjusted reflect actual inventory counts resulting shortage “shrinkage” recognized reserves shrinkage estimated recorded throughout period percentage sales based recent physical inventory combination current events historical experience also evaluate merchandise ensure expected net realizable value merchandise held end fiscal period exceeds cost event expected net realizable value less cost reduce value inventory accordingly consideration received vendors receive vendor support form cash payments allowances variety vendorsponsored programs volume rebates markdown allowances advertising also receive consideration certain compliance programs agreements place vendor setting forth specific conditions allowance vendor support reduces inventory costs based underlying provisions agreement vendor compliance charges recorded reduction cost merchandise inventories subsequent reduction cost sales inventory sold property equipment property equipment recorded cost less accumulated depreciation amortization depreciation property equipment leasehold improvements recorded straightline basis estimated useful lives assets ranging 3 20 years leasehold improvements amortized straightline basis shorter remaining lease term including renewals determined reasonably assured estimated useful life related improvement expense internaluse software costs incurred preliminary project stage certain direct costs incurred later stages associated development purchase internaluse software including external costs services internal payroll costs related software project capitalized within property equipment accompanying consolidated balance sheets capitalized costs amortized straightline basis estimated useful lives software generally three five years fiscal years ended january 28 home group inc notes consolidated financial statements continued 2017 january 30 2016 january 31 2015 capitalized software costs 77 million 55 million 12 million respectively amortization expense related capitalized software costs totaled 27 million 10 million 02 million fiscal years ended january 28 2017 january 30 2016 january 31 2015 respectively capitalize major replacements improvements expense routine maintenance repairs incurred remove cost assets sold retired related accumulated depreciation amortization consolidated balance sheets include resulting gain loss accompanying consolidated statements operations capitalized interest capitalize interest borrowings active construction period major capital projects capitalized interest added cost underlying assets amortized useful lives assets capitalized interest cost approximately 04 million 03 million 03 million fiscal years ended january 28 2017 january 30 2016 january 31 2015 respectively fair value measurements follow provisions accounting standards codification “asc” 820 topic 820 “fair value measurements disclosures” asc 820 establishes threetiered fair value hierarchy prioritizes inputs valuation techniques used fair value calculations · level 1 unadjusted quoted market prices identical assets liabilities active markets ability access · level 2 quoted prices similar assets liabilities active markets quoted prices identical similar assets liabilities inactive markets valuations based models significant inputs observable eg interest rates yield curves prepayment speeds default rates loss severities etc corroborated observable market data · level 3 valuations based models significant inputs observable unobservable inputs reflect assumptions market participants would use asc 820 requires us maximize use observable inputs minimize use unobservable inputs financial instrument uses inputs fall different levels hierarchy instrument categorized based upon lowest level input significant fair value calculation fair value current financial instruments approximates carrying value shortterm nature instruments variable fixed rates longterm debt fair value longterm debt variable rates approximates carrying value interest rates amounts approximate market rates determine fair value fixed rate debt using quoted market prices current interest rates january 28 2017 fair value fixed rate mortgage due february 1 2037 66 million approximately 05 million carrying value 61 million fair value fixed rate mortgage determined using level 2 inputs goodwill tested impairment least annually operating segment level one operating segment reporting unit exists operating segment implied fair value goodwill lower carrying amount goodwill impairment indicated goodwill written implied home group inc notes consolidated financial statements continued fair value assess business enterprise value using combination income approach market approach determine fair value company compared carrying value net assets income approach using discounted cash flow method includes key factors used valuation company level 3 valuation include limited managements plans future operations recent operating results income tax rates discounted projected future cash flows impairment goodwill recognized fiscal years ended january 28 2017 january 30 2016 january 31 2015 however use different assumptions estimates judgments respect estimation projected future cash flows determination discount rate sales growth rate used calculate net present value projected future cash flows could materially increase decrease estimates fair value additionally future impairment charges could required achieve current net sales profitability projections would occur able meet new store growth targets weighted average cost capital increases impairment longlived indefinitelived assets evaluate recoverability carrying value longlived assets whenever events changes circumstances indicate carrying amount may recoverable evaluation compares carrying value assets estimated future undiscounted cash flows expected result use eventual disposition assets evaluate longlived intangible assets individual store level lowest level identifiable cash flows evaluate corporate assets longlived assets storespecific consolidated level estimate storespecific future cash flows make assumptions key store variables including sales growth rate gross margin payroll controllable expenses stores owned us meet initial criteria evaluated taking consideration fair market value property compared carrying value assets furthermore management considers factors evaluating stores impairment including individual stores execution operating plan local market conditions estimates subject uncertainty may affected number factors outside control including general economic conditions competitive environment impairment recognized factors noted taken consideration determined carrying amount stores assets recoverable impairment loss would recognized amount carrying amount longlived asset exceeds fair value excluding assets redeployed impairment longterm assets recognized fiscal years ended january 28 2017 january 30 2016 january 31 2015 test indefinitelived trade name intangible assets annually impairment frequently impairment indicators arise fair value indefinitelived intangible asset lower carrying amount asset written fair value fiscal year 2014 committed rebranding initiative resulted conversion existing “garden ridge” trade name new trade name “at home” performed impairment analysis indefinitelived trade name immediately conversion result recognized 375 million trade name impairment fiscal year ended january 25 2014 fair value trade name level 3 valuation calculated using relieffromroyalty approach assumes value trade name discounted cash flows amount would paid hypothetical market participant owned trade name instead licensed trade name another company january 31 2015 garden ridge trade name definitelived intangible asset fully amortized carrying value home trade name january 28 2017 approximately 15 million impairment indefinitelived trade name intangible asset recognized fiscal years ended january 28 2017 january 30 2016 january 31 2015 home group inc notes consolidated financial statements continued debt issuance costs debt issuance costs incurred connection obtaining modifying financing arrangements costs capitalized direct deduction carrying value debt costs incurred conjunction line credit capitalized asset amortized term respective debt agreements total amortization expense related debt issuance costs approximately 18 million 19 million 16 million fiscal years ended january 28 2017 january 30 2016 january 31 2015 respectively deferred rent record rent expense straightline basis term lease beginning date take possession control physical access premises record tenant improvement allowances liability adjust liability straightline basis reduction rent expense lease term beginning date take possession control physical access premises recognize free rent periods tenant improvement allowances standard rent increases contained leases straightline basis expected lease term beginning first take possession property including renewal option periods instances exercising options reasonably assured leases considered owner construction project receive tenant improvement allowances record amounts received component financing obligation liability see note 7financing obligations insurance liabilities period december 1 2013 january 28 2017 fully insured workers compensation commercial general liability claims prior period used combination commercial insurance selfinsurance workers compensation commercial general liability claims purchased insurance coverage limited aggregate exposure individual claims 250000 per workers compensation commercial general liability claim utilize combination commercial insurance selfinsurance employeerelated health care plans cost health care plan borne part employees purchase insurance coverage limits aggregate exposure individual claims 175000 per employeerelated health care claim health care reserves based actual claims experience estimate claims incurred reported reserves commercial general liability workers compensation determined use actuarial studies due judgments estimates utilized determining reserves subject high degree variability event insurance carriers unable pay claims submitted would record liability estimated payments expect incur revenue recognition revenue sales merchandise recognized customer takes possession merchandise revenue presented net sales taxes collected allow merchandise returned within 60 days purchase date provide reserve estimated returns use historical customer return behavior estimate reserve requirements accounted reduction revenue also reduce cost sales reflect estimates inventory cost products returned january 28 2017 january 30 2016 sales returns reserves approximately 11 million 08 million respectively record gift card liability date issue gift card customer record revenue reduce gift card liability customer redeems gift card january 28 2017 january 30 2016 gift card home group inc notes consolidated financial statements continued liability approximately 41 million 24 million respectively addition recognize gift card breakage revenue 60 months nonuse recognized revenue related breakage gift card balances immaterial amount revenue fiscal years ended january 28 2017 january 30 2016 approximately 01 million fiscal year ended january 31 2015 cost sales cost sales included merchandise inventories expensed merchandise sold include following expenses cost sales · cost merchandise net inventory shrinkage damages vendor allowances · inbound freight internal transportation costs distribution centertostore freight costs · costs operating distribution center including labor occupancy costs supplies depreciation · store occupancy costs including rent insurance taxes common area maintenance utilities repairs maintenance depreciation selling general administrative expenses selling general administrative expenses include payroll benefits personnel expenses corporate store employees including stockbased compensation expense consulting legal professional services expenses advertising expenses occupancy costs corporate headquarters various expenses store preopening costs expense preopening costs new stores incurred fiscal years ended january 28 2017 january 30 2016 january 31 2015 store preopening costs approximately 139 million 123 million 82 million respectively store preopening costs occupancy expenses advertising labor included selling general administrative expenses advertising costs exclusive store preopening advertising expenses discussed include billboard newspaper radio digital advertising mediums advertising costs expensed incurred included selling general administrative expenses total advertising expenses approximately 174 million 124 million 81 million fiscal years ended january 28 2017 january 30 2016 january 31 2015 respectively stockbased compensation account stockbased compensation accordance asc 718 topic 718 “compensationstock compensation” requires stockbased payments employees including grants employee stock options recognized consolidated financial statements requisite service period compensation expense based upon fair value awards recognized straightline basis requisite service period awards actually vest stockbased compensation expense recorded selling general administrative expenses consolidated statements operations estimate fair value stock option grant date grant based upon blackscholes option pricing model exception special onetime initial public offering transaction bonus grant valued date grant using monte carlo simulation method home group inc notes consolidated financial statements continued blackscholes option pricing model requires various significant judgmental assumptions order derive final fair value determination type award including following · expected termthe expected term options represents period time grant date options date options either exercised canceled · expected volatilitythe expected volatility calculated based historical volatility common stock comparable companies · expected dividend yieldthe expected dividend yield based expectation paying dividends common stock foreseeable future · riskfree interest ratethe riskfree interest rate average 3year 5year us treasury rate effect time grant maturity approximates expected term used monte carlo simulation model determine fair value special onetime initial public offering transaction bonus grant subject marketbased conditions stock option grants subject marketbased conditions cliff vesting beginning third quarter fiscal year 2017 continuing following eight quarters subject achievement market conditions valued stock option grants single award related compensation cost recognized using straightline method derived service period expected volatility based combination historical implied volatilities common stock comparable companies grants stock options exercise price equal greater fair market value common stock date grant based foregoing estimates assumptions privately held company prior august 4 2016 public market common stock fair value equity approved board time option grants awarded estimating fair value common stock considered factors believed material valuation process including limited actual projected financial results risks prospects economic market conditions valuations utilized projections future performance estimates weighted average cost capital metrics based performance peer group similar companies including valuation multiples stock price volatility believe combination methods provided appropriate estimate expected fair value prior initial public offering considered valuation analyses determine best estimate fair value common stock option grant date following initial public offering estimates longer needed determine fair value new awards due publiclyavailable trading price common stock income taxes provision income taxes accounted asset liability method prescribed asc 740 topic 740 “income taxes” deferred tax assets liabilities recognized future tax consequences attributable differences financial statement carrying amounts existing assets liabilities respective tax bases operating losses tax credit carryforwards deferred tax assets liabilities measured using enacted tax rates expected apply taxable income years temporary differences expected recovered settled effect deferred tax assets liabilities change tax rates recognized income period tax rate changes enacted record valuation allowance reduce carrying amounts amount believed likely realized recognize tax benefit uncertain tax position likely tax position sustained examination taxing authorities based technical merits position tax benefits home group inc notes consolidated financial statements continued recognized financial statements positions measured based largest benefit greater 50 likelihood realized upon settlement recent accounting pronouncements may 2014 fasb issued asu 201409 “revenue contracts customers” “asu 201409” asu 201409 supersedes revenue recognition requirements “topic 605 revenue recognition” requires entities recognize revenue way depicts transfer promised goods services customers amount reflects consideration entity expects entitled exchange goods services asu 201409 effective annual reporting periods beginning december 15 2017 including interim periods within reporting period completed initial impact assessment believe adopting asu materially impact timing revenue recognition expect adopt new guidance using full retrospective method first quarter fiscal year 2019 february 2016 fasb issued asu 201602 “leases” supersedes asc 840 “leases” creates new topic asc 842 “leases” “asu 201602” asu 201602 entity required recognize rightofuse assets lease liabilities balance sheet disclose key information leasing arrangements asu 201602 offers specific accounting guidance lessee lessor sale leaseback transactions lessees lessors required disclose qualitative quantitative information leasing arrangements enable user financial statements assess amount timing uncertainty cash flows arising leases asu 201602 effective annual reporting periods beginning december 15 2018 including interim periods within reporting period early adoption permitted adoption update applied using modified retrospective approach currently evaluating impact asu 201602 expect upon adoption recognize rightofuse assets liabilities could material financial statements march 2016 fasb issued asu 201604 “recognition breakage certain prepaid storedvalue products” “asu 201604” asu 201604 requires breakage prepaid storedvalue product liabilities example prepaid gift cards accounted consistent breakage guidance “topic 606 revenue contracts customers” asu 201604 effective annual reporting periods beginning december 15 2017 including interim reporting periods within reporting period early adoption permitted standard applied either using modified retrospective approach retrospectively period presented currently evaluating impact 201604 expect adopt new guidance using full retrospective method first quarter fiscal year 2019 march 2016 fasb issued asu 201609 “improvements employee sharebased payment accounting” “asu 201609” asu 201609 intended simplify various aspects accounting employee sharebased payment award transactions effective annual reporting periods beginning december 15 2016 including interim periods within reporting period early adoption permitted plan adopt asu 201609 prospectively annual reporting periods beginning first quarter fiscal year 2018 evaluated asu 201609 expect impact guidance immediate material impact consolidated financial statements given historical exercises stock options january 28 2017 however certain circumstances guidance impact effective tax rate future adoption asu 201609 also requires income tax adjustments recorded consolidated statements operations changes tax book treatment equity compensation recognized provision income taxes beginning fiscal year 2018 adoption asu 201609 management elect accounting policy continue estimate number awards expected forfeited adjust estimates longer probable period august 2016 fasb issued asu 201615 “classification certain cash receipts cash payments” “asu 201615” asu 201615 intended reduce diversity practice around certain transactions classified within statement cash flows asu 201615 effective annual reporting periods home group inc notes consolidated financial statements continued beginning december 15 2017 including interim periods within reporting period early adoption permitted currently evaluating impact asu 201615 november 2016 fasb issued asu 201618 “restricted cash” “asu 201618” asu 201618 intended reduce diversity practice around restricted cash classified within statement cash flows asu 201618 effective annual reporting periods beginning december 15 2017 including interim periods within reporting period early adoption permitted currently evaluating impact asu 201618 january 2017 fasb issued asu 201704 “simplifying test goodwill impairment” “asu 201704” asu 201704 simplifies measurement goodwill impairment removing second step goodwill impairment test requires determination fair value individual assets liabilities reporting unit asu 201704 goodwill impairment measured amount reporting unit’s carrying value exceeds fair value loss recognized exceed total amount goodwill allocated reporting unit asu 201704 effective fiscal years beginning december 15 2019 early adoption permitted interim annual goodwill impairment tests performed january 1 2017 standard applied prospective basis currently evaluating impact asu 201704 anticipate material impact consolidated financial statements implemented 2 property equipment property equipment consists following thousands depreciation amortization expense fiscal years ended january 28 2017 january 30 2016 january 31 2015 totaled approximately 369 million 287 million 233 million respectively approximately 327 million 262 million 180 million depreciation amortization expense included cost sales fiscal years ended january 28 2017 january 30 2016 january 31 2015 respectively addition depreciation amortization expense fiscal year ended january 31 2015 includes 40 million amortization expense related former garden ridge trade name definitelived intangible asset 3 saleleaseback transactions september 2016 sold three properties colorado springs colorado kissimmee florida o’fallon illinois total 306 million resulting net gain 169 million contemporaneously closing sale entered lease pursuant leased back properties cumulative initial annual rent 21 million subject annual escalations lease accounted operating lease net gain sale properties deferred included deferred rent liabilities accompanying consolidated home group inc notes consolidated financial statements continued balance sheets gain amortized rent expense straightline basis lease term september 2031 august 2016 sold four properties broomfield colorado corpus christi texas jenison michigan buford georgia total 326 million resulting net gain 142 million contemporaneously closing sale entered lease pursuant leased back properties cumulative initial annual rent 22 million subject annual escalations lease accounted operating lease net gain sale properties deferred included deferred rent liabilities accompanying consolidated balance sheets gain amortized rent expense straightline basis lease term july 2031 approximately 37 million proceeds sale used pay note payable related corpus christi property september 2015 sold five properties grand prairie texas toledo ohio pharr texas new braunfels texas gulfport mississippi total 402 million resulting net gain 158 million contemporaneously closing sale entered lease pursuant leased back properties cumulative initial annual rent 27 million subject annual escalations lease accounted operating lease net gain sale properties deferred included deferred rent liabilities accompanying consolidated balance sheets gain amortized rent expense straightline basis lease term september 2030 approximately 55 million proceeds sale used pay notes payable related grand prairie new braunfels properties january 2015 sold property located omaha nebraska approximately 80 million resulting net gain 27 million contemporaneously closing sale entered lease pursuant leased back property cumulative initial annual rent 05 million subject annual escalations lease accounted operating lease net gain sale property deferred included deferred rent liabilities accompanying consolidated balance sheets gain amortized rent expense straightline basis lease term january 2030 september 2014 sold four properties raleigh north carolina mesa arizona lubbock texas louisville kentucky total 409 million resulting net gain 171 million contemporaneously closing sale entered four leases pursuant leased back properties cumulative initial annual rent 28 million subject annual escalations leases raleigh lubbock louisville properties accounted operating leases lease mesa property accounted financing transaction accordance asc 8404055 topic 840 “leases” due prohibited form continuing involvement related existing sublease property see note 7financing obligations 171 million net gain associated sale properties deferred included deferred rent liabilities accompanying consolidated balance sheets gain amortized rent expense straightline basis lease terms september 2029 sales properties located lubbock louisville treated likekind exchanges us federal income tax purposes accordance code home group inc notes consolidated financial statements continued 4 accrued liabilities accrued liabilities consist following thousands 5 revolving line credit october 2011 home iii home stores collectively “abl borrower” entered assetbased lending credit facility “abl facility” provided cash borrowings issuances letters credit based defined percentages eligible inventory credit card receivable balances maximum facility limit 800 million may 2012 abl borrower entered first amendment credit agreement amended abl facility among things permit senior secured notes issued may 2013 abl borrower entered second amendment credit agreement amended abl facility increase facility limit 900 million extend maturity october 2016 may 2018 reduce interest rate fees amend various covenants related definitions july 2014 abl borrower entered third amendment credit agreement amended abl facility modify certain financial terms covenants modifications included increasing facility 900 million 1400 million extending scheduled maturity date may 2018 july 2019 reducing margin borrowings 025 providing release certain real property collateral specified circumstances adding wells fargo bank national association new lender abl facility amending various covenants terms related definitions provide additional flexibility abl facility abl facility secured substantially abl borrowers assets first lien certain assets including primarily inventory accounts receivable related assets “abl priority collateral” second lien nonabl priority collateral june 2015 abl borrower entered fourth amendment credit agreement amended abl facility modify certain provisions agreement among things permit term loan facilities issued amend certain terms abl facility consistent terms set forth term loan facilities june 2016 amended agreement governing abl facility exercise 750 million accordion feature increased aggregate revolving commitments 1400 million 2150 million increased sublimit issuance letters credit 100 million 250 million terms abl facility changed amendment interest borrowings abl facility computed based average daily availability option x higher federal funds rate plus 12 100 ii banks prime rate iii libor plus 100 plus case applicable margin 025 075 banks libor rate plus applicable margin 125 175 effective interest rate approximately 200 fiscal years ended january 28 2017 january 30 2016 january 31 2015 respectively home group inc notes consolidated financial statements continued january 28 2017 approximately 1016 million outstanding abl facility approximately 36 million face amount letters credit issued availability approximately 1084 million january 28 2017 compliance covenants prescribed abl facility abl facility includes restrictions customarily found agreements ability abl borrower subsidiary guarantors incur additional liens indebtedness make investments dispositions pay dividends home ii enter transactions among restrictions case subject certain exceptions abl facility abl borrower subsidiary guarantors permitted pay dividends home ii long giving effect payment availability equal greater 15 loan cap ie lesser x aggregate lender commitments abl facility borrowing base ii availability less 20 loan cap consolidated fixed charge coverage ratio equal greater 10 b pursuant certain limited exceptions 6 longterm debt longterm debt consists following thousands matures february 1 2037 42697 payable monthly including interest 590 secured location’s land building aggregate annual maturities longterm debt excluding capital lease obligations follows thousands term loan facilities june 5 2015 indirect wholly owned subsidiary home holding iii inc “borrower” entered first lien credit agreement “first lien agreement” among borrower home holding ii inc “at home ii” direct wholly owned subsidiary guarantor various lenders bank america na home group inc notes consolidated financial statements continued administrative agent collateral agent first lien agreement provides 3000 million term loan “term loan” amount borrowed june 5 2015 term loan mature june 3 2022 repayable equal quarterly installments approximately 08 million annual aggregate amount equal 1 original principal amount 3000 million borrower option paying interest 1month 2month quarterly basis term loan annual rate libor subject 1 floor plus 400 subject qualifying initial public offering 050 reduction borrower achieves specified secured net leverage ratio level met subsequent initial public offering fiscal year ended january 28 2017 june 5 2015 borrower also entered second lien credit agreement “second lien agreement” among borrower home ii dynasty financial ii llc administrative agent collateral agent lender second lien agreement provided second lien term loan together term loan “term loan facilities” amount borrowed june 5 2015 second lien term loan maturity date june 5 2023 require periodic principal payments total amount outstanding plus accrued interest due maturity borrower option paying interest 1month 2month quarterly basis second lien term loan annual rate libor subject 1 floor plus 800 term loan facilities various nonfinancial covenants representations warranties events defaults remedies substantially similar described respect abl facility financial maintenance covenants term loan facilities option term loan prepayable prior june 5 2016 subject case repricing transaction prepayment premium equal principal amount term loan subject prepayment multiplied 1 prepayment portion outstanding term loan june 5 2016 subject premium borrower used net proceeds term loan facilities effect refinancing outstanding indebtedness 3600 million aggregate principal amount 1075 senior secured notes maturing june 1 2019 “senior secured notes” ii pay fees expenses connection term loan facilities redemption senior secured notes iii repay certain amounts outstanding abl facility iv general corporate purposes fiscal year ended january 28 2017 used net proceeds initial public offering partial exercise overallotment option deducting underwriters’ discounts commissions repay full 1300 million principal amount indebtedness outstanding second lien term loan repayment resulted loss extinguishment debt amount 27 million 1075 senior notes due 2019 may 2012 home iii issued 3600 million aggregate principal amount senior secured notes terms senior secured notes governed indenture dated may 16 2012 among home iii guarantors party thereto wells fargo bank national association trustee interest payable semiannually arrears june 1 december 1 commencing december 1 2012 senior secured notes fully unconditionally guaranteed jointly severally senior secured basis restricted subsidiaries senior secured notes related guarantees secured subject certain exceptions first priority lien substantially guarantors assets inventory accounts receivable related assets secure abl facility first priority basis “abl priority collateral” including first priority liens capital stock held us guarantor ii second priority lien abl priority collateral home group inc notes consolidated financial statements continued indenture contained customary covenants limiting home iiis restricted subsidiaries operations also provided events default certain circumstances permitted acceleration payment principal premium interest outstanding senior secured notes june 5 2015 home iii completed redemption senior secured notes price equal 108063 total cash consideration 3894 million included 290 million early redemption premium 04 million accrued interest redemption resulted loss extinguishment debt amount approximately 360 million restricted net assets home groups consolidated subsidiaries 5421 million january 28 2017 7 financing obligations cases assets lease require construction order ready space intended use certain cases involved construction leased assets construction period typically begins execute lease agreement landlord continues space substantially complete ready intended use accordance asc 8404055 must consider nature extent involvement construction period cases involvement results considered accounting owner construction project completing construction key structural components leased building deemed participated construction landlord asset cases capitalize landlords construction costs including value costs incurred date execute lease costs incurred remainder construction period costs incurred additionally asc 8404055 requires us recognize financing obligation construction costs incurred landlord construction complete required perform saleleaseback analysis pursuant asc 84040 determine remove landlords assets associated financing obligations consolidated balance sheet certain leases maintain various forms “prohibited continuing involvement” property thereby precluding us derecognizing asset associated financing obligations following construction completion cases continue account landlords asset legal owner financing obligation similar debt lease expires modified remove continuing involvement prohibits derecognition permitted would required account lease either operating capital accordance asc 840 january 28 2017 derecognized landlord assets associated financing obligations 8 related party transactions connection initial public offering management agreement controlling shareholder aea investors lp “aea” affiliate controlling shareholder affiliated coinvestors including starr investment holdings llc “starr investments” together aea “sponsors” terminated august 3 2016 sponsors longer receive management fees us following initial public offering sponsors approximately 85 outstanding common stock previously obligated pay management fees approximately 26 million annually aea recognized management fees reimbursed expenses approximately 14 million fiscal year ended january 28 2017 approximately 27 million fiscal years ended january 30 2016 january 31 2015 also obligated pay management fees approximately 09 million annually starr investments recognized management fees approximately 05 million fiscal year ended january 28 2017 approximately 09 million fiscal years ended january 30 2016 january 31 2015 home group inc notes consolidated financial statements continued addition starr indemnity liability company affiliate starr investments underwriter general liability workers compensation insurance policies effective december 1 2013 total cost policies approximately 23 million approximately 19 million paid fiscal year ended january 31 2015 policies expired december 1 2014 replaced policies underwritten unrelated party november 1 2016 affiliates aea owned significant equity position dematic corporation external vendor designs develops delivers solutions optimize companies supply chain improve performance increase productivity intelligent warehouse logistics materials handling solutions february 2014 executed agreement dematic corporation installation system assist automation distribution center fiscal years ended january 28 2017 january 31 2015 paid dematic corporation approximately 04 million 72 million respectively agreement primarily recorded property equipment net affiliates aea disposed interest dematic corporation november 1 2016 dematic corporation longer related party merry mabbett inc “mmi” owned merry mabbett dean mother lewis l bird iii chief executive officer fiscal years ended january 28 2017 january 30 2016 january 31 2015 ms dean mmi provided certain design services us including design home office well design stores addition mmi purchased certain fixtures furniture equipment owned used us home office new store offices product vignettes stores fiscal year ended january 28 2017 paid mmi approximately 02 million fixtures furniture equipment design related services fiscal years ended january 30 2016 january 31 2015 paid mmi approximately 04 million fixtures furniture equipment design related services 9 income taxes income tax provision benefit follows thousands home group inc notes consolidated financial statements continued deferred tax assets liabilities determined based estimated future tax effects difference financial statement tax basis asset liability balances using statutory tax rates tax effects temporary differences give rise significant components deferred tax assets liabilities follows thousands required assess available positive negative evidence estimate sufficient future income generated utilize deferred tax assets believe cumulative pretax income significant piece positive evidence allows us consider subjective evidence future forecasted pretax income fiscal year ended january 31 2015 determined three years cumulative pretax income excluding 375 million tradename impairment recognized fiscal year 2014 consider unusual nature result rebranding initiative however believe three year cumulative pretax income position positive evidence could consider rebranding efforts still early stages yet demonstrated ability forecast results operations fiscal year ended january 30 2016 excluding trade name impairment determined continued three years cumulative pretax income addition taxable income loss exceeded pretax income loss fiscal year ended january 30 2016 two preceding fiscal years january 30 2016 completed approximately 18 months operations following rebranding initiative well demonstrated ability accurately forecast results operations concluded positive evidence along taxable income prior two fiscal years absorb loss carrybacks would generated reversing deductible differences excess reversing taxable differences well cumulative pretax income exclusive tradename impairment recent fiscal years likely deferred tax assets would realized future years accordingly fiscal year 2016 reversed 60 million valuation allowance deferred tax assets offsetting credit provision income taxes fiscal year ended january 28 2017 continued three years cumulative pretax income addition taxable income loss exceeded pretax income loss fiscal year ended january 28 2017 two preceding fiscal years concluded positive evidence along taxable income carryback period absorb losses would generated reversing deductible differences excess reversing taxable differences well cumulative pretax income recent fiscal years likely home group inc notes consolidated financial statements continued deferred tax assets would realized future years accordingly fiscal year 2017 determined valuation allowance exception state net operating losses required valuation allowances totaled 03 million 06 million january 28 2017 january 30 2016 respectively change mainly due utilization losses certain jurisdictions approximately 82 million 158 million state net operating loss carryforwards january 28 2017 january 30 2016 respectively state net operating losses begin expire fiscal year 2023 determined valuation allowance state net operating losses appropriate fiscal years ended january 28 2017 january 30 2016 reconciliation actual income tax provision benefit income tax provision benefit calculated federal statutory tax rate follows dollars thousands uncertain tax positions operate number tax jurisdictions subject examination income tax returns tax authorities jurisdictions may challenge item returns tax matters challenged tax authorities typically complex ultimate outcome challenges uncertain accordance asc 740 topic 740 “income taxes” recognize benefits uncertain tax positions consolidated financial statements determining likely uncertain tax positions sustained total amount unrecognized tax benefits january 28 2017 26 million 07 million would favorably impact effective tax rate resolved favor reconciliation beginning ending amount unrecognized tax benefits follows thousands home group inc notes consolidated financial statements continued recognize accrued interest penalties related unrecognized tax benefits provision income taxes january 28 2017 january 30 2016 approximately 01 million accrued penalties january 28 2017 january 30 2016 approximately 02 million accrued interest addition recognized immaterial amount interest expense penalties fiscal year ended january 28 2017 released approximately 01 million interest expense fiscal year ended january 30 2016 normal course business subject examination taxing authorities us federal us state jurisdictions period subject examination federal return fiscal year 2014 later since prior years audited changes fiscal year 2013 later major state tax returns believe adequate provision made adjustments may result tax examinations however outcome tax audits cannot predicted certainty issues addressed tax audits resolved manner consistent managements expectations could required adjust provision income tax period resolution occurs 10 commitments contingencies leases lease space certain retail properties distribution center corporate office pursuant leases expire various dates 2036 number leases renewal options various periods time discretion typically responsible taxes utilities insurance repairs maintenance retail properties certain leases require payment contingent rent based specified percentage stores gross sales defined lease agreement subject certain limitations immaterial amount contingent rent paid fiscal years ended january 28 2017 january 30 2016 contingent rent required paid fiscal year ended january 31 2015 rent expense fiscal years ended january 28 2017 january 30 2016 january 31 2015 totaled approximately 681 million 523 million 429 million respectively future minimum annual rental commitments leases follows thousands minimum future annual rent receivable operating subleases january 28 2017 approximately 02 million lease rental income approximately 02 million fiscal years ended january 28 2017 january 30 2016 january 31 2015 litigation subject claims lawsuits arise primarily ordinary course business opinion management disposition ultimate resolution claims lawsuits material adverse effect consolidated financial position results operations liquidity home group inc notes consolidated financial statements continued 11 employee benefit plan effective october 1 2014 sponsor 401k savings plan eligible employees participation 401k savings plan voluntary available employee least 18 years age completed six months service participants may elect contribute 100 compensation pretax basis subject internal revenue service “irs” limitations accordance provisions 401k savings plan make safe harbor matching cash contribution account participant amount equal 100 participants pretax contributions exceed 3 participants considered annual compensation plus 50 participants pretax contributions 3 5 participants considered annual compensation also subject regulatory limits matching contributions actual earnings thereon vest participants immediately matching contribution expenses 08 million 05 million 02 million fiscal years ended january 28 2017 january 30 2016 january 31 2015 respectively 12 capital stock july 22 2016 board directors approved 128157393forone stock split existing class common stock class b common stock class c common stock conversion class common stock class b common stock class c common stock single class common stock historical share per share information retroactively adjusted reflect stock split conversion effective july 22 2016 total authorized share capital comprised 500000000 shares common stock 50000000 shares preferred stock august 3 2016 registration statement form s1 relating initial public offering declared effective sec pursuant issued sold 8667000 shares registered price 1500 per share august 9 2016 september 8 2016 issued sold 863041 shares common stock price 1500 per share pursuant underwriters’ partial exercise overallotment option january 28 2017 500000000 shares common stock authorized par value 001 60366768 issued outstanding additionally january 28 2017 50000000 shares preferred stock authorized par value 001 shares issued outstanding 13 earnings per share accordance asc 260 topic 260 “earnings per share” basic earnings per share computed dividing net income loss available common stockholders weighted average number common shares outstanding period diluted earnings per share computed dividing net income loss available common stockholders weighted average shares outstanding period include dilutive impact potential shares exercise stock options potentially dilutive securities excluded computation diluted net income loss per share effect antidilutive home group inc notes consolidated financial statements continued following table sets forth calculation basic diluted earnings per share follows dollars thousands except share per share data fiscal years ended january 28 2017 january 30 2016 january 31 2015 approximately 1514168 2900239 4514194 respectively stock options excluded calculation diluted net income loss per common share since effect antidilutive 14 stockbased compensation account stockbased compensation accordance asc 718 topic 718 “compensationstock compensation” requires stockbased payments employees including grants employee stock options recognized consolidated financial statements requisite service period compensation expense based upon fair value awards recognized straightline basis requisite service period awards actually vest stockbased compensation expense recorded selling general administrative expenses consolidated statements operations two equity compensation plans “equity plans” grant equity awards grd holding corporation stock option plan may amended time “2012 option plan” home group inc equity incentive plan subsequently amended restated approved board july 2016 “2016 equity plan” pursuant 2012 option plan 5648525 shares common stock reserved issuance options purchase shares issued 2012 option plan expire cancelled otherwise terminate without issuance shares shall available issuance january 28 2017 shares available future grant 2012 option plan september 2015 adopted 2016 equity plan subsequently amended restated approved board july 2016 equity plan equity awards may made 6196755 shares common stock subject adjustment provided 2016 plan 2478702 shares ‘‘ipo bonus pool’’ issuable pursuant awards granted 2016 equity plan senior executives company connection consummation initial public offering ii 3718053 shares may issued pursuant awards granted 2016 equity plan ipo bonus pool postipo share pool january 28 2017 3764139 shares available future grant 2016 plan august 3 2016 made special onetime initial public offering transaction bonus grant 2478702 options certain members senior management team 2016 equity plan “ipo grant” august 3 home group inc notes consolidated financial statements continued 2016 also granted one employee option purchase 28326 shares common stock 2012 option plan initial public offering price option awards granted exercise price equal fair market value common stock date grant option awards 2012 option plans generally vest based four years continuous service 10year contractual terms ipo grant subject market conditions vesting occurs closing price company’s common stock achieves preestablished targets time specified performance period seven years date grant exceeds targets twenty consecutive trading days disregarding sixmonth period immediately following august 3 2016 certain option share awards provide accelerated vesting change control defined equity plans determined fair value ipo grant subject market conditions using monte carlo simulation method ipo grant date fair value approximately 200 million incremental ongoing stockbased compensation expense stockbased compensation expense ipo grant expensed derived service period began third fiscal quarter 2017 continue following eight quarters estimate fair value service condition stock option grant equity plans date grant based upon blackscholes optionpricing model includes following variables 1 exercise price instrument 2 fair market value underlying stock date grant 3 expected term 4 expected volatility 5 riskfree interest rate utilized following assumptions estimating fair value option grants summary option activity equity plans january 28 2017 changes fiscal year ended presented recognized stockbased compensation expense related stock options approximately 94 million 47 million 43 million fiscal years ended january 28 2017 january 30 2016 january 31 2015 respectively january 28 2017 approximately 167 million total unrecognized compensation expense related nonvested sharebased compensation arrangements granted plans expected recognized weightedaverage period 129 years includes 137 million remaining unrecognized compensation home group inc notes consolidated financial statements continued expense associated ipo grant certain members senior management connection initial public offering 15 quarterly results operations unaudited quarterly results operations fiscal years ended january 28 2017 january 30 2016 follows thousands except per share data 1 sum quarters equal total fiscal year due rounding schedule condensed financial information registrant home group inc parent company condensed balance sheets thousands except share per share data see notes condensed financial statements schedule condensed financial information registrant home group inc parent company condensed statement operations thousands see notes condensed financial statements schedule condensed financial information registrant home group inc parent company notes condensed financial statements 1 basis presentation parentcompanyonly financial statements home group incs “parent” investment subsidiaries stated cost plus equity undistributed earnings subsidiaries since date acquisition parentcompanyonly financial statements read conjunction companys consolidated financial statements condensed statement cash flows presented home group incs net operating activities cash impact investing financing cash flow activities fiscal years ended january 28 2017 january 30 2016 january 31 2015 2 guarantees restrictions home holding iii inc “at home iii” subsidiary parent issued 3600 million aggregate principal amount senior secured notes may 16 2012 pursuant indenture terms indenture senior secured notes fully unconditionally guaranteed jointly severally senior secured basis home iiis existing future domestic restricted subsidiaries certain immaterial subsidiaries wholly owned guarantee home iiis guarantors indebtedness event default indenture home group iii guaranteeing subsidiaries directly liable holders senior secured notes senior secured notes scheduled mature june 1 2019 indenture contained covenants limiting among things home iiis ability restricted subsidiaries incur additional debt pay dividends distributions capital stock direct indirect parent company including parent repurchase capital stock issue stock subsidiaries make certain investments create liens assets secure debt enter transactions affiliates merge consolidate another company sell otherwise transfer assets case subject certain exceptions indenture home iii permitted pay dividends direct indirect parent company including parent amount equal basket builds based 50 home iiis consolidated net income defined indenture certain amounts subject various conditions including compliance fixed charge coverage ratio 20 10 plus ii 10 million b certain additional limited amounts subject certain limited exceptions june 5 2015 home iii completed redemption senior secured notes price equal 108063 total cash consideration 3894 million includes 290 million early redemption premium 04 million accrued interest home iii indirect whollyowned subsidiary home stores llc coborrowers capacities “abl borrowers” abl facility abl borrowers 1084 million available credit abl facility provides commitments 2150 million revolving loans letters credit january 28 2017 home holding ii inc “holdings” direct parent home iii direct indirect domestic subsidiaries abl borrowers certain immaterial subsidiariesthe “abl subsidiary guarantors” together holdings “abl guarantors” guaranteed obligations abl borrowers abl facility event default abl facility abl borrowers guarantors directly liable lenders abl facility abl facility matures july 28 2019 includes restrictions ability abl borrowers abl subsidiary guarantors incur additional liens indebtedness make investments dispositions pay dividends holdings enter transactions among restrictions case subject certain exceptions abl facility abl borrowers abl subsidiary guarantors permitted pay dividends holdings long giving effect payment availability equal greater 15 loan cap ie lesser x aggregate lender commitments abl facility borrowing base ii availability less 20 loan cap consolidated fixed charge coverage ratio equal greater 10 b pursuant certain limited exceptions june 5 2015 indirect wholly owned subsidiary home holding iii inc “borrower” entered first lien credit agreement “first lien agreement” among borrower home holding ii inc “at home ii” direct wholly owned subsidiary guarantor various lenders bank america na administrative agent collateral agent first lien agreement provides 3000 million term loan “term schedule condensed financial information registrant home group inc parent company notes condensed financial statements continued loan” amount borrowed june 5 2015 term loan mature june 3 2022 repayable equal quarterly installments approximately 08 million annual aggregate amount equal 1 original principal amount 3000 million borrower option paying interest 1month 2month quarterly basis term loan annual rate libor subject 1 floor plus 400 subject qualifying initial public offering 050 reduction specified secured net leverage ratio level met subsequent initial public offering fiscal year ended january 28 2017 june 5 2015 borrower also entered second lien credit agreement “second lien agreement” among borrower home ii dynasty financial ii llc administrative agent collateral agent lender second lien agreement provided second lien term loan together term loan “term loan facilities” amount borrowed june 5 2015 second lien term loan maturity date june 5 2023 require periodic principal payments total amount outstanding plus accrued interest due maturity borrower option paying interest 1month 2month quarterly basis second lien term loan annual rate libor subject 1 floor plus 800 term loan facilities include restrictions ability borrower restricted subsidiaries incur additional liens indebtedness make investments dispositions pay dividends holdings enter transactions among restrictions case subject certain exceptions term loan facilities borrower permitted pay dividends holdings amount equal long immediately giving effect thereto default event default occurred continuing x 10 million first lien term facility 115 million second lien term facility plus ii basket builds based x 30 million first lien term facility 345 million second lien term facility plus 50 borrowers restricted subsidiaries consolidated net income defined term loan facilities certain amounts subject various conditions including compliance minimum cash interest coverage ratio 20 10 plus iii unlimited amount subject pro forma compliance 30 10 total leverage ratio b certain additional limited amounts subject certain limited exceptions borrower used net proceeds term loan facilities effect refinancing outstanding indebtedness 3600 million aggregate principal amount 1075 senior secured notes maturing june 1 2019 “senior secured notes” ii pay fees expenses connection term loan facilities redemption senior secured notes iii repay certain amounts outstanding abl facility iv general corporate purposes august 3 2016 registration statement form s1 relating initial public offering declared effective sec pursuant registered aggregate 9967050 shares common stock including 1300050 shares subject underwriters overallotment option issued sold 8667000 shares registered price 1500 per share august 9 2016 resulting net proceeds 1209 million deducting underwriters discounts commissions 91 million also incurred offering expenses 60 million connection initial public offering included additional paidin capital consolidated balance sheet january 28 2017 september 8 2016 issued sold 863041 shares common stock pursuant underwriters’ partial exercise overallotment option exercise overallotment option resulted net proceeds us 120 million deducting underwriters’ discounts commissions 09 million fiscal year ended january 28 2017 used net proceeds initial public offering exercise overallotment option deducting underwriters’ discounts commissions repay full 1300 million principal amount indebtedness outstanding second lien term loan repayment resulted loss extinguishment debt amount 27 million index exhibits following exhibits filed furnished part report exhibit description 31 second amended restated certificate incorporation company incorporated reference exhibit 31 amendment 6 registrants registration statement form s1 filed july 25 2016 file 333206772 32 amended restated bylaws company incorporated reference exhibit 32 amendment 6 registrants registration statement form s1 filed july 25 2016 file 333206772 41 specimen common stock certificate company incorporated reference exhibit 41 amendment 6 registrants registration statement form s1 filed july 25 2016 file 333206772 42 second amended restated stockholders’ agreement dated july 22 2016 among home group inc starr investment fund ii llc sph grd holdings llc grd holding lp grd holding aea llc grd holdinga lp incorporated reference exhibit 42 amendment 6 registrants registration statement form s1 filed july 25 2016 file 333206772 43 registration rights agreement dated july 22 2016 among home group inc starr investment fund ii llc sph grd holdings llc grd holding lp grd holding aea llc grd holdinga lp incorporated reference exhibit 43 amendment 6 registrants registration statement form s1 filed july 25 2016 file 333206772 101 senior secured asset based revolving credit facility dated october 5 2011 among home holding iii inc home stores llc home holding ii inc parent guarantor certain home holding ii inc’s indirect whollyowned domestic subsidiaries subsidiary guarantors lenders party thereto bank america na administrative agent collateral agent incorporated reference exhibit 101 amendment 1 registrants registration statement form s1 filed september 25 2015 file 333206772 1011 first amendment credit agreement dated may 9 2012 among home holding iii inc home stores llc home holding ii inc parent guarantor certain home holding ii inc’s indirect whollyowned domestic subsidiaries subsidiary guarantors lenders party thereto bank america na administrative agent collateral agent incorporated reference exhibit 1011 amendment 1 registrants registration statement form s1 filed september 25 2015 file 333206772 1012 second amendment credit agreement dated may 23 2013 among home holding iii inc home stores llc home holding ii inc parent guarantor certain home holding ii inc’s indirect whollyowned domestic subsidiaries subsidiary guarantors lenders party thereto bank america na administrative agent collateral agent incorporated reference exhibit 1012 amendment 1 registrants registration statement form s1 filed september 25 2015 file 333206772 exhibit description 1013 third amendment credit agreement dated july 28 2014 among home holding iii inc home stores llc home holding ii inc parent guarantor certain home holding ii inc’s indirect whollyowned domestic subsidiaries subsidiary guarantors lenders party thereto bank america na administrative agent collateral agent incorporated reference exhibit 1013 amendment 1 registrants registration statement form s1 filed september 25 2015 file 333206772 1014 assumption ratification agreement dated september 29 2014 among home holding iii inc home stores llc home holding ii inc parent guarantor certain home holding ii inc’s indirect whollyowned domestic subsidiaries subsidiary guarantors lenders party thereto bank america na administrative agent collateral agent incorporated reference exhibit 1014 amendment 1 registrants registration statement form s1 filed september 25 2015 file 333206772 1015 fourth amendment credit agreement dated june 5 2015 among home holding iii inc home stores llc home holding ii inc parent guarantor certain home holding ii inc’s indirect whollyowned domestic subsidiaries subsidiary guarantors lenders party thereto bank america na administrative agent collateral agent incorporated reference exhibit 1015 amendment 1 registrants registration statement form s1 filed september 25 2015 file 333206772 1016 fifth amendment credit agreement dated june 15 2016 among home holding iii inc home stores llc home holding ii inc parent guarantor certain home holding ii inc’s indirect whollyowned domestic subsidiaries subsidiary guarantors lenders party thereto bank america na administrative agent collateral agent incorporated reference exhibit 1016 amendment 6 registrants registration statement form s1 filed july 25 2016 file 333206772 102 senior secured term loan facility dated june 5 2015 home holding iii inc home holding ii inc parent guarantor certain home holding ii inc’s indirect whollyowned domestic subsidiaries subsidiary guarantors lenders party thereto bank america na administrative agent collateral agent incorporated reference exhibit 102 amendment 1 registrants registration statement form s1 filed september 25 2015 file 333206772 104† employment agreement garden ridge corporation home group inc fka grd holding corporation lewis l bird iii dated november 15 2012 incorporated reference exhibit 104 amendment 1 registrants registration statement form s1 filed september 25 2015 file 333206772 1041† amendment employment agreement garden ridge corporation home group inc fka grd holding corporation lewis l bird iii dated november 1 2013 incorporated reference exhibit 1041 amendment 1 registrants registration statement form s1 filed september 25 2015 file 333206772 105† employment agreement garden ridge corporation home group inc fka grd holding corporation judd nystrom dated january 25 2013 incorporated reference exhibit 105 amendment 1 registrants registration statement form s1 filed september 25 2015 file 333206772 exhibit description 1051† amendment employment agreement garden ridge corporation home group inc fka grd holding corporation judd nystrom dated november 1 2013 incorporated reference exhibit 1051 amendment 1 registrants registration statement form s1 filed september 25 2015 file 333206772 106† employment agreement garden ridge corporation home group inc fka grd holding corporation peter sg corsa dated february 2 2013 incorporated reference exhibit 106 amendment 1 registrants registration statement form s1 filed september 25 2015 file 333206772 1061† amendment employment agreement garden ridge corporation home group inc fka grd holding corporation peter sg corsa dated november 1 2013 incorporated reference exhibit 1061 amendment 1 registrants registration statement form s1 filed september 25 2015 file 333206772 107† home group inc fka grd holding corporation stock option plan effective november 12 2012 incorporated reference exhibit 107 amendment 1 registrants registration statement form s1 filed september 25 2015 file 333206772 108† nonqualified stock option agreement home group inc fka grd holding corporation lewis l bird iii dated november 26 2012 incorporated reference exhibit 108 amendment 1 registrants registration statement form s1 filed september 25 2015 file 333206772 1081† letter agreement home group inc fka grd holding corporation lewis l bird iii dated november 26 2012 incorporated reference exhibit 1081 amendment 1 registrants registration statement form s1 filed september 25 2015 file 333206772 1082† amendment nonqualified stock option agreement home group inc fka grd holding corporation lewis l bird iii dated december 4 2012 incorporated reference exhibit 1082 amendment 1 registrants registration statement form s1 filed september 25 2015 file 333206772 109† nonqualified stock option agreement home group inc fka grd holding corporation judd nystrom dated january 31 2013 incorporated reference exhibit 109 amendment 1 registrants registration statement form s1 filed september 25 2015 file 333206772 1091† amendment nonqualified stock option agreement home group inc fka grd holding corporation judd nystrom dated february 18 2013 incorporated reference exhibit 1091 amendment 1 registrants registration statement form s1 filed september 25 2015 file 333206772 1010† nonqualified stock option agreement home group inc fka grd holding corporation judd nystrom dated june 3 2014 incorporated reference exhibit 1010 amendment 1 registrants registration statement form s1 filed september 25 2015 file 333206772 1011† nonqualified stock option agreement home group inc fka grd holding corporation peter sg corsa dated january 10 2013 incorporated reference exhibit 1011 amendment 1 registrants registration statement form s1 filed september 25 2015 file 333206772 exhibit description 10111† amendment nonqualified stock option agreement home group inc fka grd holding corporation peter sg corsa dated march 25 2013 incorporated reference exhibit 10111 amendment 1 registrants registration statement form s1 filed september 25 2015 file 333206772 1012† nonqualified stock option agreement home group inc fka grd holding corporation peter sg corsa dated june 3 2014 incorporated reference exhibit 1012 amendment 1 registrants registration statement form s1 filed september 25 2015 file 333206772 1013† home group inc annual bonus plan incorporated reference exhibit 1013 amendment 6 registrants registration statement form s1 filed july 25 2016 file 333206772 1014† home group inc equity incentive plan incorporated reference exhibit 1014 amendment 6 registrants registration statement form s1 filed july 25 2016 file 333206772 1015† home group inc form option award agreement incorporated reference exhibit 1015 amendment 6 registrants registration statement form s1 filed july 25 2016 file 333206772 1016 form indemnification agreement incorporated reference exhibit 1016 amendment 6 registrants registration statement form s1 filed july 25 2016 file 333206772 1017† offer letter home group inc jennifer warren dated december 9 2014 incorporated reference exhibit 1017 amendment 4 registrants registration statement form s1 filed april 22 2016 file 333206772 1018† nonqualified stock option agreement home group inc fka grd holding corporation jennifer warren dated april 7 2015 incorporated reference exhibit 1018 amendment 4 registrants registration statement form s1 filed april 22 2016 file 333206772 1019† bonus agreement home group inc fka grd holding corporation jennifer warren dated april 8 2015 incorporated reference exhibit 1019 amendment 4 registrants registration statement form s1 filed april 22 2016 file 333206772 1020 home group inc form nonqualified stock option award agreement director incorporated reference exhibit 101 registrants current report form 8k filed december 5 2016 file 00137849 1021 form employment agreement entered home stores llc fka garden ridge corporation certain executive officers company 211 list subsidiaries home group inc 311 certification chief executive officer pursuant rule 13a14a 15d14a securities exchange act 1934 amended adopted pursuant section 302 sarbanesoxley act 2002 exhibit description 312 certification chief financial officer pursuant rule 13a14a 15d14a securities exchange act 1934 amended adopted pursuant section 302 sarbanesoxley act 2002 321 certification chief executive officer chief financial officer pursuant 18 usc section 1350 adopted pursuant section 906 sarbanesoxley act 2002 101ins xbrl instance document 101sch xbrl taxonomy extension schema document 101cal xbrl taxonomy extension calculation linkbase document 101def xbrl taxonomy extension definition linkbase document 101lab xbrl taxonomy extension label linkbase document 101pre xbrl taxonomy extension presentation linkbase document filed herewith †indicates management contracts compensatory plans arrangements executive officers directors participate signatures pursuant requirements securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized pursuant requirements securities exchange act 1934 report signed following persons capacities dates indicated larry stone director april 5 2017 larry stone philip l francis director april 5 2017 philip l francis elisabeth b charles director april 5 2017 elisabeth b charles item 15 exhibits financial statement schedules following documents filed part report 1 consolidated financial statements see index consolidated financial statements page 2 financial statement schedules financial statement schedules omitted required applicable required information provided consolidated financial statements notes described 151 3 exhibits listed accompanying index exhibits attached hereto filed incorporated reference annual report form 10k item 16 form 10k summary none index consolidated financial statements page report independent registered public accounting firm consolidated balance sheets january 26 2019 january 27 2018 consolidated statements income fiscal years ended january 26 2019 january 27 2018 january 28 2017 consolidated statements shareholders’ equity fiscal years ended january 26 2019 january 27 2018 january 28 2017 consolidated statements cash flows fiscal years ended january 26 2019 january 27 2018 january 28 2017 notes consolidated financial statements schedule condensed financial information registrant report independent registered public accounting firm shareholders board directors home group inc opinion financial statements audited accompanying consolidated balance sheets home group inc company january 26 2019 january 27 2018 related consolidated statements income shareholders’ equity cash flows three years period ended january 26 2019 related notes financial statement schedule listed index item 15 collectively referred “consolidated financial statements” opinion consolidated financial statements present fairly material respects financial position company january 26 2019 january 27 2018 results operations cash flows three years period ended january 26 2019 conformity us generally accepted accounting principles adoption new accounting standard discussed note 2 consolidated financial statements effective january 28 2018 company changed method recognizing revenue using retrospective adoption method accounting standards update asu 201409 revenue contracts customers topic 606 amended basis opinion financial statements responsibility company’s management responsibility express opinion company’s financial statements based audits public accounting firm registered public company accounting oversight board united states pcaob required independent respect company accordance us federal securities laws applicable rules regulations securities exchange commission pcaob conducted audits accordance standards pcaob standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement whether due error fraud company required engaged perform audit internal control financial reporting part audits required obtain understanding internal control financial reporting purpose expressing opinion effectiveness companys internal control financial reporting accordingly express opinion audits included performing procedures assess risks material misstatement financial statements whether due error fraud performing procedures respond risks procedures included examining test basis evidence regarding amounts disclosures financial statements audits also included evaluating accounting principles used significant estimates made management well evaluating overall presentation financial statements believe audits provide reasonable basis opinion ernst young llp served company’s auditor since 2013 dallas texas march 27 2019 report independent registered public accounting firm shareholders board directors home group inc opinion internal control financial reporting audited home group inc’s internal control financial reporting january 26 2019 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission 2013 framework coso criteria opinion home group inc company maintained material respects effective internal control financial reporting january 26 2019 based coso criteria also audited accordance standards public company accounting oversight board united states pcaob balance sheets company january 26 2019 january 27 2018 related statements income shareholders’ equity cash flows three years period ended january 26 2019 related notes financial statement schedules listed index item 15 report dated march 27 2019 expressed unqualified opinion thereon basis opinion company’s management responsible maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included accompanying management’s report internal control financial reporting responsibility express opinion company’s internal control financial reporting based audit public accounting firm registered pcaob required independent respect company accordance us federal securities laws applicable rules regulations securities exchange commission pcaob conducted audit accordance standards pcaob standards require plan perform audit obtain reasonable assurance whether effective internal control financial reporting maintained material respects audit included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk performing procedures considered necessary circumstances believe audit provides reasonable basis opinion definition limitations internal control financial reporting company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate ernst young llp dallas texas march 27 2019 home group inc consolidated balance sheets thousands except share per share data see notes consolidated financial statements home group inc consolidated statements income thousands except share per share data see notes consolidated financial statements home group inc consolidated statements shareholders’ equity thousands except share data see notes consolidated financial statements home group inc consolidated statements cash flows thousands see notes consolidated financial statements home group inc notes consolidated financial statements 1 nature operations summary significant accounting policies description business home décor superstore focused exclusively providing broad assortment products room style budget january 26 2019 operated 180 home décor superstores 37 states primarily south central southeastern midatlantic midwestern regions united states home owned operated home group inc whollyowned subsidiaries references “we” “us” “our” “company” similar expressions references home group inc consolidated whollyowned subsidiaries unless otherwise expressly stated context otherwise requires stock split july 22 2016 company’s board directors approved 128157393forone stock split existing class common stock class b common stock class c common stock conversion class common stock class b common stock class c common stock single class common stock historical share per share information retroactively adjusted reflect stock split conversion january 26 2019 companys total authorized share capital comprised 500000000 shares common stock 50000000 shares preferred stock initial secondary public offerings august 3 2016 registration statement form s1 relating initial public offering declared effective sec pursuant registered aggregate 9967050 shares common stock including 1300050 shares subject underwriters overallotment option common stock began trading new york stock exchange “nyse” august 4 2016 ticker symbol “home” october 31 2017 registration statement form s3 pursuant registered 50582545 shares common stock owned aea investors lp collectively “aea” starr investment holdings llc “starr investments” together aea “sponsors” declared effective sec december 11 2017 completed secondary offering sponsors sold aggregate 5750000 shares common stock included 750000 shares subject underwriters’ overallotment option april 2 2018 completed secondary offering sponsors sold aggregate 6900000 shares common stock included 900000 shares subject underwriters’ overallotment option june 14 2018 completed secondary offering sponsors sold aggregate 8450000 shares common stock included 450000 shares subject underwriters’ overallotment option september 11 2018 completed secondary offering sponsors sold aggregate 10000000 shares common stock sell shares common stock receive proceeds secondary offerings giving effect secondary offerings sponsors held approximately 265 outstanding common stock fiscal year report basis 52 53week fiscal year ends last saturday january references fiscal year mean year fiscal year ends references herein “fiscal year 2019” relate 52 weeks ended january 26 2019 references herein “fiscal year 2018” relate 52 weeks ended january 27 2018 references herein “fiscal year 2017” relate 52 weeks ended january 28 2017 home group inc notes consolidated financial statements continued consolidation accompanying consolidated financial statements include accounts home group inc “at home group” consolidated whollyowned subsidiaries intercompany balances transactions eliminated consolidation company components comprehensive income recorded within consolidated financial statements therefore separately present statement comprehensive income consolidated financial statements use estimates preparing financial statements conformity us generally accepted accounting principles requires us make estimates assumptions affect reported amounts certain assets liabilities revenues expenses related disclosure contingent assets liabilities date financial statements base estimates historical experience various assumptions believe reasonable circumstances results form basis making judgments carrying values assets liabilities readily apparent sources use estimates inherent financial reporting process actual results may differ estimates reclassification certain prior period amounts reclassified conform current period presentation within consolidated financial statements accompanying notes reclassifications effect previously reported results operations retained earnings segment information management determined one operating segment therefore one reportable segment chief operating decision maker “codm” chief executive officer codm reviews financial performance allocates resources consolidated level recurring basis assets located united states revenue derived united states cash equivalents cash equivalents consist highly liquid investments original maturities three months less well credit card receivables january 26 2019 january 27 2018 cash equivalents comprised primarily credit card receivables restricted cash restricted cash consists cash equivalents reserved specific purpose readily available immediate general business use restricted cash balance january 26 2019 consists primarily cash equivalents held use purchase property equipment january 28 2018 adopted asu 201618 “restricted cash” “asu 201618” using required retrospective transition method asu requires companies include amounts generally described restricted cash restricted cash equivalents cash equivalents reconciling beginningofperiod endofperiod total amounts shown statements cash flows home group inc notes consolidated financial statements continued following table provides reconciliation cash equivalents restricted cash reported within consolidated balance sheets sum total amounts shown consolidated statements cash flows thousands inventories comprised finished merchandise stated lower cost net realizable value cost determined using weightedaverage method cost inventories include actual landed cost item time received distribution center point shipment certain international shipments well transportation costs distribution center retail stores applicable net inventory cost recognized cost sales inventory sold physical inventory counts performed stores least per year thirdparty inventory counting service stores operation least one year inventory records adjusted reflect actual inventory counts resulting shortage “shrinkage” recognized reserves shrinkage estimated recorded throughout fiscal year percentage sales based recent physical inventory combination historical experience also evaluate merchandise ensure expected net realizable value merchandise held end fiscal year exceeds cost event expected net realizable value less cost reduce value inventory accordingly consideration received vendors receive vendor support form cash payments allowances variety vendorsponsored programs volume rebates markdown allowances advertising also receive consideration certain compliance programs agreements place vendor setting forth specific conditions allowance vendor support reduces inventory costs based underlying provisions agreement vendor compliance charges recorded reduction cost merchandise inventories subsequent reduction cost sales inventory sold property equipment property equipment recorded cost less accumulated depreciation amortization depreciation property equipment leasehold improvements recorded straightline basis estimated useful lives assets ranging 3 40 years leasehold improvements amortized straightline basis shorter remaining lease term including renewals determined reasonably assured estimated useful life related improvement amortization property capital leases straightline basis lease term included depreciation expense internaluse software costs incurred preliminary project stage certain direct costs incurred later stages associated development purchase internaluse software including external costs services internal payroll costs related software project capitalized within property equipment accompanying consolidated balance sheets capitalized costs amortized straightline basis estimated useful lives software generally three five years fiscal years ended january 26 home group inc notes consolidated financial statements continued 2019 january 27 2018 january 28 2017 capitalized software costs 31 million 43 million 77 million respectively amortization expense related capitalized software costs totaled 49 million 44 million 27 million fiscal years ended january 26 2019 january 27 2018 january 28 2017 respectively capitalize major replacements improvements expense routine maintenance repairs incurred remove cost assets sold retired related accumulated depreciation amortization consolidated balance sheets include resulting gain loss accompanying consolidated statements income capitalized interest capitalize interest borrowings active construction period major capital projects capitalized interest added cost underlying assets amortized useful lives assets capitalized interest cost approximately 31 million 13 million 04 million fiscal years ended january 26 2019 january 27 2018 january 28 2017 respectively fair value measurements follow provisions accounting standards codification “asc” 820 topic 820 “fair value measurements disclosures” asc 820 establishes threetiered fair value hierarchy prioritizes inputs valuation techniques used fair value calculations · level 1 unadjusted quoted market prices identical assets liabilities active markets ability access · level 2 quoted prices similar assets liabilities active markets quoted prices identical similar assets liabilities inactive markets valuations based models significant inputs observable eg interest rates yield curves prepayment speeds default rates loss severities etc corroborated observable market data · level 3 valuations based models significant inputs observable unobservable inputs reflect assumptions market participants would use asc 820 requires us maximize use observable inputs minimize use unobservable inputs financial instrument uses inputs fall different levels hierarchy instrument categorized based upon lowest level input significant fair value calculation fair value current financial instruments approximates carrying value shortterm nature instruments variable fixed rates longterm debt fair value longterm debt variable rates approximates carrying value interest rates amounts approximate market rates determine fair value fixed rate debt using quoted market prices current interest rates january 26 2019 fair value fixed rate mortgage due august 22 2022 61 million approximately 01 million carrying value 60 million fair value fixed rate mortgage determined using level 2 inputs goodwill tested impairment least annually operating segment level one operating segment reporting unit exists operating segment implied fair value goodwill lower carrying amount goodwill impairment indicated goodwill written implied home group inc notes consolidated financial statements continued fair value assess business enterprise value using combination income approach market approach determine fair value company compared carrying value net assets income approach using discounted cash flow method includes key factors used valuation company level 3 valuation include limited managements plans future operations recent operating results income tax rates discounted projected future cash flows option perform qualitative assessment goodwill rather completing twostep process determine whether likely fair value operating segment less carrying amount including goodwill intangible assets conclude case must perform twostep process otherwise may forego twostep process need perform testing performed qualitative assessment goodwill fiscal year ended january 26 2019 based qualitative assessment concluded likely fair value operating segment substantially exceeded carrying value therefore quantitative analysis required impairment goodwill recognized fiscal years ended january 26 2019 january 27 2018 january 28 2017 however use different assumptions estimates judgments respect estimation projected future cash flows determination discount rate sales growth rate used calculate net present value projected future cash flows could materially increase decrease estimates fair value additionally future impairment charges could required achieve current net sales profitability projections would occur able meet new store growth targets weighted average cost capital increases impairment longlived indefinitelived assets evaluate recoverability carrying value longlived assets whenever events changes circumstances indicate carrying amount may recoverable evaluation compares carrying value assets estimated future undiscounted cash flows expected result use eventual disposition assets evaluate longlived intangible assets individual store level lowest level identifiable cash flows evaluate corporate assets longlived assets storespecific consolidated level estimate storespecific future cash flows make assumptions key store variables including sales growth rate gross margin payroll controllable expenses stores owned us meet initial criteria evaluated taking consideration fair market value property compared carrying value assets furthermore management considers factors evaluating stores impairment including individual stores execution operating plan local market conditions estimates subject uncertainty may affected number factors outside control including general economic conditions competitive environment impairment recognized factors noted taken consideration determined carrying amount stores assets recoverable impairment loss would recognized amount carrying amount longlived asset exceeds fair value excluding assets redeployed based upon review storelevel assets identified impairment connection certain property equipment following resolution legal matter recognized charge 24 million fiscal year ended january 27 2018 impairment longterm assets recognized fiscal years ended january 26 2019 january 28 2017 test indefinitelived trade name intangible assets annually impairment frequently impairment indicators arise fair value indefinitelived intangible asset lower carrying amount asset written fair value fair value trade name level 3 valuation calculated using relieffromroyalty approach assumes value trade name discounted cash flows amount would paid hypothetical market participant owned trade name instead licensed trade name home group inc notes consolidated financial statements continued another company carrying value home trade name january 26 2019 approximately 15 million impairment indefinitelived trade name intangible asset recognized fiscal years ended january 26 2019 january 27 2018 january 28 2017 debt issuance costs debt issuance costs incurred connection obtaining modifying financing arrangements costs capitalized direct deduction carrying value debt costs incurred conjunction line credit capitalized asset amortized term respective debt agreements total amortization expense related debt issuance costs approximately 18 million 19 million 18 million fiscal years ended january 26 2019 january 27 2018 january 28 2017 respectively deferred rent record rent expense straightline basis term lease beginning date take possession control physical access premises record tenant improvement allowances liability adjust liability straightline basis reduction rent expense lease term beginning date take possession control physical access premises recognize free rent periods tenant improvement allowances standard rent increases contained leases straightline basis expected lease term beginning first take possession property including renewal option periods instances exercising options reasonably assured leases considered owner construction project receive tenant improvement allowances record amounts received component financing obligation liability see note 7financing obligations insurance liabilities period december 1 2013 january 26 2019 fully insured workers compensation commercial general liability claims prior period used combination commercial insurance selfinsurance workers compensation commercial general liability claims purchased insurance coverage limited aggregate exposure individual claims 250000 per workers compensation commercial general liability claim utilize combination commercial insurance selfinsurance employeerelated health care plans cost health care plan borne part employees purchase insurance coverage limits aggregate exposure individual claims 175000 per employeerelated health care claim health care reserves based actual claims experience estimate claims incurred reported reserves commercial general liability workers compensation determined use actuarial studies due judgments estimates utilized determining reserves subject high degree variability event insurance carriers unable pay claims submitted would record liability estimated payments expect incur revenue recognition revenue sales merchandise recognized customer takes possession merchandise revenue presented net sales taxes collected allow merchandise returned within 60 days purchase date provide reserve estimated returns see note 2revenue recognition home group inc notes consolidated financial statements continued cost sales cost sales included merchandise inventories expensed merchandise sold include following expenses cost sales · cost merchandise net inventory shrinkage damages vendor allowances · inbound freight internal transportation costs distribution centertostore freight costs · costs operating distribution center including labor occupancy costs supplies depreciation · store occupancy costs including rent insurance taxes common area maintenance utilities repairs maintenance depreciation selling general administrative expenses selling general administrative expenses include payroll benefits personnel expenses corporate store employees including stockbased compensation expense consulting legal professional services expenses advertising expenses occupancy costs corporate headquarters various expenses store preopening costs expense preopening costs new stores incurred fiscal years ended january 26 2019 january 27 2018 january 28 2017 store preopening costs approximately 217 million 179 million 139 million respectively store preopening costs occupancy expenses advertising labor primarily included selling general administrative expenses marketing advertising marketing advertising costs exclusive store preopening marketing advertising expenses discussed include billboard newspaper radio digital advertising mediums marketing advertising costs expensed incurred included selling general administrative expenses total marketing advertising expenses approximately 349 million 243 million 174 million fiscal years ended january 26 2019 january 27 2018 january 28 2017 respectively stockbased compensation account stockbased compensation accordance asc 718 topic 718 “compensationstock compensation” requires stockbased payments employees including grants employee stock options restricted stock units recognized consolidated financial statements requisite service period compensation expense based upon fair value awards recognized straightline basis requisite service period awards actually vest stockbased compensation expense recorded selling general administrative expenses consolidated statements income estimate fair value stock option grant date grant based upon blackscholes option pricing model exception special onetime initial public offering transaction bonus grant valued date grant using monte carlo simulation method restricted stock unit awards grant date fair value determined based upon closing trading value common stock nyse date grant forfeiture assumptions estimated based historical experience home group inc notes consolidated financial statements continued blackscholes option pricing model requires various significant judgmental assumptions order derive final fair value determination type award including following · expected termthe expected term options represents period time grant date options date options either exercised canceled · expected volatilitythe expected volatility calculated based historical volatility common stock comparable companies · expected dividend yieldthe expected dividend yield based expectation paying dividends common stock foreseeable future · riskfree interest ratethe riskfree interest rate average 3year 5year us treasury rate effect time grant maturity approximates expected term used monte carlo simulation model determine fair value special onetime initial public offering transaction bonus grant subject marketbased conditions stock option grants subject marketbased conditions cliff vesting began third quarter fiscal year 2017 continued third quarter fiscal year 2019 subject achievement market conditions valued stock option grants single award related compensation cost recognized using straightline method derived service period expected volatility based combination historical implied volatilities common stock comparable companies grants stock options exercise price equal greater fair market value common stock date grant based foregoing estimates assumptions privately held company prior august 4 2016 public market common stock fair value equity approved board time option grants awarded estimating fair value common stock considered factors believed material valuation process including limited actual projected financial results risks prospects economic market conditions valuations utilized projections future performance estimates weighted average cost capital metrics based performance peer group similar companies including valuation multiples stock price volatility believe combination methods provided appropriate estimate expected fair value prior ipo considered valuation analyses determine best estimate fair value common stock option grant date following ipo estimates longer needed determine fair value new awards due publiclyavailable trading price common stock income taxes provision income taxes accounted asset liability method prescribed asc 740 topic 740 “income taxes” deferred tax assets liabilities recognized future tax consequences attributable differences financial statement carrying amounts existing assets liabilities respective tax bases operating losses tax credit carryforwards deferred tax assets liabilities measured using enacted tax rates expected apply taxable income years temporary differences expected recovered settled effect deferred tax assets liabilities change tax rates recognized income period tax rate changes enacted necessary valuation allowance may recorded deferred tax assets order properly reflect amount likely realized recognize tax benefit uncertain tax position likely tax position sustained examination taxing authorities based technical merits position tax benefits recognized financial statements positions measured based largest benefit greater 50 likelihood realized upon settlement home group inc notes consolidated financial statements continued december 22 2017 federal tax reform legislation adopted law us government “tax act” tax act makes broad complex changes internal revenue code 1986 including limited reducing us federal corporate tax rate 35 21 ii eliminating corporate alternative minimum tax “amt” changing existing amt credits realized iii creating new limitation deductible interest expense iv changing rules related use limitation net operating loss carryforwards created tax years beginning december 31 2017 result adoption tax act fiscal year ended january 27 2018 statutory federal corporate tax rate prorated 340 statutory rate fiscal year ended january 26 2019 beyond 210 december 2017 securities exchange commission staff issued state accounting bulletin 118 income tax accounting implications tax cuts jobs act “sab 118” allowed us record provisional amounts measurement period extend beyond one year enactment date recorded provisional amounts impact tax act fourth fiscal quarter 2018 fiscal year 2019 completed accounting income tax effects tax act material adjustments required provisional amounts recorded fiscal year 2018 recent accounting pronouncements february 2016 fasb issued asu 201602 “leases” supersedes asc 840 “leases” creates new topic asc 842 “leases” “asu 201602” asu 201602 entity required recognize rightofuse assets lease liabilities balance sheet disclose key information leasing arrangements asu 201602 offers specific accounting guidance lessee lessor sale leaseback transactions lessees lessors required disclose qualitative quantitative information leasing arrangements enable user financial statements assess amount timing uncertainty cash flows arising leases asu 201602 effective annual reporting periods beginning december 15 2018 including interim periods within reporting period early adoption permitted adoption update applied using modified retrospective approach standard provides number optional practical expedients transition elect package three practical expedients permitted transition guidance within new standard among things allows us carryforward historical lease classification elect hindsight practical expedient separate nonlease components lease components class underlying assets apply recognition requirements standard shortterm leases allowed standard process finalizing initial impact assessment adoption asu 201602 estimate following material impacts financial statements recognition rightof use liabilities approximately 10 billion recognition corresponding rightofuse assets ii derecognition deferred gains saleleasebacks cumulativeeffect adjustment opening retained earnings fiscal year ended january 25 2020 “fiscal year 2020” previously resulted amortization reduced occupancy costs 88 million fiscal year 2019 iii recognition immediate gains losses saleleasebacks within operating income beginning fiscal year 2020 iv reclassification financing obligations amount 352 million operating leases corresponding rightofuse assets liabilities noted difference recorded cumulativeeffect adjustment opening retained earnings nonrecurrence financing obligation interest expense 24 million fiscal year 2020 related increase occupancy costs fiscal year 2020 v recognition additional expense certain initial direct costs incurred prior existence lease beginning fiscal year 2020 january 2017 fasb issued asu 201704 “simplifying test goodwill impairment” “asu 201704” asu 201704 simplifies measurement goodwill impairment removing second step goodwill impairment test requires determination fair value individual assets liabilities reporting unit asu 201704 goodwill impairment measured amount reporting unit’s carrying value exceeds fair value loss recognized exceed total amount goodwill allocated reporting unit asu 201704 effective fiscal years beginning december 15 2019 early adoption home group inc notes consolidated financial statements continued permitted interim annual goodwill impairment tests performed january 1 2017 standard applied prospective basis currently evaluating impact asu 201704 anticipate material impact consolidated financial statements implemented august 2018 fasb issued asu 201815 “customers accounting implementation costs incurred cloud computing arrangement service contract” “asu 201815” asu 201815 issued align requirements capitalizing implementation costs incurred hosting arrangement service contract requirements capitalizing implementation costs incurred develop obtain internaluse software hosting arrangements include internaluse software license amendments asu 201815 effective annual periods beginning december 15 2019 including interim periods within reporting period early adoption permitted expect adopt new guidance using prospective method first quarter fiscal year 2020 currently evaluating impact consolidated financial statements implemented 2 revenue recognition january 28 2018 adopted asu 201409 using retrospective transition method asu 201409 requires company recognize revenue transfers promised goods services customers amount reflects consideration company expects receive exchange goods services results reporting periods presented include impact new guidance asu 201409 including prior periods recast reflect estimated cost returned assets within current assets rather netted sales returns reserve within current liabilities adoption asu 201409 impact opening retained earnings january 28 2018 material impact revenues recognized fiscal years ended january 27 2018 january 28 2017 adoption asu 201409 following impact consolidated balance sheets january 27 2018 thousands adoption asu 201409 following impact consolidated statement cash flows fiscal years ended january 27 2018 january 28 2017 thousands home group inc notes consolidated financial statements continued accrued liabilities reclassified prior period conform current period presentation discussed note 1 nature operations summary significant accounting policies sell broad assortment home décor including home furnishings accent décor recognize revenue customer takes possession control goods time sale completed store register accordingly implicitly enter contract customers point sale addition retail store sales also generate revenue sale gift cards incentive arrangements associated credit card program noted note 1 nature operations summary significant accounting policies business consists one reportable segment accordance asc 606 disaggregate net sales following product categories contract liabilities recognized primarily gift card sales cash received sale gift cards recorded contract liability accrued current liabilities recognize revenue upon customer’s redemption gift card gift card breakage recognized revenue proportion pattern customer redemptions applying estimated breakage rate takes account historical patterns redemptions deactivations gift cards recognized approximately 163 million 129 million 98 million gift card redemption revenue fiscal years ended january 26 2019 january 27 2018 january 28 2017 respectively recognized immaterial amount gift card breakage revenue fiscal years ended january 26 2019 january 27 2018 january 28 2017 total gift card redemption revenue 30 million 22 million 16 million fiscal years ended january 26 2019 january 27 2018 january 28 2017 respectively related gift cards issued prior periods outstanding gift card liabilities 78 million 58 million january 26 2019 january 27 2018 respectively included accrued current liabilities gift card redemption breakage revenue fiscal years ended january 26 2019 january 27 2018 january 28 2017 gift card liabilities january 26 2019 january 27 2018 reported asc 606 materially different amounts would reported previous revenue guidance asc 605 home group inc notes consolidated financial statements continued fiscal year 2018 launched credit card program credit extended eligible customers home branded credit cards synchrony bank “synchrony” launch credit card program received reimbursement costs associated launch credit card program well onetime payment deferred initial sevenyear term agreement synchrony receive ongoing payments synchrony based sales transacted credit cards reimbursement joint marketing advertising activities fiscal years ended january 26 2019 january 27 2018 recognized approximately 32 million 12 million respectively revenue credit card program within net sales earned customers may return purchased items exchange refund historically sales returns reserve presented net cost sales current liabilities based primarily historical trends sales performance asu 201409 also specifies balance sheets reflect liability respect refund obligation asset representing right returned goods gross basis adopting asu 201409 utilized expected value methodology different scenarios including current sales return data historical quarterly sales return rates used develop estimated sales return rate fiscal year ended january 27 2018 utilized practical expedient provided asu 201409 assess sales portfolio basis yield materially different results actual sales returns present sales returns reserve within current liabilities estimated value inventory returned within current assets consolidated balance sheets components sales returns reserve reflected consolidated balance sheets consist following thousands 3 property equipment property equipment consists following thousands depreciation amortization expense fiscal years ended january 26 2019 january 27 2018 january 28 2017 totaled approximately 565 million 488 million 369 million respectively approximately 502 million 427 million 327 million depreciation amortization expense included cost sales fiscal years ended january 26 2019 january 27 2018 january 28 2017 respectively addition recorded home group inc notes consolidated financial statements continued 24 million impairment charges property equipment following resolution legal matter fiscal year ended january 27 2018 4 saleleaseback transactions october 2018 sold four properties gilbert arizona pearland texas richmond texas rogers arkansas total 565 million resulting net gain 31 million contemporaneously closing sale entered two leases pursuant leased back properties cumulative initial annual rent 38 million subject annual escalations leases accounted operating leases net gain sale properties deferred included deferred rent liabilities accompanying consolidated balance sheets gain amortized rent expense straightline basis lease term ends october 2033 subject renewal options july 2018 sold three properties clarksville tennessee shreveport louisiana wixom michigan total 436 million resulting net gain 107 million contemporaneously closing sale entered lease pursuant leased back properties cumulative initial annual rent 30 million subject annual escalations lease accounted operating lease net gain sale properties deferred included deferred rent liabilities accompanying consolidated balance sheets gain amortized rent expense straightline basis lease term ends july 2033 subject renewal options february 2018 sold four properties blaine minnesota fort worth texas jackson mississippi memphis tennessee total 503 million resulting net gain 226 million contemporaneously closing sale entered lease pursuant leased back properties cumulative initial annual rent 34 million subject annual escalations lease accounted operating lease net gain sale properties deferred included deferred rent liabilities accompanying consolidated balance sheets gain amortized rent expense straightline basis lease term ends february 2033 subject renewal options august 2017 sold six properties hoover alabama lafayette louisiana moore oklahoma olathe kansas orange park florida wichita kansas total 626 million resulting net gain 154 million contemporaneously closing sale entered lease pursuant leased back properties cumulative initial annual rent 42 million subject annual escalations lease accounted operating lease net gain sale properties deferred included deferred rent liabilities accompanying consolidated balance sheets gain amortized rent expense straightline basis lease term september 2032 september 2016 sold three properties colorado springs colorado kissimmee florida o’fallon illinois total 306 million resulting net gain 169 million contemporaneously closing sale entered lease pursuant leased back properties cumulative initial annual rent 21 million subject annual escalations lease accounted operating lease net gain sale properties deferred included deferred rent liabilities accompanying consolidated balance sheets gain amortized rent expense straightline basis lease term september 2031 august 2016 sold four properties broomfield colorado corpus christi texas jenison michigan buford georgia total 326 million resulting net gain 142 million contemporaneously closing sale entered lease pursuant leased back properties cumulative initial annual rent 22 million subject annual escalations lease accounted operating lease net gain sale properties deferred included deferred rent liabilities accompanying consolidated balance sheets gain amortized rent expense straightline basis lease term home group inc notes consolidated financial statements continued july 2031 approximately 37 million proceeds sale used pay note payable related corpus christi property 5 accrued liabilities accrued liabilities consist following thousands 6 revolving line credit october 2011 home holding iii inc “at home iii” home stores llc collectively “abl borrowers” entered assetbased revolving line credit “abl facility” originally provided cash borrowings issuances letters credit 800 million based defined percentages eligible inventory credit card receivable balances subsequently amended abl credit agreement time giving effect amendments january 26 2019 aggregate revolving commitments abl facility 3500 million sublimit issuance letters credit 500 million sublimit issuance swingline loans 200 million july 2017 connection seventh amendment abl credit agreement maturity abl facility extended earlier july 27 2022 date 91 days prior maturity date term loan entered june 5 2015 first lien credit agreement “first lien agreement” date may extended interest borrowings abl facility computed based average daily availability option x higher federal funds rate plus 12 100 ii agent banks prime rate iii libor plus 100 plus case applicable margin 025 075 agent banks libor rate plus applicable margin 125 175 effective interest rate approximately 380 290 200 fiscal years ended january 26 2019 january 27 2018 january 28 2017 respectively january 26 2019 approximately 2210 million outstanding abl facility approximately 05 million face amount letters credit issued availability approximately 1205 million abl facility includes restrictions customarily found agreements ability abl borrowers subsidiary guarantors incur additional liens indebtedness make investments dispositions pay dividends home holding ii inc “at home ii” enter transactions among restrictions case subject certain exceptions abl facility abl borrowers subsidiary guarantors permitted pay dividends home ii long giving effect payment availability equal greater 15 loan cap ie lesser x aggregate lender commitments abl facility home group inc notes consolidated financial statements continued borrowing base ii availability less 20 loan cap consolidated fixed charge coverage ratio equal greater 10 b pursuant certain limited exceptions january 26 2019 january 27 2018 compliance covenants prescribed abl facility abl facility secured first priority lien cash equivalents deposit accounts receivable receivables tax refunds inventory ii extent relating arising evidencing governing items referred preceding clause chattel paper documents instruments general intangibles securities accounts related thereto iii books records relating foregoing iv supporting obligations products proceeds foregoing collateral security guarantees given person respect foregoing case subject certain exceptions collectively “abl priority collateral” b second priority lien remaining assets constituting abl priority collateral subject certain exceptions collectively “term priority collateral” provided however since amendment abl facility july 2017 real property may secure term loan time longer forms part collateral abl facility 7 longterm debt longterm debt consists following thousands matures august 22 2022 34483 payable monthly including interest 450 remaining balance due maturity secured location’s land building aggregate annual maturities longterm debt excluding capital lease obligations follows thousands term loan facilities june 5 2015 indirect wholly owned subsidiary home holding iii inc “borrower” entered first lien agreement among borrower home holding ii inc “at home ii” direct wholly home group inc notes consolidated financial statements continued owned subsidiary guarantor certain indirect subsidiaries home ii various lenders bank america na administrative agent collateral agent subsequently amended first lien agreement time giving effect amendments first lien agreement provides term loan aggregate principal amount 3500 million “term loan” term loan mature june 3 2022 repayable equal quarterly installments approximately 09 million annual aggregate amount equal 1 original principal amount borrower option paying interest 1month 2month quarterly basis term loan annual rate libor subject 1 floor plus 400 subject 050 reduction borrower achieves specified secured net leverage ratio level met fiscal year ended january 28 2017 borrower continued qualify fiscal year ended january 26 2019 term loan prepayable option whole part subject prepayment premium equal 1 aggregate principal amount term loan outstanding may 27 2019 inclusive may 27 2019 term loan may prepaid without premium term loan various nonfinancial covenants customary representations warranties events defaults remedies substantially similar described respect abl facility financial maintenance covenants term loan january 26 2019 january 27 2018 compliance covenants prescribed term loan term loan secured first priority lien term priority collateral b second priority lien abl priority collateral june 5 2015 borrower also entered second lien credit agreement “second lien agreement” among borrower home ii dynasty financial ii llc administrative agent collateral agent lender second lien agreement provided second lien term loan amount borrowed june 5 2015 second lien term loan maturity date june 5 2023 require periodic principal payments total amount outstanding plus accrued interest due maturity borrower option paying interest 1month 2month quarterly basis second lien term loan annual rate libor subject 1 floor plus 800 refer term loan second lien repayment defined second lien term loan collectively “term loan facilities” fiscal year ended january 28 2017 used net proceeds initial public offering partial exercise overallotment option deducting underwriters’ discounts commissions repay full 1300 million principal amount indebtedness outstanding second lien term loan “second lien repayment” repayment resulted loss extinguishment debt amount 27 million recognized fiscal year ended january 28 2017 november 27 2018 home ii borrower entered second amendment “term loan amendment” lenders party thereto bank america na administrative agent collateral agent amended first lien agreement amended first amendment dated july 27 2017 pursuant term loan amendment among things borrower borrowed additional 500 million incremental term loans increasing principal amount outstanding first lien agreement date 3395 million net proceeds incremental term loans used repay approximately 496 million borrowings abl facility restricted net assets home groups consolidated subsidiaries 7111 million january 26 2019 home group inc notes consolidated financial statements continued 8 financing obligations cases assets lease require construction order ready space intended use certain cases involved construction leased assets construction period typically begins execute lease agreement landlord continues space substantially complete ready intended use accordance asc 8404055 must consider nature extent involvement construction period cases involvement results considered accounting owner construction project completing construction key structural components leased building deemed participated construction landlord asset cases capitalize landlords construction costs including value costs incurred date execute lease costs incurred remainder construction period costs incurred additionally asc 8404055 requires us recognize financing obligation construction costs incurred landlord construction complete required perform saleleaseback analysis pursuant asc 84040 determine remove landlords assets associated financing obligations consolidated balance sheet certain leases maintain various forms “prohibited continuing involvement” property thereby precluding us derecognizing asset associated financing obligations following construction completion cases continue account landlords asset legal owner financing obligation similar debt lease expires modified remove continuing involvement prohibits derecognition permitted would required account lease either operating capital accordance asc 840 january 26 2019 derecognized landlord assets associated financing obligations 9 related party transactions merry mabbett inc “mmi” owned merry mabbett dean mother lewis l bird iii chief executive officer fiscal years ended january 26 2019 january 27 2018 january 28 2017 mmi purchased certain fixtures furniture equipment owned used us home office new store offices product vignettes stores addition ms dean mmi provided certain design services us including design home office well design stores paid mmi approximately 06 million primarily fixtures furniture equipment fiscal years ended january 26 2019 january 27 2018 02 million fiscal year ended january 28 2017 10 income taxes income tax provision follows thousands home group inc notes consolidated financial statements continued december 22 2017 tax act adopted law tax act makes broad complex changes internal revenue code 1986 including limited reducing us federal corporate tax rate 35 21 ii eliminating corporate alternative minimum tax amt changing existing amt credits realized iii creating new limitation deductible interest expense iv changing rules related use limitation net operating loss carryforwards created tax years beginning december 31 2017 result adoption tax act fiscal year ended january 27 2018 statutory federal corporate tax rate prorated 340 statutory rate fiscal year ended january 26 2019 beyond 210 december 2017 securities exchange commission staff issued state accounting bulletin 118 income tax accounting implications tax cuts jobs act “sab 118” allowed us record provisional amounts measurement period extend beyond one year enactment date recorded provisional amounts impact tax act fourth fiscal quarter 2018 fiscal year 2019 completed accounting income tax effects tax act material adjustments required provisional amounts recorded fiscal year 2018 deferred tax assets liabilities determined based estimated future tax effects difference financial statement tax basis asset liability balances using statutory tax rates tax effects temporary differences give rise significant components deferred tax assets liabilities follows thousands required assess available positive negative evidence estimate sufficient future income generated utilize deferred tax assets believe cumulative pretax income significant piece positive evidence allows us consider subjective evidence future forecasted pretax income fiscal years ended january 26 2019 january 27 2018 january 28 2017 continued three years cumulative pretax income addition taxable income exceeded pretax income fiscal years ended january 26 2019 january 27 2018 january 28 2017 concluded positive evidence well cumulative pretax income recent fiscal years likely deferred tax assets would realized future years accordingly fiscal year 2019 determined valuation allowance required valuation allowances totaled 03 million january 28 2017 fiscal year 2018 analyzing ability utilize state net operating losses determined positive evidence outweighed negative evidence remaining valuation allowance released approximately 64 million 74 million home group inc notes consolidated financial statements continued state net operating loss carryforwards january 26 2019 january 27 2018 respectively state net operating losses begin expire fiscal year 2024 fiscal year 2018 determined valuation allowance state net operating losses longer necessary expect fully utilize net operating loss carryforward prior expiration reconciliation actual income tax provision income tax provision calculated federal statutory tax rate follows dollars thousands uncertain tax positions operate number tax jurisdictions subject examination income tax returns tax authorities jurisdictions may challenge item returns tax matters challenged tax authorities typically complex ultimate outcome challenges uncertain accordance asc 740 topic 740 “income taxes” recognize benefits uncertain tax positions consolidated financial statements determining likely uncertain tax positions sustained total amount unrecognized tax benefits january 26 2019 07 million 05 million would favorably impact effective tax rate resolved favor reconciliation beginning ending amount unrecognized tax benefits follows thousands recognize accrued interest penalties related unrecognized tax benefits provision income taxes january 26 2019 january 27 2018 approximately 01 million accrued penalties january 26 2019 january 27 2018 approximately 01 million 02 million respectively accrued interest addition released approximately 01 million interest expense penalties fiscal year home group inc notes consolidated financial statements continued ended january 26 2019 recognized immaterial amount interest expense penalties fiscal year ended january 27 2018 normal course business subject examination taxing authorities us federal us state jurisdictions period subject examination federal return fiscal year 2016 later fiscal year 2015 later major state tax returns believe adequate provision made adjustments may result tax examinations however outcome tax audits cannot predicted certainty issues addressed tax audits resolved manner consistent managements expectations could required adjust provision income tax period resolution occurs 11 commitments contingencies leases lease space certain retail properties distribution center corporate office pursuant leases expire various dates 2037 number leases renewal options various periods time discretion typically responsible taxes utilities insurance repairs maintenance properties certain leases require payment contingent rent based specified percentage stores gross sales defined lease agreement subject certain limitations immaterial amount contingent rent paid fiscal years ended january 26 2019 january 27 2018 january 28 2017 rent expense fiscal years ended january 26 2019 january 27 2018 january 28 2017 totaled approximately 1080 million 834 million 681 million respectively amortization deferred gains saleleasebacks approximately 93 million fiscal year 2020 four subsequent fiscal years future minimum annual rental commitments leases follows thousands minimum future annual rent receivable operating subleases january 26 2019 immaterial recognized nominal amount lease rental income fiscal years ended january 26 2019 january 27 2018 january 28 2017 litigation subject claims lawsuits arise primarily ordinary course business opinion management disposition ultimate resolution claims lawsuits material adverse effect consolidated financial position results operations liquidity home group inc notes consolidated financial statements continued 12 employee benefit plan effective october 1 2014 sponsor 401k savings plan eligible employees participation 401k savings plan voluntary available employee least 18 years age completed six months service participants may elect contribute 100 compensation pretax basis subject internal revenue service “irs” limitations accordance provisions 401k savings plan make safe harbor matching cash contribution account participant amount equal 100 participants pretax contributions exceed 3 participants considered annual compensation plus 50 participants pretax contributions 3 5 participants considered annual compensation also subject regulatory limits matching contributions actual earnings thereon vest participants immediately matching contribution expenses 13 million 10 million 08 million fiscal years ended january 26 2019 january 27 2018 january 28 2017 respectively 13 capital stock july 22 2016 board directors approved 128157393forone stock split existing class common stock class b common stock class c common stock conversion class common stock class b common stock class c common stock single class common stock historical share per share information retroactively adjusted reflect stock split conversion effective july 22 2016 total authorized share capital comprised 500000000 shares common stock 50000000 shares preferred stock august 3 2016 registration statement form s1 relating initial public offering declared effective sec pursuant issued sold 8667000 shares registered price 1500 per share august 9 2016 september 8 2016 issued sold 863041 shares common stock price 1500 per share pursuant underwriters’ partial exercise overallotment option january 26 2019 500000000 shares common stock authorized par value 001 63609684 issued outstanding additionally january 26 2019 50000000 shares preferred stock authorized par value 001 shares issued outstanding 14 earnings per share accordance asc 260 topic 260 “earnings per share” basic earnings per share computed dividing net income available common stockholders weighted average number common shares outstanding period diluted earnings per share computed dividing net income available common stockholders weighted average shares outstanding period include dilutive impact potential shares exercise stock options potentially dilutive securities excluded computation diluted net income per share effect antidilutive home group inc notes consolidated financial statements continued following table sets forth calculation basic diluted earnings per share follows dollars thousands except share per share data fiscal years ended january 26 2019 january 27 2018 january 28 2017 approximately 2029602 146457 1514168 respectively stock options restricted stock units “rsu” excluded calculation diluted net income per common share since effect antidilutive 15 stockbased compensation account stockbased compensation accordance asc 718 topic 718 “compensationstock compensation” requires stockbased payments employees including grants employee stock options rsus recognized consolidated financial statements requisite service period compensation expense based upon fair value awards recognized straightline basis requisite service period awards actually vest stockbased compensation expense recorded selling general administrative expenses consolidated statements income two equity compensation plans “equity plans” grant equity awards grd holding corporation stock option plan may amended time “2012 option plan” home group inc equity incentive plan subsequently amended restated approved board july 2016 “2016 equity plan” pursuant 2012 option plan 5648525 shares common stock reserved issuance options purchase shares issued 2012 option plan expire cancelled otherwise terminate without issuance shares shall available issuance january 26 2019 shares available future grant 2012 option plan september 2015 adopted 2016 equity plan subsequently amended restated approved board july 2016 equity plan equity awards may made 6196755 shares common stock subject adjustment provided 2016 plan 2478702 shares “ipo bonus pool” issuable pursuant awards granted 2016 equity plan senior executives company connection consummation initial public offering ii 3718053 shares may issued pursuant awards granted 2016 equity plan ipo bonus pool “postipo share pool” june 2018 2016 equity plan amended increase number shares authorized granted within postipo share pool 3500000 shares january 26 2019 3923952 shares available future grant 2016 plan june 12 2018 made grant 1988255 options chairman chief executive officer lewis l bird iii options vested immediately upon june 12 2018 grant date however shares resulting home group inc notes consolidated financial statements continued exercise options generally subject transfer restrictions lapse fourth anniversary date grant earlier change control defined 2016 equity plan subject certain service conditions could affect transferability result immediate vesting awards noncash stockbased compensation expense amount approximately 415 million fully recognized second fiscal quarter 2019 august 3 2016 made special onetime initial public offering transaction bonus grant 2478702 options certain members senior management team 2016 equity plan “ipo grant” august 3 2016 also granted one employee option purchase 28326 shares common stock 2012 option plan initial public offering price option awards granted exercise price equal fair market value common stock date grant option awards 2012 option plans generally vest based four years continuous service 10year contractual terms ipo grant subject market conditions vesting occurs closing price company’s common stock achieves preestablished targets time specified performance period seven years date grant exceeds targets twenty consecutive trading days disregarding sixmonth period immediately following august 3 2016 certain option share awards provide accelerated vesting change control defined equity plans determined fair value ipo grant subject market conditions using monte carlo simulation method ipo grant date fair value approximately 200 million incremental ongoing stockbased compensation expense stockbased compensation expense ipo grant expensed derived service period began third fiscal quarter 2017 continued following eight quarters estimate fair value service condition stock option grant equity plans date grant based upon blackscholes optionpricing model includes following variables 1 exercise price instrument 2 fair market value underlying stock date grant 3 expected term 4 expected volatility 5 riskfree interest rate utilized following assumptions estimating fair value option grants summary option activity equity plans january 26 2019 changes fiscal year ended presented home group inc notes consolidated financial statements continued rsus issued value less fair market value common stock date grant rsus granted date vest ratably one four years awards subject employment vesting transferable upon death summary company’s rsu activity related information january 26 2019 changes fiscal year ended presented recognized stockbased compensation expense related stock options rsus approximately 495 million 138 million 94 million fiscal years ended january 26 2019 january 27 2018 january 28 2017 respectively january 26 2019 approximately 157 million total unrecognized compensation expense related nonvested sharebased compensation arrangements granted plans expected recognized weightedaverage period 30 years 29 years option awards rsus respectively home group inc notes consolidated financial statements continued 16 quarterly results operations unaudited quarterly results operations fiscal years ended january 26 2019 january 27 2018 follows thousands except per share data 1 sum quarters equal total fiscal year due rounding 2 includes 415 million stockbased compensation expense associated grant stock options chairman chief executive officer vested fully recognized second fiscal quarter 2019 schedule condensed financial information registrant home group inc parent company condensed balance sheets thousands except share per share data see notes condensed financial statements schedule condensed financial information registrant home group inc parent company condensed statements income thousands see notes condensed financial statements schedule condensed financial information registrant home group inc parent company notes condensed financial statements 1 basis presentation parentcompanyonly financial statements home group incs “parent” investment subsidiaries stated cost plus equity undistributed earnings subsidiaries since date acquisition parentcompanyonly financial statements read conjunction companys consolidated financial statements condensed statement cash flows presented home group incs net operating activities cash impact investing financing cash flow activities fiscal years ended january 26 2019 january 27 2018 january 28 2017 2 guarantees restrictions home holding iii inc “at home iii” subsidiary parent indirect whollyowned subsidiary home stores llc coborrowers capacities “abl borrowers” abl facility january 26 2019 110 million cash equivalents 1205 million borrowing availability abl facility provides commitments 3500 million revolving loans letters credit january 26 2019 home holding ii inc “holdings” direct parent home iii direct indirect domestic subsidiaries abl borrowers certain immaterial subsidiariesthe “abl subsidiary guarantors” together holdings “abl guarantors” guaranteed obligations abl borrowers abl facility event default abl facility abl borrowers guarantors directly liable lenders abl facility abl facility matures earlier july 27 2022 date 91 days prior maturity date may extended term loan entered june 5 2015 first lien credit agreement includes restrictions ability abl borrowers abl subsidiary guarantors incur additional liens indebtedness make investments dispositions pay dividends holdings enter transactions among restrictions case subject certain exceptions abl facility abl borrowers abl subsidiary guarantors permitted pay dividends holdings long giving effect payment availability equal greater 15 loan cap ie lesser x aggregate lender commitments abl facility borrowing base ii availability less 20 loan cap consolidated fixed charge coverage ratio equal greater 10 b pursuant certain limited exceptions january 26 2019 january 27 2018 compliance covenants abl facility june 5 2015 indirect wholly owned subsidiary home holding iii inc “borrower” entered first lien credit agreement “first lien agreement” among borrower home holding ii inc “at home ii” direct wholly owned subsidiary guarantor certain indirect subsidiaries home ii various lenders bank america na administrative agent collateral agent subsequently amended first lien agreement time giving effect amendments first lien agreement provides term loan aggregate principal amount 3500 million “term loan” term loan mature june 3 2022 repayable equal quarterly installments approximately 09 million annual aggregate amount equal 1 original principal amount borrower option paying interest 1month 2month quarterly basis term loan annual rate libor subject 1 floor plus 400 subject 050 reduction borrower achieves specified secured net leverage ratio level met fiscal year ended january 28 2017 borrower continued qualify fiscal year ended january 26 2019 term loan prepayable option whole part subject prepayment premium equal 1 aggregate principal amount term loan outstanding may 27 2019 inclusive may 27 2019 term loan may prepaid without premium term loan includes restrictions ability borrower restricted subsidiaries incur additional liens indebtedness make investments dispositions pay dividends holdings enter transactions among restrictions case subject certain exceptions first lien agreement borrower permitted pay dividends holdings amount equal long immediately giving schedule condensed financial information registrant home group inc parent company notes condensed financial statements continued effect thereto default event default occurred continuing 10 million plus ii basket builds based 30 million plus 50 borrowers restricted subsidiaries consolidated net income defined first lien agreement certain amounts subject various conditions including compliance minimum cash interest coverage ratio 20 10 plus iii unlimited amount subject pro forma compliance 30 10 total leverage ratio b certain additional limited amounts subject certain limited exceptions january 26 2019 january 27 2018 compliance covenants prescribed term loan june 5 2015 borrower entered second lien credit agreement “second lien agreement” among borrower home ii dynasty financial ii llc administrative agent collateral agent lender second lien agreement provided second lien term loan together term loan “term loan facilities” amount borrowed june 5 2015 second lien term loan maturity date june 5 2023 require periodic principal payments total amount outstanding plus accrued interest due maturity borrower option paying interest 1month 2month quarterly basis second lien term loan annual rate libor subject 1 floor plus 800 refer term loan repayment second lien term loan described second lien term loan collectively “term loan facilities” august 3 2016 registration statement form s1 relating initial public offering declared effective sec pursuant registered aggregate 9967050 shares common stock including 1300050 shares subject underwriters overallotment option issued sold 8667000 shares registered price 1500 per share august 9 2016 resulting net proceeds 1209 million deducting underwriters discounts commissions 91 million also incurred offering expenses 60 million connection initial public offering included additional paidin capital september 8 2016 issued sold 863041 shares common stock pursuant underwriters’ partial exercise overallotment option exercise overallotment option resulted net proceeds us 120 million deducting underwriters’ discounts commissions 09 million fiscal year ended january 28 2017 used net proceeds initial public offering exercise overallotment option deducting underwriters’ discounts commissions repay full 1300 million principal amount indebtedness outstanding second lien term loan repayment resulted loss extinguishment debt amount 27 million recognized fiscal year ended january 28 2017 october 31 2017 registration statement form s3 pursuant registered 50582545 shares common stock owned sponsors declared effective sec december 11 2017 completed secondary offering sponsors sold aggregate 5750000 shares common stock included 750000 shares subject underwriters’ overallotment option april 2 2018 completed secondary offering sponsors sold aggregate 6900000 shares common stock included 900000 shares subject underwriters’ overallotment option june 14 2018 completed secondary offering sponsors sold aggregate 8450000 shares common stock included 450000 shares subject underwriters’ overallotment option september 11 2018 completed secondary offering sponsors sold aggregate 10000000 shares common stock sell shares common stock receive proceeds secondary offerings giving effect secondary offerings sponsors held approximately 265 outstanding common stock november 27 2018 home ii borrower entered second amendment “term loan amendment” lenders party thereto bank america na administrative agent collateral agent amended first lien agreement amended first amendment dated july 27 2017 pursuant schedule condensed financial information registrant home group inc parent company notes condensed financial statements continued term loan amendment among things borrower borrowed additional 500 million incremental term loans increasing principal amount outstanding first lien agreement date 3395 million index exhibits following exhibits filed furnished part report exhibit description 31 second amended restated certificate incorporation company incorporated reference exhibit 31 amendment 6 registrants registration statement form s1 filed july 25 2016 file 333206772 32 amended restated bylaws company incorporated reference exhibit 32 amendment 6 registrants registration statement form s1 filed july 25 2016 file 333206772 41 specimen common stock certificate company incorporated reference exhibit 41 amendment 6 registrants registration statement form s1 filed july 25 2016 file 333206772 42 second amended restated stockholders’ agreement dated july 22 2016 among home group inc starr investment fund ii llc sph grd holdings llc grd holding lp grd holding aea llc grd holdinga lp incorporated reference exhibit 42 amendment 6 registrants registration statement form s1 filed july 25 2016 file 333206772 43 registration rights agreement dated july 22 2016 among home group inc starr investment fund ii llc sph grd holdings llc grd holding lp grd holding aea llc grd holdinga lp incorporated reference exhibit 43 amendment 6 registrants registration statement form s1 filed july 25 2016 file 333206772 101 senior secured asset based revolving credit facility dated october 5 2011 among home holding iii inc home stores llc home holding ii inc parent guarantor certain home holding ii inc’s indirect whollyowned domestic subsidiaries subsidiary guarantors lenders party thereto bank america na administrative agent collateral agent incorporated reference exhibit 101 amendment 1 registrants registration statement form s1 filed september 25 2015 file 333206772 1011 first amendment credit agreement dated may 9 2012 among home holding iii inc home stores llc home holding ii inc parent guarantor certain home holding ii inc’s indirect whollyowned domestic subsidiaries subsidiary guarantors lenders party thereto bank america na administrative agent collateral agent incorporated reference exhibit 1011 amendment 1 registrants registration statement form s1 filed september 25 2015 file 333206772 1012 second amendment credit agreement dated may 23 2013 among home holding iii inc home stores llc home holding ii inc parent guarantor certain home holding ii inc’s indirect whollyowned domestic subsidiaries subsidiary guarantors lenders party thereto bank america na administrative agent collateral agent incorporated reference exhibit 1012 amendment 1 registrants registration statement form s1 filed september 25 2015 file 333206772 exhibit description 1013 third amendment credit agreement dated july 28 2014 among home holding iii inc home stores llc home holding ii inc parent guarantor certain home holding ii inc’s indirect whollyowned domestic subsidiaries subsidiary guarantors lenders party thereto bank america na administrative agent collateral agent incorporated reference exhibit 1013 amendment 1 registrants registration statement form s1 filed september 25 2015 file 333206772 1014 assumption ratification agreement dated september 29 2014 among home holding iii inc home stores llc home holding ii inc parent guarantor certain home holding ii inc’s indirect whollyowned domestic subsidiaries subsidiary guarantors lenders party thereto bank america na administrative agent collateral agent incorporated reference exhibit 1014 amendment 1 registrants registration statement form s1 filed september 25 2015 file 333206772 1015 fourth amendment credit agreement dated june 5 2015 among home holding iii inc home stores llc home holding ii inc parent guarantor certain home holding ii inc’s indirect whollyowned domestic subsidiaries subsidiary guarantors lenders party thereto bank america na administrative agent collateral agent incorporated reference exhibit 1015 amendment 1 registrants registration statement form s1 filed september 25 2015 file 333206772 1016 fifth amendment credit agreement dated june 15 2016 among home holding iii inc home stores llc home holding ii inc parent guarantor certain home holding ii inc’s indirect whollyowned domestic subsidiaries subsidiary guarantors lenders party thereto bank america na administrative agent collateral agent incorporated reference exhibit 1016 amendment 6 registrants registration statement form s1 filed july 25 2016 file 333206772 1017 sixth amendment credit agreement dated june 2 2017 among home holding iii inc home stores llc home holding ii inc parent guarantor certain home holding ii inc’s indirect whollyowned domestic subsidiaries subsidiary guarantors lenders party thereto bank america na administrative agent collateral agent incorporated reference exhibit 1017 registrants quarterly report form 10q filed june 7 2017 file no00137849 1018 seventh amendment credit agreement dated july 27 2017 among home holding iii inc home stores llc home holding ii inc parent guarantor certain home holding ii inc’s indirect whollyowned domestic subsidiaries subsidiary guarantors lenders party thereto bank america na administrative agent collateral agent incorporated reference exhibit 1018 registrants current report form 8k filed august 1 2017 file 00137849 102 senior secured term loan facility dated june 5 2015 home holding iii inc home holding ii inc parent guarantor certain home holding ii inc’s indirect whollyowned domestic subsidiaries subsidiary guarantors lenders party thereto bank america na administrative agent collateral agent incorporated reference exhibit 102 amendment 1 registrants registration statement form s1 filed september 25 2015 file 333206772 exhibit description 1021 first amendment senior secured term loan facility dated july 27 2017 home holding iii inc home holding ii inc parent guarantor certain home holding ii inc’s indirect whollyowned domestic subsidiaries subsidiary guarantors lenders party thereto bank america na administrative agent collateral agent incorporated reference exhibit 1021 registrants current report form 8k filed august 1 2017 file 00137849 1022 second amendment senior secured term loan facility dated november 27 2018 home holding iii inc borrower home holding ii inc parent guarantor lenders party thereto bank america na administrative agent collateral agent incorporated reference exhibit 101 registrant’s current report form 8k filed november 29 2018 file 00137849 104† employment agreement garden ridge corporation home group inc fka grd holding corporation lewis l bird iii dated november 15 2012 incorporated reference exhibit 104 amendment 1 registrants registration statement form s1 filed september 25 2015 file 333206772 1041† amendment employment agreement garden ridge corporation home group inc fka grd holding corporation lewis l bird iii dated november 1 2013 incorporated reference exhibit 1041 amendment 1 registrants registration statement form s1 filed september 25 2015 file 333206772 105† employment agreement garden ridge corporation home group inc fka grd holding corporation judd nystrom dated january 25 2013 incorporated reference exhibit 105 amendment 1 registrants registration statement form s1 filed september 25 2015 file 333206772 1051† amendment employment agreement garden ridge corporation home group inc fka grd holding corporation judd nystrom dated november 1 2013 incorporated reference exhibit 1051 amendment 1 registrants registration statement form s1 filed september 25 2015 file 333206772 1052† amendment employment agreement home rms inc judd nystrom dated june 7 2018 incorporated reference exhibit 106 registrant’s quarterly report form 10q filed june 7 2018 file 00137849 1053† separation release agreement judd nystrom home rms inc dated november 8 2018 incorporated reference exhibit 102 registrant’s current report form 8k filed november 9 2018 file 00137849 106† employment agreement garden ridge corporation home group inc fka grd holding corporation peter sg corsa dated february 2 2013 incorporated reference exhibit 106 amendment 1 registrants registration statement form s1 filed september 25 2015 file 333206772 1061† amendment employment agreement garden ridge corporation home group inc fka grd holding corporation peter sg corsa dated november 1 2013 incorporated reference exhibit 1061 amendment 1 registrants registration statement form s1 filed september 25 2015 file 333206772 107† home group inc fka grd holding corporation stock option plan effective november 12 2012 incorporated reference exhibit 107 amendment 1 registrants registration statement form s1 filed september 25 2015 file 333206772 exhibit description 108† nonqualified stock option agreement home group inc fka grd holding corporation lewis l bird iii dated november 26 2012 incorporated reference exhibit 108 amendment 1 registrants registration statement form s1 filed september 25 2015 file 333206772 1081† letter agreement home group inc fka grd holding corporation lewis l bird iii dated november 26 2012 incorporated reference exhibit 1081 amendment 1 registrants registration statement form s1 filed september 25 2015 file 333206772 1082† amendment nonqualified stock option agreement home group inc fka grd holding corporation lewis l bird iii dated december 4 2012 incorporated reference exhibit 1082 amendment 1 registrants registration statement form s1 filed september 25 2015 file 333206772 109† nonqualified stock option agreement home group inc fka grd holding corporation judd nystrom dated january 31 2013 incorporated reference exhibit 109 amendment 1 registrants registration statement form s1 filed september 25 2015 file 333206772 1091† amendment nonqualified stock option agreement home group inc fka grd holding corporation judd nystrom dated february 18 2013 incorporated reference exhibit 1091 amendment 1 registrants registration statement form s1 filed september 25 2015 file 333206772 1010† nonqualified stock option agreement home group inc fka grd holding corporation judd nystrom dated june 3 2014 incorporated reference exhibit 1010 amendment 1 registrants registration statement form s1 filed september 25 2015 file 333206772 1011† nonqualified stock option agreement home group inc fka grd holding corporation peter sg corsa dated january 10 2013 incorporated reference exhibit 1011 amendment 1 registrants registration statement form s1 filed september 25 2015 file 333206772 10111† amendment nonqualified stock option agreement home group inc fka grd holding corporation peter sg corsa dated march 25 2013 incorporated reference exhibit 10111 amendment 1 registrants registration statement form s1 filed september 25 2015 file 333206772 1012† nonqualified stock option agreement home group inc fka grd holding corporation peter sg corsa dated june 3 2014 incorporated reference exhibit 1012 amendment 1 registrants registration statement form s1 filed september 25 2015 file 333206772 1013† home group inc annual bonus plan incorporated reference exhibit 1013 amendment 6 registrants registration statement form s1 filed july 25 2016 file 333206772 1014† amended restated home group inc equity incentive plan 1015† home group inc form option award agreement incorporated reference exhibit 1015 amendment 6 registrants registration statement form s1 filed july 25 2016 file 333206772 exhibit description 1016 form indemnification agreement incorporated reference exhibit 1016 amendment 6 registrants registration statement form s1 filed july 25 2016 file 333206772 1017† home group inc form nonqualified stock option award agreement director incorporated reference exhibit 101 registrants current report form 8k filed december 5 2016 file 00137849 1018† form employment agreement entered home stores llc fka garden ridge corporation certain executive officers company incorporated reference exhibit 1021 registrants annual report form 10k filed april 5 2017 file no00137849 1019† home group inc form restricted stock unit notice grant award agreement director form incorporated reference exhibit 1022 registrants quarterly report form 10q filed september 6 2017 file no00137849 1020† home group inc form restricted stock unit notice grant award agreement standard form incorporated reference exhibit 1023 registrants annual report form 10k filed march 23 2018 file no00137849 1021† home group inc form nonstatutory stock option notice grant award agreement timevesting incorporated reference exhibit 1024 registrants annual report form 10k filed march 23 2018 file no00137849 1022 cobrand private label consumer credit card agreement dated september 7 2016 among home stores llc synchrony bank incorporated reference exhibit 101 registrant’s amendment 1 quarterly report form 10q filed april 5 2017 file 00137849 10221 first amendment program agreement dated july 7 2017 among home stores llc synchrony bank incorporated reference exhibit 1011 registrants current report form 8k filed july 13 2017 file 00137849 1023† form employment agreement home rms inc used employment agreements entered march 23 2018 certain executive officers home group inc incorporated reference exhibit 1026 registrants annual report form 10k filed march 23 2018 file no00137849 1024† home group inc form notice grant nonqualified stock option agreement ceo special option grant incorporated reference exhibit 101 registrant’s quarterly report form 10q filed june 7 2018 file 00137849 1025† home group inc form notice grant nonqualified stock option agreement timevesting annual grant incorporated reference exhibit 102 registrant’s quarterly report form 10q filed june 7 2018 file 00137849 1026† home group inc form notice grant restricted stock unit agreement annual grant incorporated reference exhibit 103 registrant’s quarterly report form 10q filed june 7 2018 file 00137849 1027† home group inc form notice grant nonqualified stock option agreement special transition grant incorporated reference exhibit 104 registrant’s quarterly report form 10q filed june 7 2018 file 00137849 exhibit description 1028† home group inc form notice grant restricted stock unit agreement director annual grant incorporated reference exhibit 105 registrant’s quarterly report form 10q filed june 7 2018 file 00137849 1029† form employment agreement home rms inc sumit anand elizabeth galloway wendy fritz incorporated reference exhibit 107 registrant’s quarterly report form 10q filed august 30 2018 file 00137849 1030† offer letter home group inc jeff knudson dated august 27 2018 incorporated reference exhibit 101 registrant’s current report form 8k filed august 30 2018 file 00137849 1031† employment agreement home rms inc jeffrey r knudson dated november 8 2018 incorporated reference exhibit 101 registrant’s current report form 8k filed november 9 2018 file 00137849 211 list subsidiaries home group inc 231 consent ernst young llp independent registered accounting firm 232 consent buxton company 233 consent cooper roberts research inc 311 certification chief executive officer pursuant rule 13a14a 15d14a securities exchange act 1934 amended adopted pursuant section 302 sarbanesoxley act 2002 312 certification chief financial officer pursuant rule 13a14a 15d14a securities exchange act 1934 amended adopted pursuant section 302 sarbanesoxley act 2002 321 certification chief executive officer chief financial officer pursuant 18 usc section 1350 adopted pursuant section 906 sarbanesoxley act 2002 101ins xbrl instance document 101sch xbrl taxonomy extension schema document 101cal xbrl taxonomy extension calculation linkbase document 101def xbrl taxonomy extension definition linkbase document 101lab xbrl taxonomy extension label linkbase document 101pre xbrl taxonomy extension presentation linkbase document filed herewith †indicates management contracts compensatory plans arrangements executive officers directors participate confidential treatment requested respect certain portions exhibit confidential portions exhibit redacted filed separately sec signatures pursuant requirements securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized pursuant requirements securities exchange act 1934 report signed following persons capacities dates indicated steve k barbarick director march 27 2019 steve k barbarick paula bennett director march 27 2019 paula bennett joanne c crevoiserat director march 27 2019 joanne c crevoiserat item 15 exhibits financial statement schedules following documents filed part report 1 consolidated financial statements see index consolidated financial statements page 2 financial statement schedules financial statement schedules omitted required applicable required information provided consolidated financial statements notes described 151 3 exhibits listed accompanying index exhibits attached hereto filed incorporated reference annual report form 10k item 16 form 10k summary none index consolidated financial statements page report independent registered public accounting firm consolidated balance sheets january 27 2018 january 28 2017 consolidated statements income fiscal years ended january 27 2018 january 28 2017 january 30 2016 consolidated statements shareholders’ equity fiscal years ended january 27 2018 january 28 2017 january 30 2016 consolidated statements cash flows fiscal years ended january 27 2018 january 28 2017 january 30 2016 notes consolidated financial statements schedule condensed financial information registrant report independent registered public accounting firm shareholders board directors home group inc opinion financial statements audited accompanying consolidated balance sheets home group inc company january 27 2018 january 28 2017 related consolidated statements income shareholders’ equity cash flows three years period ended january 27 2018 related notes financial statement schedule listed index item 15 collectively referred “consolidated financial statements” opinion consolidated financial statements present fairly material respects financial position company january 27 2018 january 28 2017 results operations cash flows three years period ended january 27 2018 conformity us generally accepted accounting principles basis opinion financial statements responsibility company’s management responsibility express opinion company’s financial statements based audits public accounting firm registered public company accounting oversight board united states pcaob required independent respect company accordance us federal securities laws applicable rules regulations securities exchange commission pcaob conducted audits accordance standards pcaob standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement whether due error fraud company required engaged perform audit internal control financial reporting part audits required obtain understanding internal control financial reporting purpose expressing opinion effectiveness companys internal control financial reporting accordingly express opinion audits included performing procedures assess risks material misstatement financial statements whether due error fraud performing procedures respond risks procedures included examining test basis evidence regarding amounts disclosures financial statements audits also included evaluating accounting principles used significant estimates made management well evaluating overall presentation financial statements believe audits provide reasonable basis opinion ernst young llp served company’s auditor since 2013 dallas texas march 23 2018 home group inc consolidated balance sheets thousands except share per share data see notes consolidated financial statements home group inc consolidated statements income thousands except share per share data see notes consolidated financial statements home group inc consolidated statements shareholders’ equity thousands except share data see notes consolidated financial statements home group inc consolidated statements cash flows thousands see notes consolidated financial statements home group inc notes consolidated financial statements 1 nature operations summary significant accounting policies description business home décor superstore focused exclusively providing broad assortment products room style budget january 27 2018 operated 149 home décor superstores 34 states primarily south central southeastern midatlantic midwestern regions united states home owned operated home group inc whollyowned subsidiaries references “we” “us” “our” “company” similar expressions references home group inc consolidated whollyowned subsidiaries unless otherwise expressly stated context otherwise requires stock split july 22 2016 company’s board directors approved 128157393forone stock split existing class common stock class b common stock class c common stock conversion class common stock class b common stock class c common stock single class common stock historical share per share information retroactively adjusted reflect stock split conversion january 27 2018 companys total authorized share capital comprised 500000000 shares common stock 50000000 shares preferred stock initial secondary public offerings august 3 2016 registration statement form s1 relating initial public offering declared effective sec pursuant registered aggregate 9967050 shares common stock including 1300050 shares subject underwriters overallotment option common stock began trading new york stock exchange “nyse” august 4 2016 ticker symbol “home” issued sold 8667000 shares registered price 1500 per share august 9 2016 resulting net proceeds 1209 million deducting underwriters discounts commissions 91 million also incurred offering expenses 60 million connection initial public offering included additional paidin capital consolidated balance sheet january 28 2017 september 8 2016 issued sold 863041 shares common stock pursuant underwriters’ partial exercise overallotment option exercise overallotment option resulted net proceeds us 120 million deducting underwriters’ discounts commissions 09 million used net proceeds initial public offering partial exercise overallotment option deducting underwriters’ discounts commissions repay full 1300 million principal amount indebtedness outstanding 1300 million second lien term loan “second lien term loan” october 31 2017 registration statement form s3 pursuant registered 50582545 shares common stock owned sponsors declared effective sec december 11 2017 completed secondary offering sponsors sold aggregate 5750000 shares common stock included 750000 shares subject underwriters’ overallotment option price 2450 per share sell shares common stock receive proceeds secondary offering corporate restructuring home group inc formed delaware corporation june 30 2011 name grd holding corporation “grd i” upon incorporation grd became parent grd holding ii corporation “grd ii” owned 100 grd holding iii corporation “grd iii” grd iii organized purpose acquiring outstanding common stock garden holdings inc delaware corporation garden holdings inc owned directly indirectly 100 garden ridge corporation entities september 29 2014 grd ii grd iii affiliates completed entity restructuring amended various corporate names reflect “at home” brand particular grd holding corporation renamed home group inc “at home group” home group inc notes consolidated financial statements continued ii grd holding ii corporation renamed home holding ii inc “at home ii” iii grd holding iii corporation renamed home holding iii inc “at home iii” iv garden holdings inc converted delaware corporation delaware limited liability company named home companies llc “at home llc” v garden ridge corporation garden ridge lp merged garden ridge management llc vi garden ridge management llc renamed home stores llc “at home stores” fiscal year report basis 52 53week fiscal year ends last saturday january references fiscal year mean year fiscal year ends references herein “fiscal year 2018” relate 52 weeks ended january 27 2018 “fiscal year 2017” relate 52 weeks ended january 28 2017 references “fiscal year 2016” relate 52 weeks ended january 30 2016 consolidation accompanying consolidated financial statements include accounts home group inc consolidated whollyowned subsidiaries intercompany balances transactions eliminated consolidation company components comprehensive income recorded within consolidated financial statements therefore separately present statement comprehensive income consolidated financial statements use estimates preparing financial statements conformity us generally accepted accounting principles requires us make estimates assumptions affect reported amounts certain assets liabilities revenues expenses related disclosure contingent assets liabilities date financial statements base estimates historical experience various assumptions believe reasonable circumstances results form basis making judgments carrying values assets liabilities readily apparent sources use estimates inherent financial reporting process actual results may differ estimates segment information management determined one operating segment therefore one reportable segment chief operating decision maker “codm” chief executive officer codm reviews financial performance allocates resources consolidated level recurring basis assets located united states revenue derived united states impracticable us disclose revenue group similar products cash equivalents cash equivalents consists highly liquid investments original maturities three months less well credit card receivables january 27 2018 january 28 2017 cash equivalents comprised primarily credit card receivables inventories comprised finished merchandise stated lower cost net realizable value cost determined using weightedaverage method cost inventories include actual landed cost home group inc notes consolidated financial statements continued item time received distribution center point shipment certain international shipments well transportation costs distribution center retail stores applicable net inventory cost recognized cost sales inventory sold physical inventory counts performed stores least per year thirdparty inventory counting service stores operation least one year inventory records adjusted reflect actual inventory counts resulting shortage “shrinkage” recognized reserves shrinkage estimated recorded throughout fiscal year percentage sales based recent physical inventory combination current events historical experience also evaluate merchandise ensure expected net realizable value merchandise held end fiscal year exceeds cost event expected net realizable value less cost reduce value inventory accordingly consideration received vendors receive vendor support form cash payments allowances variety vendorsponsored programs volume rebates markdown allowances advertising also receive consideration certain compliance programs agreements place vendor setting forth specific conditions allowance vendor support reduces inventory costs based underlying provisions agreement vendor compliance charges recorded reduction cost merchandise inventories subsequent reduction cost sales inventory sold property equipment property equipment recorded cost less accumulated depreciation amortization depreciation property equipment leasehold improvements recorded straightline basis estimated useful lives assets ranging 3 20 years leasehold improvements amortized straightline basis shorter remaining lease term including renewals determined reasonably assured estimated useful life related improvement amortization property capital leases straightline basis lease term included depreciation expense internaluse software costs incurred preliminary project stage certain direct costs incurred later stages associated development purchase internaluse software including external costs services internal payroll costs related software project capitalized within property equipment accompanying consolidated balance sheets capitalized costs amortized straightline basis estimated useful lives software generally three five years fiscal years ended january 27 2018 january 28 2017 january 30 2016 capitalized software costs 43 million 77 million 55 million respectively amortization expense related capitalized software costs totaled 44 million 27 million 10 million fiscal years ended january 27 2018 january 28 2017 january 30 2016 respectively capitalize major replacements improvements expense routine maintenance repairs incurred remove cost assets sold retired related accumulated depreciation amortization consolidated balance sheets include resulting gain loss accompanying consolidated statements income capitalized interest capitalize interest borrowings active construction period major capital projects capitalized interest added cost underlying assets amortized useful lives assets capitalized home group inc notes consolidated financial statements continued interest cost approximately 13 million 04 million 03 million fiscal years ended january 27 2018 january 28 2017 january 30 2016 respectively fair value measurements follow provisions accounting standards codification “asc” 820 topic 820 “fair value measurements disclosures” asc 820 establishes threetiered fair value hierarchy prioritizes inputs valuation techniques used fair value calculations · level 1 unadjusted quoted market prices identical assets liabilities active markets ability access · level 2 quoted prices similar assets liabilities active markets quoted prices identical similar assets liabilities inactive markets valuations based models significant inputs observable eg interest rates yield curves prepayment speeds default rates loss severities etc corroborated observable market data · level 3 valuations based models significant inputs observable unobservable inputs reflect assumptions market participants would use asc 820 requires us maximize use observable inputs minimize use unobservable inputs financial instrument uses inputs fall different levels hierarchy instrument categorized based upon lowest level input significant fair value calculation fair value current financial instruments approximates carrying value shortterm nature instruments variable fixed rates longterm debt fair value longterm debt variable rates approximates carrying value interest rates amounts approximate market rates determine fair value fixed rate debt using quoted market prices current interest rates january 27 2018 fair value fixed rate mortgage due august 22 2022 61 million approximated carrying value 61 million fair value fixed rate mortgage determined using level 2 inputs goodwill tested impairment least annually operating segment level one operating segment reporting unit exists operating segment implied fair value goodwill lower carrying amount goodwill impairment indicated goodwill written implied fair value assess business enterprise value using combination income approach market approach determine fair value company compared carrying value net assets income approach using discounted cash flow method includes key factors used valuation company level 3 valuation include limited managements plans future operations recent operating results income tax rates discounted projected future cash flows option perform qualitative assessment goodwill rather completing twostep process determine whether likely fair value operating segment less carrying amount including goodwill intangible assets conclude case must perform twostep process otherwise may forego twostep process need perform testing performed qualitative assessment goodwill fiscal year ended january 27 2018 based qualitative assessment concluded likely fair value operating segment substantially exceeded carrying value therefore quantitative analysis required home group inc notes consolidated financial statements continued impairment goodwill recognized fiscal years ended january 27 2018 january 28 2017 january 30 2016 however use different assumptions estimates judgments respect estimation projected future cash flows determination discount rate sales growth rate used calculate net present value projected future cash flows could materially increase decrease estimates fair value additionally future impairment charges could required achieve current net sales profitability projections would occur able meet new store growth targets weighted average cost capital increases impairment longlived indefinitelived assets evaluate recoverability carrying value longlived assets whenever events changes circumstances indicate carrying amount may recoverable evaluation compares carrying value assets estimated future undiscounted cash flows expected result use eventual disposition assets evaluate longlived intangible assets individual store level lowest level identifiable cash flows evaluate corporate assets longlived assets storespecific consolidated level estimate storespecific future cash flows make assumptions key store variables including sales growth rate gross margin payroll controllable expenses stores owned us meet initial criteria evaluated taking consideration fair market value property compared carrying value assets furthermore management considers factors evaluating stores impairment including individual stores execution operating plan local market conditions estimates subject uncertainty may affected number factors outside control including general economic conditions competitive environment impairment recognized factors noted taken consideration determined carrying amount stores assets recoverable impairment loss would recognized amount carrying amount longlived asset exceeds fair value excluding assets redeployed based upon review storelevel assets identified impairment connection certain property equipment following resolution legal matter recognized charge 24 million fiscal year ended january 27 2018 impairment longterm assets recognized fiscal years ended january 28 2017 january 30 2016 test indefinitelived trade name intangible assets annually impairment frequently impairment indicators arise fair value indefinitelived intangible asset lower carrying amount asset written fair value fair value trade name level 3 valuation calculated using relieffromroyalty approach assumes value trade name discounted cash flows amount would paid hypothetical market participant owned trade name instead licensed trade name another company carrying value home trade name january 27 2018 approximately 15 million impairment indefinitelived trade name intangible asset recognized fiscal years ended january 27 2018 january 28 2017 january 30 2016 debt issuance costs debt issuance costs incurred connection obtaining modifying financing arrangements costs capitalized direct deduction carrying value debt costs incurred conjunction line credit capitalized asset amortized term respective debt agreements total amortization expense related debt issuance costs approximately 19 million 18 million 19 million fiscal years ended january 27 2018 january 28 2017 january 30 2016 respectively home group inc notes consolidated financial statements continued deferred rent record rent expense straightline basis term lease beginning date take possession control physical access premises record tenant improvement allowances liability adjust liability straightline basis reduction rent expense lease term beginning date take possession control physical access premises recognize free rent periods tenant improvement allowances standard rent increases contained leases straightline basis expected lease term beginning first take possession property including renewal option periods instances exercising options reasonably assured leases considered owner construction project receive tenant improvement allowances record amounts received component financing obligation liability see note 7financing obligations insurance liabilities period december 1 2013 january 27 2018 fully insured workers compensation commercial general liability claims prior period used combination commercial insurance selfinsurance workers compensation commercial general liability claims purchased insurance coverage limited aggregate exposure individual claims 250000 per workers compensation commercial general liability claim utilize combination commercial insurance selfinsurance employeerelated health care plans cost health care plan borne part employees purchase insurance coverage limits aggregate exposure individual claims 175000 per employeerelated health care claim health care reserves based actual claims experience estimate claims incurred reported reserves commercial general liability workers compensation determined use actuarial studies due judgments estimates utilized determining reserves subject high degree variability event insurance carriers unable pay claims submitted would record liability estimated payments expect incur revenue recognition revenue sales merchandise recognized customer takes possession merchandise revenue presented net sales taxes collected allow merchandise returned within 60 days purchase date provide reserve estimated returns use historical customer return behavior estimate reserve requirements accounted reduction revenue also reduce cost sales reflect estimates inventory cost products returned january 27 2018 january 28 2017 sales returns reserves approximately 11 million fiscal year 2018 launched credit card included loyalty program credit extended eligible customers private label cobranded credit cards synchrony bank “synchrony” launch credit card program received reimbursement costs associated launch credit card program well onetime payment deferred initial sevenyear term agreement synchrony receive ongoing payments synchrony based sales transacted credit cards reimbursement joint marketing advertising activities fiscal year ended january 27 2018 recorded immaterial amount income credit card program within net sales earned credit card loyalty program allows customers earn points qualifying purchases upon reaching specified levels points redeemed certificates usable stores estimates costs associated credit card loyalty program require us make assumptions related customer purchasing levels redemption rates home group inc notes consolidated financial statements continued time qualifying sales giving rise credit card loyalty program points made defer portion revenues qualifying sales transactions equal estimated retail value certificates redeemed upon conversion earned points certificates fiscal year ended january 27 2018 recorded immaterial amount deferral revenues related loyalty program reduction revenues record gift card liability date issue gift card customer record revenue reduce gift card liability customer redeems gift card january 27 2018 january 28 2017 gift card liability approximately 58 million 41 million respectively addition recognize gift card breakage revenue 60 months nonuse recognized revenue related breakage gift card balances immaterial amount revenue fiscal years ended january 27 2018 january 28 2017 january 30 2016 cost sales cost sales included merchandise inventories expensed merchandise sold include following expenses cost sales · cost merchandise net inventory shrinkage damages vendor allowances · inbound freight internal transportation costs distribution centertostore freight costs · costs operating distribution center including labor occupancy costs supplies depreciation · store occupancy costs including rent insurance taxes common area maintenance utilities repairs maintenance depreciation selling general administrative expenses selling general administrative expenses include payroll benefits personnel expenses corporate store employees including stockbased compensation expense consulting legal professional services expenses advertising expenses occupancy costs corporate headquarters various expenses store preopening costs expense preopening costs new stores incurred fiscal years ended january 27 2018 january 28 2017 january 30 2016 store preopening costs approximately 179 million 139 million 123 million respectively store preopening costs occupancy expenses advertising labor primarily included selling general administrative expenses marketing advertising marketing advertising costs exclusive store preopening marketing advertising expenses discussed include billboard newspaper radio digital advertising mediums marketing advertising costs expensed incurred included selling general administrative expenses total marketing advertising expenses approximately 243 million 174 million 124 million fiscal years ended january 27 2018 january 28 2017 january 30 2016 respectively stockbased compensation account stockbased compensation accordance asc 718 topic 718 “compensationstock compensation” requires stockbased payments employees including grants employee stock options home group inc notes consolidated financial statements continued restricted stock units recognized consolidated financial statements requisite service period compensation expense based upon fair value awards recognized straightline basis requisite service period awards actually vest stockbased compensation expense recorded selling general administrative expenses consolidated statements income estimate fair value stock option grant date grant based upon blackscholes option pricing model exception special onetime initial public offering transaction bonus grant valued date grant using monte carlo simulation method restricted stock unit awards grant date fair value determined based upon closing trading value common stock nyse date grant forfeiture assumptions estimated based historical experience blackscholes option pricing model requires various significant judgmental assumptions order derive final fair value determination type award including following · expected termthe expected term options represents period time grant date options date options either exercised canceled · expected volatilitythe expected volatility calculated based historical volatility common stock comparable companies · expected dividend yieldthe expected dividend yield based expectation paying dividends common stock foreseeable future · riskfree interest ratethe riskfree interest rate average 3year 5year us treasury rate effect time grant maturity approximates expected term used monte carlo simulation model determine fair value special onetime initial public offering transaction bonus grant subject marketbased conditions stock option grants subject marketbased conditions cliff vesting beginning third quarter fiscal year 2017 continuing third quarter fiscal 2019 subject achievement market conditions valued stock option grants single award related compensation cost recognized using straightline method derived service period expected volatility based combination historical implied volatilities common stock comparable companies grants stock options exercise price equal greater fair market value common stock date grant based foregoing estimates assumptions privately held company prior august 4 2016 public market common stock fair value equity approved board time option grants awarded estimating fair value common stock considered factors believed material valuation process including limited actual projected financial results risks prospects economic market conditions valuations utilized projections future performance estimates weighted average cost capital metrics based performance peer group similar companies including valuation multiples stock price volatility believe combination methods provided appropriate estimate expected fair value prior ipo considered valuation analyses determine best estimate fair value common stock option grant date following ipo estimates longer needed determine fair value new awards due publiclyavailable trading price common stock january 29 2017 adopted financial accounting standards board “fasb” accounting standards update “asu” 201609 “improvements employee sharebased payment accounting” “asu 201609” asu 201609 intended simplify various aspects accounting employee sharebased payment award transactions effective annual reporting periods beginning december 15 2016 adoption asu 201609 also home group inc notes consolidated financial statements continued requires income tax adjustments recorded consolidated statements income changes tax book treatment equity compensation recognized provision income taxes adopted asu 201609 prospectively management elected accounting policy continue estimate number awards expected forfeited adjust estimates longer probable period due adoption asu 201609 recorded 58 million tax benefit consolidated financial statements fiscal year ended january 27 2018 income taxes provision income taxes accounted asset liability method prescribed asc 740 topic 740 “income taxes” deferred tax assets liabilities recognized future tax consequences attributable differences financial statement carrying amounts existing assets liabilities respective tax bases operating losses tax credit carryforwards deferred tax assets liabilities measured using enacted tax rates expected apply taxable income years temporary differences expected recovered settled effect deferred tax assets liabilities change tax rates recognized income period tax rate changes enacted record valuation allowance reduce carrying amounts amount believed likely realized recognize tax benefit uncertain tax position likely tax position sustained examination taxing authorities based technical merits position tax benefits recognized financial statements positions measured based largest benefit greater 50 likelihood realized upon settlement december 22 2017 federal tax reform legislation adopted law us government “tax act” tax act makes broad complex changes internal revenue code 1986 including limited reducing us federal corporate tax rate 35 21 ii eliminating corporate alternative minimum tax “amt” changing existing amt credits realized iii creating new limitation deductible interest expense iv changing rules related uses limitation net operating loss carryforwards created tax years beginning december 31 2017 result adoption tax act fiscal year ended january 27 2018 statutory federal corporate tax rate prorated 340 statutory rate fiscal year 2019 beyond 210 december 2017 securities exchange commission staff issued state accounting bulletin 118 income tax accounting implications tax cuts jobs act “sab 118” allows us record provisional amounts measurement period extend beyond one year enactment date since tax act enacted fourth quarter fiscal year ended january 27 2018 ongoing guidance accounting interpretations expected next 12 months consider accounting deferred tax remeasurements items cost recovery state tax considerations incomplete due forthcoming guidance ongoing analysis final yearend data tax positions expect complete analysis within measurement period accordance sab 118 recent accounting pronouncements may 2014 fasb issued asu 201409 “revenue contracts customers” “asu 201409” asu 201409 supersedes revenue recognition requirements “topic 605 revenue recognition” requires entities recognize revenue way depicts transfer promised goods services customers amount reflects consideration entity expects entitled exchange goods services asu 201409 effective annual reporting periods beginning december 15 2017 including interim periods within reporting period completed initial impact assessment believe adopting asu materially impact timing revenue recognition anticipate impact guidance material consolidated financial statements believe guidance impact estimated cost returns home group inc notes consolidated financial statements continued recorded current asset rather netted sales return reserves ii timing revenue recognition related gift card breakage income recognized proportion historical pattern redemptions rather redemption considered remote expect adopt new guidance using full retrospective method first quarter fiscal year ending january 26 2019 “fiscal year 2019” february 2016 fasb issued asu 201602 “leases” supersedes asc 840 “leases” creates new topic asc 842 “leases” “asu 201602” asu 201602 entity required recognize rightofuse assets lease liabilities balance sheet disclose key information leasing arrangements asu 201602 offers specific accounting guidance lessee lessor sale leaseback transactions lessees lessors required disclose qualitative quantitative information leasing arrangements enable user financial statements assess amount timing uncertainty cash flows arising leases asu 201602 effective annual reporting periods beginning december 15 2018 including interim periods within reporting period early adoption permitted adoption update applied using modified retrospective approach currently evaluating impact asu 201602 expect upon adoption recognize rightofuse assets liabilities material financial statements march 2016 fasb issued asu 201604 “recognition breakage certain prepaid storedvalue products” “asu 201604” asu 201604 requires breakage prepaid storedvalue product liabilities example prepaid gift cards accounted consistent breakage guidance “topic 606 revenue contracts customers” asu 201604 effective annual reporting periods beginning december 15 2017 including interim reporting periods within reporting period early adoption permitted standard applied either using modified retrospective approach retrospectively period presented completed initial impact assessment believe adopting asu materially impact timing revenue recognition expect adopt new guidance using full retrospective method first quarter fiscal year 2019 august 2016 fasb issued asu 201615 “classification certain cash receipts cash payments” “asu 201615” asu 201615 intended reduce diversity practice around certain transactions classified within statement cash flows asu 201615 effective annual reporting periods beginning december 15 2017 including interim periods within reporting period early adoption permitted evaluated impact asu 201615 believe material impact consolidated financial statements implemented first quarter fiscal year ending january 26 2019 november 2016 fasb issued asu 201618 “restricted cash” “asu 201618” asu 201618 intended reduce diversity practice around restricted cash classified within statement cash flows asu 201618 effective annual reporting periods beginning december 15 2017 including interim periods within reporting period early adoption permitted evaluated impact asu 201618 upon adopting new standard first quarter fiscal year 2019 longer present release restricted cash investing activity cash inflow instead restricted cash balances included beginning ending cash equivalents restricted cash balances statement cash flows expect adopt new guidance using full retrospective method first quarter fiscal year ending january 25 2020 january 2017 fasb issued asu 201704 “simplifying test goodwill impairment” “asu 201704” asu 201704 simplifies measurement goodwill impairment removing second step goodwill impairment test requires determination fair value individual assets liabilities reporting unit asu 201704 goodwill impairment measured amount reporting unit’s carrying value exceeds fair value loss recognized exceed total amount goodwill allocated reporting unit asu 201704 effective fiscal years beginning december 15 2019 early adoption permitted interim annual goodwill impairment tests performed january 1 2017 standard applied prospective basis currently evaluating impact asu 201704 anticipate material impact consolidated financial statements implemented home group inc notes consolidated financial statements continued 2 property equipment property equipment consists following thousands depreciation amortization expense fiscal years ended january 27 2018 january 28 2017 january 30 2016 totaled approximately 488 million 369 million 287 million respectively approximately 427 million 327 million 262 million depreciation amortization expense included cost sales fiscal years ended january 27 2018 january 28 2017 january 30 2016 respectively addition recorded 24 million impairment charges property equipment following resolution legal matter fiscal year ended january 27 2018 3 saleleaseback transactions august 2017 sold six properties hoover alabama lafayette louisiana moore oklahoma olathe kansas orange park florida wichita kansas total 626 million resulting net gain 154 million contemporaneously closing sale entered lease pursuant leased back properties cumulative initial annual rent 42 million subject annual escalations lease accounted operating lease net gain sale properties deferred included deferred rent liabilities accompanying consolidated balance sheets gain amortized rent expense straightline basis lease term september 2032 september 2016 sold three properties colorado springs colorado kissimmee florida o’fallon illinois total 306 million resulting net gain 169 million contemporaneously closing sale entered lease pursuant leased back properties cumulative initial annual rent 21 million subject annual escalations lease accounted operating lease net gain sale properties deferred included deferred rent liabilities accompanying consolidated balance sheets gain amortized rent expense straightline basis lease term september 2031 august 2016 sold four properties broomfield colorado corpus christi texas jenison michigan buford georgia total 326 million resulting net gain 142 million contemporaneously closing sale entered lease pursuant leased back properties cumulative initial annual rent 22 million subject annual escalations lease accounted operating lease net gain sale properties deferred included deferred rent liabilities accompanying consolidated balance sheets gain amortized rent expense straightline basis lease term home group inc notes consolidated financial statements continued july 2031 approximately 37 million proceeds sale used pay note payable related corpus christi property september 2015 sold five properties grand prairie texas toledo ohio pharr texas new braunfels texas gulfport mississippi total 402 million resulting net gain 158 million contemporaneously closing sale entered lease pursuant leased back properties cumulative initial annual rent 27 million subject annual escalations lease accounted operating lease net gain sale properties deferred included deferred rent liabilities accompanying consolidated balance sheets gain amortized rent expense straightline basis lease term september 2030 approximately 55 million proceeds sale used pay notes payable related grand prairie new braunfels properties 4 accrued liabilities accrued liabilities consist following thousands 5 revolving line credit october 2011 home iii home stores collectively “abl borrowers” entered assetbased revolving line credit “abl facility” originally provided cash borrowings issuances letters credit 800 million based defined percentages eligible inventory credit card receivable balances subsequently amended abl credit agreement time giving effect amendments january 27 2018 aggregate revolving commitments abl facility 3500 million sublimit issuance letters credit 500 million sublimit issuance swingline loans 200 million july 2017 connection seventh amendment abl credit agreement maturity abl facility extended earlier july 27 2022 date 91 days prior maturity date term loan entered june 5 2015 first lien credit agreement “first lien agreement” date may extended interest borrowings abl facility computed based average daily availability option x higher federal funds rate plus 12 100 ii agent banks prime rate iii libor plus 100 plus case applicable margin 025 075 agent banks libor rate plus applicable margin 125 175 effective interest rate approximately 290 fiscal year ended january 27 2018 approximately 200 fiscal years ended january 28 2017 january 30 2016 home group inc notes consolidated financial statements continued january 27 2018 approximately 1620 million outstanding abl facility approximately 05 million face amount letters credit issued availability approximately 778 million abl facility includes restrictions customarily found agreements ability abl borrowers subsidiary guarantors incur additional liens indebtedness make investments dispositions pay dividends home ii enter transactions among restrictions case subject certain exceptions abl facility abl borrowers subsidiary guarantors permitted pay dividends home ii long giving effect payment availability equal greater 15 loan cap ie lesser x aggregate lender commitments abl facility borrowing base ii availability less 20 loan cap consolidated fixed charge coverage ratio equal greater 10 b pursuant certain limited exceptions january 27 2018 january 28 2017 compliance covenants prescribed abl facility abl facility secured first priority lien cash equivalents deposit accounts receivable receivables tax refunds inventory ii extent relating arising evidencing governing items referred preceding clause chattel paper documents instruments general intangibles securities accounts related thereto iii books records relating foregoing iv supporting obligations products proceeds foregoing collateral security guarantees given person respect foregoing case subject certain exceptions collectively “abl priority collateral” b second priority lien remaining assets constituting abl priority collateral subject certain exceptions collectively “term priority collateral” provided however since amendment abl facility july 2017 real property may secure term loan time longer forms part collateral abl facility 6 longterm debt longterm debt consists following thousands matures august 22 2022 34483 payable monthly including interest 450 remaining balance due maturity secured location’s land building aggregate annual maturities longterm debt excluding capital lease obligations follows thousands home group inc notes consolidated financial statements continued term loan facilities june 5 2015 indirect wholly owned subsidiary home holding iii inc “borrower” entered first lien credit agreement “first lien agreement” among borrower home holding ii inc “at home ii” direct wholly owned subsidiary guarantor certain indirect subsidiaries home ii various lenders bank america na administrative agent collateral agent first lien agreement provides term loan original aggregate principal amount 3000 million “term loan” term loan mature june 3 2022 repayable equal quarterly installments approximately 08 million annual aggregate amount equal 1 original principal amount borrower option paying interest 1month 2month quarterly basis term loan annual rate libor subject 1 floor plus 400 subject 050 reduction borrower achieves specified secured net leverage ratio level met fiscal year ended january 28 2017 borrower continued qualify fiscal year ended january 27 2018 term loan prepayable without premium option whole part term loan various nonfinancial covenants customary representations warranties events defaults remedies substantially similar described respect abl facility financial maintenance covenants term loan january 27 2018 january 28 2017 compliance covenants prescribed term loan term loan secured first priority lien term priority collateral b second priority lien abl priority collateral june 5 2015 borrower also entered second lien credit agreement “second lien agreement” among borrower home ii dynasty financial ii llc administrative agent collateral agent lender second lien agreement provided second lien term loan amount borrowed june 5 2015 second lien term loan maturity date june 5 2023 require periodic principal payments total amount outstanding plus accrued interest due maturity borrower option paying interest 1month 2month quarterly basis second lien term loan annual rate libor subject 1 floor plus 800 refer term loan second lien repayment defined second lien term loan collectively “term loan facilities” borrower used net proceeds term loan facilities 2015 effect refinancing outstanding indebtedness thenoutstanding 3600 million aggregate principal amount 1075 senior secured notes maturing june 1 2019 “senior secured notes” ii pay fees expenses connection term loan facilities redemption senior secured notes iii repay certain amounts outstanding abl facility iv general corporate purposes fiscal year ended january 28 2017 used net proceeds initial public offering partial exercise overallotment option deducting underwriters’ discounts commissions repay full 1300 million principal amount indebtedness outstanding second lien term loan “second lien repayment” repayment resulted loss extinguishment debt amount 27 million recognized fiscal year ended january 28 2017 home group inc notes consolidated financial statements continued 1075 senior notes due 2019 may 2012 home iii issued 3600 million aggregate principal amount senior secured notes terms senior secured notes governed indenture dated may 16 2012 among home iii guarantors party thereto wells fargo bank national association trustee interest payable semiannually arrears june 1 december 1 commencing december 1 2012 june 5 2015 home iii completed redemption senior secured notes price equal 108063 total cash consideration 3894 million included 290 million early redemption premium 04 million accrued interest redemption resulted loss extinguishment debt amount approximately 360 million restricted net assets home groups consolidated subsidiaries 5984 million january 27 2018 7 financing obligations cases assets lease require construction order ready space intended use certain cases involved construction leased assets construction period typically begins execute lease agreement landlord continues space substantially complete ready intended use accordance asc 8404055 must consider nature extent involvement construction period cases involvement results considered accounting owner construction project completing construction key structural components leased building deemed participated construction landlord asset cases capitalize landlords construction costs including value costs incurred date execute lease costs incurred remainder construction period costs incurred additionally asc 8404055 requires us recognize financing obligation construction costs incurred landlord construction complete required perform saleleaseback analysis pursuant asc 84040 determine remove landlords assets associated financing obligations consolidated balance sheet certain leases maintain various forms “prohibited continuing involvement” property thereby precluding us derecognizing asset associated financing obligations following construction completion cases continue account landlords asset legal owner financing obligation similar debt lease expires modified remove continuing involvement prohibits derecognition permitted would required account lease either operating capital accordance asc 840 january 27 2018 derecognized landlord assets associated financing obligations 8 related party transactions connection initial public offering management agreement controlling shareholder aea investors lp “aea” affiliate controlling shareholder affiliated coinvestors including starr investment holdings llc “starr investments” together aea “sponsors” terminated august 3 2016 sponsors longer receive management fees us january 27 2018 sponsors approximately 73 outstanding common stock previously obligated pay management fees approximately 26 million annually aea recognized management fees reimbursed expenses approximately 14 million fiscal year ended january 28 2017 approximately 27 million fiscal year ended january 30 2016 also obligated pay management fees approximately 09 million annually starr investments recognized management fees approximately 05 million fiscal year ended january 28 2017 approximately 09 million fiscal year ended january 30 2016 home group inc notes consolidated financial statements continued november 1 2016 affiliates aea owned significant equity position dematic corporation external vendor designs develops delivers solutions optimize companies supply chain improve performance increase productivity intelligent warehouse logistics materials handling solutions february 2014 executed agreement dematic corporation installation system assist automation distribution center fiscal years ended january 28 2017 paid dematic corporation approximately 04 million agreement primarily recorded property equipment net affiliates aea disposed interest dematic corporation november 1 2016 dematic corporation longer related party merry mabbett inc “mmi” owned merry mabbett dean mother lewis l bird iii chief executive officer fiscal years ended january 27 2018 january 28 2017 january 30 2016 ms dean mmi provided certain design services us including design home office well design stores addition mmi purchased certain fixtures furniture equipment owned used us home office new store offices product vignettes stores paid mmi approximately 06 million 02 million 04 million fixtures furniture equipment design related services fiscal years ended january 27 2018 january 28 2017 january 30 2016 respectively 9 income taxes income tax provision benefit follows thousands december 22 2017 tax act adopted law tax act makes broad complex changes internal revenue code 1986 including limited reducing us federal corporate tax rate 35 21 ii eliminating corporate alternative minimum tax amt changing existing amt credits realized iii creating new limitation deductible interest expense iv changing rules related uses limitation net operating loss carryforwards created tax years beginning december 31 2017 result adoption tax act fiscal year ended january 27 2018 statutory federal corporate tax rate prorated 340 statutory rate fiscal year 2019 beyond 210 december 2017 securities exchange commission staff issued state accounting bulletin 118 income tax accounting implications tax cuts jobs act “sab 118” allows us record provisional amounts measurement period extend beyond one year enactment date since tax act enacted fourth quarter fiscal year ended january 27 2018 ongoing guidance accounting interpretations expected next 12 months consider accounting deferred tax remeasurements items cost recovery state tax considerations incomplete due forthcoming guidance ongoing analysis final yearend data tax positions expect complete analysis within measurement period accordance sab 118 home group inc notes consolidated financial statements continued deferred tax assets liabilities determined based estimated future tax effects difference financial statement tax basis asset liability balances using statutory tax rates tax effects temporary differences give rise significant components deferred tax assets liabilities follows thousands required assess available positive negative evidence estimate sufficient future income generated utilize deferred tax assets believe cumulative pretax income significant piece positive evidence allows us consider subjective evidence future forecasted pretax income fiscal year ended january 30 2016 determined three years cumulative pretax income excluding items considered unusual nature addition taxable income loss exceeded pretax income loss fiscal year ended january 30 2016 two preceding fiscal years january 30 2016 completed approximately 18 months operations following rebranding initiative well demonstrated ability accurately forecast results operations concluded positive evidence well cumulative pretax income recent fiscal years likely deferred tax assets would realized future years accordingly fiscal year 2016 reversed 60 million valuation allowance deferred tax assets offsetting credit provision income taxes fiscal years ended january 27 2018 january 28 2017 continued three years cumulative pretax income addition taxable income exceeded pretax income fiscal years ended january 27 2018 january 28 2017 two preceding fiscal years concluded positive evidence well cumulative pretax income recent fiscal years likely deferred tax assets would realized future years accordingly fiscal year 2018 determined valuation allowance required valuation allowances totaled 03 million january 28 2017 fiscal year 2018 analyzing ability utilize state net operating losses determined positive evidence outweighed negative evidence remaining valuation allowance released approximately 74 million 82 million state net operating loss carryforwards january 27 2018 january 28 2017 respectively state net operating losses begin expire fiscal year 2023 fiscal home group inc notes consolidated financial statements continued year 2018 determined valuation allowance state net operating losses longer appropriate released remaining valuation allowance reconciliation actual income tax provision benefit income tax provision benefit calculated federal statutory tax rate follows dollars thousands uncertain tax positions operate number tax jurisdictions subject examination income tax returns tax authorities jurisdictions may challenge item returns tax matters challenged tax authorities typically complex ultimate outcome challenges uncertain accordance asc 740 topic 740 “income taxes” recognize benefits uncertain tax positions consolidated financial statements determining likely uncertain tax positions sustained total amount unrecognized tax benefits january 27 2018 17 million 05 million would favorably impact effective tax rate resolved favor reconciliation beginning ending amount unrecognized tax benefits follows thousands recognize accrued interest penalties related unrecognized tax benefits provision income taxes january 27 2018 january 28 2017 approximately 01 million accrued penalties january 27 2018 january 28 2017 approximately 02 million accrued interest addition recognized immaterial amount interest expense penalties fiscal years ended january 27 2018 january 28 2017 home group inc notes consolidated financial statements continued normal course business subject examination taxing authorities us federal us state jurisdictions period subject examination federal return fiscal year 2015 later fiscal year 2014 later major state tax returns believe adequate provision made adjustments may result tax examinations however outcome tax audits cannot predicted certainty issues addressed tax audits resolved manner consistent managements expectations could required adjust provision income tax period resolution occurs 10 commitments contingencies leases lease space certain retail properties distribution center corporate office pursuant leases expire various dates 2037 number leases renewal options various periods time discretion typically responsible taxes utilities insurance repairs maintenance properties certain leases require payment contingent rent based specified percentage stores gross sales defined lease agreement subject certain limitations immaterial amount contingent rent paid fiscal years ended january 27 2018 january 28 2017 january 30 2016 rent expense fiscal years ended january 27 2018 january 28 2017 january 30 2016 totaled approximately 834 million 681 million 523 million respectively future minimum annual rental commitments leases follows thousands minimum future annual rent receivable operating subleases january 27 2018 approximately 02 million lease rental income approximately 02 million fiscal years ended january 27 2018 january 28 2017 january 30 2016 litigation subject claims lawsuits arise primarily ordinary course business opinion management disposition ultimate resolution claims lawsuits material adverse effect consolidated financial position results operations liquidity home group inc notes consolidated financial statements continued 11 employee benefit plan effective october 1 2014 sponsor 401k savings plan eligible employees participation 401k savings plan voluntary available employee least 18 years age completed six months service participants may elect contribute 100 compensation pretax basis subject internal revenue service “irs” limitations accordance provisions 401k savings plan make safe harbor matching cash contribution account participant amount equal 100 participants pretax contributions exceed 3 participants considered annual compensation plus 50 participants pretax contributions 3 5 participants considered annual compensation also subject regulatory limits matching contributions actual earnings thereon vest participants immediately matching contribution expenses 10 million 08 million 05 million fiscal years ended january 27 2018 january 28 2017 january 30 2016 respectively 12 capital stock july 22 2016 board directors approved 128157393forone stock split existing class common stock class b common stock class c common stock conversion class common stock class b common stock class c common stock single class common stock historical share per share information retroactively adjusted reflect stock split conversion effective july 22 2016 total authorized share capital comprised 500000000 shares common stock 50000000 shares preferred stock august 3 2016 registration statement form s1 relating initial public offering declared effective sec pursuant issued sold 8667000 shares registered price 1500 per share august 9 2016 september 8 2016 issued sold 863041 shares common stock price 1500 per share pursuant underwriters’ partial exercise overallotment option december 11 2017 completed secondary offering certain existing stockholders sold aggregate 5750000 shares common stock included 750000 shares subject underwriters overallotment option price 2450 per share pursuant underwriting agreement dated december 6 2017 january 27 2018 500000000 shares common stock authorized par value 001 61423398 issued outstanding additionally january 27 2018 50000000 shares preferred stock authorized par value 001 shares issued outstanding 13 earnings per share accordance asc 260 topic 260 “earnings per share” basic earnings per share computed dividing net income available common stockholders weighted average number common shares outstanding period diluted earnings per share computed dividing net income available common stockholders weighted average shares outstanding period include dilutive impact potential shares exercise stock options potentially dilutive securities excluded computation diluted net income per share effect antidilutive home group inc notes consolidated financial statements continued following table sets forth calculation basic diluted earnings per share follows dollars thousands except share per share data fiscal years ended january 27 2018 january 28 2017 january 30 2016 approximately 146457 1514168 2900239 respectively stock options excluded calculation diluted net income per common share since effect antidilutive 14 stockbased compensation account stockbased compensation accordance asc 718 topic 718 “compensationstock compensation” requires stockbased payments employees including grants employee stock options restricted stock units “rsu” recognized consolidated financial statements requisite service period compensation expense based upon fair value awards recognized straightline basis requisite service period awards actually vest stockbased compensation expense recorded selling general administrative expenses consolidated statements income two equity compensation plans “equity plans” grant equity awards grd holding corporation stock option plan may amended time “2012 option plan” home group inc equity incentive plan subsequently amended restated approved board july 2016 “2016 equity plan” pursuant 2012 option plan 5648525 shares common stock reserved issuance options purchase shares issued 2012 option plan expire cancelled otherwise terminate without issuance shares shall available issuance january 27 2018 shares available future grant 2012 option plan september 2015 adopted 2016 equity plan subsequently amended restated approved board july 2016 equity plan equity awards may made 6196755 shares common stock subject adjustment provided 2016 plan 2478702 shares ‘‘ipo bonus pool’’ issuable pursuant awards granted 2016 equity plan senior executives company connection consummation initial public offering ii 3718053 shares may issued pursuant awards granted 2016 equity plan ipo bonus pool postipo share pool january 27 2018 3547096 shares available future grant 2016 plan august 3 2016 made special onetime initial public offering transaction bonus grant 2478702 options certain members senior management team 2016 equity plan “ipo grant” august 3 home group inc notes consolidated financial statements continued 2016 also granted one employee option purchase 28326 shares common stock 2012 option plan initial public offering price option awards granted exercise price equal fair market value common stock date grant option awards 2012 option plans generally vest based four years continuous service 10year contractual terms ipo grant subject market conditions vesting occurs closing price company’s common stock achieves preestablished targets time specified performance period seven years date grant exceeds targets twenty consecutive trading days disregarding sixmonth period immediately following august 3 2016 certain option share awards provide accelerated vesting change control defined equity plans determined fair value ipo grant subject market conditions using monte carlo simulation method ipo grant date fair value approximately 200 million incremental ongoing stockbased compensation expense stockbased compensation expense ipo grant expensed derived service period began third fiscal quarter 2017 continue following eight quarters estimate fair value service condition stock option grant equity plans date grant based upon blackscholes optionpricing model includes following variables 1 exercise price instrument 2 fair market value underlying stock date grant 3 expected term 4 expected volatility 5 riskfree interest rate utilized following assumptions estimating fair value option grants summary option activity equity plans january 27 2018 changes fiscal year ended presented rsus issued value less fair market value common stock date grant rsus granted date vest ratably one four years awards subject employment vesting transferable upon death home group inc notes consolidated financial statements continued summary company’s rsu activity related information january 27 2018 changes fiscal year ended presented recognized stockbased compensation expense related stock options rsus approximately 138 million 94 million 47 million fiscal years ended january 27 2018 january 28 2017 january 30 2016 respectively january 27 2018 approximately 63 million total unrecognized compensation expense related nonvested sharebased compensation arrangements granted plans includes 25 million remaining unrecognized compensation expense associated ipo grant certain members senior management connection initial public offering expected recognized weightedaverage period 07 years 30 years option awards rsus respectively 15 quarterly results operations unaudited quarterly results operations fiscal years ended january 27 2018 january 28 2017 follows thousands except per share data 1 sum quarters equal total fiscal year due rounding home group inc notes consolidated financial statements continued 16 subsequent events february 2018 sold four properties blaine minnesota fort worth texas jackson mississippi memphis tennessee total 503 million contemporaneously closing sale entered lease pursuant leased back properties cumulative initial annual rent 34 million subject annual escalations schedule condensed financial information registrant home group inc parent company condensed balance sheets thousands except share per share data see notes condensed financial statements schedule condensed financial information registrant home group inc parent company condensed statement income thousands see notes condensed financial statements schedule condensed financial information registrant home group inc parent company notes condensed financial statements 1 basis presentation parentcompanyonly financial statements home group incs “parent” investment subsidiaries stated cost plus equity undistributed earnings subsidiaries since date acquisition parentcompanyonly financial statements read conjunction companys consolidated financial statements condensed statement cash flows presented home group incs net operating activities cash impact investing financing cash flow activities fiscal years ended january 27 2018 january 28 2017 january 30 2016 2 guarantees restrictions home holding iii inc “at home iii” subsidiary parent indirect whollyowned subsidiary home stores llc coborrowers capacities “abl borrowers” abl facility january 27 2018 85 million cash equivalents 778 million borrowing availability abl facility provides commitments 3500 million revolving loans letters credit january 28 2017 home holding ii inc “holdings” direct parent home iii direct indirect domestic subsidiaries abl borrowers certain immaterial subsidiariesthe “abl subsidiary guarantors” together holdings “abl guarantors” guaranteed obligations abl borrowers abl facility event default abl facility abl borrowers guarantors directly liable lenders abl facility abl facility matures earlier july 27 2022 date 91 days prior maturity date may extended term loan entered june 5 2015 first lien credit agreement includes restrictions ability abl borrowers abl subsidiary guarantors incur additional liens indebtedness make investments dispositions pay dividends holdings enter transactions among restrictions case subject certain exceptions abl facility abl borrowers abl subsidiary guarantors permitted pay dividends holdings long giving effect payment availability equal greater 15 loan cap ie lesser x aggregate lender commitments abl facility borrowing base ii availability less 20 loan cap consolidated fixed charge coverage ratio equal greater 10 b pursuant certain limited exceptions january 27 2018 january 28 2017 compliance covenants abl facility june 5 2015 indirect wholly owned subsidiary home holding iii inc “borrower” entered first lien credit agreement “first lien agreement” among borrower home holding ii inc “at home ii” direct wholly owned subsidiary guarantor certain indirect subsidiaries home ii various lenders bank america na administrative agent collateral agent first lien agreement provides term loan original aggregate principal amount 3000 million “term loan” term loan mature june 3 2022 repayable equal quarterly installments approximately 08 million annual aggregate amount equal 1 original principal amount borrower option paying interest 1month 2month quarterly basis term loan annual rate libor subject 1 floor plus 400 subject 050 reduction borrower achieves specified secured net leverage ratio level met fiscal year ended january 28 2017 borrower continued qualify fiscal year ended january 27 2018 term loan prepayable without premium option whole part term loan includes restrictions ability borrower restricted subsidiaries incur additional liens indebtedness make investments dispositions pay dividends holdings enter transactions among restrictions case subject certain exceptions first lien agreement borrower permitted pay dividends holdings amount equal long immediately giving effect thereto default event default occurred continuing 10 million plus ii basket builds based 30 million plus 50 borrowers restricted subsidiaries consolidated net income defined first lien agreement certain amounts subject various conditions including compliance schedule condensed financial information registrant home group inc parent company notes condensed financial statements continued minimum cash interest coverage ratio 20 10 plus iii unlimited amount subject pro forma compliance 30 10 total leverage ratio b certain additional limited amounts subject certain limited exceptions january 27 2018 january 28 2017 compliance covenants prescribed term loan june 5 2015 borrower also entered second lien credit agreement “second lien agreement” among borrower home ii dynasty financial ii llc administrative agent collateral agent lender second lien agreement provided second lien term loan together term loan “term loan facilities” amount borrowed june 5 2015 second lien term loan maturity date june 5 2023 require periodic principal payments total amount outstanding plus accrued interest due maturity borrower option paying interest 1month 2month quarterly basis second lien term loan annual rate libor subject 1 floor plus 800 refer term loan repayment second lien term loan described second lien term loan collectively “term loan facilities” borrower used net proceeds term loan facilities 2015 effect refinancing outstanding indebtedness thenoutstanding 3600 million aggregate principal amount 1075 senior secured notes maturing june 1 2019 “senior secured notes” ii pay fees expenses connection term loan facilities redemption senior secured notes iii repay certain amounts outstanding abl facility iv general corporate purposes august 3 2016 registration statement form s1 relating initial public offering declared effective sec pursuant registered aggregate 9967050 shares common stock including 1300050 shares subject underwriters overallotment option issued sold 8667000 shares registered price 1500 per share august 9 2016 resulting net proceeds 1209 million deducting underwriters discounts commissions 91 million also incurred offering expenses 60 million connection initial public offering included additional paidin capital consolidated balance sheet january 28 2017 september 8 2016 issued sold 863041 shares common stock pursuant underwriters’ partial exercise overallotment option exercise overallotment option resulted net proceeds us 120 million deducting underwriters’ discounts commissions 09 million fiscal year ended january 28 2017 used net proceeds initial public offering exercise overallotment option deducting underwriters’ discounts commissions repay full 1300 million principal amount indebtedness outstanding second lien term loan repayment resulted loss extinguishment debt amount 27 million recognized fiscal year ended january 28 2017 october 31 2017 registration statement form s3 pursuant registered 50582545 shares common stock owned sponsors declared effective sec december 11 2017 completed secondary offering sponsors sold aggregate 5750000 shares common stock included 750000 shares subject underwriters’ overallotment option price 2450 per share sell shares common stock receive proceeds secondary offering index exhibits following exhibits filed furnished part report exhibit description 31 second amended restated certificate incorporation company incorporated reference exhibit 31 amendment 6 registrants registration statement form s1 filed july 25 2016 file 333206772 32 amended restated bylaws company incorporated reference exhibit 32 amendment 6 registrants registration statement form s1 filed july 25 2016 file 333206772 41 specimen common stock certificate company incorporated reference exhibit 41 amendment 6 registrants registration statement form s1 filed july 25 2016 file 333206772 42 second amended restated stockholders’ agreement dated july 22 2016 among home group inc starr investment fund ii llc sph grd holdings llc grd holding lp grd holding aea llc grd holdinga lp incorporated reference exhibit 42 amendment 6 registrants registration statement form s1 filed july 25 2016 file 333206772 43 registration rights agreement dated july 22 2016 among home group inc starr investment fund ii llc sph grd holdings llc grd holding lp grd holding aea llc grd holdinga lp incorporated reference exhibit 43 amendment 6 registrants registration statement form s1 filed july 25 2016 file 333206772 101 senior secured asset based revolving credit facility dated october 5 2011 among home holding iii inc home stores llc home holding ii inc parent guarantor certain home holding ii inc’s indirect whollyowned domestic subsidiaries subsidiary guarantors lenders party thereto bank america na administrative agent collateral agent incorporated reference exhibit 101 amendment 1 registrants registration statement form s1 filed september 25 2015 file 333206772 1011 first amendment credit agreement dated may 9 2012 among home holding iii inc home stores llc home holding ii inc parent guarantor certain home holding ii inc’s indirect whollyowned domestic subsidiaries subsidiary guarantors lenders party thereto bank america na administrative agent collateral agent incorporated reference exhibit 1011 amendment 1 registrants registration statement form s1 filed september 25 2015 file 333206772 1012 second amendment credit agreement dated may 23 2013 among home holding iii inc home stores llc home holding ii inc parent guarantor certain home holding ii inc’s indirect whollyowned domestic subsidiaries subsidiary guarantors lenders party thereto bank america na administrative agent collateral agent incorporated reference exhibit 1012 amendment 1 registrants registration statement form s1 filed september 25 2015 file 333206772 exhibit description 1013 third amendment credit agreement dated july 28 2014 among home holding iii inc home stores llc home holding ii inc parent guarantor certain home holding ii inc’s indirect whollyowned domestic subsidiaries subsidiary guarantors lenders party thereto bank america na administrative agent collateral agent incorporated reference exhibit 1013 amendment 1 registrants registration statement form s1 filed september 25 2015 file 333206772 1014 assumption ratification agreement dated september 29 2014 among home holding iii inc home stores llc home holding ii inc parent guarantor certain home holding ii inc’s indirect whollyowned domestic subsidiaries subsidiary guarantors lenders party thereto bank america na administrative agent collateral agent incorporated reference exhibit 1014 amendment 1 registrants registration statement form s1 filed september 25 2015 file 333206772 1015 fourth amendment credit agreement dated june 5 2015 among home holding iii inc home stores llc home holding ii inc parent guarantor certain home holding ii inc’s indirect whollyowned domestic subsidiaries subsidiary guarantors lenders party thereto bank america na administrative agent collateral agent incorporated reference exhibit 1015 amendment 1 registrants registration statement form s1 filed september 25 2015 file 333206772 1016 fifth amendment credit agreement dated june 15 2016 among home holding iii inc home stores llc home holding ii inc parent guarantor certain home holding ii inc’s indirect whollyowned domestic subsidiaries subsidiary guarantors lenders party thereto bank america na administrative agent collateral agent incorporated reference exhibit 1016 amendment 6 registrants registration statement form s1 filed july 25 2016 file 333206772 1017 sixth amendment credit agreement dated june 2 2017 among home holding iii inc home stores llc home holding ii inc parent guarantor certain home holding ii inc’s indirect whollyowned domestic subsidiaries subsidiary guarantors lenders party thereto bank america na administrative agent collateral agent incorporated reference exhibit 1017 registrants quarterly report filed june 7 2017 file no00137849 1018 seventh amendment credit agreement dated july 27 2017 among home holding iii inc home stores llc home holding ii inc parent guarantor certain home holding ii inc’s indirect whollyowned domestic subsidiaries subsidiary guarantors lenders party thereto bank america na administrative agent collateral agent incorporated reference exhibit 1018 registrants current report form 8k filed august 1 2017 file 00137849 102 senior secured term loan facility dated june 5 2015 home holding iii inc home holding ii inc parent guarantor certain home holding ii inc’s indirect whollyowned domestic subsidiaries subsidiary guarantors lenders party thereto bank america na administrative agent collateral agent incorporated reference exhibit 102 amendment 1 registrants registration statement form s1 filed september 25 2015 file 333206772 1021 first amendment senior secured term loan facility dated july 27 2017 home holding iii inc home holding ii inc parent guarantor certain home holding ii inc’s indirect whollyowned domestic subsidiaries subsidiary guarantors lenders party thereto bank america na administrative agent collateral agent incorporated reference exhibit 1021 registrants current report form 8k filed august 1 2017 file 00137849 exhibit description 104† employment agreement garden ridge corporation home group inc fka grd holding corporation lewis l bird iii dated november 15 2012 incorporated reference exhibit 104 amendment 1 registrants registration statement form s1 filed september 25 2015 file 333206772 1041† amendment employment agreement garden ridge corporation home group inc fka grd holding corporation lewis l bird iii dated november 1 2013 incorporated reference exhibit 1041 amendment 1 registrants registration statement form s1 filed september 25 2015 file 333206772 105† employment agreement garden ridge corporation home group inc fka grd holding corporation judd nystrom dated january 25 2013 incorporated reference exhibit 105 amendment 1 registrants registration statement form s1 filed september 25 2015 file 333206772 1051† amendment employment agreement garden ridge corporation home group inc fka grd holding corporation judd nystrom dated november 1 2013 incorporated reference exhibit 1051 amendment 1 registrants registration statement form s1 filed september 25 2015 file 333206772 106† employment agreement garden ridge corporation home group inc fka grd holding corporation peter sg corsa dated february 2 2013 incorporated reference exhibit 106 amendment 1 registrants registration statement form s1 filed september 25 2015 file 333206772 1061† amendment employment agreement garden ridge corporation home group inc fka grd holding corporation peter sg corsa dated november 1 2013 incorporated reference exhibit 1061 amendment 1 registrants registration statement form s1 filed september 25 2015 file 333206772 107† home group inc fka grd holding corporation stock option plan effective november 12 2012 incorporated reference exhibit 107 amendment 1 registrants registration statement form s1 filed september 25 2015 file 333206772 108† nonqualified stock option agreement home group inc fka grd holding corporation lewis l bird iii dated november 26 2012 incorporated reference exhibit 108 amendment 1 registrants registration statement form s1 filed september 25 2015 file 333206772 1081† letter agreement home group inc fka grd holding corporation lewis l bird iii dated november 26 2012 incorporated reference exhibit 1081 amendment 1 registrants registration statement form s1 filed september 25 2015 file 333206772 1082† amendment nonqualified stock option agreement home group inc fka grd holding corporation lewis l bird iii dated december 4 2012 incorporated reference exhibit 1082 amendment 1 registrants registration statement form s1 filed september 25 2015 file 333206772 109† nonqualified stock option agreement home group inc fka grd holding corporation judd nystrom dated january 31 2013 incorporated reference exhibit 109 amendment 1 registrants registration statement form s1 filed september 25 2015 file 333206772 exhibit description 1091† amendment nonqualified stock option agreement home group inc fka grd holding corporation judd nystrom dated february 18 2013 incorporated reference exhibit 1091 amendment 1 registrants registration statement form s1 filed september 25 2015 file 333206772 1010† nonqualified stock option agreement home group inc fka grd holding corporation judd nystrom dated june 3 2014 incorporated reference exhibit 1010 amendment 1 registrants registration statement form s1 filed september 25 2015 file 333206772 1011† nonqualified stock option agreement home group inc fka grd holding corporation peter sg corsa dated january 10 2013 incorporated reference exhibit 1011 amendment 1 registrants registration statement form s1 filed september 25 2015 file 333206772 10111† amendment nonqualified stock option agreement home group inc fka grd holding corporation peter sg corsa dated march 25 2013 incorporated reference exhibit 10111 amendment 1 registrants registration statement form s1 filed september 25 2015 file 333206772 1012† nonqualified stock option agreement home group inc fka grd holding corporation peter sg corsa dated june 3 2014 incorporated reference exhibit 1012 amendment 1 registrants registration statement form s1 filed september 25 2015 file 333206772 1013† home group inc annual bonus plan incorporated reference exhibit 1013 amendment 6 registrants registration statement form s1 filed july 25 2016 file 333206772 1014† home group inc equity incentive plan incorporated reference exhibit 1014 amendment 6 registrants registration statement form s1 filed july 25 2016 file 333206772 1015† home group inc form option award agreement incorporated reference exhibit 1015 amendment 6 registrants registration statement form s1 filed july 25 2016 file 333206772 1016 form indemnification agreement incorporated reference exhibit 1016 amendment 6 registrants registration statement form s1 filed july 25 2016 file 333206772 1017† offer letter home group inc jennifer warren dated december 9 2014 incorporated reference exhibit 1017 amendment 4 registrants registration statement form s1 filed april 22 2016 file 333206772 1018† nonqualified stock option agreement home group inc fka grd holding corporation jennifer warren dated april 7 2015 incorporated reference exhibit 1018 amendment 4 registrants registration statement form s1 filed april 22 2016 file 333206772 1019† bonus agreement home group inc fka grd holding corporation jennifer warren dated april 8 2015 incorporated reference exhibit 1019 amendment 4 registrants registration statement form s1 filed april 22 2016 file 333206772 exhibit description 1020† home group inc form nonqualified stock option award agreement director incorporated reference exhibit 101 registrants current report form 8k filed december 5 2016 file 00137849 1021† form employment agreement entered home stores llc fka garden ridge corporation certain executive officers company incorporated reference exhibit 1021 registrants annual report filed april 5 2017 file no00137849 1022† home group inc form restricted stock unit notice grant award agreement director form incorporated reference exhibit 1022 registrants quarterly report filed september 6 2017 file no00137849 1023† home group inc form restricted stock unit notice grant award agreement standard form 1024† home group inc form nonstatutory stock option notice grant award agreement timevesting 1025 cobrand private label consumer credit card agreement dated september 7 2016 among home stores llc synchrony bank incorporated reference exhibit 101 registrant’s amendment 1 quarterly report filed april 5 2017 file 00137849 10251 first amendment program agreement dated july 7 2017 among home stores llc synchrony bank incorporated reference exhibit 1011 registrants current report form 8k filed july 13 2017 file 00137849 1026† form employment agreement home rms inc used employment agreements entered march 23 2018 certain executive officers home group inc 211 list subsidiaries home group inc 231 consent ernst young llp independent registered accounting firm 232 consent buxton company 233 consent cooper roberts research inc 311 certification chief executive officer pursuant rule 13a14a 15d14a securities exchange act 1934 amended adopted pursuant section 302 sarbanesoxley act 2002 312 certification chief financial officer pursuant rule 13a14a 15d14a securities exchange act 1934 amended adopted pursuant section 302 sarbanesoxley act 2002 321 certification chief executive officer chief financial officer pursuant 18 usc section 1350 adopted pursuant section 906 sarbanesoxley act 2002 101ins xbrl instance document 101sch xbrl taxonomy extension schema document 101cal xbrl taxonomy extension calculation linkbase document exhibit description 101def xbrl taxonomy extension definition linkbase document 101lab xbrl taxonomy extension label linkbase document 101pre xbrl taxonomy extension presentation linkbase document filed herewith †indicates management contracts compensatory plans arrangements executive officers directors participate confidential treatment requested respect certain portions exhibit confidential portions exhibit redacted filed separately sec signatures pursuant requirements securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized pursuant requirements securities exchange act 1934 report signed following persons capacities dates indicated larry stone director march 23 2018 larry stone philip l francis director march 23 2018 philip l francis elisabeth b charles director march 23 2018 elisabeth b charles