What changed in this filing

/stocks — the workspaceLOADING

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

2022-02-28 compared with 2021-03-03 · 363 added, 439 removed, 1069 unchanged (43% of the section changed)

3 unchanged sentences

A discussion of our accounting policies for derivative financial instruments is included in Note 9.

“Fair Value Measurement of Financial Assets and Liabilities” and Note 14 “Interest Rate Derivatives” to our consolidated financial statements included in Part II.

“Fair Value Measurement” and Note 12.

“Interest Rate Derivatives” to our consolidated financial statements included in Part II.

Item 8 of this Form 10-K.

A substantial portion of our debt bears interest at variable rates.

A portion of our debt bears interest at variable rates.

If market interest rates increase, the interest rate on our variable rate debt will increase and will create higher debt service requirements, which would adversely affect our cash flow and could adversely impact our results of operations.

We also have a revolving line of credit at variable interest rates.

The general levels of LIBOR affect interest expense.

We periodically use interest rate derivative contracts to manage such risk.

For contracts that are designated, and highly effective, as cash flow hedges, the net amounts to be paid or received are accrued as interest rates change, and are recognized over the life of the contracts as an adjustment to interest expense from the underlying debt to which the contracts are designated.

For contracts that are not designated as cash flow hedges, the gains or losses from changes in fair value are recognized in interest expense, net.

The related amounts payable to, or receivable from, the contract counterparties are included in accrued liabilities or accounts receivable in the consolidated balance sheets.

As of fiscal year 2020, all of our $317.4 million of Term Loan borrowings was subject to variable interest rates, with a weighted average borrowing rate of 5.7%.

After inclusion of the notional amount of $317.0 million of interest rate swaps fixing a portion of the variable rate debt, $0.4 million, or 0.1% of our debt, is subject to variable rates.

Assuming an increase to market rates of 1.0% as of January 2, 2021, the resulting impact to interest expense related to debt subject to variable rates would be immaterial.

Assuming a decrease to market rates of 1.0%, the resulting impact to interest expense related to the interest rate collar would be approximately $11.7 million.

Our interest rate collar is intended to mitigate some of the effects of increases in interest rates.

As of fiscal year 2021, $150.0 million of term loan borrowings were subject to variable interest rates, with a weighted average borrowing rate of 2.5%.

An increase to market rates of 1.0% as of January 1, 2022 would not result in a material increase to interest expense.

Assuming a decrease to market rates of 1.0%, the resulting impact to interest expense related to the interest rate derivative would be approximately $8 million.

Consolidated Financial Statements and Supplementary Data

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets as of January 2, 2021 and December 28, 2019

Consolidated Statements of Operations and Comprehensive Income for the Fiscal Years Ended January 2, 2021 , December 28, 2019 and December 29, 2018

Consolidated Statements of Stockholders’ Equity for the Fiscal Years Ended January 2, 2021, December 28, 2019 and December 29, 2018

Consolidated Statements of Cash Flows for the Fiscal Years Ended January 2, 2021, December 28, 2019 and December 29, 2018

Report of Independent Registered Public Accounting Firm (PCAOB ID No.

Consolidated Balance Sheets as of January 1 , 202 2 and January 2, 2021

Consolidated Statements of Operations and Comprehensive Income for the Fiscal Years Ended January 1, 2022 , January 2, 2021 and December 28, 2019

Consolidated Statements of Stockholders’ Equity for the Fiscal Years Ended January 1, 2022 , January 2, 2021 and December 28, 2019

Consolidated Statements of Cash Flows for the Fiscal Years Ended January 1, 2022 , January 2, 2021 and December 28, 2019

Notes to Consolidated Financial Statements

5 unchanged sentences

We have audited the accompanying consolidated balance sheets of National Vision Holdings, Inc.

and subsidiaries (the “Company”) as of January 2, 2021 and December 28, 2019, the related consolidated statements of operations and comprehensive income, stockholders’ equity, and cash flows, for each of the three years in the period ended January 2, 2021, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of January 2, 2021 and December 28, 2019, and the results of its operations and its cash flows for each of the three years in the period ended January 2, 2021, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of January 2, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 2, 2021, expressed an unqualified opinion on the Company’s internal control over financial reporting.

and subsidiaries (the “Company”) as of January 1, 2022 and January 2, 2021, the related consolidated statements of operations and comprehensive income, stockholders’ equity, and cash flows, for each of the three years in the period ended January 1, 2022, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of January 1, 2022 and January 2, 2021, and the results of its operations and its cash flows for each of the three years in the period ended January 1, 2022, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of January 1, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 27, 2022, expressed an unqualified opinion on the Company’s internal control over financial reporting.

Change in Accounting Principle

As discussed in Note 1 to the financial statements, the Company has changed its method of accounting for leases for the year ended December 28, 2019 due to the adoption of Accounting Standards Update No.

2016-02, Leases.

As discussed in Note 1 to the financial statements, the Company has changed its method of accounting for debt with conversion options for the year ended January 1, 2022 due to the adoption of Accounting Standards Update No.

2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40):

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity .

Basis for Opinion

12 unchanged sentences

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Long-term Debt – 2025 Notes - Refer to Note 4 to the financial statements

Goodwill — Legacy Segment Reporting Unit — Refer to Notes 1 and 3 to the financial statements

Critical Audit Matter Description

In May 2020, the Company issued $402.5 million principal amount of 2.50% convertible senior notes due 2025 (the “2025 Notes”).

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.

The significant assumptions used in the fair value of the liability component of the Notes were the discount rate based on the Company’s implied credit spread and term of the 2025 Notes and the expected volatility of Company’s stock price.

Application of the accounting framework for the 2025 Notes is complex, and the determination of the fair value of the liability component requires the Company to make significant estimates and assumptions relating to the implied credit spread and expected volatility.

Therefore, performing audit procedures to evaluate the appropriateness of the

accounting framework and the reasonableness of the significant estimates and assumptions required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists.

The Company’s evaluation of goodwill for impairment involves the comparison of the fair value of each reporting unit to its carrying value.

The Company used the income approach, which is based on a discounted cash flow analysis and calculated the fair value of reporting units by estimating after-tax cash flows discounted using a weighted average cost of capital discount rate.

The determination of fair value using the discounted cash flow method requires management to make significant estimates and assumptions related to the discount rate.

Changes in these assumptions could have a significant impact on either the fair value, the amount of any goodwill impairment charge, or both.

The goodwill balance was $777.6 million as of January 1, 2022, of which $60.1 million was allocated to the Legacy Segment Reporting Unit.

The fair value of the Legacy Segment Reporting Unit exceeded its

carrying value as of the measurement date and, therefore, no impairment was recognized.

The Legacy Segment Reporting Unit’s operations are sensitive to customer concentration.

We identified goodwill for the Legacy Segment Reporting Unit as a critical audit matter because of the significant judgments made by management to estimate the fair value of the reporting unit and the difference between its fair value and carrying value.

This required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists, when performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to selection of the discount rate, specifically due to the customer concentration within the reporting unit.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the accounting for the 2025 Notes, including the Company’s judgments and calculations related to the fair value of the liability component, included the following procedures, among others:

• We tested the effectiveness of internal controls over the Company’s accounting treatment for the recording of the 2025 Notes and the internal controls over the determination of the fair value of the liability component.

• With the assistance of professionals in our firm having expertise in debt issuance accounting, we evaluated the Company’s conclusions regarding the accounting treatment applied to the recording of the 2025 Notes.

• With the assistance of our fair value specialists, we evaluated the reasonableness of the valuation methodology and the significant assumptions used to determine the fair value of the liability component, by:

◦ Testing the source information underlying the fair value of the liability component and the mathematical accuracy of the calculation.

◦ Developing an independent expectation of certain significant assumptions, including the implied credit spread and expected volatility, and comparing our independent expectation to the Company’s estimate.

Our audit procedures related to the discount rate used by management to estimate the fair value of the Legacy Segment Reporting Unit included the following, among others:

• We tested the effectiveness of controls over management’s goodwill impairment evaluation, including those over the determination of the fair value and related to management’s selection of the discount rate.

• With the assistance of our fair value specialists, we evaluated the reasonableness of the (1) valuation methodology and (2) the selected discount rate by:

– Testing the source information underlying the determination of the discount rate and the mathematical accuracy of the calculation.

– Developing a range of independent estimates and comparing those to the discount rate selected by management.

/s/ Deloitte & Touche LLP

Atlanta, Georgia

March 2, 2021

February 27, 2022

We have served as the Company’s auditor since 2002.

2 unchanged sentences

Consolidated Balance Sheets

As of January 2, 2021 and December 28, 2019

As of January 1, 2022 and January 2, 2021

In Thousands, Except Par Value

January 1, 2022 As of

December 28, 2019

January 2, 2021

Current assets:

33 unchanged sentences

200,000 shares authorized;

82,183 and 80,603 shares issued as of January 2, 2021 and December 28, 2019, respectively;

81,239 and 79,678 shares outstanding as of January 2, 2021 and December 28, 2019, respectively

83,840 and 82,183 shares issued as of January 1, 2022 and January 2, 2021, respectively;

81,405 and 81,239 shares outstanding as of January 1, 2022 and January 2, 2021, respectively

Additional paid-in capital 750,478 795,697

2 unchanged sentences

Treasury stock, at cost;

944 and 925 shares as of January 2, 2021 and December 28, 2019, respectively

2,435 and 944 shares as of January 1, 2022 and January 2, 2021, respectively

( 101,791 ) ( 28,496 )

7 unchanged sentences

Consolidated Statements of Operations and Comprehensive Income

For the Years Ended January 2, 2021, December 28, 2019 and December 29, 2018

For the Years Ended January 1, 2022, January 2, 2021 and December 28, 2019

In Thousands, Except Earnings Per Share

11 unchanged sentences

Asset impairment 4,427 22,004 8,894

Litigation settlement 4,395 — —

Other expense (income), net ( 2,505 ) ( 445 ) 3,611

2 unchanged sentences

Interest expense, net 25,612 48,327 33,300

Debt issuance costs 156 — 200

Loss on extinguishment of debt — — 9,786

13 unchanged sentences

Comprehensive income $ 130,704 $ 35,691 $ 31,794

Fiscal year 2020 includes 53 weeks.

Fiscal years 2021 and 2019 include 52 weeks.

Fiscal year 2020 includes 53 weeks.

The accompanying notes are an integral part of these consolidated financial statements.

2 unchanged sentences

Consolidated Statements of Stockholders’ Equity

For the Years Ended January 2, 2021, December 28, 2019 and December 29, 2018

For the Years Ended January 1, 2022, January 2, 2021 and December 28, 2019

Common Stock Additional

19 unchanged sentences

Purchase of treasury stock ( 19 ) — — — — ( 689 ) ( 689 )

Conversion option related to convertible senior notes, net of allocated costs and tax — — 71,385 — — — 71,385

Unrealized gain (loss) on hedge instruments, net of tax — — — ( 586 ) — — ( 586 )

Net income — — — — 36,277 — 36,277

Balances at December 28, 2019 79,678 805 700,121 ( 3,814 ) 107,132 ( 27,807 ) 776,437

Balances at January 2, 2021 81,239 821 795,697 ( 4,400 ) 142,880 ( 28,496 ) 906,502

Cumulative effect of change in accounting principle — — ( 71,385 ) — 7,271 — ( 64,114 )

Balances at December 29, 2019 - as adjusted 79,678 805 700,121 ( 3,814 ) 106,603 ( 27,807 ) 775,908

Balances at January 3, 2021 - as adjusted 81,239 821 724,312 ( 4,400 ) 150,151 ( 28,496 ) 842,388

Issuance of common stock 1,657 17 11,465 — — — 11,482

1 unchanged sentence

Purchase of treasury stock ( 1,491 ) — — — — ( 73,295 ) ( 73,295 )

Conversion option related to convertible senior notes, net of allocated costs and tax — — 71,385 — — — 71,385

Unrealized gain (loss) on hedge instruments, net of tax — — — 2,460 — — 2,460

1 unchanged sentence

Balances at January 1, 2022 81,405 $ 838 $ 750,478 $ ( 1,940 ) $ 278,395 $ ( 101,791 ) $ 925,980

Fiscal year 2020 includes 53 weeks.

Fiscal years 2021 and 2019 include 52 weeks.

Fiscal year 2020 includes 53 weeks.

The accompanying notes are an integral part of these consolidated financial statements.

2 unchanged sentences

Consolidated Statements of Cash Flows

For the Years Ended January 2, 2021, December 28, 2019 and December 29, 2018

For the Years Ended January 1, 2022, January 2, 2021 and December 28, 2019

Fiscal Year 2021 Fiscal Year 2020 Fiscal Year 2019

9 unchanged sentences

Inventory adjustments 2,481 4,852 4,352

Credit loss expense 671 8,210 7,107

Loss on extinguishment of debt — — 9,786

3 unchanged sentences

Inventories ( 14,876 ) 11,430 ( 15,886 )

Operating lease right of use assets and liabilities ( 41 ) 1,518 ( 716 )

Other assets ( 6,456 ) ( 8,096 ) 5,939

Accounts payable ( 530 ) 24,079 ( 2,860 )

Deferred revenue 2,327 5,122 3,839

Deferred and unearned revenue 6,002 6,982 5,829

Other liabilities 8,700 26,539 8,967

7 unchanged sentences

Repayments on long-term debt ( 167,375 ) ( 369,269 ) ( 591,925 )

Proceeds from exercise of stock options 13,105 14,767 19,802

Proceeds from issuance of common stock 11,838 13,105 14,767

Purchase of treasury stock ( 73,295 ) ( 689 ) ( 25,646 )

3 unchanged sentences

Net change in cash, cash equivalents and restricted cash ( 68,283 ) 334,852 22,309

Cash and cash equivalents and restricted cash, beginning of year 40,307 17,998 5,194

Cash and cash equivalents and restricted cash, end of year $ 375,159 $ 40,307 $ 17,998

Cash, cash equivalents and restricted cash, beginning of year 375,159 40,307 17,998

Cash, cash equivalents and restricted cash, end of year $ 306,876 $ 375,159 $ 40,307

Supplemental cash flow information:

Cash paid for interest $ 24,897 $ 30,786 $ 33,935

Cash paid (received) for taxes 894 684 1,447

Cash paid for taxes $ 10,428 $ 894 $ 684

Capital expenditures accrued at the end of the period $ 10,571 $ 8,455 $ 9,059

Right of use assets acquired under finance leases 1,257 9,713 14,303

Right of use assets acquired under operating leases 68,081 108,712 —

Non-cash issuance of common shares — — 446

Non-cash purchase of treasury stock — — ( 446 )

Fiscal year 2020 includes 53 weeks.

Fiscal years 2021 and 2019 include 52 weeks.

Fiscal year 2020 includes 53 weeks.

The accompanying notes are an integral part of these consolidated financial statements.

6 unchanged sentences

(“NVHI,” the “Company,” “we,” “our,” or “us”) is a holding company whose operating subsidiaries include its indirect wholly owned subsidiary, National Vision, Inc.

(“NVI”) and NVI’s wholly owned subsidiaries.

(“NVI”) and NVI’s direct wholly owned subsidiaries.

We are a leading value retailer of eyeglasses and contact lenses in the United States.

We operated 1,205 and 1,151 retail optical locations in the United States and its territories as of the fiscal years ended January 2, 2021 and December 28, 2019, respectively, through our five store brands, including America’s Best Contacts and Eyeglasses (“America’s Best”), Eyeglass World, Vista Optical locations on select U.S.

Army/Air Force military bases (“Military”) and within select Fred Meyer (“Fred Meyer”) stores, and our management & services arrangement with Walmart (“Legacy”).

We operated 1,278 and 1,205 retail optical locations in the United States and its territories as of the fiscal years ended January 1, 2022 and January 2, 2021, respectively, through our five store brands, including America’s Best Contacts and Eyeglasses (“America’s Best”), Eyeglass World, Vista Optical locations on select U.S.

Army/Air Force military bases (“Military”) and within select Fred Meyer stores, and our management & services arrangement with Walmart (“Legacy”).

We sell contact lenses and optical accessory products to retail customers through proprietary retail web sites and web sites on behalf of certain independent retailers and insurance companies.

5 unchanged sentences

in a 53-week fiscal year, each of the first, second and third quarters include 13 weeks of operations and the fourth quarter includes 14 weeks of operations.

References herein to “fiscal year 2020,” relate to the 53 weeks ended January 2, 2021, and references to “fiscal year 2019,” and “fiscal year 2018,” relate to the 52 weeks ended December 28, 2019 and December 29, 2018, respectively.

References herein to “fiscal year 2021,” and “fiscal year 2019,” relate to the 52 weeks ended January 1, 2022 and December 28, 2019, respectively, and references to “fiscal year 2020,” relate to the 53 weeks ended January 2, 2021.

Unless otherwise stated, references to years in this report relate to fiscal years rather than calendar years.

3 unchanged sentences

All intercompany balances and transactions have been eliminated in consolidation.

Certain fiscal year 2020 and fiscal year 2019 amounts within the Consolidated Statements of Cash Flows, Consolidated Statements of Operations and footnotes to the financial statements have been reclassified to conform to the fiscal year 2021 presentation.

The Company has consolidated certain entities meeting the definition of a variable interest entity (“VIE”) as the Company concluded that it is the primary beneficiary of the entities under the provisions of Accounting Standards Codification 810, Consolidation.

At January 1, 2022, the variable interest entities include 30 professional corporations.

The total assets of the consolidated VIEs included in the accompanying Consolidated Balance Sheets as of year-end 2021 and 2020, were $ 6.0 million and $ 5.9 million, respectively, and the total liabilities of the consolidated VIEs were $ 6.8 million and $ 11.4 million, respectively.

Use of Estimates

2 unchanged sentences

Actual results could differ from those estimates.

Secondary Public Offerings

During fiscal year 2018, we completed three underwritten public offerings in which KKR, Berkshire and certain management stockholders (“selling stockholders”) sold an aggregate of 42,914,852 shares of the Company’s common stock.

The Company did not receive any proceeds from the offerings.

However, the second and third offerings resulted in certain incentive compensation expenses relating to vesting of performance-based stock options and a payout under a non-executive long-term incentive plan.

Secondary Public Offerings and Share Repurchases

On August 7, 2019, the Company entered into an Underwriting Agreement by and among the Company, KKR Vision Aggregator L.P.

6 unchanged sentences

The secondary offering constituted a vesting event whereby a final portion of the performance-based options vested and the remaining portion of unvested performance options awarded under the 2014 Stock Incentive Plan was forfeited.

As a result of the offering, we incurred $ 4.2 million of non-cash stock-based compensation expense and additionally recorded $ 2.8 million in long-term cash incentive compensation expense and $ 0.4 million in offering related SG&A expenses for fiscal year end 2019.

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.

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.

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.

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.

Shares may be repurchased under the program through December 30, 2023.

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.

The Company expects to fund the share repurchases using cash on hand.

During fiscal year 2021, the Company repurchased 1.4 million shares of its common stock for $ 69.9 million under the share repurchase program.

After these repurchases, $ 130 million remains available under the share repurchase authorization.

Repurchased shares are reflected in Treasury stock on the Consolidated Balance Sheets.

Related Party Transactions

During fiscal year 2019, KKR Capital Markets LLC acted as a lead arranger with respect to debt issuance and refinancing transactions, and received $ 1.0 million in fees, in connection therewith.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was enacted in response to the COVID-19 pandemic.

6 unchanged sentences

The Company recognizes government grants for which there is a reasonable assurance of compliance with grant conditions and receipt of credits.

We believe there is a reasonable assurance that the Company will comply with the relevant conditions of the employee retention credit provision of the CARES Act, and that we will receive the credits for which we have applied.

We elected to offset credits recognized under the CARES against payroll taxes that would otherwise be payable.

We will continue to assess our treatment of the CARES Act to the extent additional guidance and regulations are issued, the further applicability of the CARES Act to the Company, and the potential impacts on our business.

In addition to the CARES Act, the Consolidated Appropriations Act, 2021, H.R.

13 unchanged sentences

Accounts receivable are written off after all collection attempts have been exhausted.

Credit loss expense recognized on our receivables, which is presented in SG&A expenses in the Company’s consolidated statements of operations, were approximately $ 0.7 million, $ 8.2 million and $ 7.1 million for the fiscal years 2020, 2019 and 2018, respectively.

See Note 7 “Revenues from Contracts with Customers” for further details on the allowance for expected credit losses.

Credit loss expense recognized on our receivables, which is presented in SG&A expenses in the Company’s Consolidated Statements of Operations, was approximately $ 0.8 million, $ 0.7 million and $ 8.2 million for the fiscal years 2021, 2020 and 2019, respectively.

The cost of inventory is determined using the weighted average cost method.

2 unchanged sentences

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, contact lens vendor return acceptance activity, and estimates of future retail sales prices.

Shrinkage is estimated and recorded throughout the period as a percentage of cost of sales based on historical results and current inventory levels.

Shrinkage is estimated and recorded throughout the period in cost of sales based on historical results and current inventory levels.

Actual shrinkage is recorded throughout the year based upon periodic physical counts.

16 unchanged sentences

Leasehold improvements (b)

P&E under capital leases (b)

P&E under finance leases (b)

(a) Costs of developing or obtaining software for internal use, such as direct costs of materials or services and internal payroll costs related to the software development projects, are capitalized to information technology hardware and software.

4 unchanged sentences

we evaluate these assets annually for impairment, or more frequently if events and circumstances indicate that it is more likely than not that goodwill is impaired.

Our annual testing date for impairment of goodwill and indefinite-lived intangible assets is the first day of the fourth fiscal quarter, which for fiscal years 2020 and 2019 was September 27, 2020, and September 29, 2019, respectively.

Our annual testing date for impairment of goodwill and indefinite-lived intangible assets is the first day of the fourth fiscal quarter, which for fiscal years 2021 and 2020 was October 3, 2021, and September 27, 2020, respectively.

Costs to renew intangible assets are expensed as incurred.

Finite-lived, amortizing intangible assets primarily consist of our contracts and relationships with certain retailers and our customer database tool.

1 unchanged sentence

Amortization expense associated with finite-lived intangible assets is included in Depreciation and amortization in the accompanying Consolidated Statements of Operations.

Goodwill is impaired if a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying value of goodwill.

Goodwill is impaired if a reporting unit’s carrying value exceeds its fair value, and impairment is calculated as the excess between carrying value over fair value.

We consider each of our operating segments to be reporting units.

5 unchanged sentences

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.

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.

We use the relief-from-royalty method to estimate fair value of our trademarks and tradenames, which involves estimating a royalty rate based on comparable licensing arrangements, applying that rate to the revenue projections for the subject asset, and then estimating fair value using a discounted cash flow analysis.

2 unchanged sentences

Equity Method Investment

The Company has an investment in a private start-up company whose principal business is licensing software to eyeglass retailers.

The carrying value of our equity method investment is $ 0 as of the end of the fiscal year 2020.

“Equity in Net Assets of Non-Consolidated Investee,” for further discussion relating to this investment.

Fair Value Measurement of Assets and Liabilities (Non-Recurring Basis)

The Company previously had an investment in a private start-up company whose principal business is licensing software to eyeglass retailers.

During fiscal year 2021, the Company’s equity method investee was acquired by a third party and in connection therewith the Company sold all of its ownership interests and received $ 2.4 million upon the consummation of the sale.

These proceeds were included in Other in the investing section of the Consolidated Statements of Cash Flows for fiscal year 2021.

As a result of this transaction, and as the carrying value of the investment was zero , the Company recorded a gain on sale of equity method investment of $ 2.4 million in Other expense (income), net on the Consolidated Statements of Operations for fiscal year 2021.

In connection with the transaction, the Company is a party to an earnout agreement whereby we may be entitled to variable earnout payments based upon the achievement by the investee of certain performance metrics over a one year period.

The Company will recognize income for payments received under the earnout once they are realized or realizable.

Fair Value Measurement of Assets and Liabilities

The Company accounts for certain assets and liabilities at fair value.

The Company generally uses a market approach, when practicable, in valuing financial instruments.

For certain assets the Company may also use a valuation technique consistent with the income approach whereby future cash flows are converted to a single discounted amount.

The carrying value of the Company’s cash equivalents and restricted cash, accounts receivables, accounts payable and other payables and accrued expenses, approximate fair value due to their short-term nature.

Non-financial assets such as P&E, ROU assets and intangible assets are subject to nonrecurring fair value measurements if impairment indicators are present.

Factors we consider important that could trigger an impairment review include a significant under-performance compared to expected operating results, a significant or adverse change in customer business climate, and a significant negative industry or economic trend.

Refer to “Long-lived Asset Impairment” section below and Note 9.

“Fair Value Measurement” for the Company’s recurring and non-recurring fair value measurements.

Deferred Financing Costs and Loan Discounts

Costs incurred in connection with long-term debt which are paid directly to the Company’s lenders and to third parties are presented as reductions to our long-term debt balance, except for the costs related to our revolving credit facility (the “Revolving Credit Facility”) which are presented as assets.

These costs are amortized over the term of the related financing agreement and included in interest expense in the accompanying consolidated statements of operations.

These costs are amortized over the term of the related financing agreement and included in Interest expense, net in the accompanying Consolidated Statements of Operations.

Self-Insurance Liabilities

3 unchanged sentences

We periodically update our estimates and record such adjustments in the period in which such determination is made.

Self-insurance liabilities are recorded in Other payables and accrued expenses (current portion) and Other liabilities (non-current portion) on an undiscounted basis in the accompanying consolidated balance sheets.

Self-insurance liabilities are recorded on an undiscounted basis in the accompanying Consolidated Balance Sheets.

Refer to the following table and Note 2.

“Details of Certain Balance Sheet Accounts” for further details.

We reinsure worker’s compensation and medical claims above our retention levels with a highly rated financial institution that can be expected to fully perform under the terms of the arrangement.

Estimated recoveries from reinsurance in the amount of $ 1.1 million (current portion) are included in Prepaid expenses and other current assets for both fiscal year end 2020 and fiscal year end 2019, and Other assets in the amounts of $ 2.3 million and $ 2.4 million (non-current portion) as of fiscal year end 2020 and fiscal year end 2019, respectively, in the accompanying consolidated balance sheets.

The accrued obligation for self-insurance programs was $ 8.7 million and $ 8.4 million (current portion) and $ 7.0 million and $ 7.3 million (non-current portion) as of fiscal year end 2020 and fiscal year end 2019, respectively.

Estimated recoveries from reinsurance as of fiscal year end 2021 and 2020 are shown in the following table.

In thousands Balance Sheet Classification As of

January 1, 2022 As of

January 2, 2021

Current portion Prepaid Expenses and Other Current Assets $ 964 $ 1,139

Non-current portion Other Assets 1,956 2,313

Total estimated recoveries from reinsurance $ 2,920 $ 3,452

Derivative Financial Instruments

The Company uses interest rate derivatives to manage the exposure of its LIBOR-based debt to fluctuations in interest rates.

We designate certain of our interest rate derivatives as cash flow hedges and formally document our hedge relationships, including identification of the hedging instruments and the hedged items, as well as our risk management objectives and strategies for undertaking the hedge transactions.

If our derivatives are designated as cash flow hedges, we formally document our hedge relationships, including identification of the hedging instruments and the hedged items, as well as our risk management objectives and strategies for undertaking the hedge transactions.

We record all interest rate derivatives in our Consolidated Balance Sheets on a gross basis at fair value.

Fair value represents estimated amounts we would receive or pay upon a termination of interest rate derivatives prior to their scheduled expiration dates.

The fair value was based on information that is model-driven and whose inputs were observable (Level 2 inputs).

The fair value was based on information that is model-driven and whose inputs were observable (Level 2 inputs) such as LIBOR forward rates.

We do not hold or enter into financial instruments for trading or speculative purposes.

1 unchanged sentence

The gain or loss resulting from fair value adjustments of derivatives not deemed to be highly effective cash flow hedges is recognized in interest expense immediately.

We perform periodic assessments of the effectiveness of our derivative contracts designated as hedges, including the possibility of counterparty default.

We perform periodic assessments of the effectiveness of our derivative contracts designated as hedges.

To manage credit risk associated with our interest rate hedging program, we select as counterparties major financial institutions with investment grade credit ratings.

4 unchanged sentences

AOCL is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources.

Accumulated other comprehensive loss, net of income tax, is entirely composed of the cumulative unrealized loss on our hedging instruments.

Accumulated other comprehensive loss, net of income tax, is entirely composed of the cumulative unrealized loss on our previously effective hedging instruments.

“Accumulated Other Comprehensive Loss” for details of reclassifications out of AOCL.

Revenue Recognition

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.

Revenues from services and plans include eye exams, eyecare club membership fees, product protection plans (i.e.

Net product sales include sales of prescription and non-prescription eyewear, contact lenses and related accessories to retail customers (including those covered by managed care) and sales of inventory in which our customer is another retail entity.

Net sales of services and plans include sales of eye exams, eye care club membership fees, product protection plans (i.e.

warranties) and HMO vision plan fees.

Service revenue also includes fees we earn for managing certain Vision Centers and performing laboratory processing services for our legacy partner.

Net sales of services and plans also include fees we earn for managing certain Vision Centers located in Walmart stores and performing laboratory processing services for our Legacy partner.

At our America’s Best brand, our signature offer is two pairs of eyeglasses and a free eye exam for one low price (“two-pair offer”).

11 unchanged sentences

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.

we reduced our net revenue for variable considerations of $ 7.5 million during the fiscal year 2020.

We reduced our net revenue for variable considerations of $ 10.2 million and $ 7.5 million during the fiscal years 2021 and 2020, respectively.

Refer to Note 7.

3 unchanged sentences

Costs of products sold include (i) costs to procure non-prescription eyewear, contacts and accessories which we purchase and sell in their 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.

Costs of services and plans include costs associated with warranty programs, eyecare club memberships, HMO vision plan fees, eyecare practitioner and eye exam technician payroll, taxes and benefits and optometric and other service costs.

Costs of services and plans include costs associated with warranty programs, eye care club memberships, HMO vision plan fees, eye care practitioner and eye exam technician payroll, taxes and benefits and optometric and other service costs.

Depreciation and amortization are excluded from costs applicable to revenue and are presented separately on the accompanying Consolidated Statements of Operations.

As a component of the Company’s procurement program, the Company frequently enters into contracts with its vendors that provide for payments of rebates or other allowances.

These vendor payments are reflected in the carrying value of the inventory when earned or as progress is made toward earning the rebate or allowance and as a component of cost of products as the inventory is sold.

Rebates that have been earned but not yet received are recognized as an increase to Accounts receivable, net or a reduction to Accounts payable, depending on the nature of the agreement with the vendor, until the rebate has been received.

These vendor payments are reflected when earned or as progress is made toward earning the rebate or allowance and, depending on the terms of the agreement with the vendor, are treated either as a reduction of the carrying value of the inventory and a resultant reduction of cost of products.

Selling, General and Administrative

3 unchanged sentences

Non-capital expenditures associated with opening new stores, including rent, marketing expenses, travel and relocation costs, and training costs, are recorded in SG&A as incurred.

Certain vendor contracts provide for marketing co-op allowances, such allowances are reflected when earned or as progress is made toward earning the allowance and are treated as a reduction of SG&A.

Advertising expenses were $ 149.6 million, $ 86.5 million and $ 113.3 million for fiscal years 2021, 2020 and 2019, respectively.

We lease our stores, laboratories, distribution centers, and corporate offices.

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.

We lease our stores, distribution centers, corporate offices, and most of our laboratories.

These leases generally have noncancelable lease terms of between five and 10 years, with an option to renew for additional terms of one to 10 years or more.

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.

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.

For Vista Optical locations in Fred Meyer stores, we pay fixed rent plus a percentage of sales after certain minimum thresholds are achieved.

For Vista Optical locations in Fred Meyer stores, we pay the greater of fixed rent or a percentage of sales after certain minimum thresholds are achieved.

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.

Our lease arrangements frequently include tenant improvement allowances (TIAs), which are contractual amounts received or receivable from a lessor for improvements made to leased properties by the Company.

For operating leases, TIAs are treated as a reduction of the lease payments used to measure the ROU assets in the accompanying Consolidated Balance Sheet as of fiscal year 2021 and are amortized as a reduction in rental expense over the life of the respective leases.

Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

2 unchanged sentences

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.

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.

For finance leases, a lease ROU asset is recorded as property and equipment and corresponding amounts are recorded as finance lease debt obligations at an amount equal 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 2018 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 2018.

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 interest rate swaps, LIBOR margins for issuers of similar credit rating to NVI and effect of collateralization.

For finance leases, a lease ROU asset is recorded as property and equipment and corresponding amounts are recorded as finance lease debt obligations at the net present value of the minimum lease payments to be made over the lease term for new finance leases.

Stock-Based Compensation

We measure stock-based compensation cost, which consists of grants of stock options, restricted stock units (“RSUs”), performance stock units (“PSUs”), performance stock options and restricted stock awards (“RSAs”) to associates and non-associate directors, based on the estimated grant date fair value of the awards.

We recognize compensation expense for all awards over the requisite service period using a straight-line recognition method.

Additionally, for awards that are subject to performance conditions, we recognize compensation expense once achievement of the conditions is considered to be probable.

We measure stock-based compensation cost, which consists of grants of stock options, restricted stock units (“RSUs”), performance stock units (“PSUs”), and restricted stock awards (“RSAs”) to associates and non-associate directors, based on the estimated grant date fair value of the awards.

We recognize compensation expense for all awards containing only a service requirement over the requisite service period using a straight-line recognition method.

Our PSUs contain both a service requirement and a performance requirement.

We recognize expense for the proportionate share of the total fair value of PSUs related to the vesting period that has already lapsed for the shares expected to vest, which expectation is based on an evaluation of expected performance against predefined performance criteria and may also result in reversals of expense.

The remaining fair value of the shares expected to vest is expensed on a straight-line basis over the balance of the vesting period.

We account for forfeitures as they occur.

1 unchanged sentence

Long-lived Asset Impairment

We evaluate impairment of long-lived tangible and right of use (“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 values of such assets may not be recoverable.

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.

Non-financial assets such as P&E, right of use (“ROU”) assets and intangible assets are subject to nonrecurring fair value measurements if impairment indicators are present.

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 values of such assets may not be recoverable.

In making this evaluation, we may consider multiple factors including financial performance of the stores, regional and local business climates, industry or economic trends, future plans for the store operations and other qualitative factors.

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 related to forecasted store revenue growth rates and store profitability.

The cash flows used in estimating fair value were discounted using market rates from 6.3 % to 8 %.

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.

We consider market-based indications of prevailing rental rates for retail space, market participant discount rates, and lease incentives when estimating the fair values of ROU assets.

A decrease in the estimated cash flows would lead to a lower fair value measurement, as would an increase in the discount rate.

These non-recurring fair value measurements are classified as Level 3 measurements in the fair value hierarchy.

We recognized impairments of $ 22.0 million, $ 8.9 million and $ 2.5 million in fiscal years 2020, 2019 and 2018, respectively.

These impairment charges were primarily related to our long-lived tangible store assets classified as held and used, and were primarily driven by lower than projected customer sales volume in certain stores;

we also considered the historical performance of the stores before the temporary store closures in response to the COVID-19 pandemic, 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.

The estimated remaining fair value of the assets impaired during fiscal year 2020 was $ 30.6 million and the estimated remaining fair value of the assets impaired during fiscal year 2019 was $ 16.6 million;

the estimated remaining fair values include amounts estimated at various dates during the related fiscal years.

Substantially all of the remaining fair value of the impaired store assets in fiscal year 2020 represent the fair value of ROU assets.

We assess non-store long-lived assets, including 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.

The asset impairments recognized in fiscal year 2020 includes $ 1.1 million related to a write-off of certain capitalized software costs that were deemed to be obsolete due to a decision to cease further development.

During fiscal years 2019 and 2018 there was no impairment of non-store long-lived assets or capitalized software costs.

The asset impairments recognized in fiscal years 2021 and 2020 include $ 0.8 million and $ 1.1 million, respectively, related to a write-off of certain capitalized software costs that were deemed to be obsolete due to a decision to cease further development.

During fiscal year 2019 there was no impairment of non-store long-lived assets or capitalized software costs.

We account for deferred income taxes based on the asset and liability method.

24 unchanged sentences

Upon adoption, we recorded operating lease liabilities of approximately $ 339.6 million as of December 30, 2018.

The Company treated TIAs and deferred rent of $ 24.3 million and $ 11.9 million, respectively, as of December 30,

2018 as reductions of lease payments and prepaid rent of $ 5.8 million as of December 30, 2018 as an increase in lease payments used to measure ROU assets and recorded $ 308.5 million of lease ROU assets upon adoption.

The Company treated TIAs and deferred rent of $ 24.3 million and $ 11.9 million, respectively, as of December 30, 2018 as reductions of lease payments and prepaid rent of $ 5.8 million as of December 30, 2018 as an increase in lease payments used to measure ROU assets and recorded $ 308.5 million of lease ROU assets upon adoption.

The difference between the additional lease assets and lease liabilities net of the deferred tax impact was $ 0.5 million, which was recorded as an adjustment to fiscal year 2019 opening retained earnings.

24 unchanged sentences

2016-13 as of December 29, 2019 (the first day of fiscal year 2020), using the modified retrospective approach without adjusting the comparative periods presented.

Upon adoption, the Company recorded a $ 0.7 million increase to the allowance for credit losses as a result of increases in our allowance for credit losses of notes receivable.

Refer to Note 11.

“Equity in Assets of Non-Consolidated Investee” for more information on our non-consolidated investee’s secured convertible promissory note.

Upon adoption, the Company recorded a $ 0.7 million increase to the allowance for credit losses related to a note receivable from our former equity method investee.

After adjusting for deferred taxes, we recorded a $ 0.5 million decrease in Retained earnings through a cumulative-effect adjustment.

Adoption of this new guidance did not have a material impact on the Company’s financial condition, results of operations or cash flows.

Convertible Instruments and Contracts in an Entity’s Own Equity.

In August 2020, the FASB issued ASU No.

2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40):

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”).

This new guidance simplifies and adds disclosure requirements for the accounting and measurement of convertible instruments and the settlement assessment for contracts in an entity’s own equity.

The guidance also requires the application of the if-converted method to calculate the impact of convertible instruments on diluted earnings per share.

ASU 2020-06 is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2021.

The company early adopted the guidance in the first quarter of 2021 using the modified retrospective approach and recognized a cumulative effect of the change of $ 7.3 million as an adjustment to the opening balance of retained earnings.

Upon adoption of ASU 2020-06 the Company eliminated the equity components related to its convertible debt and increased the related liability components by $ 82.9 million.

In addition, as a result of the adoption, our deferred tax liabilities decreased by $ 18.8 million and additional paid-in capital decreased by $ 71.4 million.

The following table summarizes the impact of adoption on the Company’s Consolidated Statement of Operations for fiscal year 2021:

Fiscal Year 2021

In thousands (except earnings per share) With ASU 2020-06 Adoption Without ASU 2020-06 Adoption (1)

Impact of Adoption (2)

Income from operations $ 174,937 $ 174,937 $ —

Interest expense, net 25,612 41,635 ( 16,023 )

Earnings before income taxes 149,325 133,302 16,023

Income tax provision 21,081 17,482 3,599

Net income $ 128,244 $ 115,820 $ 12,424

Weighted average shares outstanding for basic EPS 81,820 81,820 —

Weighted average shares outstanding for diluted EPS 96,134 83,222 12,912

Earnings per share:

Basic $ 1.57 $ 1.42 $ 0.15

Diluted $ 1.43 $ 1.39 $ 0.04

(1)Antidilutive shares are excluded from the computation of weighted average shares outstanding for diluted EPS.

The 2025 Notes would have been antidilutive for the fiscal year ended 2021 without the adoption of ASU 2020-06 and are, therefore, excluded from the computation of diluted EPS.

(2) Impact of adoption on basic earnings per share is calculated using impact on net income divided by basic weighted average shares outstanding during the period.

Future Adoption of Accounting Pronouncements

5 unchanged sentences

A substantial portion of our debt is subject to interest payments that are indexed to LIBOR;

additionally, we are party to multiple interest rate derivatives based on LIBOR.

additionally, we are party to an interest rate derivative based on LIBOR.

We are currently evaluating the effect of this guidance and have not applied the provisions of this guidance during the current fiscal year.

Convertible Instruments and Contracts in an Entity’s Own Equity.

In August 2020, the FASB issued ASU No.

2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40):

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”).

This new guidance simplifies and adds disclosure requirements for the accounting and measurement of convertible instruments and the settlement assessment for contracts in an entity’s own equity.

The guidance also requires the application of the if-converted method to calculate the impact of convertible instruments on diluted earnings per share.

ASU 2020-06 is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2021, with early adoption possible for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2020.

We plan to early adopt the accounting standard in the first quarter of 2021.

Upon adoption we expect this guidance to result in a reclassification of conversion feature balances from additional paid-in capital to debt and to decrease reported non-cash interest expense for the convertible senior notes (the “2025 Notes”).

We currently expect the net impact of the reclassification will be an increase to long term debt of approximately $ 83 million, a decrease to deferred tax liabilities of approximately $ 19 million, a decrease to additional paid-in capital of $ 71 million and an increase to retained earnings of approximately $ 7 million on the consolidated balance sheet as of January 3, 2021.

We also expect incremental reductions to interest expense in post-adoption periods compared pre-adoption periods.

Ultimate decisions regarding the timing of adoption, as well as the quantification of the effects of adoption on the financial statements, are subject to further evaluation.

Details of Certain Balance Sheet Accounts

The following table provides a reconciliation of Cash and cash equivalents reported within the Consolidated Balance Sheets to the total of Cash, cash equivalents and restricted cash shown in the Consolidated Statement of Cash Flows:

In thousands Fiscal Year 2021 Fiscal Year 2020 Fiscal Year 2019

Cash, cash equivalents and restricted cash:

Cash and cash equivalents $ 305,800 $ 373,903 $ 39,342

Restricted cash included in other assets 1,076 1,256 965

$ 306,876 $ 375,159 $ 40,307

In thousands As of

January 1, 2022 As of

December 28, 2019

January 2, 2021

Accounts receivable, net:

6 unchanged sentences

January 1, 2022 As of

December 28, 2019

January 2, 2021

Raw materials and work in process (1)

5 unchanged sentences

January 1, 2022 As of

December 28, 2019

January 2, 2021

Property and equipment, net:

11 unchanged sentences

January 1, 2022 As of

December 28, 2019

January 2, 2021

Other payables and accrued expenses:

12 unchanged sentences

$ 119,323 $ 110,309

(1) Includes CARES Act deferred employer payroll taxes in the amount of $ 12.8 million as of January 2, 2021.

(1) Includes CARES Act deferred employer payroll taxes in the amount of $ 0.0 million and $ 12.8 million as of January 1, 2022 and January 2, 2021, respectively.

In thousands As of

January 1, 2022 As of

December 28, 2019

January 2, 2021

Other non-current liabilities:

4 unchanged sentences

Goodwill and Intangible Assets

During fiscal year 2018, as a result of our annual goodwill impairment test, we fully impaired the remaining carrying value of goodwill at Fred Meyer and Military of $ 11.4 million and $ 3.7 million, respectively.

Management lowered the revenue growth rate assumptions at Fred Meyer and Military resulting in the fair values at these reporting units to be lower than their carrying values.

The lower revenue growth rate assumptions at Fred Meyer and Military were primarily the result of recent sales underperformance resulting from decreases in projected customer transaction volume.

The gross carrying amount and accumulated impairment of the Company’s goodwill balances for 2021 and 2020 are as follows:

January 1, 2022 As of

December 28, 2019

January 2, 2021

In thousands Gross Carrying

6 unchanged sentences

$ 805,077 $ ( 27,464 ) $ 805,077 $ ( 27,464 )

Besides the goodwill impairments noted above, no other intangible asset impairment was identified during fiscal years 2020, 2019 and 2018.

Accumulated goodwill impairment relates to our Fred Meyer, Military and AC Lens reporting units.

Indefinite-lived intangible assets by major asset class are as follows:

1 unchanged sentence

January 1, 2022 As of

December 28, 2019

January 2, 2021

Trademarks and trade names:

5 unchanged sentences

Finite-lived, amortizing intangible assets by major asset class are as follows:

As of January 2, 2021 As of December 28, 2019

As of January 1, 2022 As of January 2, 2021

In thousands Gross Carrying

13 unchanged sentences

“Segment Reporting” for more information.

Our current agreement with Fred Meyer expires on December 31, 2021;

we intend to maintain our intangible assets and renewals will take place as needed.

We are in the process of renewing our agreement with Fred Meyer and intend to maintain our intangible assets.

Aggregate amortization expense is included in Depreciation and amortization in the accompanying Consolidated Statements of Operations.

6 unchanged sentences

January 1, 2022 As of

December 28, 2019

January 2, 2021

2025 Notes, due May 15, 2025 $ 402,500 $ 402,500

13 unchanged sentences

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”).

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 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.

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 %.

We received proceeds from the offering of $ 390.9 million, net of $ 11.6 million in underwriter fees and other issuance costs.

We used $ 294.3 million of the net proceeds from the offering to repay all outstanding amounts under the revolving credit facility and $ 75.0 million to partially repay the first lien term loan in an aggregate principal amount of $ 420.0 million (the “term loan”).

We intend to use the remainder of the net proceeds for general corporate purposes.

Prior to February 15, 2025, the 2025 Notes will be convertible at the option of the holder only under the following circumstances:

The remainder of the net proceeds are being used for general corporate purposes.

Prior to February 15, 2025, the 2025 Notes are convertible at the option of the holder only under the following circumstances:

(i) during any calendar quarter commencing after the calendar quarter ending on September 30, 2020 (and only during such calendar quarter), if the Last Reported Sale Price (as defined in the Indenture) per share of the Company’s common stock exceeds 130 % of the Conversion Price (as defined in the Indenture) for each of at least 20 Trading Days (as defined in the Indenture), whether or not consecutive, during the 30 consecutive Trading Days ending on, and including, the last Trading Day of the immediately preceding calendar quarter;

3 unchanged sentences

On or after February 15, 2025 until 5:00 p.m., New York City time, on the second Scheduled Trading Day (as defined in the Indenture) immediately before the maturity date, the 2025 Notes will be convertible at the option of the holder at any time.

The 2025 Notes will initially be convertible at a conversion rate of 32.0783 shares of common stock per $ 1,000 principal amount of 2025 Notes, which is equivalent to an initial conversion price of approximately $ 31.17 per share

of common stock.

The conversion rate is subject to adjustment upon certain events.

The 2025 Notes are initially convertible at a conversion rate of 32.0783 shares of common stock per $1,000 principal amount of 2025 Notes, which is equivalent to an initial conversion price of approximately $ 31.17 per share of common stock.

The conversion rate will be subject to adjustment upon the occurrence of certain specified events including, but not limited to:

issuance of stock dividends, splits and combinations;

distribution of rights, options and

spin-offs and other distributed property;

cash dividends or distributions;

tender offers or exchange offers;

and certain other corporate transactions.

The Company can choose to settle upon conversion in cash, shares or a combination.

1 unchanged sentence

As of January 1, 2022, the 2025 Notes can be converted by holders based on condition (i) above.

The “if-converted value” exceeded the principal amount of the 2025 Notes by $ 182.3 million.

“Earnings Per Share” for the treatment of earnings per share in relation to the 2025 Notes.

In accordance with accounting guidance on embedded conversion features indexed to and settled in equity, the Company valued and bifurcated the conversion option associated with the 2025 Notes from the respective host debt instrument, which is referred to as debt discount, and initially recorded the post-tax conversion option of $ 73.5 million ($ 95.2 million pre-tax) for the 2025 Notes in stockholders’ equity.

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.

The Company allocated post-tax debt issuance costs of $ 2.2 million ($ 2.7 million pre-tax) to the equity component and the remaining debt issuance costs of $ 8.9 million are amortized to interest expense under the effective interest rate method at 9.1 % over the contractual term of the 2025 Notes.

We recognized $ 17.3 million in interest expense for the interest coupon and amortization of debt discount and issuance costs during fiscal 2020.

As of January 2, 2021, the remaining period for the unamortized debt discount balance was approximately four and a half years.

The holders of our term loan would have preference over the holders of the 2025 Notes in the event of a liquidation.

The Company adopted ASU 2020-06 as of January 3, 2021.

ASU 2020-06 eliminates the cash conversion and the beneficial conversion feature models.

Under the new convertible debt framework, the Company eliminated the equity components and increased the debt balance.

Refer to Note 1.

“Description of Business and Basis of Presentation” for further discussion of the adoption of ASU 2020-06.

As a result of adopting ASU 2020-06, our effective interest rate decreased from 9.1 % as of January 2, 2021 to 3.2 % starting in the first quarter of 2021.

We recognized interest expense for the interest coupon and amortization of issuance costs of $ 10.1 million and $ 2.2 million during fiscal 2021, respectively, and $ 6.4 million and $ 10.9 million during fiscal 2020, respectively.

As of January 1, 2022, the remaining period for the unamortized debt issuance costs balance was approximately three years .

Credit Agreement

On July 18, 2019, the credit agreement, dated as of October 9, 2018 (the “Existing Credit Agreement”) was amended and restated to establish a new Term Loan of $ 420.0 million to repay all principal, interest fees and other amounts outstanding under the Existing Credit Agreement immediately and establish a new Revolving Credit Facility in an aggregate principal amount of $ 300.0 million, including a $ 20.0 million letter of credit sublimit.

On July 18, 2019, our credit agreement, dated as of October 9, 2018 was amended and restated to establish a new first lien term loan of $ 420.0 million to repay all principal, interest fees and other amounts outstanding before the amendment and establish a new revolving credit facility in an aggregate principal amount of $ 300.0 million, including a $ 20.0 million letter of credit sublimit.

In connection with the principal repayments of our existing debt, the Company wrote off associated deferred debt issuance costs of $ 6.0 million and associated unamortized debt discount of $ 3.8 million, in the third quarter of 2019.

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 revolving credit facility.

On May 5, 2020, certain of the Company’s subsidiaries entered into an agreement (the “Credit Agreement Amendment”) with the lenders to amend certain provisions of the Amended and Restated Credit Agreement, dated as of July 18, 2019 (as amended by the Credit Agreement Amendment, the “Credit Agreement”), by and among Nautilus Acquisition Holdings, Inc.

(“Holdings”), National Vision, Inc.

(“NVI”), the other subsidiaries of the Company party thereto, as guarantors, each lender party thereto and Bank of America, N.A., in its capacity as administrative agent and as collateral agent.

Capitalized terms used but not defined herein shall have the meanings assigned to such terms in the Credit Agreement and Amendment, as applicable.

This Credit Agreement Amendment is intended 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.

As set forth in greater detail below, the Amendment suspends certain financial maintenance covenants contained in the Credit Agreement until testing at the end of the second fiscal quarter of 2021.

Based on our current plans and management operational assumptions, we anticipate we will be in compliance with these amended covenants.

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.

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.

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 .

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).

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 .

On May 12, 2020, we fully repaid the $ 294.3 million outstanding under our Revolving Credit Facility and partially repaid $ 75 million on the Term Loan.

As a result of the repayments made in 2020 and the $ 25.0 million principal prepayment in 2019, the Company has no additional mandatory principal payments on the Term Loan until maturity on July 18, 2024 and no amounts outstanding under the Revolving Credit Facility.

On May 5, 2020, we entered into an agreement with the lenders to amend certain provisions of our credit agreement.

This amendment was intended 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.

The amendment suspended certain financial maintenance covenants contained in our credit agreement until testing at the end of the second fiscal quarter of 2021.

Capitalized terms used but not defined herein shall have the meanings assigned to such terms in our credit agreement.

During the second quarter of 2021, the Company amended its credit agreement to, among other things, add customary LIBOR replacement provisions, modify the applicable margins used to calculate the rate of interest payable on the first lien term loans thereunder to a range of 1.25 % to 2.00 % for LIBOR Loans and a range of 0.25 % to 1.00 % for ABR Loans, modify certain financial covenants related to maximum leverage and minimum interest coverage and remove the LIBOR floor, such that LIBOR shall be deemed to be no less than 0.00 % per annum (instead of 1.00 % per annum previously in effect).

Pursuant to our credit agreement, the Company will not permit (i) the Consolidated Total Debt to Consolidated EBITDA Ratio to be negative or greater than (x) 4.50 to 1.00 with respect to the last day of the Company’s second and third fiscal quarters of 2021 and (y) 4.25 to 1.00 from and after the last day of the Company’s fourth fiscal quarter of 2021, subject to certain step-ups after the consummation of a Material Acquisition, or (ii) the Consolidated Interest Coverage Ratio of the Company as of the last day of any fiscal quarter of the Company to be less than 3.00 to 1.00.

The amendment 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.

We were in compliance with all covenants related to our long-term debt as of January 1, 2022.

During the third quarter of 2019, we partially prepaid $ 25.0 million on the term loan.

On May 12, 2020, we fully prepaid the $ 294.3 million outstanding under our revolving credit facility and partially prepaid $ 75.0 million on the term loan.

During the second quarter of 2021, the Company partially prepaid $ 117.4 million of term loan principal and wrote off associated deferred debt issuance costs of $ 0.7 million.

During the fourth quarter of 2021, the Company partially prepaid $ 50.0 million of term loan principal and wrote off associated deferred debt issuance costs of $ 0.3 million.

As a result of the prepayments made in fiscal years 2019, 2020, and 2021, the Company has no additional mandatory principal payments on the term loan until maturity on July 18, 2024 and no amounts outstanding under the revolving credit facility.

The borrowing capacity remaining as of January 1, 2022 was $ 293.6 million due to a reduction of $ 6.4 million for letters of credit outstanding.

As a result of the repayment of the outstanding balance on our revolving credit facility, the Company reclassified a proportionate share of unamortized debt issuance costs to Other assets.

The Credit Agreement Amendment 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.

We were in compliance with all covenants related to our long-term debt as of January 2, 2021.

Scheduled annual maturities of debt are as follows:

11 unchanged sentences

There were 10,988,827 stock options authorized for issuance pursuant to the 2014 Stock Incentive Plan.

All awards under these plans have a contractual life of 10 years.

All stock awards under these plans vest through continued service.

All options under these plans have a contractual life of 10 years.

The Company also provides associates the opportunity to purchase Company common shares through the Associate Stock Purchase Plan (the “ASPP”), which the Company’s Board of Directors adopted and its stockholders approved on June 6, 2018.

The ASPP provides that up to 850,000 shares of common stock, at par value of $ 0.01 per share, may be offered and issued under the ASPP.

The following table summarizes stock compensation expense under the Company’s plans, which is included in SG&A in the accompanying statements of operations:

The following table summarizes stock compensation expense under the Company’s plans, which is included in SG&A in the accompanying Consolidated Statements of Operations:

In thousands Fiscal Year 2021 Fiscal Year 2020 Fiscal Year 2019

5 unchanged sentences

Income tax benefit ( 3,788 ) ( 2,743 ) ( 3,237 )

After-tax share based compensation expense $ 7,997 $ 9,433 $ 15,572

After-tax stock based compensation expense $ 11,098 $ 7,997 $ 9,433

Stock options RSUs and PSUs RSAs

3 unchanged sentences

Service-based options

The following table summarizes service-based stock option activity, including service-based options under the Vision Holding Corp.

The following tables summarize service-based stock option activity, including service-based options under the Vision Holding Corp.

Amended and Restated 2013 Equity Incentive Plan, the 2014 Stock Incentive Plan, and the 2017 Omnibus Incentive Plan.

Number of Options Outstanding Weighted Average Exercise Price ($) Weighted Average Remaining Contractual Life (Years) Aggregate Intrinsic Value (In Thousands) ($)

Outstanding options at December 28, 2019 1,906,158 13.37

Number of Options Outstanding (In thousands) Weighted Average Exercise Price ($) Weighted Average Remaining Contractual Life (Years) Aggregate Intrinsic Value (In thousands) ($)

Outstanding options at January 2, 2021 1,194 $ 18.92 6.19 $ 31,490

Granted 111 46.19

3 unchanged sentences

Vested and exercisable at January 1, 2022 376 $ 23.85 6.17 $ 9,067

The weighted average grant date fair value of service-based options granted during fiscal years 2020 and 2019 was $ 13.71 and $ 13.67 , respectively.

There were no grants of service-based options during fiscal year 2018.

The fair value of service-based options vested during fiscal years 2020, 2019 and 2018 was $ 3.3 million, $ 5.7 million, and $ 5.9 million respectively.

The aggregate intrinsic value of service-based options exercised during fiscal years 2020, 2019 and 2018 was $ 22.5 million, $ 21.4 million, and $ 45.7 million, respectively.

In thousands except per share values Fiscal Year 2021 Fiscal Year 2020 Fiscal Year 2019

Weighted average grant date fair value per share of options granted $ 23.39 $ 13.71 $ 13.67

Fair value of options vested $ 3,138 $ 3,313 $ 5,676

Aggregate intrinsic value of options exercised $ 23,091 $ 22,549 $ 21,350

The fair value of service-based options was estimated using the Black-Scholes-Merton option pricing model.

The following is a summary of the assumptions used in this model for service-based options:

2021 2020 2019

Expected volatility 52.49 % to 54.03 %

39.54 % to 55.81 %

34.50 % to 37.10 %

Expected term range (in years) 6.00

1 unchanged sentence

0.47 % to 1.13 %

1.68 % to 2.94 %

The expected term was based on the mid-point between the weighted average time to vesting and the contractual time to maturity .

Since all options granted in the 2014 Stock Incentive Plan were issued prior to the IPO, expected volatility was based on the volatility of comparable publicly traded companies.

The volatility assumption subsequent to the IPO was calculated using daily closing prices of the stock.

Most service-based options vest in three equal installments on the first, second and third anniversaries of the grant date.

The risk free interest rate was based on the U.S.

Treasury yield curve.

The dividend yield was based on our expectation of not paying dividends on the common stock of NVHI for the foreseeable future.

The dividend yield was based on our expectation of not paying dividends on our common stock for the foreseeable future.

Performance-based options

The following table summarizes performance-based stock option activity:

Number of Options Outstanding Weighted Average Exercise Price ($) Weighted Average Remaining Contractual Life (Years) Aggregate Intrinsic Value (In Thousands) ($)

Outstanding options at December 28, 2019 1,603,848 6.60

Number of Options Outstanding (In thousands) Weighted Average Exercise Price ($) Weighted Average Remaining Contractual Life (Years) Aggregate Intrinsic Value (In thousands) ($)

Outstanding options at January 2, 2021 855 $ 5.50 3.42 $ 34,018

Exercised ( 805 ) 4.87

3 unchanged sentences

There were no grants of performance-based options during fiscal years 2021, 2020, and 2019.

The fair value of performance-based options vested during fiscal years 2020, 2019 and 2018 was $ 1.4 million, $ 4.4 million and $ 16.1 million, respectively.

There were no vests of performance-based options during fiscal year 2021.

The fair value of performance-based options vested during fiscal years 2020 and 2019 was $ 1.4 million and $ 4.4 million, respectively.

The aggregate intrinsic value of performance-based options exercised during fiscal years 2021, 2020, and 2019 was $ 37.3 million, $ 20.0 million, and $ 29.9 million, respectively.

The following summarizes RSU, PSU and RSA awards activity:

RSUs Weighted average grant date fair value ($) PSUs Weighted average grant date fair value ($) RSAs Weighted average grant date fair value ($)

Outstanding at December 28, 2019 376,145 28.45 113,014 34.49 20,628 30.71

The following tables summarize RSU, PSU and RSA awards activity:

(In thousands) Weighted average grant date fair value ($) PSUs

(In thousands) Weighted average grant date fair value ($) RSAs

(In thousands) Weighted average grant date fair value ($)

Outstanding at January 2, 2021 454 $ 30.85 220 $ 34.36 22 $ 31.85

Granted 139 46.52 112 46.17 17 48.39

2 unchanged sentences

Outstanding at January 1, 2022 364 $ 36.67 317 $ 38.34 17 $ 48.39

Fiscal Year 2021 Fiscal Year 2020 Fiscal Year 2019

Weighted average grant date fair value of RSUs granted $ 46.52 $ 34.73 $ 29.56

Total fair value of RSUs vested (In thousands) $ 6,154 $ 1,346 $ 2,178

Weighted average grant date fair value of PSUs granted $ 46.17 $ 34.34 $ 34.50

Total fair value of PSUs vested (In thousands) $ — $ — $ —

Weighted average grant date fair value of RSAs granted $ 48.39 $ 30.65 $ 29.18

Total fair value of RSAs vested (In thousands) $ 700 $ 534 $ 133

Restricted stock units (RSUs)

During fiscal years 2020 and 2019, we granted 162,468 and 373,082 shares of RSUs, respectively.

RSUs include 11,233 RSUs that vest in two equal installments on the first and second anniversaries of the grant date, 216,400 RSUs that vest in three equal installments on the first, second and third anniversaries of the grant date, and 226,858 RSUs that vest in three installments on the second, third and fourth anniversaries of the grant date.

The RSUs outstanding as of January 2, 2021 have $ 20.6 million intrinsic value and remaining weighted average requisite service period of 2.36 years.

Most RSUs vest in three equal installments on the first, second and third anniversaries of the grant date.

The RSUs outstanding as of January 1, 2022 have $ 17.5 million intrinsic value.

Performance stock units (PSUs)

During fiscal year 2020 and 2019, we granted an aggregate of 125,387 and 116,046 PSUs, respectively.

The PSUs granted in fiscal 2020 and 2019 are settled after the end of the performance period (i.e., cliff vesting), which begins on the first day of the grant year and ends on the last day of our fiscal years 2022 and 2021, respectively and are based on the Company’s achievement of certain performance targets.

The performance stock units outstanding as of January 2, 2021 have $ 10.0 million intrinsic value and remaining weighted average requisite service period of 1.75 years.

PSUs are settled after the end of a three year performance period (i.e., cliff vesting), which begins on the first day of the grant year and are based on the Company’s achievement of certain performance targets.

The performance stock units outstanding as of January 1, 2022 have $ 15.2 million intrinsic value.

While the PSU amounts shown in the table above reflect achievement at target, the number of PSUs ultimately vested will be based on a comparison of certified performance results to predefined performance criteria that include threshold, target and maximum attainment levels.

Restricted stock awards (RSAs)

During fiscal years 2020 and 2019, we granted an aggregate of 19,583 and 13,712 RSAs, respectively, to certain directors.

These RSAs outstanding include 2,399 awards that vest proportionally over three years and 19,583 awards that vest one year from grant date.

As of fiscal year end 2020, the intrinsic value of the awards was $ 1.0 million, the remaining requisite service period was 0.50 years.

Most RSAs outstanding vest one year from grant date.

As of fiscal year end 2021, the intrinsic value of the awards was $ 0.8 million.

Associate Stock Purchase Plan (ASPP)

1 unchanged sentence

Participants may contribute to the ASPP, not to exceed $ 25,000 under the ASPP in any calendar year.

As of January 2, 2021, the amount of shares held by eligible participants through the ASPP was not material.

As of January 1, 2022, the amount of shares issued to eligible participants through the ASPP was not material.

The income tax provision (benefit) consists of:

12 unchanged sentences

Increase (decrease) in deferred tax asset valuation allowance ( 441 ) ( 216 ) ( 386 )

Goodwill impairment — — 3,879

Stranded tax effect of matured interest rate swaps ( 2,125 ) — —

Tax benefit of equity-based compensation deductions ( 14,408 ) ( 7,996 ) ( 10,089 )

9 unchanged sentences

(4) changing rules related to limitations of net operating loss (“NOL”) carryforwards, and (5) enhancing and extending through 2026 the option to claim accelerated depreciation deductions on qualified property.

Pursuant to SEC Staff Accounting Bulletin No.

118, Income Tax Accounting Implications of the Tax Legislation, the Company recognized provisional effects of the enactment of the 2017 Tax Legislation for which measurement could be reasonably estimated as of fiscal year end 2018.

As of fiscal year end 2018, the Company recorded adjustments to the provisional estimates related to depreciation expense.

The adjustments to the provisional estimates of December 30, 2017 did not materially impact the effective tax rate of the Company during fiscal year 2018.

The sources of the differences between the financial accounting and tax bases of our assets and liabilities that give rise to the deferred tax assets and deferred tax liabilities and the tax effects of each are as follows:

1 unchanged sentence

January 1, 2022 As of

December 28, 2019

January 2, 2021

Deferred tax assets:

5 unchanged sentences

Loss on equity and other investments 1,521 2,135

Stock option compensation 5,135 5,505

Stock-based compensation 5,167 5,135

Unrealized losses on hedging instruments 849 2,237

Operating lease liabilities 105,728 100,759

Other — 1,349

6 unchanged sentences

Convertible debt discount — ( 18,819 )

Right of use asset ( 90,751 ) ( 86,266 )

Other ( 2,263 ) ( 2,222 )

5 unchanged sentences

In addition, we have NOL carry-forwards in varying amounts and with varying expiration dates in various states in which we operate.

We believe it is more likely than not that we will realize a tax benefit for these NOL’s in the future except for $ 4.2 million of NOL carry-forwards on our professional corporations where we recognized a full valuation allowance as of fiscal year end 2020.

As of fiscal year end 2020, the Company has gross deferred tax assets of $ 100.8 million related to operating lease liabilities and gross deferred tax liabilities of $ 86.3 million related to ROU assets.

These amounts are presented net in Other deferred tax assets as of fiscal year end 2020.

As of fiscal year end 2020, previously reported Federal AMT carry-forward credits of $ 1.3 million were requested to be refunded in accordance with the CARES Act.

Non-expiring federal and state AMT carry-forward credits and employment credits totaling $ 3.5 million are available to offset certain future taxes.

We have a $ 1.9 million deferred income tax asset on losses associated with our equity method non-consolidated investee and a $ 0.2 million deferred income tax asset for capital losses associated with the impairment of an investment recorded during fiscal year 2018.

We do not expect to generate significant capital gains from these investments, or other sources, in the near future.

We believe it is more likely than not that we will realize a tax benefit for these NOL’s in the future except for $ 4.3 million of NOL carry-forwards ($ 0.9 million tax effected) on certain professional corporations where we recognized a full valuation allowance as of fiscal year end 2021.

Non-expiring federal and state employment credits totaling $ 2.3 million are available to offset certain future taxes.

We have a $ 1.5 million deferred income tax asset for capital losses associated with the losses realized on the sale of our equity method non-consolidated investee and other investments.

We do not expect to generate significant capital gains in the near future.

Therefore, we believe it is more likely than not that we will not realize a tax benefit for the majority of these deferred income tax assets, and accordingly we have established a full valuation allowance for the amount deemed unrealizable.

28 unchanged sentences

Within our Owned & Host segment, services and plans revenues include revenues from product protection plans (i.e.

warranties), eyecare club memberships and HMO vision plan fees.

warranties), eye care club memberships and HMO vision plan fees.

We offer extended warranty plans in our Owned & Host segment that generally provide for repair and replacement of eyeglasses for primarily a one-year term after purchase.

18 unchanged sentences

As the reportable segments are aligned by similar economic factors, trends and customers, the reportable segment disaggregation view best depicts how the nature, amount and uncertainty of revenue and cash flows are affected by economic factors.

The following table summarizes the activity of allowance for expected credit losses for the fiscal year end 2020.

In thousands Fiscal Year 2020

Beginning balance as of December 28, 2019

Current-period provision for expected credit losses ( 671 )

Write-offs charged against the allowance 1,071

Other adjustments (1)

Ending balance as of January 2, 2021

(1) As part of our adoption of ASU 2016-13, we adjusted the allowance for certain amounts recognized in prior periods that no longer represented an allowance for credit losses.

The adjustment was immaterial to the financial results of current and prior periods.

“Details of Certain Balance Sheet Accounts” for further details.

We lease our stores, laboratories, distribution centers, and corporate offices.

These leases generally have noncancelable lease terms of between five and 10 years, with an option to renew for additional terms of one to 10 years or more.

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.

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.

For Vista Optical locations in Fred Meyer stores, we pay fixed rent plus a percentage of sales after certain minimum thresholds are achieved.

Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

With respect to lease accounting guidance, the Company’s management & services agreement with its legacy partner does not contain a lease arrangement.

Our lease arrangements frequently include TIAs, which are contractual amounts received from a lessor for improvements made to leased properties by the Company.

For operating leases, TIAs are treated as a reduction of the lease payments used to measure the ROU assets in the accompanying consolidated balance sheet as of fiscal year 2020 and are amortized as a reduction in rental expense over the life of the respective leases.

We rent or sublease certain parts of our stores to third parties.

Our sublease portfolio consists mainly of operating leases with our ophthalmologists and optometrists within our stores.

In response to the COVID-19 pandemic, we began seeking relief from our landlords while our stores were temporarily closed to the public.

5 unchanged sentences

The majority of leases where we received a concession did not result in a substantial increase in our obligations.

Lease concessions of $ 3.1 million were recorded in Other payables and accrued expenses as of January 2, 2021.

Lease concessions of $ 0.4 million and $ 3.1 million were recorded in Other payables and accrued expenses as of January 1, 2022 and January 2, 2021, respectively.

“Details of Certain Balance Sheet Accounts” for further details.

1 unchanged sentence

January 1, 2022 As of

December 28, 2019

January 2, 2021

Type Classification

14 unchanged sentences

We used the incremental borrowing rate on December 30, 2018 for operating leases that commenced prior to that date.

(a) Finance lease assets are recorded net of accumulated amortization of $ 12.4 million and $ 8.3 million as of January 2, 2021 and December 28, 2019, respectively.

(b) TIA of $ 36.0 million and $ 35.2 million are treated as reductions of lease payments used to measure ROU assets as of January 2, 2021 and December 28, 2019, respectively.

Deferred rent of $ 17.5 million and $ 15.0 million are treated as reductions of lease payments used to measure ROU assets as of January 2, 2021 and December 28, 2019, respectively.

(c) Current operating lease liabilities are measured net of TIA receivables of $ 3.8 million and $ 5.9 million as of January 2, 2021 and December 28, 2019, respectively.

In thousands Fiscal Year 2020 Fiscal Year 2019

(a) Finance lease assets are recorded net of accumulated amortization of $ 16.8 million and $ 12.4 million as of January 1, 2022 and January 2, 2021, respectively.

(b) TIA and deferred rent are treated as reductions of lease payments used to measure ROU assets in the accompanying Consolidated Balance Sheets as of January 1, 2022 and January 2, 2021.

(c) Current operating lease liabilities are measured net of TIA receivables of $ 6.6 million and $ 3.8 million as of January 1, 2022 and January 2, 2021, respectively.

In thousands Fiscal Year 2021 Fiscal Year 2020 Fiscal Year 2019

Operating lease cost

7 unchanged sentences

Amortization of finance lease assets 4,461 4,561 4,418

Interest expense, net:

Interest on finance lease liabilities 2,923 3,656 3,573

2 unchanged sentences

(b) Includes costs for insurance, real estate taxes and common area maintenance expenses, which are variable as well as lease costs above minimum thresholds for Fred Meyer stores and lease costs for Military stores.

(c) Income from sub-leasing of stores includes rental income from operating lease properties to ophthalmologists and optometrists who are independent contractors.

(c) Income from sub-leasing of stores includes rental income from operating lease properties to independent optometrists.

Lease Term and Discount Rate As of

January 1, 2022 As of

December 28, 2019

January 2, 2021

Weighted average remaining lease term (months)

6 unchanged sentences

(a) The discount rate used to determine the lease assets and lease liabilities was derived upon considering (i) incremental borrowing rates on our term loan and revolving credit facility;

(ii) fixed rates we pay on our interest rate swaps;

(ii) fixed rates on interest rate swaps;

(iii) LIBOR margins for issuers of similar credit rating;

3 unchanged sentences

The discount rate differential for those leases is not material to our results of operations.

In thousands Fiscal Year 2020 Fiscal Year 2019

In thousands Fiscal Year 2021 Fiscal Year 2020 Fiscal Year 2019

Other Information

Cash paid for amounts included in the measurement of lease liabilities

Operating cash outflows - operating leases $ 89,324 $ 84,913 $ 75,330

Right of use assets acquired under finance leases $ — $ 1,257 $ 9,713

Right of use assets acquired under operating leases $ 91,451 $ 68,081 $ 108,712

The following table summarizes the maturity of our lease liabilities as of January 1, 2022:

14 unchanged sentences

(c) The present value of lease liabilities excludes $ 24.5 million of legally binding minimum lease payments for leases signed but not yet commenced.

Related Party Transactions

Transactions with KKR

During fiscal years 2019 and 2018, KKR Capital Markets LLC acted as a lead arranger with respect to debt issuance and refinancing transactions, and received $ 1.0 million and $ 1.2 million in fees, respectively, in connection therewith.

“Description of Business and Basis of Presentation-Secondary Public Offerings” for details on a common stock offering in 2019 through which KKR ceased to be a related party.

Equity in Net Assets of Non-Consolidated Investee

From time to time the Company invests in technological innovators across the optical retail industry.

One of these investments is a nonconsolidated investee (the “investee”) in which an equity ownership interest is maintained and for which the equity method of accounting is used due to our ability to exert significant influence over decisions relating to our investee’s operations and financial affairs.

We hold a 24 % equity interest in our investee as of fiscal year end 2020.

Revenues and expenses of the investee are not consolidated into our financial statements;

rather, our proportionate share of the earnings or losses of the investee is reflected as equity income or loss in Other expense (income), net in the Company’s consolidated statements of operations.

We have determined that we should not consolidate our investee because, although it is a variable interest entity, we are not the primary beneficiary.

After adjusting the carrying value of our interest in the investee’s reported net losses, there is no remaining equity investment balance associated with this investee as of January 2, 2021.

Our investee’s fiscal year ends on December 31 of each year.

The investee recognized no material transactions on the days between its fiscal year end and our fiscal year end for all periods presented below.

Summarized balance sheet information for our investee is as follows:

In thousands As of January 2, 2021 As of December 28, 2019

Current assets $ 1,815 $ 1,351

Non-current assets 387 450

Total assets 2,202 1,801

Current liabilities 3,464 3,821

Non-current liabilities 4,421 8,200

Total liabilities 7,885 12,021

Net assets $ ( 5,683 ) $ ( 10,220 )

Summarized income statement information for our investee is as follows:

In thousands Fiscal Year 2020 Fiscal Year 2019 Fiscal Year 2018

Revenues $ 6,771 $ 6,046 $ 3,871

Net loss $ ( 5,739 ) $ ( 5,481 ) $ ( 5,632 )

Our share of net loss (1)

$ ( 1,383 ) $ ( 1,804 ) $ ( 1,304 )

(1) We did not record our share of the 2020 net loss as there is no obligation to absorb losses in excess of the equity investment.

In the ordinary course of business we are a licensee of our investee.

Upon adoption of ASU 2016-13 in 2020, the Company wrote-off the carrying value of the secured convertible promissory note held by the Company for estimated credit losses.

In April 2020, the Company converted the promissory note to an equity investment.

equity investment has a carrying value of zero as of January 2, 2021.

Interest income associated with the note was immaterial for the 2019 fiscal year.

Balances and transactions related to our non-consolidated investee included in our consolidated balance sheets and statements of operations were as follows:

In thousands As of

January 2, 2021 As of

December 28, 2019

Balance sheets

Other assets (1)

(1) Other assets represent a loan receivable from our investee.

In thousands Fiscal Year 2020 Fiscal Year 2019 Fiscal Year 2018

Statements of operations

Licensing fees (SG&A) $ 151 $ 132 $ 172

Fair Value Measurement of Financial Assets and Liabilities

Fair Value Measurement

The Company uses a fair value hierarchy that is intended to increase consistency and comparability in fair value measurements and related disclosures.

12 unchanged sentences

The use of different market assumptions and/or estimation methodologies may have a material impact on the estimated fair value amounts.

Recurring fair value measurements

Interest Rate Derivatives

We recognize as assets or liabilities at fair value the estimated amounts we would receive or pay upon a termination of interest rate derivatives prior to their scheduled expiration dates.

The fair value is based on information that is model-driven and whose inputs were observable (Level 2 inputs) such as LIBOR forward rates.

“Interest Rate Derivatives” for further details.

Non-recurring fair value measurements

Tangible Long-lived and Right of Use (“ROU”) Store Assets

We recognized impairments of $ 4.4 million, $ 22.0 million and $ 8.9 million in fiscal years 2021, 2020 and 2019, respectively, related to our long-lived tangible store assets and ROU assets.

The impairments were primarily driven by lower than projected customer sales volume in certain stores.

The cash flows used in estimating fair value were discounted using a market rate of 7.5 %.

A decrease in the estimated cash flows would lead to a lower fair value measurement, as would an increase in the discount rate.

These non-recurring fair value measurements are classified as Level 3 measurements in the fair value hierarchy.

The estimated remaining fair value of the assets impaired during fiscal years 2021 and 2020 was $ 6.8 million and $ 30.6 million, respectively;

the estimated remaining fair values include amounts estimated at various dates during the related fiscal years.

Substantially all of the remaining fair value of the impaired store assets in fiscal years 2021 and 2020 represents the fair value of ROU assets.

Refer to Note 1.

“Business and Significant Accounting Policies.”

Additional fair value information

Cash Equivalents and Restricted Cash

The carrying amount of cash equivalents approximates fair value due to the short term maturity of the instruments.

The carrying amount of cash equivalents and restricted cash approximates fair value due to the short term maturity of the instruments.

All cash and cash equivalents are denominated in U.S.

Accounts Receivable, Net

The carrying amount of accounts receivable approximates fair value due to the short-term nature of those items and the effect of related allowances for doubtful credit losses.

The carrying amount of accounts receivable approximates fair value due to the short-term nature of those items and the effect of credit losses.

Accounts Payable and Other Payables and Accrued Expenses

The carrying amounts of accounts payable and other payables and accrued expenses approximate fair value due to the short-term nature of those items.

Tangible Long-lived and Right of Use (“ROU”) Store Assets

The non-recurring fair value measurements associated with these tangible long-lived and ROU store assets are classified as Level 3 measurements in the fair value hierarchy.

Refer to Note 1.

“Description of Business and Basis of Presentation”.

Long-term Debt - Term Loan and Revolving Credit Facility

9 unchanged sentences

“Long-term Debt” for more information on the 2025 Notes.

Interest Rate Derivatives

We recognize as assets or liabilities at fair value the estimated amounts we would receive or pay upon a termination of interest rate derivatives prior to their scheduled expiration dates.

The fair value is based on information that is model-driven and whose inputs were observable (Level 2 inputs).

“Interest Rate Derivatives” for further details.

Deferred Revenue

2 unchanged sentences

In thousands Product Protection Plans Eye Care

Clubs HMO Memberships Total

Beginning of the year $ 34,147 $ 45,580 $ 79,727

15 unchanged sentences

$ 34,147 $ 45,580 $ — $ 79,727

Unsatisfied Performance Obligations (Contract Liabilities)

We recognized $ 58.9 million of deferred revenues outstanding at the beginning of the period during the fiscal year ended 2021, and $ 70.7 million of revenues from sale of club memberships and product protection plans during the fiscal year ended 2021.

We recognized $ 55.9 million of deferred revenues outstanding at the beginning of the period during the fiscal year ended 2020, and $ 52.8 million of revenues from sale of club memberships and product protection plans during the fiscal year ended 2020.

Deferred revenue recorded as of fiscal year end 2021 is expected to be reflected in future operating results as follows:

28 unchanged sentences

We are currently and may in the future become subject to various claims and pending or threatened lawsuits in the ordinary course of our business.

Our subsidiary, FirstSight, is a defendant in a purported class action in the U.S.

District Court for the Southern District of California that alleges that FirstSight participated in arrangements that caused the illegal delivery of eye examinations and that FirstSight thereby violated, among other laws, the corporate practice of optometry and the unfair competition and false advertising laws of California.

The lawsuit was filed in 2013 and FirstSight was added as a defendant in 2016.

In March 2017, the court granted the motion to dismiss previously filed by FirstSight and dismissed the complaint with prejudice.

The plaintiffs filed an appeal with the U.S.

Court of Appeals for the Ninth Circuit in April 2017.

In July 2018, the U.S.

Court of Appeals for the Ninth Circuit vacated in part, and reversed in part, the district court’s dismissal and remanded for further proceedings.

In October 2018, the plaintiffs filed a second amended complaint with the district court, and, in November 2018, FirstSight filed a motion to dismiss.

On March 23, 2020, the district court granted FirstSight’s motion to dismiss the second amended complaint.

On April 24, 2020, the plaintiffs filed a third amended complaint.

FirstSight filed a motion to dismiss the third amended complaint on May 8, 2020.

O n February 4, 2021, the district court granted FirstSight’s motion in part and denied it in part.

FirstSight’s answer to the remaining claims was filed February 18, 2021.

We believe that the claims alleged are without merit and intend to continue to defend the litigation vigorously.

In May 2017, a complaint was filed against us and other defendants alleging, on behalf of a proposed class of consumers who purchased contact lenses online, that 1-800 Contacts, Inc.

entered into a series of agreements with the other defendants, including our wholly-owned subsidiary, Arlington Contact Lens Service, Inc.

(“AC Lens”), to suppress certain online advertising and that each defendant thereby engaged in anticompetitive conduct in violation of the Sherman Antitrust Act.

We have settled this litigation for $ 7.0 million, without admitting liability.

Accordingly, we recorded a charge for this amount in litigation settlement in the consolidated statement of operations during the second quarter of fiscal year 2017.

On November 8, 2017, the court in the 1-800 Contacts matter entered an order preliminarily approving the settlement agreement, subject to a settlement hearing.

Pursuant to this order, we deposited 50 % of the settlement amount, or $ 3.5 million, into an escrow account, to be distributed subject to and in accordance the terms of the settlement agreement and any further order of the court.

On May 15, 2020, the plaintiffs filed a motion seeking preliminary approval of their settlement with the remaining defendant, 1-800 Contacts, Inc., as well as conditional certification of the class and approval of the plan of distribution of settlement funds.

This motion was granted by the court on June 3, 2020.

The court held a hearing on plaintiffs’ motion for final approval of class action settlements, approval of the plan of distribution, and final certification of the settlement classes on October 20, 2020.

There were no objections and the court entered final judgment and order of dismissal following the hearing.

Based on that order, we deposited the final 50 % of the settlement amount, $ 3.5 million, into the designated escrow account to be distributed subject to and in accordance with the settlement agreement.

In February 2019, we were served with a lawsuit by a former associate who alleged, on behalf of himself and a proposed class, several violations of California wage and hour laws and sought unspecified alleged unpaid wages, monetary damages, injunctive relief and attorneys’ fees.

On March 21, 2019, we removed the lawsuit from state court to the United States District Court for the Northern District of California.

The plaintiff moved to remand the action to state court on April 18, 2019, and the Court denied this motion on July 8, 2019.

On July 22, 2019, the plaintiff filed an amended complaint.

On July 26, 2019, the parties filed a joint stipulation wherein the Company denied all claims in the amended complaint but joined the plaintiff in seeking a stay of further proceedings in the lawsuit based on the parties’ agreement to attend early mediation in an effort to avoid further costs and expenses of protracted litigation.

The parties participated in mediation on February 19, 2020, but a resolution of the matter was not reached at that time.

On February 27, 2020, following mediation, the parties agreed to a settlement of all claims alleged by the named claimant on behalf of himself and all putative class members and other aggrieved associates.

The Company will pay $ 3.5 million as the gross settlement fund in connection with this settlement.

This settlement was preliminarily approved by the court on April 29, 2020.

A final approval hearing was conducted by the court on October 27, 2020.

The court approved the settlement according to the terms of the parties’ agreement and final judgment and order of dismissal was then entered.

The Company deposited the settlement amount, or $ 3.5 million, into the designated account pursuant to the terms of the settlement agreement.

In November 2019, the Company agreed to enter into a pre-litigation settlement with six former associates who asserted, on behalf of themselves and a proposed class, violations of the Fair Labor Standards Act and of California wage and hour laws.

In order to avoid the burden, expense and uncertainty of litigation, and without admitting liability, the Company agreed to a settlement with the named claimants and all participating class members for a maximum settlement amount of $ 895,000 .

This settlement is subject to approval by a tribunal following a fairness hearing.

Eyeglass World, LLC, which was acquired by the Company in 2009, is a defendant in a state court action filed on July 24, 2017 by a former sublease holder in Albuquerque, New Mexico.

The lawsuit seeks compensatory and punitive damages for claims of conversion, misappropriation of trade secrets, negligent misrepresentation, and tortious interference with existing and prospective contractual relationships arising from the Company’s alleged unauthorized use of confidential information.

On January 31, 2022, in order to avoid the burden and expense of further litigation, the parties agreed to a settlement of all claims alleged by the plaintiff.

On February 9, 2022, the Company paid the settlement amount and on February 11, 2022, a notice of stipulated dismissal with prejudice was filed by the parties with the court to dismiss the action.

Interest Rate Derivatives

The Company is party to pay-fixed and receive-floating interest rate swap agreements to offset the variability of cash flows in LIBOR-indexed debt interest payments, subject to a 1.0 % floor, attributable to changes in the benchmark interest rate from March 13, 2017 to March 13, 2021 related to its credit agreement.

During the first quarter of 2020, in accordance with the original agreements with the counterparties, the notional amount of one swap decreased from $ 105.0 million to $ 70.0 million.

The aggregate notional amount of the interest rate swaps was $ 395.0 million and $ 430.0 million for the year ended January 2, 2021 and December 28, 2019, respectively.

There were no other changes in the terms of the agreements.

Also, during the first quarter of 2020, the Company entered into a forward-starting interest rate collar that will hedge variability of cash flows of LIBOR-indexed debt interest payments from March 13, 2021 to July 18, 2024, following the maturity of the interest rate swap agreements, with an aggregate notional amount of $ 375 million.

“Fair Value Measurement of Financial Assets and Liabilities” for further details.

During the second quarter of 2020, as a result of the partial repayment of the Company’s LIBOR based debt balances, certain forecasted hedged transactions were deemed not probable of occurring.

The Company subsequently discontinued hedge accounting on $ 78.0 million of interest rate swap notional and $ 58.0 million of interest rate collar notional, reclassifying net unrealized losses of approximately $ 2.5 million from AOCL to interest expense, net during fiscal year 2020.

Additionally, due to changes in the interest rates applicable to the Company’s Term Loan and Revolving Credit Facility, the interest rate collar ceased to be a highly effective hedge.

Losses on the change in fair value of the interest rate collar of approximately $ 2.6 million were recorded in interest expense, net during fiscal year 2020.

Interest expense, net related to derivatives considered to be highly effective hedges for fiscal year 2020 was $ 7.7 million.

Changes in the cash flows of interest rate swap derivatives designated as hedges are expected to be highly effective in offsetting the changes in interest payments on a principal balance equal to the designated derivative’s notional amount, attributable to the hedged risk.

We are party to an interest rate collar to offset the variability of cash flows in LIBOR-indexed debt interest payments.

The aggregate notional amount of the interest rate collar was $ 375.0 million as of January 1, 2022.

The fair value of our interest rate collar instrument was $ 3.3 million as of January 1, 2022 and is not designated as a cash flow hedge.

The interest rate swaps we held at the end of fiscal year 2020 matured in the first quarter of 2021.

The fair value of our interest rate derivative instruments was $ 12.8 million as of January 2, 2021, $ 1.5 million of which was designated as a cash flow hedge.

“Details of Certain Balance Sheet Accounts” and Note 9.

“Fair Value Measurement” for further details.

Due to changes in the interest rates applicable to the Company’s term loan and revolving credit facility during f iscal year 2020 , the interest rate collar ceased to be a highly effective hedge.

Gains (losses) on the change in fair value of the interest rate collar of approximately $ 4.2 million and $( 2.6 ) million were recorded in interest expense, net during fiscal years 2021 and 2020, respectively.

Interest expense, net related to our interest rate derivatives considered to be highly effective hedges for fiscal years 2021 and 2020 was $ 1.5 million and $ 7.7 million, respectively.

Cash flows related to derivatives qualifying as hedges are included in the same section of the Consolidated Statements of Cash Flows as the underlying assets and liabilities being hedged.

Cash flows during fiscal year 2020 related to derivatives not qualifying as hedges were included in the operating section of the Consolidated Statements of Cash Flows and were immaterial.

Cash flows during fiscal years 2021 and 2020 related to derivatives not qualifying as hedges were included in the operating section of the Consolidated Statements of Cash Flows and were immaterial.

Certain forecasted hedged transactions were deemed not probable of occurring as a result of the Company’s repayments of debt balances.

During the second quarter of 2020, as a result of the partial repayment of the Company’s LIBOR based debt balances, the Company subsequently reclassified net unrealized losses of approximately $ 2.5 million from AOCL to interest expense, net during fiscal year 2020.

During the second and fourth quarters of 2021 , as a result of the partial repayments of the Company’s LIBOR based term-loan debt balances, the Company subsequently reclassified unrealized losses of $ 3.4 million from AOCL to interest expense, net during fiscal year 2021 .

As of January 1, 2022, the Company expects to reclassify approximately $ 0.8 million of unrealized losses on derivative instruments, net of tax, from AOCL into earnings in the next 12 months as the derivative instruments mature.

“Accumulated Other Comprehensive Loss” for further details.

Our cash flow hedge position related to interest rate derivative contracts is as follows:

In thousands Balance Sheet Classification As of

January 2, 2021 As of

December 28, 2019

Derivatives designated as hedging instruments under ASC 815

Interest rate swaps Other Payables and Accrued Expenses $ 1,528 $ 6,382

Interest rate swaps Other Liabilities — 1,603

Total derivative liabilities designated as hedging instruments $ 1,528 $ 7,985

Derivatives not designated as hedging instruments under ASC 815

Interest rate swap Other Payables and Accrued Expenses $ 248 $ —

Interest rate collar Other Payables and Accrued Expenses 3,340 —

Interest rate collar Other Liabilities 7,663 —

Total derivative liabilities not designated as hedging instruments $ 11,251 $ —

Earnings Per Share

2 unchanged sentences

Potential shares of common stock are excluded from the computation of diluted EPS if their effect is anti-dilutive.

Prior to the fourth quarter of the fiscal year 2020, we intended to settle the principal amount of the outstanding 2025 Notes in cash and, therefore, used the treasury stock method for calculating any potential dilutive effect of the conversion spread on diluted net income per share, if applicable.

Under the treasury stock method, the shares underlying the conversion option of the 2025 Notes will have an impact on our diluted EPS when net income is reported and when the average market price of our common stock for the period exceeds the conversion price of $ 31.17 per share.

Beginning with the fourth quarter of the current fiscal year, we are no longer asserting cash settlement of the principal amount of the outstanding 2025 Notes, therefore share settlement is now presumed.

Thus, on a prospective basis we will apply the if-converted method for calculating any potential dilutive effect of the conversion of the outstanding 2025 Notes on Diluted EPS, if applicable.

If the if-converted method is anti-dilutive, the anti-dilutive share count for the 2025 notes will represent the maximum number of shares of common stock issuable upon conversion.

“Long-term Debt” for more information on the 2025 Notes.

Diluted EPS related to the 2025 Notes is calculated using the if-converted method;

the number of dilutive shares is based on the initial conversion rate associated with the 2025 Notes.

Prior to the fourth quarter of the fiscal year 2020, we intended to settle the principal amount of the outstanding 2025 Notes in cash and, therefore, used the treasury stock method for calculating the potential effect of dilutive securities related to the 2025 Notes, if applicable.

A reconciliation of the numerators and denominators of the basic and diluted EPS calculations is as follows:

1 unchanged sentence

Net income $ 128,244 $ 36,277 $ 32,798

After-tax interest expense for 2025 Notes 9,483 — —

Numerator for diluted EPS $ 137,727 $ 36,277 $ 32,798

Weighted average shares outstanding for basic EPS 81,820 80,565 78,608

42 unchanged sentences

Our reportable segment profit measure is earnings before interest, tax, depreciation and amortization (“EBITDA”), or net revenue, less costs applicable to revenue, less SG&A expenses.

Depreciation and amortization, asset impairment, litigation settlement and other corporate costs that are not allocated to the reportable segments (including interest expense) are excluded from segment EBITDA.

Depreciation and amortization, asset impairment and other corporate costs that are not allocated to the reportable segments (including interest expense) are excluded from segment EBITDA.

There are no revenue transactions between our reportable segments.

1 unchanged sentence

There have been no changes from prior periods in the measurement methods used to determine reportable segment profit or loss, and there have been no asymmetrical allocations to segments.

In fiscal year 2020, revenues from Walmart, recognized in our Legacy segment and Corporate/Other category, represent $ 268.6 million of our total net revenue, subjecting us to customer concentration risk.

We incurred $ 8.6 million of costs during fiscal year 2020, 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.

These incremental expenses related to the COVID-19 pandemic are not allocated to the reportable segments, but are included in the Corporate/Other category.

We incurred $ 1.5 million and $ 8.6 million of costs during fiscal years 2021 and 2020, respectively, 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 in fiscal year 2020, and other administrative expenses.

Incremental expenses related to the COVID-19 pandemic were allocated to the reportable segments in fiscal year 2021 but were included in the Corporate/Other category in fiscal year 2020.

The following is a summary of certain financial data for each of our segments.

3 unchanged sentences

In thousands Owned & Host Legacy Corporate/Other Reconciliations Total

Segment product revenues $ 1,097,749 $ 90,909 $ 234,403 $ ( 4,778 ) $ 1,418,283

Segment services and plans revenues 244,650 51,108 — ( 2,281 ) 293,477

Net product sales $ 1,375,983 $ 103,249 $ 236,299 $ 2,813 $ 1,718,344

Net sales of services and plans 307,732 62,228 — ( 8,779 ) 361,181

Total net revenue 1,683,715 165,477 236,299 ( 5,966 ) 2,079,525

4 unchanged sentences

Asset impairment — — 4,427 — 4,427

Litigation settlement — — 4,395 — 4,395

Other expense (income), net — — ( 2,505 ) — ( 2,505 )

Debt issuance costs — — 156 — 156

EBITDA $ 441,471 $ 33,060 $ ( 195,840 ) $ ( 6,665 )

4 unchanged sentences

In thousands Owned & Host Legacy Corporate/Other Reconciliations Total

Segment product revenues $ 1,076,315 $ 105,450 $ 245,206 $ ( 835 ) $ 1,426,136

Segment services and plans revenues 248,685 54,599 12 ( 5,101 ) 298,195

Net product sales $ 1,097,749 $ 90,909 $ 234,403 $ ( 4,778 ) $ 1,418,283

Net sales of services and plans 244,650 51,108 — ( 2,281 ) 293,477

Total net revenue 1,342,399 142,017 234,403 ( 7,059 ) 1,711,760

5 unchanged sentences

Other expense (income), net — — ( 445 ) — ( 445 )

Loss on extinguishment of debt — — 9,786 — 9,786

EBITDA $ 334,824 $ 22,979 $ ( 173,514 ) $ ( 5,697 )

4 unchanged sentences

In thousands Owned & Host Legacy Corporate/Other Reconciliations Total

Segment product revenues $ 956,355 $ 103,890 $ 208,875 $ 492 $ 1,269,612

Segment services and plans revenues 217,047 50,522 3,552 ( 3,879 ) 267,242

Net product sales $ 1,076,315 $ 105,450 $ 245,206 $ ( 835 ) $ 1,426,136

Net sales of services and plans 248,685 54,599 12 ( 5,101 ) 298,195

Total net revenue 1,325,000 160,049 245,218 ( 5,936 ) 1,724,331

5 unchanged sentences

Other expense (income), net — — 3,611 — 3,611

Debt issuance cost — — 200 — 200

Loss on extinguishment of debt — — 9,786 — 9,786

EBITDA $ 299,093 $ 29,813 $ ( 172,140 ) $ ( 5,733 )

2 unchanged sentences

Income before income taxes $ 30,489

Consolidated Net Product Revenue Information

Entity-wide Information

The following table presents our consolidated net product revenue information:

5 unchanged sentences

Total net product revenues $ 1,718,344 $ 1,418,283 $ 1,426,136

Restricted Cash

The following table provides a reconciliation of cash and cash equivalents reported within the consolidated balance sheets to the total of cash, cash equivalents and restricted cash shown in the consolidated statement of cash flows:

In thousands Fiscal Year 2020 Fiscal Year 2019 Fiscal Year 2018

Cash and cash equivalents $ 373,903 $ 39,342 $ 17,132

Restricted cash included in other assets 1,256 965 866

Total cash, cash equivalents and restricted cash $ 375,159 $ 40,307 $ 17,998

In fiscal years 2021 and 2020, respectively, revenues from Walmart, recognized in our Legacy segment and Corporate/Other category, represented $ 300.8 million and $ 268.6 million of our total net revenue, subjecting us to customer concentration risk.

Accumulated Other Comprehensive Loss

8 unchanged sentences

Tax effect of amount reclassified from AOCL ( 1,576 ) ( 2,636 ) ( 1,143 )

Stranded tax effect of matured interest rate swaps ( 2,125 ) — —

Net current period other comprehensive income (loss), net of tax 2,460 ( 586 ) ( 1,004 )

6 unchanged sentences

In Thousands, Except Par Value

As of January 2, 2021 As of December 28, 2019

As of January 1, 2022 As of January 2, 2021

Current assets:

9 unchanged sentences

Current liabilities:

Other current liabilities $ 1,341 $ 50

Other payables and accrued expenses $ 1,342 $ 1,341

Long-term debt, less current portion and debt discount 394,514 309,377

Non-current liabilities:

Other non-current liabilities 36,308 28,865

Other liabilities 74,139 36,308

Deferred income taxes — 16,742

3 unchanged sentences

200,000 shares authorized;

82,183 and 80,603 shares issued as of January 2, 2021 and December 28, 2019, respectively;

81,239 and 79,678 shares outstanding as of January 2, 2021 and December 28, 2019, respectively

83,840 and 82,183 shares issued as of January 1, 2022 and January 2, 2021, respectively;

81,405 and 81,239 shares outstanding as of January 1, 2022 and January 2, 2021, respectively

Additional paid-in capital 750,478 795,697

2 unchanged sentences

Treasury stock, at cost;

944 and 925 shares as of January 2, 2021 and December 28, 2019, respectively

2,435 and 944 shares as of January 1, 2022 and January 2, 2021, respectively

( 101,791 ) ( 28,496 )

10 unchanged sentences

Total net revenue $ — $ — $ —

Cost applicable to revenue — — —

Operating expenses 264 256 265

Total costs applicable to revenue — — —

Total operating expenses 256 264 256

Interest expense, net 12,275 17,296 —

Income (Loss) before income taxes ( 17,560 ) ( 256 ) ( 265 )

Earnings (loss) before income taxes ( 12,531 ) ( 17,560 ) ( 256 )

Income tax provision (benefit) ( 2,898 ) ( 3,959 ) 71

Income (Loss) before equity in net income of subsidiaries ( 13,601 ) ( 327 ) ( 174 )

Earnings (loss) before equity in net income of subsidiaries ( 9,633 ) ( 13,601 ) ( 327 )

Net income of subsidiaries 137,877 49,878 33,125

5 unchanged sentences

Comprehensive income $ 130,704 $ 35,691 $ 31,794

Fiscal year 2020 includes 53 weeks.

Fiscal years 2021 and 2019 include 52 weeks.

Fiscal year 2020 includes 53 weeks.

The accompanying notes are an integral part of these condensed financial statements.

4 unchanged sentences

Fiscal Year 2021 Fiscal Year 2020 Fiscal Year 2019

Operating Activities

Net cash provided by (used for) operating activities $ 1,189 $ 25,455 $ 223

Investing Activities

Cash flows from operating activities

Net cash provided by operating activities $ 16,530 $ 1,189 $ 25,455

Cash flows from investing activities

Investment in subsidiary 46,600 ( 404,537 ) ( 15,090 )

Net cash provided by (used for) investing activities 46,600 ( 404,537 ) ( 15,090 )

Financing Activities

Proceeds from stock option exercises and associate stock purchase plan 13,105 15,090 19,802

Proceeds from issuance of convertible notes 402,500 — —

Payments of debt issuance costs ( 11,613 ) — —

Cash flows from financing activities

Borrowings on long-term debt, net of discounts — 402,500 —

Proceeds from issuance of common stock 11,838 13,105 15,090

Purchase of treasury stock ( 73,295 ) ( 689 ) ( 25,646 )

Payments of debt issuance costs — ( 11,613 ) —

Net cash provided by (used for) financing activities ( 61,457 ) 403,303 ( 10,556 )

2 unchanged sentences

Cash and cash equivalents, end of year $ 1,683 $ 10 $ 55

Fiscal year 2020 includes 53 weeks.

Fiscal years 2021 and 2019 include 52 weeks.

Fiscal year 2020 includes 53 weeks.

The accompanying notes are an integral part of these condensed financial statements.

12 unchanged sentences

In May 2020, the Company issued $ 402.5 million principal amount of 2.50 % convertible senior notes due 2025.

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 % and are convertible into cash, shares 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.

NVHI contributed the proceeds from of the 2025 Notes to NVI as additional investments during the fiscal year 2020.

1 unchanged sentence

Guarantees and Restrictions

As described in the Credit Agreement section included in Note 4.

As described in Note 4.

“Long-term Debt” to the NVHI consolidated financial statements, NVI used proceeds from the 2025 Notes to fully repay the outstanding amount on its revolving credit facility of $ 294.3 million and partially repaid $ 75 million on the term loan.

As of January 1, 2022, NVI had $ 150.0 million of principal amount of long-term debt outstanding under its term loan and no outstanding balance under its $ 300.0 million revolving credit facility, which includes $ 6.4 million in outstanding letters of credit.

Under the Credit Agreement Amendment, provided no event of default has occurred and is continuing, NVI is permitted to pay dividends to NVHI with certain restrictions as stated in the Credit Agreement Amendment.

Under the terms of NVI’s amended credit agreement, provided no event of default has occurred and is continuing, NVI is permitted to pay dividends to NVHI with certain restrictions.

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

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.

What changed 10-K

Item 7A. Quantitative and Qualitative Disclosures About Market Risk