National Vision Holdings Inc

7. Interest Rate Derivatives

We are party to an interest rate collar to offset the variability of cash flows in Term SOFR-indexed debt interest payments. During the second quarter of 2023, we amended the reference rate of the collar from LIBOR to Term SOFR. The aggregate notional amount of the interest rate collar, which is not designated as a cash flow hedge, was $300.0 million as of March 30, 2024. The fair value of our interest rate collar instrument was an asset of $3.2 million, which is recorded in Prepaid expenses and other current assets as of March 30, 2024, and an asset of $5.6 million, which was recorded in Prepaid expenses and other current assets as of December 30, 2023. See Note 5. “Fair Value Measurement” for further details.

We recognized (gains) losses on the change in fair value of the interest rate collar of $(0.4) million during the three months ended March 30, 2024, and $0.5 million during the three months ended April 1, 2023, respectively. The interest rate collar will mature on July 18, 2024.

Cash flows related to derivatives qualifying as hedges are included in the same section of the Consolidated Statements of Cash Flows as the underlying assets and liabilities being hedged. Cash flows during the three months ended March 30, 2024 and April 1, 2023 related to derivatives not qualifying as hedges were included in the operating section of the Consolidated Statements of Cash Flows and were immaterial.

Changes in the fair value of the Company’s cash flow hedge derivative instruments from their inception are recorded in Accumulated other comprehensive loss (“AOCL”) if the instruments are deemed to be highly effective as cash flow hedges. As of March 30, 2024, the Company expects to reclassify approximately $0.2 million of unrealized losses on derivative instruments, net of tax, from AOCL into earnings in the next 12 months as the derivative instruments mature.