Coherent Annual Report 2011

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FY2011 Annual Report · Coherent

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2011

Annual Report, Proxy Statement & Notice of Annual Meeting

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Dear Shareholders, Customers and Employees

Coherent achieved record performance for orders,
sales, operating income and earnings per share in
fiscal 2011 through a combination of key design
wins in major applications and by leveraging a
more efficient operating structure. Revenues of
$803 million surpassed the previous high of $605
million in fiscal 2010 by 33%. The improvement
in earnings per share was even more impressive,
rising to $3.46 per share in fiscal 2011 compared
to the previous high of $1.92 per share in fiscal
2010 (measured on a non-GAAP basis1). Our record
profitability led to strong cash generation, allowing
us to repurchase approximately $100 million of
our common stock. Our total stock buybacks over
the last four fiscal years were approximately $372
million, funded completely from cash on-hand.

Each of our four end markets posted double-digit
sales growth in fiscal 2011 through a combination
of secular trends, design wins and share gains. Our
microelectronics business grew 63% year-over-year
due to increased demand for mobile, high-definition
displays, greater adoption of smartphones and
tablets, and investments in semiconductor capital

equipment. High definition mobile displays, wheth-
er silicon or AMOLED-based, rely upon laser anneal-
ing to achieve image quality and brightness. Our
field-proven Excimer lasers including the VYPER
Series were the laser source of choice for nearly
all panel manufacturers. Not only has this led to
strong sales and bookings for our Excimer systems,
it also creates growing demand for service and
replacement parts, most notably laser discharge
units or LDUs. We have expanded our manufactur-
ing site in Göttingen, Germany and are establish-
ing a LDU refurbishment center in South Korea to
support this demand.

The smartphone and tablet markets enjoyed solid
growth in 2011 as people all over the world used
various networking applications to communicate
with family, friends, customers and colleagues from
their mobile devices. This trend not only fueled
demand for high definition displays, but also for
high density circuit boards known as any layer/HDI
boards. Manufacturing these boards requires high
speed, precision technologies that utilize lasers.
Our Paladin ultraviolet lasers are used to write the

See reconciliation table at the end of our Compensation Discussion and Analysis section.

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wire patterns on each layer of the board, much
like a laser printer. Coherent’s Diamond E-Series
CO2 and AVIA ultraviolet lasers drill hundreds of
thousands of interconnects or microvias per board.
These applications will benefit further from in-
creased 4G deployment since the average 4G device
has roughly twice as many layers and interconnects
as a 3G board.

Lasers for semiconductor manufacturing got off
to a strong start in fiscal 2011 as utilization rates
remained high and critical dimension (i.e., node
size) shrunk, which led to robust demand for
Paladin ultraviolet and Innova Series ion lasers.
By the second half, supply shortages at various
nodes had eased and capacity expansion slowed.
Service spare requirements and investment in the
next critical dimension were largely unaffected.

The materials processing market delivered strong
year-over-year sales growth of 27%, primarily due
to better overall market conditions. Our Diamond,
G-Series and GEM-Series CO2 lasers grew in mark-
ing, engraving and cutting applications. We have
started to recognize orders from our move to light
industrial lasers and systems. In fiscal 2011 we
introduced improved, higher power versions of

our HighLight direct diode system. Among the
larger market opportunities for this product is
the remanufacturing of precision metal compo-
nents through cladding. Brazing and heat treating
are other important techniques. Sales of our
METAbeam laser manufacturing tool saw high
annual growth through access to our broader
distribution network. We just launched a new
version of the METAbeam that incorporates a one
kilowatt Diamond E-1000 CO2 laser for increased
processing speed and throughput. Initial customer
interest has been strong and shipments of the
E-1000 equipped tool will begin in fiscal 2012. We
made steady progress on our kilowatt fiber laser
platform, including successful customer trials.
After additional customer testing, the platform will
be released during fiscal 2012.

The instrumentation and OEM component market
remains dominated by medical diagnostics and
therapeutics. Our Sapphire, Compass and CUBE
lasers have set the standard for diagnostic lasers
for many years. The emergence of point of care
diagnostics necessitated reducing the size and
cost of lasers and led to the creation of the OBIS
platform. OBIS is a family of smart, plug-and-play
lasers that provide output from the ultraviolet

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to the infrared. Their performance, size and cost
should enable broader penetration of diagnostic
technologies. On the therapeutic side, the key
procedures involve vision correction and treatment
of eye diseases. Our ExciStar Excimer lasers are
the gold standard in vision correction and our
OPS-based Genesis lasers are helping to improve
treatment of various eye diseases including
glaucoma and diabetic retinopathy.

The scientific market posted another strong year
despite the absence of stimulus funds. We attri-
bute part of the growth to attosecond applications
in physics and chemistry. The balance of the growth
came from the introduction of several new products
such as the Chameleon Vision, Vitara and upgraded
versions of the Legend and Libra families, which
allowed us to capture market share.

During fiscal 2011 we acquired and integrated
facilities in Singapore and Malaysia. We intend
to continue to leverage these resources to provide
applications and services to be closer in proximity
to our growing base of customers located in the
Asia region, including the manufacture of several
products.

As we enter fiscal 2012, we have a strong backlog,
excellent customer alignment, market leadership
in three of four markets served, an outstanding
product portfolio and ample cash reserves. While
there continue to be macroeconomic headwinds
worldwide, we are well-positioned to continue to
drive long-term value creation for shareholders and
customers alike.

Sincerely,

John R. Ambroseo,
President and
Chief Executive Officer

Garry W. Rogerson,
Chairman of the Board

All Coherent product names are trademarks of Coherent, Inc.

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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

DATE:

February 28, 2012

TIME:

8:00 a.m.

PLACE:

Hyatt Regency Santa Clara
5101 Great America Parkway
Santa Clara, CA 95054

MATTERS TO BE VOTED ON:

To elect the seven directors named in the proxy statement;

To ratify the appointment of Deloitte & Touche LLP as the Company’s independent registered public accounting firm
for the fiscal year ending September 29, 2012;

To approve our Amended and Restated Employee Stock Purchase Plan;

To receive an advisory vote on executive officer compensation; and

To transact such other business as may properly be brought before the meeting and any adjournment(s) thereof.

The foregoing items of business are more fully described in the Proxy Statement accompanying this Notice.

Stockholders of record at the close of business on January 9, 2012, are entitled to notice of and to vote at the meeting and at

any adjournments or postponements thereof.

All stockholders are cordially invited to attend the meeting. However, to assure your representation at the meeting, you are

urged to mark, sign, date and return the enclosed proxy card as promptly as possible in the postage-prepaid envelope enclosed for that
purpose or follow the instructions on the enclosed proxy card to vote by telephone or via the Internet. Any stockholder of record
attending the meeting may vote in person even if he or she has returned a proxy. Please note, however, that if your shares are held of
record by a broker, bank or other nominee and you wish to vote at the meeting, you must obtain a proxy issued in your name from that
record holder.

Sincerely,

/s/ John R. Ambroseo
John R. Ambroseo
President and Chief Executive Officer

Santa Clara, California
January 20, 2012

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS
FOR THE STOCKHOLDER MEETING TO BE HELD ON FEBRUARY 28, 2012

The proxy statement and annual report to stockholders are available at www.proxyvote.com.

YOUR VOTE IS IMPORTANT

In order to assure your representation at the meeting, you are requested to complete, sign and date the enclosed proxy card as
promptly as possible and return it in the enclosed envelope or follow the instructions on the enclosed proxy card to vote by
telephone or via the Internet. Any stockholder attending the Annual Meeting may vote in person even if he or she returned a
proxy card.

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COHERENT, INC.
5100 PATRICK HENRY DRIVE
SANTA CLARA, CALIFORNIA 95054

PROXY STATEMENT

GENERAL INFORMATION ABOUT THE MEETING

General
The enclosed Proxy is solicited on behalf of the Board of
Directors (the “Board”) of Coherent, Inc. for use at the Annual
Meeting of Stockholders (the “Annual Meeting” or “meeting”)
to be held at 8:00 a.m., local time, on February 28, 2012 at the
Hyatt Regency Santa Clara, 5101 Great America Parkway,
Santa Clara, CA 95054, and at any adjournment(s) thereof, for
the purposes set forth herein and in the accompanying Notice
of Annual Meeting of Stockholders. Our telephone number is
(408) 764-4000. These proxy solicitation materials were first
mailed on or about January 20, 2012 to all stockholders
entitled to vote at the Annual Meeting.

Who may vote at the meeting?
You are entitled to vote at the Annual Meeting if our records
show that you held your shares as of the close of business of
our record date, January 9, 2012 (the “Record Date”). On the
Record Date, 23,533,449 shares of our common stock, $0.01
par value, were issued and outstanding.

What does each share of common stock I own represent?
On all matters, other than the election of directors, each share
has one vote. See “Election of Directors—Vote Required” for
a description of your cumulative voting rights with respect to
the election of directors.

How does a stockholder vote?
Whether or not you plan to attend the Annual Meeting, we
urge you to vote by proxy to ensure your vote is counted. If
you are entitled to vote, you may do so as follows:

• Through your broker: If your shares are held through a
broker, bank or other nominee (commonly referred to as held
in “street name”), you will receive instructions from them that
you must follow in order to have your shares voted. If you
want to vote in person, you will need to obtain a legal proxy
from your broker, bank or other nominee and bring it to the
meeting.

In person: Attend the Annual Meeting and, if you
•
request, we will give you a new proxy at the time of voting. If
you have previously turned in a proxy card, you must notify us
at the Annual Meeting that you intend to cancel your prior
proxy and vote by proxy at the meeting.

• Returning a Proxy Card: Simply complete, sign and
date the enclosed proxy card and return it promptly in the

envelope provided. If your signed proxy card is received
before the Annual Meeting, the designated proxies will vote
your shares as you direct.

• Using the Telephone: Dial toll-free 1-800-690-6903
using a
recorded
instructions. You will be asked to provide the control number
from the enclosed proxy card.

touch-tone phone and

the

• Through the Internet: go to www.proxyvote.com to
complete an electronic proxy card. You will be asked to
provide the control number from the enclosed proxy card.

For telephone or Internet use, your vote must be received by
11:59 P.M. Eastern Time on February 27, 2012 to be
counted.

If you return a signed and dated proxy card without marking
any voting directions, your shares will be voted “for” the
election of all seven nominees for director and “for” all other
proposals.

Matters to be presented at the meeting
We are not aware of any matters to be presented at the
meeting other than those described in this proxy statement. If
any other matter is properly presented at the Annual Meeting,
your proxy holders (one of the individuals named on your
proxy card) will vote your shares in their discretion. The cost
of this solicitation will be borne by us. We may reimburse
brokerage firms and other persons representing beneficial
owners of shares for their expenses in forwarding solicitation
material to such beneficial owners. In addition, proxies may
be solicited by certain of our directors, officers and regular
employees, without additional compensation, personally or by
telephone or facsimile.

Revoking your proxy
If you hold your shares in street name, you must follow the
instructions of your broker, bank or other nominee to revoke
your voting instructions. If you are a holder of record and wish
to revoke your proxy instructions, you must (i) advise the
Corporate Secretary in writing at 5100 Patrick Henry Dr.,
Santa Clara, CA 95054 before the proxies vote your shares at
the meeting, (ii) timely deliver later-dated proxy instructions
or (iii) attend the meeting and vote your shares in person.

Attendance at the Annual Meeting
All stockholders of record as of the Record Date may attend
the Annual Meeting. Please note that cameras, recording
devices and similar electronic devices will not be permitted at
the Annual Meeting. No items will be allowed into the
Annual Meeting that might pose a concern for the safety of
those attending. Additionally, to attend the meeting you will
need to bring identification and proof sufficient to us that you
were a stockholder of record as of the Record Date or that you
are a representative of a stockholder of record as of the Record
Date for a stockholder of record that is not a natural person.
For directions to attend the Annual Meeting or other
questions, please contact Investor Relations by telephone at
(408) 764-4110.

Quorum; Abstentions; Broker Non-Votes
Our bylaws provide that stockholders holding a majority of the
shares of common stock issued and outstanding and entitled to
vote on the Record Date constitute a quorum at meetings of
stockholders. Votes will be counted by the inspector of
election appointed for
the Annual Meeting, who will
separately count “For” and (with respect to proposals other
than the election of directors) “Against” votes, abstentions and
broker non-votes.

A “broker non-vote” occurs when a nominee holding shares
for a beneficial owner does not vote because the nominee does
not have discretionary voting power with respect to the
proposal and has not received instructions with respect to the
proposal from the beneficial owner. Because directors are
elected by a plurality vote, abstentions in the election of
directors have no impact once a quorum exists. Abstentions
and broker non-votes represented by submitted proxies will
not be taken into account in determining the outcome of the
election of directors. Abstentions and broker non-votes
represented by submitted proxies will not be taken into
account in determining the outcome of Proposals Two through
Four. We will separately note the total of abstentions and
broker non-votes when reporting on the outcome of the annual
meeting.

Deadline for Receipt of Stockholder Proposals
In order to submit stockholder proposals for the fiscal 2012
annual meeting for inclusion in the Company’s proxy
statement pursuant to Rule 14a-8 of the Securities Exchange
Act of 1934, as amended (“SEC Rule 14a-8”), written
materials must be received by the Corporate Secretary at the
Company’s principal office in Santa Clara, California no later
than September 22, 2012.

Stockholder proposals must otherwise comply with the
requirements of SEC Rule 14a-8.

Proposals must be addressed to: Bret DiMarco, Corporate
Secretary, Coherent, Inc., 5100 Patrick Henry Dr., Santa
Clara, California 95054. Simply submitting a proposal does
not guarantee its inclusion.

Section 2.15 of the Company’s bylaws also establishes an
advance notice procedure with regards to director nominations
and stockholder proposals that are not submitted for inclusion
in the proxy statements, but that a stockholder instead wishes
to present directly at any Annual Meeting. To be properly
brought before the fiscal 2012 annual meeting, a notice of the
nomination or the matter the stockholder wishes to present at
the meeting must be delivered to the Corporate Secretary (see
above), no later than the close of business on the 45th day, nor
earlier than the close of business on the 75th day, prior to the
one year anniversary of the date these proxy materials were
first mailed by us unless the annual meeting of stockholders is
held prior to January 30, 2013 or after March 29, 2013, in
which case, the proposal must be received by us not earlier
than the 120th day prior to the annual meeting and not later
than the later of the 90th day prior to the annual meeting and
the tenth day following public announcement of the date the
annual meeting will be held and must otherwise be in
compliance with applicable laws and regulations in order to be
considered for inclusion in the proxy statement and form of
proxy relating to that meeting.

If a stockholder who has notified us of his or her intention to
present a proposal at an annual meeting does not appear to
present his or her proposal at such meeting, we need not
present the proposal for vote at such meeting. The Chair of the
Annual Meeting has the final discretion whether or not to
allow any matter to be considered at the meeting which did not
timely comply with all applicable notice requirements.

If a stockholder wishes only to recommend a candidate for
consideration by the Governance and Nominating Committee
as a potential nominee for the Company’s Board, see the
procedures discussed in “Proposal One — Election of
Directors — Board Meetings and Committees — Process for
Recommending Candidates for Election to the Board of
Directors.”

The attached proxy card grants
the proxyholders
discretionary authority to vote on any matter raised at the
Annual Meeting.

Eliminating Duplicative Proxy Materials
To reduce the expense of delivering duplicate voting materials
to our stockholders who may hold shares of Coherent common
stock in more than one stock account, we are delivering only
one set of
to certain
the proxy solicitation materials
stockholders who share an address, unless otherwise
requested. A separate proxy card is included in the voting
materials for each of these stockholders.

We will promptly deliver, upon written or oral request, a
separate copy of the annual report or this proxy statement to a
stockholder at a shared address to which a single copy of the
documents was delivered. To obtain an additional copy, you
may write us at 5100 Patrick Henry Drive, Santa Clara,
California 95054, Attn: Investor Relations, or contact our
investor relations department by telephone at (408) 764-4110.

Similarly, if you share an address with another stockholder
and have received multiple copies of our proxy materials, you
may contact us at the address or telephone number specified
above to request that only a single copy of these materials be
delivered to your address in the future. Stockholders sharing a
single address may revoke their consent to receive a single
copy of our proxy materials in the future at any time by
contacting our distribution agent, Broadridge, either by calling
toll-free at 1-800-542-1061, or by writing to Broadridge,
Householding Department, 51 Mercedes Way, Edgewood, NY
11717. Broadridge will remove such stockholder from the
Householding program within 30 days of receipt of such
written notice, after which each such stockholder will receive
an individual copy of our proxy materials.

Electronic Delivery of Proxy Materials
In an effort to reduce paper mailed to your home and help
lower printing and postage costs, we are offering stockholders
the convenience of viewing online proxy statements, annual
reports and related materials. With your consent, we can stop
sending future paper copies of these documents.
To
participate during the voting season, registered stockholders
may follow the instructions when voting online.

Incorporation by Reference
To the extent that this proxy statement has been or will be
specifically incorporated by reference into any other filing of
Coherent with the Securities and Exchange Commission, the
sections of this proxy statement entitled “Report of the Audit
Committee” (to the extent permitted by the rules of the SEC)
and “Compensation Disclosure and Analysis” shall not be

deemed to be so incorporated, unless specifically provided
otherwise in such filing.

Further Information
We will provide without charge to each stockholder
solicited by these proxy solicitation materials a copy of
Coherent’s annual report on Form 10-K for the fiscal year
ended October 1, 2011 without exhibits and any
amendments thereto on Form 10-K/A upon request of such
stockholder made in writing to Coherent, Inc., 5100
Patrick Henry Drive, Santa Clara, California 95054, Attn:
Investor Relations. We will also furnish any exhibit to the
annual report on Form 10-K if specifically requested in
writing. You can also access our Securities and Exchange
Commission (“SEC”) filings, including our annual reports
on Form 10-K, and all amendments thereto filed on
Form 10 K/A, on the SEC website at www.sec.gov.

NOTICE

REGARDING

IMPORTANT
THE
AVAILABILITY OF PROXY MATERIALS FOR THE
STOCKHOLDER MEETING TO BE HELD ON
FEBRUARY 28, 2012: The proxy statement and annual
report
at
www.proxyvote.com.

stockholders

available

are

Stockholder List
A list of stockholders entitled to vote at the Annual Meeting
will be available for examination by stockholders of record at
the Annual Meeting.

PROPOSAL ONE—ELECTION OF DIRECTORS

Nominees
Seven (7) members of our Board of Directors are to be elected
at the Annual Meeting. Unless otherwise instructed, the proxy
holders will vote the proxies received by them for the
nominees named below. Each nominee has consented to be
named a nominee in the proxy statement and to continue to
serve as a director if elected. If any nominee becomes unable
or declines to serve as a director, if additional persons are
nominated at the meeting or if stockholders are entitled to
cumulate votes, the proxy holders intend to vote all proxies
received by them in such a manner (in accordance with
cumulative voting) as will ensure the election of as many of
the nominees listed below as possible, and the specific
nominees to be voted for will be determined by the proxy
holders.

We are not aware of any reason that any nominee will be
unable or will decline to serve as a director. The term of
office of each person elected as a director will continue until
the next Annual Meeting of Stockholders or until a successor
has been elected and qualified or until his or her earlier
resignation or removal. There are no arrangements or
understandings between any director or executive officer and
any other person pursuant to which he or she is or was to be
selected as a director or officer.

The names of the nominees, all of whom are currently
directors standing for re-election, and certain information
about them as of December 31, 2011 are set forth below. All
of the nominees have been unanimously recommended for
the unanimous
the Board acting on
nomination by
recommendation of
the Governance and Nominating
Committee of the Board. The committee consists solely of
independent members of the Board. There are no family
relationships among directors or executive officers of
Coherent. Mr. Flatley was appointed to the Board in
September, 2011 and was recommended by the search firm
retained by the committee to assist it in reviewing potential
candidates for the Board.

Director

Name
John R. Ambroseo

Age
50

Since Principal Occupation
2002

Jay T. Flatley

2011

President and Chief Executive
Officer
President and Chief Executive
Officer of Illumina, Inc.
Retired Audit Partner, Ernst &
Young
President of LWK Ventures

Chief
Advanced Energy Industries, Inc.

Executive Officer

2008

2009

2004

Susan M.
James(1)(2)
L. William
Krause(2)(3)
Garry W.
Rogerson
(1)(2)(3)
Lawrence
Tomlinson(1)(3)
Sandeep Vij(2)(3)

2003

2004

Retired Senior Vice President and
Treasurer of Hewlett-Packard Co.
President and Chief Executive
Officer of MIPS Technologies, Inc.

(1)
(2)
(3)

Member of the Audit Committee
Member of the Governance and Nominating Committee
Member of the Compensation and H.R. Committee

Except as set forth below, each of our directors has been
engaged in his or her principal occupation set forth above
during the past five years. There is no family relationship
between any of our directors or executive officers.

from

September 2000

John R. Ambroseo. Mr. Ambroseo has served as our President
and Chief Executive Officer as well as a member of the Board
since October 2002. Mr. Ambroseo served as our Chief
Operating Officer from June 2001 through September 2002.
Mr. Ambroseo served as our Executive Vice President and as
President and General Manager of the Coherent Photonics
Group
From
September 1997 to September 2000, Mr. Ambroseo served as
our Executive Vice President and as President and General
Manager of the Coherent Laser Group. From March 1997 to
September 1997, Mr. Ambroseo served as our Scientific
Business Unit Manager. From August 1988, when
Mr. Ambroseo joined us, until March 1997, he served as a
Sales Engineer, Product Marketing Manager, National Sales
Manager and Director of European Operations. Mr. Ambroseo
received a Bachelor degree from SUNY-College at Purchase
and a PhD in Chemistry from the University of Pennsylvania.

June 2001.

Mr. Ambroseo’s status as our Chief Executive Officer, his 23
year tenure with Coherent, his extensive knowledge of our
products, technologies and end markets and his ten years of
service as a director of Coherent make him an invaluable
member of our Board of Directors.

Inc., a

Illumina,

Jay T. Flatley. Since 1999 Mr. Flatley has served as
President, Chief Executive Officer and a member of the Board
of Directors of
leading developer,
manufacturer and marketer of life science tools and integrated
systems for the analysis of genetic variation and function.
Prior
joining Illumina, Mr. Flatley was co-founder,
President, Chief Executive Officer, and a member of the
Board of Directors of Molecular Dynamics, Inc., a NASDAQ-
listed life sciences company focused on genetic discovery and
analysis, from 1994 until its sale to Amersham Pharmacia
Biotech Inc. in 1998. He served in various other positions with
that company from 1987 to 1994. From 1985 to 1987, he was
Vice President of Engineering and Vice President of Strategic
Planning at Plexus Computers, a UNIX computer company.
He is also a member of the Keck Graduate Institute Board of
Trustees. Mr. Flatley holds a B.A. in Economics from
Claremont McKenna College and a B.S. and M.S. in Industrial
Engineering from Stanford University.

Mr. Flatley’s years of executive and management experience
in the high technology industry, including serving as the chief
executive officer of several public companies, his service on
the board of another publicly held company, and his recent
appointment as a director of Coherent make him an invaluable
member of our Board of Directors.

Susan M. James. Ms. James originally joined Ernst & Young,
a global leader in professional services, in 1975, becoming a
partner in 1987 and from June 2006 to December 2009, was a
consultant to Ernst & Young. During her tenure with Ernst &
Young, she was the lead partner or partner-in-charge for the
audit work for a significant number of technology companies,
including Intel Corporation, Sun Microsystems, Amazon.com,
Autodesk, Inc. and the Hewlett-Packard Company, and for the
Ernst & Young North America Global Account Network. She
also served on the Ernst & Young Americas Executive Board
of Directors from January 2002 through June 2006. She is a
certified public accountant and a member of the American
Institute of Certified Public Accountants. Ms. James also
serves on the board of directors of Applied Materials, Inc., a
global leader in Nonmanufacturing Solutions, Yahoo! Inc., an
Internet technology company, and Tri-Valley Animal Rescue,
a non-profit corporation dedicated to providing homes for
homeless pets. Ms. James holds Bachelor’s degrees
in
Mathematics from Hunter College and Accounting from San
Jose State University.

Ms. James’ years in the public accounting industry, her
service on the boards and committees of a number of other
publicly held companies and her four years of service as a
director of Coherent make her an invaluable member of our
Board of Directors.

L. William Krause. Mr. Krause has been President of LWK
Ventures, a private investment firm, since 1991. In addition,
Mr. Krause served as Chairman of the Board of Caspian
Networks, Inc., an IP networking systems provider, from
April 2002 to September 2006 and as Chief Executive Officer
from April 2002 until June 2004. From September 2001 to
February 2002, Mr. Krause was Chairman and Chief
Executive Officer of Exodus Communications, Inc., which he
guided through Chapter 11 Bankruptcy to a sale of assets. He
also served as President and Chief Executive Officer of 3Com
Corporation, a global data networking company, from 1981 to
1990 and as its Chairman from 1987 to 1993 when he retired.
Mr. Krause currently serves as a director of Brocade
Communications Systems, Inc., a networking solutions and
a networking
services
infrastructure company and Core-Mark Holdings, Inc., a
distributor of packaged consumer goods. Mr. Krause
previously served as a director for Sybase, Inc., Packeteer, Inc.
and TriZetto Group, Inc. Mr. Krause holds a B.S. degree in
electrical engineering and received an honorary Doctorate of
Science from The Citadel.

company, CommScope

Inc.,

Mr. Krause’s years of executive and management experience
in the high technology industry, including serving as the chief
executive officer of several companies, his service on the
boards and committees of a number of other publicly held
companies, and his three years of service as a director of
Coherent make him an invaluable member of our Board of
Directors.

Garry W. Rogerson. Mr. Rogerson has served as our
Chairman of the Board since June 2007. Since August 2011,
Mr. Rogerson has been Chief Executive Officer and a member

of the Board of Directors of Advanced Energy Industries, Inc.,
a provider of power and control technologies for thin-film
manufacturing and solar-power generation. He was Chairman
and Chief Executive Officer of Varian, Inc., a major supplier
of scientific instruments and consumable laboratory supplies,
vacuum products and services, from February 2009 and 2004,
the purchase of Varian by Agilent
respectively until
Technologies, Inc. in May 2010. Mr. Rogerson served as
Varian’s Chief Operating Officer from 2002 to 2004, as
Senior Vice President, Scientific Instruments from 2001 to
2002, and as Vice President, Analytical Instruments from
1999 to 2001. Mr. Rogerson received an honours degree and
Ph.D. in biochemistry from the University of Kent at
Canterbury.

Mr. Rogerson’s years of executive and management
experience in the high technology industry, his service
including serving as the chief executive officer of several
public companies, his service on the board of another publicly
held company, and his eight years of service as a director of
Coherent make him an invaluable member of our Board of
Directors.

technology company,

Lawrence Tomlinson. Mr. Tomlinson retired from Hewlett-
in
Packard Company, a global
June 2003. Prior to retiring from Hewlett-Packard Co., from
1993 to June 2003 Mr. Tomlinson served as its Treasurer,
from 1996 to 2002 he was also a Vice President and from
2002 to June 2003 was also a Senior Vice President.
Mr. Tomlinson is a member of the board of directors of
Salesforce.com, Inc., a customer relationship management
service provider. Mr. Tomlinson previously served as a
director of Therma-Wave, Inc. Mr. Tomlinson received a B.S.
degree in accounting from Rutgers University and an M.B.A.
from Santa Clara University.

Mr. Tomlinson’s years of executive and management
experience in the high technology industry, his experience in
the finance and accounting industry, his service on the boards
and committees of a number of other publicly held companies
and his nine years of service as a director of Coherent make
him an invaluable member of our Board of Directors.

Sandeep Vij. Mr. Vij has held the position of President and
Chief Executive Officer of MIPS Technologies, Inc., a leading
provider of processor architectures and cores, since
January 2010.
Previously, Mr. Vij had been the Vice
President and General Manager of the Broadband and
Consumer Division of Cavium Networks, Inc., a provider of
highly integrated semiconductor products from May 2008 to
January 2010. Prior to that he held the position of Vice
President of Worldwide Marketing, Services and Support for
Xilinx Inc., a digital programmable logic device provider,
from 2007 to April 2008. From 2001 to 2006, he held the
position of Vice President of Worldwide Marketing at Xilinx.
From 1997 to 2001, he served as Vice President and General
Manager of the General Products Division at Xilinx. Mr. Vij
joined Xilinx in 1996 as Director of FPGA Marketing.
Mr. Vij is a member of the board of directors of MIPS
Technologies, Inc. He is a graduate of General Electric’s

Edison Engineering Program and Advanced Courses in
Engineering. He holds a Masters degree
in electrical
engineering from Stanford University and a B.S. degree in
electrical engineering from San Jose State University.

Mr. Vij’s years of executive and management experience in
the high technology industry, including serving as the chief
executive officer of another public company, his service on the
board of another publicly held company, and his eight years of
service as a director of Coherent make him an invaluable
member of our Board of Directors.

Director Independence
The Board has determined that, with the exception of
Mr. Ambroseo, all of its current members and all of the
nominees for director are “independent directors” as that term
is defined in the marketplace rules of the Nasdaq Stock
Market.

Board Meetings and Committees
The Board held a total of seven (7) meetings during fiscal
2011. During fiscal 2011, the Board had three standing
committees: the Audit Committee; the Compensation and H.R.
Committee; and the Governance and Nominating Committee.
From time to time, the Board may create limited ad hoc
committees, service on which does not provide additional
compensation. In the past, the Board has also established
special committees. No director serving during fiscal 2011
attended fewer than 75% of the aggregate of all meetings of
the Board and the committees of the Board upon which such
director served. All of the members of each standing
committee are “independent” as defined under the applicable
rules established by the Nasdaq Stock Market.

Audit Committee
The Audit Committee, which has been established
in
accordance with Section 3(a)(58)(A) of the Exchange Act,
consists of directors James, Rogerson, and Tomlinson. The
Audit Committee held eleven (11) meetings during fiscal
2011. The Board has determined that directors James,
Rogerson and Tomlinson are “audit committee financial
experts” as that term is defined in the rules of the SEC.
Among other things, the Audit Committee has the sole
authority for appointing and supervising our independent
registered public accounting firm and is primarily responsible
for approving the services performed by our independent
registered public accounting firm and for reviewing and
evaluating our accounting principles and our system of
internal accounting controls.

Compensation and H.R. Committee
For fiscal 2011, the Compensation and H.R. Committee of the
Board consists of directors Krause, Rogerson, Tomlinson and
Vij. In December, 2011, Mr. Flatley replaced Mr. Rogerson
on the committee. All of the members of the Compensation
and H.R. Committee are “independent” as defined under the
marketplace
the Nasdaq Stock Market. The
Compensation and H.R. Committee held nine (9) meetings
during fiscal 2011. The Compensation and H.R. Committee,
among other things, reviews and approves our executive

rules of

compensation policies and programs, and makes equity grants
to our employees, including officers, pursuant to our stock
option plans. This committee has the sole authority delegated
to it by the Board to make equity grants, which must be done
at a meeting rather than by written consent. For additional
information about the committee’s processes and procedures
the consideration and determination of executive
for
compensation, see “Compensation Discussion and Analysis”.

Governance and Nominating Committee
The Governance and Nominating Committee consists of
directors James, Krause and Rogerson. The Governance and
Nominating Committee held five (5) meetings during fiscal
2011. The Governance and Nominating Committee, among
other things, assists the Board by making recommendations to
the Board on matters concerning director nominations and
elections, board committees and corporate governance and
compensation for directors. For fiscal 2011, the committee
retained an independent compensation consultant to advise it
on Board compensation.

Copies of the charters for each of our committees may be
found on our website at www.coherent.com under “Investor
Relations”.

Attendance at Annual Meeting of Stockholders by the
members of the Board of Directors
All directors are encouraged, but not required to attend our
annual meeting of stockholders. At our annual meeting held
on March 31, 2011, all members of the Board attended in
person.

Process for Stockholders to Recommend Candidates for
Election to the Board of Directors
The Governance and Nominating Committee will consider
nominees properly
recommended by stockholders. A
stockholder that desires to recommend a candidate for election
to the Board must direct the recommendation in writing to us
at our principal offices (Attention: Bret M. DiMarco,
Corporate Secretary) and must include the candidate’s name,
age, home and business contact
information, principal
occupation or employment, the number of shares beneficially
owned by the nominee, whether any hedging transactions have
been entered into by the nominee or on his or her behalf,
information regarding any arrangements or understandings
between the nominee and the stockholder nominating the
nominee or any other persons relating to the nomination, a
written statement by the nominee acknowledging that the
nominee will owe a fiduciary duty to Coherent if elected,
and any other information required to be disclosed about the
nominee if proxies were to be solicited to elect the nominee as
a director.

For a stockholder recommendation to be considered by the
Governance and Nominating Committee as a potential
candidate at an annual meeting, nominations must be received
on or before the deadline for receipt of stockholder proposals
for such meeting. In the event a stockholder decides to
nominate a candidate for director and solicits proxies for such
candidate, the stockholder will need to follow the rules set

forth by the SEC and in our bylaws. See “General
Information About The Meeting—Deadline for Receipt of
Stockholder Proposals.”

The Governance and Nominating Committee’s criteria and
process for evaluating and identifying the candidates that it
approves as director nominees are as follows:

the Governance and Nominating Committee regularly

•
reviews the current composition and size of the Board;

the Governance and Nominating Committee reviews the
•
qualifications of any candidates who have been properly
recommended by a stockholder, as well as those candidates
who have been identified by management, individual members
of the Board or, if the Governance and Nominating Committee
determines, a search firm. Such review may,
the
Governance and Nominating Committee’s discretion, include
a review solely of information provided to the Governance and
Nominating Committee or may also include discussions with
persons familiar with the candidate, an interview with the
candidate or other actions that the committee deems proper;

the Governance and Nominating Committee evaluates the
•
performance of the Board as a whole and evaluates the
qualifications of individual members of the Board eligible for
re-election at the annual meeting of stockholders;

the Governance and Nominating Committee considers the
•
suitability of each candidate, including the current members of
the Board, in light of the current size and composition of the
Board. Except as may be required by rules promulgated by
the Nasdaq Stock Market or the SEC, it is the current belief of
the Governance and Nominating Committee that there are no
specific, minimum qualifications that must be met by any
candidate for the Board, nor are there specific qualities or
skills that are necessary for one or more of the members of the
Board to possess. In evaluating the qualifications of the
candidates, the Governance and Nominating Committee
considers many factors,
issues of character,
judgment,
independence, age, expertise, diversity of
experience, length of service, other commitments and the
like. While Coherent does not have a formal policy with
regard to the consideration of diversity in identifying director
nominees, as noted above, diversity is one of many factors that
the committee considers.

including,

has

The Governance and Nominating Committee evaluates such
factors, among others, and does not assign any particular
weighting or priority to any of these factors. The Governance
and Nominating Committee considers each
individual
candidate in the context of the current perceived needs of the
Board as a whole. While the Governance and Nominating
specific minimum
Committee
qualifications for director candidates, the Governance and
Nominating Committee believes that candidates and nominees
must reflect a Board that is comprised of directors who (i) are
predominantly independent, (ii) are of high integrity, (iii) have
qualifications that will increase the overall effectiveness of the
Board, and (iv) meet other requirements as may be required by
applicable rules, such as financial literacy or financial
expertise with respect to audit committee members;

established

not

in evaluating and identifying candidates, the Governance
•
and Nominating Committee has the authority to retain and
terminate any third party search firm that is used to identify
director candidates and has the authority to approve the fees
and retention terms of any search firm; and

after such review and consideration, the Governance and
•
Nominating Committee recommends the slate of director
nominees to the full Board for its approval.

The Governance and Nominating Committee will endeavor to
notify, or cause to be notified, all director candidates,
including those recommended by a stockholder, of its decision
as to whether to nominate such individual for election to the
Board.

Stockholder Communication with the Board of Directors
While the Board believes that management speaks for
Coherent, any stockholder may contact any of our directors by
writing to them by mail c/o Bret M. DiMarco, Corporate
Secretary, at our principal executive offices, the address of
which appears on the cover of this proxy statement.

Any stockholder may report to us any complaints regarding
accounting, internal accounting controls, or auditing matters.
Any stockholder who wishes to so contact us should send such
complaints to the Audit Committee c/o Bret M. DiMarco,
Corporate Secretary, at our principal executive offices, the
address of which appears on the cover of this proxy statement.

Any stockholder communications that the Board is to receive
will first go to our Corporate Secretary, who will log the date
of receipt of the communication as well as the identity and
contact information of the correspondent in our stockholder
communications log.

Our Corporate Secretary will review, summarize and, if
appropriate, investigate the complaint under the direction of
the appropriate committee of the Board in a timely manner. In
the case of accounting or auditing related matters, a member
of the Audit Committee, or the Audit Committee as a whole,
will then review the summary of the communication, the
results of the investigation, if any, and, if appropriate, the draft
response. The summary and response will be in the form of a

memo, which will become part of
the stockholder
communications log that the Corporate Secretary maintains
with respect to all stockholder communications.

Independent Chair and Board Leadership
Our Board leadership structure consists of an independent
Chairman, who is elected by the independent directors, and
independent committee chairs. We separate the positions of
Chief Executive Officer and Chairman in recognition of the
differences between the two roles. The Board believes this
structure provides
leadership and
engagement. Given that our Chairman is an independent
director, the Board does not feel the need for a separate “lead
independent director,” as our independent Chairman performs
that function. The Board takes its independence seriously and
reinforces this standard with six of its seven members being
independent.

independent Board

The role of the Board and its committees in risk oversight
The Board oversees Coherent’s risk profile and management’s
processes for assessing and managing risk, both as a whole
Board and through its committees, with our Governance and
Nominating Committee delegated
the responsibility for
assigning oversight responsibilities to each committee and the
Board as a whole. Our senior executive team provides regular
updates to the Board and each committee regarding our
strategies and objectives and the risks inherent with them.

those related

Each regular meeting of the Board includes a discussion of
risks related to the Company’s financial results and operations
and each committee schedules risk-related presentations
regularly throughout the year. In addition our directors have
access to our management to discuss any matters of interest,
including
Those members of
to risk.
management most knowledgeable of the issues attend Board
and committee meeting to provide additional insight on the
matters being discussed, including risk exposures. Our Chief
Financial Officer and General Counsel both report directly to
our Chief Executive Officer, providing him with further
visibility to our risk profile. A Vice President, Finance is the
designated officer overseeing our enterprise risk management

program and works closely with both our Chief Financial
Officer and General Counsel on these matters.

These regular meetings also provide our Board members the
opportunity to discuss issues of concern directly with
management. In general the Board and its committees oversee
the following risk categories:

The Board oversees generally the Company’s overall
•
enterprise risk management process and specifically with
regards to the areas of strategy, mergers and acquisitions,
communications and operations;

The Audit Committee generally oversees risks primarily
•
related to financial controls, accounting, tax, treasury, capital
legal, regulatory and compliance;

The Compensation and HR Committee generally oversees
•
our compensation programs so that they do not incentivize
excessive risk taking as well as overseeing human resources
related risks; and

The Governance and Nominating Committee oversees the
•
assignment of risk oversight categories by each particular
committee and/or the Board as a whole as well as those risks
related to compensation of members of the Board, succession
planning for the Board and chief executive officer.

the compensation program

In the fall of 2010, the Compensation and H.R. Committee
reviewed
risk assessment
performed by outside legal counsel and management which
evaluated the primary design features of the Company’s
compensation plans. In the fall of 2011, management again
presented an assessment of the risks associated with the
Company’s compensation plans. The Committee agreed with
the conclusion that the risks were within our ability to
effectively monitor and manage and that these risks are not
reasonably likely to have a material adverse effect on the
Company.

Fiscal 2011 Director Compensation

During fiscal 2011, we paid our non-employee
directors an annual retainer (depending upon position)
and for service on the Board as follows:

Position
Board Member
Board Chair
Audit Committee Chair
Compensation and H.R. Comm. Chair
Governance & Nominating Comm. Chair
Audit Committee member (non-Chair)
Compensation and H.R. Committee

member (non-Chair)

Governance and Nominating Committee

member (non-Chair)

Annual Retainer
40,000
16,000
34,000
16,000
10,750
12,500

$
$
$
$
$
$

8,500

6,500

The chart below summarizes the gross cash amounts
earned by non-employee directors for service during
fiscal 2011 on the Board and its committees (all
amounts in dollars):

Annual
Board
Service

Name
Jay T.

Compensa
tion
and H.R.
Committee

Nominating
and
Governance
Committee

Audit
Committee

Total

N/A

Flatley(2)

N/A
Susan M. James $40,000 $34,000
L. William
Krause
Garry W.

$40,000

N/A
--

N/A

N/A
$6,500 $80,500

-- $8,500

$6,500 $55,000

grant date fair value computed in accordance with FASB
ASC 718, for restricted stock units and stock options
which were granted in fiscal 2011. The assumptions
used to calculate the value of these stock units and stock
options are set forth in Note 12. “Employee Stock
Option and Benefit Plans” of
the
Consolidated Financial Statements in our Annual Report
on Form 10-K for the year ended October 1, 2011.

the Notes

(2) The directors’ aggregate holdings of RSUs as of October

1, 2011 were as follows:

Name
Jay T. Flatley
Susan M. James
L. William Krause
Garry W. Rogerson
Lawrence Tomlinson
Sandeep Vij

Shares (1)

2,000(2)
7,500(3)
7,500(4)
7,500(5)
7,500(5)
7,500(5)

(1) The shares underlying the RSUs will vest to the
extent an individual is a member of the Board of
Directors on such vesting date.

(2) 2,000 shares vest on September 20, 2014
(3) 3,500 shares vest on February 15, 2012 and 2,000
shares vest on each of March 11, 2012 and April 1,
2013

(4) 3,500 shares vest on February 15, 2012 and 2,000
shares vest on each of June 4, 2012 and April 1,
2013

(5) 3,500 shares vest on February 15, 2012 and 2,000
shares vest on each of March 11, 2012 and April 1,
2013

Rogerson $56,000(1) $12,500 $8,500 $10,750 $87,750

Lawrence

Tomlinson

Sandeep Vij

$40,000 $12,500 $8,500
-- $16,000
$40,000

-- $61,000
-- $56,000

The directors’ aggregate holdings of stock option awards
(both vested and unvested) as of October 1, 2011 were
as follows:

(1)
Includes Mr. Rogerson’s service as Chairman of the Board.
(2) Mr. Flatley joined the Board on September 20, 2011 and
accordingly did not receive any cash compensation for fiscal
2011. As noted below, Mr. Flatley received equity grants
contemporaneously with his appointment.

The chart below summarizes the amounts earned by
non-employee directors for service (including both
Board and, where applicable, committee service)
during fiscal 2011:

Name
Jay T. Flatley
Susan M. James
L. William Krause
Garry W. Rogerson
Lawrence Tomlinson
Sandeep Vij

24,000
18,000
30,000
36,000
18,000
15,000

The following table shows equity grants received by
non-employee directors in fiscal 2011:

Name
Jay T. Flatley
Susan M. James
L. William Krause
Garry W. Rogerson
Lawrence Tomlinson
Sandeep Vij

Fees Paid
in
Cash ($)
--

Stock
Awards
($)(1)(2)

Option
Awards
($)(1)(2) Total ($)
89,480 390,149 479,629
-- 283,885
-- 258,385
-- 291,135
-- 264,385
-- 259,385

80,500 203,385
55,000 203,385
87,750 203,385
61,000 203,385
56,000 203,385

(1) These amounts do not reflect compensation actually
received. Rather, these amounts represent the aggregate

Name
Jay T. Flatley
Susan M. James
L. William Krause
Garry W. Rogerson
Lawrence Tomlinson
Sandeep Vij

Restricted
Stock Units
Granted in
Fiscal 2011
(# shares)

Stock Options
Granted in
Fiscal 2011
(# shares)

2,000
3,500
3,500
3,500
3,500
3,500

24,000
--
--
--
--
--

Our stockholders approved the adoption of our 2011
Equity Incentive Plan in March, 2011 (the “2011
Plan”). Accordingly, future director grants will be
under the 2011 Plan.

The Board has adopted resolutions automatically
granting under the 2011 Plan each non-employee
member of the Board of Directors 3,500 restricted
stock units (“RSUs”) upon such member’s reelection to
the Board, with vesting on February 15 of the
following year. Effective in December, 2011, the
Board determined that upon the initial appointment of a
non-employee member to the Board, such new director
will receive a grant of 3,500 RSUs, which vest over
two years (fifty percent on each anniversary of grant).

For option grants held by a director who retires after at
least eight years of service on the Board which are
outstanding under the 1998 Director Plan, such grants
will fully vest and the director will have the right to
exercise his or her option as to both vested and
unvested shares as of such date. The option will remain
exercisable for the lesser of (i) two (2) years following
the date of such director’s retirement or (ii) the
expiration of the option’s original term. This provision
was not adopted for option grants under the 2011 Stock
Plan.

With the adoption of our 2011 Plan, the 1998 Director
Plan has been terminated other than for outstanding
historical grants made thereunder. As of October 1,
2011, 441,000 shares have been issued upon the
exercise of options and the vesting of restricted stock
units under the 1998 Director Plan.

Option Exercises and Stock Vested at 2011 Fiscal
Year-End

The table below sets forth certain information for each
non-employee directors regarding the exercise of
options and the vesting of stock awards during the year
ended October 1, 2011, including the aggregate value
realized upon such exercise or vesting.

Option Awards

Stock Awards

Number
of
Shares
Acquired
on
Exercise
(#)

Number
of
Shares
Acquired
on
Vesting
(#)

Value
Realized
on
Exercise
($)

Value
Realized
on
Vesting
($)

—

—
18,000 630,280
—

—

—
2,000 114,260
—

—

29,000 395,189

2,000 114,260

6,000 110,449
—

—

2,000 114,260
2,000 114,260

Name
Jay T. Flatley
M.
Susan
L. William Krause
Garry W.

James

Rogerson

Lawrence

Tomlinson
Sandeep Vij

Vote Required

Every stockholder voting for the election of directors
may cumulate such stockholder’s votes and give one
candidate a number of votes equal to the number of
directors to be elected multiplied by the number of
votes to which the stockholder’s shares are entitled.
Alternatively, a stockholder may distribute his or her
votes on the same principle among as many candidates
as the stockholder thinks fit, provided that votes cannot
be cast for more than seven (7) candidates. However,
no stockholder will be entitled to cumulate votes for a
candidate unless (i) such candidate’s name has been
properly placed in nomination for election at the
Annual Meeting prior to the voting and (ii) the
stockholder, or any other stockholder, has given notice
at the meeting prior to the voting of the intention to
cumulate the stockholder’s votes. If cumulative voting
occurs at the meeting and you do not specify how to
distribute your votes, your proxy holders
(the
individuals named on your proxy card) will cumulate
votes in such a manner as will ensure the election of as
many of the nominees listed above as possible, and the
specific nominees to be voted for will be determined by
the proxy holders.

If a quorum is present, the seven (7) nominees
receiving the highest number of votes will be elected to
the Board. See “Information Concerning Solicitation
and Voting—Quorum; Abstentions; Broker Non-
Votes.”

THE BOARD RECOMMENDS THAT
STOCKHOLDERS VOTE “FOR” THE SEVEN
NOMINEES PRESENTED HEREIN.

internal control over financial reporting and
review of our quarterly financial statements,
advice on accounting matters that arose during
the audit and audit services provided in
connection with other statutory or regulatory
filings.

Represents due diligence support associated
with acquisition activities in fiscal 2011. Note
that this amount was inadvertently included
under “Audit Fees” in the accompanying
Form 10-K.

Represents the annual subscription for access
to the Deloitte Accounting Research Tool,
which is a searchable on-line accounting
database ($2,000) in both fiscal years.

(2)

(3)

Pre-Approval of Audit and Non-Audit Services

that

the
The Audit Committee has determined
provision of non-audit services by Deloitte
is
compatible with maintaining Deloitte’s independence.
In accordance with its charter, the Audit Committee
approves in advance all audit and non-audit services to
be provided by Deloitte. In other cases, the Chairman
of the Audit Committee has the delegated authority
from the Committee to pre-approve certain additional
services, and such pre-approvals are communicated to
the full Committee at its next meeting. During fiscal
years 2011 and 2010, 100% of the services were pre-
approved by the Audit Committee in accordance with
this policy.

Vote Required

The affirmative vote of a majority of the votes cast will
be required to ratify the selection of Deloitte & Touche
LLP as our independent registered public accounting
firm for the fiscal year ending September 29, 2012.

THE AUDIT COMMITTEE AND THE BOARD
RECOMMENDS THAT STOCKHOLDERS VOTE
“FOR” THE RATIFICATION OF THE
APPOINTMENT OF DELOITTE & TOUCHE
LLP AS OUR INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM FOR THE
FISCAL YEAR ENDING SEPTEMBER 29, 2012.

PROPOSAL TWO--RATIFICATION OF THE
APPOINTMENT OF DELOITTE & TOUCHE
LLP AS INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM

firm,

a matter

to audit our

The Audit Committee of the Board has selected
Deloitte & Touche LLP, an independent registered
public accounting
financial
statements for the fiscal year ending September 30,
2012, and recommends that stockholders vote for
ratification of such appointment. Deloitte & Touche
LLP has audited our financial statements since the
fiscal year ended September 25, 1976. Although
ratification by stockholders is not required by law, the
Audit Committee has determined that it is desirable to
request ratification of this selection by the stockholders
as
practice.
good
Notwithstanding its selection, the Audit Committee, in
its discretion, may appoint a new
independent
registered public accounting firm at any time during
the year if the Audit Committee believes that such a
change would be in the best interest of Coherent and its
stockholders. If the stockholders do not ratify the
appointment of Deloitte & Touche LLP, the Audit
Committee may reconsider its selection. The Audit
Committee selected Deloitte & Touche LLP to audit
our financial statements for the fiscal year ended
ratified by our
October 1, 2011, which was
stockholders.

corporate

Representatives of Deloitte & Touche LLP are
expected to be present at the meeting and will be
afforded the opportunity to make a statement if they
desire to do so. The representatives of Deloitte &
Touche LLP are also expected to be available to
respond to appropriate questions.

Principal Accounting Fees and Services

The following table sets forth fees for services
provided by Deloitte & Touche LLP, the member firms
of Deloitte Touche Tohmatsu, and their respective
affiliates (collectively, “Deloitte”) during fiscal years
2011 and 2010:

fees(2)

Audit fees(1)
Audit-related
Tax fees
All other
Total

fees(3)

2010

2011
1,588,000 $ 1,440,000
—
—
2,000
1,667,000 $ 1,442,000

77,000
—
2,000

(1)

Represents fees for professional services
provided in connection with the integrated
audit of our annual financial statements and

PROPOSAL THREE--APPROVAL OF OUR
AMENDED AND RESTATED EMPLOYEE
STOCK PURCHASE PLAN

the unanimous recommendation of

We are asking stockholders to approve our amended
and restated Employee Stock Purchase Plan (the
“Purchase Plan”). The Purchase Plan was initially
adopted in 1980 and has been amended in 1983, 1989,
1993, 1999 and 2009 to increase the number of shares
reserved for issuance thereunder (the “Existing Plan”).
its
Following
Compensation and H.R. Committee, the Board has
determined that it is in the best interests of the
Company and its stockholders to amend and restate the
Purchase Plan: (i) to authorize additional shares of our
common stock for purchase under the Purchase Plan
and (ii) to make certain administrative changes. The
Board has authorized an increase to the number of
shares
thereunder by an
issuance
to an aggregate of
additional 1,000,000 shares
7,925,000 shares of our common stock reserved for
purchase under
to
stockholder approval.

the Purchase Plan, subject

reserved

for

As of December 31, 2011, 161,374 shares remained
available for issuance under the Existing Plan. The
Board expects that with the 1,000,000 share increase,
the number of shares reserved for issuance under the
Purchase Plan will be sufficient to operate the plan
between three to five years without having to request
additional shares. The Board will periodically review
actual share consumption under the Purchase Plan and
may make an additional request for shares under the
Purchase Plan earlier or later than this period as
needed. If the stockholders approve the Purchase Plan,
it will replace the current version of the Existing Plan.
If stockholders do not approve the amended and
restated Purchase Plan, we will continue to use the
current version of the Existing Plan.

Description of the Employee Stock Purchase Plan

The following is a summary of the principal features of
the Purchase Plan and its operation. The summary is
qualified in its entirety by reference to the Purchase
Plan as set forth in Appendix A.

General
The Purchase Plan was adopted by the Compensation
and H.R. Committee of the Board in December 2011,
subject to stockholder approval at the Annual Meeting.
The purpose of the Purchase Plan is to provide
employees of the Company and its subsidiaries with an
opportunity to purchase shares of our common stock
through payroll deductions.

the “Administrator”) administers

Administration
The Board or a committee appointed by the Board (in
the
either case,
Purchase Plan. The administration, interpretation or
application of the Purchase Plan by the Administrator
will be final, conclusive and binding upon all
participants. The Administrator may adopt special
rules and procedures regarding operation of
the
Purchase Plan in jurisdictions outside of the United
States including, without limitation, to conform to the
laws and practices of such countries.
particular
Members of Board or its committee who are employees
may participate in the Purchase Plan.

the extent

the Purchase Plan

Eligibility
Each of our employees or the employees of our
subsidiaries who is customarily employed with us or
one of our subsidiaries for at least twenty hours per
week is eligible to participate in the Purchase Plan;
except that no employee will be granted an option
under
that (i)
immediately after the grant, such employee would own
5% or more of the total combined voting power or
value of the Company, (ii) his or her rights to purchase
stock under all of our employee stock purchase plans
accrues at a rate which exceeds $25,000 worth of stock
(determined at the fair market value of the shares at the
time such option is granted) for each calendar year, or
(iii) the employee is an employee of a subsidiary that
we have designated as not participating in the Purchase
Plan. We currently intend to designate only our China
subsidiary as a subsidiary whose employees do not
participate in the Purchase Plan. Approximately 2,150
employees are eligible to participate in the Purchase
Plan. Non-employee directors are not eligible to
participate in the Purchase Plan.

Offering Period
The Purchase Plan is implemented through offering
periods – currently two offering periods during each
fiscal year, each of six months duration, commencing
on or about May 1 and November 1 of each year. To
participate in the Purchase Plan, an eligible employee
must complete a subscription agreement provided by
the Company authorizing payroll deductions and
submit such subscription agreement prior to the
applicable offering date. Unless otherwise determined
by the Company, payroll deductions may not exceed
10% of a participant’s base pay which he or she
received on a given payday nor be less than a $10
deduction per payday. At the beginning of each
offering period, each participant automatically
is
granted an option to purchase shares of our common
stock through such participant’s accumulated payroll
deductions. Unless a participant withdraws from the
the option will be automatically
Purchase Plan,

exercised at the end of the offering period, and the
maximum number of full shares will be purchased at
the applicable amount of the accumulated payroll
deductions in his or her account.

Purchase Price
Shares of our common stock may be purchased under
the Purchase Plan at a purchase price equal to 85% of
the lesser of the fair market value of our common stock
on (i) the first day of the offering period, or (ii) the last
day of the offering period. The fair market value of
our Common Stock on any relevant date will be
determined by the Board in good faith.

Termination of Employment
Upon termination of a participant’s employment prior
to the end of an offering period for any reason,
including retirement or death, he or she will be deemed
to have elected to withdraw from the Purchase Plan and
the payroll deductions credited to the participant’s
account will be returned to him or her and such
participant’s option will automatically be terminated.

Nontransferability
Participants may not assign their rights under the
Purchase Plan to any other person other than by will or
the laws of descent and distribution.

Payroll Deductions
The purchase price of the shares is accumulated by
payroll deductions throughout each offering period.
The payroll deductions made by a participant will be
credited to his or her account under the Purchase Plan.
A participant may not make any additional payments
into such account. The maximum number of full
shares of our common stock that a participant may
purchase in each offering period will be determined by
total amount of payroll deductions
dividing
withheld from the participant’s compensation during
that offering period by the purchase price provided that
in no event may a participant purchase during one
offering period more than 10,000 shares.

the

A participant may lower but not increase the rate of his
or her payroll deductions during an offering period by
filing a new subscription agreement. Unless otherwise
determined by the Company, the change in rate will be
effective within 15 days following the Company’s
receipt of the new authorization.

Withdrawal
During
the offering period, a participant may
discontinue all, but not less than all, of the payroll
deductions credited to his or her account at any time
prior to the end of an applicable offering period by
giving notice to the Company. All the participant’s
payroll deductions credited to his or her account will be
paid promptly after receipt of a withdrawal notice and
the option will terminated, and no further payroll
deductions will be made during the applicable offering
period.

In the event an employee fails to remain employed by
the Company or any subsidiary customarily for at least
20 hours per week during a given offering period, he or
she will be deemed to have elected to withdraw from
the Purchase Plan and the payroll deductions credited
to his or her account will be returned and the option
terminated.

Changes in Capitalization and Transactions
The Purchase Plan provides for adjustment of the
number of shares which may be issued under the
Purchase Plan as well as the purchase price per share
and the number of shares covered by each option to
purchase for changes in shares without receipt of
consideration by the Company such as resulting from a
stock
recapitalization,
reorganization, merger, consolidation or other similar
corporate transaction or event affecting our common
stock.

dividend,

stock

split,

In the event of any corporate transaction, the Board
may make such adjustment it deems appropriate to
prevent dilution or enlargement of rights in the number,
class of or price of shares available for purchase under
the Purchase Plan and such other adjustments it deems
appropriate. In the event of any corporate transaction,
the Board may elect to have the options under the
Purchase Plan assumed or such options substituted by a
successor entity, to terminate all outstanding options
either prior to their expiration or upon completion of
the purchase of shares on the next purchase date, or to
take such other action deemed appropriate by the
Board.

Amendment and Termination of the Plan
The Board may at any time terminate or amend the
Purchase Plan, provided that certain amendments such
as increasing the number of shares that may be issued
under the Purchase Plan require stockholder approval.
No such termination can affect options to purchase
previously granted, nor may any amendment make any
change
in any option previously granted which
adversely affects the rights of any participant.

Participation in Plan Benefits
Participation in the Purchase Plan is voluntary and is
dependent on each eligible employee’s election to
participate and his or her determination as to the level
of payroll deductions and the eventual purchase price
future
under

the Purchase Plan.

Accordingly,

PURCHASE PLAN. IT DOES NOT PURPORT TO
BE COMPLETE, AND DOES NOT DISCUSS THE
TAX CONSEQUENCES OF A PARTICIPANT’S
DEATH OR THE PROVISIONS OF THE INCOME
TAX LAWS OF ANY MUNICIPALITY, STATE OR
FOREIGN
THE
PARTICIPANT MAY RESIDE.

IN WHICH

COUNTRY

Vote Required; Recommendation of Board of
Directors
If a quorum is present, the affirmative vote of a
majority of the votes cast will be required to approve
the amendment and restatement of the Purchase Plan.

THE BOARD OF DIRECTORS RECOMMENDS
THAT STOCKHOLDERS VOTE “FOR”
THE ADOPTION OF OUR AMENDED
AND RESTATED EMPLOYEE STOCK
PURCHASE PLAN.

the Purchase Plan

purchases under
are not
determinable. Non-employee directors are not eligible
to participate in the Purchase Plan. No purchases have
been made under the amended and restated Purchase
Plan since its adoption by the Board in December
2011. As of January 9, 2012, the closing price of a share
of our common stock was $52.47.

Certain Federal Income Tax Information
The following brief summary of the effect of federal
income taxation upon the participant and us with
respect to the shares purchased under the Purchase Plan
does not purport to be complete, and does not discuss
the tax consequences of a participant’s death or the
income tax laws of any state or foreign country in
which the participant may reside.

the shares purchased under

The Purchase Plan, and the right of participants to
make purchases thereunder, is intended to qualify
under the provisions of Sections 421 and 423 of the
Internal Revenue Code of 1986, as amended. Under
these provisions, no income will be taxable to a
participant until
the
Purchase Plan are sold or otherwise disposed of. Upon
sale or other disposition of the shares, the participant
will generally be subject to tax in an amount that
depends upon the holding period. If the shares are sold
or otherwise disposed of more than two years from the
first day of the applicable offering period and one year
from the applicable date of purchase, the participant
will recognize ordinary income measured as the lesser
of (a) the excess of the fair market value of the shares
at the time of such sale or disposition over the purchase
price and (b) an amount equal to 15% of the fair market
value of the shares as of the first day of the applicable
offering period. Any additional gain will be treated as
long-term capital gain. If the shares are sold or
otherwise disposed of before the expiration of these
holding periods, the participant will recognize ordinary
income generally measured as the excess of the fair
market value of the shares on the date the shares are
purchased over the purchase price. Any additional gain
or loss on such sale or disposition will be long-term or
short-term capital gain or loss, depending on how long
the shares have been held from the date of purchase.
The Company generally is not entitled to a deduction
for amounts taxed as ordinary income or capital gain to
a participant except to the extent of ordinary income
recognized by participants upon a sale or disposition of
shares prior to the expiration of the holding periods
described above.

THE FOREGOING IS ONLY A SUMMARY OF THE
EFFECT OF FEDERAL
INCOME TAXATION
UPON PARTICIPANTS AND US UNDER THE

Vote Required

Under our bylaws the affirmative vote of the holders of
a majority of the votes cast is required to approve the
compensation of our named executive officers
disclosed in this proxy statement. The vote is an
advisory vote, and therefore not binding. Our Board of
Directors values the opinions of our stockholders and
to the extent there is any significant vote against the
named executive officer compensation as disclosed in
this proxy
consider our
statement, we will
stockholders’ concerns and the Compensation and H.R.
Committee will evaluate whether any actions are
necessary to address those concerns.

Recommendation

THE BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS THAT STOCKHOLDERS VOTE
“FOR” THE APPROVAL OF OUR NAMED
EXECUTIVE OFFICER COMPENSATION
DISCLOSED IN THIS PROXY STATEMENT

PROPOSAL FOUR--ADVISORY VOTE ON
EXECUTIVE COMPENSATION

At our Annual Meeting in March, 2011, a plurality of
our stockholders indicated that they would like to have
an annual advisory vote on executive compensation.
Accordingly, our Board of Directors proposes that
stockholders provide advisory (non-binding) approval
of the compensation of our named executive officers,
as disclosed pursuant to the compensation disclosure
the Compensation
including
rules of
Discussion and Analysis, the Fiscal 2011 Summary
Compensation Table and related tables and disclosure.

the SEC,

As described in our Compensation Discussion and
Analysis, we have adopted an executive compensation
philosophy designed to provide alignment between
executive pay and performance and to focus executives
on making decisions that enhance our stockholder
value in both the short and long term. Executives are
compensated in a manner consistent with Coherent’s
strategy, competitive practices, stockholder interest
alignment, and evolving compensation governance
standards. The committee positions the midpoint of our
target compensation ranges near the 50th percentile of
our peers, with actual compensation falling above or
below depending upon
the Company’s financial
performance.

SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT

Security Ownership of Certain Beneficial Owners
and Management

The following table sets forth, as of December 31,
2011, certain information with respect to the beneficial
ownership of common stock by (i) any person
(including any “group” as that term is used in
Section 13(d)(3) of the Exchange Act known by us to
be the beneficial owner of more than 5% of our voting
securities, (ii) each director and each nominee for
director, (iii) each of the executive officers named in
the Summary Compensation Table appearing herein,
and (iv) all executive officers and directors as a group,
based on information available to the Company as of
filing this proxy statement. We do not know of any
arrangements, including any pledge by any person of
our securities, the operation of which may at a
subsequent date result in a change of control. Unless
otherwise indicated, the address of each stockholder in
the table below is c/o Coherent, Inc., 5100 Patrick
Henry Drive, Santa Clara, California 95054.

Name and Address
Eagle Asset

Number of
Shares

Percent of
Total (1)

Management, Inc.(2)
880 Carillon Parkway
St. Petersburg, FL 33716 ........ 1,753,471

Dimensional Fund Advisors(2)
1299 Ocean Ave., 11th Floor
Santa Monica, CA 90401 ....... 1,583,201

Royce & Associates LLC (2)

745 Fifth Ave.
New York, NY 10151 ............. 1,371,150

Wells Fargo & Co

/ MN/

? (2)

420 Montgomery St.
San Francisco, CA 94163 ....... 1,275,309

Lord Abbett & Co. LLC (2)

90 Hudson St.
Jersey City, NJ 07302 ............ 1,298,772

Vanguard Group Inc. (2)

P.O. Box 2600
Valley Forge, PA 19482 .......... 1,202,234

Black Rock Fund Advisors(2)

400 Howard St.
San Francisco, CA 94105 ....... 1,189,284
314,867
51,803
52,737
28,216
15,500
--
20,500
22,500
41,500
21,700

John R. Ambroseo(3) .................
Helene Simonet(4) .....................
Paul Sechrist(5) ..........................
Bret M. DiMarco(6) ...................
Mark S. Sobey(7) .......................
Jay T. Flatley(8) .........................
Susan M. James(9) ......................
L. William Krause(10) ...............
Garry W. Rogerson (11) .............
Lawrence Tomlinson(12) ...........

7.45%

6.73%

5.91%

5.42%

5.52%

5.11%

5.05%
1.33%
*
*
*
*
*
*
*
*
*

Sandeep Vij(13)..........................
All directors and executive
officers as a group (11
persons)(14) ...........................

21,100

590,423

2.47%

Sobey,

Sechrist,

Represents less than 1%.

*
(1) Based upon 23,528,684 shares of Coherent
common stock outstanding as of December 31,
2011. Beneficial ownership is determined in
accordance with
the SEC and
the rules of
generally includes voting or investment power
with respect to the securities. In computing the
number of shares beneficially owned by a person
and the percentage ownership of that person, each
share of Coherent common stock subject to
options held by that person that are currently
exercisable or will be exercisable within 60 days
of December 31, 2011 and all shares of restricted
stock which are vested on December 31, 2011,
are deemed outstanding. For Ms. Simonet and
Messrs. Ambroseo,
and
DiMarco, no
shares of performance-based
restricted stock or restricted stock units are
included. In addition, such shares, are not deemed
outstanding for the purpose of computing the
percentage ownership of any other person.
(2) Based on the institutional holding report provided
by NASDAQ, which reflects the most recent
Schedule 13F, 13D or Schedule 13G
(or
amendments thereto) filed by such person with
the SEC.
Includes 197,053 shares issuable upon exercise of
options held by Mr. Ambroseo which were
exercisable or would become exercisable or
vested, as the case may be, within 60 days of
December 31, 2011.
Includes 18,317 shares issuable upon exercise of
options held by Ms. Simonet which were
exercisable or would become exercisable or
vested, as the case may be, within 60 days of
December 31, 2011.
Includes 38,500 shares issuable upon exercise of
options held by Mr. Sechrist which were
exercisable or would become exercisable or
vested, as the case may be, within 60 days of
December 31, 2011.
Includes 14,084 shares issuable upon exercise of
options held by Mr. DiMarco which were
exercisable or would become exercisable or
vested, as the case may be, within 60 days of
December 31, 2011.
Includes 15,500 shares issuable upon exercise of
options held by Mr. Sobey which were
exercisable or would become exercisable or
vested, as the case may be, within 60 days of
December 31, 2011.

(6)

(5)

(7)

(4)

(3)

/
/

(8)

(9)

(10)

(11)

(12)

(13)

(14)

Mr. Flatley was elected to the Board of Directors
in September 2011 and, accordingly, has no
options which were exercisable or would become
exercisable within 60 days of December 31,
2011.
Includes 15,000 shares issuable upon exercise of
options and 3,500 shares issuable upon vesting of
RSUs held by Ms. James which were exercisable
or would become exercisable within 60 days of
December 31, 2011.
Includes 19,000 shares issuable upon exercise of
options and 3,500 shares issuable upon vesting of
RSUs held by Mr. Krause which were exercisable
or would become exercisable within 60 days of
December 31, 2011.
Includes 33,000 shares issuable upon exercise of
options and 3,500 shares issuable upon vesting of
RSUs held by Mr. Rogerson which were
exercisable or would become exercisable within
60 days of December 31, 2011.
Includes 15,000 shares issuable upon exercise of
options and 3,500 shares issuable upon vesting of
RSUs held by Mr. Tomlinson which were
exercisable or would become exercisable within
60 days of December 31, 2011.
Includes 12,000 shares issuable upon exercise of
options and 3,500 shares issuable upon vesting of
RSUs held by Mr. Vij which were exercisable or
would become exercisable within 60 days of
December 31, 2011.
Includes an aggregate of 377,454 options and
17,500 shares issuable upon vesting of RSU’s
which were exercisable or would become
exercisable or vested, as the case may be, within
60 days of December 31, 2011.

Section 16(a) Beneficial Ownership Reporting
Compliance

Section 16(a) of the Securities Exchange Act of 1934
(the “Exchange Act”) requires our officers and
directors, and persons who own more than ten percent
of a registered class of our equity securities to file
reports of ownership and changes in ownership with
the SEC. Such officers, directors and ten-percent
stockholders are also required by SEC rules to furnish
us with copies of all forms that they file pursuant to
Section 16(a). Based solely on our review of the copies
of such forms received by us, and on written
representations from certain reporting persons that no
other reports were required for such persons, we
believe that, during fiscal 2011, our officers, directors
and, to our knowledge, greater than ten percent
stockholders
applicable
complied with
Section 16(a) filing requirements.

all

OUR EXECUTIVE OFFICERS

The name, age, position and a brief account of the
business experience of our chief executive officer and
each of our other executive officers as of December 31,
2011 are set forth below:

Name
John R.
Ambroseo
Helene
Simonet
Mark Sobey

Age
50

Paul Sechrist

Bret M.
DiMarco

Office Held

President and Chief Executive
Officer
Executive Vice President and Chief
Financial Officer
Executive Vice President and
General Manager, Specialty Laser
Systems
Executive Vice President
Worldwide Sales, Service and
Marketing
Executive Vice President, General
Counsel and Corporate Secretary

Please see “Directors” above for Mr. Ambroseo’s
biographical information.

Helene Simonet. Ms. Simonet has served as our
Executive Vice President and Chief Financial Officer
since April 2002. Ms. Simonet
served as Vice
President of Finance of our former Medical Group and
Vice President of Finance, Photonics Division from
December 1999
joining
Coherent, she spent over twenty years in senior finance
positions at Raychem Corporation’s Division and
Corporate organizations, including Vice President of
Finance of the Raynet Corporation. Ms. Simonet has
both Master’s and Bachelor degrees
the
University of Leuven, Belgium.

to April 2002. Prior

from

Mark Sobey. Mr. Sobey has served as our Executive
Vice President and General Manager of Specialty Laser
Systems (SLS) since April 2010. Mr. Sobey served as
Senior Vice President and General Manager for the
SLS Business Group, which primarily serves the
Microelectronics and Research markets, since joining
Coherent in July 2007. Prior to Coherent, Mr. Sobey
has spent over 20 years in the Laser and Fiber Optics
including roles as
industries,
Telecommunications
Senior Vice President Product Management at Cymer
from January 2006 through June 2007 and previously
as Senior Vice President Global Sales at JDS Uniphase
through October 2005. He received his PhD
in
Engineering and BSc in Physics, both from the
University of Strathclyde in Scotland.

Paul Sechrist. Mr. Sechrist has served as our Executive
Vice President, Worldwide Sales and Service in March
2011. He has over 28 years of experience with

Coherent, including Senior Vice President and General
Manager of Commercial Lasers and Components
Business Group from October 2008 to March 2011,
Vice President and General Manager of Specialty Laser
Systems Business Group, Santa Clara from March
2008
to October 2008, and Vice President for
Components from April 2005 to October 2008. Prior to
this, Mr. Sechrist also held roles in Sales Management,
Sales, Applications and Manufacturing. Mr. Sechrist
received an AA degree from San Jose City College,
with Physics studies at California State University,
Hayward.

Bret M. DiMarco. Mr. DiMarco has served as our
Executive Vice President and General Counsel since
since
June 2006 and our Corporate Secretary
February 2007. From February 2003 until May 2006,
Mr. DiMarco was a member and from October 1995
until January 2003 was an associate at Wilson Sonsini
Goodrich & Rosati, P.C., a law firm. Mr. DiMarco
received a Bachelor degree from the University of
California at Irvine and a Juris Doctorate degree from
the Law Center at
the University of Southern
California. He is also an adjunct professor of law at the
University of California Hastings College of the Law,
teaching corporate law and mergers and acquisitions.

Condition and Results of Operations” in our Annual
Report on Form 10-K filed with the Securities and
Exchange Commission on November 30, 2011.

Selected Business Highlights

records,

Fiscal 2011 saw Coherent continue to deliver multiple
financial performance
including annual
revenue, pro forma EBITDA percentage and pro forma
earnings per share. This growth allowed us to invest in
the development of new technologies and to prudently
return money to our stockholders through our stock
repurchase programs, as seen in the following charts:

Our revenue grew 33% from fiscal 2010 to fiscal 2011
(in millions):

Revenue

$803

$605

FY10

FY11

Our pro forma EBITDA% increased from 17% to
19.5% from fiscal 2010 to fiscal 2011:

Pro Forma EBITDA%

17.0%

19.5%

FY10

FY11

*Pro forma EBITDA% is defined as operating income adjusted for
depreciation, amortization, stock compensation expenses, major restructuring
costs and certain other non-operating income and expense items. EBITDA %
itself is not a GAAP measurement and, accordingly, no reconciliation table is
provided.

Our non-GAAP earnings per share grew 80% from
fiscal 2010 to fiscal 2011:

Non-GAAP EPS

$3.46

$1.92

FY10

FY11

*Non-GAAP earnings per share is defined as earnings per share excluding
certain recurring and non-recurring items.

Compensation Discussion and Analysis

Introduction

In this section, we describe the material components of
our executive compensation program for our “Named
Executive Officers” or “NEOs”:

•

John R. Ambroseo, our president and chief
executive officer;

• Helene Simonet, our executive vice president and

chief financial officer;

• Mark S. Sobey, our executive vice president and

general manager, specialty laser systems;

•

Paul Sechrist, our executive vice president,
worldwide sales and service; and

• Bret M. DiMarco, our executive vice president,

general counsel and corporate secretary.

We also provide an overview of our executive
compensation philosophy, principal compensation
policies and practices by which the Compensation and
H.R. Committee arrives at its decisions regarding NEO
compensation.

Stockholder Feedback

The Compensation and HR Committee carefully
considers feedback from our stockholders regarding
our executive compensation program, including the
results of our stockholders’ annual advisory vote on
executive compensation. Stockholders are invited to
express their views to the committee as described in
this
“Stockholder
Communication with the Board of Directors.” We
strongly urge our
this
Compensation Discussion and Analysis in conjunction
with the advisory vote under Proposal Four.

stockholders

heading

proxy

under

read

the

Executive Summary

Our Business

Founded in 1966, we have become a world leader in
providing photonics based solutions to the commercial
and scientific research markets with global offices.
Our common stock is listed on the NASDAQ market
and is part of the Russell 2000. For more information
about our business, please read “Business” and
“Management’s Discussion and Analysis of Financial

For a reconciliation table to earnings per share on a GAAP basis,
please refer to the “Reconciliation Table” at the end of the proxy
statement.

Compensation Overview

Our
is

approach
tie
to

to
Compensation Philosophy.
compensating our
total
executives
compensation to long-term stockholder value by our
results of operations and our stock price. This
approach provides strong alignment between executive
pay and performance and focuses executives on
making decisions that enhance our stockholder value in
both the short and long-term. We design our executive
compensation program to achieve the following goals:

• Pay for Performance, with both short and long-
term measurements—A significant portion of the
annual compensation of our executives is designed
to vary with annual business performance and a
comparative achievement to stockholder return by
a comparison to the Russell 2000 Index.

• Tie compensation to performance of the core
business—Our fiscal 2011 annual cash bonus plan
was based upon Coherent’s achievement of certain
threshold amounts of adjusted EBITDA dollars
(coupled with a revenue achievement threshold),
which the committee felt was the most effective
metric for
tying management’s compensation
directly to Coherent’s core operating results.

• Retain and Hire Talented Executives—
Executives
salaries and
should have base
employee benefits that are market competitive and
the committee positions the midpoint of our target
compensation ranges near the 50th percentile of
our peer group (as noted below), with actual
compensation falling above or below depending
upon Coherent’s financial performance.

• Align

with

compensation

stockholder
interests—While our stockholders clearly benefit
by continued strong operating performance, the
committee also believes that having a significant
portion of compensation tied to equity with both
time and performance based vesting requirements
directly aligns management to stockholder returns.
For
the
performance-based RSUs vest over three years
dependent upon the performance of Coherent’s
common stock price measured against the Russell
2000 Index. For each 1% Coherent’s common
stock exceeds the performance of the Russell 2000
Index, the grant recipient will get a 2% increase in
value (up to a maximum cap), and for each 1%

the grants made

fiscal 2011,

below the Russell 2000 Index’s performance, a 2%
decrease in value. The maximum achievable
amounts under the performance-based RSUs make
up the largest potential portion of the equity grants
made to our officers.

Elements of Executive Compensation. During fiscal
2011,
the compensation of our NEOs primarily
consisted of (A) base salary, (B) an annual cash
incentive award opportunity, and (C) long-term equity
incentive awards divided between time-based restricted
stock grants (“RSUs”) and performance-based RSUs.
For fiscal 2011, on average, approximately 75% of our
NEO’s target compensation and approximately 82% of
our CEO’s target compensation was delivered in the
form of variable annual cash incentives and long-term
equity incentives.

The pay mix for our chief executive officer during
fiscal 2011 at target, maximum and actual can be
illustrated as follows (*):

$6M

$5M

$4M

$3M

$2M

$1M

$‐

89%

87%

Variable

Fixed

82%

18%

11%

13%

Target

Maximum

Actual

Note: The annual cash incentive amounts represent target awards based on base
salary and target bonuses in effect during Fiscal Year 2011. The Long Term
Incentives included both time-based and performance-based RSU grants using
the grant date face value and an assumption of 100% vesting in the case of “at
target” grants and 200% vesting in the case of “maximum achievable” grants.
These charts do not include other benefits, such as perquisites.

This

Compensation Governance. “Pay for performance”
has been and remains at the core of Coherent’s
is accomplished
executive compensation.
primarily by having a majority of the NEOs’ potential
compensation being “at risk” through a combination of
a fiscal year variable cash bonus program tied to
achievement of operating metrics and performance
metrics in equity grants. In addition to this core
philosophy, the committee monitors and considers
evolving governance approaches and standards in
executive compensation. As more fully discussed
below, recent examples of how this philosophy is
applied and changes made pursuant to compensation
best practices, include:

• The elimination of the chief executive officer’s
280G “tax gross-up” provision in our change of
control severance plan in fiscal 2011;

• The elimination and phasing-out of all perquisites
and Company deferred compensation contributions
for executive officers beginning in calendar 2011;

• Named executive officers did not receive salary

increases for fiscal 2009, 2010 or 2012;

• Other than for new promotions, the committee
maintained the same target bonus percentage for
each NEO in fiscal 2010, 2011 and 2012;

•

In fiscal 2009, the Company adopted a claw-back
policy for our chief executive officer and chief
financial officer in certain circumstances;

• Our change-of-control plan provides for payment
only in “double-trigger” circumstances—namely a
change-of-control coupled with a termination of
employment; and

• Aside from our change-of-control plan, our
executive officers do not have employment or
severance contracts.

executive

Our stockholders recognized our corporate governance
and
by
compensation
overwhelmingly approving our first “say on pay”
advisory vote last year: voting 19,684,002 shares
(92%) in favor compared to only 591,602 shares (3%)
against with 1,204,275 shares (5%) abstaining.

structure

Role of Management

The Compensation and H.R. Committee regularly
meets with Mr. Ambroseo, our chief executive officer,
to obtain recommendations with respect
the
compensation programs, practices and packages for our
Named Executive Officers other than Mr. Ambroseo.
Additionally, Ms. Simonet, our
executive vice
president and chief financial officer, Mr. DiMarco, our
executive vice president and general counsel and
members of our human resources department are
regularly invited to meetings of the committee or
otherwise asked to assist the committee.

The assistance of these individuals include providing
financial information and analysis for the committee
and its compensation consultant, taking minutes of the
legal advice, developing
meeting or providing
and
consideration,
compensation proposals

for

providing insights regarding our employees (executive
and otherwise) and the business context for the
committee’s decisions. Named Executive Officers will
attend portions of committee meetings when requested,
but leave the meetings when matters potentially
affecting them are discussed.

committee makes

The
Mr. Ambroseo’s compensation without him present.

decisions

regarding

Role of the Committee’s Compensation Consultant

In fiscal 2011, the Compensation and H.R. Committee
engaged Compensia as its independent compensation
consultants to:

• Review and analyze our executive compensation

program; and

• Provide market data and ranges for fiscal 2011

compensation.

Additionally, in fiscal 2011, Compensia was retained
by the Board of Directors and the Governance and
Nominating Committees to review, analyze and make
recommendations regarding compensation for service
on the Board of Directors and its committees. The
independent compensation consultant serves at the
discretion of the committee and is not permitted to do
other work for Coherent unless expressly authorized by
the committee. Since their retention, Compensia has
not performed any work for Coherent other than its
work with the committee or for the Board. The
committee is focused on maintaining the independence
of its compensation consultant and, accordingly, does
not anticipate having its consultant perform any other
work for the Company in addition to its direct work for
the committee or the Board.

We also participate in and maintain a subscription to
the Radford Global Technology Survey. This survey
provides benchmark data and compensation practices
reports
to employee
compensation generally. Such data includes executive
compensation data which is presented to the committee
at its request.

to assist us with regards

Pay Positioning Strategy and Benchmarking of
Compensation

We have striven to position the midpoint of our target
compensation ranges near the 50th percentile of our
peers, resulting in targeted total compensation that is
competitive within our labor market for performance
that meets the objectives established by the committee.
A Named Executive Officer’s actual salary, cash
incentive compensation opportunity and equity
compensation may fall below or above the target

the

skills,

individual’s experience,
position based on
seniority,
and
performance
knowledge,
contributions. These factors are weighed individually
by the committee in its judgment, and no one factor
takes precedence over others nor is any formula used in
making these decisions.

review of

The chief executive officer’s
the
performance of the other Named Executive Officers is
considered by the committee in making individual pay
decisions. With respect to the chief executive officer,
the committee additionally considered the performance
of Coherent as a whole and the views of the Board of
Directors regarding
the chief executive officer’s
performance. Actual realized pay is higher or lower
than the targeted amounts for each individual based
primarily on the Company’s performance.

its

information provided by

In analyzing our executive compensation program
relative to this target market positioning, the committee
reviews
independent
compensation consultant, which includes an analysis of
data from peer companies’ proxy filings with respect to
similarly situated individuals at the peer companies and
from compensation survey sources, including a broad
cross-section of technology companies of similar size
to Coherent from the Radford Global Technology
Survey.

For pay decisions made in fiscal 2011, the committee
made no changes to the group of peer companies from
fiscal 2010. The peer group for fiscal 2011 comprised
the following companies:

Altera Corp.
Cymer Inc.
FEI Company
Finisar Corp
FLIR Systems, Inc. Newport Corporation

Infinera Corp.
Integrated Device Tech. Plantronics Inc.
JDS Uniphase
Linear Technology

Opnext, Inc.

PMC-Sierra, Inc.
Trimble Navigation Limited
Varian Semiconductor
Veeco Instruments

Several factors are considered in selecting the peer
group, the most important of which are:

•

Industry (primarily companies in the Electronic
Equipment
sub-industry
and Semiconductor
classifications defined by the Global Industry
Classification Standard (GICS) system);

• Revenue

level (as a proxy for complexity)
(primarily companies with between $300 million
and $1.5 billion in revenues);

• Geographic location (U.S. technology markets);

and

• Emphasizing companies with a significant R&D
component, a focus on manufacturing and seeking
equipment
balance
a
manufacturers.

among

types

The committee annually reviews the composition of the
peer group to ensure it is the most relevant set of
companies to use for comparison purposes.

Components of Our Executive Compensation
Program

The principal components of our executive officer
compensation and employment arrangements during
fiscal 2011 included:

• Base salary;

• Variable cash incentive payments;

• Equity awards; and

• Other benefits.

selected because

These components were
the
committee believes that a combination of salary,
incentive pay and benefits is necessary to help us
attract and retain the executive talent on which
Coherent’s success depends.

Base Salary

Base salary
to providing an
the foundation
appropriate total direct compensation package. We use
base salary to fairly and competitively compensate our
executives for the jobs we ask them to perform. This is
stable component of our executive
the most
compensation program, as this amount is not at risk.
The committee reviewed information provided by
Compensia with
situated
individuals at the peer companies to assist it in
determining the base salary for each Named Executive
Officer, depending upon the particular executive’s
experience and historical performance.

similarly

respect

base

salaries

increased

Effective beginning with the second quarter of fiscal
2011, based on data provided by Compensia, the
committee
of
the
Messrs. Ambroseo and Sobey as a market adjustment
to bring them in line with peer data for their positions
and each of Ms. Simonet and Messrs. Ambroseo,
DiMarco and Sobey received a one-time salary
increase of $35,000 to help offset the phased-out
elimination of Coherent’s historical perquisites.
Mr. Sechrist did not receive any salary adjustment with

goals approved by the committee. The 2011 VCP
goals were tied to Coherent achieving varying levels of
adjusted EBITDA dollars (“adjusted EBITDA $”), with
a requirement of achieving two thresholds for each
payment period: (1) at least 80% of the Board-
approved budgeted revenue and (2) a minimum of a
certain adjusted EBITDA$, without giving effect to
any 2011 VCP payments. Adjusted EBITDA was
defined as earnings before interest, taxes, depreciation,
amortization and certain other non-operating income
and expense items and other items, such as the fiscal
impact of stock option expensing under Financial
Accounting Standards Board, or FASB, Accounting
Standards Codification, or ASC 718, stock option-
related litigation costs and settlement related thereto,
2011 VCP earned, impairment or restructuring charges,
and the impact of acquisitions.

The Committee considered
the macroeconomic
conditions and peer data when considering the 2011
VCP and, accordingly, provided for a lower threshold
in the first half of the year then the second, with a
range of participation between zero to 300% of the
target bonus opportunity in both periods. In order to
incentivize management to drive improvement in
adjusted EBITDA over the course of the year, the
Committee approved a meaningful step up during the
second half of the year. Given the difficult economic
conditions and the record performance required by the
Board-approved budget, the Committee determined
that the payout would be 150% of target bonus
opportunity for target achievement.

Fiscal 2011 Variable Compensation Plan Scale for
Named Executive Officers

Adjusted EBITDA$ Achievement for First Half
FY2011 was $90.1M, with a corresponding payout of
approximately 273.4% of target

Adjusted EBITDA $ (in millions)

Payout

First Half FY 2011 VCP Scale

$55.2 (threshold)
$59.8
$64.4
$68.9
$77.5
$86.1
$94.7 (and above)

Revenue Threshold $269.6 million

0%
50%
100%
150%
200%
250%
300%

increases brought certain of

regards to the elimination of his historical perquisites.
These
the Named
Executive Officers above the 50th percentile in the
short-term, which the committee determined was
consistent with strong financial performance by the
Company in fiscal 2010 and the fact that peer salary
market data did not reflect perquisite values.

The following table summarizes the base salary
adjustments in fiscal 2011:

Named Executive
Officer

John Ambroseo
Helene Simonet
Mark Sobey(1)
Paul Sechrist(2)
Bret DiMarco

Base
Salary for
Fiscal 2010
$ 580,000
$ 370,000
$ 300,000
$ 295,000
$ 300,000

Salary
Increase
effective
Second
Quarter
Fiscal 2011
$ 45,000
$ 35,000
$ 60,000
$ 30,000
$ 35,000

Base Salary
effective
Second
Quarter
Fiscal 2011
$ 625,000
$ 405,000
$ 360,000
$ 325,000
$ 335,000

(1) Reflects the base salary and promotion increase upon
Mr. Sobey’s appointment as an executive officer
beginning the third fiscal quarter of fiscal 2010.

(2) Mr. Sechrist received a salary increase when he was
promoted to Executive Vice President, Sales & Service
in March, 2011.

Variable Cash Incentive Compensation

A substantial portion of each individual’s potential
short-term compensation is in the form of variable
incentive pay tied to committee-established goals. In
fiscal 2011, Coherent maintained one incentive cash
program under which executive officers were eligible
to receive bonuses, the 2011 Variable Compensation
Plan (“2011 VCP”).

2011 VCP

The 2011 VCP was designed as an “at risk” bonus
compensation program to promote a focus on the
growth and profitability of Coherent. It provided
incentive compensation opportunity
line with
targeted market rates to our Named Executive Officers.
Under the 2011 VCP, participants were eligible to
receive bi-annual bonuses (with measurement periods
for the first half and the second half of the 2011 fiscal
year). In setting the performance goals, the committee
assessed the anticipated difficulty and importance to
the success of Coherent of achieving the performance
goals.

The actual awards (if any) payable for each semi-
annual period varied depending on the extent to which
actual performance met, exceeded or fell short of the

Adjusted EBITDA$ Achievement for Second Half
FY2011 was $93.3M, with a payout of
approximately 247.8% of target

Second Half FY 2011 VCP Scale

Adjusted EBITDA $ (in millions)

Payout

$61.2 (threshold)
$66.3
$71.4
$76.5
$85.1
$93.7
$102.3 (and above)

0%
50%
100%
150%
200%
250%
300%

Revenue Threshold $277.1 million

The tables below describes for each Named Executive
Officer under the 2011 Variable Compensation Plan
(i) the target percentage of base salary, (ii) the potential
award range as a percentage of base salary, and (iii) the
actual award earned for the measurement period in
fiscal 2011.

First Half of Fiscal Year 2011

Named Executive
Officer
John Ambroseo
Helene Simonet
Mark Sobey
Paul Sechrist
Bret DiMarco

Target
Percentage
of Salary*
100%
70%
60%
50%
50%

Actual
Award($)
(1)

Payout
Percentage
Range of
Salary
0 - 300% 854,401
0 - 210% 387,561
0 - 180% 295,277
0 - 150% 222,138
0 - 150% 228,976

Actual
Award
Percentage
of Salary(2)
273.4%
191.4%
164.0%
136.7%
136.7%

Second Half of Fiscal Year 2011

Named Executive
Officer
John Ambroseo
Helene Simonet
Mark Sobey
Paul Sechrist
Bret DiMarco

Target
Percentage
of Salary*
100%
70%
60%
50%
50%

Actual
Award($)
(1)

Payout
Percentage
Range of
Salary
0 - 300% 774,274
0 - 210% 351,215
0 - 180% 267,586
0 - 150% 201,305
0 - 150% 207,502

Actual
Award
Percentage
of Salary(2)
247.8%
173.4%
148.7%
123.9%
123.9%

Salary amounts used in the table include any applicable
increases to base salary during the year per individual.
(1) Reflects amounts earned during the applicable half of fiscal

2011.

(2) This reflects the aggregate bonuses earned by the Named

Executive Officers for the applicable half of fiscal 2011 under
the 2011 VCP.

Equity Awards

We believe that equity awards provide a strong
alignment between the interests of our executives and
our stockholders. We seek to provide equity award
opportunities that are consistent with our targeted peer
group median, with the potential for increase for
exceptional financial performance, consistent with the
reasonable management of overall equity compensation

expense and stockholder dilution. Finally, we believe
that long-term equity awards are an essential tool in
promoting the retention of our executives. For fiscal
2011, our long-term incentive program included the
restricted stock units and
grant of
performance-based restricted stock units.
These
components provide a reward for past corporate and
individual performance and as an incentive for future
performance.

time-based

its compensation decisions,

the
When making
committee reviews a compensation overview prepared
by its independent compensation consultant which
reflects potential realizable value under current short
and long term compensation arrangements for each
Named Executive Officer.

Fiscal 2011 Equity Grants

the

grants

against

performance

For fiscal 2011, the committee determined to base the
equity program on a combination of time-based and
performance-based restricted stock units. In particular,
the committee determined to measure achievement for
relative
the
performance of Coherent’s common stock against that
of the Russell 2000 Index. The committee believed
that using the Russell 2000 Index (in which Coherent is
a member) as a representative of total stockholder
return directly aligns executive compensation with
stockholder interest. The committee determined that
both the performance-based and time-based restricted
stock unit grants provide a further retention tool in that
the grants vest over three years with one-year annual
cliff vesting and, for the performance-based grants, a
measurement period for each of the next three years
(e.g. at 12, 24 and 36 months from the date of grant).

At target achievement, all Named Executive Officers
(other than the chief executive officer) will receive an
equity distribution of 50%
time-based and 50%
performance-based equity award payouts. Our chief
executive officer will receive greater than half of his
in performance-based equity
total equity award
awards at
At maximum
achievement, this becomes an even greater shift to
performance-based as seen in the next graphic.

target achievement.

In the event of a change of control of the Company, the
performance-based grants will be measured, with
respect to performance periods not yet completed, by
the relative performance of Coherent’s common stock
against the Russell 2000 Index through the date of the
change of control and such performance-based shares
would then convert to time-based vesting with a
maximum of three one-year vesting cliffs from the
grant date.

The following table reflects the equity grants to the
Named Executive Officers during the first quarter of
fiscal 2011:

Named Executive Officer
John Ambroseo
Helene Simonet
Mark Sobey
Paul Sechrist(1)
Bret DiMarco

Time-Based
RSU Grants

20,000
7,500
7,000
5,500
5,000

Performance-Based
RSU Grants
Range
(issuance dependent
upon achievement)
0 - 70,000
0 - 15,000
0 - 14,000
0 – 11,000
0 - 10,000

(1) Includes grants made in FY11 both before and after
Mr. Sechrist was promoted to an executive officer.

The following chart shows the aggregate composition
of equity grants for fiscal 2011 to our chief executive
officer assuming the maximum achievement under the
performance-based grants:

FY11 CEO Equity Grant Components at

Maximum Achievement

Time based RSUs

Performance based RSUs

22%

78%

Equity Award Practices

Equity grants to our employees are driven by our
annual review process. Grant guidelines are based on
competitive market practices. Typically, an eligible
employee is granted equity at the first committee
meeting following beginning employment and may be
eligible for periodic grants thereafter. Eligibility for
and the size of grants are influenced by the then-current
guidelines for non-executive officer grants and the
individual’s performance or particular requirements at
the time of hire.

In fiscal 2011, the committee granted an aggregate of
374,175 shares subject to time-based and performance-
based restricted stock units (at maximum), representing
approximately 1.57% of Coherent’s outstanding
common stock as of October 1, 2011 (excluding
The
automatic and

to directors).

initial grants

committee did not grant any stock options during fiscal
2011 to employees. With the assistance of Compensia,
the committee has reviewed this burn rate relative to
peer practices and guidance from ISS and found that
the total dilution was consistent with the median of
peer practices and complied with ISS guidelines.

During fiscal 2011 equity grants were only made at
meetings of the Compensation and H.R. Committee.

Other Benefits

Retirement Plans

Executive officers are eligible to participate in our
401(k) Retirement Plan on the same terms as all other
U.S. employees, including a 4% Company matching
contribution. Our 401(k) Retirement Plan is a tax-
qualified plan and therefore is subject to certain
Internal Revenue Code limitations on the dollar
amounts of deferrals and Company contributions that
can be made to plan accounts. These limitations apply
to our more highly-compensated employees (including
the Named Executive Officers).

to 100% of

We maintain a Deferred Compensation Plan for
executive management personnel and members of the
Board. The Deferred Compensation Plan permits
eligible participants to defer receipt of compensation
pursuant to the terms of the plan. The Deferred
Compensation Plan permits participants to contribute,
on a pre-tax basis, up to 75% of their base salary
their bonus pay and
earnings, up
commissions and up to 100% of directors’ annual
retainer earned in the upcoming plan year. Plan
participants may invest deferrals in a variety of
different deemed investment options. To preserve the
tax-deferred status of deferred compensation plans, the
IRS requires that the available investment alternatives
be “deemed investments.” Participants do not have an
ownership interest in the funds they select; the funds
are only used to measure the gains or losses that are
attributed to the participant’s deferral account over
time.

The committee considers the Deferred Compensation
Plan to be a reasonable and appropriate program
because it promotes executive officer retention by
offering a deferred compensation plan
is
comparable to and competitive with what is offered by
our peer group of companies.

that

Beginning with plan year 2011, the Company no longer
makes a non-qualified deferred compensation plan
the Named Executive
contribution on behalf of

Officers in connection with the Internal Revenue Code
limits on qualified 401(k) plans.

determination of the NEOs’ total direct compensation
for a specific year.

Employee Stock Purchase Plan

Executive perquisites and Other Personal Benefits

Our stockholders have approved an employee stock
purchase plan whereby employees can purchase shares
for a discount, subject
to various participation
limitations. Our Named Executive Officers are eligible
to participate in this plan. For more information on our
employee stock purchase plan, please see Proposal
Three in this proxy.

Severance and Change of Control Arrangements

We have adopted our Change of Control Severance
Plan (the “Change of Control Plan”) which provides
certain benefits in the event of a change in control of
Coherent for certain executives, including each of our
Named Executive Officers. Benefits are provided if
there is a tender offer or merger resulting in Coherent
being acquired by another entity and within two years
thereafter the participant’s employment is terminated
without cause or is voluntarily terminated following a
constructive termination. The committee believes the
Change of Control Plan serves as an important
retention tool in the event of a pending change of
control transaction.

The Change of Control Plan was amended and restated
in the first quarter of fiscal 2011. Among the
amendments made to the plan in fiscal 2011 were:
(i) the elimination of the gross-up payment to the chief
executive officer for any excise taxes resulting from
the application of Section 280G of
the Internal
(ii) the elimination of certain
Revenue Code;
(iii) the
Company-provided medical benefits and
addition of a monthly payment of $2,750 (36 months
for the chief executive officer and 24 months for the
other Named Executive Officers).

The committee reviews the provisions of the Change of
Control Plan at a minimum every two years at or
immediately prior to the termination of the plan. The
committee believes that reviewing the Change of
Control Plan every two years allows for the right
balance in providing certainty for the participants
thereof while providing
the
opportunity to revise the plan consistent with corporate
governance best practices, evolving peer group
practices and regulatory changes.

the committee with

The committee does not consider
the potential
payments and benefits under these arrangements when
making compensation decisions for our NEOs. These
arrangements serve specific purposes unrelated to the

In the first quarter of fiscal 2011, the committee
determined, upon recommendation from management
and in consultation with Compensia, to eliminate and
phase-out executive perquisites effective January 1,
2011. The use of leased vehicles by executives was
in
terminated for Ms. Simonet and Mr. DiMarco
October 2011 and will be terminated in April 2012 for
Mr. Ambroseo.

The

vehicle

Automobile Benefit. During fiscal 2011 prior to the
leases, Mr. Ambroseo,
termination
Ms. Simonet and Mr. DiMarco utilized vehicles leased
by Coherent.
leased automobiles were
administered by a third party financing agency and
Coherent paid the monthly lease amount. Executive
officers were either reimbursed for or provided gas, oil,
maintenance and insurance for automobiles leased
under this program. Participants in the automobile
program incur annual imputed income on the personal
use of any vehicles under the program, including fuel
and miles, as determined using the Internal Revenue
Code rules. During fiscal 2011, Mr. Sobey received a
monthly car allowance which was terminated on
January 1, 2011.

Medical Reimbursement. Prior to January 1, 2011,
each Named Executive Officer also received up to
$5,000 per calendar year of reimbursement for
uninsured medical expenses with Coherent also paying
such executive’s taxes on the amount of the benefit.
This was eliminated beginning in calendar 2011.

Tax and Accounting Considerations

• Accounting for Stock-Based Compensation—The
Company accounts for stock-based compensation
in accordance with the requirements of ASC 718.
The Company also takes into consideration ASC
718 and other generally accepted accounting
principles in determining changes to policies and
compensation
practices
programs.

stock-based

for

its

the

limits

section

deductibility

Section 162(m) of the Internal Revenue Code—
of
This
compensation for our chief executive officer and
our other most highly compensated Named
Executive Officers (other than our chief financial
officer) unless the compensation is less than
is
any
$1 million during

fiscal year or

•

“performance-based” under Section 162(m). Our
2001 Stock Plan and 2011 Equity Incentive Plan
are designed so that option grants and certain
performance-based full value awards thereunder
are fully tax-deductible.
Cash compensation
(including both base salary and payments under
our VCP) and time-based full-value awards are not
qualified as “performance-based” compensation
under Section 162(m). We may from time to time
pay compensation
to our executive officers
(including under our VCP) that may not be
deductible when, for example, we believe that
such compensation is appropriate and in the best
interests of the stockholders after taking various
factors
including business
conditions and the performance of such executive
officer.

into consideration,

Compensation and H.R. Committee. No member of
our Board is an executive officer of a company in
which one of our executive officers serves as a member
of the board of directors or compensation committee of
that company.

Each of the members of the committee qualifies as
(i) an “independent director” under the requirements of
The NASDAQ Stock Market, (ii) a “non-employee
director” under Rule 16b-3 of the Securities Exchange
Act of 1934 (the “1934 Act”), (iii) an “outside
director” under Section 162(m) of the Code and (iv) an
“independent outside director” as that term is defined
by Institutional Shareholder Services.

Compensation and H.R. Committee Report

•

Section 409A of the Internal Revenue Code—
Section 409A imposes additional significant taxes
in the event that an executive officer, director or
service provider received “deferred compensation”
that does not satisfy
requirements of
Section 409A. We consider Section 409A in the
design and operation of any plans.

the

reviewed and discussed

The Compensation and H.R. Committee of the Board
has
the Compensation
Discussion and Analysis required by Item 402(b) of
Regulation S-K with management and, based on such
review and discussions, the Compensation and H.R.
Committee recommended
the
Compensation Discussion and Analysis be included in
the Company’s Annual Report on Form 10-K.

the Board

that

Other Compensation Policies

Respectfully submitted by the Compensation and H.R.
Committee

Sandeep Vij, Chair
L. William Krause
Garry Rogerson*
Larry Tomlinson

* Mr. Flatley replaced Mr. Rogerson on the Committee in
December 2011.

RECONCILIATION TABLE

GAAP net income per diluted
share
Stock option investigation and
litigation expense (benefit)

Stock-related compensation

expense

Gain on Finland dissolution
One-time tax expense (benefit)
Restructuring costs
Non-GAAP net income per
diluted share

Year Ended

October 1,

2011

October 2,
2010

$3.66

$1.47

0.36
(0.32)
(0.24)
--

$3.46

(0.06)

0.27
--
--
0.24

$1.92

To further align our executive compensation program
with the interests of our stockholders, at the end of
fiscal 2009, the special litigation committee of the
Board approved a recoupment policy. The recoupment
policy provides that, in the event that there is an
accounting restatement and there is a finding by the
Board that such restatement was due to the gross
recklessness or intentional misconduct of the chief
executive officer or chief financial officer and it caused
material noncompliance with any financial reporting
requirement, then Coherent shall seek disgorgement of
any portion of the bonus or other incentive or equity
based compensation
to such accounting
related
restatement received by such individual during the 12-
month period
financial
document.

the original

following

Compensation Committee Interlocks and Insider
Participation and Committee Independence

During fiscal 2011, the Compensation and H.R.
Committee of the Board consisted of Messrs. Vij
(Chair), Krause, Rogerson and Tomlinson. None of the
members of the Compensation and H.R. Committee
has been or is an officer or employee of Coherent.
None of our executive officers serves on the board of
directors or compensation committee of a company that
has an executive officer that serves on our Board or

Fiscal 2011 Summary Compensation Table

The table below presents information concerning the total compensation of our Named Executive Officers for the fiscal years ended
October 1, 2011, October 2, 2010, and October 3, 2009.

Name and Principal Position

John Ambroseo,

Chief Executive Officer and
President
Helene Simonet,

Executive Vice President and
Chief Financial Officer
,(2)

Mark Sobey

Executive Vice President
General Manager, SLS

Paul Sechrist, (11)
Executive Vice President
Worldwide Sales,
Service and Marketing
Bret DiMarco,
Executive Vice President and

General Counsel

Fiscal
Year

Salary ($)

2011(1) 612,901
2010
580,008
602,316
2009
2011(1) 395,587
369,990
2010
384,221
2009
343,856
293,673

2011(1)
2010

Stock
Awards
($)(3)

Option
Awards
($)(4)

Non-Equity
Incentive Plan
Compensation
($)(5)

All Other
Compensation
($)(6)

2,452,700
981,000
661,218
660,675
366,240
236,232
616,630
313,920

N/A
600,390
688,194
N/A
224,146
245,329
N/A
192,125

1,628,675
870,012
2,262
738,776
388,490
1,010
562,863
255,017

46,841(8)
277,527(8)
76,016(8)
41,183(9)
46,664(9)
52,951(9)
27,277(10)
22,378(10)

Total ($)

4,741,117
3,308,937
2,030,006
1,836,221
1,395,530
919,743
1,550,626
1,077,113

2011

(1)

306,573

570,055

N/A

423,443

16,357(12)

1,316,428

(1)

2011
2010
2009

325,580
297,309
311,658

440,450
274,680
186,438

N/A
168,109
193,441

436,478
225,000
585

33,405(13)
36,527(13)
38,138(13)

1,235,913
1,001,625
730,260

(1)

(2)

(3)

(4)

Reflects the dollar amount of salary earned in fiscal
year 2011. Due to the timing of our fiscal year, fiscal
year 2009 included 27 payroll periods compared to 26
payroll periods in fiscal 2010 and 2011.

Mr. Sobey was promoted to Executive Vice President
and General Manager of Specialty Lasers and Systems
(SLS) and became an executive officer on April 1,
2010. Accordingly, information for 2009 for Mr. Sobey
has been omitted.

Amounts shown reflect the grant date fair value of
accordance with Financial
awards granted
Accounting Standards Board (FASB) Accounting
Standards Codification (ASC) Topic 718. Reflects
unvested time-based and performance-based restricted
stock units; there is no guaranty that the recipients will
ultimately receive this amount, or any amount.

The amounts shown reflect the grant date fair value of
stock options determined pursuant to FASB ASC Topic
718. These options vest annually over a three year
period. Pursuant to FASB ASC Topic 718, the amounts
shown here exclude the effect of estimated forfeitures
related
to service-based vesting conditions. The
assumptions used in the valuation of these awards are
set forth in Note 14, “Employee Stock Option and
Benefit Plans” of the Financial Statements in our

(5)

(6)

annual report on Form 10-K. These amounts do not
correspond to the actual value, if any, that may
ultimately be recognized by the Named Executive
Officers. As seen in the table, no stock options were
granted to the named executive officers in fiscal 2011.

Reflects the dollar amounts earned under the Variable
Compensation Plan (VCP) during fiscal 2011, fiscal
2010 and fiscal 2009.

As previously noted, effective January 1, 2011, the
Compensation and H.R. Committee announced the
elimination and phasing out of executive perquisites.
Fiscal 2011, therefore, included an executive medical
benefit (which was on a calendar year calculation and
is no longer in effect), the calendar 2010 contribution
to the Company’s non-qualified deferred compensation
plan (which will not be made for calendar 2011), and
automobile policy (which was phased out for Ms.
Simonet and Mr. DiMarco in October, 2011 and will be
in April, 2012 for Mr. Ambroseo).
phased out
Executives will continue
the regular
to receive
Company-provided 401(k) employee contribution
match (subject to applicable IRS rule limitations).

(7)

For fiscal year 2010, Dr. Ambroseo and Ms. Simonet
“All Other Compensation” includes a payment for
that we previously
expired stock option grants

disclosed on Form 8-K filing dated December 9, 2009.
As noted in the Form 8-K, from November 1, 2006 to
December 31, 2007 we imposed a company-wide
blackout on the exercise of stock options because we
were not current in our financial reporting obligations
due to an internal historical stock option grant practices
investigation. The Compensation and H.R. Committee
approved payments
individuals, which
amounts were determined pursuant to the same formula
used for non-executive officers.

these

pursuant

(b) Car Allowance

(8) For fiscal 2011, includes (a) amounts contributed by us
under
the Company’s 401(k) plan ($9,656) and
deferred compensation plan ($10,920), (b) the use of a
Company-leased and maintained automobile or car
allowance (“Car Allowance”) ($20,630), (c) amounts
reimbursed
executive medical
to
reimbursement ($2,634). For fiscal 2010, includes
(a) amounts contributed by us under the Company’s
401(k) plan ($8,902) and deferred compensation plan
($10,177),
(c) the
payment described in footnote (7) above ($237,000),
(d) payment for buy-out of earned vacation ($1,785)
and (e) amounts reimbursed pursuant to executive
medical reimbursement ($5,228). For fiscal year 2009,
includes (a) amounts contributed by us under the
Company’s 401(k) plan
($13,541) and deferred
compensation plan ($20,402), (b) debt forgiveness
which was reflected on Mr. Ambroseo’s W-2 form
during
the first quarter of fiscal 2009 for his
promissory note which was fully forgiven prior to the
end of fiscal 2009 ($10,000), (c) a Car Allowance
($29,760), and (d) amounts reimbursed pursuant to
executive medical reimbursement ($10,236).

($12,436),

(9)

($4,927),

For fiscal 2011, includes (a) amounts contributed by us
under
the Company’s 401(k) plan ($7,446) and
(b) Car
deferred compensation plan
Allowance ($17,513), (c) amounts reimbursed pursuant
to executive medical reimbursement ($7,468). For
fiscal 2010, includes (a) amounts contributed by us
($8,662) and
under
deferred compensation plan
(b) a Car
Allowance ($17,513), (d) the payment described in
(e) amounts
($8,550),
footnote
executive medical
to
reimbursed
reimbursement ($4,195). For fiscal 2009, includes

the Company’s 401(k) plan

(7) above

($4,184),

pursuant

and

(a) amounts contributed by us under the Company’s
401(k) plan ($12,048) and deferred compensation plan
($8,058), (b) a payment for buy-out of earned vacation
($7,115),
($15,834) and
(d) amounts reimbursed pursuant to executive medical
reimbursement ($6,198).

($1,919),

For fiscal 2011, includes (a) amounts contributed by us
under the Company’s 401(k) plan ($10,622) and
deferred compensation plan
(b) Car
Allowance ($4,500), (c) amounts reimbursed pursuant
to executive medical reimbursement ($8,473). For
fiscal 2010, includes (a) amounts contributed by us
the Company’s 401(k) plan ($10,358) and
under
(b) a Car
deferred compensation plan
reimbursed
Allowance
pursuant to executive medical reimbursement ($668).

($953),
(c) amounts

($9,000) and

to Executive Vice
Mr. Sechrist was promoted
President Worldwide Sales, Service and Marketing and
became an executive officer on March 31, 2011.
Accordingly, information for 2010 and 2009 for
Mr. Sechrist has been omitted.

For fiscal 2011, includes (a) amounts contributed by us
under the Company’s 401(k) plan ($11,023) and
deferred compensation plan ($792) and (b) amounts
reimbursed
executive medical
to
reimbursement ($2,987).

pursuant

($2,062),

For fiscal 2011, includes (a) amounts contributed by us
under the Company’s 401(k) plan ($10,469) and
(b) Car
deferred compensation plan
Allowance ($16,790), (c) amounts reimbursed pursuant
to executive medical reimbursement ($3,362). For
fiscal 2010, includes (a) amounts contributed by us
the Company’s 401(k) plan ($10,154) and
under
(b) Car
plan
deferred
Allowance ($16,296), and (d) amounts reimbursed
pursuant to executive medical reimbursement ($7,992).
For fiscal 2009, includes amounts (a) contributed by us
the Company’s 401(k) plan ($10,338) and
under
deferred compensation plan
(b) a Car
Allowance ($16,876) and (c) amounts reimbursed
pursuant to executive medical reimbursement ($6,039).

compensation

($4,200),

($1,425),

(10)

(11)

(12)

(13)

Grants of Plan-Based Awards in Fiscal 2011

Except as set forth in the footnotes, the following table shows all plan-based equity and non-equity incentive awards granted to our
Named Executive Officers during fiscal 2011.

Grants of Plan-Based Awards

Estimated Future Payouts
Under Non-Equity Incentive
Plan Awards

Estimated Future Payouts
Under Equity Incentive
Plan Awards

Name

John Ambroseo

Type

PRSU

RSU

Grant
Date

Threshold
($)

Target
($)

Maximum
($)

11/29/2010

Actual
Payouts
Under Non-
Equity
Incentive
Plan
Awards ($)

Threshold
(#)

Target
(#)

Maximum
(#)

35,000

70,000

All Other
Stock
Awards:
# of
Securities
Underlying
Options (#)

All Other
Option
Awards:
# of
Securities
Underlying
Options (#)

Exercise
or Base
Price of
Option
Awards
($)

Grant Date
Fair Value
($) (1)

—

$1,612,100

20,000

$840,600

1st semi-annual bonus

2nd semi-annual bonus

Total

PRSU

RSU

11/29/2010

1st semi-annual bonus

2nd semi-annual bonus

Total

PRSU

RSU

11/29/2010

1st semi-annual bonus

2nd semi-annual bonus

Total

PRSU

RSU

3/30/2011

11/3/2010

3/30/2011

11/3/2010

1st semi-annual bonus

2nd semi-annual bonus

Total

PRSU

RSU

11/29/2010

Helene Simonet

Mark Sobey

Paul Sechrist

Bret DiMarco

0 (2) 312,500

937,500

854,401

0 (2) 312,500

937,500

0 (2) 625,000 1,875,000

774,274
1,628,675 (3)

0 (2) 141,750

425,250

387,561

0 (2) 141,750

425,250

0 (2) 283,500

850,500

351,215
738,776 (3)

0 (2) 108,000

324,000

295,277

0 (2) 108,000

324,000

0 (2) 216,000

648,000

267,586
562,863 (3)

0 (2) 81,250

243,750

222,138

0 (2) 81,250

243,750

0 (2) 162,500

487,500

201,305
423,443 (3)

1st semi-annual bonus

2nd semi-annual bonus

Total

0 (2) 83,750

251,250

228,976

0 (2) 83,750

251,250

0 (2) 167,500

502,500

207,502
436,478 (3)

7,500

15,000

—

7,500

7,000

14,000

—

1,000

4,500

2,000(4)
9,000

7,000

1,000(4)
4,500

—

5,000

10,000

—

5,000

$345,450

$315,225

$322,420

$294,210

$69,830

$242,505

$58,190

$199,530

$230,300

$210,150

(1) Reflects the grant date fair value of equity awards
computed in accordance with FASB ASC Topic 718. The
assumptions used in the valuation of these awards are set
forth in Note 14 "Employee Stock Option and Benefits
Plans" of the Financial Statements in the Annual Report on
Form 10-K. These amounts do not correspond to the actual
value that will be recognized by the Named Executive
Officers.

(2) Failure to meet a minimum level of performance would
have resulted in no bonus paid out under the 2011 Variable
Compensation Plan.

(3) Reflects the amount earned under the 2011 Variable

Compensation Plan during the 2011 fiscal year.

(4) Mr. Sechrist received a performance restricted stock unit
grant and a time-based restricted stock unit grant when he
was promoted to Executive Vice President on March 30,
2011.

Option Exercises and Stock Vested at 2011 Fiscal Year-End

The table below sets forth certain information for each Named Executive Officer regarding the exercise of options and the vesting of
stock awards during the year ended October 1, 2011, including the aggregate value realized upon such exercise or vesting.

Name
John Ambroseo
Helene Simonet
Mark Sobey
Paul Sechrist
Bret DiMarco
(1)
(2)

Reflects the difference between the exercise price of the option and market price of our Common Stock on the exercise date.
Reflects the market price of our Common Stock on the vesting date.

Option Awards

Stock Awards

Number of
Shares
Acquired
on
Exercise (#)

178,547
137,299
55,500
7,200
61,166

Value
Realized
on
Exercise ($)(1)

4,375,858
1,791,402
631,516
147.260
785,591

Number of
Shares
Acquired
on
Vesting (#)

29,517
12,234
7,500
6,000
9,517

Value
Realized
on
Vesting ($)(2)

1,380,235
589,533
336,120
266,456
460,051

Outstanding Equity Awards at Fiscal 2011 Year-End

The following table presents information concerning unexercised options and stock that has not yet vested for each Named Executive
Officer outstanding as of October 1, 2011.

Option Awards(1)

Stock Awards

Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable

Number of
Securities
Underlying
Options (#)
Exercisable

Option
Exercise
Price(2)

Option
Expiration
Date

Number
of
Shares or
Units of
Stock
That
Have
Not
Vested
(#)

—
—
—
25,000
—
—
121,853

—
—
—
—
—
—

—
—
—
—
—
6,000
—
11,000
10,000

—
—
—
—
—
—

—
—
—
50,000 $
—
25,200 $
— $

—
—
—
18,667 $

8,984 $

—
—
—
16,000 $
—
7,500 $

—
—
—
—
—
12,000 $
—
5,500 $
— $

—
—
—
14,000 $

7,084 $

—
—
—
26.16
—
23.16
32.95

—
—
—
26.16
—
23.16

—
—
—
—
—
26.16
—
23.16
32.95

—
—
—
26.16
—
23.16

—
—
—
11/20/2016
—
11/17/2014
10/03/2013

—
—
—
11/20/2016
—
11/17/2014

—
—
—
—
—
11/20/2016
—
11/17/2014
10/03/2013

—
—
—
11/20/2016
—
11/17/2014

20,000
70,000(4)
25,000
—
9,516
—
—

7,500
15,000(4)
9,333
—
3,400

7,000
14,000(4)
8,000
—
2,500
—

1,000
2,000(5)
4,500
9,000(5)
6,000
—
2,333
—
—

5,000
10,000(4)
7,000
—
2,683
—

Market
Value
of Shares
or
Units of
Stock
That Have
Not Vested
($)(3)

859,200
3,007,200
1,074,000
—
408,807
—
—

322,200
644,400
400,946
—
146,064
—

300,720
601,440
343,680
—
107,400
—

42,960
85,920
193,300
386,640
257.760
—
100,226
—
—

214,800
429,600
300,720
—
115,262
—

Name

John Ambroseo

Helene Simonet

Mark Sobey

Paul Sechrist

Bret DiMarco

Grant
Date

11/29/2010
11/29/2010
11/20/2009
11/20/2009
11/17/2008
11/17/2008
10/03/2007

11/29/2010
11/29/2010
11/20/2009
11/20/2009
11/17/2008
11/17/2008

3/30/2011
3/30/2011
11/3/2010
11/3/2010
11/20/2009
11/20/2009
11/17/2008
11/17/2008
10/03/2007

11/29/2010
11/29/2010
11/20/2009
11/20/2009
11/17/2008
11/17/2008

Equity
incentive
plan
awards:
Number of
unearned
shares,
units or
other
rights
that have
not
vested
(#)

Equity
incentive
plan
awards:
Market or
payout
value of
unearned
shares, units
or
other rights
that have
not
vested
($)

—
—
—
—
—
—
—

—
—
—
—
—
—

—
—
—
—
—
—
—
—
—

—
—
—
—
—
—

—
—
—
—
—
—
—

—
—
—
—
—
—

—
—
—
—
—
—
—
—
—

—
—
—
—
—
—

(1) Each of the unvested option grants set forth above vest in
three equal installments on the anniversary of the date of
grant.

(2) The exercise prices indicated are the prices originally
recorded by the Company at grant and have not been
adjusted to reflect any new measurement date as a result
of the Company’s historical stock option review.

(3) Market value is determined by multiplying the number of
shares by $42.96, the closing price of the Company’s
common stock on September 30, 2011, the last trading
date of the fiscal year.

(4) The performance-based restricted stock units vesting
determination dates are November 29, 2011, November
29, 2012 and November 29, 2013. The performance

based restricted stock units will vest in an amount which
is 0-200% subject
the achievement of certain
performance metrics. The amount reflected in the table is
the maximum amount or 200%.

(5) The performance-based restricted stock units vesting
determination dates are November 3, 2011, November 3,
2012 and November 3, 2013. The performance based

Fiscal 2011 Non-Qualified Deferred Compensation

restricted stock units will vest in an amount which is 0-
200% subject to the achievement of certain performance
metrics. The amount reflected in the table is the
maximum amount or 200%.

The following table presents information regarding the non-qualified deferred compensation activity for each Named Executive
Officer during fiscal 2011:

Executive
Deferrals
including
Company
Contribution in
Last FY ($)
$ 789,241

$ -
$ 4,927

$ -
$ 180,616

$ -
$ 1,919
$ 2,062

Executive
Contributions in
Last FY ($) (1)
$ 778,321

$ -
$ -

$ -
$ 179,824

$ -
$ -
$ -

Name

Ambroseo, John
SRP (4)
Simonet, Leen
SRP (4)
Sechrist, Paul
SRP (4)
Sobey, Mark
DiMarco, Bret

Registrant
Contributions in
Last FY ($) (3)
$ 10,920

Aggregate
Earnings in Last
FY ($)
$ (96,108)

Aggregate
Withdrawals/
Distributions ($)
$ -

$ -
$ 4,927

$ -
$ 792

$ -
$ 1,919
$ 2,062

$ (7,176)
$ 651

$ (770)
$ (24,935)

$ (1,595)
$ (363)
$ (391)

$ -
$ -

$ -

$ -
$ -

Aggregate Balance
of Last FYE ($) (2)
$ 4,859,259

$ 1,028,721
$ 745,466

$ 117,325
$ 344,308

$ 116,357
$ 15,376
$ 25,837

(1) Amounts in this column consist of salary and/or bonus
earned during fiscal year 2011, which is also reported in the
Summary Compensation Table.

(2) The deferred compensation in a participant’s account is
fully vested and is credited with positive or negative
investment results based upon plan investment options
selected by the participant.

(3) Amounts are company contribution payments in excess of
the IRS 401(a) (17) and 402(g) qualified plan limits made
to the non-qualified “Deferred Compensation Plan” for
plan year 2010 made in fiscal year 2011. Amounts

reported in this column are also reported in the “All Other
Compensation” column of the Summary Compensation
Table. The Deferred Compensation company contribution
was terminated on December 31, 2010.

(4) Amounts represent account balances and earnings from the
Supplementary Retirement Plan
(SRP) which was
suspended on December 31, 2004.
Deferrals (both
this plan have been
executive and company)
suspended. The Deferred Compensation Plan is the only
non-qualified deferred compensation plan available for
executive management.

into

executives will also have acceleration of all vesting conditions
for equity grants and a payment in lieu of health care for the
executive (and his or her covered family members) will be
provided on the same terms for two years and, in the case of
Mr. Ambroseo, three years. A change in control of Coherent is
defined under the change of control plan as an occurrence of a
business combination, an acquisition by any person directly or
indirectly of fifty percent or more of the combined voting power
of our common stock or a change in the composition of the
Board where less than fifty percent are incumbent directors.

The following table shows the potential payments and benefits
that we (or our successor) would be obligated to make or
provide upon termination of employment of each our Named
Executive Officers pursuant to the terms of the Change of
Control Severance Plan. Other than this plan, there are no other
employment agreements or other contractual obligations
triggered upon a change of control. For purposes of this table, it
is assumed that each Named Executive Officer’s employment
terminated at the close of business on September 30, 2011 (the
last business day before the end of our fiscal year end on
October 1, 2011). These payments are conditioned upon the
execution of a form release of claims by the Named Executive
Officer in favor of us. The amounts reported below do not
include the nonqualified deferred compensation distributions
that would be made to the Named Executive Officers following
a
those amounts and
descriptions, see the prior table). There can be no assurance that
a triggering event would produce the same or similar results as
those estimated below if such event occurs on any other date or
at any other price, of if any other assumption used to estimate
potential payments and benefits is not correct. Due to the
number of factors that affect the nature and amount of any
potential payments or benefits, any actual payments and
benefits may be different. The Total Benefit per individual in
the table below does not add to the total of the individual
components due to rounding within each component.

termination of employment

(for

Potential Payments upon Termination or Change of Control

The change in control plan provides for the payment of
specified compensation and benefits upon certain terminations
of the employment of the participants following a change in
control of the Company. The Board has evaluated the economic
and social impact of an acquisition or other change of control
on its key employees. The Board recognizes that the potential of
such an acquisition or change of control can be a distraction to
its key employees and can cause them to consider alternative
employment opportunities. The Board has determined that it is
in the best interests of Coherent and its stockholders to assure
that Coherent will have the continued dedication and objectivity
of its key employees. The Board believes that the change of
control plan will enhance the ability of our key employees to
assist the Board in objectively evaluating potential acquisitions
or other changes of control.

The change of control plan provides that if within 24 months
after a change in control the executive’s employment is
terminated other than by reason of his or her death, disability,
retirement or for cause, or the executive officer terminates his
or her employment for “good reason,” the executive will receive
a lump sum severance payment equal to 2.99 (in the case of
Mr. Ambroseo) or 2.0 (in the case of Ms. Simonet and
Messrs. DiMarco, Sechrist and Sobey) times the executive’s
annual base salary and annual bonus (assuming achievement of
all performance requirements thereof). “Good reason” is
defined under the plan as any of the following that occurs after
a change in control of the Company: certain reductions in
compensation; certain material changes in employee benefits
and perquisites; a change in the site of employment; reduction
in the executive’s duties and responsibilities; the Company’s
failure to obtain the written assumption by its successor of the
obligations set forth in the Agreement; attempted termination of
employment on grounds insufficient to constitute a basis of
termination for cause under the terms of the change of control
plan; or the Company’s breach of any of the provisions of the
change of control plan. Under the terms of the plan, the

Named Executive
Officer
John Ambroseo

Helene Simonet

Mark Sobey

Paul Sechrist

Bret DiMarco

Multiplier for
Base
Salary and
Bonus
2.99X

Nature of
Benefit

Termination
for Cause

Any Other
Termination

Salary Severance
Bonus Severance
Equity Compensation Acceleration(1)
Aggregate Monthly Payment(2)
Total Benefit
Salary Severance
Bonus Severance
Equity Compensation Acceleration(1)
Aggregate Monthly Payment(2)
Total Benefit
Salary Severance
Bonus Severance
Equity Compensation Acceleration(1)
Aggregate Monthly Payment(2)
Total Benefit
Salary Severance
Bonus Severance
Equity Compensation Acceleration(1)
Aggregate Monthly Payment(2)
Total Benefit
Salary Severance
Bonus Severance
Equity Compensation Acceleration(1)
Aggregate Monthly Payment(2)
Total Benefit

—
—
—
—

$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$

1,874,375
1,874,375
6,688,167
99,000
10,535,917
810,000
567,000
2,005,098
66,000
3,448,098
720,000
432,000
1,770,540
66,000
2,988,540
650,000
325,000
1,377,326
66,000
2,418,326
670,000
335,000
1,435,845
66,000
2,506,845

(1) Equity Compensation Acceleration is the in-the-money
value of unvested stock options, time-based restricted stock
units and performance-based restricted stock units, in each
case as of September 30, 2011 at the closing stock price on
that date ($42.96). The value of accelerated stock options
are thus calculated by multiplying the number of unvested
shares subject to acceleration by the difference between the
exercise price and the closing stock price on September 30,
2011; the value of accelerated restricted stock is calculated
by multiplying the number of unvested shares subject to
acceleration by the closing stock price on September 30,
2011. For purposes of the table we have assumed the
immediate
the
and
performance-based restricted stock units at the maximum,
or 200% of target, achievement. In the event of a change of

vesting

release

control, however, the performance-based restricted stock
units would be measured for achievement prior to the
effective date of the change of control and converted to
time-based awards subject to the terms of the plan. The
amounts reflected for Equity Compensation Acceleration do
not reflect any applicable taxes, just gross proceeds. Since
the table assumes a triggering event on September 30, 2011,
only those stock options and restricted stock/RSU grants
outstanding as of that date are included in the table.

(2) Aggregate Monthly Payment is a monthly payment of
$2,750 in lieu of receiving company subsidized COBRA
benefits, life insurance premiums and/or other welfare
benefits, 36 months for the Chief Executive Officer and 24
months for the other named executive officers.

EQUITY COMPENSATION PLAN INFORMATION

The following table provides information as of October 1, 2011 about the Company’s equity compensation plans under which

shares of our common stock may be issued to employees, consultants or members of our Board:

Plan
category
Equity compensation plans approved by security holders
Equity compensation plans not approved by security holders
Total

(a)
Number of
securities to be
issued upon
exercise of
outstanding
options,
warrants and
rights
1,421,730(2) $
—
1,421,730

(b)
Weighted-average
exercise price of
outstanding
options,
warrants and
rights(1)

(c)
Number of
securities
remaining
available for
future issuance
under equity
compensation
plans (excluding
securities
reflected in
column (a))

27.80
—
27.80

6,861,565(3)

—
6,861,565

(1) These weighted average exercise prices do not reflect the
shares that will be issued upon the payment of outstanding
awards of RSUs

(2) This number does not include any options which may be
assumed by us through mergers or acquisitions, however,
we do have the authority, if necessary, to reserve additional

shares of common stock under these plans to the extent
necessary for assuming such options.

(3) This number of shares includes 161,374 shares of common
stock reserved for future issuance under the Employee
Stock Purchase Plan and 6,700,191 shares reserved for
future issuance under the 2011 Plan.

CERTAIN RELATIONSHIPS AND RELATED PERSON
TRANSACTIONS

Review, Approval or Ratification of Related Person
Transactions

In accordance with the charter for the Audit Committee of the
Board, the members of the Audit Committee, all of whom are
independent directors, review and approve in advance any
proposed related person transactions. Additionally, from time to
time the Board may directly consider these transactions. For
purposes of these procedures, the individuals and entities that
are considered “related persons” include:

• Any of our directors, nominees for director and

executive officers;

• Any person known to be the beneficial owner of five
percent or more of our common stock (a “5%
Stockholder”); and

• Any

immediate

family member, as defined

in
Item 404(a) of Regulation S-K, of a director, nominee
for director, executive officer and 5% Stockholder. We
will report all such material related person transactions
under applicable accounting rules, federal securities
laws and SEC rules and regulations.

Related Person Transactions

We have entered into indemnification agreements with each of
our executive officers and directors. Such indemnification
agreements require us to indemnify these individuals to the
fullest extent permitted by law. We also intend to execute these
agreements with our future directors and officers.

REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS

The Audit Committee is responsible for overseeing our
accounting and financial reporting processes and audits of our
financial statements. As set forth in its charter, the Audit
Committee acts only in an oversight capacity and relies on the
work and assurances of both management, which has primary
responsibilities for our financial statements and reports, as well
as the independent registered public accounting firm that is
responsible for expressing an opinion on the conformity of our
audited financial statements to generally accepted accounting
principles.

The Audit Committee met eleven (11) times either in person or
by telephone during fiscal 2011. In the course of these
meetings, the Audit Committee met with management, the
internal auditors and our independent auditors and reviewed the
internal and external audit examinations,
results of
evaluations of our internal controls and the overall quality of our
financial reporting.

the

The Audit Committee believes that a candid, substantive and
focused dialogue with the internal auditors and the independent
registered public accounting firm is fundamental to the Audit
Committee’s oversight responsibilities. To support this belief,
the Audit Committee periodically meets separately with the
independent auditors, without
internal auditors and
management present. In the course of its discussions in these
meetings, the Audit Committee asked a number of questions
intended to bring to light any areas of potential concern related
to our financial reporting and internal controls. These questions
include:

the

• Are

there any significant accounting

judgments,
estimates or adjustments made by management in
preparing the financial statements that would have been
made differently had the auditors themselves prepared
and been responsible for the financial statements;

• Based on the auditors’ experience, and their knowledge
of our business, do our financial statements fairly
present to investors, with clarity and completeness, our
financial position and performance for the reporting
in accordance with generally accepted
period
accounting
disclosure
requirements;

principles

SEC

and

• Based on the auditors’ experience, and their knowledge
of our business, have we implemented internal controls
and internal audit procedures that are appropriate for
our business.

The Audit Committee approved the engagement of Deloitte &
Touche LLP as our independent registered public accounting
firm for fiscal 2011 and reviewed with the internal auditors and
independent registered public accounting firm their respective
overall audit scope and plans. In approving Deloitte & Touche
LLP, the Audit Committee considered the qualifications of
Deloitte & Touche LLP and discussed with Deloitte & Touche
LLP their independence, including a review of the audit and
non-audit services provided by them to us. The Audit
Committee also discussed with Deloitte & Touche LLP the
matters required to be discussed by Statement on Auditing
(AICPA, Professional
Standards No. 61, as amended,
Standards, Vol. 1 AU section 380), as adopted by the Public
Company Accounting Oversight Board in Rule 3200T, and it
received the written disclosures and the letter from Deloitte &
Touche LLP required by the applicable requirements of the
Public Company Accounting Oversight Board
regarding
Deloitte & Touche LLP’s communications with Audit
Committee concerning
independence and has discussed
Deloitte & Touche LLP’s independence with Deloitte & Touche
LLP.

Management has reviewed and discussed the audited financial
statements for fiscal 2011 with the Audit Committee, including
a discussion of the quality and acceptability of the financial

the

reasonableness of

reporting,
significant accounting
judgments and estimates and the clarity of disclosures in the
financial statements. In connection with this review and
discussion, the Audit Committee asked a number of follow-up
questions of management and the independent registered public
accounting firm to help give the Audit Committee comfort in
connection with its review.

In reliance on the reviews and discussions referred to above, the
Audit Committee recommended to the Board that the audited
financial statements be included in the annual report on
Form 10-K for the fiscal year ended October 1, 2011, for filing
w ith th e SEC.

Respectively submitted by
THE AUDIT COMMITTEE

Susan James, Chair
Garry Rogerson
Lawrence Tomlinson

OTHER MATTERS

We know of no other matters to be submitted to the meeting. If any other matters properly come before the meeting, it is the

intention of the persons named in the enclosed form Proxy to vote the shares they represent as the Board may recommend.

Dated: January 20, 2012

BY ORDER OF THE BOARD OF DIRECTORS

/s/ John R. Ambroseo
John R. Ambroseo
President and Chief Executive Officer

ANNEX A
AMENDED AND RESTATED EMPLOYEE STOCK
PURCHASE PLAN

COHERENT, INC.

EMPLOYEE STOCK PURCHASE PLAN

Amended and restated as _______________

The following constitutes the provisions of the Employee
Stock Purchase Plan (herein called the “Plan”) of Coherent,
Inc. (herein called the “Company”).

1.
Purpose. The purpose of the Plan is to provide
employees of the Company and its subsidiaries with an
opportunity to purchase Common Stock of the Company
through payroll deductions. It is the intention of the Company
to have the Plan qualify as an “Employee Stock Purchase
Plan” under Section 423 of the Internal Revenue Code of
1986. The provisions of the Plan shall, accordingly, be
construed so as to extend and limit participation in a manner
consistent with the requirements of that Section of the Code.

Definitions.

(a)

“Base pay” or “base salary” means regular
straight-time earnings and commissions, excluding payments
for overtime, shift premiums, incentive compensation, bonuses
and any other special payments.

(b)

“Employee” means any person, including an
officer, who is customarily employed for at least twenty (20)
hours per week by the Company or its subsidiaries (50% or
more of whose voting shares are owned directly or indirectly
by the Company) unless the Company designates a subsidiary
as not participating in the Plan.

Eligibility.

(a)

Any employee as defined in paragraph 2
who shall be employed by the Company on the date his
participation in the Plan is effective shall be eligible to
participate in the Plan, subject to limitations imposed by
Section 423(b) of the Internal Revenue Code of 1986.

(b)

Any provisions of the Plan to the contrary
notwithstanding, no employee shall be granted an option under
the Plan (i) if, immediately after the grant, such employee
would own shares and/or hold outstanding options to purchase
stock possessing five percent (5%) or more of the total
combined voting power or value of the Company, or (ii) which
permits his rights to purchase shares under all employee stock
purchase plans of the Company and its subsidiaries to accrue
at a rate which exceeds Twenty Five Thousand Dollars
($25,000) for each calendar year in which such stock option is
outstanding at any time, where the value of the option is
calculated as the fair market value of the shares (determined at
the time such option is granted).

4.
Offering Dates. The Plan shall be implemented by
two Offerings during each fiscal year, each of six months
duration, with Offering I commencing on or about May 1 of
each year and Offering II commencing on or about November
1 of each year. Notwithstanding the foregoing, in lieu of the
Offering periods set forth in the preceding sentence, the Board
may establish any Offering period that does not exceed 27
months and is consistent with Section 423 of the Internal
Revenue Code.

Participation.

(a)

An eligible employee may enroll in the Plan
by completing a subscription agreement authorizing payroll
deduction on the form provided by the Company and
the
submitting prior
subscription agreement and any other information required by
the Company in the form and manner and in accordance with
procedures designated by the Company.

the applicable offering date,

(b)

Payroll deductions for a participant shall
commence on the first payroll following the commencement
offering date and shall end on the termination date of the
offering to which such authorization is applicable, unless
sooner terminated by the participant as provided in paragraph
10 or otherwise provided by the Company.

Payroll Deductions.

(a)

the

time a participant

files his
subscription agreement, he shall elect
to have payroll
deductions made on each payday during the offering period.
Unless the Company determines otherwise, the amount of
payroll deductions elected to be made shall not be greater than
ten percent (10%) of the base pay which he received on such
payday nor less than a $10 deduction per payday.

(b)

All payroll deductions made by a participant
shall be credited to a book-keeping account under the Plan. A
participant may not make any additional payments into such
account.

(c)

A participant may discontinue his payroll
deductions to the Plan as provided in paragraph 10, or may
lower, but not increase, the rate of his payroll deductions
(within the limitations set forth in subparagraph (a) above)
during the offering by completing or filing with the Company
a new authorization for payroll deduction. Unless the
Company determines otherwise, the change in rate shall be
effective within fifteen (15) days following the Company’s
receipt of the new authorization.

Grant of Option.

(a)

At the beginning of each offering period,
each eligible employee shall be granted an option to purchase
that number of shares of the Company’s Common Stock
determined by dividing such employee’s payroll deductions
accumulated prior to the exercise date and retained in the

A-1

eligible employee’s account as of the exercise date by the
applicable option price determined
in accordance with
paragraph 7(b); provided that in no event will an eligible
employee be permitted to purchase during any offering period
more than ten thousand (10,000) shares of the Company’s
Common Stock, subject
in
paragraph 18 and provided further that such purchase will be
subject to the limitations set forth in paragraph 3(b) and 12
hereof. Fair market value of a share of the Company’s
Common Stock shall be determined as provided in paragraph
7(b) herein.

to adjustment as provided

(b)

The option price per share of such shares
shall be the lower of: (i) 85% of the fair market value of a
share of the Common Stock of the Company at the
commencement of the offering period; or (ii) 85% of the fair
market value of a share of the Common Stock of the Company
at the time the option is exercised at the termination of the
offering period. The fair market value of the Company’s
Common Stock on said dates shall be determined by the
Company’s Board of Directors in the exercise of their
discretion in good faith.

Exercise of Option. Unless a participant withdraws
8.
from the Plan as provided in paragraph 10 and subject to the
limitations set forth in paragraph 12, his option for the
purchase of shares will be exercised automatically at the end
of the offering period, and the maximum number of full shares
subject to option will be purchased for him at the applicable
option price with the applicable amount of the accumulated
payroll deductions in his account. During his lifetime, a
participant’s option
is
exercisable only by him. Any cash remaining to the credit of a
participant’s account under the Plan after a purchase by him of
shares at the termination of each offering period, or which is
insufficient to purchase a full share of Common Stock of the
Company, shall be returned to said participant.

to purchase shares hereunder

9.
Rights as a Stockholder. A participant shall not be
deemed to be the holder of, or to have any of the rights of a
holder with respect to, the shares of the Company’s Common
Stock purchased upon exercise of his option under the Plan
until the date of the issuance of the shares of the Company’s
Common Stock to the employee.

10.

Withdrawal; Termination of Employment.

(a)

A participant may withdraw all but not less
than all the payroll deductions credited to his account under
the Plan for an Offering at any time prior to the end of the
applicable offering period by giving notice to the Company in
the manner prescribed by the Company.
All of the
participant’s payroll deductions credited to his account for the
Offering from which he has withdrawn will be paid to him
promptly after receipt of his notice of withdrawal and his
option for the current period under the Offering will be
automatically terminated, and no further payroll deductions
for the purchase of shares under the Offering withdrawn from
will be made during the applicable offering period.

A-2

(b)

Upon

termination of

the participant’s
employment prior to the end of an offering period for any
reason, including retirement or death, the payroll deductions
credited to his account will be returned to him and his option
will be automatically terminated.

(c)

In the event an employee fails to remain in
the employ of the Company customarily for at least twenty
(20) hours per week during the offering period in which the
employee is a participant, he will be deemed to have elected to
withdraw from the Plan and the payroll deductions credited to
his account will be returned to him and his option terminated.

(d)

A participant’s withdrawal from an Offering
will not have any effect upon his eligibility to participate in
any other Offering or in any similar plan which may hereafter
be adopted by the Company.

11.
No Interest. To the extent that a participant’s
payroll deductions are refunded pursuant to the provisions of
the Plan, no interest shall be paid on said refundable amount.

12.
Stock. The maximum number of shares of the
Company’s Common Stock which shall be made available for
sale under the Plan shall be 7,925,000 shares, subject to
adjustment upon changes in capitalization of the Company as
provided in paragraph 18. The shares to be sold to
participants under the Plan may, at the election of the
Company, be either treasury shares or shares authorized but
unissued. If the total number of shares which would otherwise
be subject to options granted pursuant to Section 7(a) hereof at
the beginning of an offering period exceeds the number of
shares then available under the Plan (after deduction of all
shares for which options have been exercised or are then
outstanding), the Company shall make a pro rata allocation of
the shares remaining available for option grant in as uniform a
manner as shall be practicable and as it shall determine to be
equitable. In such event, the Company shall give written
notice of such reduction of the number of shares subject to the
option to each employee affected thereby and shall similarly
reduce the rate of payroll deductions, if necessary.

13.
Administration. The Plan shall be administered by
the Board of Directors of the Company or a committee
appointed by the Board. The administration, interpretation or
application of the Plan by the Board or its committee shall be
final, conclusive and binding upon all participants. Members
of the Committee who are eligible employees are permitted to
participate in the Plan. Notwithstanding any provision to the
contrary in the Plan, the Board or its committee may adopt
rules or procedures
the operation and
administration of the plan to accommodate the specific
requirements of local laws and procedures for jurisdictions
outside of the United States. Without limiting the generality
of the foregoing, the Board or its committee is specifically
authorized to adopt rules and procedures regarding eligibility
to participate, the definition of base pay, handling of payroll
deductions, making of contributions to the Plan (including,
without limitation, in forms other than payroll deductions),

relating

establishment of bank or trust accounts to hold payroll
deductions, conversion of local currency, obligations to pay
payroll tax, determination and change of offering periods,
payment procedures, requirement that shares of Company’s
Common Stock acquired through the Plan be held by a
specific broker, withholding procedures and handling of stock
certificates which may vary with local requirements.

the authority

14.
Non-US Eligible Employees. Without amending the
Plan, the Company may grant options or establish other
procedures to provide benefits to eligible employees of
participating subsidiaries with non-U.S. employees on such
terms and conditions different from those specified in this Plan
as may, in the judgment of the Company, be necessary or
desirable to foster and promote achievement of the purposes of
to adopt such
the Plan and shall have
modifications, procedures, subplans and the like as may be
necessary or desirable (a) to comply with provisions of the
laws or regulations or conform to the requirements to operate
the Plan in a qualified or tax or accounting advantageous
manner in other countries or jurisdictions in which the
Company or any participating subsidiary may operate or have
employees, (b) to ensure the viability of the benefits from the
Plan to eligible employees employed in such countries or
jurisdictions and (c) to meet the objectives of the Plan.
Notwithstanding anything to the contrary herein, any such
actions taken by the Company with respect to eligible
Employees of any participating subsidiary may be treated as a
subplan outside of an “employee stock purchase plan” under
section 423 of the Internal Revenue Code and not subject to
the requirements of section 423 set forth in the Internal
Revenue Code and this Plan.

15.
Transferability. Neither payroll deductions credited
a participant’s account nor any rights with regard to the
exercise of an option or to receive shares under the Plan may
be assigned, transferred, pledged or otherwise disposed of in
any way (other than by will or the laws of descent and
distribution) by the participant.
Any such attempt at
assignment, transfer, pledge or other disposition shall be
without effect, except that the Company may treat such act as
an election to withdraw funds in accordance with paragraph
10.

16.
Use of Funds. All payroll deductions received or
held by the Company under the Plan may be used by the
Company for any corporate purpose, and the Company shall
not be obligated to segregate such payroll deductions.

Reports. Individual accounts will be maintained for
17.
each participant in the Plan. Accounts under the Plan are
purely book-keeping entries. Statements of account will be
given to participating employees.

18.

Changes in Capitalization and Transactions.

(a)

If any change is made in the shares of the
Company’s Common Stock subject to the Plan, or subject to
any option under the Plan, without the receipt of consideration

recapitalization,

reincorporation,

the Company

(through merger,

consolidation,
by
reorganization,
stock
dividend, dividend in property other than cash, stock split,
liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or other transaction not
involving the receipt of consideration by the Company), the
Plan will be appropriately adjusted in the class(es) and
maximum number of shares of the Company’s Common Stock
subject to the Plan pursuant to paragraph 12 and the option
purchase
the outstanding options will be
appropriately adjusted in the class(es), number of shares of
Common Stock and purchase limits of such outstanding
options. The Board shall make such adjustments, and its
determination shall be final, binding and conclusive. (The
conversion of any convertible securities of the Company shall
not be treated as a transaction that does not involve the receipt
of consideration by the Company.)

limits, and

(b)

Without

limitation on

the preceding
provisions, in the event of any corporate transaction, the Board
may make such adjustment it deems appropriate to prevent
dilution or enlargement of rights in the number and class of
the Company’s Common Stock which may be delivered under
the Plan, in the number, class of or price of the Company’s
Common Stock available for purchase under the Plan and in
the number of the Company’s Common Stock which an
employee is entitled to purchase and any other adjustments it
deems appropriate. Without limiting the Board’s authority
under this Plan, in the event of any transaction, the Board may
elect to have the options hereunder assumed or such options
substituted by a successor entity, to terminate all outstanding
options, either prior to their expiration or upon completion of
the purchase of the Company’s Common Stock on the next
exercise date, to shorten the Offering period by setting a new
exercise date or to take such other action deemed appropriate
by the Board.

Amendment or Termination.

19.
The Board of
Directors of the Company may at any time terminate or amend
the Plan. No such termination can affect options previously
granted, nor may an amendment make any change in any
option theretofore granted which adversely affects the rights
of any participant, nor may an amendment be made without
prior approval of the shareholders of the Company if such
amendment would:

(a)
issued under the plan;

Increase the number of shares that may be

(b)

Change the designation of the employees (or

class of employees) eligible for participation in the Plan; or

shareholder
Require
applicable law or exchange requirements.

(c)

approval

under

20.
Notices. All notices or other communications by a
participant to the Company under or in connection with the
Plan shall be deemed to have been duly given when received

A-3

in the form specified by the Company at the location or by the
person, designated by the Company for the receipt thereof.

21.
No Right of Employment. Neither the grant nor the
exercise of any options under this Plan nor anything in this
Plan shall impose upon the Company or any participating
subsidiary any obligation to employ or continue to employ any
employee. The right of the Company or a participating
subsidiary to terminate any employee shall not be diminished
or affected because any options have been granted to such
employee.

A-4

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________________________________________
FORM 10-K

(Mark One)
⌧

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

For the Fiscal Year Ended October 1, 2011
or

(cid:134)

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

Commission File Number: 001-33962
___________________________________________________

COHERENT, INC.

Delaware
(State or other jurisdiction of
incorporation or organization)

5100 Patrick Henry Drive, Santa Clara, California
(Address of principal executive offices)

94-1622541
(I.R.S. Employer
Identification No.)

95054
(Zip Code)

Registrant's telephone number, including area code: (408) 764-4000
Securities registered pursuant to Section 12(b) of the Act:

Title of each class
Common Stock, $0.01 par value

Name of each exchange on which
registered
The NASDAQ Stock Market LLC
Nasdaq Global Select Market

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes (cid:134) No ⌧

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of

1934 (the "Exchange Act"). Yes (cid:134) No ⌧

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 (cid:134)

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data

File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§229.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files. Yes ⌧ No (cid:134)

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or
any amendment to this Form 10-K. (cid:134)

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting

company. See definitions of "large accelerated filer", "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer ⌧

Accelerated filer (cid:133)

Non-accelerated filer (cid:134)
(Do not check if a smaller
reporting company)

Smaller reporting
company (cid:134)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes (cid:134) No ⌧

As of November 25, 2011, 23,594,170 shares of common stock were outstanding. The aggregate market value of the voting shares (based on the

closing price reported on the NASDAQ Global Select Market on April 1, 2011, of Coherent, Inc., held by nonaffiliates was approximately
$1,148,000,000. For purposes of this disclosure, shares of common stock held by persons who own 5% or more of the outstanding common stock and
shares of common stock held by each officer and director have been excluded in that such persons may be deemed to be "affiliates" as that term is
defined under the Rules and Regulations of the Exchange Act. This determination of affiliate status is not necessarily conclusive.

Portions of the registrant's Proxy Statement for the registrant's fiscal 2012 Annual Meeting of Stockholders are incorporated by reference into

Part III of the Form 10-K to the extent stated herein. The Proxy Statement or an amended report on Form 10-K will be filed within 120 days of the
registrant's fiscal year ended October 1, 2011.

DOCUMENT INCORPORATED BY REFERENCE

(This page intentionally left blank.)

TABLE OF CONTENTS

PART I

ITEM 1.
BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 1A. RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 1B. UNRESOLVED STAFF COMMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 2.
LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 3.
(REMOVED AND RESERVED) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 4.

PART II

ITEM 5.

MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER

ITEM 6.
ITEM 7.

MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES . . . . . . . . . . . . . . . . . . . .
SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK . . . . . . . . . . .
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 8.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
ITEM 9.

FINANCIAL DISCLOSURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 9A. CONTROLS AND PROCEDURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 9B. OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE . . . . . . . . . .
EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 11.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 12.

AND RELATED STOCKHOLDER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR

ITEM 14.

PART IV

INDEPENDENCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PRINCIPAL ACCOUNTANT FEES AND SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

ITEM 15.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4
18
31
31
32
32

33
35

36
52
53

53
54
55

56
57

57
58

59
61

SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS

This Annual Report contains forward-looking statements. These forward-looking statements include, without limitation,
statements relating to:

• expansion into, and financial returns from, new markets;

• optimization of financial returns;

• maintenance and development of current and new customer relationships;

• enhancement of market position through existing or new technologies;

• optimization of product mix;

• future trends in microelectronics, scientific research and government programs, OEM components and instrumentation

and materials processing;

• utilization of vertical integration;

• adoption of our products or lasers generally;

• applications and processes that will use lasers, including the suitability of our products;

• capitalization on market trends;

• alignment with current and new customer demands;

• emergence of OLED technology;

• use of lasers in the manufacture of solar cells;

• positioning in the marketplace and gains of market share;

• leadership position;

• design and development of products, services and solutions;

• control of supply chain and partners;

• realization of restructuring benefits;

• establishment of global sourcing function;

• protection of intellectual property rights;

• cancellation rates;

• employees recruiting and retention;

• compliance with environmental and safety regulations;

• net sales and operating results;

• variations in stock price;

• research and development expenditures and benefits;

• market acceptance of products;

• conversion of bookings to net sales;

• flat panel displays orders;

• trends in the instrumentation market;

• sufficiency and management of cash, cash equivalents and investments;

• acquisition efforts and associated potential capital commitments;

• accounting for goodwill and intangible assets, inventory valuation, warranty reserves and taxes; and

• future net revenue.

In addition, we include forward-looking statements under the "Our Strategy" and "Future Trends" headings set forth

below in "Business" and under the "Bookings and Book-to-Bill Ratio" heading set forth below in "Management's Discussion
and Analysis of Financial Condition and Results of Operations."

You can identify these and other forward-looking statements by the use of the words such as "may," "will," "could,"

"would," "should," "expects," "plans," "anticipates," "estimates," "intends," "potential," "projected," "continue," "our
observation," or the negative of such terms, or other comparable terminology. Forward-looking statements also include the
assumptions underlying or relating to any of the foregoing statements.

Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various

factors, including those set forth below in "Business," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and under the heading "Risk Factors." All forward-looking statements included in this document are
based on information available to us on the date hereof. We undertake no obligation to update these forward-looking statements
as a result of events or circumstances or to reflect the occurrence of unanticipated events or non-occurrence of anticipated
events.

PART I

ITEM 1. BUSINESS

GENERAL

Business Overview

Our fiscal year ends on the Saturday closest to September 30. Fiscal years 2011, 2010 and 2009 ended on October 1,

October 2, and October 3, respectively, and are referred to in this annual report as fiscal 2011, fiscal 2010 and fiscal 2009 for
convenience. Fiscal years 2011 and 2010 included 52 weeks; fiscal year 2009 included 53 weeks.

We are one of the world's leading suppliers of photonics-based solutions in a broad range of commercial and scientific

research applications. We design, manufacture, service and market lasers and related accessories for a diverse group of
customers. Since inception in 1966, we have grown through internal expansion and through strategic acquisitions of
complementary businesses, technologies, intellectual property, manufacturing processes and product offerings.

We are organized into two operating segments: Commercial Lasers and Components ("CLC") and Specialty Lasers and

Systems ("SLS"). This segmentation reflects the go-to-market strategies for various products and markets. While both segments
deliver cost-effective photonics solutions, CLC focuses on higher volume products that are offered in set configurations. The
product architectures are designed for easy exchange at the point of use such that substantially all product service and repairs
are based upon advanced replacement and depot (i.e., factory) repair. CLC's primary markets include materials processing and
original equipment manufacturer ("OEM") components and instrumentation. SLS develops and manufactures configurable,
advanced performance products largely serving the microelectronics, OEM components and instrumentation and scientific
research and government programs markets. The size and complexity of many of the SLS products require service to be
performed at the customer site by factory-trained field service engineers.

Effective as of the beginning of the first quarter of fiscal 2009, we moved our diode pumped solid state ("DPSS")

Germany and Crystal product families from the CLC segment into the SLS segment. This concentrated all DPSS product
families in the SLS segment. All reporting has been aligned to reflect the revised reportable operating segments (CLC and SLS)
and prior periods have been restated. See additional discussion in Note 18 "Segment and Geographic Information" of our Notes
to Consolidated Financial Statements under Item 15 of this Annual Report on Form 10-K.

Income (loss) from operations is the measure of profit and loss that our chief operating decision maker ("CODM") uses to

assess performance and make decisions. Income (loss) from operations represents the sales less the cost of sales and direct
operating expenses incurred within the operating segments as well as allocated expenses such as shared sales and manufacturing
costs. We do not allocate to our operating segments certain operating expenses, which we manage separately at the corporate
level. These unallocated costs include stock-based compensation and corporate functions (certain advanced research and
development, management, finance, legal and human resources) and are included in Corporate and other. Management does not
consider unallocated Corporate and other costs in its measurement of segment performance.

We were originally incorporated in California on May 26, 1966 and reincorporated in Delaware on October 1, 1990.

Additional information about Coherent, Inc. (referred to herein as the Company, we, our, or Coherent) is available on our

web site at www.coherent.com. We make available, free of charge on our web site, access to our annual report on Form 10-K,
our quarterly reports on Form 10-Q, our current reports on Form 8-K and amendments to those reports filed or furnished
pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as soon as
reasonably practicable after we file or furnish them electronically with the Securities and Exchange Commission ("SEC").
Information contained on our web site is not part of this annual report or our other filings with the SEC. Any product, product
name, process, or technology described in these materials is the property of Coherent, Inc.

INDUSTRY BACKGROUND

The word "laser" is an acronym for "light amplification by stimulated emission of radiation." A laser emits an intense
coherent beam of light with some unique and highly useful properties. Most importantly, a laser is orders of magnitude brighter
than any lamp. As a result of its coherence, the beam can be focused to a very small and intense spot, useful for applications
requiring very high power densities including cutting and other materials processing procedures. The laser's high spatial
resolution is also useful for microscopic imaging and inspection applications. Laser light can be monochromatic—all the beam
energy is confined to a narrow wavelength band. Some lasers can be used to create ultrafast output—a series of pulses with
pulse durations as short as attoseconds (i.e., 10-18 seconds).

There are many types of lasers and one way of classifying them is by the material or medium used to create the lasing
action. This can be in the form of a gas, liquid, semiconductor or solid state crystal. Lasers can also be classified by their output

wavelength: ultraviolet, visible, infrared or wavelength tunable. We manufacture all of these laser types. There are also many
options in terms of pulsed output versus continuous wave, pulse duration, output power, beam dimensions, etc. In fact, each
application has its specific requirements in terms of laser performance. The broad technical depth at Coherent enables us to
offer a diverse set of product lines characterized by lasers targeted at growth opportunities and key applications. In all cases, we
aim to be the supplier of choice by offering a high-value combination of superior technical performance and high reliability.

Photonics has taken its place alongside electronics as a critical enabling technology for the twenty-first century. Photonics

based solutions are entrenched in broad industries that include industrial automation, textile processing, microelectronics, flat
panel displays and medical diagnostics, with adoption continuing in ever more diverse applications. Growth in these
applications stems from two sources. First, there are many applications where the laser is displacing conventional technology
because it can do the job faster, better or more economically. Second, there are new applications where the laser is the enabling
tool that makes the work possible (e.g., the production of sub 50 micron microvias) used in the manufacture of high density
printed circuit boards found in the latest smartphones and tablet computers.

Key laser applications include: micro and nanotechnologies; solar cell production; semiconductor inspection;
microlithography; measurement, test and repair of electronic circuits; flat panel display manufacturing; medical and bio-
instrumentation; industrial process and quality control; materials processing; imaging and printing; graphic arts and display;
and, research and development. For example, ultraviolet ("UV") lasers are enabling the move towards miniaturization, which
drives innovation and growth in many markets. The short wavelength of lasers that produce light in the UV spectral region
makes it possible to manufacture extremely small structures with maximum precision—consistent with the latest state-of-the-art
technology.

OUR STRATEGY

We strive to develop innovative and proprietary products and solutions that meet the needs of our customers and that are

based on our core expertise in lasers and optical technologies. In pursuit of our strategy, we intend to:

•

Leverage our technology portfolio and application engineering to lead the proliferation of photonics into
broader markets—We will continue to identify opportunities in which our technology portfolio and application
engineering can be used to offer innovative solutions and gain access to new markets. We plan to utilize our
expertise to expand into new markets, such as laser-based processing development tools for solar manufacturing
and high power materials processing solutions.

Optimize our leadership position in existing markets—There are a number of markets where we have
historically been at the forefront of technological development and product deployment and from which we have
derived a substantial portion of our revenues. We plan to optimize our financial returns from these markets.

Maintain and develop additional strong collaborative customer and industry relationships—We believe that
the Coherent brand name and reputation for product quality, technical performance and customer satisfaction will
help us to further develop our loyal customer base. We plan to maintain our current customer relationships and
develop new ones with customers who are industry leaders and work together with these customers to design and
develop innovative product systems and solutions as they develop new technologies.

Develop and acquire new technologies and market share—We will continue to enhance our market position
through our existing technologies and develop new technologies through our internal research and development
efforts, as well as through the acquisition of additional complementary technologies, intellectual property,
manufacturing processes and product offerings.

Streamline our manufacturing structure and improve our cost structure—We will focus on optimizing the
mix of products that we manufacture internally and externally. We will utilize vertical integration where our
internal manufacturing process is considered proprietary and seek to leverage external sources when the
capabilities and cost structure are well developed and on a path towards commoditization.

Focus on long-term improvement of adjusted EBITDA, in dollars and as a percentage of net sales—We
define adjusted EBITDA as operating income adjusted for depreciation, amortization, stock compensation
expenses, major restructuring costs and certain other non-operating income and expense items. Key initiatives to
reach our goals for EBITDA improvements include utilization of our Asian manufacturing locations, rationalizing
our supply chain and continued leveraging of our infrastructure.

APPLICATIONS

Our products address a broad range of applications that we group into the following markets: Microelectronics, Scientific

Research and Government Programs, OEM Components and Instrumentation and Materials Processing.

Microelectronics

Nowhere is the trend towards miniaturization more prevalent than in the Microelectronics market where smart phones,
tablets, ultrabooks, personal computers ("PC's") and televisions ("TV's") are driving advances in displays, integrated circuits
and printed circuit boards ("PCB's"). In response to market demands and expectations, semiconductor and device manufacturers
are continually seeking to improve their process and design technologies in order to manufacture smaller, more powerful and
more reliable devices at lower cost. New laser applications and new laser technologies are a key element in delivering higher
resolution and higher precision at lower manufacturing cost.

We support four major markets in the microelectronics industry: (1) flat panel display manufacturing, (2) advanced

packaging and interconnects, (3) semiconductor front-end, and (4) solar cell production and other emerging processes.

Microelectronics—flat panel display manufacturing

The high-volume consumer market is driving the production of flat panel displays ("FPDs") in applications such as
mobile telephones, tablets, ultrabooks, laptop computers, television monitors, digital cameras, personal digital assistants
("PDAs") and car navigation systems. There are several types of established and emerging displays based on quite different
technologies, including plasma ("PDP"), liquid crystal ("LCD") and organic polymers ("OLED"). Lasers have found
applications in each of these technologies given that the laser provides higher process speed, better yield, improved battery life,
lower cost and/or superior display brightness and resolution.

Several display types require a high-density pattern of silicon Thin Film Transistors ("TFTs"). If this silicon is

polycrystalline, the performance is greatly enhanced. In the past, these polysilicon layers could only be produced on expensive
special glass at high temperatures. However, excimer based processes, such as excimer laser annealing ("ELA") have allowed
high-volume production of low-temperature polysilicon ("LTPS") on conventional glass substrates. Our excimer lasers provide
an invaluable solution for LTPS because they are the only industrial-grade excimer lasers with the high pulse energy optimized
for this application. The current state-of-the-art product for this application is our excimer VYPER laser, which delivers over
1000W of power, enabling customers to scale to current Generation 5 & 5.5 substrates and in the near future up to Generation 8
sizes, when coupled with our latest 750mm length Line Beam optical delivery system (LB-750). These systems are integral to
the manufacturing process on all leading LTPS based smartphone displays, with the highest commercially available pixel
densities of greater than 300 pixels per inch (ppi) and hold the potential for widespread deployment in tablet computing and
future OLED TV manufacturing.

Our AVIA and DIAMOND lasers are also used in other production processes for FPDs. These processes include drilling,

cutting, patterning, marking and yield improvement.

Lasers have also become a valuable tool in high-brightness (HB) LED manufacturing, improving LED performance and

yield. LED has seen rapid growth in the last year due to widespread adoption as the light source in all categories of LCD
displays, from phones all the way to full size TV's. Our lasers are used in the back-end processing of HB-LEDs.

Microelectronics—advanced packaging and interconnects

After a wafer is patterned, there are then a host of other processes, referred to as back-end processing, which finally result

in a packaged encapsulated silicon chip. Ultimately, these chips are then assembled into finished products. The advent of high-
speed logic and high-memory content devices has caused chip manufacturers to look for alternative technologies to improve
performance and lower process costs. In terms of materials, this search includes new types of wafers based on low-k materials
and thinner silicon. Our AVIA and Matrix lasers are providing economic methods of cutting and scribing these wafers while
delivering higher yields than traditional mechanical methods. Our DIAMOND carbon dioxide ("CO2") lasers are used for
singulating packages and printed circuit boards into individual components for final assembly. Our Talisker lasers are used in a
broad range of applications requiring high precision and low heat damage, such as in thin wafer cutting and drilling.

These same trends are also driving integration and miniaturization, blurring the traditional lines between formerly discrete

applications such as assembly and PCB fabrication. Lasers are playing several enabling roles in this integration and
miniaturization. For instance, lasers are now the only economically practical method for drilling microvias in chip assemblies
and in both rigid and flexible printed circuit boards. These microvias are tiny interconnects that are essential for enabling high-
density circuitry commonly used in mobile handsets and advanced computing systems. Our AVIA and DIAMOND lasers are
the lasers of choice in this application. The ability of these lasers to operate at very high repetition rates translates into faster
drilling speeds and increased throughput in Microvia processing applications.

Other applications have developed as well. For instance, the high density of the latest circuit boards is reaching the limits

of conventional printing technologies, causing wider adoption of laser direct write methods. Our Paladin laser is used for this
application.

Microelectronics—semiconductor front-end

The term "front-end" refers to the production of semiconductor devices which occurs prior to packaging.

As semiconductor device geometries decrease in size, devices become increasingly susceptible to smaller defects during

each phase of the manufacturing process and these defects can negatively impact yield. One of the semiconductor industry's
responses to the increasing vulnerability of semiconductor devices to smaller defects has been to use defect detection and
inspection techniques that are closely linked to the manufacturing process. For example, automated laser-based inspection
systems are now used to detect and locate defects as small as 0.01 micron, which may not be observable by conventional optical
microscopes.

Detecting the presence of defects is only the first step in preventing their recurrence. After detection, defects must be
examined in order to identify their size, shape and the process step in which the defect occurred. This examination is called
defect classification. Identification of the sources of defects in the lengthy and complex semiconductor manufacturing process
has become essential for maintaining high yield production. Semiconductor manufacturing has become an around-the-clock
operation and it is important for products used for inspection, measurement and testing to be reliable and to have long lifetimes.
Our Azure, Paladin, Sapphire, and Excimer lasers are used to detect and characterize defects in semiconductor chips.

Microelectronics—solar cell production

Numerous areas of microelectronics can be grouped as "emerging technologies." Some of these are transitioning to

volume production in the present timeframe while others are more forward-looking.

Today's higher energy costs have led to heightened interest in solar panels. The interest in solar cell technology coupled

with the intense focus on improving cell efficiency, is driving the adoption of laser technology in the manufacturing of solar
cells. Our lasers, such as AVIA, Paladin, Matrix and Talisker, are used in the production of solar panels with applications such
as dopant activation in the Crystalline Silicon (C:Si) cells and transparent conductive oxide ("TCO") scribing purposes in Thin
Film designs.

We have introduced a number of complete solutions for certain processes in the manufacturing of solar cells including the

Coherent Equinox laser system and the Aethon laser system. These systems are based on Coherent lasers and can be used in a
production or process development environment.

Scientific research and government programs

We are widely recognized as a technology innovator and the scientific market has historically provided an ideal "test
market" for our leading-edge innovations. These have included ultrafast lasers, DPSS lasers, continuous-wave ("CW") systems,
excimer gas lasers and water-cooled ion gas lasers. Our portfolio of lasers that address the scientific research market is broad
and includes our Chameleon, COMPexPro, Evolution, Legend, Libra, MBD, MBR, Micra, Mira, Mantis and Verdi lasers. Many
of the innovations and products pioneered in the scientific marketplace have become commercial successes for both our OEM
customers and us.

We have a large installed base of scientific lasers which are used in a wide range of applications spanning virtually every

branch of science and engineering. These applications include biology and life science, engineering, physical chemistry and
physics. Most of these applications require the use of ultrafast lasers that enable the generation of pulses short enough to be
measured in attoseconds (10-18 seconds). Because of these very short pulse durations, ultrafast lasers enable the study of
fundamental physical and chemical processes with temporal resolution unachievable with any other tool. These lasers also
deliver very high peak power and large bandwidths, which can be used to generate many exotic effects. Some of these are now
finding their way into mainstream applications, such as microscopy or materials processing. In fact, the use of ultrafast lasers
such as the Chameleon in microscopy is now a common occurrence in bio-imaging labs.

OEM components and instrumentation

Instrumentation is one of our more mature commercial applications. Representative applications within this market
include bio-instrumentation, medical OEMs, graphic arts and display and machine vision. We also support the laser-based
instrumentation market with a range of laser-related components, including diode lasers for optical pumping. Some of our OEM
component business includes sales to other, less integrated laser manufacturers participating in OEM markets such as materials
processing, scientific, and medical.

Bio-instrumentation

Bio-instrumentation applications for lasers include bio-agent detection for point source and standoff detection of
pathogens or other bio-toxins; confocal microscopy for biological imaging that allows researchers and clinicians to visualize
cellular and subcellular structures and processes with an incredible amount of detail; DNA sequencing that provides automation
and data acquisition rates that would be impossible by any other method; drug discovery—genomic and proteomic analyses that
enable drug discovery to proceed at very high throughput rates; and flow cytometry for analyzing single cells or populations of
cells in a heterogeneous mixture, including blood samples. Specifically, our Sapphire, Compass and Coherent CUBE lasers are
used in several bio-instrumentation applications.

Medical Therapy

We sell a variety of components and lasers to medical laser companies in end-user applications such as ophthalmology,
aesthetic, surgical, therapeutic and dentistry. Our DIAMOND series CO2 lasers are widely used in ophthalmic, aesthetic and
surgical markets. Our Compass and Sapphire series of lasers are used in the retinal scanning market in diagnostic imaging
systems as well as new ground breaking in-vivo imaging applications. In addition, we have a leading position in Lasik and
photorefractive keratectomy ("PRK") surgery methods with our ExciStar XS excimer laser platform.

The unique ability of our optically pumped semiconductor lasers ("OPSL") technology to match a wavelength to an
application has led to the development of a high-power yellow (577nm) laser for the treatment of eye related diseases, such as
Age Related Macular Degeneration and retinal diseases associated with diabetes. The 577nm wavelength was designed to match
the peak in absorption of oxygenated hemoglobin thereby allowing treatment to occur at a lower power level, and thus reducing
stress and heat-load placed on the eye with traditional green-based (530nm) solid state lasers. This technology is finding traction
with both medical OEMs and ophthalmologists.

Materials Processing

Lasers are widely accepted today in many important industrial manufacturing applications including cutting, welding,

joining, drilling, perforating, and marking of metals and nonmetals. We supply high-power lasers for metal processing and low-
to-medium power lasers for laser marking, nonmetals processing and precision micromachining.

Our high power industrial laser systems are used for cutting, cladding and hardening of metals, joining materials, and

other materials processing applications. Other applications include welding of plastics and direct metal welding.

Our Semiconductor business provides higher power arrays with powers in excess of 50Kilowatts through its proprietary

cooling and stacking technology. This unique technology provides the engine for both our Highlight direct diode systems as
well as our upcoming kW class fiber laser. Complementing our high power solid state lasers is our industry leading
DIAMOND E1000 CO2 laser. Introduced in 2009, this laser remains in high demand due to its high power, small size and
completely sealed design - all ideal for material processing.

Combining the high power Direct Diode, Fiber and CO2 offerings with our MetaBeam 1000 flatbed cutting tool provides

a strong, compelling four-pronged approach to meeting the needs of our diverse materials processing customers.

In 2010 we acquired Beam Dynamics, Inc., a manufacturer of flexible laser cutting tools for the materials processing

market. These tools, when combined with Coherent's medium to high power CO2 lasers, offer a unique blend of performance
and precision in a small lightweight tool for cutting of metals and non-metals. Enabled with the DIAMOND E1000, the new
METABEAM 1000 offers the industry's most compact 1kW tool, with tools footprints at least 50% smaller than competitive
designs. Operating costs, due to the sealed nature of the DIAMOND series of CO2 lasers are 75% less than similar, but larger
tools.

We also participate in the low to medium power area, including such applications as the cutting, drilling and joining of
host of materials using our DIAMOND CO2 lasers; Highlight FAP semiconductor lasers in OEM opportunities and direct end
user applications with the lower power OMNIBEAM and METABEAM cutting tools; applications including cutting,
perforating and scoring of paper, thin metals and packaging materials; and various cutting and patterning applications in the
textile, wood and sign industries. In the specific area of textiles and clothing, our DIAMOND lasers service older applications,
such as cutting complex shapes in leather for footwear, as well as newer applications such as creating detailed fade patterns on
designer denims.

Laser marking and coding are generally considered part of the precision materials processing applications market for
which we remain a leading supplier. One such area where applications are growing rapidly is the displacement of ink-jet coding
due to both aesthetic and environmental pressures. The optimum choice of laser depends on the material being marked, whether
it is a surface mark (engraved) or a sub-surface mark, and the specific economics of the application. We provide lasers for all
important marking applications. Our DIAMOND C and GEM Series of CO2 lasers provide many systems manufacturers with a

reliable cost effective source for marking and engraving on non-metals. In addition, our Matrix product line of reliable, compact
and low-cost diode pumped solid state lasers provides an ideal solution for marking of other materials in high volume
manufacturing.

FUTURE TRENDS

Microelectronics

Lasers are widely used in mass production microelectronics applications largely because they enable entirely new
application capabilities that cannot be realized by any other known means. These laser-based fabrication and testing methods
provide a level of precision, typically on a micrometer and nanometer level, that are unique, faster, are touch free, deliver
superior end products, increase yields, and/or cut production costs. We anticipate this trend to continue, driven primarily by the
increasing sophistication of consumer electronic goods and their convergence via the internet, resulting in increasing demand
for better displays, more bandwidth and memory, while at the same time consuming less power. Although this market follows
the macro-economic trends and carries inherit risks, we believe that Coherent is well positioned to continue to capitalize on the
current market trends and that we will see continued increased adoption of our pulsed fiber, solid-state, CO2, direct diode and
excimer lasers, as all these lasers enable entirely new applications, performance improvements and reduced process costs.

LTPS based high resolution mobile displays (greater than 300ppi), and especially the emergence of OLED technology,

look set to dominate the FPD technology trends of the future. We believe we are well positioned, especially with our Vyper
Excimer lasers and LB optical systems, to take advantage of this trend, including the possibility of LTPS based OLED TVs.
CO2, Avia, Talisker and direct diode lasers all seem aligned with the need for related FPD touch panel, thin film cutting, light
guide technology, frit welding and glass cutting applications.

Semiconductor devices look set to continue Moore's Law, shrinking device geometries for at least another decade, as well

as expanding vertically into new 3D structures. As a result we believe our many deep UV laser sources (such as Paladin, Avia,
Talisker, ExiStar and Matrix) will continue to find increasing adoption, since their unique optical properties align well with the
process demands of a nanometer scale world.

The same lasers plus CO2 are also widely adopted for back end Advanced Packaging and Interconnect (API) applications.

With dimension roadmaps showing a decade of dimension shrink on PCBs, interconnects, Silicon & LED scribe widths and
glass thickness, we believe that our portfolio of lasers aligns well with these demands as well as new processes that seem likely
to be enabled by our lasers, to meet the increasing demands and decreasing tolerances of these markets.

The short term outlook for solar is uncertain given the global economy, credit availability and the significant oversupply
of cell production that exists at this time. The longer term outlook for this ultimate clean, free and abundant source of energy is
expected to be strong; however, the timing is uncertain. We believe that the vast majority of leading solar cell manufacturers
have laser based processes on their roadmap to enable higher conversion efficiencies. Lasers provide a touch-free
manufacturing process on increasingly fragile substrates (as they get thinner). They also hold the promise of lower
manufacturing costs and higher yield for certain process steps. We believe we are well positioned as this market matures,
standardizes processes and recovers economically.

Scientific research and government programs

The scientific market benefited from stimulus funding during fiscal 2011, with applications in ultrashort pulses and in bio-

research being the drivers of this anticipated expansion. We anticipate the total amount of government-related funding for
scientific research to decline from prior stimulus levels, but believe that as we push the boundaries of performance and ease of
use in our ultrafast lasers, we have the potential to capture a larger share of the funds that are available by enabling our
customers to win funding for new research fields that drive discovery. While these markets remain highly competitive, we
believe our leadership position and new product pipeline will drive Attosecond science boundaries and Biological Imaging ease
of use, enabling new research frontiers to be forged and we would expect a gain in market share as a result.

OEM components and instrumentation

The instrumentation market is seeing a gradual migration from the use of mature laser technologies, such as water-cooled
ion gas lasers, to new technologies, primarily based on solid state and semiconductor lasers. Using our unique portfolio of such
lasers, as well as our patented OPSL technology, we are able to both assist and stimulate this transition as well as to be the
technology of choice for developing applications such as security and clinical diagnostics. Our OPSL technology resulted in the
first truly continuous solid-state UV laser which enables the use of UV in a clinical as well as a research environment.
Furthermore we anticipate greater future opportunities in bio-instrumentation, including DNA sequencing, drug discovery, flow
cytometry, and microscopy, based on our product enhancements and evolving market developments, particularly in increased
migration from clinical to point-of-care diagnostics. Our newer laser technologies are the basis of a number of clinical
procedures. In the area of photocoagulation, the Genesis OPSL yellow lasers are being used as the wavelength is particularly

suitable for the treatment of blood vessels. In aesthetic laser procedures, we are an OEM supplier of CO2 and semiconductor
lasers to the major manufacturers of equipment used in the latest procedures in dermatology and hair removal. We supply
excimer lasers used in refractive eye surgery and are actively involved in further developments in laser vision correction.

Materials processing

The market for low to medium power CO2, solid state and semiconductor lasers used in industrial materials processing
has experienced a nice rebound and is expected to see continued growth driven by wider adoption of lasers in new processes
especially in emerging markets. Key design wins as well as more favorable markets continue to support our growth in this area.
These lasers represent a cost-effective manufacturing solution for cutting, joining, marking and engraving of non-metal
materials including marking/coding, flat bed cutting, engraving, as well as the production of capital equipment for apparel and
leather goods manufacturing. Our four-pronged approach to the higher power industrial laser market provides us with a unique
combination of high power, precision and compact size, which we believe will be highly desirable in existing manufacturing
environments as well as those of the future. We offer kilowatt Diamond CO2 lasers, Highlight direct diode lasers and
MetaBEAM family of turnkey laser machine tools. We demonstrated a prototype 1kW fiber laser in fiscal 2011 to round-out our
four-pronged strategy. Several factors are enabling us to gain market share in the materials processing market. First, we have
developed an expanded portfolio of lasers with a broad spectrum of wavelengths, enabling optimum solutions for virtually every
metal and non-metal material type. At the same time, the reliability of these products has been achieved at even higher levels,
lowering the cost of ownership.

MARKET APPLICATIONS

We design, manufacture and market lasers, laser tools, precision optics and related accessories for a diverse group of

customers. The following table lists our major markets and the Coherent technologies serving these markets.*

Market
Microelectronics

Application

Flat panel display

Advanced packaging and
interconnects

Semiconductor front-end

Scientific research and government
programs

Solar cell production and other
emerging processes
All scientific applications

OEM components and
instrumentation

Bio-Instrumentation

Graphic arts and display

Medical therapy (OEM)

Materials processing

Metal cutting, joining, surface
treatment

Laser marking and coding

Non-metal cutting, drilling

Technology

CO2
DPSS
Excimer
Ultrafast
Semiconductor
CO2
DPSS
Ultrafast
DPSS
OPSL
Excimer
Ion
DPSS
Fiber
DPSS
Excimer
OPSL
Ultrafast
DPSS
OPSL
Semiconductor
Ultrafast
OPSL
CO2
CO2
DPSS
Excimer
OPSL
Semiconductor
CO2
Fiber
Semiconductor
Laser Machine Tools
CO2
DPSS
CO2
DPSS
Excimer
Semiconductor
Laser Machine Tools

*Coherent sells its laser measurement and control products into a number of these applications.

In addition to products we provide, we invest routinely in the core technologies needed to create substantial differentiation

for our products in the marketplace. Our semiconductor, crystal and fiber facilities all maintain an external customer base
providing value-added solutions. We direct significant engineering efforts to produce unique solutions targeted for internal
consumption. These investments, once integrated into our broader product portfolio, provide our customers with uniquely
differentiated solutions and the opportunity to substantially enhance the performance, reliability and capability of the products
we offer.

TECHNOLOGIES

Diode-pumped solid-state ("DPSS") lasers

DPSS lasers use semiconductor lasers to pump a crystal to produce a laser beam. By changing the energy, optical

components and the types of crystals used in the laser, different wavelengths and types of laser light can be produced.

The efficiency, reliability, longevity and relatively low cost of DPSS lasers make them ideally suited for a wide range of

OEM and end-user applications, particularly those requiring 24-hour operations. Our DPSS systems are compact and self-
contained sealed units. Unlike conventional tools and other lasers, our DPSS lasers require minimal maintenance since they do
not have internal controls or components that require adjusting and cleaning to maintain consistency. They are also less affected
by environmental changes in temperature and humidity, which can alter alignment and inhibit performance in many systems.

We manufacture a variety of types of DPSS lasers for different applications including semiconductor inspection;
advanced packaging and interconnects; laser pumping; spectroscopy; bio-agent detection; DNA sequencing; drug discovery;
flow cytometry; forensics; computer-to-plate printing; entertainment lighting (display); medical; rapid prototyping and marking,
welding, engraving, cutting and drilling.

Fiber lasers

Fiber lasers use semiconductor lasers to pump a doped optical fiber to produce a laser beam. In fiscal 2008, we launched

our first product based on fiber laser technology, the Talisker. This is an industrial ultrafast laser system which incorporates
fiber laser technologies as a key part of the laser design. The Talisker is a new laser platform based on a fiber oscillator and
crystal amplifier and is illustrative of our strategy of developing and incorporating fiber lasers where they can generate unique
and cost-effective performance. We expect the Talisker platform will lead to a series of new ultrafast lasers for a number of
commercial markets including microelectronics and medical. In fiscal 2009, we launched a program to address the kilowatt high
power materials processing market. We have successfully demonstrated a 1 kilowatt fiber laser product based on our high
power diode laser system, the Highlight 1000F. This prototype demonstrated the platform for a scalable, kilowatt class fiber
laser based on a bar pumping design. Due to packaging efficiency, diode bars reduce the overall cost of a fiber laser. This
platform will address the growing high power metal cutting and joining market and delivers a field serviceable solution.

Fiber laser technology continues to be an important investment and product development area and we anticipate more

products that incorporate fiber as the active gain medium. In fiscal 2010, we acquired the business assets of Stocker-Yale, Inc.
which included a fiber manufacturing facility capable of producing both active and passive fibers.

Gas lasers (CO2, Excimer, Ion)

The breadth of our gas laser portfolio is industry leading, encompassing CO2, excimer and ion laser technologies. Gas
lasers derive their name from the use of one or more gases as a lasing medium. They collectively span an extremely diverse and
useful emission range, from the very deep ultraviolet to the far infrared. This diverse range of available wavelengths, coupled
with high optical output power, and an abundance of other attractive characteristics, makes gas lasers extremely useful and
popular for a variety of microelectronics, scientific, medical therapeutic and materials processing applications.

Optically Pumped Semiconductor Lasers ("OPSL")

Our OPSL platform is a surface emitting semiconductor laser that is energized or pumped by a semiconductor laser. The

use of optical pumping circumvents inherent power scaling limitations of electrically pumped lasers, enabling very high
powered devices. A wide range of wavelengths can be achieved by varying the semiconductor materials used in the device and
changing the frequency of the laser beam using techniques common in solid state lasers. The platform leverages high reliability
technologies developed for telecommunications and produces a compact, rugged, high power, single-mode laser.

Our OPSL products are well suited to a wide range of applications, including the bio-instrumentation, medical
therapeutics and graphic arts and display markets. In fiscal 2009, our Genesis yellow laser continued to make progress in
ophthalmology and we have expanded our offerings in the area of entertainment lighting using a variety of products across the
visible spectrum. We also continued to expand our ultraviolet version of the OPSL platform called the Genesis, which was
developed for the bio-instrumentation market.

Semiconductor lasers

High power edge emitting semiconductor diode lasers use the same principles as widely-used CD and DVD lasers, but

produce significantly higher power levels. The advantages of this type of laser include smaller size, longer life, enhanced
reliability and greater efficiency. We manufacture a wide range of discrete semiconductor laser products with wavelengths
ranging from 650nm to 1000nm and output powers ranging from 1W to over 100W, with highly integrated products in the kW

range. These products are available in a variety of industry standard form factors including the following: bare die, packaged
and fiber coupled single emitters and bars, monolithic stacks, and fully integrated modules with microprocessor controlled units
that contain power supplies and active coolers.

Our semiconductor lasers are used internally as the pump lasers in DPSS, fiber and OPSL products that are manufactured

by us, as well as a wide variety of external medical, OEM, military and industrial applications, including aesthetic (hair
removal, cosmetic dentistry), graphic arts, counter measures, rangefinders, target designators, and plastic welding.

Ultrafast ("UF") Lasers

Ultrafast lasers are lasers generating light pulses with durations of a few femtoseconds (10-15 seconds) to a few tens of

picoseconds (10-11 seconds). These types of lasers are primarily used for scientific research and also are finding use in
sophisticated materials processing applications. Ultrafast lasers are usually pumped by a green DPSS laser. UF laser oscillators
generate a train of pulses at 50-100 MHz, with peak powers of tens of Kilowatts, and UF laser amplifiers generate pulses at 10-
500 kHz, with peak powers up to several Terawatts.

The extremely short duration of UF laser pulses enables temporally resolving fast events like the dynamics of atoms or

electrons. In addition, the high peak power enables so-called non-linear effects where several photons can be absorbed by a
molecule at the same time. This type of process enables applications like multi-photon excitation microscopy or UF ablation of
materials with minimal thermal damage.

SALES AND MARKETING

We market our products domestically through a direct sales force. Our foreign sales are made principally to customers in

Japan, South Korea, Germany and other European and Asia-Pacific countries. We sell internationally through direct sales
personnel located in Canada, France, Germany, Italy, Japan, the Netherlands, China, South Korea, Taiwan, Singapore, Malaysia
and the United Kingdom, as well as through independent representatives in certain jurisdictions around the world. Foreign sales
accounted for 74% of our total net sales in fiscal 2011, 67% of our total net sales in fiscal 2010 and 66% of our total net sales in
fiscal 2009. In fiscal 2011, sales to Asian markets continued to grow at a faster rate than sales to other geographic regions. Sales
made to independent representatives and distributors are generally priced in U.S. dollars. A large portion of foreign sales that
we make directly to customers are priced in local currencies and are therefore subject to currency exchange fluctuations.
Foreign sales are also subject to other normal risks of foreign operations such as protective tariffs, export and import controls
and political instability. Our products are broadly distributed and no one customer accounted for more than 10% of total net
sales during fiscal 2011, 2010 or 2009.

We maintain a customer support and field service staff in major markets within the United States, Europe, Japan, China,
South Korea, Taiwan and other Asia-Pacific countries. This organization works closely with customers, customer groups and
independent representatives in servicing equipment, training customers to use our products and exploring additional
applications of our technologies.

We typically provide parts and service warranties on our lasers, laser-based systems, optical and laser components and

related accessories and services. Warranties on some of our products and services may be shorter or longer than one year.
Warranty reserves, as reflected on our consolidated balance sheets, have generally been sufficient to cover product warranty
repair and replacement costs. The weighted average warranty period covered is approximately 15 months.

RESEARCH AND DEVELOPMENT

We are committed to the development of new products, as well as the improvement and refinement of existing products,

including better cost-of-ownership. Our development efforts are focused on designing and developing products, services and
solutions that anticipate customers' changing needs and emerging technological trends. Our efforts are also focused on
identifying the areas where we believe we can make valuable contributions. Research and development expenditures for fiscal
2011 were $81.2 million, or 10.1% of net sales compared to $72.4 million, or 12.0% of net sales for fiscal 2010 and $61.4
million, or 14.1% of net sales for fiscal 2009. We work closely with customers, both individually and through our sponsored
seminars, to develop products to meet customer application and performance needs. In addition, we are working with leading
research and educational institutions to develop new photonics based solutions.

MANUFACTURING

Strategies

One of our core manufacturing strategies is to tightly control our supply of key parts, components, sub-assemblies and

outsourcing partners. We primarily utilize vertical integration when we have proprietary internal capabilities that are not
available from external sources cost-effectively. We believe this is essential to maintain high quality products and enable rapid

development and deployment of new products and technologies. We provide customers with 24-hour technical expertise and
quality that is International Organization for Standardization ("ISO") certified at our principal manufacturing sites.

Committed to quality and customer satisfaction, we design and produce many of our own components and sub-assemblies

in order to retain quality control. We have also outsourced certain components, sub-assemblies and finished goods where we
can maintain our high quality standards while improving our cost structure. In 2007, we embarked on a plan to consolidate and
close certain of our manufacturing facilities in order to reduce our footprint, realize synergies, and improve our cost structure
and operating leverage. We have successfully executed this plan and closed six of our manufacturing facilities including Auburn
and Lundy, California; St. Louis, Missouri; Montreal, Canada; Munich, Germany; and Tampere, Finland. The manufacturing of
products from these six facilities were transferred to other Coherent facilities or outsourced to our Contract Manufacturing
partners.

As part of our strategy to increase our market share and customer support in Asia as well as our continuing efforts to
manage costs, we acquired the business assets of privately-held Hypertronics in the second quarter of fiscal 2011. Hypertronics'
assets included an engineering and integration center in Singapore and a low cost manufacturing facility in Penang, Malaysia,
and designs and manufactures laser- and vision-based tools for flat panel, storage, semiconductor and biomedical applications.
We have increased the footprint of both the Singapore and Malaysia factories and plan to use these operations to serve as a
nucleus for laser manufacturing and repair in Asia. This will allow us to reduce service response time and inventories,
providing benefits to customers and Coherent. We have also established an International Procurement Office in Singapore and
plan to increase our sourcing of materials from Asia. As this function is developed, we will be able to reduce material costs on
a global basis.

We have designed and implemented proprietary manufacturing tools, equipment and techniques in an effort to provide

products that differentiate us from our competitors. These proprietary manufacturing techniques are utilized in a number of our
product lines including our gas laser production, crystal growth, beam alignment as well as the wafer growth for our
semiconductor and optically pumped semiconductor laser product family.

Raw materials or sub-components required in the manufacturing process are generally available from several sources.
However, we currently purchase several key components and materials, including exotic materials and crystals, used in the
manufacture of our products from sole source or limited source suppliers. We also purchase assemblies and turnkey solutions
from contract manufacturers based on our proprietary designs. We rely on our own production and design capability to
manufacture and specify certain strategic components, crystals, fibers, semiconductor lasers, lasers and laser based systems.

For a discussion of the importance to our business of, and the risks attendant to sourcing, see "Risk Factors—We depend
on sole source or limited source suppliers, both internal and external, for some of our key components and materials, including
exotic materials, certain cutting-edge optics and crystals, in our products, which make us susceptible to supply shortages or
price fluctuations that could adversely affect our business" in Item 1A.

Operations

Our products are manufactured at our sites in Santa Clara and Sunnyvale, California; Wilsonville, Oregon; East Hanover,

New Jersey; Bloomfield, Connecticut; Lübeck, Germany; Göttingen, Germany; Glasgow, Scotland; Salem, New Hampshire;
Kallang Sector, Singapore; and Penang, Malaysia. In addition, we also use contract manufacturers for the production of certain
assemblies and turnkey solutions. Our ion gas lasers, a portion of our DPSS lasers that are used in microelectronics, scientific
research and materials processing applications, semiconductor lasers, [DDF fibers] and ultrafast scientific lasers are
manufactured at our Santa Clara, California site. Our laser diode module products, laser instrumentation products, test and
measurement equipment products are manufactured in Wilsonville, Oregon. We manufacture exotic crystals in East Hanover,
New Jersey and both active and passive fibers are manufactured in our New Hampshire facility. Our CO2 gas lasers are
manufactured in Bloomfield, Connecticut. We manufacture a portion of our DPSS lasers used in microelectronics and OEM
components and instrumentation applications in Lübeck, Germany. Our excimer gas laser products are manufactured in
Göttingen, Germany. We manufacture the fiber-based lasers and a portion of our DPSS lasers used in microelectronics and
scientific research applications in Glasgow, Scotland. Our facility in Sunnyvale, California grows the aluminum-free materials
that are incorporated into our semiconductor lasers. Our laser- and vision-based tools for flat panel, storage, semiconductor and
solar applications are manufactured in Singapore with Malaysia as the low cost assembly hub.

INTELLECTUAL PROPERTY

We rely on a combination of patent, copyright, trademark and trade secret laws and restrictions on disclosure to protect

our intellectual property rights. As of October 1, 2011, we held approximately 387 U.S. and foreign patents, which expire from
2013 through 2029 (depending on the payment of maintenance fees) and we have approximately 114 additional pending patent
applications that have been filed. The issued patents cover various products in all of the major markets that we serve.

For a discussion of the importance to our business of, and the risks attendant to intellectual property rights, see "Risk

Factors—Risks Associated with Our Industry, Our Business and Market Conditions" 'We may not be able to protect our
proprietary technology which could adversely affect our competitive advantage' and 'We may, in the future, be subject to claims
or litigation from third parties, for claims of infringement of their proprietary rights or to determine the scope and validity of our
proprietary rights or the proprietary rights of competitors or other rights holders. These claims could result in costly litigation
and the diversion of our technical and management personnel. Adverse resolution of litigation may harm our operating results
or financial condition' in Item 1A.

COMPETITION

Competition in the various photonics markets in which we provide products is very intense. We compete against a number

of companies including CVI Melles Griot, Cymer, Inc., GSI Group, Inc., IPG Photonics Corporation, JDS Uniphase
Corporation, Newport Corporation, Rofin-Sinar Technologies, Inc., and Trumpf GmbH, as well as other smaller companies. We
compete globally based on our broad product offering, reliability, cost, and performance advantages for the widest range of
commercial and scientific research applications. Other considerations by our customers include warranty, global service and
support and distribution.

BACKLOG

At fiscal 2011 year-end, our backlog of orders scheduled for shipment (generally within one year) was $356.5 million
compared to $262.0 million at fiscal 2010 and $164.3 million at fiscal 2009 year-ends. Orders used to compute backlog are
generally cancelable without substantial penalties. Historically, the rate of cancellation experienced by us has not been
significant though we cannot guarantee that cancellations will not increase in the future.

SEASONALITY

We have historically experienced decreased bookings and revenue in the first fiscal quarter compared to other quarters in

our fiscal year due to the impact of time off and business closures at many of our customers due to year-end holidays. This
historical pattern should not be considered a reliable indicator of the Company's future net sales or financial performance.

EMPLOYEES

As of fiscal 2011 year-end, we had 2,309 employees. Approximately 391 of our employees are involved in research and
development; 1,358 of our employees are involved in operations, manufacturing, service and quality assurance; and 560 of our
employees are involved in sales, order administration, marketing, finance, information technology and other administrative
functions. Our success will depend in large part upon our ability to attract and retain employees. We face competition in this
regard from other companies, research and academic institutions, government entities and other organizations. We consider our
relations with our employees to be good.

ACQUISITIONS

In January 2011, we acquired all of the assets and assumed certain liabilities of Hypertronics Pte Ltd for approximately

$14.5 million in cash. Hypertronics designs and manufactures laser-and vision-based tools for flat panel, storage, semiconductor
and solar applications at facilities in Singapore and Malaysia. Hypertronics has been included in our Specialty Lasers and
Systems segment.

In April 2010, we acquired Beam Dynamics, Inc. for $5.9 million in cash and $0.3 million in deferred compensation
related to an employment contract, which was recognized in expense as earned. Beam Dynamics manufactures flexible laser
cutting tools for the materials processing market. Beam Dynamics has been included in our Commercial Lasers and
Components segment.

In October 2009, we acquired all the assets and certain liabilities of StockerYale, Inc.'s ("StockerYale") laser module

product line in Montreal and its specialty fiber product line in Salem, New Hampshire for $15.0 million in cash. StockerYale
designs, develops and manufactures low power laser modules, light emitting diode (LED) systems and specialty optical fiber
products. These assets and liabilities have been included in our Commercial Lasers and Components segment.

We consummated no acquisitions in fiscal 2009.

Please refer to "Note 4. Business Combinations" of Notes to Consolidated Financial Statements under Item 15 of this

Annual Report on Form 10-K for further discussion of the acquisition completed during fiscal 2011.

RESTRUCTURINGS AND CONSOLIDATION

During the first quarter of fiscal 2010, we acquired the assets and certain liabilities of StockerYale's laser module product

line in Montreal, Canada and began to transition those activities to contract manufacturers and other Coherent facilities in

Salem, Massachusetts, Wilsonville, Oregon and Sunnyvale, California. The transfer was completed in the second quarter of
fiscal 2011. The fiscal 2010 severance related costs are primarily comprised of severance pay, outplacement services, medical
and other related benefits for employees being terminated due to the transition of activities out of Montreal, Canada, and
Tampere, Finland. The fiscal 2011 severance related costs are primarily comprised of severance pay, outplacement services,
medical and other related benefits for employees being terminated due to the transition of activities out of Tampere, Finland.

During the second quarter of fiscal 2009, we announced our plans to close our facilities in Tampere, Finland and
St. Louis, Missouri. The closure of our St. Louis, Missouri and Yokohama, Japan sites were completed in the fourth quarter of
fiscal 2009. The closure of our Finland site was scheduled for completion by the end of fiscal 2010, but we decided to delay the
closure due to increased demand for products manufactured in Finland. In the second quarter of fiscal 2011, we ceased
manufacturing operations in our Finland facility and we exited the facility in the third quarter of fiscal 2011. These closure
plans have resulted in charges primarily for employee termination and other exit related costs associated with a plan approved
by management.

During fiscal 2008, we consolidated our German DPSS manufacturing into our Lübeck, Germany site. The transfer was
completed in our fourth quarter of fiscal 2008. On October 13, 2008, we announced the consolidation of the remainder of our
Munich facility into our Göttingen site. The transfer was completed in our third quarter of fiscal 2009. The consolidation and
transfers have resulted in charges primarily for employee terminations, other exit related costs associated with a plan approved
by management and a grant repayment liability.

In April 2008, we announced that we entered into an agreement to sell certain assets of our Auburn Optics ("Auburn")

manufacturing operation to Research Electro-Optics, Inc. ("REO"), a privately held optics manufacturing and technology
company. We also entered into a strategic supply agreement with REO. REO is providing optical manufacturing capabilities for
us, including fabrication and coating of optical components. The transition of the optics manufacturing assets from Auburn to
REO was substantially completed in second quarter of fiscal 2009. The transition has resulted in charges primarily for employee
terminations, supplier qualification, moving costs for related equipment, and other exit related costs associated with a plan
approved by management.

GOVERNMENT REGULATION

Environmental regulation

Our operations are subject to various federal, state and local environmental protection regulations governing the use,

storage, handling and disposal of hazardous materials, chemicals, various radioactive materials and certain waste products. In
the United States, we are subject to the federal regulation and control of the Environmental Protection Agency. Comparable
authorities are involved in other countries. We believe that compliance with federal, state and local environmental protection
regulations will not have a material adverse effect on our capital expenditures, earnings and competitive and financial position.

Although we believe that our safety procedures for using, handling, storing and disposing of such materials comply with

the standards required by federal and state laws and regulations, we cannot completely eliminate the risk of accidental
contamination or injury from these materials. In the event of such an accident involving such materials, we could be liable for
damages and such liability could exceed the amount of our liability insurance coverage and the resources of our business.

We may face potentially increasing complexity in our product designs and procurement operations as we adjust to
requirements relating to the materials composition of products entering specific markets. Such regulations went into effect in the
European Union ("EU") in 2006, and China in 2007. We could face significant costs and liabilities in connection with product
take-back legislation. Beginning in 2006, the EU Waste Electrical and Electronic Equipment Directive made producers of
electrical goods financially responsible for specified collection, recycling, treatment and disposal of past and future covered
products. In addition, the EU has added the Registration, Evaluation and Authorization of Chemicals Regulation, otherwise
known as the REACH Regulation, which further regulates substances and products imported, manufactured or sold within the
EU. Similar laws are now pending in various jurisdictions around the world, including the United States.

We further discuss the impact of environmental regulation under "Risk Factors—Compliance or the failure to comply

with current and future environmental regulations could cause us significant expense" in Item 1A.

SEGMENT INFORMATION

We are organized into two operating segments: Commercial Lasers and Components ("CLC") and Specialty Lasers and

Systems ("SLS"). This segmentation reflects the go-to-market strategies for various products and markets. While both segments
work to deliver cost-effective photonics solutions, CLC focuses on higher volume products that are offered in set
configurations. The product architectures are designed for easy exchange at the point of use such that product service and
repairs are based upon advanced replacement and depot (i.e., factory) repair. CLC's primary markets include OEM components
and instrumentation and materials processing. SLS develops and manufacturers configurable, advanced-performance products

largely serving the microelectronics and scientific research markets. The size and complexity of many of the SLS products
require service to be performed at the customer site by factory-trained field service engineers.

We have identified CLC and SLS as operating segments for which discrete financial information was available. Both units

have dedicated engineering, manufacturing, product business management and product line management functions. A small
portion of our outside revenue is attributable to projects and recently developed products for which a segment has not yet been
determined. The associated direct and indirect costs are presented in the category of Corporate and other, along with other
corporate costs.

Effective as of the beginning of the first quarter of fiscal 2009, in order to align all of our diode-pumped solid state
("DPSS") technology into the same reportable operating segment, management moved the DPSS Germany and Crystal product
families from the CLC segment into the SLS segment. This allows for leverage and efficiencies in many parts of the business.
Crystal is primarily an internal supplier that supports the DPSS product family. This concentrates all DPSS product families in
the SLS segment effective as of the first quarter of fiscal 2009. All reporting has been aligned to reflect the revised reportable
operating segments (CLC and SLS).

FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES

Financial information relating to foreign and domestic operations for fiscal years 2011, 2010 and 2009, is set forth in
Note 18, "Segment and Geographic Information" of our Notes to Consolidated Financial Statements under Item 15 of this
Annual Report on Form 10-K.

ITEM 1A. RISK FACTORS

You should carefully consider the followings risks when considering an investment in our Common Stock. These risks could
materially affect our business, results of operations or financial condition, cause the trading price of our Common Stock to
decline materially or cause our actual results to differ materially from those expected or those expressed in any forward-
looking statements made by or on behalf of Coherent. These risks are not exclusive, and additional risks to which we are
subject include, but are not limited to, the factors mentioned under “Forward-Looking Statements” and the risk of our
businesses described elsewhere in this Annual Report on Form 10-K. Additionally, these risks and uncertainties described
herein are not the only ones facing us. Other events that we do not currently anticipate or that we currently deem immaterial
also may affect our business, results of operations or financial conditions.

BUSINESS ENVIRONMENT AND INDUSTRY TRENDS

Risks Associated with Our Industry, Our Business and Market Conditions

Our operating results, including net sales, net income (loss) and adjusted EBITDA percentage in dollars and as a
percentage of net sales, as well as our stock price have varied in the past, and our future operating results will continue
to be subject to quarterly and annual fluctuations based upon numerous factors, including those discussed in this Item
1A and throughout this report. Our stock price will continue to be subject to daily variations as well. Our future
operating results and stock price may not follow any past trends or meet our guidance and expectations.

Our net sales and operating results, such as adjusted EBITDA percentage, net income (loss) and operating expenses, and

our stock price have varied in the past and may vary significantly from quarter to quarter and from year to year in the future. We
believe a number of factors, many of which are outside of our control, could cause these variations and make them difficult to
predict, including:

•

general economic uncertainties in the macroeconomic and local economies facing us, our customers and the
markets we serve;

access to applicable credit markets by us, our customers and their end customers;

fluctuations in demand for our products or downturns in the industries that we serve;

the ability of our suppliers, both internal and external, to produce and deliver components and parts, including sole
or limited source components, in a timely manner, in the quantity, quality and prices desired;

the timing of conversion of booking to revenue;

timing or cancellation of customer orders and shipment scheduling;

fluctuations in our product mix;

the ability of our customers' suppliers to provide sufficient material to support our customers' products;

currency fluctuations and stability, in particular the Euro;

commodity pricing;

introductions of new products and product enhancements by our competitors, entry of new competitors into our
markets, pricing pressures and other competitive factors;

our ability to develop, introduce, manufacture and ship new and enhanced products in a timely manner without
defects;

our ability to manage our capacity and that of our suppliers;

our increased reliance on domestic and foreign contract manufacturing;

the rate of market acceptance of our new products;

•

the ability of our customers to pay for our products;

expenses associated with acquisition-related activities;

seasonal sales trends;

delays or reductions in customer purchases of our products in anticipation of the introduction of new and enhanced
products by us or our competitors;

our ability to control expenses;

the level of capital spending of our customers;

potential excess and/or obsolescence of our inventory;

costs and timing of adhering to current and developing governmental regulations and reviews relating to our
products and business;

costs related to acquisitions of technology or businesses;

impairment of goodwill, intangible assets and other long term assets;

our ability to meet our expectations and forecasts and those of public market analysts and investors;

costs and expenses from litigation;

the availability of research funding by governments with regard to our customers in the scientific business, such as
universities;

continued government spending on defense-related projects where we are a subcontractor;

government support of the alternative energy industries, such as solar;

• maintenance of supply relating to products sold to the government on terms which we would prefer not to accept;

•

changes in policy, interpretations, or challenges to the allowability of costs incurred under government cost
accounting standards;

•

damage to our reputation as a result of coverage in social media, Internet blogs or other media outlets;

• managing our and other parties' compliance with contracts in multiple languages and jurisdictions;

• managing our internal and third party sales representatives and distributors, including compliance with all

applicable laws;

•

costs associated with designing around or payment of licensing fees associated with issued patents in our fields of
business;

the future impact of legislation, rulemaking, and changes in accounting, tax, defense procurement, or export
policies; and

•

distraction of management related to acquisition or divestment activities.

In addition, we often recognize a substantial portion of our sales in the last month of our fiscal quarters. Our expenses for

any given quarter are typically based on expected sales and if sales are below expectations in any given quarter, the adverse
impact of the shortfall on our operating results may be magnified by our inability to adjust spending quickly enough to
compensate for the shortfall. We also base our manufacturing on our forecasted product mix for the quarter. If the actual
product mix varies significantly from our forecast, we may not be able to fill some orders during that quarter, which would
result in delays in the shipment of our products. Accordingly, variations in timing of sales, particularly for our higher priced,
higher margin products, can cause significant fluctuations in quarterly operating results.

Due to these and other factors, we believe that quarter-to-quarter and year-to-year comparisons of our historical operating

results may not be meaningful. You should not rely on our results for any quarter or year as an indication of our future
performance. Our operating results in future quarters and years may be below public market analysts' or investors' expectations,
which would likely cause the price of our stock to fall. In addition, over the past several years, the stock market has experienced
extreme price and volume fluctuations that have affected the stock prices of many technology companies. There has not always
been a direct correlation between this volatility and the performance of particular companies subject to these stock price
fluctuations. Further, over the last twelve months, equity markets around the world have significantly fluctuated across most
sectors. These factors, as well as general economic and political conditions or investors' concerns regarding the credibility of
corporate financial statements, may have a material adverse effect on the market price of our stock in the future.

We are exposed to risks associated with worldwide economic conditions and related uncertainties.

Volatility and disruption in the capital and credit markets, depressed consumer confidence, negative economic conditions,

volatile corporate profits and reduced capital spending could negatively impact demand for our products. In particular, it is
difficult to develop and implement strategy, sustainable business models and efficient operations, as well as effectively manage
supply chain relationships in the face of such conditions including uncertainty regarding the ability of some of our suppliers to
continue operations and provide us with uninterrupted supply flow. Our ability to maintain our research and development
investments in our broad product offerings may be adversely impacted in the event that our sales decline and do not increase in
the future. Spending and the timing thereof by consumers and businesses has a significant impact on our results and, where such
spending is delayed or canceled, it could cause a material negative impact on our operating results. The current global economic
conditions remain uncertain and challenging. Weakness in our end markets could negatively impact our revenue, gross margin
and operating expenses, and consequently have a material adverse effect on our business, financial condition and results of
operations.

The recent financial turmoil affecting the banking system and financial markets and the possibility that additional financial

institutions may consolidate or go out of business have resulted in continued tightening in the credit markets, and lower levels
of liquidity in some financial markets. There could be a number of follow-on effects from the tightened credit environment on
our business, including the insolvency of key suppliers or their inability to obtain credit to finance development and/or
manufacture products resulting in product delays; inability of customers to obtain credit to finance purchases of our products
and/or customer insolvencies; and failure of financial institutions negatively impacting our treasury functions. In the event our
customers are unable to obtain credit or otherwise pay for our shipped products it could significantly impact our ability to
collect on our outstanding accounts receivable. Other income and expense also could vary materially from expectations
depending on gains or losses realized on the sale or exchange of financial instruments; impairment charges resulting from
revaluations of debt and equity securities and other investments; interest rates; cash balances; and changes in fair value of
derivative instruments. Volatility in the financial markets and any overall economic uncertainty increase the risk that the actual
amounts realized in the future on our financial instruments could differ significantly from the fair values currently assigned to
them. Uncertainty about current global economic conditions could also continue to increase the volatility of our stock price.

In addition, political and social turmoil related to international conflicts, terrorist acts and civil unrest may put further

pressure on economic conditions in the United States and abroad. Unstable economic, political and social conditions make it
difficult for our customers, our suppliers and us to accurately forecast and plan future business activities. If such conditions
persist, our business, financial condition and results of operations could suffer. Additionally, unstable economic conditions can
provide significant pressures and burdens on individuals, which could cause them to engage in inappropriate business conduct.
See “Part II, Item 9A. CONTROLS AND PROCEDURES-Inherent Limitations over Internal Control.”

Our cash and cash equivalents and short-term investments are managed through various banks around the world and

volatility in the capital and credit market conditions could cause financial institutions to fail or materially harm service
levels provided by such banks, both of which could have an adverse affect on our ability to timely access funds.

World capital and credit markets have been and may continue to experience volatility and disruption. In some cases, the

markets have exerted downward pressure on stock prices and credit capacity for certain issuers, as well as pressured the
solvency of some financial institutions. These financial institutions, including banks, have had difficulty timely performing
regular services and in some cases have failed or otherwise been largely taken over by governments. We maintain our cash, cash
equivalents and short-term investments with a number of financial institutions around the world. Should some or all of these
financial institutions fail or otherwise be unable to timely perform requested services, we would likely have a limited ability to
timely access our cash deposited with such institutions, or, in extreme circumstances the failure of such institutions could cause
us to be unable to access cash for the foreseeable future. If we are unable to quickly access our funds when we need them, we
may need to increase the use of our existing credit lines or access more expensive credit, if available. If we are unable to access

our cash or if we access existing or additional credit or are unable to access additional credit, it could have a negative impact on
our operations, including our reported net income.

We are exposed to credit risk and fluctuations in the market values of our investment portfolio.

Although we have not recognized any material losses on our cash, cash equivalents and short-term investments, future

declines in their market values could have a material adverse effect on our financial condition and operating results. Given the
global nature of our business, we have investments both domestically and internationally. There has recently been growing
pressure on the creditworthiness of sovereign nations, particularly in Europe where a majority of our cash, cash equivalents and
short-term investments are invested, which results in corresponding pressure on the valuation of the securities issued by such
nations. Additionally, our overall investment portfolio is often concentrated in certificates of deposit and money market funds.
We maintain a mix of government-issued securities. Credit ratings and pricing of these investments can be negatively impacted
by liquidity, credit deterioration or losses, financial results, or other factors. Additionally, liquidity issues or political actions by
sovereign nations could result in decreased values for our investments in certain government securities. As a result, the value or
liquidity of our cash, cash equivalents and short-term investments could decline or become materially impaired, which could
have a material adverse effect on our financial condition and operating results. See “Item 7A. Quantitative and Qualitative
Disclosures about Market Risk.”

We depend on sole source or limited source suppliers, both internal and external, for some of our key components and
materials, including exotic materials, certain cutting-edge optics and crystals, in our products, which make us susceptible to
supply shortages or price fluctuations that could adversely affect our business.

We currently purchase several key components and materials used in the manufacture of our products from sole source or

limited source suppliers, both internal and external. Our failure to timely receive these key components and materials, such as
the large optics used in our flat panel display manufacturing applications, could cause delays in the shipment of our products.
Some of these suppliers are relatively small private companies that may discontinue their operations at any time and which may
be particularly susceptible to prevailing economic conditions. Some of our suppliers are located in regions which may be
susceptible to natural disasters, such as the recent flooding in Thailand and the earthquake, tsunami and resulting nuclear
disaster in Japan. We typically purchase our components and materials through purchase orders or agreed upon terms and
conditions and we do not have guaranteed supply arrangements with many of these suppliers. We may fail to obtain these
supplies in a timely manner in the future. We may experience difficulty identifying alternative sources of supply for certain
components used in our products. We would experience further delays while identifying, evaluating and testing the products of
these potential alternative suppliers. Furthermore, financial or other difficulties faced by these suppliers or significant changes
in demand for these components or materials could limit their availability. We continue to consolidate our supply base and
move supplier locations. When we transition locations we may increase our inventory of such products as a “safety stock”
during the transition, which may cause the amount of inventory reflected on our balance sheet to increase. Additionally, many
of our customers rely on sole source suppliers. In the event of a disruption of supply, orders from our customers could decrease
or be delayed. Any interruption or delay in the supply of any of these components or materials, or the inability to obtain these
components and materials from alternate sources at acceptable prices and within a reasonable amount of time, or our failure to
properly manage these moves, would impair our ability to meet scheduled product deliveries to our customers and could cause
customers to cancel orders.

We have historically relied exclusively on our own production capability to manufacture certain strategic components,
crystals, semiconductor lasers, lasers and laser-based systems. Because we manufacture, package and test these components,
products and systems at our own facilities, and such components, products and systems are not readily available from other
sources, any interruption in manufacturing would adversely affect our business. In addition, our failure to achieve adequate
manufacturing yields of these items at our manufacturing facilities may materially and adversely affect our operating results and
financial condition.

Our future success depends on our ability to increase our sales volumes and decrease our costs to offset potential

declines in the average selling prices (“ASPs”) of our products and, if we are unable to realize greater sales volumes and
lower costs, our operating results may suffer.

Our ability to increase our sales volume and our future success depends on the continued growth of the markets for lasers,

laser systems and related accessories, as well as our ability to identify, in advance, emerging markets for laser-based systems.
We cannot assure you that we will be able to successfully identify, on a timely basis, new high-growth markets in the future.
Moreover, we cannot assure you that new markets will develop for our products or our customers' products, or that our
technology or pricing will enable such markets to develop. Future demand for our products is uncertain and will depend to a
great degree on continued technological development and the introduction of new or enhanced products. If this does not
continue, sales of our products may decline and our business will be harmed.

We have in the past experienced decreases in the ASPs of some of our products. As competing products become more
widely available, the ASPs of our products may decrease. If we are unable to offset any decrease in our ASPs by increasing our
sales volumes, our net sales will decline. In addition, to maintain our gross margins, we must continue to reduce the cost of
manufacturing our products while maintaining their high quality. From time to time, our products, like many complex
technological products, may fail in greater frequency than anticipated. This can lead to further charges, which can result in
higher costs, lower gross margins and lower operating results. Furthermore, as ASPs of our current products decline, we must
develop and introduce new products and product enhancements with higher margins. If we cannot maintain our gross margins,
our operating results could be seriously harmed, particularly if the ASPs of our products decrease significantly.

Our future success depends on our ability to develop and successfully introduce new and enhanced products that meet

the needs of our customers.

Our current products address a broad range of commercial and scientific research applications in the photonics markets.
We cannot assure you that the market for these applications will continue to generate significant or consistent demand for our
products. Demand for our products could be significantly diminished by disrupting technologies or products that replace them
or render them obsolete. Furthermore, the new and enhanced products generally continue to be smaller in size and have lower
ASPs, and therefore, we have to sell more units to maintain revenue levels. Accordingly, we must continue to invest in research
and development in order to develop competitive products.

Our future success depends on our ability to anticipate our customers' needs and develop products that address those

needs. Introduction of new products and product enhancements will require that we effectively transfer production processes
from research and development to manufacturing and coordinate our efforts with those of our suppliers to achieve volume
production rapidly. If we fail to transfer production processes effectively, develop product enhancements or introduce new
products in sufficient quantities to meet the needs of our customers as scheduled, our net sales may be reduced and our business
may be harmed.

We face risks associated with our foreign operations and sales that could harm our financial condition and results of

operations.

For fiscal 2011, fiscal 2010 and fiscal 2009, 74%, 67% and 66%, respectively, of our net sales were derived from
customers outside of the United States. We anticipate that foreign sales, particularly in Asia, will continue to account for a
significant portion of our revenues in the foreseeable future.

A global economic slowdown or a natural disaster could have a negative effect on various foreign markets in which we
operate, such as the earthquake, tsunami and resulting nuclear disaster during fiscal 2011 in Japan and the recent flooding in
Thailand. Such a slowdown may cause us to reduce our presence in certain countries, which may negatively affect the overall
level of business in such countries. Our foreign sales are primarily through our direct sales force. Additionally, some foreign
sales are made through foreign distributors and resellers. Our foreign operations and sales are subject to a number of risks,
including:

•

longer accounts receivable collection periods;

the impact of recessions and other economic conditions in economies outside the United States;

unexpected changes in regulatory requirements;

certification requirements;

environmental regulations;

reduced protection for intellectual property rights in some countries;

potentially adverse tax consequences;

political and economic instability;

import/export regulations, tariffs and trade barriers;

•

compliance with applicable United States and foreign anti-corruption laws;

cultural and management differences;

preference for locally produced products; and

shipping and other logistics complications.

Our business could also be impacted by international conflicts, terrorist and military activity, civil unrest and pandemic

illness which could cause a slowdown in customer orders or cause customer order cancellations.

We are also subject to the risks of fluctuating foreign currency exchange rates, which could materially adversely affect the

sales price of our products in foreign markets, as well as the costs and expenses of our foreign subsidiaries. While we use
forward exchange contracts and other risk management techniques to hedge our foreign currency exposure, we remain exposed
to the economic risks of foreign currency fluctuations.

We may not be able to protect our proprietary technology which could adversely affect our competitive advantage.

Maintenance of intellectual property rights and the protection thereof is important to our business. We rely on a
combination of patent, copyright, trademark and trade secret laws and restrictions on disclosure to protect our intellectual
property rights. We cannot assure you that our patent applications will be approved, that any patents that may be issued will
protect our intellectual property or that any issued patents will not be challenged by third parties. Other parties may
independently develop similar or competing technology or design around any patents that may be issued to us. We cannot be
certain that the steps we have taken will prevent the misappropriation of our intellectual property, particularly in foreign
countries where the laws may not protect our proprietary rights as fully as in the United States. Further, we may be required to
enforce our intellectual property or other proprietary rights through litigation, which, regardless of success, could result in
substantial costs and diversion of management's attention. Additionally, there may be existing patents of which we are unaware
that could be pertinent to our business and it is not possible for us to know whether there are patent applications pending that
our products might infringe upon since these applications are often not publicly available until a patent is issued or published.

We may, in the future, be subject to claims or litigation from third parties, for claims of infringement of their

proprietary rights or to determine the scope and validity of our proprietary rights or the proprietary rights of competitors or
other rights holders. These claims could result in costly litigation and the diversion of our technical and management
personnel. Adverse resolution of litigation may harm our operating results or financial condition.

In recent years, there has been significant litigation in the United States involving patents and other intellectual property

rights. This has been seen in our industry, for example in the recently concluded patent-related litigation between IMRA
America, Inc. and IPG Photonics Corporation. From time to time, like many other technology companies, we have received
communications from other parties asserting the existence of patent rights, copyrights, trademark rights or other intellectual
property rights which such third parties believe may cover certain of our products, processes, technologies or information. In the
future, we may be a party to litigation to protect our intellectual property or as a result of an alleged infringement of others'
intellectual property whether through direct claims or by way of indemnification claims of our customers, as, in some cases, we
contractually agree to indemnify our customers against third-party infringement claims relating to our products. These claims
and any resulting lawsuit, if successful, could subject us to significant liability for damages or invalidation of our proprietary
rights. These lawsuits, regardless of their success, would likely be time-consuming and expensive to resolve and would divert
management time and attention. Any potential intellectual property litigation could also force us to do one or more of the
following:

•

stop manufacturing, selling or using our products that use the infringed intellectual property;

obtain from the owner of the infringed intellectual property right a license to sell or use the relevant technology,
although such license may not be available on reasonable terms, or at all; or

•

redesign the products that use the technology.

If we are forced to take any of these actions or are otherwise a party to lawsuits of this nature, we may incur significant

losses for which we do not have insurance and our business may be seriously harmed. We do not have insurance to cover
potential claims of this type.

If our goodwill or intangible assets become impaired, we may be required to record a significant charge to earnings.

Under accounting principles generally accepted in the United States, we review our intangible assets for impairment when

events or changes in circumstances indicate the carrying value may not be recoverable. Goodwill is required to be tested for
impairment at least annually. Factors that may be considered a change in circumstances indicating that the carrying value of our
goodwill or other intangible assets may not be recoverable include declines in our stock price and market capitalization or future
cash flows projections. We recorded a material charge during the first quarter of fiscal 2009 related to the impairment of
goodwill in our CLC operating segment. A decline in our stock price, or any other adverse change in market conditions,
particularly if such change has the effect of changing one of the critical assumptions or estimates we used to calculate the
estimated fair value of our reporting units, could result in a change to the estimation of fair value that could result in an
impairment charge. Any such material charges, whether related to goodwill or purchased intangible assets, may have a material
negative impact on our financial and operating results.

We are exposed to lawsuits in the normal course of business which could have a material adverse effect on our

business, operating results, or financial condition.

We are exposed to lawsuits in the normal course of our business, including product liability claims, if personal injury,

death or commercial losses occur from the use of our products. While we typically maintain business insurance, including
directors' and officers' policies, litigation can be expensive, lengthy, and disruptive to normal business operations, including the
potential impact of indemnification obligations for individuals named in any such lawsuits. We may not, however, be able to
secure insurance coverage on terms acceptable to us in the future. Moreover, the results of complex legal proceedings are
difficult to predict. An unfavorable resolution of a particular lawsuit, including a recall or redesign of products if ultimately
determined to be defective, could have a material adverse effect on our business, operating results, or financial condition.

We depend on skilled personnel to operate our business effectively in a rapidly changing market, and if we are unable

to retain existing or hire additional personnel when needed, our ability to develop and sell our products could be harmed.

Our ability to continue to attract and retain highly skilled personnel will be a critical factor in determining whether we will

be successful in the future. Recruiting and retaining highly skilled personnel in certain functions continues to be difficult. At
certain locations where we operate, the cost of living is extremely high and it may be difficult to retain key employees and
management at a reasonable cost. We may not be successful in attracting, assimilating or retaining qualified personnel to fulfill
our current or future needs. Our failure to attract additional employees and retain our existing employees could adversely affect
our growth and our business.

Our future success depends upon the continued services of our executive officers and other key engineering, sales,
marketing, manufacturing and support personnel, any of whom may leave, which could harm our business and our results of
operations.

The long sales cycles for our products may cause us to incur significant expenses without offsetting revenues.

Customers often view the purchase of our products as a significant and strategic decision. As a result, customers typically
expend significant effort in evaluating, testing and qualifying our products before making a decision to purchase them, resulting
in a lengthy initial sales cycle. While our customers are evaluating our products and before they place an order with us, we may
incur substantial sales and marketing and research and development expenses to customize our products to the customer's needs.
We may also expend significant management efforts, increase manufacturing capacity and order long lead-time components or
materials prior to receiving an order. Even after this evaluation process, a potential customer may not purchase our products. As
a result, these long sales cycles may cause us to incur significant expenses without ever receiving revenue to offset such
expenses.

The markets in which we sell our products are intensely competitive and increased competition could cause reduced

sales levels, reduced gross margins or the loss of market share.

Competition in the various photonics markets in which we provide products is very intense. We compete against a number

of large public and private companies, including CVI Melles Griot, Cymer, Inc., GSI Group, Inc., IPG Photonics Corporation,
JDS Uniphase Corporation, Newport Corporation, Rofin-Sinar Technologies, Inc., and Trumpf GmbH, as well as other smaller
companies. Some of our competitors are large companies that have significant financial, technical, marketing and other
resources. These competitors may be able to devote greater resources than we can to the development, promotion, sale and
support of their products. Some of our competitors are much better positioned than we are to acquire other companies in order
to gain new technologies or products that may displace our product lines. Any of these acquisitions could give our competitors a
strategic advantage. Any business combinations or mergers among our competitors, forming larger companies with greater

resources, could result in increased competition, price reductions, reduced margins or loss of market share, any of which could
materially and adversely affect our business, results of operations and financial condition.

Additional competitors may enter the markets in which we serve, both foreign and domestic, and we are likely to compete

with new companies in the future. We may encounter potential customers that, due to existing relationships with our
competitors, are committed to the products offered by these competitors. Further, our current or potential customers may
determine to develop and produce products for their own use which are competitive to our products. As a result of the foregoing
factors, we expect that competitive pressures may result in price reductions, reduced margins, loss of sales and loss of market
share. In addition, in markets where there are a limited number of customers, competition is particularly intense.

Some of our laser systems are complex in design and may contain defects that are not detected until deployed by our

customers, which could increase our costs and reduce our revenues.

Laser systems are inherently complex in design and require ongoing regular maintenance. The manufacture of our lasers,

laser products and systems involves a highly complex and precise process. As a result of the technological complexity of our
products, changes in our or our suppliers' manufacturing processes or the inadvertent use of defective materials by us or our
suppliers could result in a material adverse effect on our ability to achieve acceptable manufacturing yields and product
reliability. To the extent that we do not achieve and maintain our projected yields or product reliability, our business, operating
results, financial condition and customer relationships would be adversely affected. We provide warranties on a majority of our
product sales, and reserves for estimated warranty costs are recorded during the period of sale. The determination of such
reserves requires us to make estimates of failure rates and expected costs to repair or replace the products under warranty. We
typically establish warranty reserves based on historical warranty costs for each product line. If actual return rates and/or repair
and replacement costs differ significantly from our estimates, adjustments to cost of sales may be required in future periods
which could have an adverse effect on our results of operations.

Our customers may discover defects in our products after the products have been fully deployed and operated under the

end user's peak stress conditions. In addition, some of our products are combined with products from other vendors, which may
contain defects. As a result, should problems occur, it may be difficult to identify the source of the problem. If we are unable to
identify and fix defects or other problems, we could experience, among other things:

•

loss of customers;

increased costs of product returns and warranty expenses;

damage to our brand reputation;

failure to attract new customers or achieve market acceptance;

diversion of development and engineering resources; and

legal actions by our customers and/or their end users.

The occurrence of any one or more of the foregoing factors could seriously harm our business, financial condition and

results of operations.

If we fail to accurately forecast component and material requirements for our products, we could incur additional costs

and incur significant delays in shipments, which could result in a loss of customers.

We use rolling forecasts based on anticipated product orders and material requirements planning systems to determine our

product requirements. It is very important that we accurately predict both the demand for our products and the lead times
required to obtain the necessary components and materials. We depend on our suppliers for most of our product components
and materials. Lead times for components and materials that we order vary significantly and depend on factors including the
specific supplier requirements, the size of the order, contract terms and current market demand for components. For substantial
increases in our sales levels of certain products, some of our suppliers may need at least nine months lead-time. If we
overestimate our component and material requirements, we may have excess inventory, which would increase our costs. If we
underestimate our component and material requirements, we may have inadequate inventory, which could interrupt and delay
delivery of our products to our customers. Any of these occurrences would negatively impact our net sales, business or
operating results.

Our increased reliance on contract manufacturing and other outsourcing may adversely impact our financial results

and operations due to our decreased control over the performance and timing of certain aspects of our manufacturing.

Our manufacturing strategy includes partnering with contract manufacturers to outsource non-core subassemblies and less
complex turnkey products, including some performed at international sites located in Asia and Eastern Europe. Additionally, we
have outsourced the manufacture of certain of our optics components to a third party. Our ability to resume internal
manufacturing operations for certain products and components in a timely manner may be eliminated. The cost, quality,
performance and availability of contract manufacturing operations are and will be essential to the successful production and sale
of many of our products. Our financial condition or results of operation could be adversely impacted if any contract
manufacturer or other supplier is unable for any reason, including as a result of the impact of worldwide economic conditions,
to meet our cost, quality, performance, and availability standards. We may not be able to provide contract manufacturers with
product volumes that are high enough to achieve sufficient cost savings. If shipments fall below forecasted levels, we may incur
increased costs or be required to take ownership of the inventory. Also, our ability to control the quality of products produced
by contract manufacturers may be limited and quality issues may not be resolved in a timely manner, which could adversely
impact our financial condition or results of operations.

If we fail to effectively manage our growth or, alternatively, our spending during downturns, our business could be

disrupted, which could harm our operating results.

The growth in sales, combined with the challenges of managing geographically dispersed operations, can place a
significant strain on our management systems and resources, and our anticipated growth in future operations could continue to
place such a strain. The failure to effectively manage our growth could disrupt our business and harm our operating results. Our
ability to successfully offer our products and implement our business plan in evolving markets requires an effective planning
and management process. In economic downturns, we must effectively manage our spending and operations to ensure our
competitive position during the downturn, as well as our future opportunities when the economy improves, remain intact. The
failure to effectively manage our spending and operations could disrupt our business and harm our operating results.

Historically, acquisitions have been an important element of our strategy. However, we may not find suitable

acquisition candidates in the future and we may not be able to successfully integrate and manage acquired businesses. Any
acquisitions we make could disrupt our business and harm our financial condition.

We have in the past made strategic acquisitions of other corporations and entities, as well as asset purchases, and we

continue to evaluate potential strategic acquisitions of complementary companies, products and technologies. In the event of
any future acquisitions, we could:

•

issue stock that would dilute our current stockholders' percentage ownership;

pay cash that would decrease our working capital;

incur debt;

assume liabilities; or

incur expenses related to impairment of goodwill and amortization.

Acquisitions also involve numerous risks, including:

•

problems combining the acquired operations, systems, technologies or products;

an inability to realize expected operating efficiencies or product integration benefits;

difficulties in coordinating and integrating geographically separated personnel, organizations, systems and
facilities;

difficulties integrating business cultures;

unanticipated costs or liabilities, including the costs associated with improving the internal controls of the acquired
company;

•

diversion of management's attention from our core businesses;

•

adverse effects on existing business relationships with suppliers and customers;

potential loss of key employees, particularly those of the purchased organizations;

incurring unforeseen obligations or liabilities in connection with acquisitions; and

the failure to complete acquisitions even after signing definitive agreements which, among other things, would
result in the expensing of potentially significant professional fees and other charges in the period in which the
acquisition or negotiations are terminated.

We cannot assure you that we will be able to successfully identify appropriate acquisition candidates, to integrate any

businesses, products, technologies or personnel that we might acquire in the future or achieve the anticipated benefits of such
transactions, which may harm our business.

We use standard laboratory and manufacturing materials that could be considered hazardous and we could be liable

for any damage or liability resulting from accidental environmental contamination or injury.

Although most of our products do not incorporate hazardous or toxic materials and chemicals, some of the gases used in

our excimer lasers and some of the liquid dyes used in some of our scientific laser products are highly toxic. In addition, our
operations involve the use of standard laboratory and manufacturing materials that could be considered hazardous. Also, if a
facility fire were to occur at our Sunnyvale, California site and were to spread to a reactor used to grow semiconductor wafers, it
could release highly toxic emissions. We believe that our safety procedures for handling and disposing of such materials comply
with all federal, state and offshore regulations and standards. However, the risk of accidental environmental contamination or
injury from such materials cannot be entirely eliminated. In the event of such an accident involving such materials, we could be
liable for damages and such liability could exceed the amount of our liability insurance coverage and the resources of our
business which could have an adverse effect on our financial results or our business as a whole.

Compliance or the failure to comply with current and future environmental regulations could cause us significant

expense.

We are subject to a variety of federal, state, local and foreign environmental regulations relating to the use, storage,
discharge and disposal of hazardous chemicals used during our manufacturing process or requiring design changes or recycling
of products we manufacture. If we fail to comply with any present and future regulations, we could be subject to future
liabilities, the suspension of production or a prohibition on the sale of products we manufacture. In addition, such regulations
could restrict our ability to expand our facilities or could require us to acquire costly equipment, or to incur other significant
expenses to comply with environmental regulations, including expenses associated with the recall of any non-compliant product
and the management of historical waste.

From time to time new regulations are enacted, and it is difficult to anticipate how such regulations will be implemented

and enforced. We continue to evaluate the necessary steps for compliance with regulations as they are enacted. These
regulations include, for example, the Registration, Evaluation, Authorization and Restriction of Chemical substances
(“REACH”), the Restriction on the Use of Certain Hazardous Substances in Electrical and Electronic Equipment Directive
(“RoHS”) and the Waste Electrical and Electronic Equipment Directive (“WEEE”) enacted in the European Union which
regulate the use of certain hazardous substances in, and require the collection, reuse and recycling of waste from, certain
products we manufacture. This and similar legislation that has been or is in the process of being enacted in Japan, China, Korea
and various states of the United States may require us to re-design our products to ensure compliance with the applicable
standards, for example by requiring the use of different types of materials. These redesigns or alternative materials may
detrimentally impact the performance of our products, add greater testing lead-times for product introductions or have other
similar effects. We believe we comply with all such legislation where our products are sold and we will continue to monitor
these laws and the regulations being adopted under them to determine our responsibilities. In addition, we are monitoring
legislation relating to the reduction of carbon emissions from industrial operations to determine whether we may be required to
incur any additional material costs or expenses associated with our operations. We are not currently aware of any such material
costs or expenses. Our failure to comply with any of the foregoing regulatory requirements or contractual obligations could
result in our being directly or indirectly liable for costs, fines or penalties and third-party claims, and could jeopardize our
ability to conduct business in the United States and foreign countries.

Our operations would be seriously harmed if our logistics or facilities or those of our suppliers, our customers'

suppliers or our contract manufacturers were to experience catastrophic loss.

Our operations, logistics and facilities and those of our suppliers and contract manufacturers could be subject to a
catastrophic loss from fire, flood, earthquake, volcanic eruption, work stoppages, power outages, acts of war, pandemic
illnesses, energy shortages, theft of assets, other natural disasters or terrorist activity, such as the recent flooding in Thailand. A
substantial portion of our research and development activities, manufacturing, our corporate headquarters and other critical
business operations are located near major earthquake faults in Santa Clara, California, an area with a history of seismic events.
Any such loss or detrimental impact to any of our operations, logistics or facilities could disrupt our operations, delay
production, shipments and revenue and result in large expenses to repair or replace the facility. While we have obtained
insurance to cover most potential losses, after reviewing the costs and limitations associated with earthquake insurance, we have
decided not to procure such insurance. We believe that this decision is consistent with decisions reached by numerous other
companies located nearby. We cannot assure you that our existing insurance coverage will be adequate against all other possible
losses.

Difficulties with our enterprise resource planning (“ERP”) system and other parts of our global information
technology system could harm our business and results of operation. If our network security measures are breached and
unauthorized access is obtained to a customer's data or our data or our information technology systems, we may incur
significant legal and financial exposure and liabilities.

Like many modern multinational corporations, we maintain a global information technology system, including software

products licensed from third parties. Any system, network or Internet failures, misuse by system users, the hacking into or
disruption caused by the unauthorized access by third parties or loss of license rights could disrupt our ability to timely and
accurately manufacture and ship products or to report our financial information in compliance with the timelines mandated by
the Securities and Exchange Commission. Any such failure, misuse, hacking, disruptions or loss would likely cause a diversion
of management's attention from the underlying business and could harm our operations. In addition, a significant failure of our
global information technology system could adversely affect our ability to complete an evaluation of our internal controls and
attestation activities pursuant to Section 404 of the Sarbanes-Oxley Act of 2002.

As part of our day-to-day business, we store our data and certain data about our customers in our global information

technology system. While our system is designed with access security, if a third party gain unauthorized access to our data,
including any regarding our customers, such security breach could expose us to a risk of loss of this information, loss of
business, litigation and possible liability. These security measures may be breached as a result of third-party action, including
intentional misconduct by computer hackers, employee error, malfeasance or otherwise. Additionally, third parties may attempt
to fraudulently induce employees or customers into disclosing sensitive information such as user names, passwords or other
information in order to gain access to our customers' data or our data, including our intellectual property and other confidential
business information, or our information technology systems. Because the techniques used to obtain unauthorized access, or to
sabotage systems, change frequently and generally are not recognized until launched against a target, we may be unable to
anticipate these techniques or to implement adequate preventative measures. Any security breach could result in a loss of
confidence by our customers, damage our reputation, disrupt our business, lead to legal liability and negatively impact our
future sales.

Changes in tax rates, tax liabilities or tax accounting rules could affect future results.

As a global company, we are subject to taxation in the United States and various other countries and jurisdictions.
Significant judgment is required to determine worldwide tax liabilities. Our future tax rates could be affected by changes in the
composition of earnings in countries or states with differing tax rates, changes in the valuation of our deferred tax assets and
liabilities, or changes in the tax laws. In addition, we are subject to regular examination of our income tax returns by the Internal
Revenue Service (“IRS”) and other tax authorities. From time to time the United States, foreign and state governments make
substantive changes to tax rules and the application of rules to companies, including the recent announcement from the United
States government potentially impacting our ability to defer taxes on international earnings. We regularly assess the likelihood
of favorable or unfavorable outcomes resulting from these examinations to determine the adequacy of our provision for income
taxes. Although we believe our tax estimates are reasonable, there can be no assurance that any final determination will not be
materially different than the treatment reflected in our historical income tax provisions and accruals, which could materially and
adversely affect our operating results and financial condition.

Compliance with changing regulation of corporate governance and public disclosure may create uncertainty regarding

compliance matters.

Federal securities laws, rules and regulations, as well as the rules and regulations of self-regulatory organizations such as

NASDAQ and the NYSE, require companies to maintain extensive corporate governance measures, impose comprehensive
reporting and disclosure requirements, set strict independence and financial expertise standards for audit and other committee
members and impose civil and criminal penalties for companies and their chief executive officers, chief financial officers and
directors for securities law violations. These laws, rules and regulations have increased and will continue to increase the scope,

complexity and cost of our corporate governance, reporting and disclosure practices, which could harm our results of operations
and divert management's attention from business operations. Changing laws, regulations and standards relating to corporate
governance and public disclosure may create uncertainty regarding compliance matters. New or changed laws, regulations and
standards are subject to varying interpretations in many cases. As a result, their application in practice may evolve over time.
We are committed to maintaining high standards of ethics, corporate governance and public disclosure. Complying with
evolving interpretations of new or changed legal requirements may cause us to incur higher costs as we revise current practices,
policies and procedures, and may divert management time and attention from revenue generating to compliance activities. If our
efforts to comply with new or changed laws, regulations and standards differ from the activities intended by regulatory or
governing bodies due to ambiguities related to practice, our reputation may also be harmed.

Governmental regulations, including duties, affecting the import or export of products could negatively affect our

revenues.

The United States and many foreign governments impose tariffs and duties on the import and export of products, including

some of those which we sell. In particular, given our worldwide operations, we pay duties on certain products when they are
imported into the United States for repair work as well as on certain of our products which are manufactured by our foreign
subsidiaries. These products can be subject to a duty on the product value. Additionally, the United States and various foreign
governments have imposed tariffs, controls, export license requirements and restrictions on the import or export of some
technologies, especially encryption technology. From time to time, government agencies have proposed additional regulation of
encryption technology, such as requiring the escrow and governmental recovery of private encryption keys. Governmental
regulation of encryption technology and regulation of imports or exports, or our failure to obtain required import or export
approval for our products, could harm our international and domestic sales and adversely affect our revenues. From time to time
our duty calculations and payments are audited by government agencies.

In addition, compliance with the directives of the Directorate of Defense Trade Controls (“DDTC”) may result in
substantial expenses and diversion of management. Any failure to adequately address the directives of DDTC could result in
civil fines or suspension or loss of our export privileges, any of which could have a material adverse effect on our business or
financial position, results of operations, or cash flows.

Our market is unpredictable and characterized by rapid technological changes and evolving standards demanding a

significant investment in research and development, and, if we fail to address changing market conditions, our business and
operating results will be harmed.

The photonics industry is characterized by extensive research and development, rapid technological change, frequent new

product introductions, changes in customer requirements and evolving industry standards. Because this industry is subject to
rapid change, it is difficult to predict its potential size or future growth rate. Our success in generating revenues in this industry
will depend on, among other things:

• maintaining and enhancing our relationships with our customers;

•

the education of potential end-user customers about the benefits of lasers and laser systems; and

our ability to accurately predict and develop our products to meet industry standards.

For our fiscal years 2011, 2010 and 2009, our research and development costs were $81.2 million (10.1% of net sales),

$72.4 million (12.0% of net sales) and $61.4 million (14.1% of net sales), respectively. We cannot assure you that our
expenditures for research and development will result in the introduction of new products or, if such products are introduced,
that those products will achieve sufficient market acceptance or to generate sales to offset the costs of development. Our failure
to address rapid technological changes in our markets could adversely affect our business and results of operations.

We participate in the microelectronics market, which requires significant research and development expenses to
develop and maintain products and a failure to achieve market acceptance for our products could have a significant negative
impact on our business and results of operations.

The microelectronics market is characterized by rapid technological change, frequent product introductions, the volatility

of product supply and demand (particularly in the semiconductor industry), changing customer requirements and evolving
industry standards. The nature of this market requires significant research and development expenses to participate, with
substantial resources invested in advance of material sales of our products to our customers in this market. In the event either
our customers' or our products fail to gain market acceptance, or the microelectronics market fails to grow, it would likely have
a significant negative effect on our business and results of operations.

Continued volatility in the semiconductor manufacturing industry could adversely affect our business, financial

condition and results of operations.

A portion of our net sales in the microelectronics market depend on the demand for our products by semiconductor
equipment companies. The semiconductor market has historically been characterized by sudden and severe cyclical variations in
product supply and demand, which have often severely affected the demand for semiconductor manufacturing equipment,
including laser-based tools and systems. The timing, severity and duration of these market cycles are difficult to predict, and we
may not be able to respond effectively to these cycles. The continuing uncertainty in this market severely limits our ability to
predict our business prospects or financial results in this market.

During industry downturns, our revenues from this market may decline suddenly and significantly. Our ability to rapidly

and effectively reduce our cost structure in response to such downturns is limited by the fixed nature of many of our expenses in
the near term and by our need to continue our investment in next-generation product technology and to support and service our
products. In addition, due to the relatively long manufacturing lead times for some of the systems and subsystems we sell to this
market, we may incur expenditures or purchase raw materials or components for products we cannot sell. Accordingly,
downturns in the semiconductor capital equipment market may materially harm our operating results. Conversely, when upturns
in this market occur, we must be able to rapidly and effectively increase our manufacturing capacity to meet increases in
customer demand that may be extremely rapid, and if we fail to do so we may lose business to our competitors and our
relationships with our customers may be harmed.

Failure to maintain effective internal controls may cause a loss of investor confidence in the reliability of our financial

statements or to cause us to delay filing our periodic reports with the SEC and adversely affect our stock price.

The SEC, as directed by Section 404 of the Sarbanes-Oxley Act of 2002, adopted rules requiring public companies to
include a report of management on internal control over financial reporting in their annual reports on Form 10-K that contain an
assessment by management of the effectiveness of the Company's internal control over financial reporting. In addition, our
independent registered public accounting firm must attest to and report on the effectiveness of our internal control over financial
reporting. Although we test our internal control over financial reporting in order to ensure compliance with the Section 404
requirements, our failure to maintain adequate internal controls over financial reporting could result in an adverse reaction in the
financial marketplace due to a loss of investor confidence in the reliability of our financial statements or a delay in our ability to
timely file our periodic reports with the SEC, which ultimately could negatively impact our stock price.

Provisions of our charter documents and Delaware law, and our Change-of-Control Severance Plan may have anti-

takeover effects that could prevent or delay a change in control.

Provisions of our certificate of incorporation and bylaws may discourage, delay or prevent a merger or acquisition or make

removal of incumbent directors or officers more difficult. These provisions may discourage takeover attempts and bids for our
common stock at a premium over the market price. These provisions include:

•

the ability of our Board of Directors to alter our bylaws without stockholder approval;

limiting the ability of stockholders to call special meetings; and

establishing advance notice requirements for nominations for election to our Board of Directors or for proposing
matters that can be acted on by stockholders at stockholder meetings.

We are subject to Section 203 of the Delaware General Corporation Law, which prohibits a publicly-held Delaware

corporation from engaging in a merger, asset or stock sale or other transaction with an interested stockholder for a period of
three years following the date such person became an interested stockholder, unless prior approval of our board of directors is
obtained or as otherwise provided. These provisions of Delaware law also may discourage, delay or prevent someone from
acquiring or merging with us without obtaining the prior approval of our board of directors, which may cause the market price
of our common stock to decline. In addition, we have adopted a change of control severance plan, which provides for the
payment of a cash severance benefit to each eligible employee based on the employee's position. If a change of control occurs,
our successor or acquirer will be required to assume and agree to perform all of our obligations under the change of control
severance plan which may discourage potential acquirors or result in a lower stock price.

ITEM 1B. UNRESOLVED STAFF COMMENTS

Not Applicable.

ITEM 2. PROPERTIES

Our corporate headquarters is located in Santa Clara, California. At fiscal 2011 year-end, our primary locations were as
follows (all square footage is approximate) (unless otherwise indicated, each property is utilized jointly by our two segments):

Santa Clara, CA

Santa Clara, CA (3)
Sunnyvale, CA (1)(3)

Description

8.5 acres of land, 200,000
square foot building
90,120 square foot building
24,000 square foot building

Use

Term

Corporate headquarters,
manufacturing, R&D
Office, manufacturing
Leased through July 2020
Office, manufacturing, R&D Leased through December

Owned

2018

Bloomfield, CT (1)

72,915 square foot building

Office, manufacturing, R&D Leased through December

2012

East Hanover, NJ (2)

30,000 square foot building

Office, manufacturing, R&D Leased through October 2014

Wilsonville, OR (1)

41,250 square foot building

Office, manufacturing, R&D Leased through December

2018

Salem, NH(1)(3)

44,153 square foot building

Office, manufacturing, R&D Leased through October 2019

Dieburg, Germany

31,306 square foot building

Office

Leased through December
2020

Göttingen, Germany(2)

Lübeck, Germany (2)

7.6 acres of land, several
buildings totaling 128,900
square feet
47,638 square foot building

Office, manufacturing, R&D Owned

Office, manufacturing, R&D Leased through December

2012

Lübeck, Germany (2)

22,583 square foot building

Office, manufacturing, R&D Leased through December

2012 with option to purchase
building
Leased through December
2018
Leased through June 2012

Lübeck, Germany (2)(3)

6,779 square foot building

Manufacturing

Tokyo, Japan
Glasgow, Scotland (2)

Kallang Sector, Singapore(2)

17,602 square foot building
2 acres of land, 30,000 square
foot building
31,894 square foot building

Office
Office, manufacturing, R&D Owned

Office, manufacturing, R&D

Leased through March 2016

Penang, Malaysia (2)

13,455 square foot building

Office, manufacturing, R&D

Leased through August 2014

_________________________________________

(1)

(2)

(3)

This facility is utilized primarily by our CLC operating segment.

This facility is utilized primarily by our SLS operating segment.

Portions of this property are not fully utilized.

We maintain other sales and service offices under varying leases expiring from 2012 through 2019 in the United States, Japan,
South Korea, China, Thailand, Taiwan, Germany, France, Italy, the United Kingdom and the Netherlands.

We consider our facilities to be both suitable and adequate to provide for current and near term requirements. We plan to renew
leases on buildings as they expire.

ITEM 3. LEGAL PROCEEDINGS

We are subject to legal claims and litigation arising in the ordinary course of business, such as product liability,

employment or intellectual property claims, including, but not limited to, the matters described below. The outcome of any such
matters is currently not determinable. Although we do not expect that such legal claims and litigation will ultimately have a
material adverse effect on our consolidated financial position or results of operations, an adverse result in one or more matters
could negatively affect our results in the period in which they occur.

Derivative Lawsuits

Between February 15, 2007 and March 2, 2007, three purported shareholder derivative lawsuits were filed in the United

States District Court for the Northern District of California against certain of the Company's current and former officers and
directors. The Company is named as a nominal defendant. The complaints generally allege that the defendants breached their
fiduciary duties and violated the securities laws in connection with the granting of stock options, the accounting treatment for
such grants, the issuance of allegedly misleading public statements and stock sales by certain of the individual defendants. On
May 30, 2007, these lawsuits were consolidated under the caption In re Coherent, Inc. Shareholder Derivative Litigation, Lead
Case No. C-07-0955-JF (N.D. Cal.). On June 25, 2007, plaintiffs filed an amended consolidated complaint. The consolidated
complaint asserts causes of action for alleged violations of federal securities laws, violations of California securities laws,
breaches of fiduciary duty and/or aiding and abetting breaches of fiduciary duty, abuse of control, gross mismanagement,
constructive fraud, corporate waste, unjust enrichment, insider selling and misappropriation of information. The consolidated
complaint seeks, among other relief, disgorgement and damages in an unspecified amount, an accounting, rescission of
allegedly improper stock option grants, punitive damages and attorneys' fees and costs.

The Company's Board of Directors appointed a Special Litigation Committee ("SLC") comprised of independent director
Sandeep Vij to investigate and evaluate the claims asserted in the derivative litigation and to determine what action(s) should be
taken with respect to the derivative litigation. On September 8, 2009, Coherent, Inc., by and through the SLC, plaintiffs, and
certain of Coherent's former and current officers and directors filed with the court a Stipulation of Settlement reflecting the
terms of a settlement that would resolve all claims alleged in the consolidated complaint. The terms of the settlement include a
financial benefit to Coherent of over $6 million, which is comprised of a cash payment of $5.25 million to the Company and the
waiver by certain former officers and directors of potential claims relating to expired stock options valued at $762,305. The
settlement terms also include the implementation and/or agreement to maintain certain corporate governance changes, and a
payment by the Company to plaintiffs' counsel of $3 million in attorneys' fees and expenses.

On September 14, 2009, the United States District Court for the Northern District of California issued an order granting

preliminary approval of the settlement. On November 20, 2009, the court held a hearing for final approval of the settlement, and
on November 24, 2009, the court entered an Order and Final Judgment, which approved the settlement and dismissed the action
with prejudice. Coherent received the cash payment of $2.25 million on December 11, 2009.

Income Tax Audits

We are subject to taxation and file income tax returns in the U.S. federal jurisdiction and in many state and foreign
jurisdictions. For U.S. federal income tax purposes, all years prior to 2005 are closed. The IRS audited the research and
development credits generated in the years 1999 through 2001 and carried forward to future years. We received a notice of
proposed adjustment (“NOPA”) from the IRS in October 2008 to decrease the amount of research and development credits
generated in years 2000 and 2001. We signed a Closing Agreement with the IRS which allows additional research and
development credits for the years 2000 and 2001, respectively. During the fourth quarter of fiscal 2011, the Joint Committee on
Taxation approved this agreement. We provided adequate tax reserves for adjustments to these research and development
credits for the years 2000 and 2001. This settlement resulted in the closure of U.S. federal statutes of limitations for years
through 2004 and we released net unrecognized tax benefits under ASC 740-10 and related interest of approximately $9.7
million that affected the Company's effective tax rate for fiscal year 2011. In our major state jurisdictions and our major foreign
jurisdictions, the years subsequent to 2000 and 2004, respectively, currently remain open and could be subject to examination
by the taxing authorities. We believe that we have provided adequate reserves for any adjustments that may be determined by
the tax authorities.

Management believes that it has adequately provided for any adjustments that may result from tax examinations. The
Company regularly engages in discussions and negotiations with tax authorities regarding tax matters in various jurisdictions. It
is reasonably possible that certain federal, foreign and state tax matters may be concluded in the next 12 months. The Company
estimates that the net unrecognized tax benefits and related interest at October 1, 2011 could be reduced by approximately $1.0
million to $2.0 million in the next 12 months.

ITEM 4. (REMOVED AND RESERVED)

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock is quoted on the NASDAQ Stock Market under the symbol "COHR." The following table sets forth

the high and low sales prices for each quarterly period during the past two fiscal years as reported on the Nasdaq Global Select
Market.

First quarter
Second quarter
Third quarter
Fourth quarter

2011

High

46.85 $
62.29 $
63.76 $
59.61 $

$
$
$
$

Fiscal

2010

Low
39.27 $
46.01 $
49.54 $
38.92 $

High

30.20 $
33.02 $
38.24 $
40.20 $

Low
23.33
26.35
31.92
32.83

The number of stockholders of record as of November 25, 2011 was 1,010. No cash dividends have been declared or paid

since Coherent was founded and we have no present intention to declare or pay cash dividends.

There were no sales of unregistered securities in fiscal 2011.

Stock repurchases during the three months ended October 1, 2011 were as follows:

Period
July 3, 2011 - July 30, 2011
July 31, 2011 - August 27, 2011
August 28, 2011 - October 1, 2011
Total

Total
Number of
Shares
Purchased

Average Price
Paid per Share

— $

738,809
586,200

1,325,009 $

—
45.54
42.67

44.27

Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs

Maximum Dollar
Value that May
Yet Be Purchased
Under the Plans or
Programs (1) (2)

— $

738,809
586,200
1,325,009 $

33,645,000
50,000,000
24,985,000

24,985,000

(1) On January 26, 2011, we announced that the Board of Directors had authorized the repurchase of up to $75.0 million of our common stock. The timing and
size of any purchases will be subject to market conditions. The program was completed during the fourth quarter of fiscal 2011.

(2) On August 25, 2011, we announced that the Board of Directors had authorized the repurchase of up to $50.0 million of our common stock. The program is
authorized for 12 months from the date of authorization. The timing and size of any purchases will be subject to market conditions.

COMPANY STOCK PRICE PERFORMANCE

The following graph shows a five-year comparison of cumulative total stockholder return, calculated on a dividend
reinvestment basis and based on a $100 investment, from September 30, 2006 through October 1, 2011 comparing the return on
our common stock with the Russell 2000 Index, the Standard and Poors Technology Index and the Nasdaq Composite Index.
No dividends have been declared or paid on our common stock during such period. The stock price performance shown on the
following graph is not necessarily indicative of future price performance.

COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN AMONG COHERENT, INC.,

THE RUSSELL 2000 INDEX, THE S&P TECHNOLOGY INDEX AND

THE NASDAQ COMPOSITE INDEX.

Company Name / Index
Coherent, Inc.
Russell 2000 Index
S&P Technology Index
NASDAQ Composite Index

INDEXED RETURNS

Base
Period
9/30/2006
100
100
100
100

9/29/2007
92.56
112.34
123.33
121.84

9/27/2008
100.95
99.63
94.50
92.48

Years Ending
10/3/2009

66.27
83.44
94.96
96.08

10/2/2010
115.98
98.96
108.43
108.39

10/1/2011
123.95
95.02
112.72
110.99

The information contained above under the caption "Company Stock Price Performance" shall not be deemed to be
"soliciting material" or to be "filed" with the SEC, nor will such information be incorporated by reference into any future SEC
filing except to the extent that we specifically incorporate it by reference into such filing.

ITEM 6. SELECTED FINANCIAL DATA

The information set forth below is not necessarily indicative of results of future operations and should be read in
conjunction with Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the
Consolidated Financial Statements and Notes to Consolidated Financial Statements.

We derived the selected consolidated financial data as of fiscal 2011 and 2010 year-end and for fiscal 2011, 2010 and

2009 from our audited consolidated financial statements, and accompanying notes, contained in this annual report. The
consolidated statements of operations data for fiscal 2008 and 2007 and the consolidated balance sheet data as of fiscal 2009,
2008 and 2007 year-end are derived from our consolidated financial statements which are not included in this report.

Consolidated financial data

Fiscal
2011(1)

Fiscal
2010(2)

Fiscal
2009(3)
(in thousands, except per share data)

Fiscal
2008(4)

$
$
$

802,834 $
350,822 $
93,238 $

605,067 $
260,811 $
36,916 $

Net sales
Gross profit
Net income(loss)
Net income (loss) per share(6):
Basic
Diluted
Shares used in computation(6):
Basic
24,718
Diluted
25,091
Total assets
803,104 $
Long-term obligations
33 $
Other long-term liabilities
79,688 $
Stockholders' equity
591,463 $
_______________________________________________________________________________

24,924
25,464
843,266 $
19 $
62,841 $
618,001 $

1.49 $
1.47 $

3.74 $
3.66 $

$
$
$
$

$
$

435,882 $
161,110 $
(35,319) $

599,262 $
251,906 $
23,403 $

(1.45) $
(1.45) $

0.85 $
0.83 $

24,281
24,281
753,604 $
6 $
91,685 $
575,571 $

27,505
28,054
806,383 $
15 $
94,606 $
598,435 $

Fiscal
2007(5)

601,153
250,008
15,951

0.51
0.50

31,398
32,024
947,600
21
47,848
770,986

(1)

(2)

(3)

(4)

(5)

Includes a gain of $6.1 million after tax related to the dissolution of our Finland operations, a $9.7 million tax benefit
from the release of tax reserves and related interest as a result of an IRS settlement and the closure of open tax years and
a $1.5 million tax charge due to an increase in valuation allowances against deferred tax assets.

Includes restructuring expenses of $5.8 million after tax primarily related to the closure of our Finland site and the
consolidation of our Montreal, Canada site under the management of our Wilsonville, Oregon site and a net benefit after
tax of $1.4 million related to a receipt from the settlement of litigation resulting from our internal stock option
investigation.

Includes $19.3 million in after-tax expense related to the impairment of goodwill, restructuring expenses of $11.5 million
after tax primarily related to the consolidation of our Munich site into our Gottingen and Lubeck, Germany sites and our
Finland site, the exit of our Auburn, California facility, the exit of our St. Louis, Missouri facility and headcount
reductions due to the evolving global economic conditions, $0.8 million in after-tax costs related to our stock option
investigation and litigation and a tax charge of $3.8 million composed of the impact of a recently enacted change in state
tax law and a valuation allowance in one of our European subsidiaries.

Includes $5.5 million in after-tax costs related to our stock option investigation and litigation, restructuring expenses of
$3.9 million after-tax related to the exit of our Auburn, California facility, the consolidation of our German DPSS
manufacturing into one location in Germany and headcount reductions due to the evolving global economic situation, and
a tax charge of $1.4 million in connection with a dividend from one of our European subsidiaries.

Includes a $12.6 million loss on our sale of our Auburn campus in Auburn, California, $7.0 million in after-tax costs
related to our stock option investigation and litigation, a $2.6 million after-tax charge to write off unamortized capitalized
deferred issuance costs associated with our repayment of our convertible subordinated notes, a charge of $2.2 million for
in-process research and development ("IPR&D") related to our purchase of Nuvonyx, $0.2 million after-tax costs related
to the termination of the Excel merger agreement, a $3.6 million capital gain on the sale of our Condensa building in
Santa Clara, California, and a $0.7 million after-tax gain from the sale of substantially all of the net assets of our
Coherent Imaging Optics Limited (COIL) subsidiary to CVI Laser.

(6)

See Note 2, "Significant Accounting Policies" in our Notes to Consolidated Financial Statements under Item 15 of this
Annual Report on Form 10-K for an explanation of the determination of the number of shares used in computing net
income (loss) per share.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction

with our Consolidated Financial Statements and related notes included in Item 8, "Financial Statements and Supplementary
Data" in this annual report. This discussion contains forward- looking statements, which involve risks and uncertainties. Our
actual results could differ materially from those anticipated in the forward-looking statements as a result of certain factors,
including but not limited to those discussed in Item 1A,"Risk Factors" and elsewhere in this annual report. Please see the
discussion of forward-looking statements at the beginning of this annual report under "Special Note Regarding Forward-
Looking Statements."

KEY PERFORMANCE INDICATORS

The following is a summary of some of the quantitative performance indicators (as defined below) that may be used to

assess our results of operations and financial condition:

Bookings
Book-to-bill ratio
Net Sales—Commercial Lasers and Components
Net Sales—Specialty Lasers and Systems

Gross Profit as a Percentage of Net Sales—Commercial Lasers and Components
Gross Profit as a Percentage of Net Sales—Specialty Lasers and Systems
Research and Development Expenses as a Percentage of Net Sales
Income (Loss) Before Income Taxes
Net Cash Provided by Operating Activities
Days Sales Outstanding in Receivables
Fourth Quarter Inventory Turns
Capital Spending as a Percentage of Net Sales

Definitions and analysis of these performance indicators are as follows:

Bookings and Book-to-Bill Ratio

$
$

Fiscal
2010
(Dollars in thousands)
695,954
$
$
1.15
208,691
396,276

$
$

2011

895,017
1.11
283,098
519,736

41.1%
45.4%
10.1%

$
$

123,829
86,676
63.2
3.1
4.6%

36.2 %
47.0 %
12.0 %

57,979
78,813
65.6
3.4
2.5 %

$
$

2009

419,239
0.96
125,619
310,163

26.4%
41.4%
14.1%
(35,855)
39,049
61.3
2.9
5.0%

Bookings represent orders expected to be shipped within 12 months and services to be provided pursuant to service
contracts. While we generally have not experienced a significant rate of cancellation, bookings are generally cancelable by our
customers without substantial penalty and, therefore, we cannot assure all bookings will be converted to net sales.

The book-to-bill ratio is calculated as annual bookings divided by annual net sales. This is an indication of the strength of

our business but can sometimes be impacted by a single large order. A ratio greater than 1.0 indicating that demand for our
products is greater than what we supply in the year.

Fiscal 2011 bookings reached another new record for the Company. Bookings increased 28.6% from fiscal 2010, with a

significant increase in the microelectronics market. Bookings increases by market compared to fiscal 2010 were
microelectronics (62%), materials processing (22%) and scientific (3%), partially offset by a decrease in the OEM components
and instrumentation market (3%). Although fiscal 2011 bookings were a record, bookings in the fourth quarter of fiscal 2011
decreased from the third quarter of fiscal 2011, with a fourth quarter book-to-bill of 0.94, primarily due to timing of large orders
in the microelectronics market.

Fiscal 2010 bookings, at the time, represented a new record. Bookings increased 66.0% from fiscal 2009, with increases

in all four markets led by a significant increase in the microelectronics market. Bookings increases by market compared to fiscal

2009 were microelectronics (140%), materials processing (69%), OEM components and instrumentation (51%) and scientific
(10%).

Microelectronics

Record-setting bookings in fiscal 2011 increased 62% from fiscal 2010 and the book-to-bill ratio for the year was 1.25.

Flat panel display orders for fiscal 2011 increased significantly from fiscal 2010, including $44 million of a record $77

million order we received for the current and next generation flat panel display annealing lasers and optics. The remaining $33
million of this order will be booked in fiscal 2012 in accordance with our internal policies. Fulfillment of this order, combined
with projected long-term service requirements from the installed base and new system backlog, requires a series of investments
by Coherent including our facility expansion in Göttingen and the opening of a service center in South Korea, both of which
will become operational in fiscal 2012. Orders in the fourth quarter of fiscal 2011 were significantly lower than in the third
quarter of fiscal 2011, accounting for much of the decrease in the Company's bookings, primarily due to the timing of orders.
We expect this market to be strong in fiscal 2012 as the primary market driver, the proliferation of smartphones and tablets,
remains intact. Given our robust backlong, new orders for annealing systems will be predominately scheduled for delivery in
fiscal 2013, in part due to customer facility readiness to receive and install new equipment.

Advanced packaging (API) orders increased significantly for the full fiscal year, but decreased in the fourth quarter of

fiscal 2011, due to lower consumer confidence, pressure from reduced semiconductor capital equipment spending and
tightening of credit in China. Although it is harder to predict the timing of the recovery in this market due to our customer
diversity, the long-term outlook is positive. We anticipate that market growth will come from increased adoption of
smartphones and tablets as well as the emergence of ultrabooks (a hybrid tablet/notebook) and from the 3D packaging market.
We are positioning our product portfolio to address more demanding packaging requirements by increasing the performance of
our CO2 and pulsed UV laser products. In addition, several new OEM integrators serving the API market have selected
Coherent as their laser vendor.

Although orders from semiconductor capital equipment OEMs increased for the full fiscal year, they slowed in the fourth
quarter of fiscal 2011. Recent market data indicates that the market is expected to rebound at some point in calendar 2012. We
continue to engage with customers to develop solutions for the 20 nm mode deployment and this market has not been affected.

OEM Components and Instrumentation

Bookings in fiscal 2011 decreased 3% from fiscal 2010 and the book-to-bill ratio for the year was 0.97. Although
bookings declined for the full fiscal year primarily due to lower stimulus funding, orders in the second half of fiscal 2011 were
strong due to the timing of certain large orders and strength in the medical OEM market.

The medical OEM market has been trending upward as consumer spending improved in fiscal 2011, led by growth in

eyecare and aesthetic procedures. We believe that in the longer term, the ophthalmic market is the growth engine for the
medical market. Rising life expectancies will increase the occurrence of various eye conditions such as cataracts and laser
intervention remains the preferred treatment option for many of these conditions. We believe that our current R&D programs
will yield products that provide patient, procedure and cost benefits.

Orders in the instrumentation market declined in fiscal 2011 as customers readjusted inventory levels following the
expiration of stimulus funds. We believe the long-term prospects for this market are strong, as broader access to health care in
the U.S and abroad requires the health care system to develop more and better early detection methods to provide cost-effective
care. Customers are increasingly seeking multiple wavelength solutions to support a variety of test protocols on a single tool.
Our OBIS™ product family rises to these challenges and we are working with OEM customers for current and future designs.

The defense business remains under budget pressure globally as proposed spending cuts have influenced buying patterns,

which are skewed towards a number of low volume orders.

Materials Processing

Although annual bookings increased 22% from fiscal 2010 and fiscal 2011's book-to-bill ratio was 1.06, bookings in the

fourth quarter of fiscal 2011 decreased from the record-setting third quarter of fiscal 2011 due primarily to the timing of several
larger orders and the tightening of credit in China.

Marking and engraving remains our largest submarket with demand driven by product identification in the consumer
electronics, automotive, medical and packaging markets. Although there is opportunity for strong long-term growth in this
market, the market may fluctuate from quarter to quarter in fiscal 2012 as consumer spending and credit flows in China are
resolved.

Like marking and engraving, both lasers sales, predominantly CO2, and sales of laser manufacturing tools into the textile
and paper cutting markets were strong in fiscal 2011. In fiscal 2012, we expect to diversify both product lines to address more
applications including the introduction of the first of these product additions at the Fabtech tradeshow in November 2011. In
addition, our upcoming kilowatt class fiber laser will address metal. cutting and we expect first revenue shipments in mid-fiscal
2012.

Scientific and Government Programs

Record-setting bookings in fiscal 2011 increased 3% from fiscal 2010 and the book-to-bill ratio for the year was 0.98.
Orders were a record in both fiscal 2011 and the fourth quarter of fiscal 2011 even as the stimulus funding ended, indicating
market share gains. In the U.S., demand was in-line with expectations for the post-American Recovery and Investment Act of
2009 period. The Asia-Pacific region delivered record bookings in the fourth quarter of fiscal 2011, led by research investments
in China. Europe was unseasonably strong, led by continued investments in Germany.

Fiscal 2011 orders were strong for high-end ultrafast amplifiers used in a variety of applications including attosecond
physics, EUV time-resolved studies and multidimensional spectroscopy. The biological imaging market was also strong, but
below the record levels fueled by stimulus spending. We introduced a new, hands-free laser called the Vitara™ that produces
very short pulses. This laser is a key building block to enabling higher performance and better resolution in a wide range of
research applications. It can be used as a stand-alone device or in conjunction with amplifier systems. We believe the Vitara™
will quickly become the standard for short pulse oscillators.

Net Sales

Net sales include sales of lasers, laser tools, related accessories and service contracts. Net sales for fiscal 2011 increased

32.7% from fiscal 2010. Net sales for fiscal 2010 increased 38.8% from fiscal 2009. For a description of the reasons for changes
in net sales refer to the "Results of Operations" section below.

Gross Profit as a Percentage of Net Sales

Gross profit as a percentage of net sales ("gross profit percentage") is calculated as gross profit for the period divided by
net sales for the period. Gross profit percentage for CLC increased to 41.1% in fiscal 2011 from 36.2% in fiscal 2010 and from
26.4% in fiscal 2009. Gross profit percentage for SLS decreased to 45.4% in fiscal 2011 from 47.0% in fiscal 2010 and
increased from 41.4% in fiscal 2009. For a description of the reasons for changes in gross profit refer to the "Results of
Operations" section below.

Research and Development as a Percentage of Net Sales

Research and development as a percentage of net sales ("R&D percentage") is calculated as research and development

expense for the period divided by net sales for the period. Management considers R&D percentage to be an important indicator
in managing our business as investing in new technologies is a key to future growth. R&D percentage decreased to 10.1% from
12.0% in fiscal 2010 and 14.1% in fiscal 2009. R&D percentage decreased primarily due to higher sales volumes, partially
offset by higher project development spending. For a description of the reasons for changes in R&D spending refer to the
"Results of Operations" section below.

Net Cash Provided by Operating Activities

Net cash provided by operating activities shown on our Consolidated Statements of Cash Flows primarily represents the

excess of cash collected from billings to our customers and other receipts over cash paid to our vendors for expenses and
inventory purchases to run our business. We believe that cash flows from operations is an important performance indicator
because cash generation over the long term is essential to maintaining a healthy business and providing funds to help fuel
growth. For a description of the reasons for changes in Net Cash Provided by Operating Activities refer to the "Liquidity and
Capital Resources" section below.

Days Sales Outstanding in Receivables

We calculate days sales outstanding ("DSO") in receivables as net receivables at the end of the period divided by net sales

during the period and then multiplied by the number of days in the period, using 360 days for years. DSO in receivables
indicates how well we are managing our collection of receivables, with lower DSO in receivables resulting in higher working
capital availability. The more money we have tied up in receivables, the less money we have available for research and
development, acquisitions, expansion, marketing and other activities to grow our business. Our DSO in receivables for fiscal
2011 decreased 2.4 days from fiscal 2010 to 63.2 days. The decrease in DSO in receivables is primarily due to the higher mix of
revenue and related receivables in Asia (excluding Japan) where the DSO is lower than the average DSO for the Company taken
as a whole as well as due to the improved DSO in Europe due to faster collections.

Annualized Inventory Turns

We calculate annualized inventory turns as cost of sales during the fourth quarter annualized and divided by net

inventories at the end of the fourth quarter. This indicates how well we are managing our inventory levels, with higher inventory
turns resulting in more working capital availability and a higher return on our investments in inventory. The more money we
have tied up in inventory, the less money we have available for research and development, acquisitions, expansion, marketing
and other activities to grow our business. Our annualized inventory turns for fiscal 2011 decreased 0.3 days from fiscal 2010 to
3.1 days. The deterioration in inventory turns is primarily due to increased inventory levels to support increased volumes.

Capital Spending as a Percentage of Net Sales

Capital spending as a percentage of net sales ("capital spending percentage") is calculated as capital expenditures for the

period divided by net sales for the period. Capital spending percentage indicates the extent to which we are expanding or
improving our operations, including investments in technology. Management monitors capital spending levels as this assists
management in measuring our cash flows, net of capital expenditures. Our capital spending percentage increased from 2.5% in
fiscal 2010 to 4.6% in fiscal 2011 and decreased from 5.0% in fiscal 2009 to 2.5% in fiscal 2010. The fiscal 2011 increase was
primarily due to purchases of production-related assets and building improvements to support higher sales volumes. The fiscal
2010 decrease was primarily due to higher sales volumes in fiscal 2010 net of fiscal 2009 spending for the purchase of assets in
support of a more effective business model for our semiconductor business and building investments related to our facilities
consolidation and relocation programs. We expect capital spending for fiscal 2012 to be approximately 4.5% of net sales
including substantial investments in Germany and South Korea.

SIGNIFICANT EVENTS

Goodwill Impairment

During the first quarter of fiscal 2009 our stock price declined substantially, which combined with expectations of
declines in forecasted operating results due to the slowdown in the global economy, led us to conclude that a triggering event
for review for potential goodwill impairment had occurred. Accordingly, as of December 27, 2008, we performed an interim
goodwill impairment evaluation. The performance of this test is a two-step process. Management reviewed the results of the
Step 1 analysis and concluded that a Step 2 analysis was required only for the CLC reporting unit. Our analysis indicated that
the entire balance of the goodwill in the CLC reporting unit at that date was impaired and we recorded a non-cash goodwill
impairment charge of $19.3 million in the first quarter of fiscal 2009. The estimated fair value of our SLS reporting unit
exceeded its carrying value so no further impairment analysis was required for this reporting unit.

Restructuring Activities

In fiscal 2009, we initiated the planning phase of a multiyear project, with a targeted completion date of September 2010,

to exit our epitaxial growth facility in Tampere, Finland and establish enhanced capabilities in Sunnyvale, California. We
decided to delay the closure due to increased demand for our products manufactured in Finland and we exited the facility in the
third quarter of fiscal 2011. In the second quarter of fiscal 2011, we ceased manufacturing operations in our Finland facility and
recognized a $6.1 million gain, primarily in other income (expense), due to a non-recurring translation adjustment related to the
dissolution of our Finland operations. We completed the consolidation of the remainder of our Munich facility into our
Göttingen site during third quarter of fiscal 2009. During the second quarter of fiscal 2009, we substantially completed the
transition of our optics manufacturing assets from Auburn, California to REO, and announced that we would be exiting our
facility in St. Louis, Missouri. We completed the exit from St. Louis, Missouri in the fourth quarter of fiscal 2009.

Acquisitions

On October 13, 2009, we acquired all the assets and certain liabilities of StockerYale's laser module product line in
Montreal and its specialty fiber product line in Salem, New Hampshire for $15.0 million in cash. StockerYale designs, develops
and manufactures low power laser modules, light emitting diode (LED) systems and specialty optical fiber products. These
assets and liabilities have been included in our Commercial Lasers and Components segment.

On April 29, 2010, we acquired Beam Dynamics for $6.25 million, excluding transaction fees. Beam Dynamics

manufactures flexible laser cutting tools for the materials processing market. These assets and liabilities have been included in
our Commercial Lasers and Components segment.

On January 5, 2011, we acquired all the assets and assumed certain liabilities of Hypertronics Pte Ltd for $14.5 million,

excluding transaction fees. Hypertronics designs and manufactures laser- and vision-based tools for flat panel, storage,
semiconductor and solar applications at facilities in Singapore and Malaysia. These assets and liabilities have been included in
our Specialty Lasers and Systems segment.

Stock Repurchases

In the second half of fiscal 2010, we repurchased and retired 1,195,829 shares of outstanding common stock for a total of

$43.3 million, excluding expenses.

In March 2011, we repurchased and retired 454,682 shares of outstanding common stock at an average price of $59.00 per

share for a total of $26.8 million, excluding expenses. During the third and fourth quarters of fiscal 2011, we repurchased and
retired 1,024,409 shares of outstanding common stock at an average price of $47.03 per share for a total of $48.2 million,
excluding expenses.

On August 25, 2011, we announced that the Board of Directors had authorized the repurchase of up to $50.0 million of
our common stock. The timing and size of any purchases will be subject to market conditions. The program is authorized for 12
months from the date of authorization. During fiscal 2011, we repurchased and retired 586,200 shares of outstanding common
stock at an average price of $42.67 per share for a total of $25.0 million excluding expenses. At October 1, 2011, $25.0 million
remained authorized for repurchase under our repurchase program.

RESULTS OF OPERATIONS—FISCAL 2011, 2010 AND 2009

Fiscal 2011 and 2010 consist of 52 weeks; fiscal 2009 consists of 53 weeks.

Consolidated Summary

The following table sets forth, for the years indicated, the percentage of total net sales represented by the line items

reflected in our consolidated statement of operations:

Net sales
Cost of sales
Gross profit
Operating expenses:

Research and development
Selling, general and administrative
Impairment of goodwill
Amortization of intangible assets
Total operating expenses
Income (loss) from operations
Other income (net)
Income (loss) before income taxes
Provision for (benefit from) income taxes
Net income (loss)

2011

Fiscal
2010
(As a percentage of net sales)

2009

100.0%
56.3%
43.7%

10.1%
18.6%
—%
1.0%
29.7%
14.0%
1.4%
15.4%
3.8%
11.6%

100.0 %
56.9 %
43.1 %

12.0 %
20.4 %
— %
1.3 %
33.7 %
9.4 %
0.2 %
9.6 %
3.5 %
6.1 %

100.0 %
63.0 %
37.0 %

14.1 %
24.8 %
4.4 %
1.7 %
45.0 %
(8.0)%
(0.2)%
(8.2)%
(0.1)%
(8.1)%

Refer to Item 6 "Selected Financial Data" for a description of significant events that impacted the results of operations for

fiscal years 2011, 2010 and 2009.

Net Sales

Market Application

The following table sets forth, for the periods indicated, the amount of net sales and their relative percentages of total net

sales by market application (dollars in thousands):

Fiscal 2011

Fiscal 2010

Fiscal 2009

Amount

Percentage
of total
net sales

Consolidated:
Microelectronics
OEM components and
instrumentation

Materials processing
Scientific and government
programs

Total

377,331

47.0 % $

230,763

38.1% $

132,152

164,508

104,497

20.5 %

151,243

25.0%

119,795

13.0 %

82,181

13.6%

61,072

156,498
802,834

19.5 %

140,880

100.0 % $

605,067

23.3%
100.0% $

122,863

435,882

30.3%

27.5%

14.0%

28.2%

100.0%

During fiscal 2011, net sales increased by $197.8 million, or 33%, compared to fiscal 2010, including an increase of
$14.9 million due to the impact of foreign currency exchange rates, with sales increasing in all four markets. Microelectronics
sales increased $146.6 million, or 64%, primarily due to higher sales in flat panel display, advanced packaging, semiconductor
and solar applications. The increase in the OEM components and instrumentation market of $13.3 million, or 9%, during fiscal
2011 was primarily due to higher shipments for bio-instrumentation, medical and machine vision applications. Materials
processing sales increased $22.3 million, or 27%, during fiscal 2011 primarily due to higher shipments for marking, cutting and
drilling applications. The increase in scientific and government program market sales of $15.6 million, or 11%, during fiscal
2011 was due to higher demand for advanced research applications used by university and government research groups.

During fiscal 2010, net sales increased by $169.2 million, or 39%, compared to fiscal 2009, including an increase of

$6.1 million due to the impact of foreign currency exchange rates, with sales increasing in all four markets. Microelectronics
sales increased $98.6 million, or 75%, primarily due to higher sales in advanced packaging, flat panel display, semiconductor
and solar applications. The increase in the OEM components and instrumentation market of $31.5 million, or 26%, during fiscal
2010 was primarily due to higher shipments for flow cytometry applications and for machine vision applications due to the
acquisition of certain product lines from StockerYale in the first quarter of fiscal 2010. Materials processing sales increased
$21.1 million, or 35%, during fiscal 2010 primarily due to higher shipments for marking applications. The increase in scientific
and government program market sales of $18.0 million, or 15%, during fiscal 2010 was due to higher demand for advanced
research applications used by university and government research groups in part due to Federal stimulus money.

In fiscal 2011, 2010 and 2009, no customers accounted for greater than 10% of net sales.

Segments

We are organized into two reportable operating segments: Commercial Lasers and Components ("CLC") and Specialty

Lasers and Systems ("SLS"). CLC focuses on higher volume products that are offered in set configurations. CLC's primary
markets include OEM components and instrumentation and materials processing. SLS develops and manufacturers
configurable, advanced-performance products largely serving the microelectronics and scientific research markets.

The following table sets forth, for the periods indicated, the amount of net sales and their relative percentages of total net

sales by segment (dollars in thousands):

Fiscal 2011

Fiscal 2010

Fiscal 2009

Amount

Percentage
of total
net sales

Amount

Percentage
of total
net sales

Amount

Percentage
of total
net sales

Consolidated:
Commercial Lasers and
Components (CLC)
Specialty Lasers and Systems
(SLS)
Corporate and other

Total

283,098

35.3 % $

208,691

34.5% $

125,619

519,736
—
802,834

64.7 %
— %

396,276
100

100.0 % $

605,067

65.5%
—%
100.0% $

310,163
100

435,882

28.8%

71.2%
—%

100.0%

Net sales for fiscal 2011 increased $197.8 million, or 33%, compared to fiscal 2010, with increases of $123.5 million, or

31%, in our SLS segment and increases of $74.4 million, or 36%, in our CLC segment. Net sales for fiscal 2010 increased

$169.2 million, or 39%, compared to fiscal 2009, with increases of $86.1 million, or 28%, in our SLS segment and increases of
$83.1 million, or 66%, in our CLC segment.

The increase in our CLC segment sales from fiscal 2010 to fiscal 2011 was primarily due to higher advanced packaging,
materials processing and flat panel display application sales. The increase in our CLC segment sales from fiscal 2009 to fiscal
2010 was primarily due to higher advanced packaging, materials processing, flat panel display and instrumentation application
sales.

The increase in our SLS segment sales from fiscal 2010 to fiscal 2011 was primarily due to higher sales for flat panel
display, semiconductor, scientific and advanced packaging applications. The increase in our SLS segment sales from fiscal 2009
to fiscal 2010 was primarily due to higher sales for advanced packaging, semiconductor, solar, scientific and flat panel display
applications.

Gross Profit

Consolidated

Our gross profit rate increased by 0.6% to 43.7% in fiscal 2011 from 43.1% in fiscal 2010 primarily due to a lower

manufacturing cost structure and higher sales volumes as well as a favorable product mix due to higher margins within the
microelectronics market.

Our gross profit rate increased by 6.1% to 43.1% in fiscal 2010 from 37.0% in fiscal 2009 primarily due to higher sales
volumes and a lower manufacturing cost structure as well as lower restructuring costs. The improvement includes lower other
costs primarily due to lower need for inventory provisions for excess and obsolete items (2.3%), the benefit of a lower
manufacturing cost structure (1.8%), lower restructuring costs (1.4%) and lower warranty and installation costs (0.7%) due to
the benefit of increasing volumes net of the cost resulting from replacement of non-compliant vendor components.

Our gross profit rate has been and will continue to be affected by a variety of factors including market mix, pricing on

volume orders, manufacturing efficiencies, excess and obsolete inventory write-downs, warranty costs, pricing by competitors
or suppliers, new product introductions, production volume, customization and reconfiguration of systems, commodity prices
and foreign currency fluctuations.

Commercial Lasers and Components

Our CLC gross profit rate increased by 4.9% to 41.1% in fiscal 2011 from 36.2% in fiscal 2010 primarily due to favorable

product costs (2.4%) due to the impact of increased volumes and favorable product mix within the microelectronics market,
lower restructuring costs (2.2%) and lower other costs (0.6%) due to lower inventory provisions partially offset by higher
warranty costs (0.3%).

Our CLC gross profit rate increased by 9.8% to 36.2% in fiscal 2010 from 26.4% in fiscal 2009 primarily due to lower

other costs (4.3%) primarily due to lower need for inventory provisions and the impact of higher sales volumes, lower
restructuring costs (1.9%), the impact of increased volumes and cost reduction efforts (1.9%) and lower warranty and
installation costs (1.6%) due to the benefit of increasing volumes net of the cost resulting from replacement of non-compliant
vendor components.

Specialty Lasers and Systems

Our SLS gross profit rate decreased by 1.6% to 45.4% in fiscal 2011 from 47.0% in fiscal 2010 primarily due to
unfavorable product costs (0.8%) resulting from unfavorable mix within the microelectronics market and the acquisition of
Hypertronics net of the impact of increased volumes and cost reduction efforts as well as higher other costs (1.0%) due to higher
inventory provisions and higher freight costs partially offset by lower warranty costs (0.2%).

Our SLS gross profit rate increased by 5.6% to 47.0% in fiscal 2010 from 41.4% in fiscal 2009 primarily due to the
impact of increased volumes and cost reduction efforts as well as favorable product mix in the microelectronics and solar
markets (2.5%), lower other costs (1.7%) due to lower need for inventory provisions and the impact of higher sales volumes and
lower restructuring costs (1.3%). Although warranty and installation costs as a percentage of net sales were flat, the benefit of
increasing volumes was offset by the cost resulting from replacement of non-compliant vendor components.

Operating Expenses

Research and development
Selling, general and administrative
Impairment of goodwill
Amortization of intangible assets
Total operating expenses

Research and development

2011

Percentage
of total
net sales

Amount

Fiscal
2010

Percentage
of total
net sales

Amount

81,232
149,499
—
8,082

10.1 % $
18.6 %
— %
1.0 %

238,813

29.7 % $

203,931

(Dollars in thousands)
72,354
123,575
—
8,002

12.0 % $
20.4 %
— %
1.3 %
33.7 % $

2009

Percentage
of total
net sales

Amount

61,417
108,098
19,286
7,466

196,267

14.1 %
24.8 %
4.4 %
1.7 %

45.0 %

Fiscal 2011 research and development ("R&D") expenses increased $8.9 million, or 12%, from fiscal 2010. The increase

was due primarily to higher payroll spending ($7.0 million) due to increased headcount and higher performance-related
compensation and the acquisitions of Hypertronics in the second quarter of fiscal 2011 and Beam Dynamics in the middle of the
third quarter of fiscal 2010 ($2.3 million). As a percentage of sales, the decrease was primarily due to increased sales volumes.
On a segment basis, CLC spending increased $1.9 million primarily due to higher payroll spending and the acquisition of Beam
Dynamics in the middle of the third quarter of fiscal 2010 partially offset by lower project spending and lower restructuring
costs. SLS spending increased $5.9 million primarily due to higher payroll spending, the acquisition of Hypertronics in the
second quarter of fiscal 2011, higher project spending and the impact of foreign exchange rates. Corporate and other spending
increased $1.1 million.

Fiscal 2010 R&D expenses increased $10.9 million, or 18%, from fiscal 2009. The increase was primarily due to higher

payroll spending ($4.2 million) due to higher performance-related compensation net of lower severance-related restructuring
costs and the elimination of mandatory time off, higher project spending ($3.6 million), the acquisition of certain product lines
from StockerYale in the first quarter of fiscal 2010 and Beam Dynamics in the third quarter of fiscal 2010 ($2.6 million), higher
charges for increases in deferred compensation plan liabilities ($0.7 million) with the related earnings for increases in deferred
compensation plan assets recorded in other income (expense), $0.3 million higher stock-related compensation expense and
higher other spending ($0.2 million) partially offset by lower non-severance related restructuring costs ($0.7 million). On a
segment basis, CLC spending increased $6.4 million primarily due to higher project spending including higher payroll and
bonus spending as well as the acquisition of StockerYale. SLS spending increased $2.5 million primarily due to higher payroll
and bonus spending partially offset by lower restructuring costs. Corporate and other spending increased $2.0 million.

Selling, general and administrative

Fiscal 2011 selling, general and administrative ("SG&A") expenses increased $25.9 million, or 21%, from fiscal 2010.

The increase was primarily due to $12.3 million higher payroll spending due to higher performance-related compensation
spending, higher headcount and increased salaries, $4.9 million higher other variable spending, $3.8 million higher stock-related
compensation expense, the acquisitions of Hypertronics in the second quarter of fiscal 2011 and Beam Dynamics in the middle
of the third quarter of fiscal 2010 ($2.2 million), the impact of foreign currency exchange rates ($1.8 million) and higher
charges for increases in deferred compensation plan liabilities ($0.9 million) with the related earnings for increases in deferred
compensation plan assets recorded in other income (expense) partially offset by lower restructuring costs ($2.2 million). In
addition, fiscal 2010 SG&A expenses were reduced by a $2.2 million net receipt from the settlement of litigation resulting from
our stock option investigation. On a segment basis, CLC spending increased $3.5 million primarily due to higher payroll
spending and higher other variable spending partially offset by lower restructuring costs. SLS segment expenses increased
$12.6 million primarily due to higher payroll spending, the acquisition of Hypertronics, the impact of foreign currency exchange
rates and higher other variable spending. Spending for Corporate and other increased $9.8 million primarily due to higher stock-
related compensation expense, the net receipt from the settlement of litigation resulting from our stock option investigation in
the first quarter of fiscal 2010, higher payroll spending, higher charges for increases in deferred compensation plan liabilities
and higher other variable spending.

Fiscal 2010 SG&A expenses increased $15.5 million, or 14%, from fiscal 2009. The increase was primarily due to
$11.0 million higher payroll spending due to higher performance-related compensation spending and the elimination of
mandatory time off net of savings from site consolidations and other restructuring activities, $4.3 million higher charges due to
increases in deferred compensation plan liabilities with the related earnings for increases in deferred compensation plan assets
recorded in other income (expense), the acquisition of certain product lines from StockerYale ($2.8 million), higher other
spending ($1.2 million), $0.9 million higher stock-related compensation expense and the impact of foreign currency exchange
rates ($0.6 million) partially offset by $3.3 million lower costs incurred for litigation resulting from our internal stock option
investigation primarily due to a receipt from the settlement of the litigation and $2.0 million lower spending on facilities due to
site consolidations. On a segment basis, CLC spending increased $6.1 million primarily due to higher payroll spending and the
acquisition of certain product lines from StockerYale. SLS segment expenses increased $3.0 million primarily due to higher
payroll spending net of savings from site consolidations. Spending for Corporate and other increased $6.4 million primarily due
to higher charges due to increases in deferred compensation plan liabilities and higher performance-related compensation
spending partially offset by lower costs incurred for litigation resulting from our internal stock option investigation.

Impairment of goodwill

Under generally accepted accounting principles, goodwill is tested for impairment on an annual basis and between annual
tests in certain circumstances, and written down when impaired. During the first quarter of fiscal 2009, our stock price declined
substantially, which combined with expectations of declines in forecasted operating results due to the slowdown in the global
economy, led the Company to conclude that a triggering event for review for potential goodwill impairment had occurred.
Accordingly, as of December 27, 2008, we performed an interim goodwill impairment evaluation which indicated that the
goodwill was fully impaired. We recorded a non-cash goodwill impairment charge of $19.3 million in the CLC reporting unit in
the first quarter of fiscal 2009.

Amortization of intangible assets

Amortization of intangible assets increased $0.1 million, or 1%, from fiscal 2010 to fiscal 2011 primarily due to the
amortization of intangibles from the acquisition of Hypertronics in the second quarter of fiscal 2011 and Beam Dynamics in the
third quarter of fiscal 2010, partially offset by completion of amortization of certain intangibles related to prior acquisitions.

Amortization of intangible assets increased $0.5 million, or 7%, from fiscal 2009 to fiscal 2010 primarily due to the
acquisition of certain product lines from StockerYale and the acquisition of Beam Dynamics partially offset by completion of
amortization of certain intangibles related to prior acquisitions.

Other income (expense), net

Other income (expense), net, increased $10.7 million from fiscal 2010 to fiscal 2011. The increase was primarily due to

the $6.5 million non-recurring translation adjustment related to the dissolution of our Finland operations, higher net foreign
currency exchange gains ($2.9 million) and higher gains on our deferred compensation plan assets net of expenses ($2.4
million) including a $1.5 million death benefit, partially offset by lower interest income ($1.0 million) primarily due to interest
on a tax refund in fiscal 2010.

Other income (expense), net, increased $1.8 million from fiscal 2009 to fiscal 2010. The increase was primarily due to the

recovery in the market value of our deferred compensation plan assets ($5.1 million) partially offset by lower benefit from
Japan consumption tax savings ($2.5 million) as the benefit expired in the fourth quarter of fiscal 2009, lower interest income
($0.6 million) as a result of lower rates of return net of interest on tax refunds and the impact of higher average cash, cash
equivalents and short-term investments balances and higher foreign currency exchange losses ($0.3 million).

Income taxes

The effective tax rate on income before income taxes for fiscal 2011 of 24.7% was lower than the statutory rate of 35.0%.
This was primarily due to the benefit of releasing unrecognized tax benefits under ASC 740-10 and related interest, the benefit
of federal research and development credits, including additional credits reinstated from fiscal 2010 resulting from the
enactment of the “Tax Relief, Unemployment Insurance Reauthorization and Jobs Creation Acts of 2010,” the benefit of foreign
tax credits, the benefit of currency translation adjustments related to closure of Coherent Finland's operations, the benefit from
income subject to foreign tax rates that are lower than U.S. tax rates and the benefit from the unrealized gain on life insurance
policy investments related to our deferred compensation plans. These amounts are partially offset by state income tax,
limitations on the utilization of certain foreign tax attributes and net operating losses, limitations on the deductibility of
compensation under IRC Section 162(m), deemed dividend inclusions under the Subpart F tax rules and a currency translation
adjustment related to a dividend from a foreign subsidiary.

During fiscal 2011, we increased our valuation allowance on deferred tax assets by $1.5 million to $8.8 million, primarily

due to the reduced ability to utilize foreign tax attributes and net operating losses and the reduced ability to utilize California

research and development tax credits as a result of releasing net unrecognized tax benefits under ASC 740-10 that supported the
credits. During fiscal 2010, we increased our valuation allowance on deferred tax assets to $7.4 million, primarily due to a
capital loss limitation true-up, the reduced ability to utilize California research and development tax credits as a result of the
current apportionment factor and the reduced ability to utilize foreign net operating losses. During fiscal year 2009, we
increased our valuation allowance on deferred tax assets to $6.8 million, primarily due to California research and development
tax credits as a result of new California legislation and the reduced ability to utilize foreign net operating losses. In making the
determination to record the valuation allowance, management considered the likelihood of future taxable income and feasible
and prudent tax planning strategies to realize deferred tax assets. In the future, if we determine that we expect to realize deferred
tax assets, an adjustment to the valuation allowance will affect income in the period such determination is made.

The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (“Act”), was enacted on
December 17, 2010. Under the Act, the federal research and development credit was retroactively extended for amounts paid or
incurred after December 31, 2009 through December 31, 2011. The effects of the change in the tax law are recognized in our
first quarter of fiscal 2011, which is the quarter that the law was enacted.

In addition to the federal legislation, the state of California approved its 2010-2011 budget on October 8, 2010 that

includes modifications to the tax law provisions that were previously set to become effective with tax years beginning on or
after January 1, 2011. Accordingly, we were able to benefit from additional research and development tax credits in fiscal year
2011 that were previously limited.

The effective tax rate on income before income taxes for fiscal 2010 of 36.3% was higher than the statutory rate of 35.0%.

This was primarily due to stock compensation not deductible for tax purposes and an increase in valuation allowance against
capital loss carryforwards, California research and development tax credits as a result of California legislation enacted in
February 2009 and certain foreign net operating loss carryforwards. These increases are partially offset by the benefit of income
subject to foreign tax rates that are lower than U.S. tax rates and research and development credits.

The difference between the statutory rate of 35.0% and our effective tax rate of 1.5% on income (loss) before income
taxes for fiscal 2009, which represents a current year benefit, was due primarily to permanent differences related to the non-
deductibility of the goodwill impairment charge, an increase in valuation allowance against California research and
development tax credits as a result of California legislation enacted in February 2009 and certain foreign net operating loss
carryforwards, and deemed dividend inclusions under the Subpart F tax rules. These amounts are partially offset by permanent
differences related to the benefit of foreign tax credits and the benefit of federal research and development tax credits, including
additional credits reinstated from fiscal 2008 resulting from the enactment of the "Emergency Economic Stabilization Act of
2008."

FINANCIAL CONDITION

Liquidity and capital resources

At October 1, 2011, we had assets classified as cash and cash equivalents, as well as time deposits and fixed income

securities classified as short-term investments, in an aggregate amount of $220.2 million, compared to $263.4 million at
October 2, 2010. At October 1, 2011, we held cash and cash equivalents outside the U.S. in certain of our foreign operations
totaling approximately $145.1 million, the majority of which is denominated in the Euro. We currently intend to permanently
reinvest approximately $134 million of the cash held by our foreign subsidiaries. If, however, a portion of these funds were
needed for and distributed to our operations in the United States, we would be subject to additional U.S. income taxes and
foreign withholding taxes. The amount of taxes due will depend on the amount and manner of repatriation, as well as the
location from where the funds are repatriated. We actively monitor the third-party depository institutions that hold these assets,
primarily focusing on the safety of principal and secondarily maximizing yield on these assets. We diversify our cash and cash
equivalents and investments among various financial institutions, money market funds and sovereign debt in order to reduce our
exposure should any one of these financial institutions or financial instruments fail or encounter difficulties. To date, we have
not experienced any material loss or lack of access to our invested cash, cash equivalents or short-term investments. However,
we can provide no assurances that access to our invested cash, cash equivalents or short-term investments will not be impacted
by adverse conditions in the financial markets.

Sources and Uses of Cash

Historically, our primary source of cash has been provided by operations. Other sources of cash in the past three fiscal
years include proceeds received from the sale of our stock through our employee stock option and purchase plans. Our historical
uses of cash have primarily been for the repurchase of our common stock, capital expenditures and acquisitions of businesses
and technologies. Supplemental information pertaining to our historical sources and uses of cash is presented as follows and
should be read in conjunction with our Consolidated Statements of Cash Flows and notes thereto (in thousands):

Net cash provided by operating activities
Sales of shares under employee stock plans
Repurchase of common stock
Capital expenditures
Acquisition of businesses, net of cash acquired

2011

86,676 $
34,720
(100,637)
(37,117)
(14,108)

Fiscal
2010

78,813 $
33,438
(43,335 )
(15,139 )
(20,745 )

2009

39,049
4,674
—
(21,627)
—

Net cash provided by operating activities increased by $7.9 million in fiscal 2011 compared to fiscal 2010 and increased

by $39.8 million in fiscal 2010 compared to fiscal 2009. The increase in cash provided by operating activities in fiscal 2011 was
primarily due to higher net income partially offset by lower cash flows from inventories, accounts payable and other current
liabilities. The increase in cash provided by operating activities in fiscal 2010 was primarily due to higher net income and lower
tax payments due to new tax legislation which allows the carry back of net operating losses for up to five years partially offset
by lower cash flows from increased working capital (accounts receivable and inventories, net of increases in accounts payable
and accrued expenses) needed to support increased sales and projected sales volumes. We believe that our existing cash, cash
equivalents and short term investments combined with cash to be provided by operating activities will be adequate to cover our
working capital needs and planned capital expenditures for at least the next 12 months to the extent such items are known or are
reasonably determinable based on current business and market conditions. However, we may elect to finance certain of our
capital expenditure requirements through borrowings under our bank credit facilities or other sources of capital. We continue to
follow our strategy to further strengthen our financial position by using available cash flow to fund operations.

We intend to continue pursuing acquisition opportunities at valuations we believe are reasonable based upon market
conditions as demonstrated by our acquisition of businesses from Hypertronics in the second quarter of fiscal 2011, Beam
Dynamics in the third quarter of fiscal 2010 and StockerYale in the first quarter of fiscal 2010. However, we cannot accurately
predict the timing, size and success of our acquisition efforts or our associated potential capital commitments. Furthermore, we
cannot assure you that we will be able to acquire businesses on terms acceptable to us. We expect to fund future acquisitions
primarily through existing cash balances and cash flows from operations. If required, we will look for additional borrowings or
consider the issuance of securities. The extent to which we will be willing or able to use our common stock to make acquisitions
will depend on its market value at the time and the willingness of potential sellers to accept it as full or partial payment.

On April 29, 2010, we announced that the Board of Directors had authorized the repurchase of up to $50.0 million of our

common stock. During fiscal 2010, we repurchased and retired 1,195,829 shares of outstanding common stock at an average
price of $36.21 per share for a total of $43.3 million, excluding expenses.

On January 26, 2011, we announced that the Board of Directors had authorized the repurchase of up to $75.0 million of

our common stock. The program was authorized for 12 months from the date of authorization. During fiscal 2011, we
completed the stock repurchase. We repurchased and retired 454,682 shares of outstanding common stock at an average price
of $59.00 per share for a total of $26.8 million, excluding expenses. During the third and fourth quarters of fiscal 2011, we
repurchased and retired 1,024,409 shares of outstanding common stock at an average price of $47.03 per share for a total of
$48.2 million, excluding expenses.

On August 25, 2011, we announced that the Board of Directors had authorized the repurchase of up to $50.0 million of
our common stock. The program is authorized for 12 months from the date of authorization. During fiscal 2011, we repurchased
and retired 586,200 shares of outstanding common stock at an average price of $42.67 per share for a total of $25.0 million,
excluding expenses. At October 1, 2011, $25.0 million remained authorized for repurchase under our repurchase program.

During fiscal year 2008, we initiated restructuring plans to decrease costs by consolidating facilities and reducing our
workforce. As of October 1, 2011, we had made payments in connection with the restructuring plans in the amount of $27.7
million. We completed payments for substantially all anticipated costs related to the restructuring plans in the third quarter of
fiscal 2011.

Additional sources of cash available to us were domestic and international currency lines of credit and bank credit
facilities totaling $60.6 million as of October 1, 2011, of which $58.5 million was unused and available. These unsecured credit
facilities were used in Europe during fiscal 2011 as guarantees. Our domestic line of credit includes a $40.0 million unsecured
revolving credit account with Union Bank of California, which expires on March 31, 2012 and is subject to covenants related to
financial ratios and tangible net worth. No amounts have been drawn upon our domestic line of credit and $2.1 million has been
used of the international currency lines as of October 1, 2011.

Our ratio of current assets to current liabilities was 3.6:1 at October 1, 2011, compared to 4.1:1 at October 2, 2010. The

decrease in our ratio is primarily due to decreases in cash and increases in income taxes payable and other current liabilities

partially offset by increases in inventories and accounts receivable. Our cash and cash equivalents, short-term investments,
restricted cash, working capital and debt obligations are as follows (in thousands):

Cash and cash equivalents
Short-term investments
Restricted cash, current
Working capital
Total debt obligations

Fiscal

2011
167,061 $
53,142
—
418,241
34

2010
245,380
17,391
625
410,597
51

Contractual Obligations and Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements as defined by Regulation S-K of the Securities Act of 1933. The following

summarizes our contractual obligations at October 1, 2011 and the effect such obligations are expected to have on our liquidity
and cash flow in future periods (in thousands):

Long-term debt payments
Operating lease payments
Asset retirement obligations
Purchase commitments with suppliers
Purchase obligations
Total

Total

34 $

43,845
2,234
71,484
8,569
126,166 $

Less than
1 year

1 to 3 years

3 to 5 years

More than
5 years

15 $

8,465
—
71,484
8,569
88,533 $

19 $

12,562
1,100
—
—
13,681 $

— $

8,996
35
—
—
9,031 $

—
13,822
1,099
—
—
14,921

Because of the uncertainty as to the timing of such payments, we have excluded cash payments related to our contractual

obligations for our deferred compensation plans aggregating $25.5 million at October 1, 2011.

As of October 1, 2011, we recorded gross unrecognized tax benefits of $33.7 million and gross interest and penalties of

$3.4 million. As of October 2, 2010, we recorded gross unrecognized tax benefits of $50.1 million and gross interest and
penalties of $6.9 million. Both gross unrecognized tax benefits and gross interest and penalties are classified as non-current
liabilities in the consolidated balance sheet. At this time, we are unable to make a reasonably reliable estimate of the timing of
payments in individual years due to uncertainties in the timing of tax audit outcomes. As a result, these amounts are not
included in the table above.

Changes in financial condition

Cash provided by operating activities in fiscal 2011 was $86.7 million, which included net income of $93.2 million,

depreciation and amortization of $28.6 million, decreases in net deferred tax assets of $22.1 million due to utilization of tax
credits and stock-based compensation expense of $13.0 million partially offset by cash used by operating assets and liabilities of
$59.0 million, a non-recurring translation adjustment related to the dissolution of our Finland operations of $6.5 million and
$4.7 million other.

Cash used in investing activities in fiscal 2011 of $85.7 million included $35.4 million net purchases of available-for-sale
securities, $36.8 million, net, used to acquire property and equipment and improve buildings and $14.1 million used to acquire
Hypertronics partially offset by decreases in restricted cash of $0.6 million.

Cash used in financing activities in fiscal 2011 was $64.1 million, including $100.6 million used to repurchase our

common stock partially offset by $34.7 million generated from our employee stock purchase plans and $1.8 million other.

Changes in exchange rates in fiscal 2011 resulted in a decrease in cash balances of $15.2 million.

RECENT ACCOUNTING PRONOUNCEMENTS

See Note 2. "Significant Accounting Policies" in the Notes to Consolidated Financial Statements under Item 15 of this

Annual Report on Form 10-K for a full description of recent accounting pronouncements, including the respective dates of
adoption or expected adoption and effects on our consolidated financial position, results of operations and cash flows.

APPLICATION OF CRITICAL ACCOUNTING POLICIES

Our discussion and analysis of financial condition and results of operations are based upon our consolidated financial

statements, which have been prepared in accordance with accounting principles generally accepted in the United States of
America and pursuant to the rules and regulations of the SEC. The preparation of these financial statements 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. We have identified the following as the items that require the most significant judgment and often involve
complex estimation: revenue recognition, accounting for long-lived assets (including goodwill and intangible assets), inventory
valuation, warranty reserves, stock-based compensation and accounting for income taxes.

Revenue Recognition

We recognize revenue when all four revenue recognition criteria have been met: persuasive evidence of an arrangement

exists, the product has been delivered or the service has been rendered, the price is fixed or determinable and collection is
probable. Revenue from product sales is recorded when all of the foregoing conditions are met and risk of loss and title passes
to the customer. Our products typically include a warranty and the estimated cost of product warranty claims (based on
historical experience) is recorded at the time the sale is recognized. Sales to customers are generally not subject to any price
protection or return rights.

The vast majority of our sales are made to original equipment manufacturers (OEMs), distributors, resellers and end-users

in the non-scientific market. Sales made to these customers do not require installation of the products by us and are not subject
to other post-delivery obligations, except in occasional instances where we have agreed to perform installation or provide
training. In those instances, we defer revenue related to installation services or training until these services have been rendered.
We allocate revenue from multiple element arrangements to the various elements based upon fair values or a selling price
hierarchy, for arrangements entered into subsequent to October 2, 2010, as discussed below.

Should changes in conditions cause management to determine these criteria are not met for certain future transactions,
revenue recognized for any reporting period could be adversely affected. Failure to obtain anticipated orders due to delays or
cancellations of orders could have a material adverse effect on our revenue. In addition, pressures from customers to reduce our
prices or to modify our existing sales terms may have a material adverse effect on our revenue in future periods.

Our sales to distributors, resellers and end-user customers typically do not have customer acceptance provisions and only

certain of our sales to OEM customers have customer acceptance provisions. Customer acceptance is generally limited to
performance under our published product specifications. For the few product sales that have customer acceptance provisions
because of higher than published specifications, (1) the products are tested and accepted by the customer at our site or by the
customer's acceptance of the results of our testing program prior to shipment to the customer, or (2) the revenue is deferred until
customer acceptance occurs.

Sales to end-users in the scientific market typically require installation and, thus, involve post-delivery obligations;
however our post-delivery installation obligations are not essential to the functionality of our products. We defer revenue related
to installation services until completion of these services.

For most products, training is not provided; therefore, no post-delivery training obligation exists. However, when training

is provided to our customers, it is typically priced separately and recognized as revenue as these services are provided.

In October 2009, the Financial Accounting Standards Board ("FASB") issued a new accounting standard for multiple
deliverable revenue arrangements. The new standard changes the requirements for establishing separate units of accounting in a
multiple element arrangement and requires the allocation of arrangement consideration to each deliverable to be based on the
relative selling price. The FASB also issued a new accounting standard for certain revenue arrangements that include software
elements. This new standard excludes software that is contained on a tangible product from the scope of software revenue
guidance if the software is essential to the tangible product's functionality. We prospectively adopted both these standards in the
first quarter of fiscal 2011. The impact of adopting these standards was not material to net sales or our consolidated financial
statements for fiscal 2011. The new accounting standards for revenue recognition if applied in the same manner to the year
ended October 2, 2010 would not have had a material impact on net sales or to our consolidated financial statements for that
fiscal year.

Under these new standards, when a sales arrangement contains multiple elements, such as products and/or services, we

will not be able to establish TPE due to the nature of the markets in which we compete, and, as such, we typically will
determine selling price using VSOE or if not available, ESP.

Our basis for establishing VSOE of a deliverable's selling price consists of standalone sales transactions when the same or

similar product or service is sold separately. However, when services are never sold separately, such as product installation
services, VSOE is based on the product's estimated installation hours based on historical experience multiplied by the standard
service billing rate. In determining VSOE, we require that a substantial majority of the selling price for a product or service fall
within a reasonably narrow price range, as defined by us. We also consider the geographies in which the products or services
are sold, major product and service groups, and other environmental variables in determining VSOE. Absent the existence of
VSOE and TPE, our determination of a deliverable's ESP involves evaluating several factors based on the specific facts and
circumstances of these arrangements, which include pricing strategy and policies driven by geographies, market conditions,
competitive landscape, correlation between proportionate selling price and list price established by management having the
relevant authority, and other environmental variables in which the deliverable is sold.

For multiple element arrangements which include extended maintenance contracts, we allocate and defer the amount of

consideration equal to the separately stated price and recognize revenue on a straight-line basis over the contract period.

Long-Lived Assets and Goodwill

We evaluate long-lived assets and amortizable intangible assets whenever events or changes in business circumstances or

our planned use of assets indicate that their carrying amounts may not be fully recoverable or that their useful lives are no
longer appropriate. Reviews are performed to determine whether the carrying values of the assets are impaired based on
comparison to the undiscounted expected future cash flows identifiable to such long-lived and amortizable intangible assets. If
the comparison indicates that impairment exists, the impaired asset is written down to its fair value.

We have determined that our reporting units are the same as our operating segments as each constitutes a business for
which discrete financial information is available and for which segment management regularly reviews the operating results.
We make this determination in a manner consistent with how the operating segments are managed. Based on this analysis, we
have identified two reporting units which are our reportable segments: CLC and SLS.

Goodwill is tested for impairment on an annual basis and between annual tests in certain circumstances, and written down
when impaired (see Note 8 "Goodwill and Intangible Assets" in the Notes to Consolidated Financial Statements). We generally
perform our annual impairment tests during the fourth quarter of each fiscal year using the opening balance sheet as of the first
day of the fourth fiscal quarter, with any resulting impairment recorded in the fourth quarter of the fiscal year.

During the first quarter of fiscal 2009, our stock price declined substantially which, combined with expectations of
declines in forecasted operating results due to the slowdown in the global economy, led the Company to conclude that a
triggering event for review for potential goodwill impairment had occurred. Accordingly, as of December 27, 2008, we
performed an interim goodwill impairment evaluation. Goodwill is tested for impairment by comparing the respective fair value
with the respective carrying value of the reporting unit. If such comparison indicates a potential impairment, then the
impairment is determined as the difference between the recorded value of goodwill and its fair value. The performance of this
test is a two-step process.

Step 1 of the impairment test involves comparing the fair values of the applicable reporting units with their aggregate

carrying values, including goodwill. If the carrying amount of a reporting unit exceeds the reporting unit's fair value, we
perform Step 2 of the goodwill impairment test to determine the amount of impairment loss if any. Step 2 of the goodwill
impairment test involves comparing the implied fair value of the affected reporting unit's goodwill against the carrying value of
that goodwill.

We have historically relied on the Income approach to determine the fair value of our reporting units. In the first quarter

of fiscal 2009, when we determined that a triggering event had occurred, we subsequently determined that it would be
appropriate to rely on the following three valuation approaches to determine the fair value of both of our reporting units. (1) The
Income approach utilizes the discounted cash flow model to provide an estimation of fair value based on the cash flows that a
business expects to generate. These cash flows are based on forecasts developed internally by management which are then
discounted at an after tax rate of return required by equity and debt market participants of a business enterprise. This rate of
return or cost of capital is weighted based on the capitalization of comparable companies. (2) The Market approach determines
fair value by comparing the reporting units to comparable companies in similar lines of business that are publicly traded. Total
Enterprise Value (TEV) multiples such as TEV to revenues and TEV to earnings (if applicable) before interest and taxes of the
publicly traded companies are calculated. These multiples are then applied to the reporting unit's operating results to obtain an
estimate of fair value. (3) The Transaction approach estimates the fair value of the reporting unit based on market prices in
actual transactions. A comparison is done between the reporting units and other similar businesses. Total Enterprise Value
multiples for revenue and earnings as noted in the Market approach above are calculated from the comparable companies and

then applied to the reporting unit's operating results to obtain an estimate of fair value. Each of these three approaches captures
aspects of value in each reporting unit. The Income approach captures our expected future performance, the Market approach
captures how investors view the reporting units through other competitors; and, the Transaction approach captures value
through transactions for sales of similar types of companies. We believe these valuation approaches are proven valuation
techniques and methodologies for our industry and are widely accepted by investors.

As none were perceived by us to deliver any greater indication of value than the other, we weighted each of the
approaches equally. The sensitivity analysis performed by management determined that by changing the weighting placed on
the three approaches, the result of the Step 1 test for both reporting units was not affected.

The valuation analysis requires significant judgments and estimates to be made by management in particular related to the

forecast. The assumed growth rates and gross margins as well as period expenses were determined based on internally
developed forecasts considering our future plans. The assumptions used were management's best estimates based on projected
results and market conditions as of the date of testing. In order to test the sensitivity of these fair values, management further
reviewed other scenarios relative to these assumptions to see if the resulting impact on fair values would have resulted in a
different Step 1 conclusion for the CLC and SLS reporting units.

Based on these forecast scenarios, the fair value of both reporting units was re-calculated. In addition, this sensitivity
analysis applied more conservative assumptions with regard to control premiums as well as multipliers used in the Market
approach and the Transaction approach. In each of the sensitivity analyses performed, the CLC reporting unit failed and the SLS
reporting unit passed. None of the outcomes of the sensitivity analyses performed would have impacted our Step 1 conclusions
or the non-cash impairment charge for goodwill of $19.3 million recorded in the first quarter of fiscal 2009.

Sensitivity was also applied to the discount rate used in the Income approach for both the CLC and SLS reporting units.

At December 27, 2008, the discount rate for the CLC reporting unit could have been reduced by more than 40% and still
resulted in a failure. For the SLS reporting unit, the discount rate could have been increased by more than 40% and still resulted
in no impairment.

During the second quarter of fiscal 2009, our expectations of declines in forecasted operating results due to the slowdown

in the global economy and the further declines in our stock price led us to conclude that a triggering event for review for
potential goodwill impairment had occurred. Accordingly, as of April 4, 2009, we performed an interim goodwill impairment
evaluation. This interim impairment evaluation utilized the same valuation techniques used in our impairment valuation in the
first quarter of fiscal 2009. A similar sensitivity analysis was also done at April 4, 2009 where we determined that the discount
rate used in the Income approach for the SLS reporting unit could have been increased by approximately 20% and still resulted
in no impairment. Based on the results of our Step 1 analysis, we determined that no additional goodwill impairment was
indicated.

During the third and fourth quarters of fiscal 2009, and the first three quarters of fiscal 2010, we noted no indications of

impairment or triggering events to cause us to review goodwill for potential impairment.

For fiscal 2010, we performed our annual goodwill impairment testing during the fourth quarter of fiscal 2010 using the

opening balance sheet as of the first day of the fourth fiscal quarter and noted no impairment. As noted in the valuation analysis
discussion above, such analysis requires significant judgments and estimates to be made by management in particular related to
the forecast. The assumed growth rates and gross margins as well as period expenses were determined based on internally
developed forecasts considering our future plans. The assumptions used were management's best estimates based on projected
results and market conditions as of the date of testing. Utilizing the Income Approach, we noted no impairment. Based on our
evaluation, the fair values of each of the two operating segments significantly exceeded their carrying value. In order to test the
sensitivity of these fair values, management further reviewed other scenarios relative to these assumptions to see if the resulting
impact on fair values would have resulted in a different conclusion for the CLC and SLS reporting units. Sensitivity was applied
to the discount rate used in the Income approach for both the CLC and SLS reporting units. The discount rate for the CLC and
SLS reporting units could have been increased by more than 25% and still resulted in no impairment. Based on the outcome of
this testing and sensitivity analysis, we decided it would not be necessary to utilize all three testing methods for this annual test.

At October 1, 2011, we had $76.0 million of goodwill, $18.0 million of purchased intangible assets and $104.5 million of

property and equipment on our consolidated balance sheet.

Under the goodwill standards, a company may carry forward the detailed determination of a reporting unit from one year
to the next if certain criteria have been met. Those criteria include: the assets and liabilities that make up the reporting unit have
not changed significantly since the most recent fair value determination, the most recent fair value determination resulted in an
amount that exceeded the carrying amount of the reporting unit by a substantial margin, and based on an analysis of events that
have occurred and circumstances that have changed since the most recent fair value determination, the likelihood that a current
fair value determination would be less than the current carrying amount of the reporting unit is remote.

Based on our analysis and a review of the criteria, using the opening balance sheet as of the first day of the fourth quarter
of fiscal 2011, we determined that we had met the requirements of the goodwill standard for carrying forward our fair value
determination from fiscal 2010, and did not perform detailed testing of the fair value of our reporting units for fiscal 2011.
Between the completion of that testing and the end of the fourth quarter of fiscal 2011, we noted no indications of impairment
or triggering events to cause us to review goodwill for potential impairment; based on our evaluation, the fair values of each of
the two operating segments significantly exceeded their carrying value as of that date.

As no impairment indicators were present during the fourth quarter of fiscal 2011, we believe these values remain

recoverable.

It is reasonably possible that the estimates of anticipated future net revenue, the remaining estimated economic life of the

products and technologies, or both, could differ from those used to assess the recoverability of these assets in fiscal 2010. In
addition, if the price of our common stock were to significantly decrease combined with any other adverse change in market
conditions, thus indicating that the underlying fair value of our reporting units or other long-lived assets may have decreased,
we may be required to assess the recoverability of such assets in the period such circumstances are identified. In that event,
additional impairment charges or shortened useful lives of certain long-lived assets may be required.

Inventory Valuation

We record our inventory at the lower of cost (computed on a first-in, first-out basis) or market. We write-down our

inventory to its estimated market value based on assumptions about future demand and market conditions. Inventory write-
downs are generally recorded within guidelines set by management when the inventory for a device exceeds 12 months of its
demand and when individual parts have been in inventory for greater than 12 months. If actual market conditions are less
favorable than those projected by management, additional inventory write-downs may be required which could materially affect
our future results of operations. Due to rapidly changing forecasts and orders, additional write-downs for excess or obsolete
inventory, while not currently expected, could be required in the future. In the event that alternative future uses of fully written
down inventories are identified, we may experience better than normal profit margins when such inventory is sold. Differences
between actual results and previous estimates of excess and obsolete inventory could materially affect our future results of
operations. We write-down our demo inventory by amortizing the cost of demo inventory over a twenty month period starting
from the fourth month after such inventory is placed in service.

Warranty Reserves

We provide warranties on certain of our product sales and allowances for estimated warranty costs are recorded during the
period of sale. The determination of such allowances requires us to make estimates of product return rates and expected costs to
repair or replace the products under warranty. We currently establish warranty reserves based on historical warranty costs for
each product line. The weighted average warranty period covered is approximately 15 months. If actual return rates and/or
repair and replacement costs differ significantly from our estimates, adjustments to cost of sales may be required in future
periods.

Stock-Based Compensation

We account for stock-based compensation using fair value. We estimate the fair value of stock options granted using the

Black-Scholes Merton model and estimate the fair value of market-based performance restricted stock units granted using a
Monte Carlo simulation model. We use historical data to estimate pre-vesting option forfeitures and record stock-based
compensation expense only for those awards that are expected to vest. We amortize the fair value of stock options on a straight-
line basis over the requisite service periods of the awards, which are generally the vesting periods. We value service-based
restricted stock units using the intrinsic value method and amortize the value on a straight-line basis over the restriction period.
We value market-based performance restricted stock units using a Monte Carlo simulation model and amortize the value over
the performance period, with no adjustment in future periods, based upon the actual shareholder return over the performance
period.

U.S. Generally Accepted Accounting Principles ("GAAP") requires the use of option pricing models that were not
developed for use in valuing employee stock options. The Black-Scholes option-pricing model was developed for use in
estimating the fair value of short-lived exchange traded options that have no vesting restrictions and are fully transferable. In
addition, option-pricing models require the input of highly subjective assumptions, including the options expected life, the
expected price volatility of the underlying stock and an estimate of expected forfeitures. Our computation of expected volatility
considers historical volatility and market-based implied volatility. Our estimate of expected forfeitures is based on historical
employee data and could differ from actual forfeitures.

See Note 14 "Employee Stock Option and Benefit Plans" in the notes to the Consolidated Financial Statements under

Item 15 of this Annual Report on Form 10-K for a description of our stock-based employee compensation plans and the
assumptions we use to calculate the fair value of stock-based employee compensation.

Income Taxes

As part of the process of preparing our consolidated financial statements, we are required to estimate our income tax
provision (benefit) in each of the jurisdictions in which we operate. This process involves us estimating our current income tax
provision (benefit) together with assessing temporary differences resulting from differing treatment of items for tax and
accounting purposes. These differences result in deferred tax assets and liabilities, which are included within our consolidated
balance sheets.

We record a valuation allowance to reduce our deferred tax assets to an amount that more likely than not will be realized.
While we have considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need
for the valuation allowance, in the event we were to determine that we would be able to realize our deferred tax assets in the
future in excess of our net recorded amount, an adjustment to the allowance for the deferred tax asset would increase income in
the period such determination was made. Likewise, should we determine that we would not be able to realize all or part of our
net deferred tax asset in the future, an adjustment to the valuation allowance for the deferred tax asset would be charged to
income in the period such determination was made.

Federal income taxes have not been provided for on a portion of the unremitted earnings of foreign subsidiaries because

such earnings are intended to be permanently reinvested. The total amount of unremitted earnings of foreign subsidiaries for
which we have not yet recorded federal income taxes was approximately $198.7 million at fiscal 2011 year-end. In addition to
federal income taxes (which are not practicably determinable), withholding taxes of approximately $9.4 million would be
payable upon repatriation of such earnings which would result in additional foreign tax credits.

In addition to the federal legislation, the state of California approved its 2010-2011 budget on October 8, 2010 that

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk disclosures

We are exposed to market risk related to changes in interest rates and foreign currency exchange rates. We do not use

derivative financial instruments for speculative or trading purposes.

Interest rate sensitivity

A portion of our investment portfolio is composed of fixed income securities. These securities are subject to interest rate
risk and will fall in value if market interest rates increase. If market interest rates were to increase immediately and uniformly
by 10% from levels at fiscal 2011 year-end, the fair value of the portfolio, based on quoted market prices in active markets
involving similar assets, would decline by an immaterial amount. We have the ability to generally hold our fixed income
investments until maturity and therefore we would not expect our operating results or cash flows to be affected to any
significant degree by the effect of a sudden change in market interest rates on our securities portfolio. If necessary, we may sell
short-term investments prior to maturity to meet our liquidity needs.

At fiscal 2011 year-end, the fair value of our available-for-sale debt securities was $46.6 million, all of which was
classified as short-term investments. Gross unrealized gains and losses on available-for-sale debt securities were $276,000 and
($27,000), respectively, at fiscal 2011 year-end. At fiscal 2010 year-end, the fair value of our available-for-sale debt securities
was $17.4 million, all of which was classified as short-term investments. Gross unrealized gains and losses on available-for-sale
debt securities were $82,000 and ($2,000), respectively, at fiscal 2010 year-end.

Foreign currency exchange risk

We maintain operations in various countries outside of the United States and have foreign subsidiaries that manufacture

flows and net asset and liability positions denominated in foreign currencies. Gains and losses on the forward contracts are
mitigated by gains and losses on the underlying instruments. We do not use derivative financial instruments for trading
purposes.

We do not anticipate any material adverse effect on our consolidated financial position, results of operations or cash flows

resulting from the use of these instruments. There can be no assurance that these strategies will be effective or that transaction
losses can be minimized or forecasted accurately. If a financial counterparty to any of our hedging arrangements experiences
financial difficulties or is otherwise unable to honor the terms of the foreign currency hedge, we may experience material
financial losses. In the current economic environment, the risk of failure of a financial party remains high.

A hypothetical 10% change in foreign currency rates would not have a material impact on our results of operations or

financial position.

The following table provides information about our foreign exchange forward contracts at October 1, 2011. The table

presents the weighted average contractual foreign currency exchange rates, the value of the contracts in U.S. dollars at the
contract exchange rate as of the contract maturity date and fair value. The U.S. notional fair value represents the contracted
amount valued at October 1, 2011 rates.

Forward contracts to sell (buy) foreign currencies for U.S. dollars (in thousands, except contract rates):

Euro
British Pound Sterling
Japanese Yen
Korean Won
Chinese Renminbi
Canadian Dollar

Average
Contract Rate

U.S. Notional
Contract Value

U.S. Notional
Fair Value

1.3583 $
1.5795 $
76.8993 $
1,106.1000 $
6.4040 $
1.0046 $

(42,488) $
4,998 $
(2,351) $
7,044 $
3,579 $
1,162 $

(42,103)
4,932
(2,355 )
6,591
3,591
1,108

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See Item 15-(a) for an index to the Consolidated Financial Statements and Supplementary Financial Information, which

are attached hereto and incorporated by reference herein. The financial statements and notes thereto can be found beginning on
page 64 of this annual report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL

DISCLOSURE

Not applicable.

ITEM 9A. CONTROLS AND PROCEDURES

Management's Evaluation of Disclosure Controls and Procedures

We have evaluated the effectiveness of the design and operation of our disclosure controls and procedures; as such term is
defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as of the end of the period covered by this Annual Report
("Evaluation Date"). The controls evaluation was done under the supervision and with the participation of management,
including our Chief Executive Officer and Chief Financial Officer. Based on this evaluation, our Chief Executive Officer and
Chief Financial Officer concluded as of the Evaluation Date that our disclosure controls and procedures were effective in
providing reasonable assurance that information required to be disclosed by us in reports that we file or submit under the
Securities Exchange Act of 1934, as amended, is (i) recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission's rules and forms and (ii) accumulated and communicated to our
management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions
regarding required disclosures.

Management's Report on Internal Control Over Financial Reporting

Management, including our Chief Executive Officer and Chief Financial Officer, is responsible for establishing and
maintaining adequate internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for
the Company.

Management assessed the effectiveness of our internal control over financial reporting as of October 1, 2011, utilizing the

criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") in Internal Control-
Integrated Framework. Based on the assessment by management, we determined that our internal control over financial
reporting was effective as of October 1, 2011. The effectiveness of our internal control over financial reporting as of
October 1, 2011 has been audited by Deloitte & Touche LLP, our independent registered public accounting firm, as stated in
their report which appears below.

Inherent Limitations Over Internal Controls

Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. The Company's internal control over financial reporting includes those policies and procedures that:

(i)

(ii)

(iii)

pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the Company's assets;
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that the Company's receipts and
expenditures are being made only in accordance with authorizations of the Company's management and directors;
and
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the Company's assets that could have a material effect on the financial statements.

Management, including our CEO and CFO, does not expect that the Company's internal controls will prevent or detect all errors
and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance
that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are
resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in
all control systems, no evaluation of internal controls can provide absolute assurance that all control issues and instances of
fraud, if any, have been detected. Also, any evaluation of the effectiveness of controls in future periods are subject to the risk
that those internal controls may become inadequate because of changes in business conditions, or that the degree of compliance
with the policies or procedures may deteriorate.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the quarter ended

October 1, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial
reporting.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of Coherent, Inc.:

We have audited the internal control over financial reporting of Coherent, Inc. and its subsidiaries (collectively, the
"Company") as of October 1, 2011, based on the criteria established in Internal Control—Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for
maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over
financial reporting included in the accompanying Management's Report on Internal Control Over Financial Reporting. Our
responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United

States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding
of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design
and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's

principal executive and principal financial officers, or persons performing similar functions, and effected by the company's
board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of
the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that
could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or

improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a
timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future
periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of

October 1, 2011, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the consolidated financial statements as of and for the year ended October 1, 2011, of the Company and our report dated
November 30, 2011, expressed an unqualified opinion on those consolidated financial statements.

/s/ DELOITTE & TOUCHE LLP

San Jose, California
November 30, 2011

ITEM 9B. OTHER INFORMATION

Not applicable.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information regarding: (i) our directors will be set forth under the caption "Proposal One —Election of Directors—
Nominees"; (ii) compliance with Section 16(a) of the Securities Act of 1933 will be set forth under the caption "Section 16(a)
Beneficial Ownership Reporting Compliance"; (iii) the process for stockholders to nominate directors will be set forth under the
caption "Proposal One—Election of Directors—Process for Recommending Candidates for Election to the Board of Directors";
(iv) our audit committee and audit committee financial expert will be set forth under the caption "Proposal One—Election of
Directors—Board Meetings and Committees—Audit Committee"; in our proxy statement for use in connection with an
upcoming Annual Meeting of Stockholders to be held in 2012 (the "2012 Proxy Statement") and is incorporated herein by
reference or included in a Form 10-K/A as an amendment to this Form 10-K. The 2012 Proxy Statement or Form 10-K/A will
be filed with the Securities and Exchange Commission within 120 days after the end of our fiscal year.

Business Conduct Policy

We have adopted a worldwide Business Conduct Policy that applies to the members of our Board of Directors, executive

officers and other employees. This policy is posted on our Website at www.coherent.com and may be found as follows:

From our main Web page, first click on "Company" and then on "corporate governance."

Next, click on "Business Conduct Policy."

We intend to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding an amendment to, or waiver from,

a provision of this Business Conduct Policy by posting such information on our Website, at the address and location specified
above.

Stockholders may request free printed copies of our worldwide Business Conduct Policy from:

Coherent, Inc.
Attention: Investor Relations
5100 Patrick Henry Drive
Santa Clara, California 95054

Executive Officers

The name, age, position and a brief account of the business experience of our executive officers as of November 30, 2011

are set forth below:

Name
John R. Ambroseo
Helene Simonet
Mark Sobey
Luis Spinelli
Bret M. DiMarco
Paul Sechrist

Age

Office Held

50 President and Chief Executive Officer
59 Executive Vice President and Chief Financial Officer
51 Executive Vice President and General Manager, Specialty Laser Systems
63 Executive Vice President and Chief Technology Officer
43 Executive Vice President, General Counsel and Corporate Secretary
52 Executive Vice President, Worldwide Sales and Service

John R. Ambroseo. Mr. Ambroseo has served as our President and Chief Executive Officer as well as a member of the

Board of Directors since October 2002. Mr. Ambroseo served as our Chief Operating Officer from June 2001 through
September 2002. Mr. Ambroseo served as our Executive Vice President and as President and General Manager of the Coherent
Photonics Group from September 2000 to June 2001. From September 1997 to September 2000, Mr. Ambroseo served as our
Executive Vice President and as President and General Manager of the Coherent Laser Group. From March 1997 to September
1997, Mr. Ambroseo served as our Scientific Business Unit Manager. From August 1988, when Mr. Ambroseo joined us, until
March 1997, he served as a Sales Engineer, Product Marketing Manager, National Sales Manager and Director of European
Operations. Mr. Ambroseo received a Bachelor degree from SUNY-College at Purchase and a PhD in Chemistry from the
University of Pennsylvania.

Helene Simonet. Ms. Simonet has served as our Executive Vice President and Chief Financial Officer since April 2002.

Ms. Simonet served as Vice President of Finance of our former Medical Group and Vice President of Finance, Photonics
Division from December 1999 to April 2002. Prior to joining Coherent, she spent over twenty years in senior finance positions

at Raychem Corporation's Division and Corporate organizations, including Vice President of Finance of the Raynet
Corporation. Ms. Simonet has both Master's and Bachelor degrees from the University of Leuven, Belgium.

Mark Sobey. Mr. Sobey was appointed Executive Vice President of Coherent and General Manager of Specialty Laser

Systems (SLS) in April 2010. He has served as Senior Vice President and General Manager for the SLS Business Group, which
primarily serves the Microelectronics and Research markets, since joining Coherent in July 2007. Prior to Coherent, Mr. Sobey
has spent over 20 years in the Laser and Fiber Optics Telecommunications industries, including roles as Senior Vice President
Product Management at Cymer from January 2006 through June 2007 and previously as Senior Vice President Global Sales at
JDS Uniphase through October 2005. He received his PhD in Engineering and BSc in Physics, both from the University of
Strathclyde in Scotland.

Luis Spinelli. Mr. Spinelli has served as our Executive Vice President and Chief Technology Officer since February
2004. Mr. Spinelli joined the Company in May 1985 and has since held various engineering and managerial positions, including
Vice President, Advanced Research from April 2000 to September 2002 and Vice President, Corporate Research from
September 2002 to February 2004. Mr. Spinelli has led the Advanced Research Unit from its inception in 1998, whose charter is
to identify and evaluate new and emerging technologies of interest for us across a range of disciplines in the laser field.
Mr. Spinelli holds a degree in Electrical Engineering from the University of Buenos Aires, Argentina with post-graduate work
at the Massachusetts Institute of Technology.

Bret M. DiMarco. Mr. DiMarco has served as our Executive Vice President and General Counsel since June 2006 and

our Corporate Secretary since February 2007. From February 2003 until May 2006, Mr. DiMarco was a member and from
October 1995 until January 2003 was an associate at Wilson Sonsini Goodrich & Rosati, P.C., a law firm. Mr. DiMarco
received a Bachelor degree from the University of California at Irvine and a Juris Doctorate degree from the Law Center at the
University of Southern California. He is also an adjunct professor of law at the University of California Hastings College of the
Law, teaching corporate law and mergers & acquisitions.

Paul Sechrist. Mr. Paul Sechrist was appointed Executive Vice President, Worldwide Sales and Service in March 2011.

He has over 28 years of experience with Coherent, including roles as Senior Vice President and General Manager of
Commercial Lasers and Components from October 2008 to March 2011, Vice President and General Manager of Specialty
Laser Systems, Santa Clara from March 2008 to October 2008 and Vice President for Components from April 2005 to October
2008. Mr. Sechrist received an AA degree from San Jose City College, with Physics studies at California State University,
Hayward.

ITEM 11. EXECUTIVE COMPENSATION

Information regarding: (i) executive officer and director compensation will be set forth under the captions "Election of
Directors—Director Compensation" and "Executive Officers and Executive Compensation" and (ii) compensation committee
interlocks will be set forth under the caption "Executive Officers and Executive Compensation—Compensation Committee
Interlocks and Insider Participation and Committee Independence" in the 2012 Proxy Statement or included in a Form 10-K/A
as an amendment to our Form 10-K for the fiscal year ended October 1, 2011. The 2012 Proxy Statement or Form 10-K/A will
be filed with the Securities and Exchange Commission within 120 days after the end of our fiscal year.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

Information regarding: (i) equity compensation plan information will be set forth under the caption "Equity Compensation

Plan Information"; and (ii) security ownership of certain beneficial owners and management will be set forth under the caption
"Security Ownership of Certain Beneficial Owners and Management"; in our 2012 Proxy Statement and is incorporated herein
by reference or included in a Form 10-K/A as an amendment to our Form 10-K for the fiscal year ended October 1, 2011.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required under this item will be set forth under the caption "Certain Relationships and Related Party

Transactions" in our 2012 Proxy Statement and is incorporated herein by reference or included in a Form 10-K/A as an
amendment to our Form 10-K for the fiscal year ended October 1, 2011.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Principal Accounting Fees and Services

The following table sets forth fees for services provided by Deloitte & Touche LLP, the member firms of Deloitte Touche

Tohmatsu, and their respective affiliates (collectively, "Deloitte") during fiscal years 2011 and 2010:

Audit fees(1)
Audit-related fees
Tax fees
All other fees(2)
Total
_____________________________________________

2011
$ 1,665,000 $

—
—
2,000

$ 1,667,000 $

2010
1,440,000
—
—
2,000
1,442,000

(1) Represents fees for professional services provided in connection with the integrated audit of our annual financial

statements and internal control over financial reporting and review of our quarterly financial statements, advice on
accounting matters that arose during the audit and audit services provided in connection with other statutory or regulatory
filings.

(2) Represents the annual subscription for access to the Deloitte Accounting Research Tool, which is a searchable on-line

accounting database ($2,000) in both fiscal years.

Pre-Approval of Audit and Non-Audit Services

The Audit Committee has determined that the provision of non-audit services by Deloitte is compatible with maintaining

Deloitte's independence. In accordance with its charter, the Audit Committee approves in advance all audit and non-audit
services to be provided by Deloitte. In other cases, the Chairman of the Audit Committee has the delegated authority from the
Committee to pre-approve certain additional services, and such pre-approvals are communicated to the full Committee at its
next meeting. During fiscal year 2011, all services were pre-approved by the Audit Committee in accordance with this policy.

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)

1. Index to Consolidated Financial Statements

PART IV

The following Consolidated Financial Statements of Coherent, Inc. and its subsidiaries are filed as part of this annual

report on Form 10-K:

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets—October 1, 2011 and October 2, 2010
Consolidated Statements of Operations—Years ended October 1, 2011, October 2, 2010 and October 3, 2009
Consolidated Statements of Stockholders' Equity—Years ended October 1, 2011, October 2, 2010 and
October 3, 2009
Consolidated Statements of Cash Flows—Years ended October 1, 2011, October 2, 2010 and October 3, 2009
Notes to Consolidated Financial Statements
Quarterly Financial Information (Unaudited)

Consolidated Financial Statement Schedules

63
64
65

66
67
69
101

Financial statement schedules have been omitted because they are either not required, not applicable or the information

required to be set forth therein is included in the Consolidated Financial Statements hereto.

Exhibits

Exhibit
Numbers

3.1*

3.2*

3.3*

10.1*‡

Restated and Amended Certificate of Incorporation. (Previously filed as Exhibit 3.1 to Form 10-K for the
fiscal year ended September 29, 1990)
Certificate of Amendment of Restated and Amended Certificate of Incorporation of Coherent, Inc. (Previously
filed as Exhibit 3.2 to Form 10-K for the fiscal year ended September 28, 2002)
Bylaws of Coherent, Inc. (Previously filed as Exhibit 3.3 to Form 10-Q for the fiscal quarter ended June 28,
2008)
Amended and Restated Employee Stock Purchase Plan. (Previously filed as Exhibit 10.1 to Form 10-Q for the
fiscal quarter ended June 28, 2008)

10.2*‡ Coherent Employee Retirement and Investment Plan. (Previously filed as Exhibit 10.23 to Form 8,
Amendment No. 1 to Annual Report on Form 10-K for the fiscal year ended September 25, 1982)
10.3*‡ 1995 Stock Plan and forms of agreement. (Previously filed as Exhibit 10.34 to Form 10-K for the fiscal year

ended September 28, 1996)

10.4* 1998 Director Option Plan. (Previously filed as Appendix B to Schedule 14A filed February 28, 2006)
10.5*‡ 2001 Stock Plan (Previously filed as Exhibit 10.1 to Form 10-Q for the quarter ended March 29, 2008)
10.6*‡ Change of Control Severance Plan, as amended and restated effective December 10, 2008. (Previously filed as

Exhibit 10.1 to Form 10-Q for the quarter ended April 4, 2009).

10.7‡ Variable Compensation Plan, as amended.
10.8‡ Fiscal 2011 Variable Compensation Plan Payout Scale for Named Executive Officers.
10.9**‡ Fiscal 2012 Variable Compensation Plan Payout Scale for Named Executive Officers.
10.10*‡ Offer Letter to Bret DiMarco. (Previously filed as Exhibit 10.14 to Form 10-K for the year ended

10.11*‡

10.12*‡

September 30, 2006)
Supplementary Retirement Plan. (Previously filed as Exhibit 10.5 to Form 10-Q for the quarter ended April 1,
2006)
2005 Deferred Compensation Plan. (Previously filed as Exhibit 10.16 to Form 10-K for the year ended
September 27, 2008)

10.13*‡

10.14*‡

10.15*

10.16*

10.17*

Form of 2001 Stock Plan Terms and Conditions of Restricted Stock Units. (Previously filed as Exhibit 10.1 to
Form 8-K filed on November 27, 2009)
Form of 2001 Stock Plan Amended Global Stock Option Agreement. (Previously filed as Exhibit 10.2 to
Form 8-K filed on November 27, 2009)
Loan Agreement by and between Coherent, Inc. and Union Bank of California, N.A. dated as of March 31,
2008. (Previously filed as Exhibit 10.24 to Form 10-K/A for the year ended September 27, 2008)
Amendment to Union Bank Agreement dated April 29, 2010. (Previously filed as Exhibit 10.1 to Form 10-Q
for the quarter ended April 3, 2010)
Second Lease Amendment by and between Coherent, Inc. and 5200 Patrick Henry Associates LLC dated as of
July 23, 2010. (Previously filed as Exhibit 10.1 to Form 10-Q for the quarter ended July 3, 2010)

10.18* Form of Indemnification Agreement.
10.19*‡

2011 Equity Incentive Plan. (incorporated by reference to Exhibit 10.1 to the Company's Registration
Statement on Form S-8 (File No. 333-174019) filed on May 6, 2011)
Form of RSU Agreement for members of the Board of Directors under the Company's 2011 Equity Incentive
Plan. (Previously filed as Exhibit 10.1 to Form 10-Q for the fiscal quarter ended July 2, 2011)
Form of Option Agreement for members of the Board of Directors under the Company's 2011 Equity Incentive
Plan. (Previously filed as Exhibit 10.1 to Form 10-Q for the fiscal quarter ended July 2, 2011)
Form of Performance RSU Agreement under the 2011 Equity Incentive Plan.
Form of Time-Based RSU Agreement under the 2011 Equity Incentive Plan.

10.20*‡

10.21*‡

10.22‡
10.23‡

Subsidiaries

21.1
23.1 Consent of Independent Registered Public Accounting Firm
24.1 Power of Attorney (see signature page)
31.1

31.2

32.1

32.2

Certification of Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a)/15d-14(a), as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a)/15d-14(a), as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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.
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.

__________________________________________

**
‡

These exhibits were previously filed with the Commission as indicated and are
incorporated herein by reference.
Portions of this exhibit are redacted and confidential treatment has been requested.
Identifies management contract or compensatory plans or arrangements required to
be filed as an exhibit.

Pursuant to the requirements of Section 13 or 15(d) 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.

SIGNATURES

Date: November 30, 2011

COHERENT, INC.
/s/ JOHN R. AMBROSEO
By: John R. Ambroseo
President and Chief Executive Officer

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and
appoints John R. Ambroseo and Helene Simonet, and each of them individually, as his attorney-in-fact, each with full power of
substitution, for him in any and all capacities to sign any and all amendments to this Report on Form 10-K, and to file the same
with, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that said attorney-in-fact, or his or her substitute, may do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following

persons on behalf of the registrant and in the capacities and on the dates indicated:

/s/ JOHN R. AMBROSEO
John R. Ambroseo
(Director and Principal Executive Officer)

/s/ HELENE SIMONET
Helene Simonet
(Principal Financial and Accounting Officer)

/s/ JAY T. FLATLEY
Jay T. Flatley
(Director)
/s/ SUSAN M. JAMES
Susan M. James
(Director)
/s/ L. WILLIAM KRAUSE
L. William Krause
(Director)

/s/ GARRY W. ROGERSON
Garry W. Rogerson
(Director)

/s/ LAWRENCE TOMLINSON
Lawrence Tomlinson
(Director)

/s/ SANDEEP VIJ
Sandeep Vij
(Director)

November 30, 2011
Date

STATEMENT OF MANAGEMENT RESPONSIBILITY

Management is responsible for the preparation, integrity, and objectivity of the Consolidated Financial Statements and

other financial information included in the Company's 2011 Annual Report on Form 10-K. The Consolidated Financial
Statements have been prepared in conformity with U.S. generally accepted accounting principles and reflect the effects of
certain estimates and judgments made by management. It is critical for investors and other users of the Consolidated Financial
Statements to have confidence that the financial information that we provide is timely, complete, relevant and accurate

Management, with oversight by the Company's Board of Directors, has established and maintains a corporate culture that

requires that the Company's affairs be conducted to the highest standards of business ethics and conduct. Management also
maintains a system of internal control that is designed to provide reasonable assurance that assets are safeguarded and that
transactions are properly recorded and executed in accordance with management's authorization. This system is regularly
monitored through direct management review, as well as extensive audits conducted by internal auditors throughout the
organization.

Our Consolidated Financial Statements as of and for the year ended October 1, 2011 have been audited by Deloitte &

Touche LLP, an independent registered public accounting firm. Their audit was conducted in accordance with the standards of
the Public Company Accounting Oversight Board (United States) and included an integrated audit under such standards.

The Audit Committee of the Board of Directors meets regularly with management, the internal auditors and the

independent registered public accounting firm to review accounting, reporting, auditing and internal control matters. The Audit
Committee has direct and private access to both internal and external auditors.

See Item 9A for Management's Report on Internal Control Over Financing Reporting.

We are committed to enhancing shareholder value and fully understand and embrace our fiduciary oversight
responsibilities. We are dedicated to ensuring that our high standards of financial accounting and reporting as well as our
underlying system of internal controls are maintained. Our culture demands integrity and we have the highest confidence in our
processes, internal controls, and people, who are objective in their responsibilities and operate under the highest level of ethical
standards.

/s/ JOHN R. AMBROSEO
John R. Ambroseo
President and Chief Executive Officer

/s/ HELENE SIMONET
Helene Simonet
Executive Vice President and Chief Financial Officer

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of Coherent, Inc.:

We have audited the accompanying consolidated balance sheets of Coherent, Inc. and its subsidiaries (collectively, the
"Company") as of October 1, 2011 and October 2, 2010, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the three years in the period ended October 1, 2011. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial
statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the

Company as of October 1, 2011 and October 2, 2010, and the results of its operations and its cash flows for each of the three
years in the period ended October 1, 2011, in conformity with accounting principles generally accepted in the United States of
America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United

States), the Company's internal control over financial reporting as of October 1, 2011, based on the criteria established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
and our report dated November 30, 2011 expressed an unqualified opinion on the Company's internal control over financial
reporting.

/s/ DELOITTE & TOUCHE LLP

San Jose, California
November 30, 2011

COHERENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

(In thousands, except par value)

Current assets:

ASSETS

Cash and cash equivalents
Restricted cash
Short-term investments
Accounts receivable—net of allowances of $1,439 in 2011 and $1,655 in 2010
Inventories
Prepaid expenses and other assets
Deferred tax assets

Total current assets

Property and equipment, net
Goodwill
Intangible assets, net
Other assets
Total assets

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Current portion of long-term obligations
Accounts payable
Income taxes payable
Other current liabilities

Total current liabilities

Long-term obligations
Other long-term liabilities
Commitments and contingencies (Note 12)
Stockholders' equity:

Common stock, par value $.01:
Authorized—500,000 shares;
Outstanding—23,722 shares in 2011 and 24,554 shares in 2010

Additional paid-in capital
Accumulated other comprehensive income
Retained earnings

Total stockholders' equity
Total liabilities and stockholders' equity

See accompanying Notes to Consolidated Financial Statements.

October 1,
2011

October 2,
2010

167,061 $
—
53,142
141,037
152,385
44,964
22,057

580,646
104,504
75,954
17,980
64,182

245,380
625
17,391
110,211
113,858
35,002
20,050

542,517
90,339
70,796
19,931
79,521

843,266 $

803,104

15 $

39,841
23,929
98,620

162,405

19
62,841

236
130,250
51,221
436,294

618,001

18
39,737
4,267
87,898

131,920

33
79,688

245
186,078
62,084
343,056

591,463

843,266 $

803,104

COHERENT, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

Net sales
Cost of sales
Gross profit
Operating expenses:

Research and development
Selling, general and administrative
Impairment of goodwill
Amortization of intangible assets
Total operating expenses
Income (loss) from operations
Other income (expense):

Interest and dividend income
Interest expense
Other—net

Total other income (expense), net

Income (loss) before income taxes
Provision for (benefit from) income taxes
Net income (loss)

Net income (loss) per share:

Basic

Diluted

Shares used in computation:

Basic

Diluted

October 1,
2011
802,834 $
452,012
350,822

Year Ended
October 2,
2010
605,067 $
344,256
260,811

October 3,
2009
435,882
274,772

161,110

81,232
149,499
—
8,082
238,813
112,009

909
(147 )
11,058
11,820
123,829
30,591
93,238 $

72,354
123,575
—
8,002
203,931
56,880

1,871
(256 )
(516 )
1,099
57,979
21,063
36,916 $

61,417
108,098
19,286
7,466

196,267

(35,157)

2,485
(228)
(2,955 )

(698)

(35,855)
(536)

(35,319)

3.74 $
3.66 $

1.49 $
1.47 $

(1.45)

24,924

25,464

24,718
25,091

24,281

See accompanying Notes to Consolidated Financial Statements.

COHERENT, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

Three Years in the Period Ended October 1, 2011

(In thousands)

Balances, September 27, 2008
Components of comprehensive income:
Net loss

Translation adjustment, net of tax

Unrealized gain on available for sale securities, net of tax
Net loss realized on derivative instruments, net of tax

Total comprehensive loss

Common stock issued under stock plans, net of shares withheld
for employee taxes
Stock-based compensation
Balances, October 3, 2009
Components of comprehensive income:
Net income

Translation adjustment, net of tax
Unrealized loss on available for sale securities, net of tax
Net loss realized on derivative instruments, net of tax

Total comprehensive income

Common stock issued under stock plans, net of shares withheld
for employee taxes
Repurchases of Common Stock
Stock-based compensation
Balances, October 2, 2010
Components of comprehensive income:
Net income

Translation adjustment, net of tax
Unrealized loss on available for sale securities, net of tax

Total comprehensive income

Common stock issued under stock plans, net of shares withheld
for employee taxes
Tax benefit from employee stock options
Repurchases of Common Stock
Stock-based compensation
Balances, October 1, 2011

Common
Stock
Shares
24,191

Common
Stock
Par
Value

241

Add.
Paid-in
Capital
177,646

Accum.
Other
Comp.
Income

79,089 $

Retained
Earnings
341,459

Total
598,435

—

264

—

3,946

7,326

24,455

244

188,918

—

1,295

(1,196 )

—

(12 )

—

32,214

(43,323 )

8,269

24,554

245

186,078

—

1,233

—

(2,065 )

—

(20 )

—

31,403

290

(100,617 )

13,096

23,722

236

130,250

—
1,156

16
8

—
—
80,269 $

—
(18,259 )
(11 )
85

—
—
—
62,084 $

—
(10,842 )
(21 )

—
—
—
—
51,221 $

(35,319 )

—

1,156

(34,139 )

3,949

7,326

306,140

575,571

36,916

—

36,916

(18,259 )

(11 )

18,731

32,227

(43,335 )

8,269

343,056

591,463

93,238

—

93,238

(10,842 )

(21 )

82,375

31,414

290

(100,637 )

13,096

436,294

618,001

See accompanying Notes to Consolidated Financial Statements

COHERENT, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

Cash flows from operating activities:
Net income (loss)
Adjustments to reconcile net income to net cash provided by operating
activities:

Depreciation and amortization
Amortization of intangible assets
Impairment of goodwill
Stock-based compensation
Excess tax benefit from stock-based compensation arrangements
Non-cash gain on Finland dissolution
Tax benefit from employee stock options
Deferred income taxes
Loss on disposal of property and equipment
Other non-cash expense
Changes in assets and liabilities, net of effect of acquisitions:

Accounts receivable
Inventories
Prepaid expenses and other assets
Other assets
Accounts payable
Income taxes payable/receivable
Other current liabilities
Other long-term liabilities

Net cash provided by operating activities
Cash flows from investing activities:

Purchases of property and equipment
Proceeds from dispositions of property and equipment
Purchases of available-for-sale securities
Proceeds from sales and maturities of available-for-sale securities
Acquisition of businesses, net of cash acquired
Investment in SiOnyx
Change in restricted cash
Other-net

Net cash used in investing activities

October 1,
2011

Year Ended
October 2,
2010

October 3,
2009

93,238 $

36,916 $

(35,319)

20,539
8,082
—
12,963
(5,111 )
(6,511 )
290
22,089
300
(232 )

(26,185 )
(38,570 )
(8,098 )
(1,194 )
(161 )
3,982
8,712
2,543
86,676

(37,117 )
355
(230,992 )
195,570
(14,108 )
—
625
—
(85,667 )

21,657
8,002
—
8,286
(934 )
—
—
13,287
334
4,420

(33,674 )
(14,607 )
(9,247 )
67
15,122
6,454
22,838
(108 )
78,813

(15,139 )
2,144
(108,688 )
133,087
(20,745 )
(2,000 )
(625 )
38
(11,928 )

19,194
7,466
19,286
7,415
(9)
—
—
(12,224)
594
(228)

24,854
21,412
2,302
6,245
(4,172 )
1,481
(13,848)
(5,400 )

39,049

(21,627)
1,604
(106,856)
67,435
—
—
2,521
(25)

(56,948)

(continued)

COHERENT, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(In thousands)

Cash flows from financing activities:

Short-term borrowings
Short-term repayments
Cash overdrafts decrease
Repayments of capital lease obligations
Repurchase of common stock
Issuance of common stock under employee stock option and purchase
plans
Excess tax benefits from stock-based compensation arrangements
Net settlement of restricted common stock
Net cash provided by (used in) financing activities

Effect of exchange rate changes on cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents, beginning of year

Cash and cash equivalents, end of year

Supplemental disclosure of cash flow information:

Cash paid during the year for:

Interest
Income taxes

Cash received during the year for:

Income taxes

Noncash investing and financing activities:

Unpaid property and equipment purchases
Assets acquired under capital leases

October 1,
2011

Year Ended
October 2,
2010

October 3,
2009

2,344 $
(2,344 )
—
(18 )
(100,637 )

34,720
5,111
(3,306 )
(64,130 )
(15,198 )
(78,319 )
245,380
167,061 $

— $
—
—
(19 )
(43,335 )

33,438
934
(1,211 )
(10,193 )
(11,262 )
45,430
199,950
245,380 $

8
(8)
(470)
(8)
—

4,674
9
—

4,205

(182)

(13,876)
213,826

199,950

108 $
17,291 $

223 $
12,642 $

194
22,024

5,250 $

9,213 $

10,333

1,334 $
— $

2,076 $
43 $

696
—

$
$

(concluded)

See accompanying Notes to Consolidated Financial Statements

COHERENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. DESCRIPTION OF BUSINESS

Founded in 1966, Coherent, Inc. provides photonics-based solutions in a broad range of commercial and scientific
research applications. We design, manufacture, service and market lasers, laser tools and related accessories for a diverse group
of customers. Headquartered in Santa Clara, California, the Company has worldwide operations including research and
development, manufacturing, sales, service and support capabilities.

2. SIGNIFICANT ACCOUNTING POLICIES

Fiscal Year

Our fiscal year ends on the Saturday closest to September 30. Fiscal years 2011, 2010 and 2009 ended on October 1,

October 2, and October 3, respectively, and are referred to in these financial statements as fiscal 2011, fiscal 2010, and fiscal
2009 for convenience. Fiscal 2009 included 53 weeks; fiscal 2011 and 2010 included 52 weeks. The fiscal years of the majority
of our international subsidiaries end on September 30. Accordingly, the financial statements of these subsidiaries as of that date
and for the years then ended have been used for our consolidated financial statements. Management believes that the impact of
the use of different year-ends is immaterial to our consolidated financial statements taken as a whole.

Use of Estimates

The preparation of consolidated financial statements in conformity with Generally Accepted Accounting Principles
("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 consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ from those estimates.

Basis of Presentation

The consolidated financial statements include the accounts of Coherent, Inc. and its majority-owned subsidiaries

(collectively, "the Company", "we", "our", or "Coherent"). Intercompany balances and transactions have been eliminated.
Investments in business entities in which we do not have control, but have the ability to exercise significant influence over
operating and financial policies (generally 20%-50% ownership) are accounted for by the equity method.

Fair Value of Financial Instruments

The carrying amounts of certain of our financial instruments including cash and cash equivalents, accounts receivable,

accounts payable and accrued liabilities approximate fair value due to their short maturities. Short-term investments are
comprised of available-for-sale securities, which are carried at fair value. Other non-current assets include trading securities
related to our deferred compensation plans, which are carried at fair value. The recorded carrying amount of our long-term
obligations approximates fair value at fiscal 2011 and 2010 year-ends. Foreign exchange contracts are stated at fair value based
on prevailing financial market information.

Cash Equivalents

All highly liquid investments with maturities of three months or less at the time of purchase are classified as cash

equivalents.

Concentration of Credit Risk

Financial instruments that may potentially subject us to concentrations of credit risk consist principally of cash

equivalents, short-term investments and accounts receivable. At fiscal 2011 year-end, the majority of our short-term investments
are in corporate notes and obligations, bank certificates of deposit and federal agency obligations. Cash equivalents and short-
term investments are maintained with several financial institutions and may exceed the amount of insurance provided on such
balances. At October 1, 2011, we held cash and cash equivalents outside the U.S. in certain of our foreign operations totaling
approximately $145.1 million, the majority of which is denominated in the Euro. The majority of our accounts receivable are
derived from sales to customers for commercial applications. We perform ongoing credit evaluations of our customers' financial
condition and limit the amount of credit extended when deemed necessary but generally require no collateral. We maintain
reserves for potential credit losses. Our products are broadly distributed and there were no customers who accounted for more
than 10% of accounts receivable at fiscal 2011 or fiscal 2010 year-end.

COHERENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Accounts Receivable Allowances

Accounts receivable allowances reflect our best estimate of probable losses inherent in our accounts receivable balances.

We regularly review allowances by considering factors such as historical experience, credit quality, the age of the accounts
receivable balances and current economic conditions that may affect a customer's ability to pay.

Activity in accounts receivable allowance is as follows (in thousands):

Beginning balance
Additions charged to expenses
Accruals resulting from acquisitions
Deductions from reserves
Ending balance

Inventories

2011

Fiscal year-end
2010

2009

1,655 $
1,329
184
(1,729)
1,439 $

2,147 $
349
33
(874 )
1,655 $

2,494
1,974
—
(2,321 )

2,147

Inventories are stated at the lower of cost (first-in, first-out) or market. Inventories are as follows (in thousands):

Purchased parts and assemblies
Work-in-process
Finished goods

Property and Equipment

Fiscal year-end

2011

2010

44,824 $
52,457
55,104

38,449
40,010
35,399

152,385 $

113,858

Property and equipment are stated at cost and are depreciated or amortized using the straight-line method. Cost,

accumulated depreciation and amortization, and estimated useful lives are as follows (dollars in thousands):

Land
Buildings and improvements
Equipment, furniture and fixtures
Leasehold improvements

Accumulated depreciation and amortization
Property and equipment, net

Asset Retirement Obligations

Fiscal year-end

2011

6,288 $
62,296
194,566
24,794

287,944
(183,440)

2010

6,100
60,350
187,240
18,437

272,127
(181,788 )

104,504 $

90,339

Useful Life

5-40 years
3-10 years
Lesser of useful life or terms of leases

The fair value of a liability for an asset retirement obligation is recognized in the period in which it is incurred if a
reasonable estimate of fair value can be made. The fair value of the liability is added to the carrying amount of the associated
asset and this additional carrying amount is depreciated over the life of the asset. All of our existing asset retirement obligations
are associated with commitments to return the property to its original condition upon lease termination at various sites and costs
to clean up and dispose of certain fixed assets at our Finland site. We estimated that as of fiscal 2011 year-end, gross expected
future cash flows of $2.2 million would be required to fulfill these obligations.

COHERENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following table reconciles changes in our asset retirement liability for fiscal 2011 and 2010 (in thousands):

Asset retirement liability as of October 3, 2009

Adjustment to asset retirement obligations recognized
Accretion recognized
Changes due to foreign currency exchange
Asset retirement liability as of October 2, 2010

Payment of asset retirement obligations
Adjustment to asset retirement obligations recognized
Accretion recognized
Changes due to foreign currency exchange
Asset retirement liability as of October 1, 2011

1,679
(29)
93
(6)

1,737
(328)
318
98
53

1,878

At October 1, 2011, $1,878,000 of the asset retirement liability is included in other long-term liabilities on our

consolidated balance sheets. At October 2, 2010, $328,000 of the asset retirement liability is included in other current liabilities
and $1,409,000 is included in other long-term liabilities on our consolidated balance sheets.

Long-lived Assets

We evaluate the carrying value of long-lived assets, including intangible assets, whenever events or changes in business
circumstances or our planned use of long-lived assets indicate that their carrying amounts may not be fully recoverable or that
their useful lives are no longer appropriate. Reviews are performed to determine whether the carrying values of long-lived
assets are impaired based on a comparison to the undiscounted expected future net cash flows. If the comparison indicates that
impairment exists, long-lived assets that are classified as held and used are written down to their respective fair values. When
long-lived assets are classified as held for sale, they are written down to their respective fair values less costs to sell. Significant
management judgment is required in the forecast of future operating results that is used in the preparation of expected
undiscounted cash flows. For fiscal years 2011, 2010 and 2009, there were no significant asset impairments recorded.

Goodwill

Goodwill is tested for impairment on an annual basis and between annual tests in certain circumstances, and written down

when impaired (see Note 8). Goodwill is tested for impairment by comparing the respective fair value with the respective
carrying value of the reporting unit. Fair value is determined using the Income Approach (discounted cash flow approach)
valuation methodology. Absent any impairment indicators, we perform our annual impairment tests during the fourth quarter of
each fiscal year using opening balance sheet as of the first day of the fourth fiscal quarter, with any resulting impairment
recorded in the fourth quarter of the fiscal year.

Intangible Assets

Intangible assets, including acquired existing technology, patents, customer lists, order backlog, trade name, non-compete

agreements, production know-how and in-process research and development, are amortized on a straight-line basis over
estimated useful lives of one year to fifteen years.

Warranty Reserves

We provide warranties on certain of our product sales and reserves for estimated warranty costs are recorded during the
period of sale. The determination of such reserves requires us to make estimates of product return rates and expected costs to
repair or replace the products under warranty. We currently establish warranty reserves based on historical warranty costs for
each product line. The weighted average warranty period covered is approximately 15 months. If actual return rates and/or
repair and replacement costs differ significantly from our estimates, adjustments to cost of sales may be required in future
periods.

COHERENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Components of the reserve for warranty costs during fiscal 2011, 2010 and 2009 were as follows (in thousands):

Beginning balance
Additions related to current period sales
Warranty costs incurred in the current period
Accruals resulting from acquisitions
Adjustments to accruals related to prior period sales
Ending balance

Revenue Recognition

2011

13,499 $
27,900
(24,671)
178
(202)
16,704 $

Fiscal
2010

10,211 $
20,466
(17,450 )
160
112
13,499 $

2009

13,214
12,573
(15,461 )
—
(115 )

10,211

In October 2009, the Financial Accounting Standards Board (“FASB”) issued a new accounting standard for multiple
deliverable revenue arrangements. The new standard changes the requirements for establishing separate units of accounting in a
multiple element arrangement and requires the allocation of arrangement consideration to each deliverable to be based on the
relative selling price. The FASB also issued a new accounting standard for certain revenue arrangements that include software
elements. This new standard excludes software that is contained on a tangible product from the scope of software revenue
guidance if the software is essential to the tangible product's functionality. We prospectively adopted both these standards in the
first quarter of fiscal 2011. The impact of adopting these standards was not material to net sales or our condensed consolidated
financial statements for the fiscal year ended October 1, 2011. The new accounting standards for revenue recognition if applied
in the same manner to the year ended October 2, 2010 would not have had a material impact on net sales or to our consolidated
financial statements for that fiscal year.

Under these new standards, when a sales arrangement contains multiple elements, such as products and/or services, we

allocate revenue to each element based on a selling price hierarchy. Using the selling price hierarchy, we determine the selling
price of each deliverable using vendor specific objective evidence (“VSOE”), if it exists, and otherwise third-party evidence
(“TPE”). If neither VSOE nor TPE of selling price exists, we use estimated selling price (“ESP”). We generally expect that we
will not be able to establish TPE due to the nature of the markets in which we compete, and, as such, we typically will
determine selling price using VSOE or if not available, ESP.

Our basis for establishing VSOE of a deliverable's selling price consists of standalone sales transactions when the same or

For multiple element arrangements which include extended maintenance contracts, we allocate and defer the amount of

consideration equal to the separately stated price and recognize revenue on a straight-line basis over the contract period.

We recognize revenue when all four revenue recognition criteria have been met: persuasive evidence of an arrangement

exists, the product has been delivered or the service has been rendered, the price is fixed or determinable and collection is
reasonably assured. Revenue from product sales is recorded when all of the foregoing conditions are met and risk of loss and
title passes to the customer. Sales to customers are generally not subject to any price protection or return rights.

The vast majority of our sales are made to original equipment manufacturers ("OEMs"), distributors, resellers and end-
users in the non-scientific market. Sales made to these customers do not require installation of the products by us and are not
subject to other post-delivery obligations, except in occasional instances where we have agreed to perform installation or
provide training. In those instances, we defer revenue related to installation services or training until these services have been
rendered. We allocate revenue from multiple element arrangements to the various elements based upon relative fair values.

Our sales to distributors, resellers and end-user customers typically do not have customer acceptance provisions and only

certain of our sales to OEM customers have customer acceptance provisions. Customer acceptance is generally limited to

COHERENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

performance under our published product specifications. For the few product sales that have customer acceptance provisions
because of higher than published specifications, (1) the products are tested and accepted by the customer at our site or by the
customer's acceptance of the results of our testing program prior to shipment to the customer, or (2) the revenue is deferred until
customer acceptance occurs.

Sales to end-users in the scientific market typically require installation and, thus, involve post-delivery obligations;
however, our post-delivery installation obligations are not essential to the functionality of our products. We defer revenue
related to installation services until completion of these services.

For most products, training is not provided; therefore, no post-delivery training obligation exists. However, when training

is provided to our customers, it is typically priced separately and is recognized as revenue as these services are provided.

We record taxes collected on revenue-producing activities on a net basis.

Research and Development

Research and development expenses include salaries, contractor and consultant fees, supplies and materials, as well as
costs related to other overhead such as depreciation, facilities, utilities and other departmental expenses. The costs we incur with
respect to internally developed technology and engineering services are included in research and development expenses as
incurred as they do not directly relate to any particular licensee, license agreement or license fee.

We treat third party and government funding of our research and development activity, where we are the primary
beneficiary of such work conducted, as a credit to research and development cost. Amounts offset against research and
development costs were not material in any of the periods presented.

Foreign Currency Translation

The functional currencies of our foreign subsidiaries are generally their respective local currencies. Accordingly, gains
and losses from the translation of the financial statements of the foreign subsidiaries are reported as a separate component of
accumulated other comprehensive income ("OCI"). Foreign currency transaction gains and losses are included in earnings.

Derivatives

U.S. GAAP requires that all derivatives, whether designated in hedging relationships or not, be recorded on the balance
sheet at fair value. If the derivative is designated as a fair value hedge, the changes in the fair value of the derivative and of the
hedged item attributable to the hedged risk are recognized in earnings. If the derivative is designated as a cash flow hedge, the
effective portions of the changes in the fair value of the derivative are recorded in OCI and are recognized in the income
statement when the hedged item affects earnings. Ineffective portions of changes in the fair value of cash flow hedges are
recognized in other income (expense).

Our objective of holding derivatives is to minimize the risks of foreign currency fluctuation by using the most effective

methods to eliminate or reduce the impact of these exposures. Principal currencies hedged include the Euro, Japanese Yen,
British Pound, Korean Won, Chinese Renminbi and Canadian dollar.

Forwards not designated as hedging instruments are also used to hedge the impact of the variability in exchange rates on

accounts receivable and collections denominated in certain foreign currencies. Our forward contracts have maturities of two
months or less and changes in fair value of these derivatives are recognized in other income (expense).

Comprehensive Income (Loss)

Comprehensive income (loss) is defined as the change in equity of a business enterprise during a period from transactions

and other events and circumstances from non-owner sources and is presented in our Consolidated Statements of Stockholders'
Equity and in Note 15, "Accumulated Other Comprehensive Income (Loss)."

Earnings Per Share

Basic earnings per share is computed based on the weighted average number of shares outstanding during the period,

excluding unvested restricted stock. Diluted earnings per share is computed based on the weighted average number of shares
outstanding during the period increased by the effect of dilutive employee stock awards, including stock options, restricted
stock awards and stock purchase contracts, using the treasury stock method.

COHERENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following table presents information necessary to calculate basic and diluted earnings (loss) per share (in thousands,

except per share data):

Weighted average shares outstanding—basic (1)
Dilutive effect of employee awards
Weighted average shares outstanding—diluted

Net income (loss)

Net income (loss)—basic
Net income (loss)—diluted
_______________________________________
Net of unvested restricted stock
(1)

2011

24,924
540

25,464

$
$

93,238 $

3.74 $
3.66 $

Fiscal
2010

24,718
373
25,091
36,916 $
1.49 $
1.47 $

2009

24,281
—

24,281

(35,319)

(1.45)
(1.45)

A total of 2,416, 1,221,143 and 2,880,395 potentially dilutive securities have been excluded from the dilutive share

calculation for fiscal 2011, 2010 and 2009, respectively, as their effect was anti-dilutive.

Stock-Based Compensation

We account for stock-based compensation using the fair value of the awards granted. We estimate the fair value of stock

options granted using the Black-Scholes Merton model. We value restricted stock units using the intrinsic value method. We use
a Monte Carlo model to estimate the fair value of market-based performance restricted stock units. We use historical data to
estimate pre-vesting option and restricted stock unit forfeitures and record stock-based compensation expense only for those
options and awards that are expected to vest. We amortize the fair value of stock options and awards on a straight-line basis
over the requisite service periods of the awards, which are generally the vesting periods. See Note 14 "Employee Stock Option
and Benefit Plans" for a description of our stock-based employee compensation plans and the assumptions we use to calculate
the fair value of stock-based employee compensation.

Shipping and Handling Costs

We record costs related to shipping and handling of revenue in cost of sales for all periods presented.

Advertising Costs

Advertising costs are expensed as incurred and were $4.1 million, $2.6 million and $2.2 million in fiscal 2011, fiscal 2010

and fiscal 2009, respectively.

Income Taxes

We account for uncertain tax issues pursuant to ASC 740-10 (formerly FASB Financial Interpretation No. 48,
“Accounting for Uncertainty in Income Taxes”), which creates a single model to address accounting for uncertainty in tax
positions by prescribing a minimum recognition threshold that a tax position is required to meet before being recognized in the
financial statements. This standard provides a two-step approach for evaluating tax positions. The first step, recognition, occurs
when a company concludes (based solely on the technical aspects of the matter) that a tax provision is more likely than not to be
sustained upon examination by a taxing authority. The second step, measurement, is only considered after step one has been
satisfied and measures any tax benefit at the largest amount that is deemed more likely than not to be realized upon ultimate
settlement of the uncertainty. These determinations involve significant judgment by management. Tax positions that fail to
qualify for initial recognition are recognized in the first subsequent interim period that they meet the more likely than not
standard or when they are resolved through negotiation or litigation with factual interpretation, judgment and certainty. Tax
laws and regulations themselves are complex and are subject to change as a result of changes in fiscal policy, changes in

COHERENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

legislation, evolution of regulations and court filings. Therefore, the actual liability for U.S. or foreign taxes may be materially
different from our estimates, which could result in the need to record additional tax liabilities or potentially to reverse
previously recorded tax liabilities.

We record a valuation allowance to reduce our deferred tax assets to an amount that more likely than not will be realized.
While we have considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need
for the valuation allowance, in the event we were to determine that we would be able to realize our deferred tax assets in the
future in excess of our net recorded amount, an adjustment to the allowance for the deferred tax asset would increase income in
the period such determination was made. Likewise, should we determine that we would not be able to realize all or part of our
net deferred tax asset in the future, an adjustment to the allowance for the deferred tax asset would be charged to income in the
period such determination was made.

Federal income taxes have not been provided for on a portion of the unremitted earnings of foreign subsidiaries because

such earnings are intended to be permanently reinvested. The total amount of unremitted earnings of foreign subsidiaries for
which we have not yet recorded federal income taxes was approximately $198.7 million at fiscal 2011 year-end. In addition to
federal income taxes (which are not practicably determinable), withholding taxes of approximately $9.4 million at fiscal
2011 year-end would be payable upon repatriation of such earnings which would result in additional foreign tax credits.

Adoption of New Accounting Pronouncement and Update to Significant Accounting Policies

As discussed under "Revenue Recognition", we adopted the FASB's accounting standard for multiple deliverable revenue

arrangements and the FASB's accounting standard for certain revenue arrangements that include software elements. We
prospectively adopted both these standards in the first quarter of fiscal 2011. The impact of adopting these standards was not
material to net sales or our condensed consolidated financial statements for the fiscal year ended October 1, 2011.

In June 2009, the FASB issued amendments to the accounting rules for variable interest entities (VIEs) and for transfers of

financial assets. The new guidance eliminates the quantitative approach previously required for determining the primary
beneficiary of a variable interest entity and requires ongoing qualitative reassessments of whether an enterprise is the primary
beneficiary. The determination of whether a company is required to consolidate an entity is based on, among other things, an
entity's purpose and design and a company's ability to direct the activities of the entity that most significantly impact the entity's
economic performance. In addition, qualifying special purpose entities (“QSPE”) are no longer exempt from consolidation
under the amended guidance. The amendments also limit the circumstances in which a financial asset, or a portion of a financial
asset, should be derecognized when the transferor has not transferred the entire original financial asset to an entity that is not
consolidated with the transferor in the financial statements being presented, and/or when the transferor has continuing
involvement with the transferred financial asset. We adopted these amendments in our first quarter of fiscal year 2011 and it did
not have a material impact on our consolidated financial position, results of operations and cash flows.

In July 2010, the FASB issued an accounting standard update defining a milestone and determining what criteria must be

met to apply the milestone method of revenue recognition for research or development transactions. The update provides
guidance on the criteria which must be met to determine if the milestone method of revenue recognition is appropriate, whether
a milestone is substantive and the disclosures that must be made if the method is elected. We adopted this standard on a
prospective basis in our first quarter of fiscal year 2011 and it did not have a material impact on our consolidated financial
position, results of operations and cash flows.

Recently Issued Accounting Pronouncements

In June 2011, the FASB issued a final standard requiring the presentation of net income and other comprehensive income

in either a single continuous statement or in two separate, but consecutive, statements of net income and other comprehensive
income. The new standard eliminates the option currently elected by the Company to present items of other comprehensive
income in the annual statement of changes in stockholders' equity. The new requirements do not change the components of
comprehensive income recognized in net income or other comprehensive income, or when an item of other comprehensive
income must be reclassified to net income. Earnings per share computations do not change. The new requirements are effective
for interim and annual periods beginning after December 15, 2011. Full retrospective application is required. As this standard
relates only to the presentation of other comprehensive income, the adoption of this accounting standard will not have an impact
on our consolidated financial position, results of operations and cash flows.

In May 2011, the FASB issued additional guidance on fair value measurements that clarifies the application of existing
guidance and disclosure requirements, changes certain fair value measurement principles and requires additional disclosures

COHERENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

about fair value measurements. The updated guidance is effective on a prospective basis for financial statements issued for
fiscal years, and interim periods within those fiscal years, beginning after December 15, 2011. The adoption of this guidance
will not have a material impact on our consolidated financial position, results of operations and cash flows.

In December 2010, the FASB amended its existing guidance for goodwill and other intangible assets. This authoritative

guidance modifies Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those
reporting units, an entity is required to perform Step 2 of the goodwill impairment test if there are qualitative factors indicating
that it is more likely than not that a goodwill impairment exists. The qualitative factors are consistent with the existing guidance
which requires goodwill of a reporting unit to be tested for impairment between annual tests if an event occurs or circumstances
change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. This authoritative
guidance becomes effective for us in fiscal 2012. The implementation of this authoritative guidance is not expected to have a
material impact on our consolidated financial position, results of operations and cash flows.

3. RESTRUCTURING ACTIVITIES

During the second quarter of fiscal 2009, we announced our plans to close our facilities in Tampere, Finland and
St. Louis, Missouri. The closure of our St. Louis site was completed in the fourth quarter of fiscal 2009. The closure of our
Finland site was scheduled for completion by the end of fiscal 2010, but we delayed the closure due to increased demand for
products manufactured in Finland. In the second quarter of fiscal 2011, we ceased manufacturing operations in our Finland
facility and recognized a $6.1 million gain, primarily in other income (expense), due to a non-recurring translation adjustment
related to the dissolution of our Finland operations. We exited the facility in the third quarter of fiscal 2011. These closure plans
resulted in charges primarily for employee termination and other exit related costs associated with a plan approved by
management.

During the first quarter of fiscal 2010, we acquired the assets and certain liabilities of StockerYale, Inc's laser module

product line in Montreal, Canada and transitioned those activities to other Coherent facilities in Salem, Massachusetts,
Wilsonville, Oregon and Sunnyvale, California. The transfer was completed in the second quarter of fiscal 2011. These closure
plans resulted in charges primarily for employee termination and other exit related costs associated with a plan approved by
management.

Restructuring charges in fiscal 2011 and 2010 are recorded in cost of sales, research and development and selling, general

and administrative expenses in our consolidated statements of operations.

The following table presents our current liability as accrued on our balance sheets for restructuring charges. The table sets
forth an analysis of the components of the restructuring charges and payments and other deductions made against the accrual for
fiscal 2011 and 2010 (in thousands):

Balances, October 3, 2009
Provision
Payments and other
Balances, October 2, 2010
Provision
Payments and other
Balances, October 1, 2011

Severance
Related

488 $

1,411
(987 )

912
218
(1,130 )

— $

Facilities
Related
Charges

Other
Restructuring
Costs

Total

357 $

3,823
(4,163 )
17
—
(17 )
— $

807 $

3,134
(2,638)

1,303
680
(1,349 )

634 $

1,652
8,368
(7,788 )

2,232
898
(2,496 )

634

The current year severance related costs are primarily comprised of severance pay, outplacement services, medical and

other related benefits for employees being terminated due to the transition of activities out of Tampere, Finland. At
October 1, 2011, $634,000 of accrued restructuring costs was included in other current liabilities.

COHERENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following table presents our restructuring charges incurred by segment:

By Segment

Commercial
Lasers and
Components

Specialty Laser
Systems

Costs incurred and charged to expense in fiscal 2011
Costs incurred and charged to expense in fiscal 2010
Costs incurred and charged to expense in fiscal 2009
Costs incurred and charged to expense in fiscal 2008

Cumulative costs incurred to date

4. BUSINESS COMBINATIONS

898 $

8,368
8,674
4,160
22,100 $

Total

898

8,368

15,437

5,804

— $

—

6,763

1,644

8,407

30,507

On January 5, 2011, we acquired all of the assets and certain liabilities of Hypertronics Pte Ltd for approximately $14.5
million in cash. Hypertronics designs and manufactures laser-and vision-based tools for flat panel, storage, semiconductor and
solar applications at facilities in Singapore and Malaysia. Hypertronics has been included in our Specialty Lasers and Systems
segment.

Our allocation of the purchase price is as follows (in thousands):

Tangible assets
Goodwill
Intangible assets:

Existing technology
In-process R&D
Customer lists
Trade name
Non-compete agreements

Liabilities assumed
Total

4,617
5,807

3,120
570
1,880
410
60
(1,965 )

14,499

The goodwill recognized from this acquisition resulted primarily from anticipated revenue growth and synergies of
integrating Hypertronics scan vision technology and system capabilities with our laser technology and global sales, marketing,
distribution and service network. The goodwill was included in our Specialty Lasers and Systems segment.

None of the goodwill from this purchase is deductible for tax purposes.

The identifiable intangible assets are being amortized over their respective useful lives of two to six years.

In-process research and development (“IPR&D”) consists of seven interrelated projects that will be incorporated into one
product and had not yet reached technological feasibility. Acquired IPR&D assets are initially recognized at fair value and are
classified as indefinite-lived assets until the successful completion or abandonment of the associated research and development
efforts. The value assigned to IPR&D was determined by considering the value of the products under development to the overall
development plan, estimating the resulting net cash flows from the projects when completed and discounting the net cash flows
to their present value. During the development period, these assets will not be amortized as charges to earnings; instead these
assets will be subject to periodic impairment testing. Upon successful completion of the development process for the acquired
IPR&D projects, the assets would then be considered finite-lived intangible assets and amortization of the assets will
commence. None of the projects had been completed as of October 1, 2011.

COHERENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

We expensed $0.6 million of acquisition-related costs as selling, general and administrative expenses in our consolidated

statements of operations in the fiscal year ended October 1, 2011.

Results of operations for the business have been included in our consolidated financial statements subsequent to the date

of acquisition and pro forma results of operations in accordance with authoritative guidance for prior periods have not been
presented because the effect of the acquisition was not material to our prior period consolidated financial results.

Beam Dynamics, Inc.

On April 29, 2010, we acquired Beam Dynamics, Inc. for $5.9 million in cash as allocated below and $0.3 million in

deferred compensation related to an employment contract, which was recognized in expense as earned. Beam Dynamics
manufactures flexible laser cutting tools for the materials processing market. Beam Dynamics has been included in our
Commercial Lasers and Components segment.

Our allocation of the purchase price is as follows (in thousands):

Tangible assets
Goodwill
Intangible assets:

Existing technology
In-process R&D
Customer lists
Trade name
Order backlog
Non-compete agreements

Liabilities assumed
Total

1,132
3,841

2,130
650
360
140
30
10
(2,371)

5,922

The goodwill recognized from this acquisition resulted primarily from access to anticipated growth in the laser tool

market and was included in our Commercial Lasers and Components ("CLC") segment. None of the goodwill from this
purchase is deductible for tax purposes.

The identifiable intangible assets are being amortized over their respective useful lives of one to six years.

In-process research and development ("IPR&D") consists of three development projects that have not yet reached

technological feasibility. Acquired IPR&D assets are initially recognized at fair value and are classified as indefinite-lived
assets until the successful completion or abandonment of the associated research and development efforts. The value assigned to
IPR&D was determined by considering the value of the products under development to the overall development plan, estimating
the resulting net cash flows from the projects when completed and discounting the net cash flows to their present value. During
the development period, these assets will not be amortized as charges to earnings; instead these assets will be subject to periodic
impairment testing. Upon successful completion of the development process for the acquired IPR&D projects, the assets would
then be considered finite-lived intangible assets and amortization of the assets will commence.

We expensed $0.2 million of acquisition-related costs as selling, general and administrative expenses in our consolidated

statements of operations for our fiscal year 2010.

During the third quarter of fiscal 2011, we paid out $0.6 million that had been held in an escrow account to be applied

towards any remaining closing costs for the acquisition and payments to the shareholders. The amount was previously included
in current restricted cash on our consolidated balance sheet. As of October 1, 2011, there were no amounts still classified as
current restricted cash on our consolidated balance sheet.

Results of operations for the business have been included in our consolidated financial statements subsequent to the date

COHERENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

StockerYale, Inc.

On October 13, 2009, we acquired all the assets and certain liabilities of StockerYale, Inc. ("StockerYale")'s laser module

Our allocation of the purchase price is as follows (in thousands):

Tangible assets
Goodwill
Intangible assets:

Existing technology
Production know-how
Customer lists
Non-compete agreements
Order backlog
Liabilities assumed
Total

9,770
2,580

610
910
3,170
60
600
(2,700 )
15,000

The goodwill recognized from this acquisition resulted primarily from anticipated increases in market share and synergies
of combining these entities and was included in our CLC segment. None of the goodwill from this purchase is deductible for tax
purposes.

The identifiable intangible assets are being amortized over their respective useful lives of one to seven years.

We expensed $0.2 million of acquisition-related costs incurred as selling, general and administrative expenses in our

consolidated statements of operations for our fiscal year 2010.

Results of operations for the acquired product lines have been included in our consolidated financial statements
subsequent to the date of acquisition and pro forma results of operations in accordance with authoritative guidance for prior
periods have not been presented because the effect of the acquisition was not material to our prior period consolidated financial
results.

COHERENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

5. FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES

We measure our cash equivalents and marketable securities at fair value. The fair values of our financial assets and

liabilities are determined using quoted market prices of identical assets or quoted market prices of similar assets from active
markets. Level 1 valuations are obtained from real-time quotes for transactions in active exchange markets involving identical
assets. Level 2 valuations are obtained from quoted market prices in active markets involving similar assets. Level 3 valuations
would be based on unobservable inputs to a valuation model and include our own data about assumptions market participants
would use in pricing the asset or liability based on the best information available under the circumstances; as of October 1, 2011
and October 2, 2010, we did not have any assets or liabilities valued based on Level 3 valuations.

Financial assets and liabilities measured at fair value as of October 1, 2011 are summarized below (in thousands):

Money market fund deposits(1)
Certificates of deposit(2)
U.S. and international government obligations(3)
Corporate notes and obligations(4)
Foreign currency contracts(5)
Mutual funds—Deferred comp and supplemental plan(6)

Quoted Prices in
Active Markets
for Identical
Assets

Significant
Other
Observable
Inputs

Total Fair
Value

(Level 1)
8,135 $
—
—
—
—
7,830

(Level 2)

— $

65,941
62,079
48,967
181
—

8,135
65,941
62,079
48,967
181
7,830

(1)

(2)

(3)

(4)

(5)

(6)

Included in cash and cash equivalents on the Consolidated Balance Sheet.

Includes $59,431 recorded in cash and cash equivalents and $6,510 recorded in short-term investments on the
Consolidated Balance Sheet.

Includes $60,978 recorded in cash and cash equivalents and $1,101 recorded in short-term investments on the
Consolidated Balance Sheet.

Includes $3,436 recorded in cash and cash equivalents and $45,531 recorded in short-term investments on the
Consolidated Balance Sheet.

Includes $578 recorded in prepaid expenses and other assets and $397 recorded in other current liabilities on the
Consolidated Balance Sheet (see Note 7).

Includes $2,844 recorded in prepaid expenses and other assets and $4,986 recorded in other assets on the Consolidated
Balance Sheet (see Note 14).

COHERENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Financial assets and liabilities measured at fair value as of October 2, 2010 are summarized below (in thousands):

Money market fund deposits(1)
Certificates of deposit(1)
U.S. and international government obligations(2)
Corporate notes and obligations(3)
Commercial paper(4)
Foreign currency contracts(5)
Mutual funds—Deferred comp and supplemental plans(6)

Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Total Fair
Value

39,677 $
—
—
—
—
—
6,711

— $

90,986
92,298
15,445
7,000
1,401
—

39,677
90,986
92,298
15,445
7,000
1,401
6,711

(1)

(2)

(3)

(4)

(5)

(6)

Included in cash and cash equivalents on the Consolidated Balance Sheet.

Includes $90,299 recorded in cash and cash equivalents and $1,999 recorded in short-term investments on the
Consolidated Balance Sheet.

Includes $1,303 recorded in cash and cash equivalents and $14,142 recorded in short-term investments on the
Consolidated Balance Sheet.

Includes $5,750 recorded in cash and cash equivalents and $1,250 recorded in short-term investments on the
Consolidated Balance Sheet.

Includes $1,636 recorded in prepaid expenses and other assets and $235 recorded in other current liabilities on the
Consolidated Balance Sheet (see Note 7).

Includes $2,340 recorded in prepaid expenses and other assets and $4,371 recorded in other assets on the Consolidated
Balance Sheet (see Note 14).

6. SHORT-TERM INVESTMENTS

We consider all highly liquid investments with maturities of three months or less at the time of purchase to be cash
equivalents. Investments classified as available-for-sale are reported at fair value with unrealized gains and losses, net of related
income taxes, recorded as a separate component of other comprehensive income ("OCI") in stockholders' equity until realized.
Interest and amortization of premiums and discounts for debt securities are included in interest income. Gains and losses on
securities sold are determined based on the specific identification method and are included in other income (expense).

Cash, cash equivalents and short-term investments consist of the following (in thousands):

Cash and cash equivalents
Short-term investments:

Available-for-sale securities:

Certificates of deposit
International government obligations
Corporate notes and obligations
Total short-term investments

Fiscal 2011 Year-end

Cost Basis

Unrealized Gains

Unrealized Losses

166,931 $

131 $

(1) $

Fair Value
167,061

10 $
1
275
286 $

— $
(1)
(26)
(27) $

6,510
1,101
45,531
53,142

6,500 $
1,101
45,282
52,883 $

COHERENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Cost Basis

Unrealized Gains

Unrealized Losses

Fiscal 2010 Year-end

Cash and cash equivalents
Less: restricted cash

Short-term investments:

Available-for-sale securities:

Commercial paper
U.S. Treasury and agency obligations
Corporate notes and obligations
Total short-term investments

246,004 $

(625)
245,379

1,250 $
1,999
14,062
17,311 $

Fair Value
246,005

1 $

— $

(625 )
245,380

— $
—
82
82 $

— $
—
(2)
(2) $

1,250
1,999
14,142
17,391

The amortized cost and estimated fair value of available-for-sale investments in debt securities at fiscal 2011 and
2010 year-ends, classified as short-term investments on our consolidated balance sheet, were as follows (in thousands):

Fiscal Year-end

Due in less than 1 year
Due beyond 10 years
Total investments in available-for-sale debt securities $

Amortized Cost

2011
Estimated Fair Value Amortized Cost Estimated Fair Value
17,387
4

46,632 $
—

17,307 $

2010

46,383 $
—

46,383 $

46,632 $

17,311 $

17,391

During fiscal 2011, we received proceeds totaling $172.6 million from the sale of available-for-sale securities and realized
gross gains of less than $0.1 million. During fiscal 2010, we received proceeds totaling $28.4 million from the sale of available-
for-sale securities and realized gross gains of less than $0.1 million.

At October 1, 2011, gross unrealized losses on our investments with unrealized losses that are not deemed to be other-
than-temporarily impaired were $28,000 on corporate notes and obligations, certificates of deposit and government agency
obligations of $29,198,000.

7. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

All derivatives, whether designated in hedging relationships or not, are recorded on the balance sheet at fair value. We
enter into foreign exchange forwards to minimize the risks of foreign currency fluctuation of specific assets and liabilities on the
balance sheet; these are not designated as hedging instruments.

We maintain operations in various countries outside of the United States and have foreign subsidiaries that manufacture

and sell our products in various global markets. The majority of our sales are transacted in U.S. dollars. However, we do
generate revenues in other currencies, primarily the Euro and the Japanese Yen. As a result, our earnings, cash flows and cash
balances are exposed to fluctuations in foreign currency exchange rates. We attempt to limit these exposures through financial
market instruments. We utilize derivative instruments, primarily forward contracts with maturities of two months or less, to
manage our exposure associated with anticipated cash flows and net asset and liability positions denominated in foreign
currencies. Gains and losses on the forward contracts are mitigated by gains and losses on the underlying instruments. We do
not use derivative financial instruments for speculative or trading purposes. If a financial counterparty to any of our hedging
arrangements experiences financial difficulties or is otherwise unable to honor the terms of the foreign currency hedge, we may
experience material financial losses.

For derivative instruments that are not designated as hedging instruments, gains and losses are recognized in other income

(expense).

COHERENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The outstanding notional contract and fair value amounts of hedge contracts, with maximum maturity of 2 months are as

follows (in thousands):

Euro currency hedge contracts:

Purchase
Sell

Net
Other foreign currency hedge contracts:

Purchase
Sell

Net

U.S. Notional Contract Value

U.S. Notional Fair Value

October 1, 2011 October 2, 2010 October 1, 2011 October 2, 2010

42,488 $
—
42,488 $

25,686 $
—
25,686 $

42,103 $
—
42,103 $

2,351 $

(16,783 )
(14,432) $

4,843 $
(9,444 )
(4,601 ) $

2,355 $

(16,221)
(13,866) $

27,320
—
27,320

4,845
(9,679 )
(4,834)

The location and amount of non-designated derivative instruments' loss in the Consolidated Statements of Operations for

the fiscal year ended October 1, 2011 and October 2, 2010 is as follows (in thousands):

Derivatives not designated as hedging instruments
Foreign exchange contracts

8. GOODWILL AND INTANGIBLE ASSETS

Location of Loss
Recognized in
Income on Derivatives

Amount of Gain or (Loss)
Recognized
in Income on Derivatives

Fiscal Year Ended
October 1, 2011

Other income (expense) $

Location of Loss
Recognized in
Income on Derivatives

Amount of Gain or (Loss)
Recognized
in Income on Derivatives

Fiscal Year Ended
October 2, 2010

Other income (expense) $

203

During the first quarter of fiscal 2009, our stock price declined substantially which, combined with expectations of
declines in forecasted operating results due to the slowdown in the global economy, led the Company to conclude that a
triggering event for review for potential goodwill impairment had occurred. Accordingly, as of December 27, 2008, we
performed an interim goodwill impairment evaluation. Goodwill is tested for impairment first by comparing each reporting
unit's fair value to its respective carrying value. If such comparison indicates a potential impairment, then the impairment is
determined as the difference between the recorded value of goodwill and its fair value. The performance of this test is a two-
step process.

Step 1 of the impairment test involves comparing the fair values of the applicable reporting units with their aggregate

carrying values, including goodwill. If the carrying amount of a reporting unit exceeds the reporting unit's fair value, we
perform Step 2 of the goodwill impairment test to determine the amount of impairment loss. Step 2 of the goodwill impairment
test involves comparing the fair value of the affected reporting unit's goodwill against the carrying value of that goodwill.

The reporting units we evaluated for goodwill impairment were determined to be the same as our operating segments,

Commercial Lasers and Components ("CLC") and Specialty Lasers and Systems ("SLS"). We determined the fair value of our
reporting units for the Step 1 test using a weighting of the Income (discounted cash flow), Market and Transaction approach
valuation methodologies. Management completed and reviewed the results of the Step 1 analysis and concluded that a Step 2
analysis was required only for the CLC reporting unit. Our preliminary analysis indicated that the entire balance of the goodwill
in the CLC reporting unit at that date was impaired and we recorded a non-cash goodwill impairment charge of $19.3 million in

COHERENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

the first quarter of fiscal 2009. During the second quarter of fiscal 2009, we completed the Step 2 analysis for the CLC reporting
unit as of December 27, 2008 and determined that no further adjustments for CLC were required. The estimated fair value of
our SLS reporting unit exceeded its carrying value so no further impairment analysis was required for this reporting unit.

During the second quarter of fiscal 2009, our expectations of declines in forecasted operating results due to the slowdown
in the global economy and the further declines in our stock price led us to conclude that a second triggering event for review for
potential goodwill impairment had occurred. Accordingly, as of April 4, 2009, we performed an interim goodwill impairment
evaluation. This interim impairment evaluation utilized the same valuation techniques used in our impairment valuation in the
first quarter of fiscal 2009. Based on the results of our Step 1 analysis for that period, we determined there was no additional
goodwill impairment. During the remainder of fiscal 2009 and during fiscal 2010, we noted no indications of impairment or
triggering events to cause us to review goodwill for potential impairment. We also noted no impairment during our annual
testing which was performed during the fourth quarter of fiscal 2010 using the opening balance sheet as of the first day of the
fourth quarter of fiscal 2010.

Under the goodwill standards, a company may carry forward the detailed determination of the fair value of a reporting

unit from one year to the next if certain criteria have been met. Those criteria include: the assets and liabilities that make up the
reporting unit have not changed significantly since the most recent fair value determination, the most recent fair value
determination resulted in an amount that exceeded the carrying amount of the reporting unit by a substantial margin, and based
on an analysis of events that have occurred and circumstances that have changed since the most recent fair value determination,
the likelihood that a current fair value determination would be less than the current carrying amount of the reporting unit is
remote.

Based on our analysis and a review of the criteria, using the opening balance sheet as of the first day of the fourth quarter
of fiscal 2011, we determined that we had met the requirements of the goodwill standard for carrying forward our fair value
determination from fiscal 2010, and did not perform detailed calculation of the fair value of our reporting units for fiscal 2011,
but rather compared the fair values calculated in the prior year to the 2011 carrying values of our reporting units; based on our
evaluation, the fair values of each of the two operating segments significantly exceeded their carrying value as of that date.
Between the completion of that testing and the end of the fourth quarter of fiscal 2011, we noted no indications of impairment
or triggering events to cause us to review goodwill for potential impairment.

The changes in the carrying amount of goodwill by segment for fiscal 2011 and 2010 are as follows (in thousands):

Balance as of October 3, 2009
Additions (see Note 4)
Translation adjustments and other
Balance as of October 2, 2010
Additions (see Note 4)
Translation adjustments and other
Balance as of October 1, 2011

Commercial
Lasers and
Components (1)

Specialty
Laser
Systems (2)

— $

6,421
(57 )
6,364
—
1
6,365 $

66,967 $
—
(2,535 )

64,432
5,807
(650)

69,589 $

Total

66,967
6,421
(2,592 )

70,796
5,807
(649)

75,954

(1) Gross amount of goodwill for our CLC segment was $25.7 million at October 1, 2011 and October 2, 2010. For both periods, the accumulated

impairment loss for the CLC segment was $19.3 million reflecting an impairment charge in fiscal 2009.

(2) The gross amount of goodwill for our SLS segment was $72.0 million and $66.8 million at October 1, 2011 and October 2, 2010, respectively. For

both periods, the accumulated impairment loss for the SLS segment was $2.4 million reflecting an impairment charge in fiscal 2003.

COHERENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The components of our amortizable intangible assets are as follows (in thousands):

Existing technology
Patents
Order backlog
Customer lists
Trade name
Non-compete agreement
Production know-how
In-process research and development
Total

Fiscal 2011 Year-end

Gross
Carrying
Amount

Accumulated
Amortization

52,283 $
7,246
—
9,807
3,566
837
910
1,217

(41,615) $
(7,220 )
—
(5,142 )
(2,504 )
(784)
(621)
—

Net
10,668 $
26
—
4,665
1,062
53
289
1,217

75,866 $

(57,886) $

17,980 $

Fiscal 2010 Year-end

Gross
Carrying
Amount

Accumulated
Amortization

56,194 $
9,852
5,361
8,808
3,766
1,616
910
650
87,157 $

(43,666) $
(9,326)
(5,054 )
(4,635)
(2,666 )
(1,583)
(296)
—

Net
12,528
526
307
4,173
1,100
33
614
650

(67,226) $

19,931

The weighted average remaining amortization period for existing technology, patents, customer lists, trade name, non-

compete agreements, production know-how and in-process research and development are approximately 3 years, less than
1 year, 3 years, 2 years, 3 years, 1 year and 3 years, respectively. Order backlog is fully amortized. Amortization expense for
intangible assets during fiscal years 2011, 2010, and 2009 was $8.1 million, $8.0 million and $7.5 million, respectively, which
includes $5.5 million, $5.5 million and $5.8 million, respectively, for amortization of existing technology and production know-
how.

Estimated amortization expense for the next five fiscal years and all years thereafter are as follows (in thousands):

2012
2013
2014
2015
2016
Thereafter
Total

9. BALANCE SHEET DETAILS

Prepaid expenses and other assets consist of the following (in thousands):

Prepaid and refundable income taxes
Prepaid expenses and other
Total prepaid expenses and other assets

Estimated
Amortization
Expense

6,839
4,500
3,366
2,001
1,184
90
17,980

Fiscal Year-end

2011

2010

9,193 $
35,771
44,964 $

8,407
26,595
35,002

COHERENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Other assets consist of the following (in thousands):

Assets related to deferred compensation arrangements (see Note 14)
Deferred tax assets
Other assets
Total other assets

Fiscal Year-end

2011

2010

22,737 $
37,156
4,289
64,182 $

21,418
53,219
4,884

79,521

On June 8, 2010, we invested $2.0 million in SiOnyx, Inc., a privately-held company focused on shallow junction
photonics, used to enhance the performance of light sensing devices used in consumer, industrial, medical and defense related
applications using black silicon processing. The investment is included in other assets and is being carried on a cost basis.

Other current liabilities consist of the following (in thousands):

Accrued payroll and benefits
Accrued expenses and other
Reserve for warranty
Other taxes payable
Customer deposits
Accrued restructuring charges (Note 3)
Deferred income
Total other current liabilities

Other long-term liabilities consist of the following (in thousands):

Long-term taxes payable
Deferred compensation (see Note 14)
Deferred tax liabilities
Deferred income
Asset retirement obligations liability (see Note 2)
Other long-term liabilities
Total other long-term liabilities

10. SHORT-TERM BORROWINGS

Fiscal Year-end

2011

2010

39,639 $
12,473
16,704
11,067
3,210
634
14,893
98,620 $

35,716
9,947
13,499
10,095
2,938
2,232
13,471
87,898

Fiscal Year-end

2011

2010

27,775 $
22,685
2,194
2,636
1,878
5,673
62,841 $

42,902
21,927
6,231
1,786
1,409
5,433
79,688

We have several lines of credit which allow us to borrow in the applicable local currency. We have a total of $20.6
million of unsecured foreign lines of credit as of October 1, 2011. At October 1, 2011, we had used $2.1 million of these
available foreign lines of credit which were used in Europe during fiscal 2011 as guarantees. In addition, our domestic line of
credit includes a $40.0 million unsecured revolving credit account with Union Bank of California. The agreement, as amended,
will expire on March 31, 2012 and is subject to covenants related to financial ratios and tangible net worth with which we are
currently in compliance. No amounts have been drawn upon our domestic line of credit as of October 1, 2011.

COHERENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

11. LONG-TERM OBLIGATIONS

The components of long-term obligations are as follows (in thousands):

Capital leases
Current portion
Long-term obligations

12. COMMITMENTS AND CONTINGENCIES

Commitments

We lease several of our facilities under operating leases.

Fiscal Year-end

2011

2010

34 $
(15)

19 $

51
(18)

Future minimum payments under our non-cancelable operating leases at October 1, 2011 are as follows (in thousands):

Fiscal
2012
2013
2014
2015
2016
Thereafter
Total

8,465
7,039
5,523
4,596
4,400
13,822
43,845

Rent expense, exclusive of sublease income, was $10.1 million, $10.1 million and $11.8 million in fiscal 2011, 2010 and

2009, respectively. Sublease income was less than $0.0 million, $0.1 million and $0.1 million for fiscal years 2011, 2010 and
2009, respectively.

As of October 1, 2011, we had total purchase commitments for inventory over the next year of approximately $71.5

million and purchase obligations for fixed assets and services of $8.6 million compared to $37.6 million of purchase
commitments for inventory and $3.6 million of purchase obligations for fixed assets and services at October 2, 2010.

Contingencies

We are subject to legal claims and litigation arising in the ordinary course of business, such as employment or intellectual

property claims, including, but not limited to, the matters described below. The outcome of any such matters is currently not
determinable. Although we do not expect that such legal claims and litigation will ultimately have a material adverse effect on
our consolidated financial position or results of operations, an adverse result in one or more matters could negatively affect our
results in the period in which they occur.

Between February 15, 2007 and March 2, 2007, three purported shareholder derivative lawsuits were filed in the United

States District Court for the Northern District of California against certain of the Company's current and former officers and
directors. The Company is named as a nominal defendant. The complaints generally allege that the defendants breached their
fiduciary duties and violated the securities laws in connection with the granting of stock options, the accounting treatment for
such grants, the issuance of allegedly misleading public statements and stock sales by certain of the individual defendants. On
May 30, 2007, these lawsuits were consolidated under the caption In re Coherent, Inc. Shareholder Derivative Litigation, Lead
Case No. C-07-0955-JF (N.D. Cal.). On June 25, 2007, the plaintiffs filed an amended consolidated complaint. The Company's
Board of Directors appointed a Special Litigation Committee ("SLC") comprised of independent director Sandeep Vij to
investigate and evaluate the claims asserted in the derivative litigation and to determine what action(s) should be taken with
respect to the derivative litigation. On September 8, 2009, Coherent, Inc., by and through the SLC, plaintiffs, and certain of

COHERENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Coherent's former and current officers and directors filed with the court a Stipulation of Settlement reflecting the terms of a
settlement that would resolve all claims alleged in the consolidated complaint. On September 14, 2009, the United States
District Court for the Northern District of California issued an order granting preliminary approval of the settlement of the three
purported shareholder derivative lawsuits. On November 20, 2009, the court held a hearing for final approval of the settlement,
and on November 24, 2009, the court entered an Order and Final Judgment, which approved the settlement and dismissed the
action with prejudice. Following receipt of insurance proceeds and the payment of the plaintiff attorneys' fees and expenses, we
received a net cash benefit of $2.2 million from the settlement on December 11, 2009, which was recorded in selling general
and administrative expenses in the Consolidated Statement of Operations for the first quarter of fiscal 2010.

13. STOCKHOLDERS' EQUITY

On April 29, 2010, we announced that the Board of Directors had authorized the repurchase of up to $50.0 million of our

common stock. During fiscal 2010, we repurchased and retired 1,195,829 shares of outstanding common stock at an average
price of $36.21 per share for a total of $43.3 million, excluding expenses. Such repurchases were accounted for as a reduction in
additional paid in capital. At October 2, 2010, $6.7 million remained authorized for repurchase under our repurchase program.

On January 26, 2011, the Board canceled this program and authorized the repurchase of up to $75.0 million of our
common stock under a new program. The timing and size of any purchases would be subject to market conditions. The program
was authorized for 12 months from the date of authorization.

On February 10, 2011, we announced that the Company would repurchase up to 1,271,100 shares of our common stock
through a modified “Dutch Auction” tender offer, following the completion or termination of the tender offer, terminating no
later than March 11, 2011. On March 14, 2011, we completed our tender offer, repurchased and retired 454,682 shares of
outstanding common stock at a price of $59.00 per share for a total of $26.8 million excluding expenses.

During the third and fourth quarters of fiscal 2011, we repurchased and retired 1,024,409 shares of outstanding common

stock at an average price of $47.03 per share for a total of $48.2 million, excluding expenses.

On August 25, 2011, we announced that the Board of Directors had authorized the repurchase of up to $50.0 million of our

common stock. The timing and size of any purchases will be subject to market conditions. The program is authorized for 12
months from the date of authorization. During fiscal 2011, we repurchased and retired 586,200 shares of outstanding common
stock at an average price of $42.67 per share for a total of $25.0 million, excluding expenses.

All such repurchases were accounted for as a reduction in additional paid in capital. At October 1, 2011, $25.0 million

remained authorized for repurchase under our repurchase program.

14. EMPLOYEE STOCK AWARD, OPTION AND BENEFIT PLANS

Deferred Compensation Plans

Under our deferred compensation plans ("plans"), eligible employees are permitted to make compensation deferrals up to

established limits set under the plans and accrue income on these deferrals based on reference to changes in available
investment options. While not required by the plan, the Company chooses to invest in insurance contracts and mutual funds in
order to approximate the changes in the liability to the employees. These investments and the liability to the employees were as
follows (in thousands):

Cash surrender value of life insurance contracts
Fair value of mutual funds
Total assets
Total assets, included in:
Prepaid expenses and other assets
Other assets
Total assets

Fiscal Year-end

2011

2010

17,751 $
7,830
25,581 $

2,844 $
22,737
25,581 $

17,047
6,711
23,758

2,340
21,418
23,758

COHERENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Total deferred compensation liability, included in:
Other current liabilities
Other long-term liabilities
Total deferred compensation liability

Fiscal Year-end

2011

2010

2,844 $
22,685

25,529 $

2,340
21,927

24,267

Life insurance premiums loads, policy fees and cost of insurance that are paid from the asset investments and gains and

losses from the asset investments for these plans are recorded as components of other income or expense; such amounts were a
net gain of $3.1 million (including a $1.5 million death benefit) in fiscal year 2011, a net gain of $0.7 million in fiscal year 2010
and a net loss of $4.3 million in fiscal year 2009. Changes in the obligation to plan participants are recorded as a component of
operating expenses and cost of sales; such amounts were an expense of $2.6 million in fiscal year 2011, an expense of $1.6
million in fiscal year 2010 and a benefit of $3.6 million in fiscal year 2009. Liabilities associated with participant balances
under our deferred compensation plans are affected by individual contributions and distributions made, as well as gains and
losses on the participant's investment allocation election.

Coherent Employee Retirement and Investment Plan

Under the Coherent Employee Retirement and Investment Plan, we match employee contributions to the plan up to a

maximum of 4% of the employee's individual earnings. Employees become eligible for participation on their first day of
employment and for Company matching contributions after completing one year of service. The Company matching
contribution percentage was decreased from 6% to 4% during fiscal 2009. Our contributions (net of forfeitures) during fiscal
2011, 2010, and 2009 were $3.0 million, $2.6 million and $3.4 million, respectively.

Employee Stock Purchase Plan

We have an Employee Stock Purchase Plan ("ESPP") whereby eligible employees may authorize payroll deductions of up

to 10% of their regular base salary to purchase shares at the lower of 85% of the fair market value of the common stock on the
date of commencement of the offering or on the last day of the six-month offering period. During fiscal 2011, 2010 and 2009, a
total of 144,147 shares, 229,172 shares and 224,226 shares, respectively, were purchased by and distributed to employees at an
average price of $34.47, $18.50 and $19.83 per share, respectively. At fiscal 2011 year-end, we had 226,991 shares of our
common stock reserved for future issuance under the plan.

Stock Award and Option Plans

We have a Stock Plan for which employees and non-employee directors are eligible participants. This Plan is the 2011

Equity Incentive Plan (the "2011 Plan") which includes our options, time-based restricted stock units and market-based
performance restricted stock units. In prior years, we have had a Stock Plan for which employees and service providers were
eligible participants and a non-employee Directors' Stock Option Plan for which only non-employee directors were eligible
participants. Those prior Plans have expired, and any future grants will be made from the 2011 Plan. Under the 2011 Plan,
Coherent may grant options and awards (time-based restricted stock units and market-based performance restricted stock units)
to purchase up to 6,882,000 shares of common stock, of which 6,700,191 remain available for grant at fiscal 2011 year end.

Employee options are generally exercisable between two and four years from the grant date at a price equal to the fair
market value of the common stock on the date of the grant and generally vest 25% to 50% annually. The Company settles stock
option exercises with newly issued shares of common stock. Grants to employees generally expire six years from the original
grant date.

Director options are automatically granted to our non-employee directors. Such directors initially receive a stock option

for 24,000 shares exercisable over a three-year period and an award of restricted stock units of 2,000 shares. Beginning with the
annual meeting of stockholders in 2011, the annual grant for non-employee directors became 3,500 shares of restricted stock
units that vest on February 15 of the calendar year following the grant.

Restricted stock awards and restricted stock units are independent of option grants and are typically subject to vesting
restrictions—either time-based or performance-based conditions for vesting. Until restricted stock vests, shares (including those
issuable upon vesting of the applicable restricted stock unit) are subject to forfeiture if employment terminates prior to the
release of restrictions and cannot be transferred.

•

COHERENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The service based restricted stock awards generally vest three years from the date of grant.

The service based restricted stock unit awards are generally subject to annual vesting over three years from the
date of grant.

The market-based performance restricted stock unit award grants are generally either subject to annual vesting
over three years from the date of grant or subject to a single vest measurement three years from the date of grant,
depending upon achievement of performance measurements ("Performance RSUs") ") based on the performance
of the Company's Total Shareholder Returns (as defined) compared with the performance of the Russell 2000
Index.

The Company previously granted Performance RSUs during the second quarter of fiscal 2009 which had a single vesting

measurement date of November 14, 2010. These RSUs would have vested anywhere between 0% and 300% of the targeted
amount based upon achievement by the Company of (a) an annual revenue threshold amount and (b) adjusted EBITDA
percentage targets. The Company determined that the performance target had not been met and these awards were canceled in
the first quarter of fiscal 2011 with no shares vesting.

Fair Value of Stock Compensation

We recognize compensation expense for all share-based payment awards based on the fair value of such awards. The

expense is recognized on a straight-line basis over the respective requisite service period of the awards.

Determining Fair Value

Stock Options

Valuation and amortization method—We estimate the fair value of stock options granted using the Black-Scholes-Merton

option-pricing formula and a single option award approach. This fair value is then amortized on a straight-line basis over the
requisite service periods of the awards, which is generally the vesting period.

Expected Term—The expected term represents the period that our stock-based awards are expected to be outstanding and

was determined based on historical experience of similar awards, giving consideration to the contractual terms of the stock-
based awards, vesting schedules and expectations of future employee behavior as influenced by changes to the terms of its
stock-based awards.

Expected Volatility—Our process for computing expected volatility considers both historical volatility and market-based

implied volatility; however our estimate of expected forfeitures is based on historical employee data and could differ from
actual forfeitures.

Risk-Free Interest Rate—The risk-free interest rate used in the Black-Scholes-Merton valuation method is based on the

implied yield currently available on U.S. Treasury zero-coupon issues with an equivalent remaining term.

Expected Dividend—The expected dividend assumption is based on our current expectations about our anticipated

dividend policy.

The fair values of the Company's stock options granted to employees and shares purchased under the stock purchase plan

for fiscal 2011, 2010 and 2009 were estimated using the following weighted-average assumptions:

Expected life in years
Expected volatility
Risk-free interest rate
Expected dividends
Weighted average fair value per share

Employee Stock
Option Plans
Fiscal
2010
4.6

2011
6.0
36.1 % 33.0 %
2.0 %
1.1 %
—
—
8.27
$16.26

Employee Stock
Purchase Plans
Fiscal
2010
0.5
33.5 %
0.2 %
—
$ 7.27

2011
0.5
32.8 %
0.1 %
—
$12.50

2009
0.5
50.7%
0.8%
—
6.50

2009
4.2
48.0%
2.0%
—
8.95

COHERENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Time-Based Restricted Stock Units

Time-based restricted stock units are fair valued at the closing market price on the date of grant.

Market-Based Performance Restricted Stock Units

During fiscal 2011, we granted market-based performance restricted stock units to officers and certain employees. The

performance stock unit agreements provide for the award of performance stock units with each unit representing the right to
receive one share of Coherent, Inc. common stock to be issued after the applicable award period. The final number of units
awarded for this grant will be determined as of vesting dates in November 2011, November 2012 and November 2013, based
upon our total shareholder return over the performance period compared to the Russell 2000 Index and could range from a
minimum of no units to a maximum of twice the initial award. The weighted average fair value for these performance units was
$49.37 and was determined using a Monte Carlo simulation model incorporating the following weighted average assumptions:

Risk-free interest rate
Volatility

0.65 %
38.8 %

We recognize the estimated cost of these awards, as determined under the simulation model, over the related service

period, with no adjustment in future periods based upon the actual shareholder return over the performance period.

Stock Compensation Expense

The following table shows total stock-based compensation expense included in the Consolidated Statements of Operations

for fiscal 2011, 2010 and 2009 (in thousands):

Cost of sales
Research and development
Selling, general and administrative
Income tax benefit

Fiscal 2011

Fiscal 2010

1,331 $
1,474
10,158
(3,802 )
9,161 $

949 $

1,174
6,333
(1,610 )
6,846 $

Fiscal 2009
753
933
5,199
(1,084)
5,801

Total stock-based compensation cost capitalized as part of inventory during fiscal 2011 was $1.5 million. $1.3 million was

amortized into income during fiscal 2011, which includes amounts capitalized in fiscal 2011 and amounts carried over from
fiscal 2010. Total stock-based compensation cost capitalized as part of inventory during fiscal 2010 was $0.9 million. $0.9
million was amortized into income during fiscal 2010, which includes amounts capitalized in fiscal 2010 and amounts carried
over from fiscal 2009. Management has made an estimate of expected forfeitures and is recognizing compensation costs only
for those equity awards expected to vest.

At fiscal 2011 year-end, the total compensation cost related to unvested stock-based awards granted to employees under

the Company's stock option and award plans but not yet recognized was approximately $12.0 million, net of estimated
forfeitures of $1.2 million. This cost will be amortized on a straight-line basis over a weighted-average period of approximately
1.3 years and will be adjusted for subsequent changes in estimated forfeitures.

At fiscal 2011 year-end, the total compensation cost related to options to purchase common shares under the ESPP but not

yet recognized was approximately $0.1 million. This cost will be amortized on a straight-line basis over a weighted-average
period of approximately one month.

The stock option exercise tax benefits reported in the statement of cash flows results from the excess tax benefits arising
from tax deductions in excess of the stock-based compensation cost recognized, determined on a grant-by-grant basis. During
fiscal 2011 and fiscal 2010, we recorded approximately $5.1 million and $0.9 million, respectively, of excess tax benefits as
cash flows from financing activities.

During fiscal 2010, we recorded cash-based compensation expense of $0.3 million for cash payments to employees for

options that were not able to be exercised due to the internal stock option investigation. In addition, we recorded compensation
expense of $0.5 million in fiscal 2009 for tax payments to be made to United States and United Kingdom tax authorities on
behalf of employees in connection with discounted options previously exercised, for the adverse tax consequences associated
with these discount options.

COHERENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Stock Options & Awards Activity

The following is a summary of option activity for our Stock Option Plans for fiscal 2011, 2010 and 2009 (in thousands,

except per share amounts and remaining contractual term in years):

Weighted
Average
Exercise Price
Per Share

Weighted
Average
Remaining
Contractual
Term in Years

Aggregate
Intrinsic
Value

Number of
Shares

Outstanding at September 28, 2008
Granted
Exercised
Forfeitures
Expirations
Outstanding at October 3, 2009

Exercisable at October 3, 2009

Outstanding at October 3, 2009
Granted
Exercised
Forfeitures
Expirations
Outstanding at October 2, 2010

Exercisable at October 2, 2010

Outstanding at October 2, 2010
Granted
Exercised
Forfeitures
Expirations
Outstanding at October 1, 2011

Vested and expected to vest at October 1, 2011
Exercisable at October 1, 2011

2,880 $
499
(9 )
(26 )
(850 )

2,494 $

1,968 $

2,494 $
476
(1,004 )
(38 )
(35 )

1,893 $

1,118 $

1,893 $
24
(975 )
(21 )
(4 )

917 $

907 $

463 $

30.31
22.30
25.37
25.94
28.34
29.44
31.23
29.44
26.59
29.09
24.66
31.95
28.96
31.69
28.96
44.74
30.51
24.97
33.95
27.80
27.76
29.19

3.4 $

2.7 $

562

147

4.0 $

2.8 $

21,279

9,520

4.2 $

3.5 $

13,952

13,834

6,378

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying options and the

quoted price of our common stock for in-the-money options. During fiscal 2011, 2010 and 2009, the aggregate intrinsic value of
options exercised under the Company's stock option plans were $18.6 million, $6.0 million and $0.1 million, respectively,
determined as of the date of option exercise.

COHERENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following table summarizes information about stock options outstanding at fiscal 2011 year-end:

Options Exercisable

Weighted
Average
Exercise
Price per
Share

Range of Exercise Prices
$15.21 - $22.98
$23.16 - $23.16
$26.16 - $26.16
$27.93 - $32.02
$32.10 - $32.10
$32.95 - $32.95
$33.71 - $33.71
$35.01 - $35.01
$35.36 - $35.36
$44.74 - $44.74
$15.21 - $44.74

Options Outstanding
Weighted
Average
Exercise
Price per
Share

Weighted
Average
Remaining
Contractual
Life (Years)

Number of
Shares

47,884 $

186,852
347,578
54,800
27,650
201,460
12,000
12,000
3,000
24,000

917,224 $

18.55
23.16
26.16
30.21
32.10
32.95
33.71
35.01
35.36
44.74

27.80

6.73
3.13
5.14
7.49
0.70
2.01
3.52
4.49
5.67
9.97
4.23

Number of
Shares

34,600 $
62,483
72,291
39,800
27,650
201,460
12,000
12,000
1,000
—

463,284 $

18.08
23.16
26.16
29.54
32.10
32.95
33.71
35.01
35.36
—

29.19

There were 1,893,191 and 1,967,520 options exercisable as of fiscal 2010 and 2009 year-ends with weighted average

exercise prices of $28.96 per share and $31.23 per share, respectively.

The following table summarizes our restricted stock award and restricted stock unit activity for fiscal 2011, 2010 and 2009

(in thousands, except per share amounts):

Nonvested stock at September 27, 2008
Granted
Vested
Forfeited
Nonvested stock at October 3, 2009
Granted
Vested
Forfeited
Nonvested stock at October 2, 2010
Granted
Vested
Forfeited
Nonvested stock at October 1, 2011

Time Based Restricted
Stock Units

Market-Based
Performance Restricted
Stock Units

Weighted
Average
Grant Date
Fair Value

Number of
Shares(2)

Number of
Shares(1)

341 $
178
(112)
(50)

357 $
245
(104)
(17)

481 $
191
(183)
(85)

29.70
22.38
30.72
30.22

25.66
26.73
25.87
23.87

26.22
45.44
26.17
29.20

404 $

34.71

— $
—
—
—
— $
—
—
—
— $
101
—
—
101 $

—
—
—
—

—
49.77
—
—

49.77

COHERENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

__________________________________________

(1)

(2)

Service-based restricted stock vested during each fiscal year

Performance-based awards and units included at 100% of target goal; under the terms of the awards, the recipient may
earn between 0% and 200% of the award.

At fiscal 2011 year-end, 6,700,191 options or restricted stock units were available for future grant under all plans. At

fiscal 2011 year-end, all outstanding stock options have been issued under plans approved by our shareholders.

15. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

Activity in accumulated other comprehensive income (loss) related to derivatives held by us, net of tax of $55,000 at

October 3, 2009, is as follows (in thousands):

Balance, October 3, 2009
Changes in fair value of derivatives
Net losses reclassified from OCI
Balance, October 2, 2010
Changes in fair value of derivatives
Net losses reclassified from OCI
Balance, October 1, 2011

(85)
—
85

—
—
—

—

Accumulated other comprehensive income (net of tax) at fiscal 2011 and fiscal 2010 year-ends are comprised of

accumulated translation adjustments of $51.2 million and $62.1 million, respectively.

16. OTHER INCOME (EXPENSE), NET

Other income (expense) includes other-net which is comprised of the following (in thousands):

Foreign exchange gain (loss)
Translation adjustment related to dissolution of Finland (1)
Japan consumption tax benefit (2)
Gain (loss) on deferred compensation investments, net (Note 14)
Other—net
Other income (expense), net
_______________________________________________

2011

1,457 $
6,511
—
3,149
(59 )
11,058 $

Fiscal
2010

(1,417 ) $
—
—
756
145

(516) $

2009

(1,101 )
—
2,497
(4,305)
(46)

(2,955 )

(1)

(2)

In the second quarter of fiscal 2011, the Company had substantially completed the liquidation of its Finland operations
and recognized in other income the accumulated translation gains for this subsidiary previously recorded in
accumulated other comprehensive income (loss) on the consolidated balance sheet.

The Japanese consumption tax (JCT) benefit was due to a two-year exemption, which ended in September 2009, from
the JCT registration and filing requirements.

COHERENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

17. INCOME TAXES

The provision for (benefit from) income taxes on income (loss) before income taxes consists of the following (in

thousands):

Currently payable:

Deferred:

Federal
State
Foreign

Provision for (benefit from) income taxes

2011

Fiscal
2010

2009

(14,408) $
677
31,098

17,367

10,325
2,358
541

13,224
30,591 $

(7,776 ) $
(551 )
17,967
9,640

10,897
1,418
(892 )
11,423
21,063 $

735
103
10,154

10,992

(10,126 )
(537 )
(865 )

(11,528 )

(536)

The components of income (loss) before income taxes consist of (in thousands):

United States
Foreign
Income (loss) before income taxes

2011

32,993 $
90,836
123,829 $

Fiscal
2010

9,004 $
48,975
57,979 $

2009
(56,043)
20,188

(35,855)

The reconciliation of the income tax expense (benefit) at the U.S. Federal statutory rate (35% in fiscal years 2011, 2010

and 2009) to actual income tax expense (benefit) is as follows (in thousands):

Federal statutory tax expense (benefit)
Valuation allowance
Foreign taxes at rates less than U.S. rates, net
Currency translation adjustments recognized
Stock-based compensation
State income taxes, net of federal income tax benefit
Research and development credit
Impairment of goodwill
Deferred compensation
Release of unrecognized tax benefits
Release of interest accrued for unrecognized tax benefits
Other
Provision for (benefit from) income taxes

2011
43,340
1,456
(2,818 )
(2,424 )
885
2,409
(2,752 )
—
(759 )
(7,090 )
(2,672 )
1,016
30,591

Fiscal
2010
20,293
569
(202 )
(490 )
1,313
1,104
(824 )
—
(210 )
(84 )
(1,241 )
835
21,063

2009
(12,549)
6,756
(403 )
—
1,875
(1,376 )
(2,525 )
6,750
944
—
—
(8 )
(536)

Effective tax rate

24.7 %

36.3 %

1.5 %

The significant components of deferred tax assets and liabilities were (in thousands):

Deferred tax assets:

Reserves and accruals not currently deductible
Operating loss carryforwards and tax credits
Capital loss carryforwards
Deferred service revenue
Depreciation and amortization
Inventory capitalization
Stock-based compensation
Competent authority offset to transfer pricing tax reserves
Accumulated translation adjustment
Other

Valuation allowance

Deferred tax liabilities:

Gain on issuance of stock by subsidiary
Depreciation and amortization
Accumulated translation adjustment
Other

Net deferred tax assets

Fiscal year-end

2011

2010

26,580 $
55,950
409
2,018
1,604
1,795
6,162
9,513
507
137
104,675
(8,831 )
95,844

21,131
9,149
—
11,188
41,468
54,376 $

27,229
61,033
408
2,095
2,778
910
7,369
16,610
—
(1,107)

117,325
(7,377)

109,948

22,660
6,755
4,221
11,274

44,910

65,038

In determining our fiscal 2011, 2010 and 2009 tax provisions under ASC Subtopic 740, "Income Taxes", we calculated

the deferred tax assets and liabilities for each separate tax entity. We then considered a number of factors including the positive
and negative evidence regarding the realization of our deferred tax assets to determine whether a valuation allowance should be
recognized with respect to our deferred tax assets. We determined that a valuation allowance was appropriate for a portion of
the deferred tax assets of our California research and development tax credits, foreign tax attributes and net operating losses and
capital loss carryforwards at fiscal 2011, 2010 and 2009 year-ends.

During fiscal 2011, we increased our valuation allowance on deferred tax assets by $1.5 million to $8.8 million, primarily

due to the reduced ability to utilize foreign tax attributes and net operating losses and the reduced ability to utilize California
research and development tax credits as a result of releasing net unrecognized tax benefits under ASC 740-10 that supported the
credits.

The net deferred tax asset is classified on the consolidated balance sheets as follows (in thousands):

Current deferred income tax assets
Current deferred income tax liabilities
Non-current deferred income tax assets
Non-current deferred income tax liabilities
Net deferred tax assets

Fiscal year-end

2011

2010

22,057 $
(2,643 )
37,156
(2,194 )
54,376 $

20,050
(2,000)
53,219
(6,231)

65,038

We have various tax attribute carryforwards which include the following:

•

Foreign net operating loss carryforwards are $11.4 million, of which $9.3 million have no expiration date and of
which $2.0 million will expire in fiscal years 2019 to 2030. A valuation allowance totaling $11.2 million has been
recorded against the foreign net operating loss carryforwards since the recovery of the carryforwards are uncertain.

Federal capital loss carryforwards of $1.0 million which will expire in fiscal year 2012 to 2015. State capital loss
carryforwards of $1.0 million which will expire in fiscal 2012 to 2015. Full valuation allowances have been
recorded against the federal capital loss and the state capital loss carryforwards since the recovery of the
carryforwards are uncertain.

Federal R&D credit carryforwards of $10.9 million which will expire in fiscal years 2025 to 2031. California
R&D credit carryforwards of $15.1 million that have no expiration date. A valuation allowance totaling $4.4
million, net of federal benefit, has been recorded against California R&D credit carryforwards since the recovery
of the carryforwards are uncertain.

Federal foreign tax credit carryforwards of $17.5 million which will expire in fiscal years 2016 to 2019.

Included in the net deferred tax asset balance is $0.5 million of deferred tax liabilities related to the currency translation

adjustment. The associated tax expenses are recorded as a part of other comprehensive income.

In addition to the federal legislation, the state of California approved its 2010-2011 budget on October 8, 2010 that
includes modifications to the tax law provisions that were previously set to become effective with tax years beginning on or
after January 1, 2011. Accordingly, we were able to benefit from additional research and development tax credits in fiscal year
2011 that were previously limited.

As of October 1, 2011, the total amount of gross unrecognized tax benefits was $33.7 million, of which $19.7 million, if

recognized, would affect our effective tax rate. As of October 2, 2010, we recorded gross unrecognized tax benefits of $50.1
million of which $27.9 million, if recognized, would affect our effective tax rate. Our total gross unrecognized tax benefit was
classified as long-term taxes payable in the consolidated balance sheets. We include interest and penalties related to
unrecognized tax benefits within the provision for income taxes. As of October 1, 2011, the total amount of gross interest and
penalties accrued was $3.4 million, which is classified as long-term taxes payable in the consolidated balance sheets. As of
October 2, 2010, we had accrued $6.9 million for the gross interest and penalties relating to the gross unrecognized tax benefits.

A reconciliation of the change in gross unrecognized tax benefits, excluding interest and penalties, is as follows (in

thousands):

Balance as of the beginning of the year
Tax positions related to current year:
Additions
Reductions
Tax positions related to prior year:
Additions
Reductions

Settlements
Lapses in statutes of limitations
Balance as of end of year

2011

Fiscal year-end
2010

2009

43,254 $

50,370 $

45,211

739
—

496
(1,125)
(913)
(12,150)
30,301 $

646
—

—
(6,607 )
(874 )
(281 )
43,254 $

1,610
—

3,549
—
—
—
50,370

The decrease in liabilities for unrecognized tax benefits from $43.3 million to $30.3 million resulted in a reduction of

$13.0 million in our gross uncertain tax positions. The IRS settlement resulted in the closure of U.S. federal statutes of
limitations for years through 2004. The decrease in liabilities for unrecognized tax benefits related to the closure of U.S. federal
statutes of limitations for years through 2004 is $12.2 million. We also recorded an offsetting reduction in deferred tax assets,
primarily related to competent authority offsets for transfer pricing adjustments. As a result, the impact on our effective tax rate
for fiscal 2011 is $7.1 million excluding related interest.

A summary of the fiscal tax years that remain subject to examination, as of October 1, 2011, for our major tax

jurisdictions is:

United States—Federal
United States—Various States
Netherlands
Germany
Japan
United Kingdom

2005—forward
2001—forward
2006—forward
2006—forward
2005—forward
2010—forward

18. SEGMENT AND GEOGRAPHIC INFORMATION

We are organized into two reportable operating segments: Commercial Lasers and Components ("CLC") and Specialty
Lasers and Systems ("SLS"). This segmentation reflects the go-to-market strategies for various products and markets. While
both segments work to deliver cost-effective solutions, CLC focuses on higher volume products that are offered in set
configurations. The product architectures are designed for easy exchange at the point of use such that product service and
repairs are based upon advanced replacement and depot (i.e., factory) repair. CLC's primary markets include OEM components

and instrumentation and materials processing. SLS develops and manufacturers configurable, advanced-performance products
largely serving the microelectronics and scientific research markets. The size and complexity of many of our SLS products
require service to be performed at the customer site by factory-trained field service engineers.

We have identified CLC and SLS as operating segments for which discrete financial information was available. Both units

Our Chief Executive Officer has been identified as the chief operating decision maker (CODM) as he assesses the
performance of the segments and decides how to allocate resources to the segments. Income (loss) from operations is the
measure of profit and loss that our CODM uses to assess performance and make decisions. As assets are not a measure used to
assess the performance of the company by the CODM, asset information is not tracked or compiled by segment and is not
available to be reported in our disclosures. Income (loss) from operations represents the sales less the cost of sales and direct
operating expenses incurred within the operating segments as well as allocated expenses such as shared sales and manufacturing
costs. We do not allocate to our operating segments certain operating expenses, which we manage separately at the corporate
level. These unallocated costs include stock-based compensation, corporate functions (certain research and development,
management, finance, legal and human resources) and are included in the results below under Corporate and other in the
reconciliation of operating results. Management does not consider unallocated Corporate and other costs in its measurement of
segment performance.

The following table provides sales and income (loss) from operations for our operating segments (in thousands):

Net sales:

Commercial Lasers and Components
Specialty Laser Systems
Corporate and other

Total net sales

Income (loss) from operations:

Commercial Lasers and Components
Specialty Laser Systems
Corporate and other

Total income (loss) from operations

2011

Fiscal
2010

283,098 $
519,736
—
802,834 $

37,709 $
116,383
(42,083)
112,009 $

208,691 $
396,276
100
605,067 $

2,472 $
85,002
(30,594 )
56,880 $

2009

125,619
310,163
100

435,882

(45,240)
31,751
(21,668 )

(35,157)

The following table provides a reconciliation of our total income (loss) from operations to net income (loss) (in

thousands):

Reconciliation of Income (Loss) From Operations to Net Income (Loss)
Total income (loss) from operations
Total other income (expense), net

Income (loss) before income taxes

Provision for (benefit from) income taxes

Net Income (loss)

Geographic Information

2011
112,009 $
11,820

123,829
30,591
93,238 $

Fiscal
2010

56,880 $
1,099
57,979
21,063
36,916 $

2009
(35,157)
(698 )

(35,855 )
(536 )

(35,319)

Our foreign operations consist primarily of manufacturing facilities in Europe and sales offices in Europe and Asia-

Pacific. Sales, marketing and customer service activities are conducted through sales subsidiaries throughout the world.

Geographic sales information for fiscal 2011, 2010 and 2009 is based on the location of the end customer. Geographic long-
lived asset information presented below is based on the physical location of the assets at the end of each year.

Sales to unaffiliated customers are as follows (in thousands):

SALES
United States
Foreign countries:

Japan
South Korea
Germany
Europe, other
Asia-Pacific, other
Rest of World

Total foreign countries sales

Total sales

2011
208,868 $

166,911
117,918
100,759
79,751
71,813
56,814

593,966
802,834 $

Fiscal
2010
196,633 $

103,009
52,623
88,518
52,066
63,896
48,322
408,434
605,067 $

2009
148,982

79,709
19,498
72,732
48,575
41,308
25,078

286,900

435,882

Long-lived assets, which include all non-current assets other than goodwill, intangibles and deferred taxes, by geographic

region, are as follows (in thousands):

LONG-LIVED ASSETS
United States
Foreign countries:

Germany
Europe, other
Asia-Pacific

Total foreign countries long-lived assets

Total long-lived assets

Fiscal Year-end

2011

2010

81,955 $

82,776

39,832
3,189
4,550
47,571
129,526 $

26,561
2,795
2,506

31,862

114,638

For fiscal 2011, 2010 and 2009, no single customer accounted for 10% or more of total net sales.

19. SUBSEQUENT EVENTS

On November 15, 2011, we entered into a lease of approximately 33,000 square feet of buildings to be used for the
creation of a customer service center in Yongin-si, South Korea. The lease, with annual rent of approximately $250,000, has a
term of approximately six years with a four year extension.

100

QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

Summarized quarterly financial data for the years ended October 1, 2011 and October 2, 2010 are as follows (in

thousands, except per share amounts):

First
Quarter

Second
Quarter

Third
Quarter

Fourth
Quarter

Fiscal 2011:
Net sales
Gross profit
Net income
Net income per basic share
Net income per diluted share
Fiscal 2010:
Net sales
Gross profit
Net loss
Net loss per basic share
Net loss per diluted share
___________________________________

$
$

183,111
82,394
19,113
0.77
0.76

122,815
51,032
4,179 (3)
0.17
0.17

$
$

200,880
88,769
23,723 (1)
0.94
0.92

149,157
65,613
8,480 (4)
0.34
0.34

$
$

210,882
90,162
19,022
0.76
0.74

$
$

166,697
74,347
14,404 (5)
0.58
0.57

$
$

207,961
89,497
31,380 (2)
1.27
1.25

166,398
69,819
9,853 (6)
0.40
0.39

(1)

(2)

(3)

(4)

(5)

(6)

The second quarter of fiscal 2011 includes $5,918 of after tax gain from the dissolution of our Finland operations, of
which a charge of $593 is recorded in cost of sales and a benefit of $6,511 is recorded in other income (expense), net
and a $1,549 increase in valuation allowances against deferred tax assets.

The fourth quarter of fiscal 2011 includes a $9,686 benefit from the release of tax reserves and related interest as a
result of an IRS settlement and the closure of open tax years.

The first quarter of fiscal 2010 includes $813 of after tax restructuring costs primarily related to the transition of
activities out of Montreal, Canada, and Tampere, Finland and $1,438 after tax net payment from the settlement of
litigation resulting from our internal stock option investigation.

The second quarter of fiscal 2010 includes $978 of after tax restructuring costs primarily related to the transition of
activities out of Montreal, Canada, and Tampere, Finland.

The third quarter of fiscal 2010 includes $786 of after tax restructuring costs primarily related to the transition of
activities out of Montreal, Canada, and Tampere, Finland.

The fourth quarter of fiscal 2010 includes $3,209 of after tax restructuring costs primarily related to the loss on the sale
of our Finland facility.

101

Directors and Executive Officers
of Coherent, Inc.

Board of Directors

Executive Officers

Garry W. Rogerson, Ph.D.
Chairman of the Board, Coherent, Inc.
Chief Executive Officer, Advanced Energy Industries, Inc.

John R. Ambroseo, Ph.D.
President and Chief Executive Officer
Coherent, Inc.

Jay T. Flatley
President and Chief Executive Officer
Illumina, Inc.

Helene Simonet
Executive Vice President and Chief Financial Officer
Coherent, Inc.

Mark Sobey, Ph.D.
Executive Vice President and General Manager, Specialty Laser Systems
Coherent, Inc.

Susan James
Partner and Executive Board Member (retired)
Ernst & Young

Paul Sechrist
Executive Vice President, Worldwide Sales, Service and Marketing
Coherent, Inc.

L. William Krause
President
LWK Ventures

Bret DiMarco
Executive Vice President, General Counsel and Corporate Secretary
Coherent, Inc.

Lawrence Tomlinson
Senior Vice President and Treasurer (retired)
Hewlett-Packard Company

Luis Spinelli
Executive Vice President and Chief Technology Officer
Coherent, Inc.

Sandeep Vij
President and Chief Executive Officer
MIPS Technologies, Inc.

Independent Registered Public Accounting Firm
Deloitte & Touche, LLP
San Jose, CA

SEC Form 10-K
Form 10-K was filed with the Securities and Exchange Commission
on November 30, 2011 for the 2011 fiscal year.
Copies will be made available without charge upon request.

COHR_AR2011_final.indd 6

1/18/12 10:45 AM

Directors and Executive Officers

of Coherent, Inc.

Investor Relations

Coherent, Inc.
Investor Relations
P.O. Box 54980
Santa Clara, CA 95056-0980
Telephone: (408) 764-4110
Fax: (408) 970-9998
http://www.coherent.com

Financial Information
Coherent invites security analysts and
representatives of portfolio management
firms to contact:

Helene Simonet
Executive Vice President and
Chief Financial Officer
Coherent, Inc.
Telephone: (408) 764-4110

Please send change of address and other
correspondence to the transfer agent:

American Stock Transfer & Trust Company, LLC
59 Maiden Lane
New York, NY 10038
www.amstock.com
Telephone: (800) 937-5449
dansbro@amstock.com
http://www.amstock.com

Annual meeting of shareholders will be held on
February 28, 2012 at 8:00 a.m.

Stock Symbol
Common Stock traded under the symbol
COHR

Coherent, Inc. is an equal opportunity employer, M/F/H/V

SPECIAL NOTE REGARDING FORWARD-LOOKING DOCUMENTS: Except for
historical statements, this annual report contains certain “forward-looking
statements” within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. Actual results, events and
performance may differ materially.Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date
hereof. The Company undertakes no obligation to release publicly the results of
any revisions to these forward-looking statements that may be made to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.

Readers are encouraged to refer to the risk disclosures described in the
Company’s Form 10-K 10-K/A, 10-Q and 8-K, as applicable.

COHR_AR2011_final.indd 7

1/18/12 10:45 AM

Coherent, Inc.
5100 Patrick Henry Drive
Santa Clara, CA 95054

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1/18/12 10:45 AM