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in a 53-week fiscal year, each of the first, second and third quarters includes 13 weeks of operations and the fourth quarter includes 14 weeks of operations.
−Removed: References herein to “fiscal year 2020” relate to the 53 weeks ended January 2, 2021, references herein to “fiscal year 2019” relate to the 52 weeks ended December 28, 2019 and references herein to “fiscal year 2018” relate to the 52 weeks ended December 29, 2018.
+Added: References herein to “fiscal year 2021” relate to the 52 weeks ended January 1, 2022, references herein to “fiscal year 2020” relate to the 53 weeks ended January 2, 2021 and references herein to “fiscal year 2019” relate to the 52 weeks ended December 28, 2019.
The disclosures contained in this Form 10-K are made only as of the date hereof, and we undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as required by law.
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• Legacy – We manage the operations of, and supply inventory and laboratory processing services to, 230 Vision Centers in Walmart retail locations as of fiscal year end 2021.
−Removed: This strategic relationship with Walmart is in its 31 st year.
+Added: This strategic relationship with Walmart is in its 32 nd year.
Pursuant to a January 2020 amendment to our management & services agreement with Walmart, we added five additional Vision Centers in Walmart stores in fiscal year 2020 .
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• Our e-commerce platform of 14 dedicated websites managed by AC Lens.
−Removed: Our e-commerce business consists of six proprietary branded websites, including aclens.com, discountglasses.com and discountcontactlenses.com, and nine th ird-party websites with established retailers, such as Walmart, Sam’s Club and Giant Eagle as well as mid-sized vision insurance providers.
+Added: Our e-commerce business consists of five proprietary branded websites, including aclens.com, discountglasses.com and discountcontactlenses.com, and nine th ird-party websites with established retailers, such as Walmart, Sam’s Club and Giant Eagle as well as mid-sized vision insurance providers.
AC Lens handles site management, customer relationship management and order fulfillment and also sells a wide variety of contact lenses, eyeglasses and eye care accessories.
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Impact of COVID-19
−Removed: The COVID-19 pandemic and related federal, state and local governmental and healthcare authority guidelines continue to impact our business results and cause business disruption in the U.S.
−Removed: and globally.
−Removed: To date, the COVID-19 pandemic and related healthcare authority actions have directly and indirectly impacted our operations, including the temporary closure of our stores to the public between March and June 2020, consumer behavior, comparable store sales, our associates and optometrists and the overall market.
−Removed: While we experienced stronger comparable store sales growth in the third and fourth qua rters of 2020, the comparable store sales growth figure for the fiscal year 2020 reflect the effects of store closures and the pandemic.
−Removed: The COVID-19 pandemic has resulted in, and may continue to result in, state, city or local quarantines, labor stoppages and shortages, changes in consumer purchasing patterns, mandatory or voluntary shut-downs of retail locations, severe market volatility, liquidity disruptions, and overall economic instability, which, in many cases, have had, and could continue to have, material adverse impacts on our business, financial condition and results of operations.
−Removed: The scope and nature of these impacts continue to evolve on a daily basis, including with a resurgence in COVID-19 cases during the latter portion of this fiscal year.
−Removed: Since the onset of the COVID-19 pandemic, we have focused on ensuring the health and safety of our associates and customers, securing liquidity, reducing expenses and deferring discretionary capital expenditures.
−Removed: In response to the pandemic, we temporarily closed all of our stores to the public across the U.S.
−Removed: on March 19, 2020 and successfully re-opened all stores with enhanced safety and cleaning protocols by June 8, 2020.
−Removed: We also suspended all non-essential travel for our associates and have implemented a remote work policy for certain corporate associates.
+Added: The COVID-19 pandemic and related federal, state and local governmental and healthcare authority guidelines materially impacted our business and results of operations in 2020 and continue to impact our business results.
+Added: In 2020, the COVID-19 pandemic directly and indirectly impacted our operations, consumer behavior, comparable store sales, our associates and optometrists and the overall market.
+Added: In the early stages of the pandemic, we temporarily closed all of our stores to the public across the U.S.
+Added: on March 19, 2020 and announced the successful completion of the reopening process with enhanced safety and cleaning protocols on June 8, 2020.
The decrease in revenue from our temporary store closures was not offset by proportional decreases in expense, as we continued to incur store occupancy costs even while stores were temporarily closed, costs directly related to adapting the Company’s operations to the COVID-19 pandemic such as personal protective equipment and other supplies needed to operate our stores safely and certain other costs such as compensation, a tangible appreciation bonus paid to our customer-facing doctors and associates, and other administrative expenses, resulting in a negative effect on profitability.
−Removed: Since the beginning of the pandemic, we have also implemented capital spending and expense reduction initiatives , including a temporary pause in new store openings between March and June 2020, reduced near term marketing, a temporary reduction in compensation across the organization until the second quarter of 2020, and worked with a base of vendors and landlords to extend payment terms and modify existing contracts.
−Removed: On March 17, 2020, as a precautionary measure to preserve financial flexibility during the COVID-19 pandemic, we borrowed the remaining $146.3 million in available funds under our $300.0 million revolving credit facility (the “Revolving Credit Facility”).
−Removed: On May 12, 2020, we completed the issuance of $402.5 million principal amount of 2.50% convertible senior notes due on May 15, 2025 (the “2025 Notes”) and used the net proceeds to repay the full amount outstanding under our Revolving Credit Facility and part of our outstanding borrowings under our Term Loan.
−Removed: We also entered into an amendment (the “Credit Agreement Amendment”) to our Amended and Restated Credit Agreement, dated as of July 18, 2019 (the “Credit Agreement”) to suspend certain financial maintenance covenants until testing at the end of the second fiscal quarter of 2021, allowing us to focus on the prudent management of the business.
−Removed: We also recorded income totaling $11.0 million as a result of the employee retention credits made available under the CARES Act for U.S.
−Removed: associates during fiscal year 2020;
−Removed: recognizing $6.2 million as a reduction to costs of services and plans, $0.4 million as a reduction to costs of products and $4.4 million as a reduction to SG&A during fiscal year 2020.
−Removed: We continue to monitor the evolving situation as there remain many uncertainties regarding the pandemic and its resurgence through new variants, including its anticipated duration, related healthcare authority guidelines and efficacy of vaccination initiatives, impacts on our domestic labs and our outsourced third party optical laboratories in China and Mexico, and potential disruptions of product deliveries.
+Added: We also implemented capital spending and expense reduction initiatives, including a temporary pause in new store openings between March and June 2020, reduced near term marketing, a temporary reduction in compensation across the organization until the second quarter of 2020, a suspension of non-essential travel, implementation of a remote work policy for certain corporate associates, and we worked with a base of vendors and landlords to extend payment terms and modify existing contracts.
+Added: While we experienced stronger comparable store sales growth in the third and fourth quarters of 2020, the comparable store sales growth figure of (5.6)% for fiscal year 2020 reflected the effects of store closures and the pandemic.
+Added: During fiscal year 2021, our business continued to be impacted by the pandemic, including continued volatility in the overall market, targeted and temporary reductions in certain store hours and temporary store closures, and changes in consumer purchasing patterns.
+Added: Despite the continued COVID-19 disruption and volatility, our net revenue in fiscal year 2021 increased compared to fiscal year 2020 due in part to the effects of our stores being temporarily closed to the public in fiscal year 2020 and government stimulus as a result of COVID-19.
+Added: Our net revenue in 2020 was essentially flat in comparison to fiscal year 2019.
+Added: As a result, comparability of our financial performance between these periods may be impacted and our rate of growth should not be viewed as indicative of our potential results in future periods.
+Added: The COVID-19 pandemic has resulted in, and may continue to result in, state, city or local quarantines, labor stoppages and shortages, changes in consumer purchasing patterns, mandatory or voluntary shut-downs of retail locations, supply chain issues, severe market volatility, liquidity disruptions, and overall economic instability, which, in many cases, have had, and could continue to have, adverse impacts on our business, financial condition and results of operations.
+Added: The scope and nature of these impacts continue to evolve on a daily basis.
+Added: Although the global distribution of vaccines continues to progress, the future impact of the COVID-19 pandemic remains highly uncertain.
+Added: Resurgences of COVID-19 cases and the emergence of new variants have led to reduced consumer confidence and changes in shopping patterns, which may adversely impact store traffic.
+Added: We continue to monitor the evolving situation as there remain many uncertainties regarding the pandemic, its resurgence through new variants, its anticipated duration, related healthcare authority guidelines, efficacy of vaccination initiatives, and potential federal and state level vaccine and testing mandates.
+Added: We could experience further material impacts as a result of COVID-19.
+Added: We also continue to monitor any potential COVID-19 related impacts on our domestic labs and our outsourced third party optical laboratories in China and Mexico, and potential disruptions of product deliveries.
To date, we have been able to meet customer demand with operations at our laboratories.
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We have partnered with our suppliers and third party laboratories to mitigate any potential significant delays in delivery of merchandise.
−Removed: Our e-commerce business remained open to serve our customers during the unprecedented period of temporary store closures.
−Removed: We could experience further material impacts as a result of COVID-19, including, but not limited to, charges from additional asset impairment, deferred tax valuation allowances and further changes in the effectiveness of our hedging instruments.
−Removed: We will continue to evaluate additional measures that we may elect to take as a response to the pandemic, including, where appropriate, future action to reduce store hours and patient appointments or temporarily close stores.
−Removed: There can be no assurance whether or when any such measures will be adopted.
+Added: We have made, and may continue to make, inventory forward buys to help manage potential supply chain disruptions.
It is possible that our preparations for the events listed above are not adequate to mitigate their impact, and that these events could further adversely affect our business and results of operations.
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We expect that new stores will be a key driver of growth in our net revenue and operating profit in the future.
−Removed: Our results of operations have been and will continue to be materially affected by the timing and number of new store openings.
+Added: Our results of operations have been and will continue to be materially affected by the timing and number of new store
As stores mature, profitability typically increases significantly.
The performance of new stores is dependent upon factors such as the time of year of a particular opening, the amount of store pre-opening costs, labor and occupancy costs in the specified market, level of participation in managed care plans, and location, including whether they are in new or existing markets.
−Removed: We typically incur higher than normal associate costs at the time of a new store opening associated with set-up and other opening costs, including training and development of our store associates.
−Removed: The multi-year maturation process of our stores is influenced by customer purchasing behavior in our industry.
−Removed: Consumers return for eye exams every 20 months on average and a considerable majority of our customers are repeat buyers.
−Removed: Our planned store expansion will place increased demands on our operational, managerial, administrative and other resources.
−Removed: Managing our growth effectively will require us to continue to enhance our store management systems, financial and management controls and information technology.
−Removed: We will also be required to hire, train and retain optometric professionals, store management and store personnel, which, together with increased marketing costs, may affect our operating margins.
−Removed: The impact of the COVID-19 pandemic on our multi-year maturation process of our stores, customer purchasing behaviors and patterns remain uncertain and affects and relevant risk exposures may be exacerbated by the immediate and ongoing threat of the COVID-19 pandemic.
+Added: The impact of the COVID-19 pandemic on our ability to open new stores, the multi-year maturation process of our stores and customer purchasing behaviors and patterns remain uncertain and effects and relevant risk exposures may be exacerbated by the ongoing COVID-19 pandemic.
Comparable Store Sales Growth
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Many factors affect comparable store sales, including:
−Removed: • consumer preferences, buying trends and overall economic trends including amount and timing of tax refunds;
+Added: • consumer confidence, preferences and buying trends and overall economic trends including inflation and the amount and timing of tax refunds;
+Added: • the availability of optometrists and other vision care professionals;
• advertising strategies;
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• the customer experience we provide in our stores;
−Removed: • the availability of optometrists and other vision care professionals;
• our ability to source and receive products accurately and timely;
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• the number of stores that have been in operation for more than 12 months;
+Added: • impact of competition and consolidation in the U.S.
+Added: optical retail industry;
• impact and timing of weather related store closures;
−Removed: • affects and relevant risk exposures may be exacerbated by the immediate and ongoing threat of the COVID-19 pandemic
+Added: • effects and relevant risk exposures may be exacerbated by the ongoing threat of the COVID-19 pandemic
A new store is included in the comparable store sales calculation during the 13th full fiscal month following the store’s opening.
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Managed Care and Insurance
−Removed: Our managed care business relates to vision care programs and associated benefits which are either:
−Removed: (i) sponsored by employers or other groups, (ii) provided by insurers and managed care entities, such as health maintenance organizations to individuals, and (iii) delivered, typically on a fee-for-service or capitated basis, by health care providers, such as ophthalmologists, optometrists and opticians.
Managed care has become increasingly important to the optical retail industry.
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Our participation in these programs represent an increasingly significant portion of our overall revenues and represented approximately one third of our overall revenues in fiscal year 2021.
−Removed: While we have relationships with almost all vision care insurers in the United States and with all of the major carriers, currently, a relatively small
−Removed: number of payors comprise the majority of our managed care revenues, subjecting us to concentration risk.
+Added: While we have relationships with almost all vision care insurers in the United States and with all of the major carriers, currently, a relatively small number of payors comprise the majority of our managed care revenues, subjecting us to concentration risk.
As our participation in managed care programs continues to expand, we have incurred and expect to incur additional costs related to this area of our business.
−Removed: Our future operational success could depend on our ability to negotiate, maintain and extend contracts with managed vision care companies, vision insurance providers and other third-party payors, several of whom have significant market share.
−Removed: Coverage and payment levels are determined at each third-party payor’s discretion, and we have limited control over third-party payor’s decision-making with respect to coverage and payment levels.
+Added: Our comparable store sales growth as noted above as well as overall future operational success could depend on our ability to negotiate, maintain and extend contracts with managed vision care companies, vision insurance providers and other third-party payors, several of whom have significant market share.
+Added: Coverage and payment levels are determined at each third-party payor’s discretion, and we have limited control over a third-party payor’s decision-making with respect to coverage and payment levels.
Coverage restrictions and reductions in reimbursement levels or payment methodologies may negatively impact our sales and profits.
In addition, as our participation in managed care programs continues to approach overall industry penetration levels, we expect our associated managed care revenue growth rate to slow over time.
−Removed: Vision Care Professional Recruitment and Coverage
+Added: Vision Care Professional Recruitment, Coverage and Expanded Offerings
Our ability to continue to attract and retain qualified vision care professionals is key to store operations, as well as maintaining our relationships with independent optometrists and professional corporations owned by eye care practitioners that provide vision care services in our stores.
−Removed: however the affects and relevant risk exposures may be exacerbated by the immediate and ongoing threat of the COVID-19 pandemic.
+Added: We have also begun to pilot remote medicine technologies in a limited number of locations to enable the provision of remote eye examinations, which have expanded our offerings.
+Added: The effects and relevant risk exposures of labor shortages, increased wage rates to attract and retain vision care professionals or other increases in labor costs may be exacerbated by the ongoing threat of the COVID-19 pandemic and resulting macroeconomic factors.
Overall Economic Trends
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however, the long-term effects of the COVID-19 pandemic on overall economic trends and consumer spending patterns remain uncertain.
+Added: Substantial increases in product costs due to increases in materials cost or general inflation could lead to greater profitability pressure as we may not be able to pass costs on to consumers.
+Added: To date, changes in materials prices and general inflation have not materially impacted our business.
+Added: Wage investments, along with increased raw material costs as a result of inflation or supply issues, may have an impact on our profitability that may not be offset by leverage from revenue growth, productivity efficiency and, as appropriate, various pricing actions.
Consumer Preferences and Demand
−Removed: Our ability to maintain our appeal to existing customers and attract new customers depends on our ability to originate, develop and offer a compelling product assortment responsive to customer preferences and design trends.
+Added: Our ability to maintain our appeal to existing customers and attract new customers depends on our ability to originate, develop and offer a compelling product assortment responsive t o customer preferences and design trends.
We estimate that optical consumers typically replace their eyeglasses every two to three years, and contact lens customers order new lenses every six to 12 months, reflecting the predictability of these recurring purchase behaviors;
−Removed: however, the long-term effects of the COVID-19 pandemic on consumer preferences and recurring purchase behaviors remain uncertain.
+Added: however, the long-term effects of the COVID-19 pandemic on consu mer preferences and recurring purchase behaviors remain uncertain.
Infrastructure Investment
−Removed: Our historical results of operations reflect the impact of our ongoing investments in infrastructure to support our growth.
+Added: Our historical results of operations reflect the impact of our ongoing investments in infrastructure to support our growth, including additional investments in remote medicine.
We have made significant investments in information technology systems, supply chain systems, marketing, and personnel, including experienced industry executives, and management and merchandising teams to support our long-term growth objectives.
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We generally employ a simple low price/high value strategy that consistently delivers savings to our customers without the need for extensive promotions.
+Added: Inflationary pressures, including wage investments, consumer confidence and preferences and increased raw material costs, could impact our profitability and lead us to attempt to offset such increases through various pricing actions.
Our Ability to Source and Distribute Products Effectively
Our revenue and operating income are affected by our ability to purchase our products in sufficient quantities at competitive prices.
−Removed: While we believe our vendors have adequate capacity to meet our current and anticipated demand, our level of revenue could be adversely affected in the event we face constraints in our supply chain, including the inability of our vendors to produce sufficient quantities of merchandise in a manner that is able to match market demand from our customers due to a worsening COVID-19 pandemic or other factors.
+Added: We have made, and may continue to make, inventory forward buys to help manage supply chain disruptions.
+Added: While we believe our vendors have adequate capacity to meet our current and anticipated demand, our level of revenue could be adversely affected in the event we face a worsening of constraints in our supply chain, including the inability of our vendors to produce sufficient quantities of merchandise in a manner that is able to match market demand from our customers due to a worsening COVID-19 pandemic or other factors.
We rely on a small number of vendors to supply the majority of our eyeglass lenses and contact lenses, and are thus exposed to supplier concentration risk.
In particular, we have agreed to exclusively purchase almost all of our spectacle lenses from one supplier.
−Removed: During fiscal year 2020 , 89% of spectacle lens expenditures were from this vendor and 93% of contact lens expenditures were with three vendors.
+Added: During fi scal year 2021, 90% of spectacle lens expenditures were from this vendor and 92% of contact lens expenditures were with three vendors.
We are less exposed to a supplier risk for our eyeglass frames as only 57% of frame expenditures were with two vendors.
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Historically, tariffs have not materially affected our financial results, and we believe that less than 15% of costs applicable to revenue are subject to tariffs on Chinese imports.
−Removed: Effective September 1, 2019, the U.S.
−Removed: government implemented a 15% tariff on specified products imported into the U.S.
−Removed: from China and effective February 14, 2020, the 15% tariff was reduced to 7.5%.
−Removed: The temporary reduction of tariff rates expired in September, 2020.
We continue to monitor ongoing political relations between China and the United States.
−Removed: While we have implemented mitigation plans and continue to focus on additional mitigation strategies to offset the impact of tariffs, costs with respect to products subject to these tariffs have increased.
−Removed: If we are unable to mitigate the full impact of the enacted tariffs or if there is a further escalation of tariffs, costs on a significant portion of our products may increase further and our financial results may be negatively affected.
−Removed: In addition, the COVID-19 pandemic could impact our product sourcing if travel restrictions an d a shutdown of businesses in China arises due to a resurgence in cases.
−Removed: While it is too early to predict how the China tariffs or the coronavirus will impact our business, our financial results may also be impacted by consumers’ fear of a prolonged trade war with China, a slowdown in sourcing and an economic slowdown.
−Removed: Substantial increases in product costs due to increases in materials cost or general inflation could lead to greater profitability pressure as we may not be able to pass costs on to consumers.
−Removed: To date, changes in materials prices and general inflation have not materially impacted our business.
Interim Results and Seasonality
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Consumer behavior driven by the COVID-19 pandemic has resulted in a departure from seasonal norms we have experienced in recent years and may continue to disrupt the historical quarterly cadence of our results of operations for an unknown period of time.
−Removed: For fiscal years 2019 and 2018, approximately 23% of our revenues were recorded in the fourth quarter, but approximately 24% of annual SG&A costs were also recorded in the fourth quarter for those years, due to certain SG&A costs being more fixed in nature.
For fiscal year 2021, approximately 23% of our revenue was recorded in the fourth quarter, but approximately 25% of annual SG&A costs were recorded in the fourth quarter.
Compared to prior fiscal years, in fiscal year 2020, we experienced stronger comparable store sales growth in the fourth quarter from strong customer demand, including the effect of our stores being temporarily closed to the public earlier in the year.
−Removed: Additionally, SG&A costs, primarily advertising expense, during the second and third quarters of fiscal year 2020 were lower than in the corresponding quarters prior fiscal years due to impacts of the COVID-19 pandemic.
−Removed: Our quarterly results may also be affected by the timing of new store openings and store closings, the amount of sales contributed by new and existing stores, as well as the timing of certain holidays.
−Removed: As a result of these factors, our working capital requirements and demands on our product distribution and delivery network may fluctuate during the year.
−Removed: optical retail industry is highly competitive and fragmented.
−Removed: Competition is generally based upon brand name recognition, price, convenience, selection, service and product quality.
−Removed: We operate within the value segment of the U.S.
−Removed: optical retail industry, which emphasizes price and value.
−Removed: We compete with mass merchants, specialty retail chains, online retailers and independent eye practitioners and opticians.
+Added: Additionally, SG&A costs, primarily advertising expense, during the second and third quarters of fiscal year 2020 were lower than in the corresponding quarters of prior fiscal years due to impacts of the COVID-19 pandemic.
+Added: Industry Competition and Consolidation
+Added: optical retail industry is highly competitive and fragmented with competition generally based upon brand name recognition, price, convenience, selection, service and product quality.
+Added: We operate within the value segment, which emphasizes price and value, and compete with mass merchants, specialty retail chains, online retailers and independent eye practitioners and opticians.
We also compete with large national retailers such as, in alphabetical order, LensCrafters, Pearle Vision and Visionworks.
−Removed: The COVID-19 pandemic may lead to changes in both the number and positioning of our competitors.
−Removed: Consolidation in the Industry
Ongoing consolidation activity has created, and further consolidation activity may create, organizations that are involved in virtually every sector of the optical industry, from retail and wholesale to frames, spectacle lenses, and managed vision care.
This increased consolidation activity may enable these companies to benefit from purchasing advantages and the ability to leverage management capabilities across a larger business base.
−Removed: Other trends include an increase in private equity-backed consolidation of smaller and mid-size independent practices and the formation of buying groups and similar forms of practice affiliations.
−Removed: The COVID-19 pandemic may lead to increases in consolidation activity and trends.
+Added: The COVID-19 pandemic may lead to changes in both the number and positioning of our competitors.
How We Assess the Performance of Our Business
We consider a variety of financial and operating measures in assessing the performance of our business.
−Removed: The key measures we use to determine how our consolidated business and operating segments are performing are net revenue, costs applicable to revenue, and selling, general, and administrative expenses.
+Added: The key measures we use to determine how our consolidated business and operating segments are performing are net revenue, costs applicable to revenue, and selling, general, and administrative expenses, which are described further in Note 1.
+Added: “Business and Significant Accounting Policies,” to our consolidated financial statements included in Part II.
+Added: of this Form 10-K.
In addition, we also review store growth, Adjusted Comparable Store Sales Growth, Adjusted Operating Income, Adjusted Operating Margin, Adjusted EBITDA, Adjusted EBITDA Margin and Adjusted Diluted EPS.
We report as net revenue amounts generated in transactions with retail customers who are the end users of our products, services, and plans.
−Removed: Net product sales include sales of prescription and non-prescription eyewear, contact lenses, and related accessories as well as eye exam services associated with our America’s Best brand’s signature offer of two pairs of eyeglasses and a free eye exam for one low price (“two-pair offer”) to retail customers and sales of inventory in which our customer is another retail entity.
−Removed: Net sales of services and plans include sales of eye exams, eye care club memberships, product protection plans (i.e., warranties), and single service eye care plans in California.
−Removed: Net sales of services and plans also include fees we earn for managing certain Vision Centers located in Walmart stores and for laboratory services provided to Walmart.
+Added: Comparable store sales growth and new store openings are key drivers of net revenue and are discussed below.
+Added: Also, the timing of unearned revenue can affect revenue recognized in a particular period.
Costs Applicable to Revenue
−Removed: Costs applicable to revenue include both costs of net product sales and costs of net sales of services and plans.
−Removed: Costs of net product sales include (i) costs to procure non-prescription eyewear, contact lenses, and accessories, which we purchase and sell in finished form, (ii) costs to manufacture finished prescription eyeglasses, including direct materials, labor, and overhead, and (iii) remake costs, warehousing and distribution expenses, and internal transfer costs.
−Removed: Costs of services and plans include costs associated with product protection plan programs, eye care club memberships, single service eye care plans in California, eye care practitioner and eye exam technician payroll, taxes and benefits and optometric service costs.
Customer tastes and preferences, product mix, changes in technology, significant increases or slowdowns in production, and other factors impact costs applicable to revenue.
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Selling, General and Administrative
−Removed: Selling, general and administrative expenses, or SG&A, include store associate (including optician) payroll, taxes and benefits, occupancy, advertising and promotion, field services, corporate support and other costs associated with the provision of vision care services.
−Removed: Non-capital expenditures associated with opening new stores, including rent, store maintenance, marketing expenses, travel and relocation costs, and training costs, are recorded in SG&A as incurred.
SG&A generally fluctuates consistently with revenue due to the variable store, field office and corporate support costs;
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In an effort to conserve cash early in the COVID-19 pandemic, we temporarily paused new store openings during a portion of fiscal year 2020.
−Removed: We open ed 57 st ores and transitioned five additional Legacy stores to our management during fiscal year 2020.
+Added: We open ed 75 stores during fiscal year 2021.
We will continue to monitor and determine our plans for future new store openings based on health, safety and economic conditions.
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We also believe that, for the same reasons, investors find our calculation of Adjusted Comparable Stores Sales Growth to be meaningful.
−Removed: Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Operating Income, Adjusted Operating Margin, and Adjusted Diluted EPS (collectively, the “Company Non-GAAP Measures”)
+Added: Adjusted Operating Income, Adjusted Operating Margin, Adjusted EBITDA, Adjusted EBITDA Margin, and Adjusted Diluted EPS (collectively, the “Company Non-GAAP Measures”)
The Company Non-GAAP Measures are key measures used by management to assess our financial performance.
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Asset impairment 4,427 22,004 8,894
−Removed: Litigation settlement 4,395 — —
Other expense (income), net (2,505) (445) 3,611
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Interest expense, net 25,612 48,327 33,300
−Removed: Debt issuance costs 156 — 200
Loss on extinguishment of debt — — 9,786
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$ 294,350 $ 218,307 $ 194,139
−Removed: Fiscal year 2020 includes 53 weeks.
Fiscal years 2021 and 2019 include 52 weeks.
+Added: Fiscal year 2020 includes 53 weeks.
1 Adjusted EBITDA no longer excludes new store pre-opening expenses and non-cash rent.
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We began reopening our stores to the public on April 27, 2020 and on June 8, 2020, we announced the successful completion of the reopening process.
+Added: Comparisons of current year results to prior year results reflect the material and unprecedented impact of these temporary store closures.
Fiscal year 2021 consists of 52 weeks compared to 53 weeks in fiscal year 2020.
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(3) There are two differences between total comparable store sales growth based on consolidated net revenue and Adjusted Comparable Store Sales Growth:
−Removed: (i) Adjusted Comparable Store Sales Growth includes the effect of deferred and unearned revenue as if such revenues were earned at the point of sale, resulting in a decrease of 0.4% and a decrease of 0.1% from total comparable store sales growth based on consolidated net revenue for fiscal year 2020 and fiscal year 2019, respectively, and (ii) Adjusted Comparable Store Sales Growth includes retail sales to the legacy partner’s customers (rather than the revenues recognized consistent with the management & services agreement with the legacy partner), resulting in a decrease of 0.1% and a decrease of 0.2% from total comparable store sales growth based on consolidated net revenue for the fiscal years 2020 and 2019, respectively.
−Removed: Total net revenue of $1,711.8 million for fiscal year 2020 decreased $12.5 million, or 0.7%, from $1,724.3 million for fiscal year 2019.
−Removed: This decrease was driven by the temporary closure of our stores to the public for a portion of fiscal year 2020 due to the COVID-19 pandemic, and was partially offset by new store sales as well as $32.2 million of net revenue attributable to the 53rd week in fiscal year 2020.
−Removed: Total net revenue was also negatively impacted by changes in unearned revenue.
−Removed: During fiscal year 2020, we opened 55 new America’s Best stores, two new Eyeglass World stores, and transitioned five additional Legacy stores to our management.
−Removed: During fiscal year 2020, we closed seven America’s Best stores and one Legacy store as a result of our Legacy partner’s decision to cease its overall operations at the location.
−Removed: The total net new locations in fiscal year 2020 for America’s Best, Eyeglass Word, and Legacy are 48, two and four, respectively.
+Added: (i) Adjusted Comparable Store Sales Growth includes the effect of deferred and unearned revenue as if such revenues were earned at the point of sale, resulting in an increase of 0.7% and a decrease of 0.4% from total comparable store sales growth based on consolidated net revenue for fiscal year 2021 and fiscal year 2020, respectively, and (ii) Adjusted Comparable Store Sales Growth includes retail sales to the Legacy partner’s customers (rather than the revenues recognized consistent with the management & services agreement with the Legacy partner), resulting in a decrease of 0.1% and a decrease of 0.1% from total comparable store sales growth based on consolidated net revenue for the fiscal years 2021 and 2020, respectively.
+Added: Total net revenue of $2,079.5 million for fiscal year 2021 increased $367.7 million, or 21.5%, from $1,711.8 million for fiscal year 2020.
+Added: Of the increase approximately 90% was driven by comparable store sales growth driven by customer demand, primarily the effect of our stores being temporarily closed to the public for a portion of fiscal year 2020 and government stimulus, approximately 20% was driven by new store growth and maturation and was partially offset by $32.2 million (or approximately 10%) of net revenue attributable to the 53rd week in fiscal year 2020.
+Added: During fiscal year 2021, we opened 69 new America’s Best stores and six new Eyeglass World stores and closed two America’s Best stores.
+Added: The total net new locations in fiscal year 2021 for America’s Best and Eyeglass World are 67 and six, respectively.
Overall, store count grew 6.1% from the end of fiscal year 2020 to the end of fiscal year 2021.
Comparable store sales growth and Adjusted Comparable Store Sales Growth for fiscal year 2021 were 22.4% and 23.0%, respectively.
−Removed: The decreases in comparable store sales growth and Adjusted Comparable Store Sales Growth were driven by the temporary closure of our stores to the public.
+Added: The increases in comparable store sales growth and Adjusted Comparable Store Sales Growth were primarily driven by an increase in customer transactions and, to a lesser extent, higher average ticket as a result
+Added: of customer demand, primarily the effect of our stores being temporarily closed for a portion of fiscal year 2020 and government stimulus.
Net product sales comprised 82.6% and 82.9% of total net revenue for fiscal years 2021 and 2020, respectively.
−Removed: Net product sales decreased $7.9 million, or 0.6% during fiscal year 2020 compared to fiscal year 2019, primarily due to the temporary closure of our stores to the public and lower wholesale fulfillment that was partially offset by additional revenue from the 53 rd week and increased sales of contact lenses.
−Removed: Net sales of services and plans decreased $4.7 million, or 1.6%, primarily due to the temporary closure of our stores to the public.
+Added: Net product sales increased $300.1 million, or 21.2% during fiscal year 2021 compared to fiscal year 2020, primarily due to a $255.3 million, or 27.0% increase in eyeglass sales and to a lesser extent, a $35.0 million, or 10.3% increase in contact lens sales.
+Added: Net sales of services and plans increased $67.7 million, or 23.1%, primarily driven by a $38.4 million, or 25.4% increase in eye exam revenue and a $15.9 million, or 26.4% increase in product protection plan revenue, primarily the effect of our stores being temporarily closed for a portion of fiscal year 2020.
Owned & Host segment net revenue.
−Removed: Net revenue increased $17.4 million, or 1.3% as stronger sales in fiscal year 2020, and in the 53 rd week, were partially offset by declines due to the temporary closure of our stores to the public.
+Added: Net revenue increased $341.3 million, or 25.4%, driven primarily by comparable store sales growth and new store openings.
Legacy segment net revenue.
−Removed: Net revenue declined $18.0 million, or 11.3%, due to the temporary closure of our stores to the public.
+Added: Net revenue grew $23.5 million, or 16.5%, driven by comparable store sales growth.
Corporate/Other segment net revenue.
−Removed: Net revenue declined $10.8 million, or 4.4%, due to lower wholesale fulfillment, partially offset by growth in our online retail business.
+Added: Net revenue increased $1.9 million, or 0.8%, due to increases in wholesale fulfillment.
Net revenue reconciliations.
−Removed: Reconciliations for fiscal year 2020 and fiscal year 2019 include increases in deferred revenue of $2.3 million and $5.1 million, respectively and increases in unearned revenue of $4.8 million and $0.8 million, respectively.
−Removed: The increase in deferred revenue for fiscal year 2020 was driven by growth in eye care club membership sales;
−Removed: we believe that the increases in deferred revenue were limited somewhat by the temporary closure of our stores to the public.
−Removed: The increase in unearned revenue compared to the prior period is due to higher sales in the 53 rd week of the fiscal year.
−Removed: In 53-week fiscal years we have historically experienced higher volumes in the 53 rd week compared to the 52 nd week.
+Added: The impact of reconciliations positively impacted net revenue by $1.1 million during fiscal year 2021 compared to fiscal year 2020.
+Added: Net revenue was positively impacted by $7.6 million due to the timing of unearned revenue.
+Added: The balance of unearned revenue as of fiscal year 2020 reflected pent-up demand following the temporary closure of our stores to the public.
+Added: Net revenue was negatively impacted by $6.5 million due to higher product protection plan and club membership deferred revenue balances in current period compared to the prior year period.
+Added: Product protection plan and club membership deferred revenue balances were lower in the prior year, primarily due to the effect of our stores being temporarily closed for a portion of fiscal year 2020.
Costs applicable to revenue
−Removed: Costs applicable to revenue of $786.6 million for fiscal year 2020 decreased $19.9 million, or 2.5%, from $806.5 million for fiscal year 2019.
+Added: Costs applicable to revenue of $904.8 million for fiscal year 2021 increased $118.2 million, or 15.0%, from $786.6 million for fiscal year 2020.
As a percentage of net revenue, costs applicable to revenue decreased from 46.0% for fiscal year 2020 to 43.5% for fiscal year 2021.
−Removed: This decrease as a percentage of net revenue was driven by higher eyeglass margin, partially offset by increased contact lens mix and optometrist costs while our stores were temporarily closed to the public.
−Removed: Costs of products as a percentage of net product sales decreased from 40.3% for fiscal year 2019 to 38.9% for fiscal year 2020, driven by higher eyeglass margin, partially offset by increased contact lens mix.
+Added: This decrease as a percentage of net revenue was primarily driven by increased eyeglass mix and lower growth in optometrist-related costs, primarily due to the effect of our stores being temporarily closed for a portion of fiscal year 2020 not experienced in fiscal year 2021.
+Added: Costs of products as a percentage of net product sales decreased from 38.9% for fiscal year 2020 to 36.8% for fiscal year 2021 primarily driven by increased eyeglass mix and higher eyeglass and contact lens margin, primarily the effect of our stores being temporarily closed for a portion of fiscal year 2020 not experienced in fiscal year 2021.
Owned & Host segment costs of products.
−Removed: Costs of products as a percentage of net product sales decreased from 28.9% for fiscal year 2019 to 28.0% for fiscal year 2020 driven by higher eyeglass margin, partially offset by increased contact lens mix.
+Added: Costs of products as a percentage of net product sales decreased from 28.0% for fiscal year 2020 to 27.4% for fiscal year 2021 driven by increased eyeglass mix and higher eyeglass margin, primarily the effect of the temporary store closures in fiscal year 2020.
Legacy segment costs of products.
−Removed: Costs of products as a percentage of net product sales increased from 46.2% for fiscal year 2019 to 47.8% for fiscal year 2020.
−Removed: The increase was primarily driven by increased contact lens mix and a higher mix of non-managed care customer transactions versus managed care customer transactions.
+Added: Costs of products as a percentage of net product sales decreased slightly from 47.8% for fiscal year 2020 to 47.7% for fiscal year 2021.
+Added: The decrease was primarily driven by the effect of the temporary store closures in fiscal year 2020, which was partially offset by a lower mix of managed care customer transactions versus non-managed care customer transactions.
Legacy segment managed care net product revenue is recorded in net product sales while revenue associated with servicing non-managed care customers is recorded in net sales of services and plans.
Eyeglass and contact lens product costs for both managed care and non-managed care net revenue are recorded in costs of products.
−Removed: Decreases in managed care mix increase costs of products as a percentage of net product sales and have a corresponding positive impact on costs of services as a percentage of net sales of services and plans in our Legacy segment.
−Removed: Costs of services and plans as a percentage of net sales of services and plans increased from 77.9% for fiscal year 2019 to 80.0% for fiscal year 2020.
−Removed: The increase was primarily driven by optometrist costs incurred during the temporary closure of our stores to the public.
+Added: Increases in managed care mix decrease costs of products as a percentage of net product sales and have a corresponding negative impact on costs of services as a percentage of net sales of services and plans in our Legacy segment.
+Added: Costs of services and plans as a percentage of net sales of services and plans decreased from 80.0% for fiscal year 2020 to 75.2% for fiscal year 2021.
+Added: The decrease was driven by lower growth in optometrist-related costs and higher eye exam revenue, primarily due to the impact of the temporary store closures to the public in fiscal year 2020 not experienced in fiscal year 2021.
+Added: These improvements were partially offset by the deferred revenue effects mentioned above.
Owned & Host segment costs of services and plans.
−Removed: Costs of services and plans as a percentage of net sales of services and plans increased from 83.2% for fiscal year 2019 to 86.0% for fiscal year 2020.
−Removed: The increase was driven by optometrist and technician costs incurred during the temporary closure of our stores to the public.
+Added: Costs of services and plans as a percentage of net sales of services and plans decreased from 86.0% for fiscal year 2020 to 80.1% for fiscal year 2021.
+Added: The decrease was driven by lower growth in optometrist-related costs and higher eye exam revenue, primarily the impact of the temporary store closures to the public in fiscal year 2020.
Legacy segment costs of services and plans.
−Removed: Costs of services and plans as a percentage of net sales of services and plans increased from 46.3% for fiscal year 2019 to 46.5% for fiscal year 2020.
−Removed: The increase was primarily driven by optometrist costs incurred during the temporary closure of our stores to the public.
+Added: Costs of services and plans as a percentage of net sales of services and plans decreased from 46.5% for fiscal year 2020 to 40.7% for fiscal year 2021.
+Added: The decrease was primarily driven by higher management fees from our Legacy partner and lower growth in optometrist-related costs, the effect of the temporary store closures to the public in fiscal year 2020.
Selling, general and administrative
−Removed: SG&A of $720.6 million for fiscal year 2020 decreased $23.9 million, or 3.2%, from fiscal year 2019.
−Removed: As a percentage of net revenue, SG&A decreased from 43.2% for fiscal year 2019 to 42.1% for fiscal year 2020.
−Removed: This decrease as a percentage of net revenue was primarily driven by lower advertising investment partially offset by store and corporate payroll and occupancy costs incurred during the temporary closure of our stores to the public.
−Removed: SG&A for fiscal year 2020 includes $8.6 million of incremental costs directly related to adapting the Company’s operations during the COVID-19 pandemic;
−Removed: of these costs, $0.6 million were reflected as adjustments for the Company’s presentation of non-GAAP measures below.
+Added: SG&A of $900.8 million for fiscal year 2021 increased $175.8 million, or 24.3%, from fiscal year 2020.
+Added: As a percentage of net revenue, SG&A increased from 42.4% for fiscal year 2020 to 43.3% for fiscal year 2021.
+Added: This increase as a percentage of net revenue was primarily driven by increases in advertising and performance-based incentive compensation partially offset by decreases in store payroll and occupancy expenses, which were primarily due to the effect of temporary store closures to the public in fiscal year 2020 not experienced in fiscal year 2021, and an individual one-time cash bonus paid in fiscal year 2020 to our front-line associates and doctors.
+Added: SG&A for fiscal year 2021 and fiscal year 2020 includes $1.5 million and $8.6 million, respectively, of incremental costs directly related to adapting the Company’s operations during the COVID-19 pandemic;
+Added: of these costs, $0.6 million were reflected as adjustments for the Company’s presentation of non-GAAP measures below for fiscal year 2020.
Owned & Host segment SG&A.
−Removed: SG&A as a percentage of net revenue decreased from 38.4% for fiscal year 2019 to 36.5% for fiscal year 2020.
−Removed: This decrease as a percentage of net revenue was primarily driven by lower advertising investment partially offset by store payroll and occupancy costs incurred during the temporary closure of our stores to the public.
+Added: SG&A as a percentage of net revenue increased from 36.5% for fiscal year 2020 to 36.7% for fiscal year 2021.
+Added: This increase as a percentage of net revenue was primarily driven by higher advertising expense partially offset by payroll and occupancy leverage, the effect of the temporary store closures to the public in fiscal year 2020.
Legacy segment SG&A.
−Removed: SG&A as a percentage of net revenue increased from 35.1% for fiscal year 2019 to 36.5% for fiscal year 2020 primarily driven by store payroll costs incurred during the temporary closure of our stores to the public.
+Added: SG&A as a percentage of net revenue decreased from 36.5% for fiscal year 2020 to 35.0% for fiscal year 2021 primarily driven by payroll and occupancy leverage, the effect of the temporary store closures to the public in fiscal year 2020.
Depreciation and amortization
−Removed: Depreciation and amortization expense of $91.6 million for fiscal year 2020 increased $4.3 million, or 5.0%, from $87.2 million for fiscal year 2019 primarily driven by new store openings and investments in information technology and doctor equipment.
−Removed: Our property and equipment balance, net, decreased $25.5 million, or 6.9%, during fiscal year 2020, reflective of $76.2 million in purchases of property and equipment, $1.1 million in new finance leases, less $84.2 million in depreciation expense and $18.6 million in impairment and other adjustments.
+Added: Depreciation and amortization expense of $97.1 million for fiscal year 2021 increased $5.5 million, or 6.0%, from $91.6 million for fiscal year 2020 primarily driven by new store openings.
Asset impairment
We recognized $4.4 million for impairment primarily of tangible long-lived assets and ROU assets associated with our retail stores in fiscal year 2021 compared to $22.0 million recognized in fiscal year 2020.
−Removed: Expenses recognized in fiscal year 2020 were related to impairments of long-lived tangible assets at our retail stores and right of use (“ROU”) assets related to our retail stores.
−Removed: The increase in store asset impairment charges during fiscal year 2020 was primarily related to our Owned & Host segment and was driven by lower than projected customer sales volume in certain stores and other entity-specific assumptions.
+Added: The store asset impairment charge is primarily related to our Owned & Host segment and is driven by lower than projected customer sales volume in certain stores and other entity-specific assumptions.
We considered multiple factors including, but not limited to:
forecasted scenarios related to store performance and the likelihood that these scenarios would be ultimately realized;
−Removed: the historical performance of the stores before the temporary closure of our stores to the public;
−Removed: the effect of store closures and uncertainty in store revenues over the remaining useful life of the asset group as a result of the COVID-19 pandemic;
and the remaining useful lives of the assets.
−Removed: The asset impairment expense for fiscal year 2020 also includes $1.1 million related to a write-off of certain software assets that were deemed to be obsolete.
+Added: The asset impairment expense for fiscal years 2021 and 2020 also includes $0.8 million and $1.1 million, respectively, related to a write-off of certain software assets that were deemed to be obsolete.
Asset impairment expenses were recognized in Corporate/Other.
+Added: Other expense (income), net
+Added: We recognized a gain of $2.4 million in Other expense (income), net in fiscal year 2021 in connection with the acquisition of our equity method investee by a third party.
+Added: “Business and Significant Accounting Policies” for further details.
Interest expense, net
−Removed: Interest expense, net, of $48.2 million for fiscal year 2020 increased $14.9 million, or 44.7%, from $33.3 million for fiscal year 2019.
−Removed: The increase was primarily driven by losses related to immediate recognition of changes in fair value of ineffective hedges of $4.0 million and charges related to interest payments and amortization of debt discounts related to the 2025 Notes of $17.3 million that were partially offset by a reduction in our Term Loan and Revolving Credit Facility utilization.
+Added: Interest expense, net, of $25.6 million for fiscal year 2021 decreased $22.7 million, or 47.0%, from $48.3 million for fiscal year 2020.
+Added: The decrease was primarily driven by lower derivative costs of $10.9 million, reduced term loan outstanding balance and credit facility utilization, and lower interest expense on the 2025 Notes as a result of the adoption of ASU 2020-06.
Income tax provision
−Removed: Our income tax provision for fiscal year 2020 reflected our statutory federal and state rate of 25.5%, combined with a discrete benefit of $8.0 million associated primarily with the exercise of stock options.
−Removed: In comparison, the income tax benefit associated with fiscal year 2019, reflected income tax expense at our statutory federal and state rate of 25.5% offset by a $10.1 million income tax benefit resulting from stock option exercises.
+Added: Our income tax provision for fiscal year 2021 reflected our statutory federal and state rate of 25.5% , offset by a benefit of $16.5 million primarily from the exercise of stock options and stranded tax effect associated with our interest rate swaps that matured in the first quarter of 2021.
+Added: In comparison, the income tax provision associated with fiscal year 2020 reflected our statutory federal and state rate of 25.5% combined with a benefit of $8.0 million associated primarily with the stock option exercises.
Fiscal Year 2020 compared to Fiscal Year 2019
14 unchanged sentences
Adjusted Comparable Store Sales Growth (3)
+Added: (6.1) % 6.2 %
+Added: Fiscal year 2020 includes 53 weeks.
+Added: Fiscal year 2019 includes 52 weeks.
(1) We calculate total comparable store sales based on consolidated net revenue excluding the impact of (i) Corporate/Other segment net revenue, (ii) sales from stores opened less than 13 months, (iii) stores closed in the periods presented, (iv) sales from partial months of operation when stores do not open or close on the first day of the month and (v) if applicable, the impact of a 53rd week in a fiscal year.
2 unchanged sentences
of this Form 10-K, with the exception of the Legacy segment, which is adjusted as noted in clause (ii) of footnote (3) below.
−Removed: (2) Percentages reflect line item as a percentage of net revenue.
+Added: (2) Percentages reflect line item as a percentage of net revenue, adjusted for rounding.
(3) There are two differences between total comparable store sales growth based on consolidated net revenue and Adjusted Comparable Store Sales Growth:
−Removed: (i) Adjusted Comparable Store Sales Growth includes the effect of deferred and unearned revenue as if such revenues were earned at the point of sale, resulting in a decrease of 0.1% and a decrease of 0.8% from total comparable store sales growth based on consolidated net revenue for fiscal year 2019 and fiscal year 2018, respectively, and (ii) Adjusted Comparable Store Sales Growth includes retail sales to the legacy partner’s customers (rather than the revenues recognized consistent with the management & services agreement with the legacy partner), resulting in a decrease of 0.2% from total comparable store sales growth based on consolidated net revenue for each of the fiscal years 2019 and 2018.
−Removed: Total net revenue of $1,724.3 million for fiscal year 2019 increased $187.4 million, or 12.2%, from $1,536.9 million for fiscal year 2018.
−Removed: This increase was driven approximately 41% by new stores, approximately 45% by comparable store sales growth and approximately 14% by order volume in our AC Lens business within the Corporate/Other segment.
−Removed: During fiscal year 2019, we opened 75 new stores, including 71 new America’s Best stores and four new Eyeglass World stores.
−Removed: Additionally, we closed three America’s Best stores and two Eyeglass World stores, for a total of 68 and two net new America’s Best and Eyeglass World stores, respectively.
−Removed: We closed one Legacy store during fiscal year 2019 as a result of our Legacy partner’s decision to cease its overall operations at the location.
+Added: (i) Adjusted Comparable Store Sales Growth includes the effect of deferred and unearned revenue as if such revenues were earned at the point of sale, resulting in a decrease of 0.4% and a decrease of 0.1% from total comparable store sales growth based on consolidated net revenue for fiscal year 2020 and fiscal year 2019, respectively, and (ii) Adjusted Comparable Store Sales Growth includes retail sales to the Legacy partner’s customers (rather than the revenues recognized consistent with the management & services agreement with the Legacy partner), resulting in a decrease of 0.1% and a decrease of 0.2% from total comparable store sales growth based on consolidated net revenue for the fiscal years 2020 and 2019, respectively.
+Added: Total net revenue of $1,711.8 million for fiscal year 2020 decreased $12.5 million, or 0.7%, from $1,724.3 million for fiscal year 2019.
+Added: This decrease was driven by the temporary closure of our stores to the public for a portion of fiscal year 2020 due to the COVID-19 pandemic, and was partially offset by new store sales as well as $32.2 million of net revenue attributable to the 53rd week in fiscal year 2020.
+Added: Total net revenue was also negatively impacted by changes in unearned revenue.
+Added: During fiscal year 2020, we opened 55 new America’s Best stores, two new Eyeglass World stores, and transitioned five additional Legacy stores to our management.
+Added: During fiscal year 2020, we closed seven America’s Best stores and one Legacy store as a result of our Legacy partner’s decision to cease its overall operations at the location.
+Added: The total net new locations in fiscal year 2020 for America’s Best, Eyeglass Word, and Legacy are 48, two and four, respectively.
Overall, store count grew 4.7% from the end of fiscal year 2019 to the end of fiscal year 2020.
−Removed: Comparable store sales growth and Adjusted Comparable Store Sales Growth were 6.5% and 6.2%, respectively, for fiscal year 2019.
−Removed: Comparable store sales growth and Adjusted Comparable Store Sales Growth were driven primarily by increases in average ticket and customer transactions.
−Removed: We believe the increases in net revenue were primarily due to execution of our key strategies, including new store openings and maturation, advertising and expansion of our participation in managed care programs as well as our expanded contact lens distribution business with Walmart.
+Added: Comparable store sales growth and Adjusted Comparable Store Sales Growth for fiscal year 2020 were (5.6)% and (6.1)%, respectively.
+Added: The decreases in comparable store sales growth and Adjusted Comparable Store Sales Growth were driven by the temporary closure of our stores to the public.
Net product sales comprised 82.9% and 82.7% of total net revenue for fiscal years 2020 and 2019, respectively.
−Removed: Net product sales increased $156.5 million, or 12.3% during fiscal year 2019 compared to fiscal year 2018, driven primarily by eyeglass sales and, to a lesser extent, unit growth in our AC Lens contact lens distribution business and contact lens sales.
−Removed: Net sales of services and plans increased $31.0 million, or 11.6%, driven primarily by eye exam sales in our Owned & Host segment, resulting from expanded participation in managed care programs and our store count growth.
−Removed: As a result of changes in applicable California law, certain optometrists employed by FirstSight were transferred to a professional corporation that contracts directly with our Legacy segment in the fourth quarter of fiscal year 2018, similar to optometrist transfers that occurred in the third quarter of 2017.
−Removed: This completed the transfer of optometrists from FirstSight to our Legacy segment.
−Removed: This change led to an increase in Legacy segment eye exam revenue and optometrist payroll costs of $3.3 million and $3.6 million, respectively, in fiscal year 2019.
−Removed: A corresponding decrease was recorded in our FirstSight subsidiary within the Corporate/Other segment.
−Removed: Therefore, the change had no impact on consolidated income from operations.
+Added: Net product sales decreased $7.9 million, or 0.6% during fiscal year 2020 compared to fiscal year 2019, primarily due to the temporary closure of our stores to the public and lower wholesale fulfillment that was partially offset by additional revenue from the 53 rd week and increased sales of contact lenses.
+Added: Net sales of services and plans decreased $4.7 million, or 1.6%, primarily due to the temporary closure of our stores to the public.
Owned & Host segment net revenue.
−Removed: Net revenue increased $151.6 million, or 12.9%, due to new store openings and comparable store sales growth, which increased sales across our product categories.
−Removed: The growth was predominantly driven by performance in America’s Best and Eyeglass World.
+Added: Net revenue increased $17.4 million, or 1.3% as stronger sales in fiscal year 2020, and in the 53 rd week, were partially offset by declines due to the temporary closure of our stores to the public.
Legacy segment net revenue.
−Removed: Net revenue grew $5.6 million, or 3.7%, primarily driven by higher eye exam sales and an increase in average ticket, partially offset by a decline in customer transactions.
−Removed: The increased eye exam sales were the result of changes to our FirstSight operations required by changes in applicable California law discussed above.
−Removed: The FirstSight operations changes resulted in a favorable impact of approximately 180 basis points in comparable store sales growth in this segment.
+Added: Net revenue declined $18.0 million, or 11.3%, due to the temporary closure of our stores to the public.
Corporate/Other segment net revenue.
−Removed: Net revenue increased $32.8 million, or 15.4%, driven by unit growth in our AC Lens contact lens distribution business and our online retail business, which was partially offset by a $3.3 million reduction in sales as a result of the FirstSight operations changes discussed above.
+Added: Net revenue declined $10.8 million, or 4.4%, due to lower wholesale fulfillment, partially offset by growth in our online retail business.
Net revenue reconciliations.
−Removed: Reconciliations for fiscal year 2019 and fiscal year 2018 include increases in deferred revenue of $5.1 million and $3.9 million, respectively and an increase in unearned revenue of $0.8 million and a decrease in unearned revenue of $0.5 million, respectively.
+Added: Reconciliations for fiscal year 2020 and fiscal year 2019 include increases in deferred revenue of $2.3 million and $5.1 million, respectively and increases in unearned revenue of $4.8 million and $0.8 million, respectively.
The increase in deferred revenue for fiscal year 2020 was driven by growth in eye care club membership sales;
−Removed: Differences between the changes in unearned revenue for fiscal year 2019 and fiscal year 2018 were primarily the result of calendar influences on sales of prescription eyewear in our stores during approximately the last seven to 10 days of 2019 compared to the preceding years.
−Removed: Unearned revenue was higher at the end of fiscal year 2017 compared to the end of fiscal year 2018 due to sales volume differences caused by shifts in the number of selling days after December 25th.
−Removed: The higher balance of unearned revenue at the beginning of fiscal year 2018 compared to the beginning of fiscal year 2019 resulted in more unearned revenue being recognized during fiscal year 2018 than for fiscal year 2019.
+Added: we believe that the increases in deferred revenue were limited somewhat by the temporary closure of our stores to the public.
+Added: The increase in unearned revenue compared to the prior period is due to higher sales in the 53 rd week of the fiscal year.
+Added: In 53-week fiscal years we have historically experienced higher volumes in the 53 rd week compared to the 52 nd week.
Costs applicable to revenue
−Removed: Costs applicable to revenue of $806.5 million for fiscal year 2019 increased $92.9 million, or 13.0%, from $713.6 million for fiscal year 2018.
−Removed: As a percentage of net revenue, costs applicable to revenue increased from 46.4% for fiscal year 2018 to 46.8% for fiscal year 2019.
−Removed: This increase as a percentage of net revenue was primarily driven by increased net revenue from AC Lens contact lens distribution business growth.
−Removed: Additionally, higher eyeglass margin and higher mix of exam sales as a result of the Company’s growing managed care business were partially offset by higher optometrist costs due to planned increases in store coverage and to a lesser extent wage pressure in certain geographic markets.
−Removed: Costs of products as a percentage of net product sales was 40.3% for fiscal year 2018 and fiscal year 2019, as costs related to our growing AC Lens business offset higher eyeglass margin.
−Removed: Our AC Lens net revenue grew faster than our store brands revenue during fiscal year 2019, and AC Lens had a higher cost of products as a percentage of net revenue than our other store brands.
+Added: Costs applicable to revenue of $786.6 million for fiscal year 2020 decreased $19.9 million, or 2.5%, from $806.5 million for fiscal year 2019.
+Added: As a percentage of net revenue, costs applicable to revenue decreased from 46.8% for fiscal year 2019 to 46.0% for fiscal year 2020.
+Added: This decrease as a percentage of net revenue was driven by higher eyeglass margin, partially offset by increased contact lens mix and optometrist costs while our stores were temporarily closed to the public.
+Added: Costs of products as a percentage of net product sales decreased from 40.3% for fiscal year 2019 to 38.9% for fiscal year 2020, driven by higher eyeglass margin, partially offset by increased contact lens mix.
Owned & Host segment costs of products.
−Removed: Costs of products as a percentage of net product sales decreased from 29.4% for fiscal year 2018 to 28.9% for fiscal year 2019 driven by higher eyeglass margin.
+Added: Costs of products as a percentage of net product sales decreased from 28.9% for fiscal year 2019 to 28.0% for fiscal year 2020 driven by higher eyeglass margin, partially offset by increased contact lens mix.
Legacy segment costs of products.
Costs of products as a percentage of net product sales increased from 46.2% for fiscal year 2019 to 47.8% for fiscal year 2020.
−Removed: The increase was primarily driven by a higher mix of non-managed care customer transactions.
−Removed: Decreases in managed care mix increase costs of products as a percentage of net product sales and have a corresponding positive impact on costs of services as a percentage of net sales of services and plans in our Legacy segment.
+Added: The increase was primarily driven by increased contact lens mix and a higher mix of non-managed care customer transactions versus managed care customer transactions.
Legacy segment managed care net product revenue is recorded in net product sales while revenue associated with servicing non-managed care customers is recorded in net sales of services and plans.
Eyeglass and contact lens product costs for both managed care and non-managed care net revenue are recorded in costs of products.
+Added: Decreases in managed care mix increase costs of products as a percentage of net product sales and have a corresponding positive impact on costs of services as a percentage of net sales of services and plans in our Legacy segment.
Costs of services and plans as a percentage of net sales of services and plans increased from 77.9% for fiscal year 2019 to 80.0% for fiscal year 2020.
−Removed: The increase was primarily driven by higher optometrist costs as described above, partially offset by increased eye exam sales as a result of increased managed care transactions.
+Added: The increase was primarily driven by optometrist costs incurred during the temporary closure of our stores to the public.
Owned & Host segment costs of services and plans.
Costs of services and plans as a percentage of net sales of services and plans increased from 83.2% for fiscal year 2019 to 86.0% for fiscal year 2020.
−Removed: The increase was driven by higher optometrist costs as described above, partially offset by increased eye exam sales as a result of increased managed care transactions.
−Removed: Eye exams purchased by managed care customers are excluded from our signature two-pair offer at our America’s Best brand, and are therefore recorded as services revenue.
−Removed: “Business and Significant Accounting Policies” in Part II.
−Removed: of this Form 10-K for additional information regarding our revenue recognition accounting policy.
+Added: The increase was driven by optometrist and technician costs incurred during the temporary closure of our stores to the public.
Legacy segment costs of services and plans.
Costs of services and plans as a percentage of net sales of services and plans increased from 46.3% for fiscal year 2019 to 46.5% for fiscal year 2020.
−Removed: The increase was primarily driven by increased optometrist costs, partially offset by increased eye exam sales.
−Removed: The higher optometrist costs and increased eye exam sales were both primarily the result of the FirstSight operations changes discussed above.
+Added: The increase was primarily driven by optometrist costs incurred during the temporary closure of our stores to the public.
Selling, general and administrative
−Removed: SG&A of $744.5 million for fiscal year 2019 increased $57.0 million, or 8.3%, from fiscal year 2018.
+Added: SG&A of $725.0 million for fiscal year 2020 decreased $19.5 million, or 2.6%, from fiscal year 2019.
As a percentage of net revenue, SG&A decreased from 43.2% for fiscal year 2019 to 42.4% for fiscal year 2020.
−Removed: The decrease in SG&A as a percentage of net revenue was primarily due to increased net revenue from our AC Lens contact lens distribution business, store payroll leverage and lower stock-based compensation expense.
+Added: This decrease as a percentage of net revenue was primarily driven by lower advertising investment partially offset by store and corporate payroll and occupancy costs incurred during the temporary closure of our stores to the public.
+Added: SG&A for fiscal year 2020 includes $8.6 million of incremental costs directly related to adapting the Company’s operations during the COVID-19 pandemic;
+Added: of these costs, $0.6 million were reflected as adjustments for the Company’s presentation of non-GAAP measures below.
Owned & Host segment SG&A.
−Removed: SG&A as a percentage of net revenue decreased from 39.0% for fiscal year 2018 to 38.4% for fiscal year 2019, driven primarily by store payroll leverage.
+Added: SG&A as a percentage of net revenue decreased from 38.4% for fiscal year 2019 to 36.5% for fiscal year 2020.
+Added: This decrease as a percentage of net revenue was primarily driven by lower
+Added: advertising investment partially offset by store payroll and occupancy costs incurred during the temporary closure of our stores to the public.
Legacy segment SG&A.
−Removed: SG&A as a percentage of net revenue increased from 35.0% for fiscal year 2018 to 35.1% for fiscal year 2019.
+Added: SG&A as a percentage of net revenue increased from 35.1% for fiscal year 2019 to 36.5% for fiscal year 2020 primarily driven by store payroll costs incurred during the temporary closure of our stores to the public.
Depreciation and amortization
−Removed: Depreciation and amortization expense of $87.2 million for fiscal year 2019 increased $12.9 million, or 17.4%, from $74.3 million for fiscal year 2018 primarily driven by new store openings, as well as investments in optical laboratories, distribution centers and information technology infrastructure, including omni-channel platform related investments.
−Removed: Our property and equipment balance, net, increased $11.7 million, or 3.3%, during fiscal year 2019, reflective of $96.3 million in purchases of property and equipment, $9.7 million in new finance leases, less $79.6 million in depreciation expense and $14.7 million in impairment and other adjustments.
+Added: Depreciation and amortization expense of $91.6 million for fiscal year 2020 increased $4.3 million, or 5.0%, from $87.2 million for fiscal year 2019 primarily driven by new store openings and investments in information technology and doctor equipment.
+Added: Our property and equipment balance, net, decreased $25.5 million, or 6.9%, during fiscal year 2020, reflective of $76.2 million in purchases of property and equipment, $1.1 million in new finance leases, less $84.2 million in depreciation expense and $18.6 million in impairment and other adjustments.
Asset impairment
−Removed: We recognized asset impairment expenses of $8.9 million in fiscal year 2019 compared to $17.6 million recognized in fiscal year 2018.
+Added: We recognized $22.0 million for impairment primarily of tangible long-lived assets and ROU assets associated with our retail stores in fiscal year 2020 compared to $8.9 million recognized in fiscal year 2019.
Expenses recognized in fiscal year 2020 were related to impairments of long-lived tangible assets at our retail stores and right of use (“ROU”) assets related to our retail stores.
−Removed: During fiscal year 2018, we recognized $11.4 million and $3.7 million of goodwill impairment at our Fred Meyer and Military brands, respectively, which did not recur in the current year, as well as $2.5 million for impairment of tangible long-lived assets at our retail stores.
−Removed: The increase in store asset impairment charges during fiscal year 2019 was primarily related to our Owned & Host segment.
−Removed: Long-lived and ROU asset impairments were driven by lower than projected customer sales volume in certain stores, and were determined using entity-specific assumptions related to our anticipated use of store assets.
+Added: The increase in store asset impairment charges during fiscal year 2020 was primarily related to our Owned & Host segment and was driven by lower than projected customer sales volume in certain stores and other entity-specific assumptions.
+Added: We considered multiple factors including, but not limited to:
+Added: forecasted scenarios related to store performance and the likelihood that these scenarios would be ultimately realized;
+Added: the historical performance of the stores before the temporary closure of our stores to the public;
+Added: the effect of store closures and uncertainty in store revenues over the remaining useful life of the asset group as a result of the COVID-19 pandemic;
+Added: and the remaining useful lives of the assets.
+Added: The asset impairment expense for fiscal year 2020 also includes $1.1 million related to a write-off of certain software assets that were deemed to be obsolete.
Asset impairment expenses were recognized in Corporate/Other.
−Removed: See “Critical Accounting Policies and Estimates” below for details regarding specific testing performed on various long-lived assets.
Interest expense, net
−Removed: Interest expense, net, of $33.3 million for fiscal year 2019 decreased $4.0 million, or 10.7%, from $37.3 million for fiscal year 2018.
−Removed: Interest expense, net decreased $5.3 million primarily as a result of term loan refinancings and credit rating upgrades in 2019 and 2018, partially offset by $1.3 million in additional interest expense relating to finance lease obligations during the fiscal year 2019.
+Added: Interest expense, net, of $48.3 million for fiscal year 2020 increased $15.0 million, or 45.1%, from $33.3 million for fiscal year 2019.
+Added: The increase was primarily driven by losses related to immediate recognition of changes in fair value of ineffective hedges of $4.0 million and charges related to interest payments and amortization of debt discounts related to the 2025 Notes of $17.3 million that were partially offset by a reduction in our term loan and Revolving Credit Facility utilization.
Income tax provision
−Removed: Our income tax expense for fiscal year 2019 reflected income tax expense at our statutory federal and state rate of 25.5%, offset by a discrete benefit of $10.1 million associated primarily with the exercise of stock options.
−Removed: During fiscal year 2018, our expected combined statutory federal and state rate was reduced by a $25.5 million income tax benefit resulting from stock option exercises.
+Added: Our income tax provision for fiscal year 2020 reflected our statutory federal and state rate of 25.5%, combined with a discrete benefit of $8.0 million associated primarily with the exercise of stock options.
+Added: In comparison, the income tax benefit associated with fiscal year 2019, reflected income tax expense at our statutory federal and state rate of 25.5% offset by a $10.1 million income tax benefit resulting from stock option exercises.
Non-GAAP Financial Measures
−Removed: EBITDA, Adjusted EBITDA , Adjusted EBITDA Margin, Adjusted Operating Income, Adjusted Operating Margin and Adjusted Diluted EPS
+Added: We define Adjusted Operating Income as net income, plus interest expense and income tax provision (benefit), further adjusted to exclude stock compensation expense, loss on extinguishment of debt, asset impairment, litigation settlement, secondary offering expenses, management realignment expenses, long-term incentive plan expenses, amortization of acquisition intangibles and other expenses.
+Added: We define Operating Margin as Adjusted Operating Income as a percentage of net revenue.
We define EBITDA as net income, plus interest expense, income tax provision (benefit) and depreciation and amortization.
−Removed: We define Adjusted EBITDA as net income, plus interest expense, income tax provision (benefit) and depreciation and amortization, further adjusted to exclude stock compensation expense, debt issuance costs, loss on the extinguishment of debt, asset impairment, litigation settlement, secondary offering expenses, management realignment expenses, long-term incentive plan expenses, and other expenses.
+Added: We define Adjusted EBITDA as net income, plus interest expense, income tax provision (benefit) and depreciation and amortization, further adjusted to exclude stock compensation expense, loss on extinguishment of debt, asset impairment, litigation settlement, secondary offering expenses, management realignment expenses, long-term incentive plan expenses, and other expenses.
We define Adjusted EBITDA Margin as Adjusted EBITDA as a percentage of net revenue.
−Removed: We define Adjusted Operating Income as net income, plus interest expense and income tax provision (benefit), further adjusted to exclude stock compensation expense, debt issuance costs, loss on extinguishment of debt, asset impairment, litigation settlement, secondary offering expenses, management realignment expenses, long-term incentive plan expenses, amortization of acquisition intangibles and other expenses.
−Removed: We define Operating Margin as Adjusted Operating Income as a percentage of net revenue.
−Removed: We define Adjusted Diluted EPS as diluted earnings per share, adjusted for the per share impact of stock compensation expense, debt issuance costs, loss on extinguishment of debt, asset impairment, litigation settlement, secondary offering expenses, management realignment expenses, long-term incentive plan expenses, amortization of acquisition intangibles, amortization of debt discounts and deferred financing costs of our Term Loan borrowings, amortization of the conversion feature and deferred financing costs of our 2025 N otes when not required under U.S.
+Added: We define Adjusted Diluted EPS as diluted earnings per share, adjusted for the per share impact of stock compensation expense, loss on extinguishment of debt, asset impairment, litigation settlement, secondary offering expenses, management realignment expenses, long-term incentive plan expenses, amortization of acquisition intangibles, amortization of debt discounts and deferred financing costs of our term loan borrowings, amortization of the conversion feature and deferred financing costs of our 2025 N otes when not required under U.S.
GAAP to be added back for diluted earnings per share, losses (gains) on change in fair value of derivatives, other expenses, and tax benefit of stock option exercises, less the tax effect of these adjustments.
6 unchanged sentences
The presentation of Adjusted EBITDA and Adjusted Diluted EPS for the fiscal year end 2019 has been recast to reflect these changes.
−Removed: See our Form 8-K filed with the SEC on February 26, 2020, which is incorporated herein by reference, for more information.
+Added: See our Form 8-K filed with the SEC on February 26, 2020 for more information.
EBITDA and the Company Non-GAAP Measures can vary substantially in size from one period to the next, and certain types of expenses are non-recurring in nature and consequently may not have been incurred in any of the periods presented below.
48 unchanged sentences
Adjusted Operating Income / Adjusted Operating Margin $ 204,749 9.8 % $ 134,148 7.8 % $ 114,300 6.6 %
−Removed: Fiscal year 2020 includes 53 weeks.
Fiscal years 2021 and 2019 include 52 weeks.
+Added: Fiscal year 2020 includes 53 weeks.
Percentages reflect line item as a percentage of net revenue, adjusted for rounding.
22 unchanged sentences
Adjusted EBITDA / Adjusted EBITDA Margin $ 294,350 14.2 % $ 218,307 12.8 % $ 194,139 11.3 %
−Removed: Fiscal year 2020 includes 53 weeks.
Fiscal years 2021 and 2019 include 52 weeks.
+Added: Fiscal year 2020 includes 53 weeks.
Percentages reflect line item as a percentage of net revenue, adjusted for rounding.
Some of the percentage totals in the table above do not foot due to rounding differences.
−Removed: In thousands Fiscal Year 2020 Fiscal Year 2019 Fiscal Year 2018
+Added: In thousands, except per share amounts Fiscal Year 2021 Fiscal Year 2020 Fiscal Year 2019
Diluted EPS $ 1.43 $ 0.44 $ 0.40
14 unchanged sentences
(0.03) 0.05 —
+Added: (0.01) 0.03 0.08
Tax benefit of stock option exercises (l)
4 unchanged sentences
Weighted average diluted shares outstanding 96,134 82,793 81,683
−Removed: Fiscal year 2020 includes 53 weeks.
Fiscal years 2021 and 2019 include 52 weeks.
+Added: Fiscal year 2020 includes 53 weeks.
Some of the totals in the table above do not foot due to rounding differences.
(a) Non-cash charges related to stock-based compensation programs, which vary from period to period depending on the timing of awards and performance vesting conditions.
−Removed: (b) For fiscal year 2019, reflects write-off of deferred financing fees related to the extinguishment of debt.
−Removed: (c) Reflects write-off of property, equipment and lease related assets on closed or underperforming stores for fiscal years 2019 and 2020;
−Removed: non-cash charges related to impairment of long-lived assets, primarily goodwill in our Military and Fred Meyer brands for fiscal year 2018.
−Removed: (d) Expenses associated with settlement of litigation.
−Removed: “Commitments and Contingencies” in our consolidated financial statements included in Part II.
−Removed: of this Form 10-K for further details.
−Removed: (e) Expenses related to our secondary public offerings during fiscal years 2018 and 2019.
+Added: (b) Reflects write-off of deferred financing fees related to the extinguishment of debt.
+Added: (c) Reflects write-off of primarily property, equipment and lease related assets on closed or underperforming stores.
+Added: (d) Expenses associated with settlement of certain litigation.
+Added: (e) Expenses related to our secondary public offerings.
(f) Expenses related to a non-recurring management realignment described on Form 8-K filed with the SEC on January 10, 2019.
−Removed: (g) Expenses pursuant to a long-term incentive plan for non-executive associates who were not participants in the management equity plan for fiscal year 2019.
+Added: (g) Expenses pursuant to a long-term incentive plan for non-executive associates who were not participants in the management equity plan.
This plan was effective in 2014 following the acquisition of the Company by affiliates of KKR & Co.
(the “KKR Acquisition”).
−Removed: During fiscal year 2018, a $4.6 million cash payout was triggered as a result of the second secondary offering of common stock by KKR and other selling shareholders.
−Removed: The remaining $2.4 million relates to the third secondary offering and was accrued but not paid as of fiscal year end 2018.
(h) Amortization of the increase in carrying values of finite-lived intangible assets resulting from the application of purchase accounting to the KKR Acquisition.
−Removed: (i) Amortization of debt discounts is associated with the amortization of the conversion feature related to the 2025 Notes and amortization of deferred financing costs related to the 2025 Notes, Term Loan and Revolving Credit Facility borrowings.
−Removed: Amortization of debt discount and deferred financing costs in aggregate total $11.9 million, $1.3 million and $1.9 million for the fiscal years 2020, 2019 and 2018, respectively.
−Removed: (j) Reflects losses (gains) recognized in interest expense on change in fair value of de-designated hedges of $4.0 million for fiscal year end 2020.
−Removed: (k) Other adjustments include amounts that management believes are not representative of our operating performance (amounts in brackets represent reductions in Adjusted Operating Income, Adjusted Diluted EPS and Adjusted EBITDA) including our share of losses on equity method investments of $1.8 million and $1.3 million for the fiscal years 2019 and 2018, respectively;
−Removed: the amortization impact adjustments related to the KKR Acquisition, (e.g., fair value of leasehold interests) of $0.4 million, $0.5 million and $0.4 million for the fiscal years 2020, 2019 and 2018, respectively;
−Removed: differences between the timing of expense versus cash payments related to contributions to charitable organizations of $(1.0) million for the fiscal year 2018;
−Removed: costs of severance and relocation of $1.3 million, $2.3 million and $1.0 million, for the fiscal years 2020, 2019 and 2018, respectively;
−Removed: excess payroll taxes related to stock option exercises of $0.7 million, $0.8 million and $1.8 million for fiscal years 2020, 2019 and 2018, respectively;
−Removed: incremental costs directly related to adapting the Company’s operations during the COVID-19 pandemic of $0.6 million for the fiscal year 2020;
−Removed: and other expenses and adjustments totaling $(0.3) million, $1.0 million and $1.3 million for fiscal years 2020, 2019 and 2018, respectively.
+Added: (i) Amortization of deferred financing costs and other non-cash charges related to our long-term debt, including amortization of the conversion feature related to the 2025 Notes of $10.0 million for fiscal year 2020.
+Added: We adjust for amortization of deferred financing costs related to the 2025 Notes only when adjusting these costs is not required in the calculation of diluted earnings per share in accordance with the if-converted method under U.S.
+Added: Amortization of debt discount and deferred financing costs total $2.1 million, $11.9 million and $1.3 million for the fiscal years 2021, 2020 and 2019, respectively.
+Added: (j) Reflects losses (gains) recognized in interest expense on change in fair value of de-designated hedges of $(3.3) million and $4.0 million for fiscal years 2021 and 2020 .
+Added: (k) Other adjustments include amounts that management believes are not representative of our operating performance (amounts in brackets represent reductions in Adjusted Operating Income, Adjusted Diluted EPS and Adjusted EBITDA) including our share of (gains) losses on equity method investments of $(2.4) million and $1.8 million for fiscal years 2021 and 2019, respectively;
+Added: and other expenses and adjustments which are primarily related to excess payroll taxes on stock option exercises, executive severance and relocation.
(l) Tax benefit associated with accounting guidance requiring excess tax benefits related to stock option exercises to be recorded in earnings as discrete items in the reporting period in which they occur.
(m) Represents the income tax effect of the total adjustments at our combined statutory federal and state income tax rates.
+Added: (n) Reflects other expenses in (k) above, including the impact of stranded tax effect of $(2.1) million for fiscal year 2021 associated with our interest rate swaps that matured in 2021.
Liquidity and Capital Resources
−Removed: As described in more detail below, on May 5, 2020, we entered into the Credit Agreement Amendment with the lenders under our credit facility in order to prevent the effects of the COVID-19 pandemic, including the temporary closure of our stores, from creating uncertainty relative to our ability to comply with certain financial covenants and allow the Company to focus on prudent management of the business over the quarters ahead.
−Removed: In addition, on May 12, 2020, we completed the issuance of the 2025 Notes and we used the net proceeds of this offering to repay the full amount outstanding under our Revolving Credit Facility and part of our outstanding borrowings under our Term Loan.
Our primary cash needs are for inventory, payroll, store rent, advertising, capital expenditures associated with new stores and updating existing stores, as well as information technology and infrastructure, including our corporate office, distribution centers and laboratories.
4 unchanged sentences
We continue to be focused on these items in addition to other key measures we use to determine how our consolidated business and operating segments are performing.
−Removed: We believe that cash on hand, cash expected to be generated from operations and the availability of borrowings under the Revolving Credit Facility will be sufficient to fund our working capital requirements, liquidity obligations, anticipated capital expenditures and payments due under our existing debt for at least the next 12 months.
+Added: We believe that cash on hand, cash expected to be generated from operations and the availability of borrowings under our revolving credit facility will be sufficient to fund our working capital requirements, liquidity obligations, anticipated capital expenditures and payments due under our existing debt for the next 12 months and thereafter for the foreseeable future.
Depending on our liquidity levels, conditions in the capital markets and other factors, we may from time to time consider the refinancing or issuance of debt, issuance of equity or other securities, the proceeds of which could provide additional liquidity for our operations, as well as modifications to our term loan where possible.
However, our ability to maintain sufficient liquidity may be affected by numerous factors, many of which are outside of our control.
−Removed: As of January 2, 2021, we have outstanding a total of $402.5 million aggregate principal of 2025 Notes.
−Removed: The 2025 Notes are senior unsecured obligations, and interest on the 2025 Notes is paid semi-annually.
−Removed: The Company can choose to settle upon conversion in cash, shares or a combination, at a conversion rate of 32.0783 shares of common stock per $1,000 principal amount.
−Removed: Based on the initial conversion rate, the 2025 Notes are convertible into 12.9 million shares of our common stock and we reserved for the possible issuance of 16.5 million shares, which is the maximum amount that could be issued upon conversion.
−Removed: As of January 2, 2021, the “if-converted value” exceeded the principal amount of the 2025 Notes by $182.3 million.
−Removed: “Earnings Per Share” for the treatment of earnings per share in relation to the 2025 Notes.
−Removed: As of fiscal year end 2020, we had $373.9 million in cash and cash equivalents and $293.6 million of availability under our Revolving Credit Facility, which includes $6.4 million in outstanding letters of credit.
−Removed: We pu rchased $76.8 million in capital items during fiscal year 2020.
−Removed: Approximately 80% of o ur capital spend is related to our expected growth (i.e., new stores, optometric equipment, additional capacity in our optical laboratories and distribution centers, and our IT infrastructure, including omni-channel platform related investments).
−Removed: Our working capital requirements for inventory will increase as we continue to open additional stores.
We primarily fund our working capital needs using cash provided by operations.
+Added: Our working capital requirements for inventory will increase as we continue to open additional stores.
+Added: As of fiscal year end 2021, we had $305.8 million in cash and cash equivalents and $293.6 million of availability under our revolving credit facility, which includes $6.4 million in outstanding letters of credit.
The following table summarizes cash flows provided by (used for) operating activities, investing activities and financing activities for the periods indicated:
5 unchanged sentences
Net increase (decrease) in cash, cash equivalents and restricted cash $ (68,283) $ 334,852 $ 22,309
−Removed: Fiscal year 2020 includes 53 weeks.
Fiscal years 2021 and 2019 include 52 weeks.
+Added: Fiscal year 2020 includes 53 weeks.
Net Cash Provided by Operating Activities
+Added: Cash flows provided by operating activities increased by $24.0 million to $258.9 million, or 10.2%, during fiscal year 2021 from $235.0 million during fiscal year 2020 as a result of net income of $92.0 million, offset by a decrease in non-cash expense items of $13.2 million , and changes in net working capital and other assets and liabilities, which used an additional $54.8 million in cash compared to fiscal year 2020.
+Added: Working capital was most significantly impacted by changes in inventories, accounts payable, other liabilities, and accounts receivable.
+Added: Increases in inventory and decreases in accounts payable, which used $26.3 million and $24.6 million in year-over-year cash, respectively, were primarily due to increased purchases including inventory forward buys and other payments during 2021.
+Added: Decreases in other liabilities used $17.8 million in year-over-year cash primarily due to decreases in compensation related accruals of $17.1 million including payment of CARES Act deferred employer payroll taxes and lease concessions and deferrals of $5.9 million, partially offset by lower payments of litigation settlements and increases in advertising and promotional efforts during the year.
+Added: Offsetting these items were decreases in accounts receivable balances, which contributed $14.9 million in year-over-year cash, primarily due to year-over-year decreases in outstanding credit card receivables as a result of lower sales in the last week of fiscal year 2021 when compared to the same period of 2020.
Cash flows provided by operating activities increased by $69.9 million to $235.0 million, or 42.3%, during fiscal year 2020 from $165.1 million during fiscal year 2019.
1 unchanged sentence
Changes in net working capital and other assets and liabilities contributed an additional $54.5 million in cash compared to fiscal year 2019.
−Removed: Increases in other liabilities contributed $24.3 million in year-over-year cash primarily due to an increase in deferral of employer payroll taxes of $12.8 million as a result of the CARES Act, a $3.9 million increase in year-over-year cash due to timing of unearned revenue, increases in compensation related accruals of $2.2 million due primarily to timing, increases of $3.1 million due to lease concessions and deferrals and other increases in miscellaneous accruals due to timing, partially offset by decreases in accrued advertising and payments of litigation settlements during the year.
+Added: Increases in other liabilities contributed $17.6 million in year-over-year cash primarily due to an increase in deferral of employer payroll taxes of $12.8 million as a result of the CARES Act, increases in compensation related accruals of $2.2 million due primarily to timing, increases of $3.1 million due to lease concessions and deferrals and other increases in miscellaneous accruals due to timing, partially offset by decreases in accrued advertising and payments of litigation settlements during the year.
Increases in accounts payabl e contributed $26.9 million i n year-over-year cash, primarily as a result of increased purchases and replenishing activity due to both store growth and increased sales in December of 2020 as compared to the same period of 2019 and increases in advertising.
3 unchanged sentences
Changes in deferred revenue contributed $2.8 million less cash when compared to 2019 driven by decreased sales of our eye care club membership and product protection plans.
−Removed: Cash flows provided by operating activities increased by $58.5 million to $165.1 million, or 54.8%, during the fiscal year 2019 from $106.6 million during fiscal year 2018.
−Removed: The increase in net cash provided by operating activities consisted of an increase in net income of $9.1 million and an increase in non-cash expense items of $26.4 million including loss on extinguishment of debt of $9.8 million, deferred income tax expense of $17.0 million, depreciation and amortization of $12.3 million, and $4.3 million in other non-cash expenses, partially offset by a decrease of asset impairment charges of $8.7 million and a decrease of stock compensation expense of $8.3 million.
−Removed: In addition, decreases in net working capital and other assets and liabilities contributed an additional $22.9 million in cash compared to fiscal year 2018.
−Removed: Decreases in other assets contributed $17.1 million in year-over-year cash, primarily due to decreases in prepaid advertising and rent-related items.
−Removed: The year-over-year cash contribution of $12.9 million from inventories in fiscal year 2019 was primarily a result of decreased year-over-year inventory expenditures.
−Removed: The Company commenced a forward inventory purchase program in fiscal year 2018 and continued
−Removed: this program to a lesser extent in fiscal year 2019.
−Removed: Additionally, accounts receivable balances contributed $7.7 million in year-over-year cash, reflective of year-over-year decreases in outstanding credit card receivables, partially offset by increases in our managed care receivables as a result of increased participation in managed care programs which historically have a longer collection cycle than trade and credit card receivables.
−Removed: Increases in deferred revenue contributed an additional $1.3 million in year over-year-cash.
−Removed: Offsetting these items were decreases in accounts payable during fiscal year 2019 which used $10.8 million in year-over-year cash, primarily due to timing of payments.
−Removed: In addition, decreases in other liabilities used $5.2 million in year-over-year cash, primarily related to decreases in accrued liabilities related to capital expenditures after the completion of our Texas lab partially offset by increases in payroll related accruals due to timing.
+Added: This was more than offset by a $3.9 million increase in year-over-year cash due to timing of unearned revenue.
Net Cash Used for Investing Activities
+Added: Net cash used for investing activities increased by $16.5 million, to $92.9 million, during fiscal year 2021 from $76.4 million during fiscal year 2020.
+Added: The increase was primarily due to new store openings, offset partially by proceeds of $2.4 million in connection with the sale of the Company’s equity method investee.
+Added: Refer to Note 1.
+Added: “Business and Significant Accounting Policies” for more information on the sale.
+Added: We purchased $95.5 million in capital items during fiscal year 2021.
+Added: Approximately 80% of o ur capital spend is related to our expected growth (i.e., new stores, optometric equipment, additional capacity in our optical laboratories and distribution centers, and our IT infrastructure, including omni-channel platform related investments).
Net cash used for investing activities decreased by $24.2 million, to $76.4 million, during fiscal year 2020 from $100.6 million during fiscal year 2019.
The decrease was primarily due to cash conservation measures during the temporary store closure period, which resulted in reduced store openings and lower IT investment for the full year.
−Removed: Net cash used for investing activities decreased by $3.6 million, to $100.6 million, during fiscal year 2019 from $104.2 million during fiscal year 2018.
−Removed: The decrease was primarily due to capital investments made in fiscal year 2018 for our Texas lab not recurring in fiscal year 2019 as well as timing of new store capital investments.
Net Cash Provided by (Used for) Financing Activities
+Added: Net cash provided by (used fo r) financing activities decreased $410.6 million , from $176.3 million provision of cash to $234.3 million use of cash during fiscal year 2021.
+Added: The decrease in cash provided by financing activities was primarily due to the prepayment of our term loan of $167.4 million and increases in purchases of treasury stock of $72.6 million in the current fiscal year compared to proceeds of $548.8 million from the issuance of the 2025 Notes and borrowings on our revolving credit facility partially offset by principal payments on long-term debt of $369.3 million during fiscal year 2020.
Net cash provided by (used fo r) financing activities increased $218.4 million, from $42.1 million use of cash to $176.3 million provision of cash during fiscal year 2020.
The increase in cash provided by financing activities was primarily due to lower repayments on long-term debt of $222.6 million and decreased purchases of treasury stock of $25 million, offset by decreases in cash provided by borrowings on long-term debt of $17.8 million and an increase in cash used for payments of debt issuance costs of $9.5 million.
−Removed: Net cash provided by (used for) financing activities decreased $52.5 million, from $10.4 million provision of cash to $42.1 million use of cash during fiscal year 2019.
−Removed: The change in cash provided by (used for) financing activities was due to the repurchase of shares of common stock of the Company of $25.6 million during fiscal year 2019, a $25.0 million voluntary prepayment of outstanding principal under the Term Loan of its Credit Agreement and lower proceeds from the issuance of common stock as compared to fiscal year 2018.
−Removed: Fiscal year 2018 included material debt and equity transactions.
−Removed: In fiscal year 2018, we refinanced our first lien credit agreement, resulting in debt issuance costs of $1.4 million and $200.0 million in proceeds which were used to make $200.0 million in principal payments.
−Removed: Principal payments of $4.3 million, purchases of treasury stock of $1.9 million and payments on capital lease obligations of $1.8 million were offset by $19.8 million in proceeds from exercises of stock options.
Long-term Debt
The following table sets forth the amounts owed under our term loan and the 2025 Notes and the interest rate on such outstanding amounts, and the amount available for additional borrowing thereunder, as of the end of fiscal year 2021:
−Removed: In thousands, except percentage data Interest Rate (2)
+Added: In thousands Interest Rate (2)
Amount Outstanding Amount Available for Additional Borrowing
5 unchanged sentences
(1) At January 1, 2022, the amount available under our revolving credit facility reflected a reduction of $6.4 million of letters of credit outstanding.
−Removed: (2) The interest rate on the Term Loan and Revolving Credit Facility pursuant to the Credit Agreement is at an Applicable Margin of 1.75% for LIBOR Loans with LIBOR to not be lower than 1.00% in any period, and an Applicable Margin of 0.75% for the new term loans that are ABR Loans, as of fiscal year end 2020.
−Removed: The 2025 Notes will pay interest semi-annually in arrears on May 15 and November 15 of each year, commencing on November 15, 2020, at an annual rate of 2.50%.
−Removed: Term Loan and Revolving Credit Facility
−Removed: As of fiscal year end 2020, we had $317.4 million of Term Loan outstanding under our credit agreement.
−Removed: As of fiscal year end 2020, we also had $293.6 million of availability under our $300.0 million Revolving Credit Facility, which includes $6.4 million in outstanding letters of credit.
−Removed: The interest rate payable on the Term Loan is based on either LIBOR or an alternative borrowing rate plus an additional margin that varies dependent on NVI’s consolidated first lien leverage ratio.
−Removed: The Term Loan will amortize in quarterly installments equal to 2.50% per annum in the first three years of the loan and 5.00% per annum thereafter.
−Removed: As a result of the $75.0 million pay down of the Term Loan and the $25.0 million principal prepayment in 2019;
−Removed: we have no additional mandatory principal payments on the Term Loan until maturity on July 18, 2024.
−Removed: In addition, under our Credit Agreement we must maintain certain covenants based on our financial results.
−Removed: The Credit Agreement also contains covenants that, among other things, limit NVI’s ability to incur additional debt, create liens against assets, make acquisitions, pay dividends or distributions on its stock, merge or consolidate with another entity and transfer or sell assets.
−Removed: We were in compliance with all covenants related to the Credit Agreement as of January 2, 2021.
−Removed: Credit Agreement Amendment
−Removed: On May 5, 2020, we entered into the Credit Agreement Amendment with the lenders under our credit facility in order to amend certain provisions of the Credit Agreement.
−Removed: As set forth in greater detail below, the principal purpose of the Credit Agreement Amendment was to suspend certain financial maintenance covenants contained in the Credit Agreement until testing at the end of the second fiscal quarter of 2021.
−Removed: Capitalized terms used but not defined herein shall have the meanings assigned to such terms in the Credit Agreement and Amendment, as applicable.
−Removed: Pursuant to the Credit Agreement Amendment, the financial covenants relating to maintenance of a maximum Consolidated Total Debt to Consolidated EBITDA Ratio and a minimum Consolidated Interest Coverage Ratio are suspended until testing at the end of the second fiscal quarter of 2021.
−Removed: From and after such time, such covenants will be reinstated on a modified basis so that, subject to certain exceptions and limitations as described in the Credit Agreement Amendment, (i) with respect to the second and third fiscal quarters of 2021, the Consolidated Total Debt to Consolidated EBITDA Ratio shall not exceed 4.50 to 1.00 and, with respect to the fourth fiscal quarter of fiscal 2021 and thereafter, the Consolidated Total Debt to Consolidated EBITDA Ratio shall not exceed 4.00 to 1.00, in each case with NVI being able to elect to annualize certain quarterly periods so that quarterly performance from fiscal 2020 is excluded and (ii) with respect to the second fiscal quarter of 2021 and thereafter, the Consolidated Interest Coverage Ratio shall not be less than 3.00 to 1.00.
−Removed: In lieu of such financial covenants, pursuant to the Credit Agreement Amendment NVI has agreed during the suspension period, (i) not to have Consolidated EBITDA for any six fiscal quarter period be less than $0, with the second fiscal quarter of 2020 permitted to be excluded in certain circumstances, and (ii) to have a minimum level of liquidity (defined as cash and cash equivalents plus the unused portion of the Revolving Credit Facility) equal to the lesser of (x) $100,000,000 and (y) $40,000,000 plus the amount of any net proceeds from capital markets financings during such period in excess of $75,000,000.
−Removed: In addition, the Credit Agreement was amended pursuant to the Credit Agreement Amendment to, among other things, (i) limit the flexibility of NVI and Holdings with respect to certain transactions during the covenant suspension period, including the ability to declare or pay dividends, incur debt and make investments and dispositions, (ii) require prepayments of the term loans under certain circumstances during the covenant suspension period from the net proceeds from debt or equity capital markets transactions by the Company (with the amount of the term loans to be paid down equal to $75 million from the first $400 million of capital raised and 50% of any proceeds above such amount) and (iii) restrict NVI’s ability to borrow under the Revolving Credit Facility if unrestricted cash and cash equivalents exceeds $50 million (and, in the event of any such excess, to require a mandatory prepayment of such amount).
−Removed: Also pursuant to the Credit Agreement Amendment, the margins upon which interest is calculated for the term loans were amended to a range of 1.75% to 2.75% (for LIBOR Loans) and 0.75% to 1.75% (for ABR Loans), in each case based on NVI’s Consolidated First Lien Secured Debt to Consolidated EBITDA Ratio at such time, with such margins subject to an increase of 50 basis points in the event that either (i) the Company has not raised at least $135 million in additional proceeds from certain capital markets transactions within 30 days of the date of the Credit Agreement Amendment or (ii) Consolidated EBITDA for the most recently ended four quarters is less than $0.
−Removed: In May 2020, we completed the issuance of the 2025 Notes.
−Removed: The 2025 Notes were sold only to persons reasonably believed to be qualified institutional buyers in reliance on Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”).
−Removed: The 2025 Notes will pay interest semi-annually in arrears on May 15 and November 15 of each year, commencing on November 15, 2020, at an annual rate of 2.50% and will be convertible into cash, shares
−Removed: of common stock or a combination of cash and shares of common stock, at our election, based on the applicable conversion rate at such time.
−Removed: The 2025 Notes have a maturity date of May 15, 2025.
−Removed: Refer to Note 4.
−Removed: “Long-term Debt” for more information.
−Removed: We received proceeds from the offering of $390.9 million, net of $11.6 million in underwriter fees and other issuance costs.
+Added: (2) The interest rate on the term loan and revolving credit facility pursuant to the Credit Agreement is at an Applicable Margin of 1.25% for LIBOR Loans with LIBOR to not be lower than 0.00% in any period, and an Applicable Margin of 0.25% for ABR Loans, as of fiscal year end 2021.
+Added: The 2025 Notes pay interest semi-annually in arrears on May 15 and November 15 of each year, commencing on November 15, 2020, at an annual rate of 2.50%.
+Added: Share Repurchase Authority
+Added: Effective November 8, 2021, the Company's Board of Directors authorized the Company to repurchase up to $50 million aggregate amount of shares of the Company's common stock.
+Added: On November 29, 2021, the Company’s Board of Directors authorized an increase from $50 million to $100 million in aggregate amount of shares of the Company’s common stock that may be repurchased under the Company’s current share repurchase program.
+Added: On February 23, 2022, our Board of Directors authorized a $100 million increase to the share repurchase authorization, for a total authorization of $200 million.
+Added: Repurchases may be made from time to time in the Company’s discretion through one or more open market or privately negotiated transactions, and pursuant to pre-set trading plans meeting the requirements of all applicable securities laws and regulations.
+Added: Shares may be repurchased under the program through December 30, 2023.
+Added: The timing and amounts of any such repurchases will depend on a variety of factors, including the market price of the Company’s shares and general market and economic conditions.
+Added: The Company expects to fund the share repurchases using cash on hand.
+Added: During fiscal year 2021, the Company repurchased 1.4 million shares of its common stock for $69.9 million under the share repurchase program.
+Added: After these repurchases, $130 million remains available under the share repurchase authorization.
Capital Expenditures
4 unchanged sentences
Total $ 95,515 $ 76,823 $ 101,325
−Removed: Fiscal year 2020 includes 53 weeks.
Fiscal years 2021 and 2019 include 52 weeks.
+Added: Fiscal year 2020 includes 53 weeks.
We expect capital expenditures in fiscal year 2022 to be approximately between $110 million and $115 million and to be used primarily in supporting the Company’s growth through investments in new stores and information technology improvements.
We expect to fund capital expenditures with cash flows from operations, but may also use existing cash balances or funds available through our revolving credit facility.
−Removed: Contractual Obligations and Commercial Commitments
−Removed: As of fiscal year end 2020, our lease commitments and contractual obligations are as follows:
+Added: Material Cash Requirements
+Added: As of fiscal year end 2021, our current and long-term material cash requirements include the following commitments and contractual obligations:
In thousands 2022 2023 2024 2025 2026 Thereafter Total
14 unchanged sentences
Total $ 144,968 $ 132,120 $ 261,026 $ 498,839 $ 56,203 $ 118,469 $ 1,211,625
−Removed: (a) As a result of $75.0 million prepayment of debt principal during 2020, the Company does not owe principal payments on its Term Loan until the July 18, 2024 when the outstanding principal balance of $317.4 million is due.
−Removed: (b) The principal payment on the 2025 Notes are due on May 15, 2025.
−Removed: (c) No principal payments are required on the Revolving Credit Facility as we have $293.6 million of availability under our $300.0 million Revolving Credit Facility, which includes $6.4 million in outstanding letters of credit .
+Added: (a) Refer to Note 4.
+Added: “Long-term Debt” to our consolidated financial statements included in Part II.
+Added: Item 8 of this Form 10-K for more information on our term loan long-term debt.
+Added: (b) Refer to Note 4.
+Added: “Long-term Debt” for more information on the 2025 Notes and Note 13.
+Added: “Earnings Per Share” for the treatment of earnings per share in relation to the 2025 Notes.
+Added: (c) Refer to Note 4.
+Added: “Long-term Debt” for more information on our revolving credit facility.
(d) We have estimated our interest payments on our term loan based on our current interest elections described in “Liquidity and Capital Resources.” Amounts and timing may be different from our estimated interest payments due to potential voluntary prepayments, borrowings and interest rate fluctuations.
6 unchanged sentences
These expenses are generally variable, not included above, and were approximately $30.6 million during fiscal year ended 2021.
−Removed: (f) For leases classified as finance leases, the finance lease asset is recorded as property and equipment and a corresponding amount is recorded as a long-term debt obligation in the consolidated balance sheets to the lesser of the net present value of minimum lease payments to be made over the lease term or the fair value of the property for leases in existence as of fiscal year end 2019 and at the net present value of the minimum lease payments to be made over the lease term for new finance leases entered into subsequent to fiscal year end 2019.
+Added: Refer to Note 8.
+Added: “Leases” for our current and long-term lease payment obligations.
+Added: (f) For leases classified as finance leases, the finance lease asset is recorded as property and equipment and a corresponding amount is recorded as a long-term debt obligation in the Consolidated Balance Sheets at the net present value of the minimum lease payments to be made over the lease term for new finance leases.
We allocate each lease payment between a reduction of the lease obligation and interest expense using the effective interest method.
Finance lease amounts above represent required contractual cash payments in the periods presented.
+Added: Refer to Note 8.
+Added: “Leases” for our current and long-term lease payment obligations.
(g) Other commitments include minimum purchase commitments with certain trade vendors and contractual agreements to purchase goods or services in the ordinary course of business.
−Removed: Off-balance Sheet Arrangements
+Added: In addition to lease commitments and contractual obligations, our material cash requirements also include operating expenses such as payroll, store rent, and advertising expenses, which we expect to fund primarily with cash on hand and cash expected to be generated from operations.
We follow U.S.
7 unchanged sentences
Management evaluates the accounting policies, estimates and judgments on an ongoing basis.
−Removed: Management bases its estimates and judgments on historical experience and various other factors that are believed to be reasonable under the circumstances.
+Added: We base our estimates and judgments on historical experience and various other factors that are believed to be reasonable under the circumstances.
Actual results may differ from these estimates under different assumptions and conditions.
−Removed: Management has evaluated the accounting policies used in the preparation of the Company’s consolidated financial statements and related notes and believes those policies to be reasonable and appropriate.
−Removed: Certain of these accounting policies require the application of significant judgment by management in selecting appropriate assumptions for calculating financial estimates.
+Added: We have evaluated the accounting policies used in the preparation of the Company’s consolidated financial statements and related notes and believe those policies to be reasonable and appropriate.
+Added: Certain of these accounting policies require the application of significant judgment in selecting appropriate assumptions for calculating financial estimates.
By their nature, these judgments are subject to an inherent degree of uncertainty.
2 unchanged sentences
“Business and Significant Accounting Policies,” to our consolidated financial statements included in Part II.
−Removed: of this Form 10-K.
+Added: of this Form 10-K, as well as in certain other notes to the consolidated financial statements as indicated below.
+Added: Revenue Recognition
+Added: At our America’s Best brand, our signature offer is two pairs of eyeglasses and a free eye exam for one low price.
+Added: Since an eye exam is a key component in the ability for acceptable prescription eyewear to be delivered to a customer, we concluded that the eye exam service, while capable of being distinct from the eyeglass product delivery, was not distinct in the context of the two-pair offer.
+Added: As a result, we do not allocate revenue to the eye exam associated with the two-pair offer, and we record all revenue associated with the offer in net product sales when the customer has received and accepted the merchandise.
+Added: We recognize revenue across our product protection plan and club membership contract portfolio based on the value delivered to the customers relative to the remaining services promised under the programs.
+Added: We determine the value delivered based on the expected timing and amount of customer usage of benefits over the terms of the contracts.
+Added: A 100 basis point change in our estimate of value delivered to customers compared to expected customer usage of benefits would have affected revenues in fiscal year 2021 by approximately $2 million;
+Added: this amount would have been recognized at different times over the contract period.
+Added: Unearned revenue at the end of a reporting period is estimated based on processing and delivery times throughout the current month and generally ranges from approximately seven to 10 days.
+Added: All unearned revenue at the end of a reporting period is recognized in the next fiscal period.
+Added: A one day increase in our estimate of the average days needed to process delivery would have affected revenues in fiscal year 2021 by approximately $4 million, which would ultimately have been recorded in the next fiscal year.
+Added: The Company considers its revenue from managed care customers to include variable consideration and estimates such amounts associated with managed care customer revenues using the history of concessions provided and cash receipts from managed care providers;
+Added: a 100 basis point change in our rate of concessions granted would have reduced our revenues in fiscal year 2021 by approximately $2 million.
+Added: “Revenue from Contracts With Customers” in our audited consolidated financial statements included in Part II.
+Added: of this Form 10-K for additional information.
Impairment of P&E and ROU assets
−Removed: We evaluate impairment of long-lived tangible and ROU store assets at the store level, which is the lowest level at which independent cash flows can be identified, when events or conditions indicate the carrying value of such assets may not be recoverable.
−Removed: In making this evaluation, we may consider multiple factors including financial performance of the stores, regional and local business climates, future plans for the store operations and other qualitative factors.
−Removed: If the store’s projected undiscounted net cash flows expected to be generated by the related assets over the life of the primary asset within the asset group are less than the carrying value of the subject assets, we determine an estimate of the fair value of the asset group using an income approach based on discounted cash flows, which require estimates and assumptions of forecasted store revenue growth rates and store profitability.
−Removed: The cash flows used in estimating fair value were discounted using market rates from 6.3% to 8%.
−Removed: If the fair value of the asset group is less than its carrying value, the loss is allocated to the long-lived assets of the group on a pro rata basis using the relative carrying amounts of those assets, except that the loss allocated to an individual long lived asset of the group shall not reduce the carrying amount of that asset below its fair value.
+Added: In evaluating store-level property and equipment and ROU assets for recoverability and impairment, we may consider multiple factors including financial performance of the stores, regional and local business climates, future plans for the store operations and other qualitative factors.
+Added: We estimate the fair value of the asset group using an income approach based on discounted cash flows, which requires estimates and assumptions of forecasted store revenue growth rates and store profitability.
We consider market-based indications of prevailing rental rates, lease incentives and discount rates for retail space when estimating the fair value of ROU assets.
−Removed: A decrease in the estimated cash flows would lead to a lower fair value measurement, as would a significant increase in the discount rate.
−Removed: These non-recurring fair value measurements are classified as Level 3 measurements in the fair value hierarchy.
−Removed: We assess non-store tangible assets, as well as capitalized software costs in use or under development, for impairment if events or changes in circumstances indicate that the carrying value of those assets may not be recoverable.
+Added: Developing the estimates and assumptions used in our recovery and impairment evaluations require significant judgment.
+Added: The cash flows used in estimating fair value were discounted using a rate of 7.5% in fiscal year 2021.
We had $346.4 million of property and equipment, net, and ROU assets of $354.9 million as of January 1, 2022.
Changes in estimates and assumptions used in our impairment testing of property and equipment could result in future impairment losses, which could be material.
−Removed: Significant judgments and assumptions are required in our impairment evaluations.
Impairment of Goodwill and Intangible Assets
−Removed: If impairment indicators related to amortizing intangible assets are present, we estimate cash flows expected to be generated over the remaining useful lives of the related assets based on current projections.
−Removed: If the projected net undiscounted cash flows are less than the carrying value of the related assets, we then measure impairment based on a discounted cash flow model and record an impairment charge as the excess of carrying value and estimated fair value.
−Removed: We evaluate indefinite-lived, non-amortizing trademarks and trade names for impairment annually or whenever events or changes in circumstances indicate that those assets may be impaired.
−Removed: We use the relief-from-royalty method to estimate fair value, whereby an estimated royalty rate is determined based on comparable licensing arrangements, which is then applied to the revenue projections for the subject asset.
−Removed: The estimated fair value is calculated using a discounted cash flow analysis.
−Removed: We record an impairment charge as the excess of carrying value over estimated fair value.
−Removed: Goodwill impairment is present if a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying value of goodwill.
−Removed: We consider each of our operating segments to be reporting units.
−Removed: We calculate the fair value of our reporting units using the income approach, which is based on a discounted cash flow analysis and calculates the fair value of reporting units by estimating after-tax cash flows discounted using the Company’s consolidated weighted average cost of capital.
+Added: We calculate the fair value of our reporting units using the income approach based on discounted cash flows analysis whereby estimated after-tax cash flows are discounted using a weighted average cost of capital.
The cash flows used in the analysis are based on financial forecasts developed internally by management and require significant judgment.
−Removed: The significant unobservable inputs used in the fair value measurement of the reporting units are revenue growth rate, payroll expense growth rate and other store expenses growth rate.
−Removed: These assumptions are sensitive to future changes in the business profitability, changes in our business strategy and external market conditions, among other factors.
−Removed: “Business and Significant Accounting Policies” and Note 3.
+Added: Significant unobservable inputs used in the fair value measurement of the reporting units include revenue growth rates, payroll and other expense growth rates, capital expenditures and discount rates.
+Added: These assumptions are sensitive to future changes in the business profitability, changes in our business strategy, customer concentration risk and external market conditions, among other factors.
“Goodwill and Intangible Assets” to our consolidated financial statements included in Part II.
3 unchanged sentences
Significant judgments and assumptions are required in our impairment evaluations.
−Removed: In the impairment analysis for goodwill, fair value exceeded carrying value by a substantial margin for all of our reporting units.
+Added: In the impairment analysis for goodwill, fair value exceeded carrying value by at least 30% for all of our reporting units.
Future changes in reporting unit’s business profitability, expected cash flows, changes in business strategy and external market conditions, among other factors, could require us to record an impairment charge for goodwill.
−Removed: Revenue Recognition
−Removed: Product revenues include sales of prescription and non-prescription eyewear, contact lenses, related accessories to retail customers (including those covered by managed care) and sales of inventory in which our customer is another retail entity.
−Removed: Revenues from services and plans include eye exams, eyecare club membership fees, product protection plans (i.e.
−Removed: warranties), and HMO vision plan fees.
−Removed: Service revenue also includes fees we earn for managing certain Vision Centers and performing laboratory processing services for our legacy partner.
−Removed: At our America’s Best brand, our signature offer is two pairs of eyeglasses and a free eye exam for one low price.
−Removed: Since an eye exam is a key component in the ability for acceptable prescription eyewear to be delivered to a customer, we concluded that the eye exam service, while capable of being distinct from the eyeglass product delivery, was not distinct in the context of the two-pair offer.
−Removed: As a result, we do not allocate revenue to the eye exam associated with the two-pair offer, and we record all revenue associated with the offer in net product sales when the customer has received and accepted the merchandise.
−Removed: We offer product protection plans for our eyeglasses and three- or five-year eyecare club memberships in our Owned & Host segment to our contact lens customers.
−Removed: The unamortized portion of amounts we collect in advance for these services and plans are reported as deferred revenue (current and non-current portions).
−Removed: For these programs we apply the portfolio approach of recognizing revenues of contracts with similar characteristics and use estimates and assumptions that reflect the size and composition of the portfolio of contracts.
−Removed: We selected the portfolio approach because our historical club membership data demonstrate that our club customers behave similarly, such that the difference between the portfolio approach and calculating revenue of each individual contract is not material.
−Removed: We recognize revenue across the contract portfolio based on the value delivered to the customers relative to the remaining services promised under the programs.
−Removed: We determine the value delivered based on the expected timing and amount of customer usage of benefits over the terms of the contracts.
−Removed: Our retail customers generally make payments for prescription eyewear products at the time they place an order.
−Removed: Amounts we collect in advance for undelivered merchandise are reported as unearned revenue in the accompanying consolidated balance sheets.
−Removed: Unearned revenue at the end of a reporting period is estimated based on processing and delivery times throughout the current month and generally ranges from approximately seven to 10 days.
−Removed: All unearned revenue at the end of a reporting period is recognized in the next fiscal period.
−Removed: Revenue is recognized net of sales taxes and returns.
−Removed: The returns allowance is based on historical return patterns.
−Removed: Provisions for estimated returns are established and the expected costs continue to be recognized as contra-revenue when the products are sold.
−Removed: “Business and Significant Accounting Policies” and Note 7.
−Removed: “Revenue from Contracts With Customers” in our audited consolidated financial statements included in Part II.
−Removed: of this Form 10-K for additional information.
−Removed: We lease our stores, laboratories, distribution centers, and corporate offices.
−Removed: These leases generally have noncancelable lease terms of between 5 years and 10 years, with an option to renew for additional terms of 1 year to 10 years or more.
−Removed: The lease term includes renewal option periods when the renewal is deemed reasonably certain after considering the value of the leasehold improvements at the end of the noncancelable lease period.
−Removed: Most leases for our stores provide for a minimum rent and typically include escalating rent over time with the exception of Military for which lease payments are variable and based on a percentage of sales.
−Removed: For Vista Optical locations in Fred Meyer stores, we pay fixed rent plus a percentage of sales after certain minimum thresholds are achieved.
−Removed: The Company’s leases generally require us to pay insurance, real estate taxes and common area maintenance expenses, substantially all of which are variable and not included in the measurement of the lease liability.
−Removed: Our lease arrangements include tenant improvement allowances (TIAs), which are contractual amounts received or receivable from a lessor for improvements made to leased properties by the Company.
−Removed: Our lease arrangements do not contain any material residual value guarantees or material restrictive covenants.
−Removed: The Company does not consider its management & services agreement with its Legacy partner to contain a lease arrangement.
−Removed: The lease liability is measured at the present value of future lease payments over the lease term less TIAs receivable, and the ROU asset is measured at the lease liability amount, adjusted for prepaid lease payments, TIAs received and the lessee’s initial direct costs.
−Removed: As the rate implicit in the Company’s leases is not easily determinable, the Company’s incremental borrowing rate is used in calculating the present value of the sum of the lease payments.
−Removed: Factors incorporated into the calculation of the lease incremental borrowing rate include lease term, borrowing rates on the Company’s long-term debt, fixed rates on the Company’s interest rate swaps, LIBOR margins for issuers of similar credit rating to NVI and effect of collateralization.
−Removed: “Leases” to our consolidated financial statements included in Part II.
−Removed: Item 8 of this Form 10-K for additional information.
−Removed: We account for deferred income taxes based on the asset and liability method.
−Removed: The Company must make certain estimates and judgments in determining income tax expense.
−Removed: Judgment is required in determining our provision for income taxes.
−Removed: We are required to determine the aggregate amount of income tax expense to accrue and the amount which will be currently payable or refundable based upon tax statutes of each jurisdiction in which the Company does business.
−Removed: Deferred income taxes are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.
−Removed: Deferred tax assets also include future tax benefits to be derived from the utilization of tax loss carry-forwards and application of certain carry-forward credits.
−Removed: The net carrying amount of deferred income tax assets and liabilities is recorded in non-current deferred income tax liabilities in the accompanying consolidated balance sheets.
−Removed: Deferred income taxes are measured using enacted tax rates in effect for the years in which those differences are expected to be recovered or settled.
−Removed: The effect on deferred taxes from a change in the tax rate is recognized through continuing operations in the period that includes the enactment of the change.
−Removed: Changes in tax laws and rates could affect recorded deferred tax assets and liabilities in the future.
−Removed: A valuation allowance is recorded if it is more likely than not that some portion of a deferred tax asset will not be realized.
−Removed: Valuation allowances are released as positive evidence of future taxable income sufficient to realize the underlying deferred tax assets becomes available.
−Removed: We establish a liability for tax positions for which there is uncertainty as to whether the position will ultimately be sustained.
−Removed: We assess our tax positions by determining whether it is more likely than not that the position will be sustained upon examination by the appropriate taxing authorities, including resolution of any related appeals or litigation, based solely on the technical merits of the position.
−Removed: These calculations and assessments involve estimates and complex judgments because the ultimate tax outcomes are uncertain and future events are unpredictable.
+Added: A 100 basis point increase in discount rates used to estimate the fair value of the Company’s reporting units would not result in an impairment of the Company’s goodwill balance at fiscal year-end.
+Added: When evaluating indefinite-lived, non-amortizing trademarks and trade names for impairment, we use the relief-from-royalty method to estimate fair value, whereby an estimated royalty rate is determined based on comparable licensing arrangements, which is then applied to the revenue projections for the subject asset.
+Added: The estimated fair value is calculated using a discounted cash flow analysis.
+Added: We record an impairment charge as the excess of carrying value over estimated fair value.
+Added: A 100 basis point increase in discount rates used to estimate the fair value of the Company’s trademarks and trade names would not result in an impairment at fiscal year-end.
+Added: If impairment indicators related to finite-lived, amortizing intangible assets are present, we estimate cash flows expected to be generated over the remaining useful lives of the related assets based on current projections.
+Added: If the projected net undiscounted cash flows are less than the carrying value of the related assets, we then measure impairment based on a discounted cash flow model and record an impairment charge as the excess of carrying value over the estimated fair value.
+Added: We did not test any finite-lived intangible assets for impairment in fiscal year 2021.
+Added: Calculations and assessments of uncertain tax positions involve estimates and complex judgments because the ultimate tax outcomes are uncertain and future events are unpredictable.
Our net deferred liability balance as of January 1, 2022 was $82.8 million.
2 unchanged sentences
Item 8 of this Form 10-K.
−Removed: The cost of inventory is determined using the weighted average cost method.
−Removed: Inventories at retail stores are comprised of finished goods and are valued at the lower of cost or estimated net realizable value (“NRV”).
−Removed: Manufactured inventories are valued using absorption accounting, which includes material, labor, other variable costs and other applicable manufacturing overhead.
−Removed: Inventory values are adjusted for estimated obsolescence and written down to NRV based on estimates of current and anticipated demand, customer preference, merchandise age, planned promotional activities, compliance with contact lens vendor return policies, and estimates of future retail sales prices.
−Removed: Shrinkage is estimated and recorded throughout the period as a percentage of cost of sales based on historical results and current inventory levels.
+Added: Inventory shrinkage is estimated and recorded throughout the period in cost of sales based on historical results and current inventory levels.
+Added: Inventory values are adjusted for estimated obsolescence and written down to net realizable value (“NRV”) based on estimates of current and anticipated demand, customer preference, merchandise age, planned promotional activities, compliance with contact lens vendor return policies, and estimates of future retail sales prices.
Actual shrinkage is recorded throughout the year based upon periodic physical counts.
As of January 1, 2022, our total inventory balance was $123.7 million.
−Removed: Changes in our assessment of the inventory carrying value could have a material impact on our financial position.
−Removed: In May 2020, the Company issued $402.5 million principal amount of 2.50% convertible senior notes due 2025.
−Removed: In accordance with accounting guidanc e on embedded conversion features indexed to and settled in equity, t he Company valued and bifurcated the conversion option associated with the 2025 Notes from the respective host debt instrument.
−Removed: The carrying amount of the equity component is recorded as a debt discount and represents the difference between the proceeds from the issuance of the Notes and the fair value of the liability component of the Notes.
−Removed: The significant assumptions used in the fair value of the liability component of the Notes were risk-free rate, discount rate based on the Company’s implied credit spread and term of the 2025 Notes, expected volatility of Company’s stock price and dividend yield.
−Removed: The resulting debt discount on the 2025 Notes is amortized to interest expense using the effective interest rate method over the contractual term of the 2025 Notes.
−Removed: In addition, the debt issuance costs related to the issuance of the 2025 Notes were allocated between the liability and equity components based on their relative values.
−Removed: Debt issuance costs attributable to the liability component were recorded as a contra-liability and are presented net against the 2025 Notes balance on the Company’s consolidated balance sheets.
−Removed: These costs are amortized to interest expense using the effective interest method over the term of the 2025 Notes.
+Added: A 10% increase in the obsolescence and shrinkage reserves will not have a material impact on our financial position.
+Added: “Business and Significant Accounting Policies” to our consolidated financial statements included in Part II.
+Added: Item 8 of this Form 10-K.
Recently Issued Accounting Pronouncements
2 unchanged sentences
Item 8 of this Form 10-K.
−Removed: Impact of Inflation
−Removed: Our results of operations and financial condition are presented based on historical cost.
−Removed: While it is difficult to accurately measure the impact of inflation due to the imprecise nature of the estimates required, we believe the effects of inflation, if any, on our results of operations and financial condition have been immaterial.
Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.