UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~June 27, 2020~~July 3, 2021

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 001-38257

National Vision Holdings, Inc.

(Exact name of registrant as specified in its charter)


Delaware						46-4841717
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

2435 Commerce Ave
Building 2200						30096
Duluth, Georgia						(Zip Code)
(Address of principal executive offices)

(770) 822‑3600

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common ~~stock,~~Stock, par value $0.01 per share

EYE

NASDAQ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.


Class						Outstanding at July ~~31, 2020~~30, 2021
Common stock, $0.01 par value						~~80,423,493~~81,875,123

NATIONAL VISION HOLDINGS, INC. AND SUBSIDIARIES

Table of Contents

Page

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Part I – Financial Information

Item 1.

Financial Statements (Unaudited)

Condensed Consolidated Balance Sheets

Condensed Consolidated Statements of Operations and Comprehensive Income

Condensed Consolidated Statements of Stockholders’ Equity

Condensed Consolidated Statements of Cash Flows

Notes to Condensed Consolidated Financial Statements

910

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

2924

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

5142

Item 4.

Controls and Procedures

5143

Part II – Other Information

Unregistered Sales of Equity Securities and Use of Proceeds

5644

Item 3.

Defaults Upon Senior Securities

5644

Item 4.

Mine Safety Disclosures

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (this “Form 10-Q”) contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which are subject to the “safe harbor” created by those sections. All statements, other than statements of historical facts included in this Form 10-Q, including statements concerning our plans, objectives, goals, beliefs, business strategies, future events, business conditions, results of operations, financial position, business outlook, business trends and other information, may be forward-looking statements.

Words such as “believes,” “expects,” “may,” “will,” “should,” “seeks,” “intends,” “plans,” “estimates,” or “anticipates,” and variations of such words or similar expressions are intended to identify forward-looking statements. The forward-looking statements are not historical facts or guarantees of future performance and are based upon our current expectations, beliefs, estimates and projections, and various assumptions, many of which, by their nature, are inherently uncertain and beyond our control. Our expectations, beliefs, and projections are expressed in good faith and we believe there is a reasonable basis for them. However, there can be no assurance that management’s expectations, beliefs and projections will result or be achieved and actual results may vary materially from what is expressed in or indicated by the forward-looking statements.

There are a number of risks, uncertainties and other important factors, many of which are beyond our control, that could cause our actual results to differ materially from the forward-looking statements contained in this Form 10-Q. Such risks, uncertainties and other important factors that could cause actual results to differ include, among others, the risks, uncertainties and factors set forth in Part II, Item 1A - “Risk Factors” in this Form 10-Q and ~~the Form 10-Q filed on May 7, 2020,~~ Part I, Item 1A - “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended ~~December 28, 2019~~January 2, 2021 (the ~~“2019~~“2020 Annual Report on Form 10-K”) ~~and Item 8.01 - “Supplemental Risk Factor” on Form 8-K filed on March 19, 2020,~~, as filed with the Securities and Exchange Commission (the “SEC”), as such risk factors may be updated from time to time in our periodic filings with the SEC, which are accessible on the SEC’s website at www.sec.gov, and also include the following:

•the ~~scale, scope and duration of the novel coronavirus, or~~ COVID-19 pandemic and its resurgence and variants, and the impact of evolving federal, state, and local governmental actions in response thereto;

•customer behavior in response to the continuing pandemic and its ~~resurgence, and evolving federal, state, and local governmental actions, including the impact~~more recent outbreaks of ~~such behavior on in-store traffic and sales;~~variants;

•our ability to keep our reopened stores open in a safe and cost-effective manner, or at all, in light of the continuing COVID-19 pandemic and its resurgence and ~~to open and operate new stores, and to successfully enter new markets in a timely and cost-effective manner;~~

•operational disruptions if a significant percentage of our workforce is unable to work or we experience labor shortages, including because of illness or travel or government restrictions in connection with the pandemic;

•~~the impact on our business of civil unrest, implementation of curfews and protests in certain locations, and related store closures or damage;~~variants;

•our ability to recruit and retain vision care professionals for our stores in general and in light of the pandemic;

•our ability to develop, maintain and ~~maintain~~extend relationships with managed vision care companies, vision insurance providers and other third-party payors;

•our ability to maintain the performance of our host and legacy brands and our current operating relationships with our host and legacy partners;

•our ability to adhere to extensive state, local and federal vision care and healthcare laws and regulations;

•our compliance with managed vision care laws and regulations;

•our ability to maintain sufficient levels of cash flow from our operations to execute or sustain our growth ~~strategy;~~strategy or obtain additional financing at satisfactory terms or at all;

•the loss of, or disruption in the operations of, one or more of our distribution centers and/or optical laboratories, resulting in the inability to fulfill customer orders and deliver our products in a timely manner;

•risks associated with vendors from whom our products are sourced, including our dependence on a limited number of suppliers;

•our ability to ~~successfully~~ compete ~~in the highly competitive optical retail industry;~~successfully;

•~~any failure, inadequacy, interruption, security failure or breach of~~our ability to effectively operate our information technology ~~systems;~~systems and prevent interruption or security breach;

•our growth strategy straining our existing resources and causing the performance of our existing stores to suffer;

•the impact of wage rate increases, inflation, cost increases and increases in raw material prices and energy prices;

•our ability to successfully implement our marketing, advertising and promotional efforts;

•risks associated with leasing substantial amounts of space, including future increases in occupancy costs;

•the impact of certain technological advances, and the greater availability of, or increased consumer preferences for, vision correction alternatives to prescription eyeglasses or contact lenses, and future drug development for the correction of vision-related problems;

•our ability to retain our existing senior management team and attract qualified new personnel;

•overall decline in the health of the economy and other factors impacting consumer ~~spending affecting consumer purchases;~~spending;

•our ability to manage our ~~inventory balances and inventory shrinkage;~~inventory;

•seasonal fluctuations in our operating results and inventory levels;

•our reliance on third-party coverage and reimbursement, including government programs, for an increasing portion of our revenues;

•risks associated with our e-commerce and omni-channel business;

•product liability, product recall or personal injury issues;

•our failure to comply with, or changes in, laws, regulations, enforcement activities and other requirements;

•the impact of any adverse litigation judgments or settlements resulting from legal proceedings relating to our business operations;

•~~risks~~risk of losses arising from our investments in technological innovators in the optical retail industry;

•our ability to adequately protect our intellectual property;

•our significant amount of indebtedness and our ability to generate sufficient cash flow to satisfy our ~~significant~~ debt ~~service~~ obligations;

•~~an increase~~a change in interest rates as well as changes in benchmark rates and uncertainty related to the foregoing;

•restrictions in our credit agreement that limits our flexibility in operating our business;

•potential dilution to existing stockholders upon the conversion of our convertible notes; and

•risks related to owning our common stock, including our ability to comply with requirements to design and implement and maintain effective internal controls.

We caution you that the risks, uncertainties and other factors referenced above may not contain all of the risks, uncertainties and other factors that are important to you. In addition, we cannot assure you that we will realize the results, benefits or developments that we expect or anticipate or, even if substantially realized, that they will result in the consequences or affect us or our business in the way expected. There can be no assurance that (i) we have correctly measured or identified all of the factors affecting our business or the extent of these factors’ likely impact, (ii) the available information with respect to these factors on which such analysis is based is complete or accurate, (iii) such analysis is correct or (iv) our strategy, which is based in part on this analysis, will be successful. All forward-looking statements in this Form 10-Q apply only as of the date of this Form 10-Q or as of the date they were made and, except as required by applicable law, we undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future developments or otherwise.

All references to “we,” “us,” “our,” or the “Company” in this Form 10-Q mean National Vision Holdings, Inc. and its subsidiaries, unless the context otherwise requires. References to “eye care practitioners” in this Form 10-Q mean optometrists and ophthalmologists and references to “vision care professionals” mean optometrists (including optometrists employed by us or by professional corporations owned by eye care practitioners with which we have arrangements) and opticians.

Website Disclosure

We use our website www.nationalvision.com as a channel of distribution of Company information. Financial and other important information regarding the Company is routinely accessible through and posted on our website. Accordingly, investors should monitor our website, in addition to following our press releases, SEC filings and public conference calls and webcasts. In addition, you may automatically receive e-mail alerts and other information about National Vision Holdings, Inc. when you enroll your e-mail address by visiting the “Email Alerts” page of the Investor Resources section of our website at www.nationalvision.com/investors. The contents of our website are not, however, a part of this Form 10-Q.

Table of Contents

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

National Vision Holdings, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

As of ~~June 27, 2020~~July 3, 2021 and ~~December 28, 2019~~January 2, 2021

In Thousands, Except Par Value

(Unaudited)


ASSETS	ASSETS	As of June 27, 2020		As of December 28, 2019		ASSETS	As of July 3, 2021		As of January 2, 2021
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	256,292	$	39,342	Cash and cash equivalents	$	408,301	$	373,903
Accounts receivable, net	Accounts receivable, net	58,451		44,475		Accounts receivable, net	54,733		57,989
Inventories	Inventories	117,859		127,556		Inventories	120,863		111,274
Prepaid expenses and other current assets	Prepaid expenses and other current assets	20,520		23,266		Prepaid expenses and other current assets	24,466		23,484
Total current assets	Total current assets	453,122		234,639		Total current assets	608,363		566,650

Property and equipment, net	Property and equipment, net	339,905		366,767		Property and equipment, net	335,504		341,293
Other assets:	Other assets:					Other assets:
Goodwill	Goodwill	777,613		777,613		Goodwill	777,613		777,613
Trademarks and trade names	Trademarks and trade names	240,547		240,547		Trademarks and trade names	240,547		240,547
Other intangible assets, net	Other intangible assets, net	53,236		56,940		Other intangible assets, net	45,766		49,511
Right of use assets	Right of use assets	341,743		348,090		Right of use assets	343,708		340,141
Other assets	Other assets	12,871		8,129		Other assets	17,715		17,743
Total non-current assets	Total non-current assets	1,765,915		1,798,086		Total non-current assets	1,760,853		1,766,848
Total assets	Total assets	$	2,219,037	$	2,032,725	Total assets	$	2,369,216	$	2,333,498
LIABILITIES AND STOCKHOLDERS’ EQUITY	LIABILITIES AND STOCKHOLDERS’ EQUITY					LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	52,432	$	40,782	Accounts payable	$	77,677	$	64,861
Other payables and accrued expenses	Other payables and accrued expenses	106,865		82,829		Other payables and accrued expenses	116,508		110,309
Unearned revenue	Unearned revenue	42,365		28,002		Unearned revenue	39,071		32,657
Deferred revenue	Deferred revenue	51,624		55,870		Deferred revenue	68,612		58,899
Current maturities of long-term debt and finance lease obligations	Current maturities of long-term debt and finance lease obligations	3,293		13,759		Current maturities of long-term debt and finance lease obligations	4,285		3,598
Current operating lease obligations	Current operating lease obligations	55,363		51,937		Current operating lease obligations	64,330		58,356
Total current liabilities	Total current liabilities	311,942		273,179		Total current liabilities	370,483		328,680

Long-term debt and finance lease obligations, less current portion and debt discount	Long-term debt and finance lease obligations, less current portion and debt discount	644,941		555,933		Long-term debt and finance lease obligations, less current portion and debt discount	616,160		651,763
Non-current operating lease obligations	Non-current operating lease obligations	328,453		331,769		Non-current operating lease obligations	326,478		327,371
Other non-current liabilities:	Other non-current liabilities:					Other non-current liabilities:
Deferred revenue	Deferred revenue	19,438		21,530		Deferred revenue	23,483		20,828
Other liabilities	Other liabilities	25,928		13,731		Other liabilities	14,272		17,415
Deferred income taxes, net	Deferred income taxes, net	67,396		60,146		Deferred income taxes, net	80,003		80,939
Total other non-current liabilities	Total other non-current liabilities	112,762		95,407		Total other non-current liabilities	117,758		119,182
Commitments and contingencies (See Note 9)	Commitments and contingencies (See Note 9)					Commitments and contingencies (See Note 9)	0		0
Stockholders’ equity:	Stockholders’ equity:					Stockholders’ equity:
Common stock, $0.01 par value; 200,000 shares authorized; 81,342 and 80,603 shares issued as of June 27, 2020 and December 28, 2019, respectively; 80,415 and 79,678 shares outstanding as of June 27, 2020 and December 28, 2019, respectively		812		805
Common stock, $0.01 par value; 200,000 shares authorized; 82,828 and 82,183 shares issued as of July 3, 2021 and January 2, 2021, respectively; 81,855 and 81,239 shares outstanding as of July 3, 2021 and January 2, 2021, respectively						Common stock, $0.01 par value; 200,000 shares authorized; 82,828 and 82,183 shares issued as of July 3, 2021 and January 2, 2021, respectively; 81,855 and 81,239 shares outstanding as of July 3, 2021 and January 2, 2021, respectively	828		821
Additional paid-in capital	Additional paid-in capital	782,851		700,121		Additional paid-in capital	739,380		795,697
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(7,355)		(3,814)		Accumulated other comprehensive loss	(3,093)		(4,400)
Retained earnings	Retained earnings	72,512		107,132		Retained earnings	231,184		142,880
Treasury stock, at cost; 927 and 925 shares as of June 27, 2020 and December 28, 2019, respectively		(27,881)		(27,807)
Treasury stock, at cost; 973 and 944 shares as of July 3, 2021 and January 2, 2021, respectively						Treasury stock, at cost; 973 and 944 shares as of July 3, 2021 and January 2, 2021, respectively	(29,962)		(28,496)
Total stockholders’ equity	Total stockholders’ equity	820,939		776,437		Total stockholders’ equity	938,337		906,502
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	2,219,037	$	2,032,725	Total liabilities and stockholders’ equity	$	2,369,216	$	2,333,498

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

Table of Contents

National Vision Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations and Comprehensive Income

For the Three and Six Months Ended July 3, 2021 and June 27, 2020 ~~and June 29, 2019~~

In Thousands, Except Earnings Per Share

(Unaudited)

Three Months Ended Six Months Ended
June 27, 2020 June 29, 2019 June 27, 2020 June 29, 2019
Revenue:
Net product sales $ 209,707 $ 357,533 $ 602,548 $ 740,693
Net sales of services and plans 50,300 71,918 127,163 149,973
Total net revenue 260,007 429,451 729,711 890,666
Costs applicable to revenue (exclusive of depreciation and amortization):
Products 97,635 145,654 254,005 299,658
Services and plans 43,145 56,852 105,329 114,817
Total costs applicable to revenue 140,780 202,506 359,334 414,475
Operating expenses:
Selling, general and administrative expenses 136,582 182,278 330,323 376,154
Depreciation and amortization 21,924 20,819 46,734 41,234
Asset impairment 2,411 1,790 13,766 3,872
Litigation settlement — — 4,395 —
Other expense (income), net (92) 356 (158) 829
Total operating expenses 160,825 205,243 395,060 422,089
Income (loss) from operations (41,598) 21,702 (24,683) 54,102
Interest expense, net 15,502 8,968 22,957 18,029
Debt issuance costs 136 — 136 —
Earnings (loss) before income taxes (57,236) 12,734 (47,776) 36,073
Income tax provision (benefit) (13,403) 2,477 (13,685) 8,387
Net income (loss) $ (43,833) $ 10,257 $ (34,091) $ 27,686
Earnings (loss) per share:
Basic $ (0.55) $ 0.13 $ (0.42) $ 0.35
Diluted $ (0.55) $ 0.13 $ (0.42) $ 0.34
Weighted average shares outstanding:
Basic 80,325 78,318 80,226 78,262
Diluted 80,325 81,424 80,226 81,437
Comprehensive income (loss):
Net income (loss) $ (43,833) $ 10,257 $ (34,091) $ 27,686
Unrealized gain (loss) on hedge instruments 4,111 (2,246) (4,747) (3,519)
Tax provision (benefit) of unrealized gain (loss) on hedge instruments 1,050 (576) (1,206) (902)
Comprehensive income (loss) $ (40,772) $ 8,587 $ (37,632) $ 25,069


	Three Months Ended				Six Months Ended
	July 3, 2021		June 27, 2020		July 3, 2021		June 27, 2020
Revenue:
Net product sales	$	458,206	$	209,707	$	901,273	$	602,548
Net sales of services and plans	91,283		50,300		182,396		127,163
Total net revenue	549,489		260,007		1,083,669		729,711
Costs applicable to revenue (exclusive of depreciation and amortization):
Products	167,028		97,635		326,719		254,005
Services and plans	68,918		43,145		133,917		105,329
Total costs applicable to revenue	235,946		140,780		460,636		359,334
Operating expenses:
Selling, general and administrative expenses	234,235		136,582		457,828		330,323
Depreciation and amortization	24,025		21,924		47,580		46,734
Asset impairment	519		2,411		1,478		13,766
Litigation settlement	0		0		0		4,395
Other expense (income), net	(65)		(92)		(130)		(158)
Total operating expenses	258,714		160,825		506,756		395,060
Income (loss) from operations	54,829		(41,598)		116,277		(24,683)
Interest expense, net	10,096		15,502		16,426		22,957
Debt issuance costs	92		136		92		136
Earnings (loss) before income taxes	44,641		(57,236)		99,759		(47,776)
Income tax provision (benefit)	7,040		(13,403)		18,726		(13,685)
Net income (loss)	$	37,601	$	(43,833)	$	81,033	$	(34,091)

Earnings (loss) per share:
Basic	$	0.46	$	(0.55)	$	0.99	$	(0.42)
Diluted	$	0.42	$	(0.55)	$	0.89	$	(0.42)
Weighted average shares outstanding:
Basic	81,601		80,325		81,457		80,226
Diluted	96,082		80,325		96,044		80,226

Comprehensive income (loss):
Net income (loss)	$	37,601	$	(43,833)	$	81,033	$	(34,091)
Unrealized gain (loss) on hedge instruments	2,959		4,111		4,609		(4,747)
Tax provision (benefit) of unrealized gain (loss) on hedge instruments	756		1,050		3,302		(1,206)
Comprehensive income (loss)	$	39,804	$	(40,772)	$	82,340	$	(37,632)

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

Table of Contents

National Vision Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of ~~Stockholders'~~Stockholders’ Equity

For the Three and Six Months Ended July 3, 2021

In Thousands

(Unaudited)


	Three and Six Months Ended July 3, 2021
	Common Stock			Additional Paid-In Capital		Accumulated Other Comprehensive Loss		Retained Earnings		Treasury Stock		Total Stockholders' Equity
	Shares	Amount
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 January 3, 2021 - as adjusted	81,239	821		724,312		(4,400)		150,151		(28,496)		842,388
Issuance of common stock	174	2		1,056		—		—		—		1,058
Stock based compensation	—	—		2,971		—		—		—		2,971
Purchase of treasury stock	(28)	—		—		—		—		(1,421)		(1,421)
Unrealized gain (loss) on hedge instruments, net of tax	—	—		—		(896)		—		—		(896)
Net income	—	—		—		—		43,432		—		43,432
Balances at April 3, 2021	81,385	$	823	$	728,339	$	(5,296)	$	193,583	$	(29,917)	$	887,532
Issuance of common stock	471	5		3,863		—		—		—		3,868
Stock based compensation	—	—		7,178		—		—		—		7,178
Purchase of treasury stock	(1)	—				—		—		(45)		(45)
Unrealized gain (loss) on hedge instruments, net of tax	—	—		—		2,203		—		—		2,203
Net income	—	—		—		—		37,601		—		37,601
Balances at July 3, 2021	81,855	$	828	$	739,380	$	(3,093)	$	231,184	$	(29,962)	$	938,337

Table of Contents

National Vision Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders’ Equity

For the Three and Six Months Ended June 27, 2020 ~~and June 29, 2019~~

In Thousands

(Unaudited)

Three and Six Months Ended June 27, 2020
Common Stock Additional
Paid-In
Capital Accumulated
Other
Comprehensive
Loss Retained Earnings Treasury
Stock Total
Stockholders'
Equity
Shares Amount
Balances at December 28, 2019 79,678 $ 805 $ 700,121 $ (3,814) $ 107,132 $ (27,807) $ 776,437
Cumulative effect of change in accounting principle — — — — (529) — (529)
Balances at December 28, 2019 - as adjusted 79,678 805 700,121 (3,814) 106,603 (27,807) 775,908
Issuance of common stock 602 6 5,114 — — — 5,120
Stock based compensation — — 2,066 — — — 2,066
Purchase of treasury stock (2) — — — — (74) (74)
Unrealized gain (loss) on hedge instruments, net of tax — — — (6,602) — — (6,602)
Net income — — — — 9,742 — 9,742
Balances at March 28, 2020 80,278 $ 811 $ 707,301 $ (10,416) $ 116,345 $ (27,881) $ 786,160
Issuance of common stock 137 1 877 — — — 878
Stock based compensation — — 3,324 — — — 3,324
Conversion option related to convertible senior notes, net of allocated costs and tax — — 71,349 — — — 71,349
Unrealized gain (loss) on hedge instruments, net of tax — — — 3,061 — — 3,061
Net income (loss) — — — — (43,833) — (43,833)
Balances at June 27, 2020 80,415 $ 812 $ 782,851 $ (7,355) $ 72,512 $ (27,881) $ 820,939


		Three and Six Months Ended June 29, 2019																													Three and Six Months Ended June 27, 2020
		Common Stock						Additional Paid-In Capital		Accumulated Other Comprehensive Loss		Retained Earnings			Treasury Stock			Total Stockholders' Equity			Common Stock				Additional Paid-In Capital		Accumulated Other Comprehensive Loss		Retained Earnings		Treasury Stock		Total Stockholders' Equity
		Shares		Amount																Accumulated Other Comprehensive Loss		Retained Earnings		Treasury Stock										Total Stockholders' Equity
Balances at December 29, 2018		78,167		$	782	$	672,503							$	(2,810)		$	74,840	$							(2,161)	$	743,154
Balances at December 28, 2019																		Balances at December 28, 2019	79,678		$	805	$	700,121	$	(3,814)	$	107,132	$	(27,807)	$	776,437
Cumulative effect of change in accounting principle	Cumulative effect of change in accounting principle	—		—		—		—		(506)		—			(506)			Cumulative effect of change in accounting principle	—		—		—		—		(529)		—		(529)
Balances at December 30, 2018 - as adjusted		78,167		782		672,503		(2,810)		74,334		(2,161)			742,648
Balances at December 29, 2019 - as adjusted																		Balances at December 29, 2019 - as adjusted	79,678		805		700,121		(3,814)		106,603		(27,807)		775,908
Issuance of common stock	Issuance of common stock	51		1		512		—		—		—			513			Issuance of common stock	602		6		5,114		—		—		—		5,120
Stock based compensation	Stock based compensation	—		—		2,937		—		—		—			2,937			Stock based compensation	—		—		2,066		—		—		—		2,066

Purchase of treasury stock																		Purchase of treasury stock	(2)		—		—		—		—		(74)		(74)
Unrealized gain (loss) on hedge instruments, net of tax	Unrealized gain (loss) on hedge instruments, net of tax	—		—		—		(947)		—		—			(947)			Unrealized gain (loss) on hedge instruments, net of tax	—		—		—		(6,602)		—		—		(6,602)
Net income	Net income	—	��	—		—		—		17,429		—			17,429			Net income	—		—		—		—		9,742		—		9,742
Balances at March 30, 2019		78,218		$	783	$	675,952	$	(3,757)	$	91,763	$	(2,161)		$	762,580
Balances at March 28, 2020																		Balances at March 28, 2020	80,278		$	811	$	707,301	$	(10,416)	$	116,345	$	(27,881)	$	786,160
Issuance of common stock	Issuance of common stock	266		3		1,550		—		—		—			1,553			Issuance of common stock	137		1		877		—		—		—		878
Stock based compensation	Stock based compensation	—		—		1,714		—		—		—			1,714			Stock based compensation	—		—		3,324		—		—		—		3,324
Conversion option related to convertible senior notes, net of allocated costs and tax																		Conversion option related to convertible senior notes, net of allocated costs and tax	—		—		71,349		—		—		—		71,349
Unrealized gain (loss) on hedge instruments, net of tax	Unrealized gain (loss) on hedge instruments, net of tax	—		—		—		(1,670)		—		—			(1,670)			Unrealized gain (loss) on hedge instruments, net of tax	—		—		—		3,061		—		—		3,061
Net income		—		—		—		—		10,257		—			10,257
Balances at June 29, 2019		78,484		$	786	$	679,216	$	(5,427)	$	102,020	$	(2,161)		$	774,434
Net income (loss)																		Net income (loss)	—		—		—		—		(43,833)		—		(43,833)
Balances at June 27, 2020																		Balances at June 27, 2020	80,415		$	812	$	782,851	$	(7,355)	$	72,512	$	(27,881)	$	820,939

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

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National Vision Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

For the Six Months Ended July 3, 2021 and June 27, 2020 ~~and June 29, 2019~~

In Thousands

(Unaudited)


		Six Months Ended							Six Months Ended
		June 27, 2020		June 29, 2019			July 3, 2021		June 27, 2020
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net income (loss)	Net income (loss)	$	(34,091)	$	27,686	Net income (loss)	$	81,033	$	(34,091)
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:					Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	Depreciation and amortization	46,734		41,234		Depreciation and amortization	47,580		46,734
Amortization of debt discount and deferred financing costs	Amortization of debt discount and deferred financing costs	2,717		892		Amortization of debt discount and deferred financing costs	2,268		2,717
Asset impairment	Asset impairment	13,766		3,872		Asset impairment	1,478		13,766
Deferred income tax expense (benefit)	Deferred income tax expense (benefit)	(13,686)		8,239		Deferred income tax expense (benefit)	14,582		(13,686)
Stock based compensation expense	Stock based compensation expense	5,445		4,717		Stock based compensation expense	10,201		5,445

Losses (gains) on change in fair value of derivatives	Losses (gains) on change in fair value of derivatives	4,871		—		Losses (gains) on change in fair value of derivatives	125		4,871
Inventory adjustments	Inventory adjustments	2,883		2,043		Inventory adjustments	619		2,883
Credit loss expense		432		3,865

Other	Other	1,373		1,592		Other	1,253		3,328
Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
Accounts receivable	Accounts receivable	(14,408)		(10,567)		Accounts receivable	2,393		(14,408)
Inventories	Inventories	6,814		8,319		Inventories	(10,208)		6,814
Operating lease right of use assets and lease liabilities						Operating lease right of use assets and lease liabilities	149		1,174
Other assets	Other assets	3,444		11,391		Other assets	(1,148)		2,047
Accounts payable	Accounts payable	11,630		3,458		Accounts payable	12,816		11,630
Deferred revenue		(6,338)		5,804
Deferred and unearned revenue						Deferred and unearned revenue	18,782		8,025

Other liabilities	Other liabilities	39,834		6,734		Other liabilities	7,885		24,171
Net cash provided by operating activities	Net cash provided by operating activities	71,420		119,279		Net cash provided by operating activities	189,808		71,420
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Purchase of property and equipment	Purchase of property and equipment	(25,796)		(52,103)		Purchase of property and equipment	(38,812)		(25,796)
Other	Other	265		315		Other	22		265
Net cash used for investing activities	Net cash used for investing activities	(25,531)		(51,788)		Net cash used for investing activities	(38,790)		(25,531)
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Borrowings on long-term debt, net of discounts	Borrowings on long-term debt, net of discounts	548,769		—		Borrowings on long-term debt, net of discounts	0		548,769
Repayments on long-term debt	Repayments on long-term debt	(369,269)		(2,500)		Repayments on long-term debt	(117,375)		(369,269)
Proceeds from exercise of stock options	Proceeds from exercise of stock options	5,998		2,066		Proceeds from exercise of stock options	5,738		5,998
Purchase of treasury stock	Purchase of treasury stock	(74)		—		Purchase of treasury stock	(1,466)		(74)
Payments of debt issuance costs	Payments of debt issuance costs	(12,400)		—		Payments of debt issuance costs	(900)		(12,400)
Payments on finance lease obligations	Payments on finance lease obligations	(1,587)		(1,190)		Payments on finance lease obligations	(2,526)		(1,587)
Net cash provided by (used for) financing activities	Net cash provided by (used for) financing activities	171,437		(1,624)		Net cash provided by (used for) financing activities	(116,529)		171,437
Net change in cash, cash equivalents and restricted cash	Net change in cash, cash equivalents and restricted cash	217,326		65,867		Net change in cash, cash equivalents and restricted cash	34,489		217,326
Cash, cash equivalents and restricted cash, beginning of year	Cash, cash equivalents and restricted cash, beginning of year	40,307		17,998		Cash, cash equivalents and restricted cash, beginning of year	375,159		40,307
Cash, cash equivalents and restricted cash, end of period	Cash, cash equivalents and restricted cash, end of period	$	257,633	$	83,865	Cash, cash equivalents and restricted cash, end of period	$	409,648	$	257,633

Supplemental cash flow disclosure information:	Supplemental cash flow disclosure information:					Supplemental cash flow disclosure information:
Cash paid for interest	Cash paid for interest	$	13,810	$	17,438	Cash paid for interest	$	14,640	$	13,810
Cash paid (received) for taxes						Cash paid (received) for taxes	$	6,995	$	(1,452)
Capital expenditures accrued at the end of the period	Capital expenditures accrued at the end of the period	$	11,265	$	22,033	Capital expenditures accrued at the end of the period	$	8,827	$	11,265
Right of use assets acquired under finance leases		$	1,257	$	9,763
Right of use assets acquired under operating leases		$	35,870	$	58,528

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

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National Vision Holdings, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

1. Description of Business and Basis of Presentation

Nature of Operations

National Vision Holdings, Inc. (“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 ~~direct~~ wholly owned subsidiaries. We are a leading value retailer of eyeglasses and contact lenses in the United States. We operated 1,249 and 1,205 retail optical locations in the United States and its ~~territories. We operated 1,185 and 1,151 retail optical locations~~territories as of ~~June 27, 2020~~July 3, 2021 and ~~December 28, 2019,~~January 2, 2021, respectively, through our 5 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”).

Basis of Presentation

We ~~prepared the accompanying~~prepare our unaudited interim condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and, therefore, do not include all information and disclosures required by U.S. GAAP for complete consolidated financial statements. The condensed consolidated balance sheet as of ~~December 28, 2019~~January 2, 2021 has been derived from the audited consolidated balance sheet for the fiscal year then ended. These condensed consolidated financial statements reflect all normal and recurring adjustments which are, in the opinion of management, necessary to present fairly the Company’s consolidated ~~financial position as of June 27, 2020, the consolidated~~ results of ~~operations and comprehensive income,~~ the ~~statements~~interim period. Certain prior year amounts in the Condensed Consolidated Statements of ~~changes in stockholders’ equity for~~Cash Flows have been reclassified to conform to the ~~three and six months ended June 27, 2020 and June 29, 2019, and its statements of cash flows for the six months ended June 27, 2020 and June 29, 2019.~~current presentation.

Certain information and disclosures normally included in our annual consolidated financial statements have been condensed or omitted; however, we believe that the disclosures included herein are sufficient for a fair presentation of the information presented. These condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and the notes thereto for the fiscal year ended ~~December 28, 2019~~January 2, 2021 included in the ~~2019~~2020 Annual Report on Form 10-K. The Company’s significant accounting policies are set forth in Note 1 within those consolidated financial statements. We use the same accounting policies in preparing interim condensed consolidated financial information and annual consolidated financial statements. There were no changes to our significant accounting policies during the six months ended ~~June 27, 2020,~~July 3, 2021, except for the adoption of Accounting Standards Update (“ASU”) No. ~~2018-15,~~2020-06, ~~Customer’s~~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 ~~Implementation Costs Incurred~~Convertible Instruments and Contracts in ~~a Cloud Computing Arrangement That Is a Service Contract~~an Entity’s Own Equity ~~and~~ (“ASU ~~No. 2016-13,~~ ~~Measurement of Credit Losses on Financial Instruments~~2020-06”). See “Adoption of New Accounting Pronouncements” below for further discussion.

The condensed consolidated financial statements include our accounts and those of our subsidiaries, all of which are wholly-owned. All intercompany balances and transactions have been eliminated in consolidation.

~~Refer to Note 4. “Long-term Debt” for information on convertible debt issued in the second quarter of 2020.~~

Refer to Note 3. “Fair Value Measurements of Financial Assets and Liabilities” for information on changes in our assessment of hedge effectiveness in the second quarter of 2020 and for information on our accounting for hedge ineffectiveness.

Fiscal Year

Our fiscal year consists of 52 or 53 weeks ending on the Saturday closest to December 31. Fiscal year ~~2020~~2021 contains 5352 weeks and will end on January ~~02, 2021.~~1, 2022. All three and six month periods presented herein contain 13 and 26 weeks, respectively. All references to years and quarters relate to fiscal periods rather than calendar periods.

910

Table of contents

~~National Vision Holdings, Inc. and Subsidiaries~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~1. Description of Business and Basis of Presentation (continued)~~

Seasonality

The consolidated results of operations for the three and six months ended July 3, 2021 and June 27, 2020, ~~and June 29, 2019,~~ are not necessarily indicative of the results to be expected for the full fiscal year due to seasonality and uncertainty of general economic conditions that may impact our key end markets. Historically, our business has realized a higher portion of net revenue, income from operations, and cash flows from operations in the first half of the year, and a lower portion of net revenue, income from operations, and cash flows from operations in the fourth fiscal quarter. The first half seasonality is attributable primarily to the timing of our customers’ personal income tax refunds and annual health insurance program start/reset periods. Seasonality related to fourth quarter holiday spending by retail customers generally does not impact our business. Our quarterly consolidated results generally may also be affected by the timing of new store openings, store closings, and certain holidays. ~~Due to~~

The COVID-19 pandemic resulted in the temporary closure of our stores for a portion of the first half of fiscal year 2020 ~~the COVID-19 pandemic has~~and caused changes in fiscal year 2020 ~~seasonality and~~seasonality. COVID-19 may continue to cause changes ~~beyond 2020~~ to the seasonality we have historically ~~experienced.~~experienced in fiscal year 2021 and beyond.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

~~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 value 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. 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 (generally leasehold improvements) 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 a market rate of approximately 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 when estimating the fair values of ROU assets. A significant decrease in the estimated cash flows would lead to a lower fair value measurement, as would a significant increase in the discount rate. These non-recurring fair value measurements are classified as Level 3 measurements in the fair value hierarchy.

~~We identified indicators of impairment of certain st~~ores and other assets and recorded $2.4 million and $13.8 million of related asset impairment charges during the three and six months ended June 27, 2020, respectively, in Corporate/Other. These impairment charges were primarily driven by lower than projected customer sales volume in certain stores; we also considered 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 re~~maining fair value of the impaired assets was~~ ~~$19.5 million~~ as of June 27, 2020; this value includes fair value estimates related to impairments recorded in the first quarter of 2020. Substantially all of the remaining fair value of the impaired store assets in fiscal year 2020 represent the fair value of ROU assets. The asset impairment expense for the ~~three and six~~ ~~months ended~~ ~~June 27, 2020~~ ~~also includes $1.1 million related to a write-off of certain software assets that were deemed to be obsolete due to a decision to cease further development.~~

Income Taxes

Our income tax ~~rate~~provision for the three months ended July 3, 2021 and June 27, 2020reflected our statutory federal and state rate of 25.5%, offset by discrete benefits from stock option exercises of $4.1 million and $0.3 million, respectively. Our income tax provision for the six months ended July 3, 2021 and June 27, 2020 reflected our statutory federal and state rate of 25.5%, offset by discrete benefits from stock option exercises of $4.5 million and $3.0 million, respectively, and a ~~discrete benefit~~stranded tax effect of ~~$0.3~~$2.1 million associated ~~primarily~~ with ~~stock option exercises. Our income tax benefit for~~our matured interest rate swaps during the six months ended ~~June 27,~~July 3, 2021.

Adoption of New Accounting Pronouncements

Convertible Instruments and Contracts in an Entity’s Own Equity. In August 2020, ~~reflected income~~the Financial Accounting Standards Board (“FASB”) issued 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 ~~expense at our statutory federal~~liabilities decreased by $18.8 million and ~~state rate~~additional paid-in capital decreased by $71.4 million. The adoption did not have an impact on the calculated weighted average shares outstanding used in the calculation of ~~25.5%, offset by a discrete benefit~~diluted EPS since the Company was using the if-converted method prior to the adoption of ~~$3.0 million associated primarily with stock option exercises. In comparison,~~ASU 2020-06. Refer to Note 11. “Earnings per Share” for more information.

The following tables summarize the ~~income tax rate associated with~~impact of adoption on the Company’s condensed consolidated statement of operations for the three and six months ended June 29, 2019 reflected income tax expense at our statutory federal and state rate of 25.6% and was reduced by a $1.1 million and a $1.4 million income tax benefit resulting from stock option exercises, respectively.July 3, 2021:

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Table of contents

~~National Vision Holdings, Inc. and Subsidiaries~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~1. Description of Business and Basis of Presentation (continued)~~

~~CARES Act~~


	Three Months Ended July 3, 2021
In thousands (except earnings per share)	With ASU 2020-06 Adoption		Without ASU 2020-06 Adoption		Impact of Adoption

Income from operations	$	54,829	$	54,829	$	0
Interest expense, net	10,096		14,040		(3,944)
Debt issuance costs	92		92		0
Earnings before income taxes	44,641		40,697		3,944
Income tax provision	7,040		6,144		896
Net income	$	37,601	$	34,553	$	3,048
Earnings per share:
Basic	$	0.46	$	0.42	$	0.04
Diluted	$	0.42	$	0.42	$	0
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.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was enacted in response to the COVID-19 pandemic. The CARES Act, among other things, accelerates a company’s ability to recover Alternative Minimum Tax (“AMT”) refundable credits that otherwise could have been claimed in 2020 and 2021, to 2018 and 2019, with an option to elect recovery of the full credit amount for 2018. The Company has elected to apply the AMT refundable credit provision of the CARES Act and has reclassified ~~$1.3 million~~ of AMT credits from Deferred income taxes, net as of December 28, 2019 to Other assets as of June 27, 2020. The CARES Act also includes a technical correction wherein qualified improvement property placed in service in 2018 and after is eligible for 100% bonus depreciation. This provision of the CARES Act resulted in an increase in our NOL carry-forwards with an offsetting increase in our gross deferred tax liability relating to property and equipment of approximately $25.0 million as of June 27, 2020. In addition, the Company recorded a credit of $10.8 million as a reduction of costs applicable to revenue and SG&A as a result of the employee retention credits made available under the CARES Act for US employees during the three and six months ended June 27, 2020, recognizing $0.4 million as a reduction to costs of products, $6.2 million as a reduction to costs of services and plans, and $4.2 million as a reduction to SG&A~~. 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 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.~~

~~Adoption of New Accounting Pronouncements~~


	Six Months Ended July 3, 2021
In thousands (except earnings per share)	With ASU 2020-06 Adoption		Without ASU 2020-06 Adoption		Impact of Adoption

Income from operations	$	116,277	$	116,277	$	0
Interest expense, net	16,426		24,176		(7,750)
Debt issuance costs	92		92		0
Earnings before income taxes	99,759		92,009		7,750
Income tax provision	18,726		17,010		1,716
Net income	$	81,033	$	74,999	$	6,034
Earnings per share:
Basic	$	0.99	$	0.92	$	0.07
Diluted	$	0.89	$	0.89	$	0
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.

~~Cloud Computing.~~
~~In August 2018, the FASB issued ASU No. 2018-15,~~ ~~Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.~~ This new guidance aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). This new guidance is effective for fiscal years beginning after December 15, 2019, and for interim periods within those fiscal years and may be adopted on a prospective or retrospective basis. We adopted the accounting standard on a prospective basis in the first quarter of 2020. The adoption of this guidance did not have a material impact on the Company’s financial condition, results of operations or cash flows.

~~Credit Losses. In June 2016, the FASB issued ASU No. 2016-13,~~ ~~Measurement of Credit Losses on Financial Instruments.~~ This new guidance requires an entity to assess impairment of its financial instruments based on its estimate of expected credit losses. Initial adoption of ASU 2016-13 is required to be reported on a modified retrospective basis, with a cumulative-effect adjustment to retained earnings as of the beginning of the year of adoption, except for certain provisions that are required to be applied prospectively. This guidance is effective for fiscal years beginning after December 15, 2019, and for interim reporting periods within those fiscal years.

We adopted ASU No. 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 6. “Equity in Assets of Non-Consolidated Investee” for more information on our non-consolidated investee’s secured convertible promissory note). 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.

Future Adoption of Accounting Pronouncements

Reference Rate Reform. In March 2020, the FASB issued ASU No. 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”). This guidance provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions that may be affected by the cessation of the London Inter-bank Offered Rate (“LIBOR.”) ~~ASU 2020-04~~An entity may elect to apply the amendments for contract modifications as of any date from the beginning of an interim period that includes or is ~~effective from~~subsequent to March 12, 2020 through December 31, 2022. A ~~substantial~~ portion of our debt is subject to interest payments that are indexed to LIBOR; additionally, we are party to ~~multiple~~an interest rate ~~derivatives~~derivative based on LIBOR. We are currently evaluating the effect of this ~~guidance.~~guidance and have not applied the provisions of this guidance during the current fiscal year.

The FASB issued other accounting guidance during the period that is not currently applicable or expected to have a material impact on the Company’s condensed consolidated financial statements, and therefore, is not described above.

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~~National Vision Holdings, Inc. and Subsidiaries~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

2. Details of Certain Balance Sheet Accounts


In thousands	As of July 3, 2021		As of January 2, 2021
Accounts receivable, net:
Trade receivables	$	28,742	$	28,405
Credit card receivables	19,830		21,557
Other receivables	6,556		8,460
Allowance for credit losses	(395)		(433)
	$	54,733	$	57,989

In thousands As of
June 27, 2020 As of
December 28, 2019
Accounts receivable, net:
Trade receivables $ 24,207 $ 28,635
Credit card receivables 19,080 14,173
Other receivables ⁽¹⁾
15,817 4,707
Allowance for credit losses (653) (3,040)
$ 58,451 $ 44,475
(1) Includes CARES Act receivable in the amount of $10.8 million as of June 27, 2020.


In thousands	As of July 3, 2021		As of January 2, 2021
Inventories:
Raw materials and work in process (1)	$	55,246	$	55,473
Finished goods	65,617		55,801
	$	120,863	$	111,274
(1)Due to the immaterial amount of estimated work in process and the short lead times for the conversion of raw materials to finished goods, the Company does not separately present raw materials and work in process.

In thousands As of
June 27, 2020 As of
December 28, 2019
Inventories:
Raw materials and work in process ⁽¹⁾
$ 61,747 $ 65,179
Finished goods 56,112 62,377
$ 117,859 $ 127,556
(1)Due to the immaterial amount of estimated work in process and the short lead times for the conversion of raw materials to finished goods, the Company does not separately present raw materials and work in process.


In thousands	As of July 3, 2021		As of January 2, 2021
Other payables and accrued expenses:
Associate compensation and benefits (1)	$	53,251	$	51,081
Advertising	4,503		2,173
Self-insurance liabilities	9,634		8,650
Reserves for customer returns and remakes	9,301		8,084
Capital expenditures	8,827		8,455
Legacy management & services agreement	6,722		5,386
Fair value of derivative liabilities	4,077		5,116
Supplies and other store support expenses	2,820		3,461
Litigation settlements	1,720		1,107
Lease concessions	737		3,142
Other	14,916		13,654
	$	116,508	$	110,309
(1) Includes the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act deferred employer payroll taxes in the amount of $0.0 million and $12.8 million as of July 3, 2021 and January 2, 2021, respectively.

In thousands As of
June 27, 2020 As of
December 28, 2019
Property and equipment, net:
Land and building $ 3,624 $ 3,632
Equipment 193,875 188,593
Information technology hardware and software 117,777 115,283
Furniture and fixtures 54,963 55,146
Leasehold improvements 215,701 213,124
Construction in progress 19,792 26,517
Right of use assets under finance leases 37,162 36,437
642,894 638,732
Less: Accumulated depreciation 302,989 271,965
$ 339,905 $ 366,767


In thousands	As of July 3, 2021		As of January 2, 2021
Other non-current liabilities:
Fair value of derivative liabilities	$	4,217	$	7,663
Self-insurance liabilities	7,491		7,046
Other	2,564		2,706
	$	14,272	$	17,415

In thousands As of
June 27, 2020 As of
December 28, 2019
Other payables and accrued expenses:
Employee compensation and benefits $ 31,157 $ 28,347
Advertising 535 2,919
Self-insurance liabilities 9,266 8,403
Reserves for customer returns and remakes 7,457 7,158
Capital expenditures 11,265 6,782
Legacy management & services agreement 4,576 4,461
Fair value of derivative liabilities 7,228 6,382
Supplies and other store support expenses 6,894 2,926
Litigation settlements 8,228 3,840
Other 20,259 11,611
$ 106,865 $ 82,829

~~Table of contents~~

~~National Vision Holdings, Inc. and Subsidiaries~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~2. Details of Certain Balance Sheet Accounts (continued)~~

In thousands As of
June 27, 2020 As of
December 28, 2019
Other non-current liabilities:
Fair value of derivative liabilities $ 10,374 $ 1,603
Self-insurance liabilities 8,048 7,283
Other ⁽¹⁾
7,506 4,845
$ 25,928 $ 13,731
(1) Includes CARES Act deferred employer payroll taxes in the amount of $4.9 million as of June 27, 2020.

~~3. Fair Value Measurements of Financial Assets and Liabilities~~

The Company uses a fair value hierarchy that is intended to increase consistency and comparability in fair value measurements and related disclosures. The fair value hierarchy is based on inputs to valuation techniques that are used to measure fair value that are either observable or unobservable. Observable inputs reflect assumptions market participants would use in pricing an asset or liability based on market data obtained from independent sources while unobservable inputs reflect pricing based upon a reporting entity’s own market assumptions.

The Company is required to measure certain assets and liabilities at fair value or disclose the fair values of certain assets and liabilities recorded at cost. Accounting standards define fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is estimated assuming the transaction occurs in the principal or most advantageous market for the asset or liability and includes consideration of non-performance risk and credit risk of both parties. A three-tier fair value hierarchy prioritizes the inputs used in measuring fair value. These tiers include:

•~~Level 1 - Valuation inputs are based upon unadjusted quoted prices for identical instruments traded in active markets.~~

•Level 2 - Valuation inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in inactive markets, and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the instruments.

•Level 3 - Valuation inputs are unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are determined using model-based techniques that include discounted cash flow models and similar techniques.

The fair value estimates of financial instruments are not necessarily indicative of the amounts we might pay or receive in actual market transactions. The use of different market assumptions and/or estimation methodologies may have a material impact on the estimated fair value amounts.

~~Cash Equivalents and Restricted Cash~~

~~The carrying amount of cash equivalents approximates fair value due to the short-term maturity of the instruments. All cash and cash equivalents are denominated in U.S. currency.~~

~~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 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”.

Table of contents

~~National Vision Holdings, Inc. and Subsidiaries~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

3. Fair Value Measurement ~~of Financial Assets and Liabilities (continued)~~

~~Long-term Debt - Term Loan and Revolving Credit Facility~~

Since the borrowings under our term loan and revolving credit facility utilize variable interest rate setting mechanisms such as LIBOR, the fair values of these borrowings are deemed to approximate the carrying values. We also considered the effect of our own credit risk on the fair values of our term loan and revolving credit facility. Refer to Note 4. “Long-term Debt”.

~~Long-term Debt - 2025 Notes~~

~~The Company has $402.5 million in aggregate principal amount of 2.50% convertible senior notes due on May 15, 2025 (the “2025 Notes”) issued and outstanding as of June 27, 2020. The estimated~~Recurring fair value of the 2025 Notes was approximately $464.4 million as of June 27, 2020. The estimated fair value of the 2025 Notes is based on the prices the 2025 Notes have traded in the market as of June 27, 2020, as well as overall market conditions on the date of valuation, stated coupon rates, the number of coupon payments each year and the maturity dates, and represents a Level 2 measurement. Refer to Note 4. “Long-term Debt” for more information on the 2025 Notes.

~~Finance Lease Obligations~~

The fair value of finance lease obligations is based on estimated future contractual cash flows discounted at an appropriate market rate of interest (Level 2 inputs). The estimated fair values of our finance leases were $36.9 million and $38.2 million as of June 27, 2020 and December 28, 2019, respectively, compared to carrying values of $32.6 million and $33.3 million, respectively.measurements

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. 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.

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. ~~Fair~~The fair value is based on information that is model-driven and whose inputs ~~are~~were observable (Level 2 inputs). See Note 5. “Interest Rate Derivatives” for further details.

Nonrecurring fair value measurements

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

We recognized impairments of $0.5 million and $1.5 million during the three and six months ended July 3, 2021, 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%. 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. The estimated remaining fair value of the assets impaired as of July 3, 2021 was $2.9 million. Substantially all of the remaining fair value of the impaired store assets in fiscal year 2021 represents the fair value of ROU assets.

Additional fair value information

Long-term Debt - 2025 Notes

The Company has $402.5 million in aggregate principal amount of 2.50% convertible senior notes due on May 15, 2025 (the “2025 Notes”) issued and outstanding as of July 3, 2021. Refer to Note 4. “Long-term Debt” for more information on the 2025 Notes. The estimated fair value of the 2025 Notes was approximately $705.2 million and $655.3 million as of July 3, 2021 and January 2, 2021, respectively. The estimated fair value of the 2025 Notes is based on the prices the 2025 Notes have traded in the market as of July 3, 2021, as well as overall market conditions on the date of valuation, stated coupon rates, the number of coupon payments each year and the maturity date, and represents a Level 2 measurement in the fair value hierarchy.

4. Long-term Debt

Long-term debt consists of the following:


In thousands	As of July 3, 2021		As of January 2, 2021
2025 Notes, due May 15, 2025	$	402,500	$	402,500
Term loan, due July 18, 2024	200,000		317,375
Long-term debt before debt discount	602,500		719,875
Unamortized discount and issuance costs - 2025 Notes	(9,153)		(93,123)
Unamortized discount and issuance costs - term loan	(1,515)		(2,141)
Long-term debt less debt discount	591,832		624,611
Less current maturities	0		0
Long-term debt - non-current portion	591,832		624,611
Finance lease obligations	28,613		30,750
Less current maturities	(4,285)		(3,598)
Long-term debt and finance lease obligations, less current portion and debt discount	$	616,160	$	651,763

Table of contents

Credit Agreement

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

As a result of the principal prepayments made by the Company, we have no additional mandatory principal payments on the remaining $200.0 million term loan balance until maturity on July 18, 2024.

Capitalized terms used but not defined herein shall have the meanings assigned to such terms in our credit agreement. 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. We were in compliance with all covenants related to our long-term debt as of July 3, 2021.

2025 Notes

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 $2.5 million and $0.5 million in interest expense for the interest coupon and amortization of issuance costs, respectively, during the three months ended July 3, 2021 and $5.0 million and $1.0 million, respectively during the six months ended July 3, 2021. As of July 3, 2021, the remaining period for the unamortized debt issuance costs balance was approximately four years.

As of July 3, 2021, the 2025 Notes can be converted by holders. 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 warrants; spin-offs and other distributed property; cash dividends or distributions; tender offers or exchange offers; and certain other corporate transactions. The holders of our term loan would have preference over the holders of the 2025 Notes in the event of a liquidation.

5. Interest Rate Derivatives

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 July 3, 2021. The fair value of our interest rate collar instrument was $8.3 million as of July 3, 2021 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. See Note 3. “Fair Value Measurement” for further details.

Gains (losses) on the change in fair value of the interest rate collar of approximately $(0.5) million and $1.5 million were recorded in interest expense, net during the three and six months ended July 3, 2021, respectively. Interest expense, net related to our interest rate derivatives considered to be highly effective hedges for the six months ended July 3, 2021 was $1.5 million.

Cash flows related to derivatives qualifying as hedges are included in the same section of the Condensed Consolidated Statements of Cash Flows as the underlying assets and liabilities being hedged. Cash flows during the six months ended July 3, 2021 and June 27, 2020 related to derivatives not qualifying as hedges were included in the operating section of the Condensed Consolidated Statements of Cash Flows and were immaterial.

Table of contents

During the second quarter of 2021, as a result of the partial repayment of the Company’s LIBOR based term-loan debt balances, certain forecasted hedged transactions were deemed not probable of occurring. The Company subsequently reclassified unrealized losses of $2.5 million from AOCL to interest expense on $115.0 million of interest rate collar notional, during the three and six months ended July 3, 2021. As of July 3, 2021, the Company expects to reclassify approximately $0.9 million of unrealized losses on derivative instruments, net of tax, from Accumulated other comprehensive loss (“AOCL”) into earnings in the next 12 months as the derivative instruments mature. See Note 13. “Accumulated Other Comprehensive Loss” 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 the three and six months ended June 27, ~~2020~~.2020. Additionally, due to changes in the interest rates applicable to the Company’s term loan and revolver, 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 the quarter ended June 27, 2020. Interest expense, net related to derivatives considered to be highly effective hedges for the three and six months ended June 27, 2020 was $2.0 million and $3.9 million, respectively.

Changes in the cash flows of interest rate swap derivatives 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. Derivatives qualifying as hedges are included in the same section of the Condensed Consolidated Statements of Cash Flows as the underlying assets and liabilities being hedged. Cash flows during the six months ended June 27, 2020 related to derivatives not qualifying as hedges were included in the operating section of the Condensed Consolidated Statements of Cash Flows and were not material. As of June 27, 2020, the Company expects to reclassify ~~$4.6 million~~ of unrealized losses on derivative instruments, net of tax, from AOCL into earnings in the next 12 months as the derivative instruments mature. See Note 13. “Accumulated Other Comprehensive Loss” for further details.

~~Table of contents~~

~~National Vision Holdings, Inc. and Subsidiaries~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~3. Fair Value Measurement of Financial Assets and Liabilities (continued)~~

~~Our positions related to interest rate derivative contracts are as follows:~~

In thousands Balance Sheet Classification As of
June 27, 2020 As of December 28, 2019
Derivatives designated as hedging instruments under ASC 815
Interest rate swaps Other Payables and Accrued Expenses $ 5,497 $ 6,382
Interest rate swaps Other Liabilities — 1,603
Total derivative liabilities designated as hedging instruments $ 5,497 $ 7,985
Derivatives not designated as hedging instruments under ASC 815
Interest rate swap Other Payables and Accrued Expenses $ 892 $ —
Interest rate collar Other Payables and Accrued Expenses 839 —
Interest rate collar Other Liabilities 10,374 —
Total derivative liabilities not designated as hedging instruments $ 12,106 $ —

~~4. Long-term Debt~~

~~Long-term debt consists of the following:~~

In thousands As of
June 27, 2020 As of
December 28, 2019
2025 Notes, due May 15, 2025 $ 402,500 $ —
Term loan, due July 18, 2024 317,375 392,375
Revolving credit facility, due July 18, 2024 — 148,000
Long-term debt before debt discount 719,875 540,375
Unamortized discount and issuance costs - 2025 Notes (101,780) —
Unamortized discount and issuance costs - term loan (2,454) (3,979)
Long-term debt less debt discount 615,641 536,396
Less current maturities — (10,500)
Long-term debt - non-current portion 615,641 525,896
Finance lease obligations 32,593 33,296
Less current maturities (3,293) (3,259)
Long-term debt and finance lease obligations, less current portion and debt discount $ 644,941 $ 555,933

~~Table of contents~~

~~National Vision Holdings, Inc. and Subsidiaries~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~4. Long-term Debt (continued)~~

~~2025 Notes~~

In May 2020, we completed the issuance of the 2025 Notes, pursuant to an indenture (the “Indenture”), dated as of May 12, 2020, between the Company and U.S. Bank National Association, as trustee (the “Trustee”). 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.

~~We received proce~~eds 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 of the revolving credit facility and $75.0 million to partially repay 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:~~

(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;

(ii) during the 5 consecutive business days immediately after any 10 consecutive Trading Day period (such 10 consecutive trading day period, the “measurement period”) in which the Trading Price (as defined in the Indenture) per $1,000 principal amount of the 2025 Notes for each Trading Day of the measurement period was less than 98% of the product of the Last Reported Sale Price per share of the Company’s common stock on such Trading Day and the conversion rate (as described below) on such Trading Day;

~~(iii) upon the occurrence of certain corporate events or distributions on the Company’s common stock, as described in the Indenture; or (iv) if the Company calls such Notes for redemption.~~

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 1000 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 Company can choose to settle upon conversion in cash, shares or a combination. Based on the initial conversion rate, the 2025 Notes are convertible into 12.9 million shares of our common stock and we reserved for the possible issuance of 16.5 million shares, which is the maximum amount that could be issued upon conversion. See Note 11. “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 equity, t~~he 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 9.09% over the contractual term of the 2025 Notes. We recognized $2.3 million in interest expense for the interest coupon and amortization of debt discount and issuance costs during the three and six months ended June 27, 2020. As of June 27, 2020 the remaining period for the unamortized debt discount balance was approximately five years.

~~Table of contents~~

~~National Vision Holdings, Inc. and Subsidiaries~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~4. Long-term Debt (continued)~~

~~May 2020 Amendment to Credit Agreement~~

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 under their existing secured credit facility in order 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 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 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 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 Amendment or (ii) Consolidated EBITDA for the most recently ended four quarters is less than $0.

~~Table of contents~~

~~National Vision Holdings, Inc. and Subsidiaries~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~4. Long-term Debt (continued)~~

~~On May 12, 2020, we fully repaid the outstanding amount on our revolving credit facility of $294.3 million~~ ~~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. 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 of approximately $1.8 million to Other assets as of June 27, 2020.

~~We were in compliance with all covenants related to our long-term debt as of June 27, 2020.~~

~~Scheduled annual maturities of debt are as follows:~~

Fiscal Period In thousands
2020 - remaining fiscal year $ —
2021 —
2022 —
2023 —
2024 317,375
Thereafter 402,500
$ 719,875

5.6. Stock Incentive Plans

During the six months ended ~~June 27, 2020,~~July 3, 2021, the Company granted ~~158,206~~ 107,319 stock options, ~~124,863~~108,817 performance-based restricted stock units (“PSUs”) and ~~155,550~~126,161 time-based restricted stock units (“RSUs”) to eligible employees under the National Vision Holdings, Inc. 2017 Omnibus Incentive Plan (the “2017 Omnibus Incentive Plan”). The time-based options granted in fiscal ~~2020~~2021 vest in 3 equal annual installments, with one-third of the total options vesting on each of the first, second, and third anniversaries of the grant date, subject to continued employment through the applicable vesting date. The PSUs granted in fiscal ~~2020~~2021 are settled after the end of the performance period (i.e., cliff vesting), which begins on the first day of our ~~2020~~2021 fiscal year and ends on the last day of our ~~2022~~2023 fiscal year, and are based on the Company’s achievement of certain performance targets. The RSUs granted in fiscal ~~2020~~2021 vest primarily in 3 equal installments.

During the six months ended ~~June 27, 2020,~~July 3, 2021, the Company granted ~~14,528~~16,539 restricted stock awards (“RSAs”) to eligible members of the Company’s Board of Directors under the 2017 Omnibus Incentive Plan. The awards vest one year from the grant date.

~~6. Equity in Net Assets of Non-Consolidated Investee~~

7. Revenue From Contracts With Customers

The ~~Company has an investment in a private start-up company whose principal business is licensing software to eyeglass retailers. Under the equity method~~majority of ~~accounting, we are required to record~~ our interest in the investee’s reported net income or loss for each reporting period, which is presented in other expense (income), net in the Company’s condensed consolidated statements of operations. After adjusting the carrying value of our interest in the investee’s reported net losses, there is 0 remaining equity investment balance associated with this investee as of June 27, 2020.

~~On August 29, 2017, the investee issued a secured convertible promissory note to the Company, in the principal amount of $1.5 million, due on August 29, 2020. Upon adoption of ASU No. 2016-13,~~ ~~Measurement of Credit Losses on Financial Instruments~~ in the first quarter of 2020, the Company increased the allowance for credit losses related to the convertible promissory note to $1.5 million. After adjusting for the estimated credit losses, there was no remaining carrying value of the convertible promissory note as of March 28, 2020. ~~Interest income associated with the note was immaterial for the three and six months ended June 27, 2020 and June 29, 2019.~~ ~~In April 2020, the Company converted the promissory note to an equity investment. The equity investment has a carrying value of 0 as of~~ ~~June 27, 2020.~~

~~Table of contents~~

~~National Vision Holdings, Inc. and Subsidiaries~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~7. Revenue from Contracts with Customers~~

~~The Company’s~~ revenues are recognized either at the point of sale or upon delivery and customer acceptance, paid for at the time of sale in cash, credit card, or on account with managed care payors having terms generally between 14 and 120 days, with most paying within 90 days. For sales of in-store non-prescription eyewear and related accessories, and paid eye exams, we recognize revenue at the point of sale. Our point in time revenues include 1) retail sales of prescription and non-prescription eyewear, contact lenses and related accessories to retail customers (including those covered by managed care), 2) eye exams and 3) wholesale sales of inventory in which our customer is another retail entity. Revenues recognized over time primarily include product protection plans, eye care club memberships and management fees earned from our legacy partner.

The following disaggregation of revenues isdepicts our revenue based on the timing of revenue recognition:


		Three Months Ended						Six Months Ended							Three Months Ended				Six Months Ended
In thousands	In thousands	June 27, 2020		June 29, 2019		June 27, 2020		June 29, 2019		In thousands	July 3, 2021		June 27, 2020		July 3, 2021		June 27, 2020
Revenues recognized at a point in time	Revenues recognized at a point in time	$	229,536	$	393,020	$	663,715	$	817,233	Revenues recognized at a point in time	$	504,969	$	229,536	$	998,407	$	663,715
Revenues recognized over time	Revenues recognized over time	30,471		36,431		65,996		73,433		Revenues recognized over time	44,520		30,471		85,262		65,996
Total net revenue	Total net revenue	$	260,007	$	429,451	$	729,711	$	890,666	Total net revenue	$	549,489	$	260,007	$	1,083,669	$	729,711

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Refer to Note 10. “Segment Reporting” for the Company’s disaggregation of net revenue by reportable ~~segment.~~segment and product type. 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.

We record reductions in revenue for estimated price concessions granted to managed care providers. 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 $1.6 million and an immaterial amount during the three months ended July 3, 2021 and June 27, 2020, respectively, and $4.4 million and $3.7 million during the six months ended July 3, 2021 and June 27, 2020, respectively.

Contract Assets and Liabilities

The Company’s contract assets and contract liabilities primarily result from timing differences between the performance of our obligations and the customer’s payment.

Accounts Receivable

Accounts receivable associated with revenues consist primarily of trade receivables and credit card receivables. Trade receivables consist primarily of receivables from managed care payors and receivables from major retailers. While we have relationships with almost all vision care insurers in the United States and with all of the major carriers, currently, a relatively small number of payors comprise the majority of our managed care revenues, subjecting us to concentration risk. Accounts receivable are reduced by allowances for credit losses. Estimates of our allowance for credit losses are based on our historical and current operating, billing, and collection trends, as well as current conditions and reasonable and supportable forecasts about the future. 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 condensed consolidated statements of operations, were ~~immaterial~~$0.2 million for the three months ended ~~June 27, 2020~~July 3, 2021 and ~~$0.4~~$0.3 million for the six months ended ~~June 27, 2020~~July 3, 2021 as compared to ~~$1.8 million~~an immaterial amount and ~~$3.9~~$0.4 million for the three and six months ended June ~~29, 2019,~~27, 2020, respectively.

~~The following table summarizes the activity of allowance for expected credit losses for the six months ended June 27, 2020.~~


~~In thousands~~			Six Months Ended June 27, 2020
~~Beginning balance as of December 28, 2019~~			~~(3,040)~~
~~Current-period provision for expected credit losses~~			~~(432)~~
~~Write-offs charged against the allowance~~			~~612~~
~~Other adjustments~~ ⁽¹⁾			~~2,207~~
~~Ending balance as of June 27, 2020~~			~~(653)~~
⁽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. See Note 2. “Details of Certain Balance Sheet Accounts” for further details.

~~Table of contents~~

~~National Vision Holdings, Inc. and Subsidiaries~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~7. Revenue From Contracts with Customers (continued)~~

Unsatisfied Performance Obligations (Contract Liabilities)

Our retail customers generally make payments for prescription eyewear products at the time they place an order. Amounts we collect in advance for undelivered merchandise are reported as unearned revenue in the accompanying condensed consolidated balance sheets. Unearned revenue at the end of a reporting period is estimated based on delivery times throughout the current month and generally ranges from approximately~~seven~~ ~~to 10 days; all unearned revenue at the end of a reporting period is recognized in the next fiscal period.~~

Our contract liabilities also consist of deferred revenue on services and plans obligations, primarily product protection plans and eyecare club memberships. The unamortized portion of amounts we collect in advance for these services and plans is reported as deferred revenue in the accompanying condensed consolidated balance sheets (current and non-current portions). Our deferred revenue balance as of ~~June 27, 2020~~July 3, 2021 was ~~$71.1~~$92.1 million. We expect future revenue recognition of this balance of ~~$33.7~~$44.6 million, ~~$26.9~~$34.0 million, ~~$9.2~~$11.6 million, ~~$1.2~~$1.8 million, and $0.1 million in fiscal years ~~2020,~~ 2021, 2022, 2023, 2024, and ~~2024,~~2025, respectively. We recognized ~~$24.2~~$23.0 million and ~~$52.2~~$37.3 million of previously deferred revenues during the three and six months ended ~~June 27, 2020,~~July 3, 2021, respectively and ~~$27.5~~$24.2 million and ~~$55.3~~$52.2 million during the three and six months ended June ~~29, 2019,~~27, 2020, respectively.

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8. Leases

~~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. 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 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 Tenant Improvement Allowances (“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 sheets, 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. On April 10, 2020, the Financial Accounting Standards Board staff issued a question-and-answer document providing guidance for lease concessions provided to lessees in response to the effects of COVID-19. Such guidance allows lessees to make an election to account for lease concessions as though the enforceable rights and obligations existed in the original lease. This election is only available when the concessions do not result in a substantial increase in the obligations of the lessee.

~~During the second quarter of 2020, we reached rent concession agreements where certain of these concession arrangements included lease term extensions between~~ ~~three~~ and 12 months. The Company has elected to account for lease concessions and deferrals resulting directly from the COVID-19 pandemic as though the enforceable rights and obligations to the deferrals existed in the respective contracts at lease inception and will not accountcosts for the ~~concessions~~three months ended July 3, 2021 and June 27, 2020 were as lease modifications, unless the concession results in a substantial increase in the Company’s obligations. The majority of leases where we received a concession did not result in a substantial increase in our obligations.follows:


	Three Months Ended				Six Months Ended
In thousands	July 3, 2021		June 27, 2020		July 3, 2021		June 27, 2020
Operating lease cost
Fixed lease cost (a)	$	20,903	$	19,100	$	41,554	$	38,412
Variable lease cost (b)	7,515		6,356		14,918		13,166
Sublease income (c)	(919)		(292)		(1,829)		(882)

Finance lease cost
Amortization of finance lease assets	1,113		1,125		2,236		2,281

Interest expense, net:
Interest on finance lease liabilities	743		851		1,523		1,724

Net lease cost	$	29,355	$	27,140	$	58,402	$	54,701

(a) Includes short-term leases, which are immaterial.
(b) Includes costs for insurance, real estate taxes and common area maintenance expenses, which are variable, as are 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 leasing space to ophthalmologists and optometrists who are independent contractors.


Lease Term and Discount Rate	As of July 3, 2021		As of January 2, 2021
Weighted average remaining lease term (months)
Operating leases	77		77
Finance leases	76		79
Weighted average discount rate (a)
Operating leases	4.7	%	4.7	%
Finance leases (b)	12.0	%	12.3	%

(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 on interest rate swaps; (iii) LIBOR margins for issuers of similar credit rating; and (iv) effect of collateralization. As a majority of our leases are five-year and 10-year leases, we determined a lease discount rate for such tenors and determined this discount rate is reasonable for leases that were entered into during the period.
(b) The discount rate on finance leases is higher than operating leases because the present value of minimum lease payments was higher than the fair value of leased properties for certain leases entered into prior to adoption of ASC 842. The discount rate differential for those leases is not material to our results of operations.


In thousands	Six Months Ended July 3, 2021		Six Months Ended June 27, 2020
Other Information

Operating cash outflows - operating leases	$	43,860	$	35,548
Right of use assets acquired under finance leases	$	0	$	1,257
Right of use assets acquired under operating leases	$	44,544	$	35,870

2018

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~~National Vision Holdings, Inc. and Subsidiaries~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~8. Leases (continued)~~

In thousands As of
June 27, 2020 As of
December 28, 2019
Type Classification
ASSETS
Finance
Property and equipment, net ^(a)
$ 26,680 $ 28,128
Operating
Right of use assets^(b)
341,743 348,090
Total leased assets 368,423 376,218
LIABILITIES
Current Liabilities:
Finance Current maturities of long-term debt and finance lease obligations $ 3,293 $ 3,259
Operating
Current operating lease obligations ^(c)
55,363 51,937
Other non-current liabilities:
Finance Long-term debt and finance lease obligations, less current portion and debt discount 29,300 30,037
Operating Non-current operating lease obligations 328,453 331,769
Total lease liabilities $ 416,409 $ 417,002
As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the net present value of minimum lease payments. 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 $10.5 million and $8.3 million as of June 27, 2020 and December 28, 2019, respectively.~~

(b) TIA of $35.3 million and $35.2 million are treated as reductions of lease payments used to measure ROU assets as of June 27, 2020 and December 28, 2019, respectively. Deferred rent of $16.5 million and $15.0 million are treated as reductions of lease payments used to measure ROU assets as of June 27, 2020 and December 28, 2019, respectively.

~~(c) Current operating lease liabilities are measured net of TIA receivables of $4.4 million and $5.9 million as of June 27, 2020 and December 28, 2019, respectively.~~

Three Months Ended Six Months Ended
In thousands June 27, 2020 June 29, 2019 June 27, 2020 June 29, 2019
Operating lease cost
Fixed lease cost ^(a)
$ 19,100 $ 18,250 $ 38,412 $ 36,413
Variable lease cost ^(b)
6,356 6,592 13,166 13,058
Sublease income^(c)
(292) (954) (882) (1,916)
Finance lease cost
Amortization of finance lease assets 1,125 1,078 2,281 2,056
Interest expense, net:
Interest on finance lease liabilities 851 896 1,724 1,786
Net lease cost $ 27,140 $ 25,862 $ 54,701 $ 51,397
(a) Includes short-term leases, which are immaterial.
(b) Includes costs for insurance, real estate taxes and common area maintenance expenses, which are variable, as are 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.

~~Table of contents~~

~~National Vision Holdings, Inc. and Subsidiaries~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~8. Leases (continued)~~

Lease Term and Discount Rate As of
June 27, 2020 As of
December 28, 2019
Weighted average remaining lease term (months)
Operating leases 80 82
Finance leases 85 88
Weighted average discount rate ^(a)
Operating leases 4.6 % 4.6 %
Finance leases ^(b)
12.6 % 13.1 %
(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; (iii) LIBOR margins for issuers of similar credit rating; and (iv) effect of collateralization. As a majority of our leases are five-year and 10-year leases, we determined a lease discount rate for such tenors and determined this discount rate is reasonable for leases that were entered into during the period.
(b) The discount rate on finance leases is higher than operating leases because the present value of minimum lease payments was higher than the fair value of leased properties for certain leases entered into prior to adoption of ASC 842. The discount rate differential for those leases is not material to our results of operations.

In thousands As of
June 27, 2020 As of
June 29, 2019
Other Information
Cash paid for amounts included in the measurement of lease liabilities
Operating cash outflows - operating leases $ 35,548 $ 36,866

The following table summarizes the maturity of our lease liabilities as of ~~June 27, 2020:~~July 3, 2021:


In thousands	In thousands	Operating Leases ^(a)		Finance Leases^(b)		In thousands	Operating Leases (a)		Finance Leases (b)
Fiscal Year	Fiscal Year										Operating Leases (a)	Finance Leases (b)
2020		$	31,312	$	3,166
2021	2021	79,662		7,280		2021	$	38,606	$	3,637
2022	2022	72,081		7,215		2022	77,235		6,635
2023	2023	64,351		6,241		2023	76,376		6,252
2024	2024	56,598		4,673		2024	66,456		4,753
2025						2025	61,320		4,913
Thereafter	Thereafter	146,931		16,460		Thereafter	135,804		11,400
Total lease liabilities	Total lease liabilities	450,935		45,035		Total lease liabilities	455,797		37,590
Less: Interest	Less: Interest	67,119		12,442		Less: Interest	64,989		8,977
Present value of lease liabilities^(c)	Present value of lease liabilities^(c)	$	383,816	$	32,593	Present value of lease liabilities (c)	$	390,808	$	28,613

(a) Operating lease payments include $64.3 million related to options to extend lease terms that are reasonably certain of being exercised.
(a) Operating lease payments include $54.4 million related to options to extend lease terms that are reasonably certain of being exercised.						(a) Operating lease payments include $54.4 million related to options to extend lease terms that are reasonably certain of being exercised.
(b) Finance lease payments include $1.7 million related to options to extend lease terms that are reasonably certain of being exercised.	(b) Finance lease payments include $1.7 million related to options to extend lease terms that are reasonably certain of being exercised.									(b) Finance lease payments include $1.7 million related to options to extend lease terms that are reasonably certain of being exercised.
(c) The present value of lease liabilities excludes $13.3 million of legally binding minimum lease payments for leases signed but not yet commenced.
(c) The present value of lease liabilities excludes $20.1 million of legally binding minimum lease payments for leases signed but not yet commenced.						(c) The present value of lease liabilities excludes $20.1 million of legally binding minimum lease payments for leases signed but not yet commenced.

9. Commitments and Contingencies

Legal Proceedings

From time to time, the Company is involved in various legal proceedings incidental to its business. Because of the nature and inherent uncertainties of litigation, we cannot predict with certainty the ultimate resolution of these actions and, should the outcome of these actions be unfavorable, the Company’s business, financial position, results of operations or cash flows could be materially and adversely affected.

~~Table of contents~~

~~National Vision Holdings, Inc. and Subsidiaries~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~9. Commitments and Contingencies (continued)~~

The Company reviews the status of its legal proceedings and records a provision for a liability when it is considered probable that both a liability has been incurred and the amount of the loss can be reasonably estimated. This review is updated periodically as additional information becomes available. If either or both of the criteria are not met, we reassess whether there is at least a reasonable possibility that a loss, or additional losses, may be incurred. If there is a reasonable possibility that a loss may be incurred, we disclose the estimate of the amount of the loss or range of losses, or that an estimate of loss cannot be made. The Company expenses its legal fees as incurred.

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 Vision Services, Inc. (“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. ~~We believe that~~On February 4, 2021, the ~~claims alleged are without merit~~district court granted FirstSight’s motion in part and ~~intend~~denied it in part. FirstSight’s answer to ~~continue to defend~~ the ~~litigation vigorously.~~

~~In May 2017, a complaint~~remaining claims 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.

In February 2019, we were served with a lawsuit by a former employee who alleges, on behalf of himself and a proposed class, several violations of California wage and hour laws and seeks 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.2021. The parties participated in mediation on ~~February 19, 2020, but a resolution~~July 6, 2021 and, in order to avoid the burden and expense of ~~the matter was not reached at that time. On February 27, 2020, following mediation, the parties~~litigation, agreed to a settlement of all claims alleged by the named claimant on behalf of himself and all putative class members and other aggrieved employees. 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, and a final approval hearing has been scheduled for September 15, 2020.plaintiffs.

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~~National Vision Holdings, Inc. and Subsidiaries~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~9. Commitments and Contingencies (continued)~~

In November 2019, the Company agreed to enter into a pre-litigation settlement with 6 former ~~employees~~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~~expense 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~~was submitted by the parties for approval through arbitration and an order granting final approval of the settlement and dismissing the action was issued by ~~a tribunal following a fairness hearing.~~the arbitrator on July 13, 2021.

10. Segment Reporting

The Company provides its principal products and services through 2 reportable segments: Owned & Host and Legacy. The “Corporate/Other” category includes the results of operations of our other operating segments, AC Lens and FirstSight, as well as corporate overhead support. The “Reconciliations” category represents other adjustments to reportable segment results necessary for the presentation of consolidated financial results in accordance with U.S. ~~GAAP. We incurred $2.5 million and $3.1 million of costs~~GAAP for the 2 reportable segments. Beginning in the three and six months ended June 27, 2020, respectively, primarily for personal protective equipment and other supplies needed to operate our stores safely, as well as for professional fees associated with adapting our operations to the COVID-19 pandemic. Incrementalfirst quarter of 2021, incremental expenses related to the COVID-19 pandemic ~~are not~~were allocated to the reportable segments but ~~are~~were included in the Corporate/Other ~~category.~~

The following is a summary of certain financial data for each of our segments. Reportable segment information is presented on the same basis as our condensed consolidated financial statements, except for netcategory in 2020. Changes in unearned revenue and ~~associated costs applicable to~~deferred revenue ~~which is presented on a cash basis, including point of sales for managed care payors and excluding~~recognized in the Reconciliations category reflect the effects of ~~unearned and deferred revenue, consistent with what~~our stores being temporarily closed to the ~~chief operating decision maker (“CODM”) regularly reviews. Asset information is not included in the following summary since the CODM does not regularly review such information~~public for ~~the reportable segments.~~ a portion of 2020.

Our reportable segment profit measure is earnings before interest, tax, depreciation and amortization (“EBITDA”), or net revenue, less costs applicable to revenue, less ~~selling, general and administrative costs.~~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. There are no revenue transactions between our reportable segments. ~~We measure assets in~~There are no differences between the measurement of our reportable ~~segments on the same basis as~~segments’ assets and consolidated assets. 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.

Three Months Ended June 27, 2020
In thousands Owned & Host Legacy Corporate/Other Reconciliations Total
Segment product revenues $ 177,430 $ 16,254 $ 50,472 $ (34,449) $ 209,707
Segment services and plans revenues 34,275 9,159 — 6,866 50,300
Total net revenue 211,705 25,413 50,472 (27,583) 260,007
Cost of products 54,898 9,093 42,135 (8,491) 97,635
Cost of services and plans 38,573 4,572 — — 43,145
Total costs applicable to revenue 93,471 13,665 42,135 (8,491) 140,780
SG&A 86,704 10,561 39,317 — 136,582
Asset impairment — — 2,411 — 2,411
Debt issuance costs — — 136 — 136
Other expense (income), net — — (92) — (92)
EBITDA $ 31,530 $ 1,187 $ (33,435) $ (19,092)
Depreciation and amortization 21,924
Interest expense, net 15,502
Income (loss) before income taxes $ (57,236)
The following is a summary of certain financial data for each of our segments. Reportable segment information is presented on the same basis as our consolidated financial statements, except for net revenue and associated costs applicable to revenue, which are presented on a cash basis, including point of sales for managed care payors and excluding the effects of unearned and deferred revenue, consistent with what the Chief Operating Decision Maker (“CODM”) regularly reviews.

Asset information is not included in the following summary since the CODM does not regularly review such information for the reportable segments.


	Three Months Ended July 3, 2021
In thousands	Owned & Host		Legacy		Corporate/Other		Reconciliations		Total
Net product services	$	361,377	$	26,855	$	61,520	$	8,454	$	458,206
Net sales of services and plans	78,780		16,745		0		(4,242)		91,283
Total net revenue	440,157		43,600		61,520		4,212		549,489
Cost of products	98,539		12,910		53,683		1,896		167,028
Cost of services and plans	62,448		6,470		0		0		68,918
Total costs applicable to revenue	160,987		19,380		53,683		1,896		235,946
SG&A	158,913		14,802		60,520		0		234,235
Asset impairment	0		0		519		0		519


Other expense (income), net	0		0		(65)		0		(65)
Debt issuance costs	0		0		92		0		92
EBITDA	$	120,257	$	9,418	$	(53,229)	$	2,316
Depreciation and amortization									24,025
Interest expense, net									10,096
Earnings before income taxes									$	44,641

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~~National Vision Holdings, Inc. and Subsidiaries~~


	Three Months Ended June 27, 2020
In thousands	Owned & Host		Legacy		Corporate/Other		Reconciliations		Total
Net product sales	$	177,430	$	16,254	$	50,472	$	(34,449)	$	209,707
Net sales of services and plans	34,275		9,159		0		6,866		50,300
Total net revenue	211,705		25,413		50,472		(27,583)		260,007
Cost of products	54,898		9,093		42,135		(8,491)		97,635
Cost of services and plans	38,573		4,572		0		0		43,145
Total costs applicable to revenue	93,471		13,665		42,135		(8,491)		140,780
SG&A	86,704		10,561		39,317		0		136,582
Asset impairment	0		0		2,411		0		2,411
Other expense (income), net	0		0		(92)		0		(92)
Debt issuance costs	0		0		136		0		136
EBITDA	$	31,530	$	1,187	$	(33,435)	$	(19,092)
Depreciation and amortization									21,924
Interest expense, net									15,502
Earnings (loss) before income taxes									$	(57,236)

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~10. Segment Reporting (continued)~~

Three Months Ended June 29, 2019
In thousands Owned & Host Legacy Corporate/Other Reconciliations Total
Segment product revenues $ 260,867 $ 25,785 $ 62,341 $ 8,540 $ 357,533
Segment services and plans revenues 59,549 13,479 5 (1,115) 71,918
Total net revenue 320,416 39,264 62,346 7,425 429,451
Cost of products 77,059 12,312 54,253 2,030 145,654
Cost of services and plans 50,581 6,270 1 — 56,852
Total costs applicable to revenue 127,640 18,582 54,254 2,030 202,506
SG&A 126,078 13,884 42,316 — 182,278
Asset impairment — — 1,790 — 1,790
Other expense, net — — 356 — 356
EBITDA $ 66,698 $ 6,798 $ (36,370) $ 5,395
Depreciation and amortization 20,819
Interest expense, net 8,968
Income before income taxes $ 12,734


		Six Months Ended June 27, 2020																			Six Months Ended July 3, 2021
In thousands	In thousands	Owned & Host		Legacy		Corporate/Other		Reconciliations		Total		In thousands	Owned & Host		Legacy		Corporate/Other		Reconciliations		Total
Segment product revenues		$	459,343	$	40,672	$	117,044	$	(14,511)	$	602,548
Segment services and plans revenues		99,589		21,198		—		6,376		127,163
Net product sales												Net product sales	$	730,747	$	54,275	$	122,738	$	(6,487)	$	901,273
Net sales of services and plans												Net sales of services and plans	161,857		32,907		0		(12,368)		182,396
Total net revenue	Total net revenue	558,932		61,870		117,044		(8,135)		729,711		Total net revenue	892,604		87,182		122,738		(18,855)		1,083,669
Costs of products	Costs of products	136,814		20,496		100,045		(3,350)		254,005		Costs of products	195,643		25,769		106,709		(1,402)		326,719
Costs of services and plans	Costs of services and plans	94,167		11,162		—		—		105,329		Costs of services and plans	121,252		12,665		0		0		133,917
Total costs applicable to revenue	Total costs applicable to revenue	230,981		31,658		100,045		(3,350)		359,334		Total costs applicable to revenue	316,895		38,434		106,709		(1,402)		460,636
SG&A	SG&A	221,418		24,192		84,713		—		330,323		SG&A	308,876		29,095		119,857		0		457,828
Asset impairment	Asset impairment	—		—		13,766		—		13,766		Asset impairment	0		0		1,478		0		1,478
Other expense (income), net												Other expense (income), net	0		0		(130)		0		(130)
Debt issuance costs	Debt issuance costs	—		—		136		—		136		Debt issuance costs	0		0		92		0		92
Litigation settlement		—		—		4,395		—		4,395
Other expense (income), net		—		—		(158)		—		(158)
EBITDA	EBITDA	$	106,533	$	6,020	$	(85,853)	$	(4,785)			EBITDA	$	266,833	$	19,653	$	(105,268)	$	(17,453)
Depreciation and amortization	Depreciation and amortization									46,734		Depreciation and amortization									47,580
Interest expense, net	Interest expense, net									22,957		Interest expense, net									16,426
Income (loss) before income taxes										$	(47,776)
Earnings before income taxes												Earnings before income taxes									$	99,759

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~~National Vision Holdings, Inc. and Subsidiaries~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~10. Segment Reporting (continued)~~

Six Months Ended June 29, 2019
In thousands Owned & Host Legacy Corporate/Other Reconciliations Total
Segment product revenues $ 557,786 $ 55,926 $ 126,216 $ 765 $ 740,693
Segment services and plans revenues 127,850 27,916 11 (5,804) 149,973
Total net revenue 685,636 83,842 126,227 (5,039) 890,666
Costs of products 162,305 26,442 110,848 63 299,658
Costs of services and plans 102,245 12,571 1 — 114,817
Total costs applicable to revenue 264,550 39,013 110,849 63 414,475
SG&A 259,291 28,121 88,742 — 376,154
Asset impairment — — 3,872 — 3,872
Other expense, net — — 829 — 829
EBITDA $ 161,795 $ 16,708 $ (78,065) $ (5,102)
Depreciation and amortization 41,234
Interest expense, net 18,029
Income before income taxes $ 36,073

Revenues associated with managing operations of our legacy partner were $6.3 million and $13.8 million for the three and six months ended June 27, 2020, respectively, and $8.9 million and $18.2 million for the three and six months ended June 29, 2019, respectively. During the six months ended June 27, 2020, sales associated with our Legacy partner arrangement represented 8.5% of consolidated net revenue. During the six months ended June 27, 2020, AC Lens sales associated with Walmart and Sam’s Club contact lenses distribution arrangements represented 8.6% of consolidated net revenue. This exposes us to concentration of customer risk.


	Six Months Ended June 27, 2020
In thousands	Owned & Host		Legacy		Corporate/Other		Reconciliations		Total
Net product sales	$	459,343	$	40,672	$	117,044	$	(14,511)	$	602,548
Net sales of services and plans	99,589		21,198		0		6,376		127,163
Total net revenue	558,932		61,870		117,044		(8,135)		729,711
Costs of products	136,814		20,496		100,045		(3,350)		254,005
Costs of services and plans	94,167		11,162		0		0		105,329
Total costs applicable to revenue	230,981		31,658		100,045		(3,350)		359,334
SG&A	221,418		24,192		84,713		0		330,323
Asset impairment	0		0		13,766		0		13,766
Litigation settlement	0		0		4,395		0		4,395
Other expense (income), net	0		0		(158)		0		(158)
Debt issuance costs	0		0		136		0		136
EBITDA	$	106,533	$	6,020	$	(85,853)	$	(4,785)
Depreciation and amortization									46,734
Interest expense, net									22,957
Earnings (loss) before income taxes									$	(47,776)

11. Earnings Per Share

~~Basic earnings per share (“EPS”)~~Diluted EPS related to the 2025 Notes in the current year is ~~computed by dividing net income by~~calculated using the ~~weighted average~~if-converted method; the number of ~~common~~dilutive shares ~~outstanding for~~is based on the period. Diluted EPS is computed by dividing net income by the weighted average common shares outstanding for the period and includes the dilutive impact of potential new common shares issuable upon vesting and exercise of stock options, vesting of restricted stock units, and assumedinitial conversion ~~of $402.5 million of aggregate principal amount of~~rate associated with the 2025 Notes. ~~Potential shares~~Prior to the fourth quarter of ~~common stock are excluded from~~ the ~~computation of diluted EPS if their effect is anti-dilutive.~~

~~We have the intent~~fiscal year 2020, we intended to settle the principal amount of the outstanding 2025 Notes in cash ~~upon conversion,~~ and, ~~to pay~~therefore, used the ~~conversion premium in cash or~~treasury stock ~~at our option; potentially~~method for calculating the potential effect of dilutive ~~common shares~~securities related to the 2025 Notes, ~~will be determined by applying the treasury stock method. See Note 4. “Long-term Debt” for more information on the 2025 Notes.~~

The shares underlying the conversion option of the 2025 Notes will not have an impact on our diluted EPS when net income is reported until the average market price of our common stock exceeds the conversion price of $31.17 per share. In addition to the shares underlying the conversion option, outstanding options and unvested RSUs were also excluded from the computation of dilutive EPS since their effect would be anti-dilutive due to our net loss position for the three and six months ended June 27, 2020.

~~Table of contents~~

~~National Vision Holdings, Inc. and Subsidiaries~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~11. Earnings Per Share (continued)~~

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


		Three Months Ended							Six Months Ended							Three Months Ended				Six Months Ended
In thousands, except EPS	In thousands, except EPS	June 27, 2020			June 29, 2019		June 27, 2020		June 29, 2019		In thousands, except EPS	July 3, 2021		June 27, 2020		July 3, 2021		June 27, 2020
Net income (loss)	Net income (loss)	$	(43,833)		$	10,257	$	(34,091)	$	27,686	Net income (loss)	$	37,601	$	(43,833)	$	81,033	$	(34,091)
After-tax interest expense for 2025 Notes											After-tax interest expense for 2025 Notes	2,362		0		4,694		0
Numerator for diluted EPS											Numerator for diluted EPS	$	39,963	$	(43,833)	$	85,727	$	(34,091)
Weighted average shares outstanding for basic EPS	Weighted average shares outstanding for basic EPS	80,325			78,318		80,226		78,262		Weighted average shares outstanding for basic EPS	81,601		80,325		81,457		80,226
Effect of dilutive securities:	Effect of dilutive securities:										Effect of dilutive securities:
Stock options	Stock options	—			3,059		—		3,135		Stock options	1,215		0		1,306		0
Restricted stock	Restricted stock	—			47		—		40		Restricted stock	354		0		369		0
2025 Notes											2025 Notes	12,912		0		12,912		0
Weighted average shares outstanding for diluted EPS	Weighted average shares outstanding for diluted EPS	80,325		—	81,424		80,226		81,437		Weighted average shares outstanding for diluted EPS	96,082		80,325		96,044		80,226
Basic EPS	Basic EPS	$	(0.55)		$	0.13	$	(0.42)	$	0.35	Basic EPS	$	0.46	$	(0.55)	$	0.99	$	(0.42)
Diluted EPS	Diluted EPS	$	(0.55)		$	0.13	$	(0.42)	$	0.34	Diluted EPS	$	0.42	$	(0.55)	$	0.89	$	(0.42)
Anti-dilutive options, RSUs outstanding excluded from EPS		2,458			391		2,512		391
Anti-dilutive options and RSUs outstanding excluded from EPS											Anti-dilutive options and RSUs outstanding excluded from EPS	110		2,458		74		2,512

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12. Restricted Cash

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


		Six Months Ended							Six Months Ended
In thousands	In thousands	June 27, 2020		June 29, 2019		In thousands	July 3, 2021		June 27, 2020
Cash and cash equivalents	Cash and cash equivalents	$	256,292	$	82,779	Cash and cash equivalents	$	408,301	$	256,292
Restricted cash included in other assets	Restricted cash included in other assets	1,341		1,086		Restricted cash included in other assets	1,347		1,341
Total cash, cash equivalents and restricted cash	Total cash, cash equivalents and restricted cash	$	257,633	$	83,865	Total cash, cash equivalents and restricted cash	$	409,648	$	257,633

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~~National Vision Holdings, Inc. and Subsidiaries~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

13. Accumulated Other Comprehensive Loss

Changes in the fair value of the Company’s cash flow hedge derivative instruments from their inception are recorded in AOCL if the instruments are deemed to be highly effective as cash flow hedges. The following table presents the changes in AOCL, net of tax during the three and six months ended July 3, 2021 and June 27, 2020, ~~and June 29, 2019,~~ respectively:


		Three Months Ended						Six Months Ended							Three Months Ended				Six Months Ended
In thousands	In thousands	June 27, 2020		June 29, 2019		June 27, 2020		June 29, 2019		In thousands	July 3, 2021		June 27, 2020		July 3, 2021		June 27, 2020
Cash flow hedging activity:	Cash flow hedging activity:									Cash flow hedging activity:
Balance at beginning of period	Balance at beginning of period	$	(10,416)	$	(3,757)	$	(3,814)	$	(2,810)	Balance at beginning of period	$	(5,296)	$	(10,416)	$	(4,400)	$	(3,814)
Other comprehensive income (loss) before reclassification	Other comprehensive income (loss) before reclassification	(360)		(3,132)		(11,041)		(5,320)		Other comprehensive income (loss) before reclassification	0		(360)		(10)		(11,041)
Tax effect of other comprehensive income (loss) before reclassification	Tax effect of other comprehensive income (loss) before reclassification	92		803		2,813		1,364		Tax effect of other comprehensive income (loss) before reclassification	0		92		3		2,813
Amount reclassified from AOCL into interest expense	Amount reclassified from AOCL into interest expense	4,471		886		6,294		1,801		Amount reclassified from AOCL into interest expense	2,959		4,471		4,619		6,294
Tax effect of amount reclassified from AOCL into interest expense	Tax effect of amount reclassified from AOCL into interest expense	(1,142)		(227)		(1,607)		(462)		Tax effect of amount reclassified from AOCL into interest expense	(756)		(1,142)		(1,180)		(1,607)
Stranded tax effect of matured interest rate swaps										Stranded tax effect of matured interest rate swaps	0		0		(2,125)		0
Net current period other comprehensive income (loss), net of tax	Net current period other comprehensive income (loss), net of tax	3,061		(1,670)		(3,541)		(2,617)		Net current period other comprehensive income (loss), net of tax	2,203		3,061		1,307		(3,541)
Balance at end of period	Balance at end of period	$	(7,355)	$	(5,427)	$	(7,355)	$	(5,427)	Balance at end of period	$	(3,093)	$	(7,355)	$	(3,093)	$	(7,355)

See Note ~~3. “Fair Value Measurements of Financial Assets and Liabilities”~~5. “Interest Rate Derivatives” for a description of the Company’s use of cash flow hedging derivatives.

~~14. Subsequent Events~~

~~July 2020 Amendment to Management & Services Agreement~~

On July 17, 2020, NVI and Walmart Inc. (“Walmart”) entered into Amendment 4 (“Walmart Amendment”) to the Management & Services Agreement (“MSA”), to extend the current term and economics of the MSA by three years, to February 23, 2024, and provide that the MSA will automatically renew for an additional ~~three~~ year term unless, no later than seven months prior to the end of the term, one party gives the other party written notice of non-renewal. In addition, the Amendment deletes certain provisions that are no longer applicable and updates certain administrative provisions, including with respect to background checks, and adds an obligation for the Company to provide Walmart an annual compliance certificate regarding certain of the Company’s obligations and to provide Walmart certain inspection and audit rights. All other terms and conditions of the MSA remain in effect.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following contains management’s discussion and analysis of our financial condition and results of operations and should be read together with the unaudited condensed consolidated financial statements and the related notes thereto included elsewhere in this Form 10-Q (this “Form 10-Q”) and the audited consolidated financial statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on ~~February 26, 2020~~January 2, 2021 (the ~~“2019~~“2020 Annual Report on Form 10-K”). This discussion contains forward-looking statements that reflect our plans, estimates and beliefs and involve numerous risks and uncertainties, including, but not limited to, those described in the “Risk Factors” section of the ~~2019~~2020 Annual Report on Form 10-K and in the “Risk Factors” section of this Form 10-Q, as such risk factors may be updated from time to time in our periodic filings with the SEC. Actual results may differ materially from those contained in any forward-looking statements. You should carefully read “Special Note Regarding Forward-Looking Statements” in this Form 10-Q.

Overview

We are one of the largest and fastest growing optical retailers in the United States and a leader in the attractive value segment of the U.S. optical retail industry. We believe that vision is central to quality of life and that people deserve to see their best to live their best, ~~no matter what~~regardless of their budget. Our mission is to make quality eye care and eyewear affordable and accessible to all Americans. We achieve this by providing eye exams, eyeglasses and contact lenses to value seeking and lower income consumers. We deliver exceptional value and convenience to our customers, with an opening price point that strives to be among the lowest in the industry, enabled by our low-cost operating platform. We reach our customers through a diverse portfolio ~~of 1,185 retail~~of 1,249 retail stores ~~across~~ across five brands and ~~brands an~~19 ~~d 19~~ consumer websites as of ~~June 27, 2020.~~July 3, 2021.

~~Recent Developments -~~ COVID-19

~~The unprecedented~~We remain focused on our strategy to provide our customers and ~~rapid spread~~patients reliable and quality low cost eye care and eyewear by prioritizing the health and safety of ~~the COVID-19 pandemic~~our associates, customers and ~~the related federal, state~~patients. We have taken a variety of measures, as described in Part I. Item 1A. “Risk Factors” and ~~local governmental~~Part II. Item 7. “Management’s Discussion and ~~healthcare authority guidelines have caused business disruption globally~~Analysis of Financial Condition and Results of Operations” in the ~~U.S. As of the date of filing of this Quarterly~~Company’s 2020 Annual Report on Form ~~10-Q,~~10-K, which had a significant impact on our operations and performance of fiscal year 2020 and continue to have a significant impact on our operations and performance of fiscal year 2021. Please also refer to those Items for further discussion regarding the potential future impacts of COVID-19 and related economic conditions on us. We continue to monitor the evolving situation as there remain many uncertainties regarding the ~~COVID-19~~ pandemic and ~~its resurgence,~~more recent outbreaks of variants, including ~~the~~its anticipated duration, ~~of the pandemic and the extent of national and global social and economic disruption it may cause. To date, the COVID-19 pandemic and government and~~related healthcare authority ~~actions to curb~~guidelines and efficacy of vaccination initiatives. We could experience potential disruptions of product deliveries with the ~~spread~~recent shutdowns in countries which support our supply chain. Prolonged periods of ~~the virus have had far-reaching impacts, directly and indirectly, on our operations, including the temporary closure~~shutdown in these countries or a deterioration of conditions in other countries that are part of our stores to the public between March and June 2020, and on consumer behavior, comparable store sales, our employees and optometrists, and the overall market. The scope and nature of these impacts continue to evolve on a daily basis. The COVID-19 pandemic has resulted in, and may continue tosupply chain could result in ~~state, city or local quarantines, labor stoppages~~product availability delays, as well as potential increased costs to obtain and shortages, changes in consumer purchasing patterns, mandatory or voluntary shut-downs of retail locations, severe market volatility, liquidity disruptions, and overall economic instability, which, in many cases, have had, and we expectship these products to meet customer demand. We will continue to have, material adverse impacts on our business, financial condition and results of operations. This situation is rapidly changing, and additional impacts may arise that we are not aware of currently. In response to the evolving and uncertain situation, we have taken aggressive and prudent actions to minimize the risk to our Company, employees, customers and the communities in which we operate, along with reducing expenses and deferring discretionary capital expenditures. Some of our actions taken include:

~~Operational~~

•On March 19, 2020, we temporarily closed all of our stores to the public across the United States; on April 23, 2020, we announced plans to reopen stores selectively over the coming weeks; and on June 8, 2020, we announced that we had successfully completed the reopening process with enhanced safety and cleaning protocols.

•~~During April and May 2020, we temporarily furloughed a significant portion of our employees, bringing most back when we reopened in early June.~~

•While our stores were closed to the public, our retail locations continued to provide services as associates remained available by phone for patients and customers in need, and where possible, we shipped ~~eyeglasses and contact lenses from our labs and distribution centers directly to customers who had placed orders in our stores and otherwise would have picked them up in our stores. In addition, the Company’s e-commerce websites remained fully operational.~~

•~~We have suspended all non-essential travel for our employees.~~

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•Following the successful reopening of our stores, we continually assess the evolving COVID-19 situation and, where appropriate, have taken, or may take in the future, actions such as reducing store hours, reducing patient appointments or temporarily closing stores.

~~Financial~~

•~~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; and, as described below, on May 12, 2020, we repaid the full amount outstanding under our revolving credit facility.~~

•~~Effective May 5, 2020, we entered into an amendment (“Credit Agreement Amendment”) of our~~ ~~Amended and Restated Credit Agreement, dated as of July 18, 2019~~ facility (“Credit Agreement,”) which 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. The Credit Agreement Amendment suspends certain financial maintenance covenants contained in the facility until testing at the end of the second fiscal quarter of 2021. As part of the Credit Agreement Amendment, the Company among other things agreed to modify the rate of interest paid under the facility and to limit its ability to engage in certain transactions during the covenant suspension period, including the ability to declare or pay dividends, incur additional debt and make investments and dispositions.

•~~On May 12, 2020, we completed the issuance of~~ ~~2.50% convertible senior notes due on May 15, 2025 (the “2025 Notes”)~~, pursuant to an indenture (the “Indenture”), and we used the net proceeds of this offering to repay our outstanding borrowings on our term loan and revolving credit facility. We continue to prioritize cash conservation and prudent use of cash, while positioning the Company to safely conduct normal operations.

•Beginning in March 2020, we implemented capital spending and expense reduction initiatives including a temporary pause in new store openings, reduced near term marketing spend, reduced compensation and work hours across the organization and working with a base of vendors and landlords to extend payment terms and modify existing contracts; in the second quarter of 2020 we resumed store openings concurrent with the reopening of existing stores and suspended compensation reductions.

The COVID-19 pandemic and responsive measures taken by the Company have had, and may continue to have, material adverse impacts on our current business, financial condition and results of operations, and may create additional risks for our Company. While we anticipate that these measures are temporary, their specific duration has a high degree of uncertainty and we may elect or need to take additional measures as the situation continues to evolve, including with respect to our store operations, employees, store leases and relationships with third-party vendors. We continue to assess the evolving COVID-19 pandemic and its impact on our customers, employees, optometrists, supply chain and operations and will adjust our responsive measures accordingly. However, the extent to which the COVID-19 pandemic and our precautionary measures in response thereto may impact our business, financial condition and results of operations will depend on how the pandemic and its impacts continue to develop, which are highly uncertain. We are continuing to evaluate additional ~~operational and financial~~ measures that we may elect to take as ~~we continue to respond~~a response to the ~~impact of COVID-19 on our business.~~pandemic, including, where appropriate, future action to reduce store hours and patient appointments or temporarily close stores. There can be no assurance whether or when any such measures will be adopted. Our net revenue in the current fiscal period increased compared to prior fiscal period due in part to strong customer demand, including the effects of our stores being temporarily closed to the public in fiscal year 2020 and government stimulus as a result of COVID-19.

The disclosures contained in this Form 10-Q are made only as of the date hereof, and we undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as required by law. For further information, please see ~~“Risk Factors” and~~ “Forward-Looking Statements.”

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Brand and Segment Information

Our operations ~~consist~~consist of two ~~reportable~~reportable segments:

•Owned & Host - As of ~~June 27, 2020,~~July 3, 2021, our owned brands consisted of ~~753 America’s~~813 America’s Best Contacts and Eyeglasses ~~(“America’s Best”)~~ retail stores and ~~118 Eyeglass~~123 Eyeglass World retail stores. In America’s Best stores, vision care services are provided by optometrists employed by us or by independent professional corporations or similar entities. America’s Best stores are primarily located in high-traffic strip centers next to value-focused retailers. Eyeglass World locations primarily feature ~~vision~~eye care services provided by independent optometrists and optometrists employed by independent professional corporations or similar entities and on-site optical laboratories that enable stores to quickly fulfill many customer orders and make repairs on site. Eyeglass World stores are primarily located in freestanding or in-line locations near high-foot-traffic shopping centers. Our host brands consistedof 54 Vista Optical locations on select military bases and 29 Vista Optical locations ~~on military bases and 29 Vista Optical locations~~ within select Fred Meyer stores as of ~~June 27, 2020.~~July 3, 2021. We have strong, long-standing relationships with our host partners and have maintained each partnership for over 2021 years. These brands provide eye exams primarily by independent optometrists. All brands utilize our centralized laboratories. This segment also includes sales from our America’s Best, Eyeglass World, and Military omni-channel websites.

•Legacy - We manage the operations of, and supply inventory and laboratory processing ~~services~~services to, ~~231~~ 230 Vision Centers in Walmart retail locations as of ~~June 27, 2020.~~July 3, 2021. This strategic relationship with Walmart is in its 3031^thst year. Pursuant to a January 2020 amendment to our management & services agreement with Walmart, we added five additional Vision Centers in Walmart stores in fiscal year 2020. ~~Refer to Note 14. “Subsequent Events” included in Part I. Item 1. of this Form 10-Q for further information on the contract amendment~~ ~~to extend~~On July 17, 2020, NVI and Walmart extended the current term and economics of the management ~~and~~& services agreement by three years to February 23, ~~2024~~.2024. Under the management & services agreement, our responsibilities include ordering and maintaining merchandise inventory; arranging the provision of optometry services; providing managers and staff at each location; training personnel; providing sales receipts to customers; maintaining necessary insurance; obtaining and holding required licenses, permits and accreditations; owning and maintaining store furniture, fixtures and equipment; and developing annual operating budgets and reporting. We earn management fees as a result of providing such services and therefore we record revenue related to sales of products and product protection plans to our legacy partner’s customers on a net basis. Our management & services agreement also allows our legacy partner to collect penalties if the Vision Centers do not generate a requisite amount of revenues. No such penalties have been assessed under our current arrangement, which began in 2012. We also sell to our legacy partner merchandise that is stocked in retail locations we manage pursuant to a separate supplier agreement, and provide centralized laboratory services for the finished eyeglasses for our legacy partner’s customers in stores that we manage. We lease space from Walmart within or adjacent to each of the locations we manage and use this space for vision care services provided by independent optometrists or optometrists employed by us or by independent professional corporations or similar entities. During the six months ended ~~June 27, 2020,~~July 3, 2021, sales associated with ~~our legacy partner~~this arrangement ~~represented 8.5%~~represented 8.0% of ~~consolidated~~consolidated net revenue. This exposes us to concentration of customer risk.

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Our consolidated results also include the following activity recorded in our Corporate/Other category:

•Our ~~e-commerce~~e-commerce platform of 15 dedicated websites managed by AC Lens. Our e-commerce business consists of six proprietary branded websites, including aclens.com, discountglasses.com and discountcontactlenses.com, ~~and~~and nine ~~third-party~~third-party websites with established retailers, such as Walmart, Sam’s Club and Giant Eagle as well as mid-sized vision insurance providers. AC Lens handles site management, customer relationship management and order fulfillment and also sells a wide variety of contact lenses, eyeglasses and eye care accessories.

•AC Lens also distributes contact lenses wholesale to Walmart and Sam’s Club. We incur costs at a higher percentage of sales than other product categories. AC Lens sales associated with Walmart and Sam’s Club contact lenses distribution arrangements ~~represented 8.6% of~~represented 6.5% of consolidated net revenue.

•Managed care business conducted by FirstSight, our wholly-owned subsidiary that is licensed as a single-service health plan under California law, which arranges for the provision of optometric services at the offices next to certain Walmart stores throughout California, and also issues individual vision ~~care benefit~~ plans in connection with our America’s Best operations in California.

•Unallocated corporate overhead expenses, which are a component of selling, general and administrative expenses and are comprised of various home office expenses such as payroll, occupancy costs, and consulting and professional fees. Corporate overhead expenses also include field services ~~for~~for our five ~~retail~~retail brands.

Reportable segment information is presented on the same basis as our condensed consolidated financial statements, except reportable segment sales which are presented on a cash basis including point of sales for managed care payors and excluding the effects of unearned and deferred revenue, consistent with what our ~~chief operating decision maker (“CODM”)~~CODM regularly reviews. Reconciliations of segment results to consolidated results include financial information necessary to adjust reportable segment revenues to a consolidated basis in accordance with U.S. GAAP, specifically the change in unearned and deferred revenues during the period. There are no revenue transactions between reportable segments, and there are no other items in the reconciliations other than the effects of unearned and deferred revenue. See Note 10. “Segment Reporting” in our condensed consolidated financial statements included in Part I. Item 1. of this Form 10-Q.

Deferred revenue represents the timing difference of when we collect the cash from the customer and when services related to product protection plans and eye care club memberships are performed. Increases or decreases in deferred revenue during the reporting period represent cash collections in excess of or below the recognition of previous deferrals. Unearned revenue represents the timing difference of when we collect cash from the customer and delivery/customer acceptance, and includes sales of prescription eyewear during approximately the last seven to 10 days of the reporting period.

Trends and Other Factors Affecting Our Business

~~COVID-19 Impact~~Various trends and other factors will affect or have affected our operating results, including:

Impact of COVID-19

The COVID-19 pandemic has had far-reaching impacts, directly and indirectly, on our operations. We ~~are continuing~~continue to monitor the ~~impacts COVID-19 has had,~~evolving situation as there remain many uncertainties regarding the pandemic and ~~continues to have,~~more recent outbreaks of variants, including anticipated duration, related healthcare authority guidelines and efficacy of vaccination initiatives, potential impacts on our ~~outsourced third party optical laboratories in China~~lab network and ~~Mexico, including~~ potential disruptions of product deliveries. To date, we have been able to meet customer demand with operations at our ~~laboratories.~~ ~~We source merchandise from suppliers located~~laboratories and our supply chain partners. However, prolonged shutdowns in ~~China~~countries which support our supply chain or a deterioration of conditions in such countries and ~~a significant amount of domestically-purchased merchandise is manufactured~~others could result in ~~China~~.product availability delays. We have partnered with our suppliers and third party laboratories to mitigate any potential significant delays in delivery of merchandise upon store operations resuming. Our e-commerce business remained open to serve our customers during the unprecedented period of temporary store closures.

We incurred $2.5 million and $3.1 million of costs in the three and six months ended June 27, 2020, respectively, primarily for personal protective equipment and other supplies needed to operate our stores safely, as well as for professional fees associated with adapting our operations to the COVID-19 pandemic. Incremental expenses related to the COVID-19 pandemic are not allocated to the reportable segments, but are included in the Corporate/Other category.

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We have seen, and may continue to see, material reductions in sales across brands and regions as a result of the COVID-19 pandemic. In addition, these reductions in revenue have not been offset by proportional decreases in expense, as we continued to incur store occupancy costs even while stores were temporarily closed, incremental costs directly related to adapting the Company's operations to the COVID-19 pandemic and certain other costs such as compensation and administrative expenses, resulting in a negative effect on profitability. In addition, we could experience further material impacts as a result of COVID-19, including, but not limited to, charges from additional asset ~~impairment,~~impairments, deferred tax valuation allowances and further changes in the effectiveness of our hedging instruments. The current circumstances are dynamic and the impacts of COVID-19 on our business operations, including the duration and impact on overall customer demand, are highly uncertain, although COVID-19 has had, and mayinstrument. We will continue to ~~have, a material adverse impact on our business, results of operations, financial condition and cash flows in fiscal 2020~~evaluate additional measures that we may elect to ~~date and beyond.~~

~~The Company recorded a credit totaling $10.8 million~~take as a ~~result of~~response to the ~~employee retention credits made available under the CARES Act for US employees during the three~~pandemic, including, where appropriate, future action to reduce store hours and ~~six months ended June 27, 2020, recognizing $0.4 million as a reduction to costs of products, $6.2 million as a reduction to costs of services and plans, and $4.2 million as a reduction to SG&A.~~

~~It is possible that our preparations for the events listed above are not adequate to mitigate their impact, and that these events could further adversely affect our business and results of operations.~~patient appointments or temporarily close stores. There can be no assurance whether or when any such measures will be adopted. For a discussion of significant risks that have the potential to cause our actual results to differ materially from our expectations, refer to ~~“Item~~Part I. Item 1A. ~~Risk~~“Risk Factors,” included in our ~~2019~~2020 Annual Report on Form ~~10-K~~10-K.

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Comparable store sales growth

Comparable store sales growth is a key driver of our business. The comparable store sales growth and Adjusted Comparable Store Sales Growth benefited in ~~this Form 10-Q.~~

~~Other developments~~

~~As a result~~the current period from the effect of our stores being temporarily closed to the public in the prior year due to the COVID-19 pandemic. The impact of the ~~U.S. government’s temporary reduction~~COVID-19 pandemic on our comparable store sales growth remains uncertain and affects and relevant risk exposures may be exacerbated by the immediate and ongoing threat of ~~tariff rates affecting certain~~the COVID-19 pandemic.

Interim results and seasonality

Historically, our business has realized a higher portion of net revenue, operating income, and cash flows from operations in the first half of the fiscal year, and a lower portion of net revenue, operating income, and cash flows from operations in the fourth fiscal quarter. This seasonality, and our interim results were impacted during fiscal year 2020 because our stores were temporarily closed to the public for a portion of the first half of the year due to the COVID-19 pandemic. Our net revenue in the current fiscal period is higher compared to the sales prior to the pandemic due to new store openings and strong customer demand, including the likely effects of our products that originate in China, we recognized an immaterial reduction in costs of products for the three and six months ended June 27, 2020. We currently expect this tariff reduction to be partial and temporary. Additionally, we are monitoring ongoing political developments between China and the United States. A worsening of relations could leadstores being temporarily closed to the ~~early reinstatement of existing tariffs, or the imposition of additional tariffs, or may cause other disruptions~~public in ~~our supply of products from China.~~fiscal year 2020 and government stimulus.

~~Long-term trends and~~Other factors

We remain committed to our long-term vision and continue to position ourselves to make progress against our key initiatives while balancing the near-term challenges and ~~unprecedented~~ uncertainty presented by the COVID-19 pandemic. As a result of the COVID-19 pandemic, we implemented capital spending and expense reduction initiatives including a temporary pause in new store openings, reduced near term marketing spend, and reduced compensation and work hours across the organization and are working with a base of vendors and landlords to extend payment terms and modify existing contracts. We have also incurred incremental costs directly related to adapting the Company's operations to the COVID-19 pandemic. We experienced negative comparable store sales growth in the first half of 2020 as a result of the closure of our stores in response to the COVID-19 pandemic, and anticipate that comparable store sales growth figures for the fiscal years 2020 and 2021 will be impacted by the pandemic. We believe ~~that~~ the following ~~areas will~~factors may continue to ~~be affected~~influence our short-term and ~~relevant risk exposures may be exacerbated by the immediate and ongoing threat of the COVID-19 pandemic:~~long-term results:

•New store openings;

•~~Comparable store sales growth;~~

•Managed care and insurance;

•Vision care professional recruitment and coverage;

•Overall economic trends;

•Consumer preferences and demand;

•Infrastructure and investment;

•Pricing strategy;

•Our ability to source and distribute products effectively

•Inflation;

•~~Interim results and seasonality;~~Competition;

•~~Competition;~~Market wage pressure and unemployment levels; and

•Consolidation in the industry

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How We Assess the Performance of Our Business

~~While we have historically attempted to exercise prudence~~We consider a variety of financial and operating measures in assessing the performance of our use of cash, the COVID-19 pandemic has required us to closely monitor various items related to cash flow including, but not limited to, cash receipts, cash disbursements, payment terms and alternative sources of funding. We will continue to be focused on these items in addition to the otherbusiness. The key measures we use to determine how our consolidated business and operating segments are performing ~~including:~~are net revenue, costs applicable to revenue, and selling, general, and administrative expenses. In addition, we also review store growth, Adjusted Comparable Store Sales Growth, Adjusted Operating Income, Adjusted Operating Margin, Adjusted EBITDA, Adjusted EBITDA Margin and Adjusted Diluted EPS.

Net Revenue

We report as net revenue amounts generated in transactions with retail customers who are the end users of our products, services, and plans. Net product sales include sales of prescription and non-prescription eyewear, contact lenses, and related accessories as well as eye exam services associated with our America’s Best brand’s signature offer of two pairs of eyeglasses and a free eye exam for one low price (“two-pair offer”) to retail customers and sales of inventory in which our customer is another retail entity. Net sales of services and plans include sales of eye exams, eye care club memberships, product protection plans (i.e., warranties), and single service eye care plans in California. Net sales of services and plans also include fees we earn for managing certain Vision Centers located in Walmart stores and for laboratory services provided to Walmart.

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Costs Applicable to Revenue

Costs applicable to revenue include both costs of net product sales and costs of net sales of services and plans. Costs of net product sales include (i) costs to procure non-prescription eyewear, contact lenses, and accessories, which we purchase and sell in finished form, (ii) costs to manufacture finished prescription eyeglasses, including direct materials, labor, and overhead, and (iii) remake costs, warehousing and distribution expenses, and internal transfer costs. Costs of services and plans include costs associated with product protection plan programs, eye care club memberships, single service eye care plans in California, eye care practitioner and eye exam technician payroll, taxes and benefits and optometric ~~and other~~ service costs. Customer tastes and preferences, product mix, changes in technology, significant increases or slowdowns in production, and other factors impact costs applicable to revenue. The components of our costs applicable to revenue may not be comparable to other retailers.

Selling, General and Administrative

Selling, general and administrative expenses, or SG&A, include store associate (including optician) payroll, taxes and benefits, occupancy, advertising and promotion, field services, corporate support and other costs associated with the provision of vision care services. ~~Non-capital expenditures associated with opening new stores, including rent, store maintenance, marketing expenses, travel and relocation costs, and training costs, are recorded in SG&A as incurred.~~ SG&A generally fluctuates consistently with revenue due to the variable store, field office and corporate support costs; however, some fixed costs slightly improve as a percentage of net revenue as our net revenues grow over time.

New Store Openings

The total number of new stores per year and the timing of store openings has, and will continue to have, an impact on our results. In an effort to conserve cash ~~during~~early in the COVID-19 pandemic, we temporarily paused new store openings during a portion of the ~~six months ended June 27,~~fiscal year 2020. We expect to open ~~approximately 50 to 55~~approximately 75 stores in the current year. We will continue to monitor and determine our plans for future new store openings based on based on health, safety and economic conditions.

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Adjusted Comparable Store Sales Growth

We measure Adjusted Comparable Store Sales Growth as the increase or decrease in sales recorded by the comparable store base in any reporting period, compared to sales recorded by the comparable store base in the prior reporting period, which we calculate as follows: (i) sales are recorded on a cash basis (i.e., when the order is placed and paid for or submitted to a managed care payor, compared to when the order is delivered), utilizing cash basis point of sale information from stores; (ii) stores are added to the calculation during the 13th full fiscal month following the store’s opening; (iii) closed stores are removed from the calculation for time periods that are not comparable; (iv) sales from partial months of operation are excluded when stores do not open or close on the first day of the month; and (v) when applicable, we adjust for the effect of the 53rd week. Quarterly, year-to-date and annual adjusted comparable store sales are aggregated using only sales from all whole months of operation included in both the current reporting period and the prior reporting period. When a partial month is excluded from the calculation, the corresponding month in the subsequent period is also excluded from the calculation. There may be variations in the way in which some of our competitors and other retailers calculate comparable store sales. As a result, our adjusted comparable store sales may not be comparable to similar data made available by other retailers. We did not ~~adjust~~revise our calculation of Adjusted Comparable Store Sales Growth for the temporary closure of our stores to the public as a result of the COVID-19 pandemic.

Adjusted Comparable Store Sales Growth is a non-GAAP financial measure, which we believe is useful because it provides timely and accurate information relating to the two core metrics of retail sales: number of transactions and value of transactions. We use Adjusted Comparable Store Sales Growth as the basis for key operating decisions, such as allocation of advertising to particular markets and implementation of special marketing programs. Accordingly, we believe that Adjusted Comparable Store Sales Growth provides timely and accurate information relating to the operational health and overall performance of each brand. We also believe that, for the same reasons, investors find our calculation of Adjusted Comparable Stores Sales Growth to be meaningful.

~~Adjusted EBITDA, Adjusted EBITDA Margin~~

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Adjusted Operating Income, Adjusted Operating Margin, Adjusted EBITDA, Adjusted EBITDA Margin and Adjusted Diluted EPS (collectively, the “Company Non-GAAP Measures”)

The Company Non-GAAP Measures are key measures used by management to assess our financial performance. The Company Non-GAAP Measures are also frequently used by analysts, investors and other interested parties. We use ~~The~~the Company Non-GAAP Measures to supplement U.S. GAAP measures of performance to evaluate the effectiveness of our business strategies, to make budgeting decisions, to establish discretionary annual incentive compensation and to compare our performance against that of other peer companies using similar measures. See “Non-GAAP Financial Measures” for definitions of the Company Non-GAAP Measures and for additional information.

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Results of Operations

The following table summarizes key components of our results of operations for the periods indicated, both in dollars and as a percentage of our net revenue.

Three Months Ended Six Months Ended
In thousands, except store data June 27, 2020 June 29, 2019 June 27, 2020 June 29, 2019
Revenue:
Net product sales $ 209,707 $ 357,533 $ 602,548 $ 740,693
Net sales of services and plans 50,300 71,918 127,163 149,973
Total net revenue 260,007 429,451 729,711 890,666
Costs applicable to revenue (exclusive of depreciation and amortization):
Products 97,635 145,654 254,005 299,658
Services and plans 43,145 56,852 105,329 114,817
Total costs applicable to revenue 140,780 202,506 359,334 414,475
Operating expenses:
Selling, general and administrative expenses 136,582 182,278 330,323 376,154
Depreciation and amortization 21,924 20,819 46,734 41,234
Asset impairment 2,411 1,790 13,766 3,872
Litigation settlement — — 4,395 —
Other expense (income), net (92) 356 (158) 829
Total operating expenses 160,825 205,243 395,060 422,089
Income (loss) from operations (41,598) 21,702 (24,683) 54,102
Interest expense, net 15,502 8,968 22,957 18,029
Debt issuance costs 136 — 136 —
Earnings (loss) before income taxes (57,236) 12,734 (47,776) 36,073
Income tax provision (benefit) (13,403) 2,477 (13,685) 8,387
Net income (loss) $ (43,833) $ 10,257 $ (34,091) $ 27,686
Operating data:
Number of stores open at end of period 1,185 1,128 1,185 1,128
New stores opened 17 24 40 50
Adjusted Operating Income $ (34,427) $ 29,088 $ 3,638 $ 71,737
Diluted EPS $ (0.55) $ 0.13 $ (0.42) $ 0.34
Adjusted Diluted EPS $ (0.41) $ 0.18 $ (0.13) $ 0.49
Adjusted EBITDA $ (14,354) $ 48,056 $ 46,670 $ 109,269
Percentage of net revenue:
Total costs applicable to revenue 54.1 % 47.2 % 49.2 % 46.5 %
Selling, general and administrative 52.5 % 42.4 % 45.3 % 42.2 %
Total operating expenses 61.9 % 47.8 % 54.1 % 47.4 %
Income (loss) from operations (16.0) % 5.1 % (3.4) % 6.1 %
Net income (loss) (16.9) % 2.4 % (4.7) % 3.1 %
Adjusted Operating Income (13.2) % 6.8 % 0.5 % 8.1 %
Adjusted EBITDA (5.5) % 11.2 % 6.4 % 12.3 %


	Three Months Ended						Six Months Ended
In thousands, except earnings per share, percentage and store data	July 3, 2021			June 27, 2020			July 3, 2021			June 27, 2020
Revenue:
Net product sales	$	458,206		$	209,707		$	901,273		$	602,548
Net sales of services and plans	91,283			50,300			182,396			127,163
Total net revenue	549,489			260,007			1,083,669			729,711
Costs applicable to revenue (exclusive of depreciation and amortization):
Products	167,028			97,635			326,719			254,005
Services and plans	68,918			43,145			133,917			105,329
Total costs applicable to revenue	235,946			140,780			460,636			359,334
Operating expenses:
Selling, general and administrative expenses	234,235			136,582			457,828			330,323
Depreciation and amortization	24,025			21,924			47,580			46,734
Asset impairment	519			2,411			1,478			13,766
Litigation settlement	—			—			—			4,395
Other expense (income), net	(65)			(92)			(130)			(158)
Total operating expenses	258,714			160,825			506,756			395,060
Income (loss) from operations	54,829			(41,598)			116,277			(24,683)
Interest expense, net	10,096			15,502			16,426			22,957
Debt issuance costs	92			136			92			136
Earnings (loss) before income taxes	44,641			(57,236)			99,759			(47,776)
Income tax provision (benefit)	7,040			(13,403)			18,726			(13,685)
Net income (loss)	$	37,601		$	(43,833)		$	81,033		$	(34,091)

Operating data:
Number of stores open at end of period	1,249			1,184			1,249			1,184
New stores opened during the period	20			17			45			40
Adjusted Operating Income	$	65,581		$	(34,427)		$	133,249		$	3,638
Diluted EPS	$	0.42		$	(0.55)		$	0.89		$	(0.42)
Adjusted Diluted EPS	$	0.48		$	(0.41)		$	0.97		$	(0.13)
Adjusted EBITDA	$	87,735		$	(14,354)		$	177,085		$	46,670


Percentage of net revenue:
Total costs applicable to revenue	42.9		%	54.1		%	42.5		%	49.2		%
Selling, general and administrative	42.6		%	52.5		%	42.2		%	45.3		%
Total operating expenses	47.1		%	61.9		%	46.8		%	54.1		%
Income (loss) from operations	10.0		%	(16.0)		%	10.7		%	(3.4)		%
Net income (loss)	6.8		%	(16.9)		%	7.5		%	(4.7)		%
Adjusted Operating Income	11.9		%	(13.2)		%	12.3		%	0.5		%
Adjusted EBITDA	16.0		%	(5.5)		%	16.3		%	6.4		%

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Three Months Ended ~~June 27, 2020~~July 3, 2021 compared to Three Months Ended June ~~29, 2019~~27, 2020

As a result of the COVID-19 pandemic, our retail stores were temporarily closed to the public beginning on March 19, 2020. We began reopening our stores to the public on April 27, 2020, and on June 8, 2020, we announced the successful completion of the reopening process. Comparisons of current year results to prior year results reflect the material and unprecedented impact of these temporary store closures.

Net revenue

The following presents, by segment and by brand, comparable store sales growth, stores open at the end of the period and net revenue for the three months ended ~~June 27, 2020~~July 3, 2021 compared to the three months ended June ~~29, 2019.~~27, 2020.


		Comparable store sales growth⁽¹⁾					Stores open at end of period							Net revenue⁽²⁾										Comparable store sales growth(1)							Stores open at end of period			Net revenue(2)
In thousands, except percentage and store data	In thousands, except percentage and store data	Three Months Ended June 27, 2020		Three Months Ended June 29, 2019		June 27, 2020	June 29, 2019	Three Months Ended June 27, 2020						Three Months Ended June 29, 2019				In thousands, except percentage and store data		Three Months Ended July 3, 2021		Three Months Ended June 27, 2020	July 3, 2021	June 27, 2020				Three Months Ended July 3, 2021					Three Months Ended June 27, 2020
Owned & Host segment	Owned & Host segment															Owned & Host segment
America’s Best	America’s Best	(37.1)	%	4.5	%	753	702	$	176,196	67.8	%	$	266,781	62.1	%	America’s Best	81.8		%	(37.1)	%	813	752	$	372,846	67.9	%		$	176,196	67.8	%
Eyeglass World	Eyeglass World	(31.6)	%	5.2	%	118	117	30,357		11.7	%	44,059		10.3	%	Eyeglass World	67.6		%	(31.6)	%	123	118	58,061		10.6	%		30,357		11.7	%
Military	Military	(44.6)	%	0.3	%	54	54	3,328		1.3	%	6,021		1.4	%	Military	65.0		%	(44.6)	%	54	54	6,007		1.1	%		3,328		1.3	%
Fred Meyer	Fred Meyer	(48.6)	%	(5.3)	%	29	29	1,824		0.7	%	3,555		0.8	%	Fred Meyer	61.1		%	(48.6)	%	29	29	3,243		0.6	%		1,824		0.7	%
Owned & Host segment total	Owned & Host segment total					954	902	$	211,705	81.4	%	$	320,416	74.6	%	Owned & Host segment total						1,019	953	$	440,157	80.1	%		$	211,705	81.4	%
Legacy segment	Legacy segment	(35.8)	%	0.4	%	231	226	25,413		9.8	%	39,264		9.1	%	Legacy segment	58.2		%	(35.8)	%	230	231	43,600		7.9	%		25,413		9.8	%
Corporate/Other	Corporate/Other	—	%	—	%	—	—	50,472		19.4	%	62,346		14.6	%	Corporate/Other	—		%	—	%	—	—	61,520		11.2	%		50,472		19.4	%
Reconciliations	Reconciliations	—	%	—	%	—	—	(27,583)		(10.6)	%	7,425		1.7	%	Reconciliations	—		%	—	%	—	—	4,212		0.8	%		(27,583)		(10.6)	%
Total	Total	(44.7)	%	4.4	%	1,185	1,128	$	260,007	100.0	%	$	429,451	100.0	%	Total	99.1		%	(44.7)	%	1,249	1,184	$	549,489	100.0	%		$	260,007	100.0	%
Adjusted comparable store sales growth⁽³⁾		(36.5)	%	3.8	%
Adjusted Comparable Store Sales Growth(3)																Adjusted Comparable Store Sales Growth(3)	76.7		%	(36.5)	%

(1)We calculate total comparable store sales based on consolidated net revenue excluding the impact of (i) ~~corporate/other~~Corporate/Other segment net revenue, (ii) sales from stores opened less than 13 months, (iii) stores closed in the periods presented, (iv) sales from partial months of operation when stores do not open or close on the first day of the month and (v) if applicable, the impact of a 53rd week in a fiscal year. Brand-level comparable store sales growth is calculated based on cash basis revenues consistent with what the CODM reviews, and consistent with reportable segment revenues presented in Note 10. “Segment Reporting” in our unaudited condensed consolidated financial statements included in Part I. Item 1. of this Form 10-Q, with the exception of the ~~legacy~~Legacy segment, which is adjusted as noted in clause (ii) of footnote (3) below.

(2)Percentages reflect line item as a percentage of net revenue, adjusted for rounding.

(3)There are two differences between total comparable store sales growth based on consolidated net revenue and Adjusted Comparable Store Sales Growth: (i) Adjusted Comparable Store Sales Growth includes the effect of deferred and unearned revenue as if such revenues were earned at the point of sale, resulting in a decrease of 21.6% and an increase of 8.1% ~~and a decrease of 0.4%~~ from total comparable store sales growth based on consolidated net revenue for the three months ended July 3, 2021 and June 27, 2020, ~~and June 29, 2019,~~ respectively, and (ii) Adjusted Comparable Store Sales Growth includes retail sales to the legacy partner’s customers (rather than the revenues recognized consistent with the management & services agreement with the legacy partner), resulting in a decrease of 0.8% and an increase of 0.1% ~~and a decrease of 0.2%~~ from total comparable store sales growth based on consolidated net revenue for each of the three months ended July 3, 2021 and June 27, ~~2020 and June 29, 2019.~~2020.

Total net revenue of $549.5 million for the three months ended July 3, 2021 increased $289.5 million, or 111.3%, from $260.0 million for the three months ended June 27, ~~2020 decreased $169.4 million, or 39.5%, from $429.5 million for the three months ended June 29, 2019.~~2020. This ~~decrease~~increase was primarily driven by comparable store sales growth from the ~~closure~~effect of our stores being temporarily closed to the public ~~for a portion~~in the second quarter of ~~the three months ended June 27,~~ 2020, strong customer demand, government stimulus, and ~~was partially offset by~~ new store ~~sales.~~growth and maturation. Total net revenue was also ~~negatively~~positively impacted by changes in unearned revenue.

In the three months ended ~~June 27, 2020,~~July 3, 2021, we opened 1118 America’s Best stores and ~~one~~two Eyeglass World ~~store~~stores and closed ~~five~~one America’s Best ~~stores; we also transitioned five additional Legacy stores to our management.~~store. Overall, store count grew ~~5.1%~~5.5% from ~~June 29, 2019 to~~ June 27, 2020 ~~(51, one~~to July 3, 2021 (61 and five net new America’s Best and Eyeglass World ~~and Legacy stores~~ were added, ~~respectively)~~respectively and one Legacy store was closed). The store count as of June 27, 2020 has been updated from the previously reported number.

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Comparable store sales growth and Adjusted Comparable Store Sales Growth for the three months ended ~~June 27, 2020~~July 3, 2021 were ~~(44.7)%~~99.1% and ~~(36.5)%~~76.7%, ~~respectively. The decreases in comparable store sales growth~~respectively and ~~Adjusted Comparable Store Sales Growth~~ were primarily driven by the ~~temporary closure~~effect of our stores being temporarily closed to the public ~~in response to~~for a portion of the COVID-19 pandemic. Comparable store sales growth and Adjusted Comparable Store Sales Growth for the one month ended April 25, 2020 were (83.9)% and (86.6)%, respectively. Comparable store sales growth and Adjusted Comparable Store Sales Growth for the one month ended May 30, 2020 were (56.6)% and (38.5)%, respectively. Comparable store sales growth and Adjusted Comparable Store Sales Growth for the one monththree months ended June 27, 2020, ~~were 14.3%~~strong customer demand and 19.3%, respectively. Adjusted Comparable Store Sales Growth includes the effect of deferred and unearned revenue as if such revenues were earned at the point of sale, resulting in a decrease of 3.3%, an increase of 17.7% and an increase of 6.0% for the one month periods ended April 25, 2020, May 30, 2020 and June 27, 2020, respectively. Adjusted Comparable Store Sales Growth includes retail sales to the legacy partner’s customers (rather than the revenues recognized consistent with the management & services agreement with the legacy partner), resulting in an increase of 0.6%, an increase of 0.4% and a decrease of 1.0% for the one month periods ended April 25, 2020, May 30, 2020 and June 27, 2020, respectively.government stimulus.

Net product sales comprised ~~80.7%~~83.4% and ~~83.3%~~80.7% of total net revenue for the three months ended July 3, 2021 and June 27, 2020, ~~and June 29, 2019,~~ respectively. Net product sales ~~decreased $147.8~~increased $248.5 million, or ~~41.3%~~118.5%, in the three months ended July 3, 2021 compared to the three months ended June 27, 2020, ~~compared to the three months ended June 29, 2019,~~ driven primarily by ~~the temporary closure of our stores~~eyeglass sales and, to ~~the public in response to the COVID-19 pandemic.~~a lesser extent, contact lens sales. Net sales of services and plans ~~decreased $21.6~~increased $41.0 million, or ~~30.1%~~81.5%, driven primarily by ~~the temporary closure of our stores to the public in response to the COVID-19 pandemic.~~eye exam sales.

Owned & Host segment net revenue. Net revenue ~~decreased $108.7~~increased $228.5 million, or ~~33.9%~~107.9%, ~~due to the temporary closure of our stores to the public in response to the COVID-19 pandemic.~~driven primarily by comparable store sales growth and new store openings.

Legacy segment net revenue. Net revenue ~~decreased $13.9~~increased $18.2 million, or ~~35.3% due to the temporary closure of~~71.6%, driven by comparable store sales growth, as well as increases in fees from our ~~stores to the public in response to the COVID-19 pandemic.~~Legacy partner and eye exams.

Corporate/Other segment net revenue. Net revenue ~~decreased $11.9~~increased $11.0 million, or ~~19.0%~~21.9%, driven ~~by reductions in wholesale fulfillment that was partially offset~~primarily by increases in ~~our online retail business.~~wholesale fulfillment.

Net revenue reconciliations. ~~The impact~~Net revenue was positively impacted by $31.8 million due to the timing of ~~reconciliations decreased net~~unearned revenue ~~by $35.0 million~~ for the three months ended ~~June 27, 2020~~July 3, 2021 compared to the three months ended June ~~29, 2019. Reconciliations include~~27, 2020. The Company experienced a decrease in unearned revenue of $8.5 million compared to an increase in unearned revenue of $34.4 million ~~compared to~~for the three months ended July 3, 2021 and June 27, 2020, respectively, as well as an increase in deferred revenue of $4.2 million and a decrease ~~in unearned revenue~~ of ~~$8.5~~$6.9 million for the three months ended July 3, 2021 and June 27, 2020, ~~and June 29, 2019, respectively, as well as a decrease in deferred revenue of $6.9 million and an increase of $1.1 million for the three months ended June 27, 2020 and June 29, 2019,~~ respectively. The ~~increase~~decrease in unearned revenue ~~for the three months ended June 27, 2020~~primarily resulted from ~~the temporary closure of our stores to the public~~higher sales at the end of the first quarter of 2021 compared to the prior period in 2020 ~~as well as stronger~~when stores were temporarily closed to the public.The increase in deferred revenue is due to higher sales ~~at the end~~ of ~~the second quarter of 2020.~~warranties and club memberships.

Costs applicable to revenue

Costs applicable to revenue of $235.9 million for the three months ended July 3, 2021 increased $95.2 million, or 67.6%, from $140.8 million for the three months ended June 27, ~~2020 decreased $61.7 million, or 30.5%, from $202.5 million for the three months ended June 29, 2019.~~2020. As a percentage of net revenue, costs applicable to revenue ~~increased~~decreased from ~~47.2% for the three months ended June 29, 2019 to~~ 54.1% for the three months ended June 27, ~~2020.~~2020 to 42.9% for the three months ended July 3, 2021. This ~~increase~~decrease as a percentage of net revenue was primarily driven by negative margin impacts from the temporary closure of our stores in the prior year that were not experienced in the 2021 period, increased eyeglass mix and lower growth in optometrist ~~costs incurred during temporary store closures and increased contact lens mix.~~costs.

Costs of products as a percentage of net product sales ~~increased~~decreased from ~~40.7% for the three months ended June 29, 2019 to~~ 46.6% for the three months ended June 27, 2020 to 36.5% for the three months ended July 3, 2021, primarily drivenby impact of the temporary store closures in fiscal year 2020, increased ~~contact lens mix.~~eyeglass mix and higher eyeglass margin.

Owned & Host segment costs of products. Costs of products as a percentage of net product sales ~~increased~~decreased from ~~29.5% for the three months ended June 29, 2019 to~~ 30.9% for the three months ended June 27, ~~2020.~~2020 to 27.3% for the three months ended July 3, 2021. The ~~increase~~decrease was primarily driven by the impact of the temporary store closures in fiscal year 2020, increased ~~contact lens~~eyeglass mix ~~in the three months ended June 27, 2020.~~and higher eyeglass margin.

Legacy segment costs of products. Costs of products as a percentage of net product sales ~~increased~~decreased from ~~47.7% for the three months ended June 29, 2019 to~~ 55.9% for the three months ended June 27, ~~2020.~~2020 to 48.1% for the three months ended July 3, 2021. The ~~increase~~decrease was primarily driven by the impact of the temporary store closures in fiscal year 2020, increased ~~contact lens~~eyeglass mix and by a higher mix of ~~non-managed~~managed care customer transactions versus ~~managed~~non-managed care customer transactions. Legacy segment managed care net product revenue is recorded in net product sales while revenue associated with servicing non-managed care customers is recorded in net sales of services and plans. Eyeglass and contact lens product costs for both managed care and non-managed care net revenue are recorded in costs of products. ~~Decreases~~Increases in managed care mix ~~increase~~decrease costs of products as a percentage of net product sales and have a corresponding ~~positive~~negative impact on costs of services as a percentage of net sales of services and plans in our Legacy segment.

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Costs of services and plans as a percentage of net sales of services and plans ~~increased~~decreased from ~~79.1% for the three months ended June 29, 2019 to~~ 85.8% for the three months ended June 27, ~~2020.~~2020 to 75.5% for the three months ended July 3, 2021. The ~~increase~~decrease was primarily driven by the impact of temporary closure of our stores in fiscal year 2020, lower growth in optometrist costs ~~incurred while our stores were temporarily closed to the public in response to the COVID-19 pandemic.~~and higher eye exam sales.

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Owned & Host segment costs of services and plans. Costs of services and plans as a percentage of net sales of services and plans in the ~~owned~~Owned & ~~host~~Host segment ~~increased~~decreased from ~~84.9% for the three months ended June 29, 2019 to~~ 112.5% for the three months ended June 27, ~~2020.~~2020 to 79.3% for the three months ended July 3, 2021. The ~~increase~~decrease was primarily driven ~~primarily~~ by the impact of the temporary store closures in fiscal year 2020, lower growth in optometrist costs ~~incurred while our stores were temporarily closed to the public in response to the COVID-19 pandemic.~~and higher eye exam sales.

Legacy segment costs of services and plans. Costs of services and plans as a percentage of net sales of services and plans ~~increased~~in the Legacy segment decreased from ~~46.5% for the three months ended June 29, 2019 to~~ 49.9% for the three months ended June 27, ~~2020.~~2020 to 38.6% for the three months ended July 3, 2021. The ~~increase~~decrease was primarily driven by the impact of the temporary store closures in fiscal year 2020, lower growth in optometrist costs ~~incurred while~~and higher management fees from our ~~stores were temporarily closed to the public in response to the COVID-19 pandemic.~~Legacy partner.

Selling, general and administrative

SG&A of ~~$136.6~~$234.2 million for the three months ended July 3, 2021 increased $97.7 million, or 71.5%, from the three months ended June 27, 2020. As a percentage of net revenue, SG&A decreased from 52.5% for the three months ended June 27, 2020 ~~decreased $45.7 million, or 25.1%, from the three months ended June 29, 2019. As a percentage of net revenue, SG&A increased from 42.4%~~to 42.6% for the three months ended ~~June 29, 2019 to 52.5% for the three months ended June 27, 2020.~~July 3, 2021. The ~~increase~~decrease in SG&A as a percentage of net revenue was primarily driven by negative impacts from the temporary closure of our stores in the prior year that were not experienced in the 2021 period which contributed to leverage of store and corporate payroll and occupancy expenses ~~incurred while our stores were temporarily closed to~~as well as the ~~public~~decrease in ~~response to the COVID-19 pandemic,~~unearned revenue, partially offset by ~~lower~~higher advertising ~~expense.~~expenses. SG&A for the three months ended July 3, 2021 and June 27, 2020 includes $0.3 million and $2.5 million, respectively, of incremental costs directly related to adapting the Company’s operations during the COVID-19 pandemic; these costs were not reflected as adjustments for the Company’s presentation of non-GAAP measures below.

Owned & Host SG&A. SG&A as a percentage of net revenue ~~increased~~decreased from ~~39.3% for the three months ended June 29, 2019 to~~ 41.0% for the three months ended June 27, 2020 to 36.1% for the three months ended July 3, 2021, driven primarily by the impact of the temporary store closures in fiscal year 2020 which contributed to a leverage of payroll and occupancy ~~costs incurred while our stores were temporarily closed to the public in response to the COVID-19 pandemic,~~expenses, partially offset by ~~lower~~higher advertising ~~expense.~~expenses.

Legacy segment SG&A. SG&A as a percentage of net revenue ~~increased~~decreased from ~~35.4% for the three months ended June 29, 2019 to~~ 41.6% for the three months ended June 27, 2020 to 33.9% for the three months ended July 3, 2021, driven primarily by the impact of the temporary store closures in fiscal year 2020 and payroll ~~costs incurred while our stores were temporarily closed to the public in response to the COVID-19 pandemic.~~leverage.

Depreciation and amortization

Depreciation and amortization expense of $24.0 million for the three months ended July 3, 2021 increased $2.1 million, or 9.6%, from $21.9 million for the three months ended June 27, 2020 ~~increased $1.1 million, or 5.3%, from $20.8 million for the three months ended June 29, 2019~~ primarily driven by new store openings. Our property and equipment balance, net, decreased $9.9 million, or 2.8%, during the three months ended June 27, 2020, reflective of $11.8 million in purchases of property and equipment less $20.1 million in depreciation expense and $1.6 million in impairment and other adjustments.

Asset Impairment

We recognized ~~$2.4~~$0.5 million for impairment primarily of tangible long-lived assets and ROU assets associated with our retail stores during the three months ended ~~June 27, 2020,~~July 3, 2021, compared to ~~$1.8~~$2.4 million recognized during the three months ended June ~~29, 2019.~~27, 2020. The store asset impairment ~~charges were~~charge is primarily related to our Owned & Host segment ~~caused~~and is driven by lower than projected customer sales volume in certain stores, and ~~were determined using~~other entity-specific ~~assumptions related to our anticipated use of store assets.~~assumptions. We considered multiple factors including, but not limited to: forecasted scenarios related to store performance and the likelihood that these scenarios would be ultimately realized; ~~the historical performance of the stores before the temporary store closures in response to the COVID-19 pandemic;~~ and the remaining useful lives of the assets. ~~The asset impairment expense for the three months ended June 27, 2020 also includes $1.1 million related to a write-off of certain software assets that were deemed to be obsolete. Asset~~Asset impairment expenses were recognized in Corporate/Other.

Interest expense, net

Interest expense, net, of $10.1 million for the three months ended July 3, 2021 decreased $5.4 million, or 34.9%, from $15.5 million for the three months ended June 27, ~~2020 increased $6.5 million, or 72.9%, from $9.0 million for the three months ended June 29, 2019.~~2020. The ~~increase~~decrease was primarily driven by ~~losses related to~~ changes in fair value of derivatives ~~due to ineffectiveness~~ of ~~$4.9~~$2.5 million and ~~charges related to interest payments and amortization of debt discounts related to the 2025 Notes of $2.3 million that were partially offset~~ by a reduction in our term loan and revolving credit facility utilization.

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Income tax provision

Our income tax expense for the three months ended ~~June 27, 2020~~July 3, 2021 reflected our statutory federal and state rate of 25.5%, offset by a discrete benefit of ~~$0.3~~$4.1 million associated primarily with the exercise of stock options. InIn comparison, the income tax ~~rate~~provision associated with the three months ended June ~~29, 2019~~27, 2020 reflected income tax expense at our statutory federal and state rate of ~~25.6%~~25.5% and was reduced by a ~~$1.1~~$0.3 million income tax benefit resulting from stock option exercises.

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Six Months Ended ~~June 27, 2020~~July 3, 2021 compared to Six Months Ended June ~~29, 2019~~27, 2020

Net revenue

The following presents, by segment and by brand, comparable store sales growth, stores open at the end of the period and net revenue for the six months ended ~~June 27, 2020~~July 3, 2021 compared to the six months ended June ~~29, 2019.~~27, 2020.


		Comparable store sales growth⁽¹⁾					Stores open at end of period							Net revenue⁽²⁾										Comparable store sales growth(1)							Stores open at end of period			Net revenue(2)
In thousands, except percentage and store data	In thousands, except percentage and store data	Six Months Ended June 27, 2020		Six Months Ended June 29, 2019		June 27, 2020	June 29, 2019	Six Months Ended June 27, 2020						Six Months Ended June 29, 2019				In thousands, except percentage and store data		Six Months Ended July 3, 2021		Six Months Ended June 27, 2020	July 3, 2021	June 27, 2020				Six Months Ended July 3, 2021					Six Months Ended June 27, 2020
Owned & Host segment	Owned & Host segment															Owned & Host segment
America’s Best	America’s Best	(22.2)	%	6.4	%	753	702	$	470,366	64.5	%	$	571,877	64.2	%	America’s Best	54.9		%	(22.2)	%	813	752	$	755,201	69.7	%		$	470,366	64.5	%
Eyeglass World	Eyeglass World	(21.2)	%	5.9	%	118	117	74,843		10.3	%	94,273		10.6	%	Eyeglass World	57.1		%	(21.2)	%	123	118	118,836		11.0	%		74,843		10.3	%
Military	Military	(27.8)	%	(2.2)	%	54	54	8,970		1.2	%	12,442		1.4	%	Military	38.1		%	(27.8)	%	54	54	12,246		1.1	%		8,970		1.2	%
Fred Meyer	Fred Meyer	(32.5)	%	(7.5)	%	29	29	4,753		0.7	%	7,044		0.8	%	Fred Meyer	36.1		%	(32.5)	%	29	29	6,321		0.6	%		4,753		0.7	%
Owned & Host segment total	Owned & Host segment total					954	902	$	558,932	76.6	%	$	685,636	77.0	%	Owned & Host segment total						1,019	953	$	892,604	82.4	%		$	558,932	76.6	%
Legacy segment	Legacy segment	(24.4)	%	1.1	%	231	226	61,870		8.5	%	83,842		9.4	%	Legacy segment	42.6		%	(24.4)	%	230	231	87,182		8.0	%		61,870		8.5	%
Corporate/Other	Corporate/Other	—		—		—	—	117,044		16.0	%	126,227		14.2	%	Corporate/Other	—			—		—	—	122,738		11.3	%		117,044		16.0	%
Reconciliations	Reconciliations	—		—		—	—	(8,135)		(1.1)	%	(5,039)		(0.6)	%	Reconciliations	—			—		—	—	(18,855)		(1.7)	%		(8,135)		(1.1)	%
Total	Total	(23.0)	%	5.4	%	1,185	1,128	$	729,711	100.0	%	$	890,666	100.0	%	Total	48.9		%	(23.0)	%	1,249	1,184	$	1,083,669	100.0	%		$	729,711	100.0	%
Adjusted Comparable Store Sales Growth⁽³⁾	Adjusted Comparable Store Sales Growth⁽³⁾	(22.6)	%	5.3	%											Adjusted Comparable Store Sales Growth(3)	53.3		%	(22.6)	%

(1)We calculate total comparable store sales based on consolidated net revenue excluding the impact of (i) Corporate/Other segment net revenue, (ii) sales from stores opened less than 13 months, (iii) stores closed in the periods presented, (iv) sales from partial months of operation when stores do not open or close on the first day of the month and (v) if applicable, the impact of a 53rd week in a fiscal year. Brand-level comparable store sales growth is calculated based on cash basis revenues consistent with what the CODM reviews, and consistent with reportable segment revenues presented in Note 10. “Segment Reporting” in our unaudited condensed consolidated financial statements included in Part I. Item 1. of this Form 10-Q, with the exception of the Legacy segment, which is adjusted as noted in clause (ii) of footnote (3) below.

(2)Percentages reflect line item as a percentage of net revenue, adjusted for rounding.

(3)There are two differences between total comparable store sales growth based on consolidated net revenue and Adjusted Comparable Store Sales Growth: (i) Adjusted Comparable Store Sales Growth includes the effect of deferred and unearned revenue as if such revenues were earned at the point of sale, resulting in an increase of ~~0.3%~~4.4% and an increase of ~~0.2%~~0.3% from total comparable store sales growth based on consolidated net revenue for the six months ended July 3, 2021 and June 27, 2020, ~~and June 29, 2019,~~ respectively, and (ii) Adjusted Comparable Store Sales Growth includes retail sales to the legacy partner’s customers (rather than the revenues recognized consistent with the management & services agreement with the legacy partner), resulting in an increase of 0.1% ~~and a decrease of 0.3%~~ from total comparable store sales growth based on consolidated net revenue for the six months ended June 27, ~~2020 and June 29, 2019, respectively.~~2020.

Total net revenue of $1,083.7 million for the six months ended July 3, 2021 increased $354.0 million, or 48.5%, from $729.7 million for the six months ended June 27, ~~2020 decreased $161.0 million, or 18.1%, from $890.7 million for the six months ended June 29, 2019.~~2020. This ~~decrease~~increase was primarily driven by comparable store sales growth driven by strong customer demand, including the ~~closure~~effect of our stores being temporarily closed to the public for a portion of the six months ended June 27, 2020, government stimulus, and ~~was partially offset by~~ new store ~~sales.~~growth and maturation. Total net revenue was also ~~negatively~~positively impacted by changes in unearned revenue.

In the six months ended ~~June 27, 2020,~~July 3, 2021, we opened 3441 new America’s Best stores and ~~one~~four Eyeglass World ~~store~~stores and closed ~~six~~one America’s Best ~~stores; we also transitioned five additional Legacy stores to our management.~~store; Overall, store count grew ~~5.1%~~5.5% from ~~June 29, 2019 to~~ June 27, 2020 ~~(51, one~~to July 3, 2021 (61, and five net new America’s Best and Eyeglass World ~~and Legacy~~ stores ~~respectively,~~ were added, respectively, and one Legacy store was closed during the same period).

~~Table~~ The store count as of ~~Contents~~

June 27, 2020 has been updated from the previously reported number.

Comparable store sales growth and Adjusted Comparable Store Sales Growth for the six months ended ~~June 27, 2020~~July 3, 2021 were ~~(23.0)%~~48.9% and ~~(22.6)%~~53.3%, respectively. The ~~decreases~~increases in comparable store sales growth and Adjusted Comparable Store Sales Growth were primarily driven by strong customer demand, including the ~~temporary closure~~effect of our stores tobeing temporarily closed for a portion of the ~~public in response to the COVID-19 pandemic.~~six months ended June 27, 2020 and government stimulus.

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Net product sales comprised ~~82.6%~~83.2% and ~~83.2%~~82.6% of total net revenue for the six months ended July 3, 2021 and June 27, 2020, ~~and June 29, 2019,~~ respectively. Net product sales ~~decreased $138.1~~increased $298.7 million, or ~~18.7%~~49.6%, in the six months ended July 3, 2021 compared to the six months ended June 27, 2020, ~~compared~~primarily due to ~~the six months ended June 29, 2019, driven primarily by decreased~~increased eyeglass sales and to a lesser extent increased contact lens sales. Net sales of services and plans ~~decreased $22.8~~increased $55.2 million, or ~~15.2%~~43.4%, primarily ~~due to the temporary closure of stores to the public in response to the COVID-19 pandemic.~~driven by eye exam revenue.

Owned & Host segment net revenue. Net revenue ~~decreased $126.7~~increased $333.7 million, or ~~18.5%~~59.7%, ~~due to the temporary closure of our stores to the public in response to the COVID-19 pandemic.~~driven primarily by comparable store sales growth and new store openings.

Legacy segment net revenue. Net revenue ~~decreased $22.0~~increased $25.3 million, or ~~26.2%~~40.9%, ~~due to the temporary closure of~~driven by comparable store sales growth, increases in fees from our ~~stores to the public in response to the COVID-19 pandemic.~~Legacy partner and eye exams.

Corporate/Other segment net revenue. Net revenue ~~decreased $9.2~~increased $5.7 million, or ~~7.3%~~4.9%, ~~driven by lower~~due to increases in wholesale ~~fulfillment, partially offset by growth in our online retail business.~~fulfillment.

Net revenue reconciliations. The impact of reconciliations decreased net revenue by ~~$3.1~~$10.7 million in the six months ended ~~June 27, 2020~~July 3, 2021 compared to the six months ended June ~~29, 2019.~~27, 2020. Reconciliations include an increase in unearned revenue of $6.5 million for the six months ended July 3, 2021 compared to an increase in unearned revenue of $14.5 million for the six months ended June 27, 2020, and an increase in deferred revenue of $12.4 million compared to a decrease ~~in unearned revenue~~ of ~~$0.8~~$6.4 million, for the six months ended July 3, 2021 and June ~~29, 2019, and a decrease~~27, 2020, respectively. The increase in deferred revenue is due to higher sales of ~~$6.4 million~~warranties and club memberships. Unearned revenue increased net revenue in the current year compared to ~~an increase of $5.8 million, for~~prior year primarily due to higher sales at the six months ended June 27, 2020 and June 29, 2019, respectively. We believe that the increase in unearned revenue reflects the effects of our store closures that began on March 19, 2020 and continued through a portionend of the second quarter of 2020 ~~as customers were unable to make eyeglass purchases during the last seven to 10 days of the first quarter of 2020, but then returned to the~~after our stores ~~once they had~~ reopened and customers made purchases reflective of demand that was not met during the temporary closure period.

Costs applicable to revenue

Costs applicable to revenue of $460.6 million for the six months ended July 3, 2021 increased $101.3 million, or 28.2%, from $359.3 million for the six months ended June 27, ~~2020 decreased $55.1 million, or 13.3%, from $414.5 million for the six months ended June 29, 2019.~~2020. As a percentage of net revenue, costs applicable to revenue ~~increased~~decreased from ~~46.5% for the six months ended June 29, 2019 to~~ 49.2% for the six months ended June 27, ~~2020.~~2020 to 42.5% for the six months ended July 3, 2021. This ~~increase~~decrease as a percentage of net revenue was primarily driven by ~~optometrist costs incurred during~~negative margin impacts from the temporary closure of our stores toin the ~~public~~prior year that were not experienced in ~~response to~~ the ~~COVID-19 pandemic as well as~~2021 period, lower growth in optometrist costs, increased ~~contact lens~~eyeglass mix ~~that was partially offset by~~and higher eyeglass margin.

Costs of products as a percentage of net product sales ~~increased~~decreased from ~~40.5% for the six months ended June 29, 2019 to~~ 42.2% for the six months ended June 27, 2020 ~~driven~~to 36.3% for the six months ended July 3, 2021, primarily drivenby the impact of the temporary store closures in fiscal year 2020, increased ~~contact lens~~eyeglass mix ~~that was partially offset by~~and higher eyeglass margin.

Owned & Host segment costs of products. Costs of products as a percentage of net product sales ~~increased~~decreased from ~~29.1% for the six months ended June 29, 2019 to~~ 29.8% for the six months ended June 27, 2020 to 26.8% for the six months ended July 3, 2021 driven by the impact of the temporary store closures in fiscal year 2020, increased ~~contact lens~~eyeglass mix ~~that was partially offset by~~and higher eyeglass margin.

Legacy segment costs of products. Costs of products as a percentage of net product sales ~~increased~~decreased from ~~47.3% for the six months ended June 29, 2019 to~~ 50.4% for the six months ended June 27, ~~2020.~~2020 to 47.5% for the six months ended July 3, 2021. The ~~increase~~decrease was primarily driven by ~~increased contact lens mix~~impact of the temporary store closures in fiscal year 2020 and by a higher mix of managed care customer transactions versus non-managed care customer transactions. Decreases in managed care mix increase costs of products as a percentage of net product sales and have a corresponding positive impact on costs of services as a percentage of net sales of services and plans ~~in our Legacy segment.~~ Legacy segment managed care net product revenue is recorded in net product sales while revenue associated with servicing non-managed care customers is recorded in net sales of services and plans. Eyeglass and contact lens product costs for both managed care and non-managed care net revenue are recorded in costs of products. Increases in managed care mix decrease costs of products as a percentage of net product sales and have a corresponding negative impact on costs of services as a percentage of net sales of services and plans in our Legacy segment.

Costs of services and plans as a percentage of net sales of services and plans ~~increased~~decreased from ~~76.6% for the six months ended June 29, 2019 to~~ 82.8% for the six months ended June 27, ~~2020.~~2020 to 73.4% for the six months ended July 3, 2021. The ~~increase~~decrease was primarily driven by ~~optometrist costs incurred during~~the impact of the temporary ~~closure of our stores to the public~~store closures in ~~response to the COVID-19 pandemic.~~

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fiscal year 2020, lower growth in optometrist cost and higher eye exam sales.

Owned & Host segment costs of services and plans. Costs of services and plans as a percentage of net sales of services and plans ~~increased~~decreased from ~~80.0% for the six months ended June 29, 2019 to~~ 94.6% for the six months ended June 27, ~~2020.~~2020 to 74.9% for the six months ended July 3, 2021. The ~~increase~~decrease was primarily driven by ~~optometrist and technician costs incurred during~~the impact of the temporary ~~closure~~store closures in fiscal year 2020, lower growth in optometrist costs and higher eye exam sales.

Table of ~~our stores to the public in response to the COVID-19 pandemic.~~Contents

Legacy segment costs of services and plans. Costs of services and plans as a percentage of net sales of services and plans ~~increased~~decreased from ~~45.0% for the six months ended June 29, 2019 to~~ 52.7% for the six months ended June 27, ~~2020.~~2020 to 38.5% for the six months ended July 3, 2021. The ~~increase~~decrease was primarily driven by ~~optometrist costs incurred during~~the impact of the temporary ~~closure of~~store closures in fiscal year 2020, higher management fees from our ~~stores to the public~~Legacy partner, higher eye exam sales and lower growth in ~~response to the COVID-19 pandemic.~~optometrist costs.

Selling, general and administrative

SG&A of ~~$330.3~~$457.8 million for the six months ended July 3, 2021 increased $127.5 million, or 38.6%, from the six months ended June 27, 2020. As a percentage of net revenue, SG&A decreased from 45.3% for the six months ended June 27, 2020 ~~decreased $45.8 million, or 12.2%, from the six months ended June 29, 2019. As a percentage of net revenue, SG&A increased from~~to 42.2% for the six months ended ~~June 29, 2019 to 45.3% for the six months ended June 27, 2020.~~July 3, 2021. The ~~increase~~decrease in SG&A as a percentage of net revenue was primarily ~~due to~~driven by negative impacts from the temporary closure of our stores in the prior year that were not experienced in the 2021 period and leverage of store and corporate payroll and occupancy ~~costs incurred during the temporary closure of our stores to the public in response to the COVID-19 pandemic,~~expenses, partially offset by ~~lower~~higher advertising ~~expense.~~expenses and higher performance-based incentive compensation. SG&A for the six months ended July 3, 2021 and June 27, 2020 includes $0.7 million and $3.1 million, respectively, of incremental costs directly related to adapting the Company’s operations during the COVID-19 pandemic; of these costs, $0.6 million were reflected as adjustments for the Company’s presentation of non-GAAP measures ~~below.~~below for the six months ended June 27, 2020.

Owned & Host SG&A. SG&A as a percentage of net revenue ~~increased~~decreased from ~~37.8% for the six months ended June 29, 2019 to~~ 39.6% for the six months ended June 27, 2020 to 34.6% for the six months ended July 3, 2021, driven primarily by the impact of the temporary store closures in fiscal year 2020 and payroll and occupancy ~~costs incurred during the temporary closure of our stores to the public in response to the COVID-19 pandemic, which were~~leverage, partially offset by ~~reduced~~higher advertising expense.

Legacy segment SG&A. SG&A as a percentage of net revenue ~~increased~~decreased from ~~33.5%~~39.1% for the six months ended June ~~29, 2019~~27, 2020 to ~~39.1%~~33.4% for the six months ended July 3, 2021 primarily driven by the impact of the temporary store closures in fiscal year 2020 and payroll and occupancy leverage.

Depreciation and amortization

Depreciation and amortization expense of $47.6 million for the six months ended July 3, 2021 increased $0.8 million, or 1.8%, from $46.7 million for the six months ended June 27, 2020 primarily driven by ~~store payroll costs incurred during the temporary closure of our stores to the public in response to the COVID-19 pandemic.~~

~~Depreciation and amortization~~

Depreciation and amortization expense of $46.7 million for the six months ended June 27, 2020 increased $5.5 million, or 13.3%, from $41.2 million for the six months ended June 29, 2019 primarily driven by new store openings and investments in new lab equipment. Our property and equipment balance, net, decreased $26.9 million, or 7.3%, during the six months ended June 27, 2020, reflective of $28.0 million in purchases of property and equipment, $1.3 million in new finance leases, less $43.0 million in depreciation expense, and $13.2 million in impairment expense and other adjustments.openings.

Asset ~~Impairment~~impairment

We recognized ~~$13.8~~$1.5 million for impairment ~~primarily~~ of tangible long-lived assets and ROU assets associated with our retail stores during the six months ended ~~June 27, 2020~~July 3, 2021 compared to ~~$3.9~~$13.8 million recognized during the six months ended June ~~29, 2019.~~27, 2020. The store asset impairment ~~charges were~~charge is primarily related to our Owned & Host segment and ~~were~~is driven by lower than projected customer sales volume in certain stores, and ~~were determined using~~other entity-specific ~~assumptions related to our anticipated use of store assets.~~assumptions. We considered multiple factors including, but not limited to: forecasted scenarios related to store performance and the likelihood that these scenarios would be ultimately realized; ~~the historical performance of the stores before the temporary store closures in response to the COVID-19 pandemic;~~ and the remaining useful lives of the assets. ~~The asset impairment expense for the six months ended June 27, 2020 also includes $1.1 million related to a write-off of certain software assets that were deemed to be obsolete.~~ Asset impairment expenses were recognized in Corporate/Other.

Interest expense, net

Interest expense, net, of $16.4 million for the six months ended July 3, 2021 decreased $6.5 million, or 28.4%, from $23.0 million for the six months ended June 27, ~~2020 increased $4.9 million, or 27.3%, from $18.0 million for the six months ended June 29, 2019.~~2020. The ~~increase~~decrease was primarily driven by ~~losses related to~~ changes in fair value of derivatives ~~due to ineffectiveness~~ of ~~$4.9~~$4.7 million and ~~charges related to interest payments and amortization of debt discounts related to the 2025 Notes of $2.3 million that were partially offset~~ by a reduction in our term loan and revolving credit facility ~~utilization.~~utilization, partially offset by expenses related to the 2025 Notes.

Income tax provision

~~Table of Contents~~

Our income tax ~~expense~~provision for the six months ended July 3, 2021 reflected our statutory federal and state rate of 25.5%, combined with a benefit of $6.6 million primarily with the exercise of stock options and for the stranded tax effect associated with our interest rate swaps that matured in the first quarter of 2021. In comparison, the income tax benefit for the six months ended June 27, 2020 reflected our statutory federal and state rate of 25.5%~~, offset by~~ combined with a ~~discrete~~ benefit of $3.0 million associated primarily with the exercise of stock options. In comparison, the income tax rate associated with the six months ended June 29, 2019 reflected income tax expense at our statutory federal and state rate of 25.6% and was reduced by a $1.4 million income tax benefit resulting from stock option exercises.

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Non-GAAP Financial Measures

Adjusted Operating Income, Adjusted Operating Margin, EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin ~~Adjusted Operating Income, Adjusted Operating Margin~~ and Adjusted Diluted EPS

We define Adjusted Operating Income as net income (loss), plus interest expense and income tax provision (benefit), further adjusted to exclude stock compensation expense, asset impairment, litigation settlement, amortization of acquisition intangibles, and other expenses. We define Adjusted Operating Margin as Adjusted Operating Income as a percentage of net revenue. We define EBITDA as net income (loss), plus interest expense, income tax provision (benefit) and depreciation and amortization. We define Adjusted EBITDA as net income (loss), plus interest expense, income tax provision (benefit) and depreciation and amortization, further adjusted to exclude stock compensation expense, asset impairment, litigation settlement, ~~management realignment expenses, long-term incentive plan expenses,~~ and other expenses. We define Adjusted EBITDA Margin as Adjusted EBITDA as a percentage of net revenue. We define Adjusted Operating Income as net income (loss), plus interest expense and income tax provision (benefit), further adjusted to exclude stock compensation expense, asset impairment, litigation settlement, management realignment expenses, long-term incentive plan expenses, amortization of acquisition intangibles, and other expenses. We define Adjusted Operating Margin as Adjusted Operating Income as a percentage of net revenue. We define Adjusted Diluted EPS as diluted earnings (loss) per share, adjusted for the per share impact of stock compensation expense, asset impairment, litigation settlement, ~~management realignment expenses, long-term incentive plan expenses,~~ amortization of acquisition intangibles, amortization of debt ~~discount~~discounts and deferred financing costs of our term loan borrowings, amortization of costs related to our 2025 Notes, losses (gains) on change in fair value of derivatives, other expenses, and tax benefit of stock option exercises, less the tax effect of these adjustments.

In We adjust for amortization of costs related to the ~~first quarter~~2025 Notes only when adjustment for these costs is not required in the calculation of 2020, we introduced Adjusted Operating Income and Adjusted Operating Margin as measures of performance we will use in connection with Adjusted EBITDA, Adjusted EBITDA Margin and Adjusted Diluted EPS. Further, consistent with our presentation of Adjusted Operating Income, we no longer exclude new store pre-opening expenses and non-cash rent from our presentation of Adjusted EBITDA and Adjusted Diluted EPS. New store pre-opening expenses totaled $0.4 million and $1.1 million for the three months ended June 27, 2020 and June 29, 2019, respectively; $1.3 million and $2.0 million for the six months ended June 27, 2020 and June 29, 2019, respectively; and non-cash rent totaled $0.9 million and $0.7 million for the three months ended June 27, 2020 and June 29, 2019, respectively; and $1.5 million and $1.8 million for the six months ended June 27, 2020 and June 29, 2019, respectively. The presentation of Adjusted EBITDA and Adjusted Diluted EPS for the three and six months ended June 29, 2019 has been recastdiluted earnings per share according to ~~reflect these changes. See our Form 8-K filed with the SEC on February 26, 2020, which is incorporated herein by reference, for more information.~~U.S. GAAP.

EBITDA and the Company Non-GAAP Measures can vary substantially in size from one period to the next, and certain types of expenses are non-recurring in nature and consequently may not have been incurred in any of the periods presented below.

EBITDA and the Company Non-GAAP Measures have been presented as supplemental measures of financial performance that are not required by, or presented in accordance with U.S. GAAP, because we believe they assist investors and analysts in comparing our operating performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance. Management believes EBITDA, and the Company Non-GAAP Measures are useful to investors in highlighting trends in our operating performance, while other measures can differ significantly depending on long-term strategic decisions regarding capital structure, the tax jurisdictions in which we operate and capital investments. We also use EBITDA and the Company Non-GAAP Measures to supplement U.S. GAAP measures of performance in the evaluation of the effectiveness of our business strategies, to make budgeting decisions, to establish discretionary annual incentive compensation and to compare our performance against that of other peer companies using similar measures. Management supplements U.S. GAAP results with Non-GAAP financial measures to provide a more complete understanding of the factors and trends affecting the business than U.S. GAAP results alone.

~~Table of Contents~~

EBITDA and the Company Non-GAAP Measures are not recognized terms under U.S. GAAP and should not be considered as an alternative to net income or income from operations as a measure of financial performance or cash flows provided by operating activities as a measure of liquidity, or any other performance measure derived in accordance with U.S. GAAP. Additionally, these measures are not intended to be a measure of free cash flow available for management’s discretionary use as they do not consider certain cash requirements such as interest payments, tax payments and debt service requirements. ~~EBITDA and the Company Non-GAAP Measures should not be construed to imply that our future results will be unaffected by unusual or non-recurring items.~~ In evaluating EBITDA and the Company Non-GAAP Measures, ~~you should be aware that in the future~~ we may incur expenses in the future that are the same as or similar to some of the adjustments in this presentation. Our presentation of EBITDA and the Company Non-GAAP Measures should not be construed to imply that our future results will be unaffected by any such adjustments. Management compensates for these limitations by primarily relying on our U.S. GAAP results in addition to using EBITDA and the Company Non-GAAP Measures.

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The presentations of these measures have limitations as analytical tools and should not be considered in isolation, or as a substitute for analysis of our results as reported under U.S. GAAP. Some of these limitations are:

•they do not reflect costs or cash outlays for capital expenditures or contractual commitments;

•they do not reflect changes in, or cash requirements for, our working capital needs;

•EBITDA, Adjusted EBITDA and Adjusted ~~EBITDA~~Operating Income do not reflect the interest expense, or the cash requirements necessary to service interest or principal payments, on our debt;

•EBITDA, Adjusted EBITDA and Adjusted ~~EBITDA~~Operating Income do not reflect period to period changes in taxes, income tax expense or the cash necessary to pay income taxes;

•they do not reflect the impact of earnings or charges resulting from matters we consider not to be indicative of our ongoing operations;

•although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA and Adjusted EBITDA do not reflect cash requirements for such replacements; and

•other companies in our industry may calculate these measures differently than we do, limiting their usefulness as comparative measures.

Because of these limitations, EBITDA and the Company Non-GAAP Measures should not be considered as measures of discretionary cash available to invest in business growth or to reduce indebtedness.

The following table reconciles our Adjusted Operating Income, ~~and~~ Adjusted Operating Margin, ~~to net income; and~~ EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin to net income; and Adjusted Diluted EPS for the periods presented:


		Three Months Ended												Six Months Ended														Three Months Ended						Six Months Ended
In thousands	In thousands	June 27, 2020					June 29, 2019				June 27, 2020						June 29, 2019				In thousands	July 3, 2021				June 27, 2020					July 3, 2021		June 27, 2020
Net income (loss)	Net income (loss)	$	(43,833)	(16.9)%	$	10,257	2.4%	$	(34,091)	(4.7)%		$	27,686	3.1%	Net income (loss)	$	37,601	6.8	%	$	(43,833)	(16.9)	%	$	81,033	7.5	%		$	(34,091)	(4.7)	%
Interest expense	Interest expense	15,502		6.0%	8,968		2.1%	22,957		3.1%		18,029		2.0%	Interest expense	10,096		1.8	%	15,502		6.0	%	16,426		1.5	%		22,957		3.1	%
Income tax provision (benefit)	Income tax provision (benefit)	(13,403)		(5.2)%	2,477		0.6%	(13,685)		(1.9)%		8,387		0.9%	Income tax provision (benefit)	7,040		1.3	%	(13,403)		(5.2)	%	18,726		1.7	%		(13,685)		(1.9)	%
Stock compensation expense ^(a)	Stock compensation expense ^(a)	3,352		1.3%	1,741		0.4%	5,445		0.7%		4,717		0.5%	Stock compensation expense (a)	7,213		1.3	%	3,352		1.3	%	10,201		0.9	%		5,445		0.7	%
Asset impairment ^(b)	Asset impairment ^(b)	2,411		0.9%	1,790		0.4%	13,766		1.9%		3,872		0.4%	Asset impairment (b)	519		0.1	%	2,411		0.9	%	1,478		0.1	%		13,766		1.9	%
Litigation settlement^(c)	Litigation settlement^(c)	—		—%	—		—%	4,395		0.6%		—		—%	Litigation settlement (c)	—		—	%	—		—	%	—		—	%		4,395		0.6	%
Management realignment expenses ^(d)		—		—%	—		—%	—		—%		2,155		0.2%
Long-term incentive plan ^(e)		—		—%	781		0.2%	—		—%		722		0.1%
Amortization of acquisition intangibles ^(f)		1,851		0.7%	1,851		0.4%	3,702		0.5%		3,702		0.4%
Other ⁽ⁱ⁾		(307)		(0.1)%	1,223		0.3%	1,149		0.2%		2,467		0.3%
Amortization of acquisition intangibles (d)															Amortization of acquisition intangibles (d)	1,871		0.3	%	1,851		0.7	%	3,744		0.3	%		3,702		0.5	%
Other (g)															Other (g)	1,241		0.2	%	(307)		(0.1)	%	1,641		0.2	%		1,149		0.2	%
Adjusted Operating Income / Adjusted Operating Margin	Adjusted Operating Income / Adjusted Operating Margin	$	(34,427)	(13.2)%	$	29,088	6.8%	$	3,638	0.5%		$	71,737	8.1%	Adjusted Operating Income / Adjusted Operating Margin	$	65,581	11.9	%	$	(34,427)	(13.2)	%	$	133,249	12.3	%		$	3,638	0.5	%
Note: Percentages reflect line item as a percentage of net revenue, adjusted for rounding. Some of the percentage totals in the table above do not foot due to rounding differences.
Note: Percentages reflect line item as a percentage of net revenue, adjusted for rounding Some of the percentage totals in the table above do not foot due to rounding differences															Note: Percentages reflect line item as a percentage of net revenue, adjusted for rounding Some of the percentage totals in the table above do not foot due to rounding differences

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		Three Months Ended														Six Months Ended														Three Months Ended						Six Months Ended
In thousands	In thousands	June 27, 2020						June 29, 2019					June 27, 2020						June 29, 2019				In thousands	July 3, 2021				June 27, 2020					July 3, 2021		June 27, 2020

Net income (loss)	Net income (loss)	$	(43,833)	(16.9)	%	$	10,257	2.4	%	$	(34,091)	(4.7)%		$	27,686	3.1%	Net income (loss)	$	37,601	6.8	%	$	(43,833)	(16.9)	%	$	81,033	7.5	%		$	(34,091)	(4.7)	%
Interest expense	Interest expense	15,502		6.0	%	8,968		2.1	%	22,957		3.1%		18,029		2.0%	Interest expense	10,096		1.8	%	15,502		6.0	%	16,426		1.5	%		22,957		3.1	%
Income tax provision (benefit)	Income tax provision (benefit)	(13,403)		(5.2)	%	2,477		0.6	%	(13,685)		(1.9)%		8,387		0.9%	Income tax provision (benefit)	7,040		1.3	%	(13,403)		(5.2)	%	18,726		1.7	%		(13,685)		(1.9)	%
Depreciation and amortization	Depreciation and amortization	21,924		8.4	%	20,819		4.8	%	46,734		6.4%		41,234		4.6%	Depreciation and amortization	24,025		4.4	%	21,924		8.4	%	47,580		4.4	%		46,734		6.4	%
EBITDA	EBITDA	(19,810)		(7.6)	%	42,521		9.9	%	21,915		3.0%		95,336		10.7%	EBITDA	78,762		14.3	%	(19,810)		(7.6)	%	163,765		15.1	%		21,915		3.0	%

Stock compensation expense ^(a)	Stock compensation expense ^(a)	3,352		1.3	%	1,741		0.4	%	5,445		0.7%		4,717		0.5%	Stock compensation expense (a)	7,213		1.3	%	3,352		1.3	%	10,201		0.9	%		5,445		0.7	%
Asset impairment ^(b)	Asset impairment ^(b)	2,411		0.9	%	1,790		0.4	%	13,766		1.9%		3,872		0.4%	Asset impairment (b)	519		0.1	%	2,411		0.9	%	1,478		0.1	%		13,766		1.9	%
Litigation settlement^(c)	Litigation settlement^(c)	—		—	%	—		—	%	4,395		0.6%		—		—%	Litigation settlement (c)	��		—	%	—		—	%	—		—	%		4,395		0.6	%
Management realignment expenses^(d)		—		—	%	—		—	%	—		—%		2,155		0.2%
Long-term incentive plan ^(e)		—		—	%	781		0.2	%	—		—%		722		0.1%
Other ⁽ⁱ⁾		(307)		(0.1)	%	1,223		0.3	%	1,149		0.2%		2,467		0.3%
Other (g)																	Other (g)	1,241		0.2	%	(307)		(0.1)	%	1,641		0.2	%		1,149		0.2	%
Adjusted EBITDA / Adjusted EBITDA Margin	Adjusted EBITDA / Adjusted EBITDA Margin	$	(14,354)	(5.5)	%	$	48,056	11.2	%	$	46,670	6.4%		$	109,269	12.3%	Adjusted EBITDA / Adjusted EBITDA Margin	$	87,735	16.0	%	$	(14,354)	(5.5)	%	$	177,085	16.3	%		$	46,670	6.4	%
Note: Percentages reflect line item as a percentage of net revenue, adjusted for rounding. Some of the percentage totals in the table above do not foot due to rounding differences
Note: Percentages reflect line item as a percentage of net revenue, adjusted for rounding Some of the percentage totals in the table above do not foot due to rounding differences																	Note: Percentages reflect line item as a percentage of net revenue, adjusted for rounding Some of the percentage totals in the table above do not foot due to rounding differences


		Three Months Ended						Six Months Ended							Three Months Ended				Six Months Ended
In thousands, except per share amounts	In thousands, except per share amounts	June 27, 2020		June 29, 2019		June 27, 2020		June 29, 2019		In thousands, except per share amounts	July 3, 2021		June 27, 2020		July 3, 2021		June 27, 2020
Diluted EPS	Diluted EPS	$	(0.55)	$	0.13	$	(0.42)	$	0.34	Diluted EPS	$	0.42	$	(0.55)	$	0.89	$	(0.42)
Stock compensation expense ^(a)	Stock compensation expense ^(a)	0.04		0.02		0.07		0.06		Stock compensation expense (a)	0.08		0.04		0.11		0.07
Asset impairment^(b)	Asset impairment^(b)	0.03		0.02		0.17		0.05		Asset impairment (b)	0.01		0.03		0.02		0.17
Litigation settlement ^(c)	Litigation settlement ^(c)	—		—		0.05		—		Litigation settlement (c)	—		—		—		0.05
Management realignment expenses ^(d)		—		—		—		0.03
Long-term incentive plan ^(e)		—		0.01		—		0.01
Amortization of acquisition intangibles ^(f)		0.02		0.02		0.05		0.05
Amortization of debt discount and deferred financing costs^(g)		0.03		0.01		0.03		0.01
Losses (gains) on change in fair value of derivatives^(h)		0.06		—		0.06		—
Other ⁽ⁱ⁾		—		0.02		0.01		0.03
Tax benefit of stock option exercises ^(j)		—		(0.01)		(0.04)		(0.02)
Tax effect of total adjustments ^(k)		(0.05)		(0.02)		(0.12)		(0.06)
Amortization of acquisition intangibles (d)										Amortization of acquisition intangibles (d)	0.02		0.02		0.04		0.05
Amortization of debt discount and deferred financing costs (e)										Amortization of debt discount and deferred financing costs (e)	0.01		0.03		0.01		0.03
Losses (gains) on change in fair value of derivatives (f)										Losses (gains) on change in fair value of derivatives (f)	0.02		0.06		—		0.06
Other (j)										Other (j)	0.01		—		(0.01)		0.01
Tax benefit of stock option exercises (h)										Tax benefit of stock option exercises (h)	(0.04)		—		(0.05)		(0.04)
Tax effect of total adjustments (i)										Tax effect of total adjustments (i)	(0.04)		(0.05)		(0.05)		(0.12)
Adjusted Diluted EPS	Adjusted Diluted EPS	$	(0.41)	$	0.18	$	(0.13)	$	0.49	Adjusted Diluted EPS	$	0.48	$	(0.41)	$	0.97	$	(0.13)

Weighted average diluted shares outstanding	Weighted average diluted shares outstanding	80,325		81,424		80,226		81,437		Weighted average diluted shares outstanding	96,082		80,325		96,044		80,226
Note: Some of the totals in the table above do not foot due to rounding differences	Note: Some of the totals in the table above do not foot due to rounding differences																	Note: Some of the totals in the table above do not foot due to rounding differences

(a)Non-cash charges related to stock-based compensation programs, which vary from period to period depending on the timing of awards and performance vesting conditions.

(b)Reflects write-off of property, equipment and lease related assets on closed or underperforming ~~stores for the three and six months ended June 27, 2020 and June 29, 2019.~~stores.

(c)Expenses associated with settlement of litigation. ~~See Note 9. “Commitments and Contingencies” for further details.~~

(d)~~Expenses related to a non-recurring management realignment described in our Current Report on Form 8-K filed with the SEC on January 10, 2019.~~

~~(e)~~Expenses pursuant to a long-term incentive plan for non-executive employees who were not participants in the management equity plan for fiscal year 2019. This plan was effective in 2014 following the acquisition of the Company by affiliates of KKR & Co. Inc. (the "KKR Acquisition”).

~~(f)~~Amortization of the increase in carrying values of finite-lived intangible assets resulting from the application of purchase accounting tofollowing the ~~KKR Acquisition.~~

~~Table of Contents~~

~~(g)Amortization of debt discount is associated with the amortization~~acquisition of the ~~conversion feature related to the convertible note and amortization~~Company by affiliates of KKR & Co. Inc. (the “KKR Acquisition”).

(e)Amortization of deferred financing costs ~~relate~~and other non-cash charges related to our long-term debt. We adjust for amortization of costs related to the ~~convertible notes, term loan and revolving credit facility borrowings.~~2025 Notes only when adjustment for these costs is not required in the calculation of diluted earnings per share according to U.S. GAAP. Amortization of debt discount and deferred financing costs in aggregate total ~~$2.5~~$1.0 million and ~~$0.5~~$2.5 million for the three months ended July 3, 2021 and June 27, 2020, ~~and June 29, 2019,~~ respectively, and ~~$2.7~~$1.2 million and ~~$0.9~~$2.7 million for the six months ended July 3, 2021 and June 27, 2020, ~~and June 29, 2019,~~ respectively.

~~(h)~~(f)Reflects ~~$4.9 million of~~ losses (gains) recognized in interest expense on change in fair value of de-designated hedges of $2.4 million and $4.9 million for the three months ended July 3, 2021 and June 27, 2020, respectively, and $0.1 million and $4.9 million for the six months ended July 3, 2021 and June 27, ~~2020.~~2020, respectively.

~~(i)~~Table of Contents

(g)Other adjustments include amounts that management believes are not representative of our operating performance (amounts in brackets represent reductions in Adjusted Operating Income, Adjusted Diluted EPS and Adjusted EBITDA), including ~~our share of losses on equity method investments of $0.4 million for the three months ended June 29, 2019 and $1.0 million for the six months ended June 29, 2019;~~ the amortization impact of adjustments related to the KKR Acquisition, (e.g., fair value of leasehold interests) of $0.1 million for each of the three months ended July 3, 2021 and June 27, 2020, ~~and June 29, 2019,~~ respectively, and $0.2 million for each of the six months ended July 3, 2021 and June 27, 2020, ~~and June 29, 2019,~~ respectively; costs of severance and relocation of ~~$0.2~~$0.7 million and ~~$0.6~~$0.2 million for the three months ended July 3, 2021 and June 27, 2020, ~~and June 29, 2019,~~ respectively, $0.8 million and $0.5 ~~million and $0.8~~ million for the six months ended July 3, 2021 and June 27, 2020, ~~and June 29, 2019,~~ respectively; excess payroll taxes related to stock option exercises of ~~$0.1~~$0.2 million for the three months ended ~~June 29, 2019,~~July 3, 2021, and $0.3 million ~~and $0.1 million~~ for each of the six months ended July 3, 2021 and June 27, 2020, ~~and June 29, 2019,~~ respectively; incremental costs directly related to adapting the Company’s operations during the COVID-19 pandemic of $0.6 million for the six months ended June 27, 2020; and other expenses and adjustments totaling ~~$(0.7)~~$0.2 million and ~~$(31) thousand~~$(0.7) million for the three months ended July 3, 2021 and June 27, 2020, ~~and June 29, 2019,~~ respectively, and ~~$(0.5)~~$0.3 million and ~~$0.3~~$(0.5) million for the six months ended July 3, 2021 and June 27, 2020, ~~and June 29, 2019,~~ respectively.

~~(j)~~(h)Tax benefit associated with accounting guidance requiring excess tax benefits related to stock option exercises to be recorded in earnings as discrete items in the reporting period in which they occur.

~~(k)~~(i)Represents the income tax effect of the total adjustments at our combined statutory federal and state income tax rates.

(j)Reflects other expenses in (g) above, including the impact of stranded tax effect of $(2.1) million for the six months ended July 3, 2021 associated with our interest rate swaps that matured in 2021.

Liquidity and Capital Resources

As described in more detail below, on May 5, 2020, we entered into the Credit Agreement Amendment with the lenders under our credit facility in order to prevent the effects of the COVID-19 pandemic, including the temporary closure of our stores, from creating uncertainty relative to our ability to comply with certain financial covenants and allow the Company to focus on prudent management of the business over the quarters ahead. In addition, on May 12, 2020, we completed the issuance of the 2025 Notes and we used the net proceeds of this offering to repay a portion of the outstanding borrowings on our term loan and revolving credit facility. Our primary cash needs are for inventory, payroll, store rent, advertising, capital expenditures associated with new stores and updating existing stores, as well as information technology and infrastructure, including our corporate office, distribution centers, and laboratories. When appropriate, the Company may utilize excess liquidity towards debt service requirements, including voluntary debt prepayments, or required interest and principal payments, if any, as well as repurchases of common stock, based on excess cash flows. We continue to prioritize cash conservation and prudent use of cash, while safely conducting normal operations. The most significant components of our operating assets and liabilities are inventories, accounts receivable, prepaid expenses and other assets, accounts payable, deferred and unearned revenue and other payables and accrued expenses. While we have historically exercised prudence in our use of cash, the COVID-19 pandemic has required us to closely monitor various items related to cash flow including, but not limited to, cash receipts, cash disbursements, payment terms and alternative sources of funding. We continue to be focused on these items in addition to other key measures we use to determine how our consolidated business and operating segments are performing. We believe that cash on hand, cash expected to be generated from operations and the ~~cash available through~~availability of borrowings under our revolving credit facility will be sufficient to fund our working capital requirements, liquidity obligations, anticipated capital expenditures, and payments due under our existing ~~credit facilities~~debt for at least the next 12 months. ~~The Company is continuing~~Depending on our liquidity levels, conditions in the capital markets and other factors, we may from time to ~~evaluate~~time consider the refinancing or issuance of debt, issuance of equity or other securities, the proceeds of which could provide additional ~~operational and financial measures that it~~liquidity for our operations, as well as further modifications to our term loan where possible. However, our ability to maintain sufficient liquidity may ~~elect to take as it continues to respond to the impact~~be affected by numerous factors, many of ~~COVID-19 on its business. There can be no assurance whether or when any such measures will be adopted.~~which are outside our control. We primarily fund our working capital needs using cash provided by operations.

As of ~~June 27, 2020,~~July 3, 2021, we had ~~$256.3~~$408.3 million in cash and cash equivalents and ~~$294.3~~$293.6 million of availability under our revolving credit facility, which includes ~~$5.7~~$6.4 million in outstanding letters of credit.

As of July 3, 2021, we have outstanding $402.5 million aggregate principal of the 2025 Notes. The 2025 Notes are senior unsecured obligations, and interest on the 2025 Notes is paid semi-annually. As of July 3, 2021, the 2025 Notes can be converted by holders. Upon conversion of the 2025 Notes we can choose to settle in cash, shares or a combination. Based on the initial conversion rate, the 2025 Notes are convertible into 12.9 million shares of our common stock; however we reserved for the possible issuance of 16.5 million shares, which is the maximum amount that could be issued upon conversion. See Note 11. “Earnings Per Share” for the treatment of earnings per share in relation to the 2025 Notes.

As of July 3, 2021, we had $200.0 million of term loan outstanding under our credit agreement. We ~~purchased $25.8~~were in compliance with all covenants related to our long-term debt as of July 3, 2021. Our working capital requirements for inventory will increase as we continue to open additional stores.

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The following table summarizes cash flows provided by (used for) operating activities, investing activities and financing activities for the periods indicated:


	Six Months Ended
In thousands	July 3, 2021		June 27, 2020
Cash flows provided by (used for):
Operating activities	$	189,808	$	71,420
Investing activities	(38,790)		(25,531)
Financing activities	(116,529)		171,437
Net increase in cash, cash equivalents and restricted cash	$	34,489	$	217,326

Net Cash Provided by Operating Activities

Cash flows provided by operating activities increased $118.4 million ~~in capital items in~~from $71.4 million during the six months ended June 27, 2020 to $189.8 million for the six months ended July 3, 2021. The increase in net cash provided by operating activities consisted of an increase in net income of $115.1 million, due primarily to growth in sales during the six months ended July 3, 2021, and an increase of non-cash expense items of $12.0 million including an increase in deferred income taxes of $28.3 million partially offset by a decrease in asset impairment charges of $12.3 million.

Changes in net working capital and other assets and liabilities used $8.8 million in cash compared to the six months ended June 27, 2020. Working capital was most significantly impacted by changes in accounts receivable, inventories, deferred and unearned revenue, and other liabilities. Decreases in accounts receivable contributed $16.8 million in year-over-year cash, primarily reflective of the $10.8 million receivable recorded as a result of the employee retention credits made available under the CARES Act for US employees during the six months ended June 27, 2020 and year-over-year decreases in credit card receivables during the six months ended July 3, 2021 compared to the same period of 2020. Increases in inventories used $17.0 million in year-over-year cash, primarily due to increased purchases. Decreases in other liabilities during the six months ended July 3, 2021 used $16.3 million in year-over-year cash primarily due to decreases in compensation related accruals primarily due to payment of CARES Act deferred employer payroll taxes, timing of litigation settlements, and decreases in lease concessions and deferrals.

Offsetting these items were changes in deferred and unearned revenue, which contributed $10.8 million in year-over-year cash primarily due to a $18.7 million increase in year-over-year cash driven by growth in eye care membership and product protection plan sales, partially offset by year-over-year decreases in unearned revenue during the six months ended July 3, 2021 compared to the same period of 2020.

Net Cash Used for Investing Activities

Net cash used for investing activities increased by $13.3 million, to $38.8 million, during the six months ended July 3, 2021 from $25.5 million during the six months ended June 27, 2020. The increase was primarily due to increased new store openings. Approximately 80% of our capital spend is related to our expected growth (i.e., new stores, optometric equipment, additional capacity in our optical laboratories and distribution centers, and our IT infrastructure, including omni-channel platform related investments). ~~Our working capital requirements for inventory will increase as we continue to open additional stores. We primarily fund our working capital needs using cash provided by operations.~~

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~~The following table summarizes cash flows provided by (used for) operating activities, investing activities and financing activities for the periods indicated:~~

Six Months Ended
In thousands June 27, 2020 June 29, 2019
Cash flows provided by (used for):
Operating activities $ 71,420 $ 119,279
Investing activities (25,531) (51,788)
Financing activities 171,437 (1,624)
Net increase in cash, cash equivalents and restricted cash $ 217,326 $ 65,867

~~Net Cash Provided by Operating Activities~~

Cash flows provided by operating activities decreased $47.9 million from $119.3 million during the six months ended June 29, 2019 to $71.4 million for the six months ended June 27, 2020. The decrease in cash provided by operating activities consisted of a decrease in net income of $61.8 million and a decrease of non-cash expense items of $1.9 million driven by decreases in deferred income tax expense of $21.9 million and credit loss expense of $3.4 million offset by increases in non-cash expense items including depreciation and amortization of $5.5 million, asset impairment charges of $9.9 million, losses recognized for the changes in the fair values of derivatives of $4.9 million and amortization of loan costs of $1.8 million.

Changes in net working capital and other assets and liabilities contributed $15.8 million in cash compared to the six months ended June 29, 2019. Increases in accounts payable during the six months ended June 27, 2020 contributed $8.2 million in year-over-year cash, primarily due to timing of payments. Increases in other liabilities during the six months ended June 27, 2020 contributed $33.1 million in year-over-year cash, which was driven by a $15.2 million increase in year-over-year cash due to timing of unearned revenue during the six months ended June 27, 2020, as well as increases in miscellaneous vendor accruals of $6.1 million as a result of timing of payments, increases in reserves for settlements of $4.4 million due to legal proceedings, and increases of $4.2 million due to lease concessions and deferrals.

Offsetting these items was a $3.8 million reduction in year-over-year cash related to increases in accounts receivable balances, primarily due to the $10.8 million receivable recorded as a result of the employee retention credits made available under the CARES Act for US employees during the six months ended June 27, 2020, and was partially offset by an $8.6 million increase in year-over-year cash due to declines in receivables as a result of lower second quarter sales. Decreases in deferred revenue used $12.1 million in year-over-year cash driven by declines in our eye care club membership and purchase protection plan sales. Increases in inventory used $1.5 million in year-over-year cash, due to timing of forward buys and store closures. Increases in other assets used $7.9 million in year-over-year cash driven by smaller decreases in prepaid advertising and rent-related items during the six months ended June 27, 2020 when compared with the six months ended June 29, 2019.

~~Net Cash Used for Investing Activities~~

Net cash used for investing activities decreased by $26.3 million, to $25.5 million, during the six months ended June 27, 2020 from $51.8 million during the six months ended June 29, 2019. The decrease was primarily due to timing of new store capital investments.

Net Cash Provided By (Used For) Financing Activities

Net cash provided by (used for) financing activities ~~increased $173.1~~decreased $288.0 million, from ~~$1.6 million use of cash during the six months ended June 29, 2019 to~~ $171.4 million provision of cash during the six months ended June 27, ~~2020.~~2020 to $116.5 million use of cash during the six months ended July 3, 2021. The ~~increase~~decrease in cash provided by financing activities was primarily ~~related~~due to the prepayment of our term-loan long-term debt in the current fiscal year compared to borrowings of long-term debt in the prior year. The Company made voluntary term loan prepayments of $117.4 million during the six months ended July 3, 2021 compared to proceeds of $548.8 million from the issuance of the 2025 Notes and borrowings on our revolving credit facility partially offset by principal payments on long-term debt of $369.3 million ~~including repayments on our revolving credit facility of $294.3 million~~ during the six months ended June 27, 2020.

~~Term Loan and Revolving~~ Credit ~~Facility~~Agreement Amendment

AsThe Company also amended its credit agreement to, among other things, add customary LIBOR replacement provisions, modify the applicable margins used to calculate the rate of ~~June 27, 2020, we had $317.4 million of~~interest payable on the first lien term ~~loan outstanding under our credit agreement. As~~loans thereunder, 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 ~~June 27, 2020, we also had $294.3 million of availability under our $300.0 million Revolving Credit Facility which includes $5.7 million~~1.00% per annum previously in ~~outstanding letters of credit.~~effect).

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The interest rate payable on the first lien term loan is based on either LIBOR or an alternative borrowing rate plus an additional margin that varies dependent on NVI’s consolidated first lien leverage ratio. The first lien term loan will amortize in quarterly installments equal to 2.50% per annum in the first three years of the loan and 5.00% per annum thereafter. As a result of the $75.0 million pay down of the term loan and the $25.0 million principal prepayment in 2019; we have no additional mandatory principal payments on the term loan until maturity on July 18, 2024.

In addition, under our credit agreement we must maintain certain covenants based on our financial results. Our credit agreement also contains covenants that, among other things, limit NVI’s ability to incur additional debt, create liens against assets, make acquisitions, pay dividends or distributions on its stock, merge or consolidate with another entity and transfer or sell assets. As of June 27, 2020, we were in compliance with all of our debt covenants under our credit agreement.

~~May 2020 Amendment to Credit Agreement~~

On May 5, 2020, we entered into the Credit Agreement Amendment with the lenders under our credit facility in order to amend certain provisions of the credit agreement. As set forth in greater detail below, the principal purpose of the Credit Agreement Amendment was to suspend certain financial maintenance covenants contained in the credit agreement until testing at the end of the second fiscal quarter of 2021. Capitalized terms used but not defined herein shall have the meanings assigned to such terms in ~~the~~our credit agreement. Pursuant to our credit agreement, ~~and Amendment, as applicable.~~

~~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 covenantsCompany will ~~be reinstated on a modified basis so that, subject to certain exceptions and limitations as described in the Credit Agreement Amendment,~~not permit (i) ~~with respect to the second and third fiscal quarters of 2021,~~ the Consolidated Total Debt to Consolidated EBITDA Ratio ~~shall not exceed~~to be negative or greater than (x) 4.50 to 1.00 ~~and,~~ 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 ~~fiscal~~ 2021, ~~and thereafter,~~subject to certain step-ups after 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 andconsummation of a Material Acquisition, or (ii) ~~with respect to the second fiscal quarter of 2021 and thereafter,~~ the Consolidated Interest Coverage Ratio ~~shall not~~of the Company as of the last day of any fiscal quarter of the Company to be less than 3.00 to 1.00. ~~In lieu~~We were in compliance with all covenants related to our long-term debt as of such financial covenants, pursuant to the 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 Amendment was amended pursuant to the 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 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.

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~~2025 Notes~~

In May 2020, we completed the issuance of the 2025 Notes. 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 have a maturity date of May 15, 2025.July 3, 2021. Refer to Note ~~4. “Long-term~~4. “Long-term Debt” for more information.

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

~~Future cash requirements and sources of cash~~

The Company’s capital allocation strategy, priorities and investments are reviewed by the Company’s Board of Directors considering both liquidity and severity of impacts to the business resulting from COVID-19.

~~Primary sources of cash~~

The Company’s primary source of cash to execute its growth strategy is its operating cash flows, used to fund operations throughout the fiscal year and to support future growth. The Company continues to operate in this period of COVID-19 uncertainty with a healthy liquidity position and remains focused on taking immediate, aggressive and prudent actions, including reevaluating all expenditures, to enhance the Company’s ability to meet the business’ short-term liquidity needs, in order to best position the business for its key stakeholders, including the Company’s associates, customers and shareholders.

~~Primary uses of cash~~

The Company’s current capital allocation strategy is to prioritize navigating the near-term challenges that COVID-19 presents and continuing to fund operating activities. In response to COVID-19, the Company is taking immediate, aggressive and prudent actions, including reevaluating all expenditures, to enhance the Company’s ability to meet the business’ short-term liquidity needs and has reduced the pace of new store openings in fiscal year 2020. As a result, over the next twelve months, the Company expects its primary cash requirements to be towards funding operating activities, including the acquisition of inventory, and obligations related to compensation, leases and any lease modifications it may exercise, taxes and other operating activities.

The Company also evaluates opportunities for investments in line with our key initiatives that position the business for sustainable long-term growth. These improvements may include opening new stores, improving store experiences or investments in its omni-channel initiatives or other technology opportunities. In addition, the Company evaluates store closures, including options to terminate store leases early at certain underperforming locations. Historically, the Company has utilized free cash flow generated from operations to fund any discretionary capital expenditures, which have been prioritized towards new store openings, as well as digital and omni-channel investments, information technology, and other projects.

When appropriate, the Company may utilize excess liquidity, towards debt service requirements, including voluntary debt prepayments, or required interest and principal payments, if any, based on excess cash flows.

Off-balance Sheet Arrangements

We follow U.S. GAAP in making the determination as to whether or not to record an asset or liability related to our arrangements with third parties. Consistent with current accounting guidance, we do not record an asset or liability associated with long-term purchase, marketing and promotional commitments, or commitments to philanthropic endeavors. We have disclosed the amount of future commitments associated with these items in ~~our fiscal year 2019 annual consolidated financial statements filed~~the 2020 Annual Report on ~~the Form~~form 10-K. We ~~were~~are not a party to any other material off-balance sheet arrangements.

Contractual Obligations

~~As a result of the $75 million prepayment of debt principal this quarter, the Company does not owe principal payments on its term loan until 2024.~~ There were no ~~other~~ material changes outside the ordinary course of business in our contractual obligations and commercial commitments from those reported ~~as of December 28, 2019~~ in the ~~2019~~2020 Annual Report on Form ~~10-K, except for the 2025 Notes issued in the second quarter of 2020 and due on May 15, 2025.~~

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10-K.

Critical Accounting Policies and Estimates

Management has evaluated the accounting policies used in the preparation of the Company’s unaudited condensed consolidated financial statements and related notes and believes those policies to be reasonable and appropriate. Certain of these accounting policies require the application of significant judgment by management in selecting appropriate assumptions for calculating financial estimates. By their nature, these judgments are subject to an inherent degree of uncertainty. These judgments are based on historical experience, trends in the industry, information provided by customers and information available from other outside sources, as appropriate. The most significant areas involving management judgments and estimates may be found in the ~~2019~~2020 Annual Report on Form 10-K, in the “Critical Accounting Policies and Estimates” section of “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” There have been no material changes to our critical accounting policies as compared to the critical accounting policies described in the ~~2019~~2020 Annual Report on Form 10-K, except for the adoption of ~~Accounting Standards Update (“ASU”) No. 2016-13,~~ ~~Measurement of Credit Losses on Financial Instruments,~~ ~~and~~ASU ~~No. 2018-15,~~ ~~Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract~~.2020-06. These changes are discussed in Note 1. “Description of Business and Basis of Presentation” ofto our unaudited condensed consolidated financial statements included in Part I. Item 1. of this Form 10-Q.

Adoption of New Accounting Pronouncements

The information set forth in Note 1. “Description of Business and Basis of Presentation” to our unaudited condensed consolidated financial statements under Part I. Item 1. under the heading “Adoption of New Accounting Pronouncements” of this Form 10-Q is incorporated herein by reference.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

We have market risk exposure from changes in interest rates. When appropriate, we use derivative financial instruments to mitigate the risk from such exposure. A discussion of our accounting policies for derivative financial instruments is included in Note 3. “Fair Value ~~Measurement of Financial Assets~~Measurement” and ~~Liabilities,”~~Note 5. “Interest Rate Derivatives” to our unaudited condensed consolidated financial statements included in Part I. Item 1. of this Form 10-Q.

A ~~substantial~~ 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~~Our interest rate ~~derivative contracts~~collar is intended 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 lifemitigate some 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 recognizedeffects of increases 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 unaudited condensed consolidated balance sheets.rates.

As of ~~June 27, 2020, $317.4~~July 3, 2021, $200.0 million of term loan borrowings ~~was~~were subject to variable interest rates, with a weighted average borrowing rate of ~~5.7%~~2.5%. 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 interest rates. Assuming anAn increase to market rates of 1.0% as of ~~June 27, 2020, the resulting impact~~July 3, 2021 would not result in a material increase to interest ~~expense related to debt subject to variable rates would be immaterial.~~expense. Assuming a decrease to market rates of 1.0% as of ~~June 27, 2020,~~July 3, 2021, the resulting ~~impact~~increase to interest expense related to the interest rate ~~collar~~derivative would be approximately ~~$12~~$10 million. For more information about quantitative and qualitative disclosures about market risk, please see Item 7A. “Quantitative and Qualitative Disclosures About Market Risk” in Part II. of the 2020 Annual Report on Form 10-K.

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Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to ensure that information required to be disclosed in our reports under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

In accordance with Rule 13a-15(b) of the Exchange Act, the Company carried out an evaluation, under the supervision and with the participation of its management, including its CEO and CFO, of the effectiveness of the design and operation of the Company's disclosure controls and procedures as of ~~June 27, 2020.~~July 3, 2021. Based on that evaluation, the CEO and the CFO have concluded that the Company's current disclosure controls and procedures are effective in ensuring that material information relating to the Company required to be disclosed in the Company's periodic filings with the ~~U.S. Securities and Exchange Commission ("SEC")~~SEC is made known to them in a timely manner.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting as(as that term is defined in ~~Exchange Act~~ Rules 13a-15(f) and 15d-15(f) of the Exchange Act that occurred during the second quarter of fiscal year ~~2020~~2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We have not experienced any material impact to our internal controls over financial reporting despite the fact that most corporate employees of the Company began working remotely due to the COVID-19 pandemic, though we will continue to assess the impact on the design and operating effectiveness of our internal controls.

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PART II - OTHER INFORMATION

Item 1. Legal Proceedings

See Note 9. “Commitments and Contingencies” in our condensed consolidated financial statements included in Part I. Item 1. of this Form 10-Q for information regarding certain legal proceedings in which we are involved, which discussion is incorporated herein by reference.

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Item 1A. Risk Factors

~~For information regarding factors that could affect the Company's results of operations, financial condition and liquidity, see the risk factors discussed~~ ~~in Part I. Item 1A. “Risk Factors” in our 2019 Annual Report on Form 10-K~~ and the additional risk factor supplemented in our Quarterly Report on Form 10-Q filed on May 7, 2020 (“Q1 Form 10-Q”), and our Current Report on Form 8-K filed on March 19, 2020 (the “March 2020 Form 8-K”), except as described below, thereThere have been no material changes to the ~~risk factors described in~~principal risks that we believe are material to our ~~2019 Annual Report on Form 10-K, Q1 Form 10-Q, and March 2020 Form 8-K.~~

~~The scale and scope of the recent COVID-19 outbreak and resulting pandemic is unknown, has had a material adverse impact on our~~ business, ~~and may continue to adversely impact our business at least for the near term.~~

In December 2019, the COVID-19 disease was reported and in January 2020, the World Health Organization (“WHO”) declared COVID-19 a Public Health Emergency of International Concern. On February 28, 2020, the WHO raised its assessment of the COVID-19 threat from high to very high at a global level due to the continued increase in the number of cases and affected countries, and on March 11, 2020, the WHO characterized COVID-19 as a pandemic. The COVID-19 pandemic has adversely affected global economies, financial markets and the overall environment for our business, and the extent to which it may impact our future results of operations, and ~~overall financial performance remains uncertain.~~

The Company is following the recommendations of U.S. government and health authorities to minimize exposure risk for its associates, doctors, customers and patients. As a result, the Company announced on March 18, 2020, a temporary closure of its retail stores to the public. On April 27, 2020, the Company began the gradual reopening of retail locations to the public with enhanced safety protocols and a focus on meeting the urgent and emergency eye health needs of patients and customers. ~~On June 8, 2020, the Company announced the successful completion of the reopening process.~~ ~~The Company is closely monitoring this global health crisis and will continue to reassess its strategy and operational structure on a regular, ongoing basis as the situation evolves.~~

~~The scale and scope of the COVID-19 pandemic has heightened and may continue to heighten the potential adverse effects on our business, operating results, cash flows and/or~~ financial condition ~~described~~from those disclosed in ~~certain risk factors contained in our 2019 Annual Report on Form 10-K, Q1 Form 10-Q, and March 2020 Form 8-K, including the impact of:~~

•~~a disruption to our growth strategy of opening new stores and expanding our operations, including as a result of temporarily pausing new store openings;~~

•~~our failure to recruit and retain vision care professionals for our stores in general and in light of the pandemic;~~

•an inability to staff stores in areas of the country where the population is acutely affected by the COVID-19 pandemic, including the possibility that we may limit hours at, or temporarily close, stores that we are unable to staff sufficiently;

•a failure to adhere to existing laws and regulations or newly enacted state, local and federal vision care or healthcare laws and regulations in response to COVID-19 and exposure to potential lawsuits as a result of any associate deaths or illness;

•an inability to maintain sufficient levels of cash flow from our operations to fund our business and growth strategy and the diminished availability of credit, higher cost of borrowing and lack of confidence in equity markets could make it more difficult for us to obtain additional financing on terms that are favorable to us;

•~~a disruption to our distribution centers or optical laboratories, including those~~Part I. Item 1A. of our ~~suppliers, could result in delays in the receipt of inventory and the delivery of merchandise, higher costs, longer lead times and impact the ability to fulfill customer orders;~~

•~~travel restrictions and the shutdown of certain businesses on our suppliers and their sourcing operations and pricing practices;~~

•~~the reduction in our marketing, advertising and promotional efforts as part of cost management could cause us to have difficulty in retaining existing customers and attracting new customers;~~

•~~any significant failure, inadequacy, interruption or security breach on our information technology systems, as well as those of our vendors;~~

~~Table of Contents~~

•the impact of our substantial lease obligations, including negotiations with landlords during our temporary store closings, and our high occupancy costs reducing cash available for other purposes and limiting our flexibility;

•any significant future reductions or volatility in consumer demand for one or more of our products, which may be caused by, among other things, the temporary inability of consumers to purchase our products due to illness, quarantine or other travel restrictions, financial hardship, or a shift in customer behavior toward purchasing the products we offer from competitors who may have not closed their stores to the public or who may focus entirely on selling their products online;

•~~the impact on our peak shopping quarters in the first half of the year and resulting impact on our annual operating results;~~

•~~the distinct risks our e-commerce business faces, including changes in consumer behavior during the COVID-19 pandemic; and~~

•significant operating and financial restrictions, including financial maintenance and restrictive covenants, in our recently amended credit agreement and restrictions in the indenture governing our outstanding convertible notes, that may limit the ability of us and our subsidiaries, under certain circumstances, to, among other things, incur additional indebtedness; engage in certain fundamental changes, including mergers or consolidations; make acquisitions, investments, loans or advances; pay or modify the terms of certain indebtedness; limitations in how we conduct our business; and our ability to raise additional debt or equity financing.

~~In addition, the COVID-19 pandemic may adversely impact our business and financial condition in other areas, including:~~

~~Operational Impacts~~

•new or escalated government or regulatory responses in markets where we manufacture, sell or distribute our products, or in the markets of third parties on which we rely, could prevent or disrupt our business operations;

•~~a future shutdown of one or more retail operations, distribution or laboratory facilities as a result of illness, government restrictions or other workforce disruptions;~~

•continued higher costs in certain areas such as distribution, employee compensation, as well as incremental costs associated with newly added health screenings, temperature check, and enhanced cleaning and sanitation protocols to protect our associates, optometrists and customers; and

•our operations could be disrupted if key members of our senior management or a significant percentage of our workforce or the workforce of our outsourced laboratories or suppliers are unable to continue to work because of illness, government directives or otherwise. In addition, the interruption of our or their system capabilities ~~could result in a deterioration of our ability to fulfill and sell our products and services, provide customer service or perform other necessary business functions.~~ Having shifted to remote working arrangements, we also face a heightened risk of cybersecurity attacks or data security incidents and are more dependent on internet and telecommunications access and capabilities that are less uniform than in our dedicated workspaces.

~~Financial Impacts~~

•As described below, we anticipate that our financial results will continue to be materially impacted for the duration of the COVID-19 pandemic. While we believe that the long-term fundamentals of our business are largely unchanged, and anticipate that our operating results in future fiscal years will begin to reflect a more normal operating environment, the current economic and public health climate has created a high degree of uncertainty.

•~~Revenues. We expect that the impact of COVID-19 on general economic activity will negatively affect our Owned & Host and Legacy segment total revenues. We~~ began to experience this impact in March 2020 and more significantly in the second quarter of 2020. We also expect this impact could further persist for the remainder of 2020 and possibly beyond, but the degree of the impact will depend on the extent and duration of the pandemic and the resulting economic contraction. As a result of the anticipated impact of the pandemic on our total revenues, we expect a decrease in our comparable store sales and adjusted comparable store sales figures for the fiscal year 2020.

~~Table of Contents~~

•~~Costs applicable to revenue.~~ As a result of COVID-19 and the temporary closing of our stores to the public, we experienced a change in our product sales mix with an increase in the share of contact lens sales compared to eyeglasses as contact lenses tend to be easier for a customer to select and order online compared to eyeglasses. Higher contact lens sales mix results in an increase in overall cost of products as a percentage of revenues as contact lenses have higher cost of sales as a percentage of revenues compared to eyeglasses. Due to reductions in revenues expected in the current year, we also expect to recognize lower vendor rebates which will unfavorably impact cost of products as a percentage of net product sales. Additionally, as a result of the lower production levels seen at our central laboratories and distribution centers, our costs of sales as a percentage of revenues have increased from higher allocation of fixed costs. For fiscal year 2020, we also expect our cost of sales as a percentage of revenues to increase compared to prior years as a result of lower eye exam revenues and lower Legacy management fees earned while incurring costs for ophthalmologists, optometrists and optical technicians at a rate typically associated with a normal level of operations.

•~~Selling, general and administrative~~. We have incurred and will continue to incur, general and administrative expenses primarily related to occupancy costs of our stores, advertising expenses, payroll related to store associates and unallocated corporate overhead expenses such as payroll, consulting and professional fees and incremental costs directly related to adapting the Company’s operations during the COVID-19 pandemic. We may experience elevated frequency and severity in our workers’ compensation ~~claims liabilities by workers who~~ ~~demonstrate~~ ~~that the injury or illness arose both out of and in the course of their employment.~~ ~~We expect selling, general and administrative expenses as a percentage of revenues to increase compared to previous years primarily due to an overall decrease in revenues for fiscal year 2020.~~

•~~Assetimpairment~~. The Company considered the disruption in the economy experienced during the six months ended June 27, 2020 and expected to persist through the end of the current fiscal year in recording asset impairments. We evaluate impairment of long-lived tangible and ROU store assets at the store level and consider multiple factors including financial performance of the stores, regional and local business climates, future plans for the store operations and other qualitative factors. Asset fair values used in impairment are determined using an income approach based on discounted cash flows, which requires estimates and assumptions related to forecasted store revenue growth rates and store profitability. A significant decrease in the estimated cash inflows from our stores in future periods could affect the recoverability of our store level assets as well as other intangible assets of the Company such as goodwill, trademarks and customer relationship. Lower cash flows compared to estimates would lead to a material increase in the asset impairment expense recorded by the Company.

~~During the~~ ~~three and six months ended June 27, 2020~~, the Company evaluated whether a triggering event related to goodwill impairment had occurred because of the broad impacts of the COVID-19 pandemic. The Company expects the COVID-19 pandemic will continue to negatively affect its results of operations for fiscal year 2020. The Company has concluded a triggering event did not occur during the ~~three and six months ended June 27, 2020~~, and, as a result, no interim impairment testing was required. However, as previously noted, the COVID-19 pandemic has had a material adverse effect on the Company’s business, and future conditions are highly uncertain. Future unfavorable developments may cause the Company to recognize an impairment of its goodwill. The Company will continue to evaluate the effects of the COVID-19 pandemic on its business.

~~Table of Contents~~

•~~Interest expense~~. On May 5, 2020, we entered into an amendment to our credit facility in order to suspend certain financial maintenance covenants contained therein for a specified period. In connection with the amendment, margins upon which interest is calculated on amounts outstanding under the facility were increased and the Company agreed to limit its ability to engage in certain transactions during the covenant suspension period, including the ability to declare or pay dividends, incur additional debt and make investments and dispositions. On May 12, 2020, we completed the sale of $402.5 million in aggregate principal amount of 2.50% Convertible Senior Notes due 2025 between the Company and U.S. Bank National Association, as trustee. The proceeds from the 2025 Notes offering was used to repay all outstanding amounts of the revolving credit facility and $75.0 million to partially repay the term loan. The partial repayments of our LIBOR based long-term debt obligations and margin amendments made to the term loan resulted in a partial de-designation of one interest rate swap and the interest rate collar. All of the above noted measures impacted and are expected to continue to materially impact the Company’s interest expense in 2020 and later. Refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations, “Liquidity and Capital Resources” section above for more information. Lastly, we are continuing to evaluate additional operational and financial measures that we may elect to take as we continue to respond to the i~~mpact of COVID-19 on our business. There can be no assurance whether or when any such measures will be adopted.~~

•~~Inflation.~~ It is possible that changes in economic conditions and steps taken by the federal government and the Federal Reserve in response to COVID-19 could lead to higher inflation than we had anticipated, which could in turn lead to an increase in our costs of products and services and other operating expenses. To date, changes in material prices and general inflation have not materially impacted our business.

On March 27, 2020, the CARES Act was enacted in response to the COVID-19 pandemic. The CARES Act, among other things, accelerates a company’s ability to recover AMT refundable credits that otherwise could have been claimed in 2020 and 2021, to 2018 and 2019, with an option to elect recovery of the full credit amount for 2018. The CARES Act also includes a technical correction wherein qualified improvement property placed in service in 2018 and after is eligible for 100% bonus depreciation. It also contains provisions for deferral of the employer portion of social security taxes incurred through the end of calendar 2020 and an employee retention credit, a refundable payroll credit for 50% of wages and health benefits, up to a maximum of $10 thousand per employee, paid to employees not providing services due to the COVID-19 pandemic. As a result of the CARES Act, we deferred qualified payroll taxes and claimed the employee retention credit~~. Based on our preliminary analysis of the CARES Act, we recognized a benefit of $10.8 million for the~~ ~~three and six~~ ~~months ended~~ ~~June 27, 2020~~ ~~for employee retention credits. 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. There can be no assurance that we will qualify for additional benefits available under the CARES Act.~~

The duration and extent of the impact from the COVID-19 pandemic depends on future developments that cannot be accurately predicted at this time, such as the severity and transmission rate of the virus, the extent and effectiveness of conta~~inment actions and the impact of these and other factors on our associates, customers, suppliers and partners. A more prolonged crisis will place greater strains on our liquidity.~~ ~~Such impact on our business, operating results, cash flows and/or financial condition may continue to be material.~~

Annual Report.

~~Table of Contents~~

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

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Item 6. Exhibits

Exhibit Index


Exhibit No.						Exhibit Description
3.1						~~Second~~Third Amended and Restated Certificate of Incorporation of National Vision Holdings, Inc. -incorporated herein by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on ~~October 31, 2017.~~June 10, 2021.
3.2						~~Second~~Third Amended and Restated Bylaws of National Vision Holdings, Inc. -incorporated herein by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed on ~~October 31, 2017.~~
~~4.1~~						Indenture, dated as of May 12, 2020, between National Vision Holdings, Inc. and U.S. Bank National Association, as trustee -incorporated herein by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on May 12, 2020.
~~4.2~~						~~Form of 2.50% Convertible Senior Note due 2025 -included in Exhibit A in and incorporated herein by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on May 12, 2020.~~June 10, 2021.
10.1						Amendment No. 1,2, dated ~~as of May 5, 2020, to~~June 2, 2021, the Amended and Restated Credit Agreement, dated as of July, 18, 2019, by and among Nautilus Acquisition Holdings, Inc., National Vision, Inc., certain subsidiaries of National Vision, Inc., as guarantors, Bank of America, N.A., as administrative agent and collateral agent, and the lenders from time to time party ~~thereto. -incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 10-Q filed on May 7, 2020.~~
~~10.2~~						~~Amendment 4 to the Management & Services Agreement between Walmart, Inc. and National Vision, Inc. effective as of July 17, 2020~~thereto -incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on ~~July 20, 2020.~~June 3, 2021.
31.1						Certification of Periodic Report by Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
31.2						Certification of Periodic Report by Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
32.1						Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).
32.2						Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).
101.INS						Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within Inline XBRL document
101.SCH						Inline XBRL Taxonomy Extension Schema Document.
101.CAL						Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF						Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB						Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE						Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104						The cover page of the Company’s Quarterly report on Form 10-Q for the quarter ended ~~June 27, 2020,~~July 3, 2021, formatted in Inline XBRL (included within the Exhibit 101 attachments)

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Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	National Vision Holdings, Inc.

Dated: August ~~6, 2020~~12, 2021	By:	/s/ L. Reade Fahs
		Chief Executive Officer and Director
		(Principal Executive Officer)

Dated: August ~~6, 2020~~12, 2021	By:	/s/ Patrick R. Moore
		Senior Vice President, Chief Financial Officer
		(Principal Financial Officer)

5846


In thousands			Balance Sheet Classification			As of June 27, 2020			As of December 28, 2019
Derivatives designated as hedging instruments under ASC 815
	Interest rate swaps	Other Payables and Accrued Expenses		$	5,497		$	6,382
	Interest rate swaps	Other Liabilities		—			1,603
Total derivative liabilities designated as hedging instruments							$	5,497		$	7,985

Derivatives not designated as hedging instruments under ASC 815
	Interest rate swap	Other Payables and Accrued Expenses		$	892		$	—
	Interest rate collar	Other Payables and Accrued Expenses		839			—
	Interest rate collar	Other Liabilities		10,374			—
Total derivative liabilities not designated as hedging instruments							$	12,106		$	—


Fiscal Period	In thousands
2020 - remaining fiscal year	$	—
2021	—
2022	—
2023	—
2024	317,375
Thereafter	402,500
	$	719,875


In thousands	As of June 27, 2020		As of June 29, 2019
Other Information
Cash paid for amounts included in the measurement of lease liabilities
Operating cash outflows - operating leases	$	35,548	$	36,866


	Three Months Ended June 29, 2019
In thousands	Owned & Host		Legacy		Corporate/Other		Reconciliations		Total
Segment product revenues	$	260,867	$	25,785	$	62,341	$	8,540	$	357,533
Segment services and plans revenues	59,549		13,479		5		(1,115)		71,918
Total net revenue	320,416		39,264		62,346		7,425		429,451
Cost of products	77,059		12,312		54,253		2,030		145,654
Cost of services and plans	50,581		6,270		1		—		56,852
Total costs applicable to revenue	127,640		18,582		54,254		2,030		202,506
SG&A	126,078		13,884		42,316		—		182,278
Asset impairment	—		—		1,790		—		1,790


Other expense, net	—		—		356		—		356
EBITDA	$	66,698	$	6,798	$	(36,370)	$	5,395
Depreciation and amortization									20,819
Interest expense, net									8,968
Income before income taxes									$	12,734


	Six Months Ended June 29, 2019
In thousands	Owned & Host		Legacy		Corporate/Other		Reconciliations		Total
Segment product revenues	$	557,786	$	55,926	$	126,216	$	765	$	740,693
Segment services and plans revenues	127,850		27,916		11		(5,804)		149,973
Total net revenue	685,636		83,842		126,227		(5,039)		890,666
Costs of products	162,305		26,442		110,848		63		299,658
Costs of services and plans	102,245		12,571		1		—		114,817
Total costs applicable to revenue	264,550		39,013		110,849		63		414,475
SG&A	259,291		28,121		88,742		—		376,154
Asset impairment	—		—		3,872		—		3,872


Other expense, net	—		—		829		—		829
EBITDA	$	161,795	$	16,708	$	(78,065)	$	(5,102)
Depreciation and amortization									41,234
Interest expense, net									18,029
Income before income taxes									$	36,073


	Three Months Ended									Six Months Ended
In thousands, except store data	June 27, 2020			June 29, 2019			June 27, 2020			June 29, 2019
Revenue:
Net product sales	$	209,707		$	357,533		$	602,548		$	740,693
Net sales of services and plans	50,300			71,918			127,163			149,973
Total net revenue	260,007			429,451			729,711			890,666
Costs applicable to revenue (exclusive of depreciation and amortization):
Products	97,635			145,654			254,005			299,658
Services and plans	43,145			56,852			105,329			114,817
Total costs applicable to revenue	140,780			202,506			359,334			414,475
Operating expenses:
Selling, general and administrative expenses	136,582			182,278			330,323			376,154
Depreciation and amortization	21,924			20,819			46,734			41,234
Asset impairment	2,411			1,790			13,766			3,872
Litigation settlement	—			—			4,395			—
Other expense (income), net	(92)			356			(158)			829
Total operating expenses	160,825			205,243			395,060			422,089
Income (loss) from operations	(41,598)			21,702			(24,683)			54,102
Interest expense, net	15,502			8,968			22,957			18,029
Debt issuance costs	136			—			136			—
Earnings (loss) before income taxes	(57,236)			12,734			(47,776)			36,073
Income tax provision (benefit)	(13,403)			2,477			(13,685)			8,387
Net income (loss)	$	(43,833)		$	10,257		$	(34,091)		$	27,686

Operating data:
Number of stores open at end of period	1,185			1,128			1,185			1,128
New stores opened	17			24			40			50
Adjusted Operating Income	$	(34,427)		$	29,088		$	3,638		$	71,737
Diluted EPS	$	(0.55)		$	0.13		$	(0.42)		$	0.34
Adjusted Diluted EPS	$	(0.41)		$	0.18		$	(0.13)		$	0.49
Adjusted EBITDA	$	(14,354)		$	48,056		$	46,670		$	109,269

Percentage of net revenue:
Total costs applicable to revenue	54.1		%	47.2		%	49.2		%	46.5		%
Selling, general and administrative	52.5		%	42.4		%	45.3		%	42.2		%
Total operating expenses	61.9		%	47.8		%	54.1		%	47.4		%
Income (loss) from operations	(16.0)		%	5.1		%	(3.4)		%	6.1		%
Net income (loss)	(16.9)		%	2.4		%	(4.7)		%	3.1		%
Adjusted Operating Income	(13.2)		%	6.8		%	0.5		%	8.1		%
Adjusted EBITDA	(5.5)		%	11.2		%	6.4		%	12.3		%