National Vision Holdings Inc

5. Fair Value Measurement

Recurring fair value measurements

Interest Rate Derivatives

We recognize as assets or liabilities at fair value the estimated amounts we would receive or pay upon a termination of interest rate derivatives prior to their scheduled expiration dates. The fair value is based on information that is model-driven and whose inputs were observable (Level 2 inputs) such as Term SOFR forward rates. See Note 7. “Interest Rate Derivatives” for further details.

Non-recurring fair value measurements

We recognized impairments of $13.7 million and $17.7 million during the three and nine months ended September 28, 2024, respectively, primarily related to our Fred Meyer contracts and relationships intangible asset and our long-lived tangible store assets and ROU assets, and $1.5 million and $2.7 million during the three and nine months ended September 30, 2023, respectively, primarily related to our long-lived tangible store assets and 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.

Long-lived Store and ROU Store Assets

The cash flows used in estimating fair value were discounted using market rates of 11.0% to 11.5%. The estimated remaining fair value of the store assets impaired during the nine months ended September 28, 2024 and September 30, 2023 was $3.8 million and $2.8 million, respectively; the estimated remaining fair values include amounts estimated at various dates during the related fiscal years. Substantially all of the remaining fair value of the impaired store assets represents the fair value of ROU assets.

Finite-Lived Intangible Assets

Related to the impairment recognized for the Fred Meyer contracts and relationships intangible asset, we estimated fair value using the discounted cash flow method of the income approach. The cash flows included assumptions about future extensions of our relationship with Fred Meyer, as well as assumptions about future revenue growth and profitability, and were discounted using a rate of 9%. The estimated remaining fair value of the asset was $8.4 million as of September 28, 2024. Refer to Note 1. “Description of Business and Basis of Presentation” for more details on the Fred Meyer contracts and relationships intangible asset.

Additional fair value information

Term Loan A and Revolving Loans

Since the borrowings under the $257.5 million outstanding principal first lien term loan (“Term Loan A”) and revolving credit loans in an aggregate principal amount of $300.0 million (the “Revolving Loans”) utilize variable interest rate setting mechanisms such as Term SOFR, 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 Term Loan A and Revolving Loans. Refer to Note 6. “Debt” for more information on these borrowings.

2025 Notes

The Company has $84.8 million in aggregate principal amount of 2.50% convertible senior notes due on May 15, 2025 (the “2025 Notes”) issued and outstanding as of September 28, 2024. Refer to Note 6. “Debt” for more information on the 2025 Notes. The estimated fair value of the 2025 Notes was approximately $83.0 millionand $303.3 million as of September 28, 2024 and December 30, 2023, respectively. The estimated fair value of the 2025 Notes is based on the prices the 2025 Notes have traded in the market 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 in the fair value hierarchy. Refer to Note 6. “Debt” for more information on the 2025 Notes.