Segment Reporting

The Company’s reportable segments were determined on the same basis as used by the Chief Operating Decision Maker (“CODM”) to evaluate performance internally. Our operations consist of two reportable segments:

•

Owned & host store brands - Our owned brands consist of our America’s Best and Eyeglass World operating segments. In America’s Best stores, vision care services are provided by optometrists employed either by us or by independent professional corporations. Eyeglass World locations primarily feature independent optometrists to perform eye exams and on-site laboratories. Our two host operating segments consist of Military and Fred Meyer. These brands provide eye exams principally by independent optometrists in nearly all locations. We have aggregated our America’s Best, Eyeglass World, Military, and Fred Meyer operating segments into a single reportable segment due to similar economic characteristics and similarity of the nature of products and services, production processes, class of customers, regulatory environment, and distribution methods of those brands.

•

Legacy - The Company manages the operations of, and supplies inventory and lab processing services to, 227 legacy retail vision centers. Under our legacy agreements, our responsibilities include development of annual operating budgets, providing managers and staff at each location, training personnel, ordering and maintaining merchandise inventory at the locations, providing sales receipts to customers, and owning and maintaining store furniture, fixtures and equipment. 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. We also sell to our legacy partner wholesale merchandise that is stocked in retail locations, and provide central lab services associated with the manufacture of finished eyeglasses and frames housed in our optical labs expected to be consumed in the production of eyeglasses for our legacy partner’s customers. We lease space from our legacy partner within or adjacent to each of the locations we manage and use this space for providing optometric examination services. During fiscal year 2017, sales associated with our legacy partner arrangement represented 11.2% of consolidated net revenue. This exposes us to concentration of customer risk. Our legacy agreements were renewed on January 13, 2017, and expire on August 23, 2020, subject to extension pursuant to the terms of the agreements. Sales of services and plans in our legacy segment consist of fees earned for managing the operations of our legacy partner and revenues associated with the provision of eye exams. Revenues associated with managing operations of our legacy partner were $36.7 million, $38.3 million and $40.6 million for fiscal years ended 2017, 2016 and 2015, respectively.

The “Corporate/Other” category includes the results of operations of our other operating segments AC Lens, FirstSight and 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 for the two reportable segments.

The operating segments identified above are the business activities of the Company for which discrete financial information is available and for which operating results are regularly reviewed by our CODM to allocate resources and assess performance. Our CODM is our Chief Executive Officer. The Company considers each of our brands to be an operating segment and has further concluded that presenting the results of our reportable segments provides meaningful information consistent with the objectives of ASC 280, Segment Reporting. Strategic initiatives and financial objectives for each reportable segment are determined at the corporate level. Each operating segment is responsible for implementing defined strategic initiatives and achieving certain financial objectives, and has a general manager responsible for the sales and marketing initiatives and financial results for product lines within the segment.

Revenues from the Corporate/Other segments are attributable to the AC Lens and FirstSight operating segments and the Company’s corporate function. AC Lens sells contact lenses and optical accessory products to retail customers through e-commerce. AC Lens also distributes contact lenses to Walmart and Sam’s Club under fee for services arrangements. FirstSight issues individual vision care benefit plans in connection with our America’s Best operations in California, issues individual vision care benefit plans in connection with our America’s Best operations in California, provides or arranges for the provision of optometric services at almost all of the optometric offices next to Walmart and Sam’s Club stores in California and also sells contact lenses to its members in certain locations. None of those segments met the quantitative thresholds for determining reportable segments for any of the periods presented.

Our reportable segment profit measure is earnings before interest, tax, depreciation and amortization (“EBITDA”), excluding asset impairment, debt issuance costs, litigation settlement, and other expense, net. There are no transactions between our reportable segments. There are no differences between the measurement of our reportable 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.

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, which is presented on a cash basis, excluding the effects of unearned and deferred revenue, consistent with what the 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. In addition, impairments are treated in the same manner and are not presented in the reportable segment columns. See Note 1. “Business and Significant Accounting Policies” for discussion regarding retail store long-lived assets and Note 3. “Goodwill and Intangible Assets” for discussion regarding goodwill on a reportable segment level.



	Fiscal Year 2017
In thousands	Owned & Host		Legacy		Corporate/Other			Reconciliations			Total
Segment product revenues	$	847,866	$	103,887	$	179,718		$	(2,158	)	$	1,129,313
Segment services and plans revenues	190,701		49,955		12,172			(6,833		)	245,995
Total net revenue	1,038,567		153,842		191,890			(8,991		)	1,375,308
Cost of products	248,548		48,275		159,789			(534		)	456,078
Cost of services and plans	153,691		16,624		10,573			—			180,888
Total costs applicable to revenue	402,239		64,899		170,362			(534		)	636,966
SG&A	401,762		52,705		143,457			—			597,924
Asset impairment	—		—		4,117			—			4,117
Debt issuance cost	—		—		4,527			—			4,527
Litigation settlement	—		—		7,000			—			7,000
Other expense, net	—		—		950			—			950
EBITDA	$	234,566	$	36,238	$	(138,523	)	$	(8,457	)	$	123,824
Depreciation and amortization											61,115
Interest expense, net											55,536
Income before income taxes											$	7,173



	Fiscal Year 2016
In thousands	Owned & Host		Legacy		Corporate/Other			Reconciliations			Total
Segment product revenues	$	730,741	$	103,618	$	151,083		$	(4,489	)	$	980,953
Segment services and plans revenues	158,667		48,592		17,533			(9,550		)	215,242
Total net revenue	889,408		152,210		168,616			(14,039		)	1,196,195
Cost of products	212,208		48,097		131,257			(1,193		)	390,369
Cost of services and plans	127,904		11,510		14,998			—			154,412
Total costs applicable to revenue	340,112		59,607		146,255			(1,193		)	544,781
SG&A	343,838		52,925		127,475			—			524,238
Asset impairment	—		—		7,132			—			7,132
Other expense, net	—		—		1,667			—			1,667
EBITDA	$	205,458	$	39,678	$	(113,913	)	$	(12,846	)	$	118,377
Depreciation and amortization											51,993
Interest expense, net											39,092
Income before income taxes											$	27,292



	Fiscal Year 2015
In thousands	Owned & Host		Legacy		Corporate/Other			Reconciliations			Total
Segment product revenues	$	622,845	$	104,218	$	145,794		$	(2,394	)	$	870,463
Segment services and plans revenues	136,480		50,795		18,468			(13,678		)	192,065
Total net revenue	759,325		155,013		164,262			(16,072		)	1,062,528
Cost of products	180,847		49,701		123,771			(425		)	353,894
Cost of services and plans	111,383		10,759		15,064			—			137,206
Total costs applicable to revenue	292,230		60,460		138,835			(425		)	491,100
SG&A	293,700		52,924		127,429			—			474,053
Asset impairment	—		—		7,716			—			7,716
Debt issuance costs	—		—		2,551			—			2,551
Other expense, net	—		—		913			—			913
EBITDA	$	173,395	$	41,629	$	(113,182	)	$	(15,647	)	$	86,195
Depreciation and amortization											44,069
Interest expense, net											36,741
Income before income taxes											$	5,385

Consolidated Net Product Revenue Information

The following table presents our consolidated net product revenue information:



In thousands	Fiscal Year 2017		Fiscal Year 2016		Fiscal Year 2015
Net Product Sales
Eyeglasses and sunglasses	$	763,268	$	663,253	$	574,969
Contact lenses	358,808		310,322		288,570
Accessories and other	7,237		7,378		6,924
Total net product revenues	$	1,129,313	$	980,953	$	870,463