9JAN201710413614
Notice of Annual
Meeting of Stockholders
May 6, 2021
8:30 a.m., Pacific Time
As part of our continuing precautions regarding the Coronavirus Disease (COVID-19), we are holding this year’s annual meeting
solely by means of remote communication. If we hold an annual meeting in 2022, we expect that we will revert to an in-person
meeting, if appropriate.
If you plan to participate in our annual meeting, please see the instructions in the accompanying proxy statement. Stockholders
will be able to listen, vote and submit questions (subject to the question guidelines) from any remote location that has Internet
connectivity. There will be no physical location for stockholders to attend the meeting. Stockholders may participate in the
meeting only by logging in at www.virtualshareholdermeeting.com/COHR2021.
MATTERS TO BE VOTED ON:
1.
2.
3.
4.
5.
To elect the eight directors named in the accompanying proxy statement;
To approve our amended and restated Employee Stock Purchase Plan;
To ratify the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for the
fiscal year ending October 2, 2021;
To approve on a non-binding, advisory basis, our named 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 March 12, 2021 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 and participate in our virtual meeting.
However, to ensure your representation at the meeting, you are urged to vote in advance. You may vote via the Internet or by
telephone, or if you requested to receive printed proxy materials, by marking, signing, dating and returning the proxy card as
promptly as possible in the postage-prepaid envelope provided for that purpose.
We have retained Georgeson LLC to assist us in the solicitation of proxies. If you have any questions or require any assistance
with completing your proxy, please contact Georgeson LLC by telephone at (866) 647-8872.
Santa Clara, California
March 19, 2021
Sincerely,
30MAR202001585828
Bret DiMarco
Executive Vice President, Chief Legal Officer and
Corporate Secretary
Important Notice Regarding the Availability of Proxy Materials for the Stockholder Meeting to Be Held on May 6, 2021
The proxy statement and annual report to stockholders are available at www.proxyvote.com.
YOUR VOTE IS IMPORTANT
9JAN201710413614
PROXY STATEMENT
2021 ANNUAL MEETING OF
STOCKHOLDERS
TABLE OF CONTENTS
GENERAL INFORMATION ABOUT THE MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . .
SPOTLIGHT ON GOVERNANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3
8
PROPOSAL ONE—ELECTION OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10
PROPOSAL TWO—APPROVAL OF OUR AMENDED AND RESTATED EMPLOYEE
STOCK PURCHASE PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PROPOSAL THREE—RATIFICATION OF THE APPOINTMENT OF DELOITTE &
TOUCHE LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PROPOSAL FOUR—APPROVAL, ON A NON-BINDING, ADVISORY BASIS, OF
OUR NAMED EXECUTIVE OFFICER COMPENSATION . . . . . . . . . . . . . . . . . . . . . . .
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
22
26
28
29
OUR EXECUTIVE OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
31
COMPENSATION DISCUSSION AND ANALYSIS . . . . . . . . . . . . . . . . . . . . . . . . . . . .
32
SUMMARY COMPENSATION AND EQUITY TABLES . . . . . . . . . . . . . . . . . . . . . . . . .
51
PAY RATIO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
59
CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS . . . . . . . . . .
60
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS . . . . . . . .
61
OTHER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
62
APPENDIX A—COHERENT, INC. EMPLOYEE STOCK PURCHASE PLAN . . . . . . . . A-1
2
GENERAL INFORMATION ABOUT THE MEETING
General
The Board of Directors (the ‘‘Board’’) of Coherent, Inc. (‘‘Coherent’’ or the ‘‘Company’’) is soliciting proxies for use at the virtual
Annual Meeting of Stockholders (the ‘‘Annual Meeting’’ or ‘‘meeting’’) to be held at 8:30 a.m., Pacific Time, on May 6, 2021 and at
any adjournment(s) thereof, for the purposes set forth herein and in the accompanying Notice of Annual Meeting of Stockholders.
There will be no physical location for stockholders to attend the meeting.
You can participate in the Annual Meeting by logging in at www.virtualshareholdermeeting.com/COHR2021, where you will be
able to listen to the meeting live, vote and submit questions. These proxy solicitation materials were first mailed on or about
March 19, 2021 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 you held your shares as of the close of business on our record date, March 12,
2021 (the ‘‘Record Date’’). On the Record Date, 24,463,754 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, each share has one vote, unless, with respect to Proposal One regarding the election of directors, cumulative
voting is in effect. See ‘‘Proposal One—Election of Directors—Vote Required’’ for a description of cumulative voting rights with
respect to the election of directors.
How Can I Participate in the Virtual Annual Meeting?
To participate in the meeting, visit www.virtualshareholdermeeting.com/COHR2021 and enter your 16-digit control number as
indicated. You can find your 16-digit control number on your proxy card or on the instructions that accompanied your proxy
materials. You will be able to log into the virtual meeting platform beginning at 8:15 a.m. PDT on May 6, 2021. The meeting will
begin promptly at 8:30 a.m. PDT on May 6, 2021. We encourage you to log in and ensure you can hear streaming audio prior to
the meeting start time.
The virtual meeting platform is supported across browsers (Internet Explorer, Firefox, Chrome, and Safari) and devices
(desktops, laptops, tablets, and cell phones) running the most updated version of applicable software and plugins. Participants
should ensure that they have a strong WiFi connection wherever they intend to participate in the meeting.
If you wish to submit a question during the meeting, log into the virtual meeting platform, type your question into the ‘‘Ask a
Question’’ field, and click ‘‘Submit.’’ Questions pertinent to meeting matters will be answered during the meeting, subject to time
constraints. Questions regarding personal matters, including those related to employment, product or service issues, or
suggestions for product innovations, are not pertinent to meeting matters and, therefore, will not be answered. In the event we are
not able to address any questions appropriately related to the business of the Company due to time constraints, we will address
them at an upcoming financial results conference call.
If you encounter any difficulties accessing the virtual meeting during check-in please call the technical support number that will be
posted on the virtual meeting platform’s log in page.
3
General Information
Why Did I Receive a One-Page Notice in the Mail Regarding the Internet
Availability of Proxy Materials Instead of a Full Set of Proxy Materials?
In accordance with the Securities and Exchange Commission (‘‘SEC’’) rules, we are furnishing proxy materials to our
stockholders primarily via the Internet, instead of mailing printed copies of those materials to each stockholder. On March 19,
2021, we commenced mailing a Notice Regarding the Availability of Proxy Materials to our stockholders (other than those who
had previously requested electronic or paper delivery) containing instructions on how to access our proxy materials, including this
proxy statement and our annual report. The Notice Regarding the Availability of Proxy Materials sets forth instructions on how to
vote over the Internet and also how to request paper copies if that is your preference.
This process is designed to provide stockholders with easy access to our proxy materials, while reducing the printing, distribution
and environmental costs of the proxy process. However, if you would prefer to receive printed proxy materials, please follow the
instructions included in the Notice Regarding the Availability of Proxy Materials.
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 the Internet—Before the Annual Meeting: If you are a stockholder of record, go to www.proxyvote.com. Please
have your proxy card in hand when you visit the website.
• Through the Internet—During the Annual Meeting: If you are a stockholder of record, you may vote live at the Annual
Meeting through the virtual meeting platform by logging into www.virtualshareholdermeeting.com/COHR2021. If your shares
are held in street name, you will need to obtain a legal proxy from your broker, bank or other nominee in order to vote live at the
Annual Meeting.
• Using the Telephone: Dial toll-free 1-800-690-6903 using a touch-tone phone and follow the recorded instructions. You will
be asked to provide the 16-digit control number, which you can find on your proxy card or on the instructions that accompanied
your proxy materials.
• 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 to have your shares voted.
• Returning a Proxy Card: If you have requested printed proxy materials, simply complete, sign and date the 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.
For telephone or Internet use before the meeting, your vote must be received by 11:59 p.m., Eastern time, on May 5, 2021
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 eight nominees for director set forth in this proxy statement and ‘‘For’’ Proposals Two, Three and Four.
We have retained Georgeson LLC to assist us in the solicitation of proxies. If you have any questions or require any assistance
with voting, please contact Georgeson LLC by telephone at (866) 647-8872.
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, e-mail or facsimile. We have also retained Georgeson LLC to assist us in the solicitation of proxies.
We expect to pay Georgeson LLC approximately $15,000 for these services, plus expenses.
4
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 by sending an email to investor.relations@coherent.com before the proxies vote your shares at the meeting, (ii) timely
deliver later-dated proxy instructions or (iii) participate in the meeting and vote your shares electronically during the meeting.
General Information
Quorum; Broker Non-Votes; Abstentions
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 ‘‘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. Broker non-votes represented by submitted proxies will not be taken into account in determining the
outcome of any proposal.
Abstentions will not be taken into account in determining the outcome of the election of directors. However, abstentions will have
the same effect as a vote ‘‘Against’’ Proposals Two, Three and Four. We intend to separately report abstentions, and our
Compensation and HR Committee will generally view abstentions as neutral when considering the results of Proposal Four.
Deadline for Receipt of Stockholder Proposals or Nominations; Proxy Access
In order to submit stockholder proposals for inclusion in our proxy statement pursuant to Rule 14a-8 under the Securities
Exchange Act of 1934, as amended (the ‘‘Exchange Act’’) for the annual meeting to be held in fiscal 2022, written materials must
be received by our Corporate Secretary at our principal executive offices in Santa Clara, California no later than November 19,
2021. Stockholder proposals must otherwise comply with the requirements of Rule 14a-8 under the Exchange Act.
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 2.16 of the Company’s bylaws also establishes an advance notice procedure with respect to director nominations and
stockholder proposals that are not submitted for inclusion in the proxy statement, but that a stockholder instead wishes to present
directly from the floor at any annual meeting. To be properly brought before the annual meeting to be held in fiscal 2022, a notice
of the nomination or the matter the stockholder wishes to present at the meeting must be received by our Corporate Secretary
(see above) at our principal executive offices no later than the 45th day (February 2, 2022), nor earlier than the 75th day (January 3,
2022), 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 April 6, 2022 or after July 5, 2022, in which case, the proposal must be received by our Corporate
Secretary not earlier than the close of business on the 120th day prior to the annual meeting and not later than the close of
business on the later of (i) the 90th day prior to the annual meeting and (ii) the tenth day following the day on which public
announcement of the date of such meeting is first made, 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. We have not
received any notice regarding any such matters to be brought at the Annual Meeting.
5
General Information
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 chairperson 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—Process for
Stockholders to Recommend Candidates for Election to the Board of Directors.’’
The attached proxy card grants to the proxyholders discretionary authority to vote on any matter raised at the Annual Meeting,
including proposals which are timely raised at the meeting, but did not meet the deadline for inclusion in this proxy statement.
In addition, our bylaws provide that, under certain circumstances, a stockholder or group of stockholders may include director
candidates that they have nominated in our proxy statement. These ‘‘proxy access’’ provisions permit a stockholder, or a group of
up to 20 stockholders, who have owned 3% or more of our outstanding common stock continuously for at least three years to
submit director nominees (for up to 20% of the number of directors then in office) for inclusion in our proxy materials, as long as
the stockholder(s) provide timely written notice of such nomination and the stockholder(s) and nominee(s) satisfy the
requirements specified in our bylaws. Notice of director nominees for our 2022 annual meeting of stockholders must include the
information required under our bylaws and must be received by our Corporate Secretary (see above) at our principal executive
offices no later than the close of business on the 120th day (October 20, 2021) and not earlier than the close of business on the
150th day (November 19, 2021) 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 April 6, 2022 or after July 5, 2022, in which case, such notice must be received
by our Corporate Secretary not earlier than the 90th day prior to the annual meeting and not later than the close of business on the
later of (i) the 60th day prior to the annual meeting or (ii) the 10th day following the day on which public announcement of the date of
such meeting is first made. For additional information regarding these proxy access provisions, please refer to our bylaws.
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 our proxy materials to certain stockholders who share an
address, unless otherwise requested. A separate proxy card is included in the voting materials (either electronically or by mail, as
applicable) for each of these stockholders.
We will promptly deliver, upon verbal 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 also 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. It is our understanding that
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.
6
General Information
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 SEC, the sections of this proxy statement entitled ‘‘Report of the Audit Committee of the Board of Directors’’ (to the extent
permitted by the rules of the SEC) and ‘‘Compensation Discussion and Analysis’’ shall not be deemed to be so incorporated,
unless specifically provided otherwise in such filing.
Stockholder List
A list of stockholders entitled to vote at the Annual Meeting will be available for examination by stockholders of record at
www.virtualshareholdermeeting.com/COHR2021 during the meeting.
FURTHER INFORMATION
We will provide without charge to each stockholder solicited by these proxy solicitation materials a copy of our annual report on
Form 10-K for the fiscal year ended October 3, 2020 without exhibits and any amendments thereto 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 SEC
filings, including our annual reports on Form 10-K, and all amendments thereto on the SEC website at www.sec.gov.
7
Spotlight on Governance
Our historical business results have been complemented by
an approach to corporate governance that has consistently
been recognized for including a number of governance ‘‘best
practices,’’ including:
*
*
*
*
Annual Board elections;
No classified Board;
Stockholders may act by written consent;
Independent Board Chair;
* Majority voting for members of the Board in uncontested
*
*
*
*
*
*
*
*
*
elections;
‘‘Proxy access’’ bylaw provisions;
A clawback policy which applies to all executive officers of
the Company;
No ‘‘blank check’’ or other classes of preferred stock;
Super majority of independent directors on the Board;
Executive compensation heavily weighted
performance;
towards
No super majority stockholder approval for mergers or
other business combinations in our bylaws or charter;
A policy prohibiting executive officers and directors from
hedging or pledging Company stock;
Age-based Board tenure/refreshment guidelines; and
Board, CEO and executive officer stock ownership
requirements.
Importantly, the Board has implemented our governance
approach with the full support and recommendation of senior
management. These governance practices do not result from
any stockholder proposals related to them. Rather, they reflect
the commitment of the Board and management to maintain
common sense and industry-leading governance practices and
policies
financial
to go along with our strong historical
performance. The independent director composition of our
proposed slate of Board nominees consists of 29% female
directors and over 40% directors who meet diversity qualification.
The proposed slate is 88% independent, with only our CEO
serving as an inside director.
In addition to a diverse background of experiences, the Board
believes it is extremely important to have a balance of
independent service on the Board, with a mix of new
for
(0-5 years), mid-term (5-10 years) and long-term (more than
10 years) tenures participating. This blend of fresh perspectives
and seasoned experience provides the right mix for effective
Board oversight
today’s modern multinational public
company. Our financial performance over the past decade is
proof that our stockholders have benefited from having a Board
with a strong history of refreshment coupled with tenured
members in each of these categories. Given the recent impacts
to the global economy related to COVID-19, we believe that it is
imperative to have all three categories of tenure on the Board. In
general the Board seeks to have the greatest weight towards the
new and mid-term categories (which may vary from time to time),
which is reflected in the composition of our proposed slate of
independent directors:
New Members (five years or less):
Mid-Term Members (five to ten years):
Long-Term Members (more than ten years):
50%
25%
25%
Coherent has also undertaken several less publicized
sustainability initiatives, such as the installation of over 1,200
solar panels on our corporate headquarter building in
California. This array produces over 400kW of energy per hour
and approximately 625,000kW hours annually, significantly
improving our headquarter’s energy efficiency and reducing
our greenhouse gas emissions by approximately 460 tons per
year. This installation also allowed us to provide eight electric
vehicle charging stations for our employees. Anecdotally, we
have seen a significant increase in hybrid and electric
powered vehicles in our Northern California employee base.
Our most important environmental-related initiative, however,
has been our energy-efficient product designs, which over the
years have significantly reduced the amount of power and
consumable materials needed to operate our products.
While much has been debated about requiring public
companies to disclose their ‘‘political spending,’’ as we have
voluntarily disclosed for several years, we had no such
corporate spending in 2020.
Our Board, management and employees take great pride in
our financial performance, governance, stockholder relations
and global corporate citizenship.
8
Spotlight on Governance
Recent Governance Changes
On and effective as of January 18, 2021, the Board amended
and restated our bylaws to designate the Court of Chancery of
the State of Delaware as the sole and exclusive forum for
certain proceedings relating to Coherent. We believe that
having such court, located in our jurisdiction of incorporation,
provides full access to the judicial process for our stockholders
for such claims, but at the same time reducing cost to the
company of having to address claims in multiple jurisdictions.
Ultimately, such additional costs are borne by the company
and stockholders as a whole.
If we hold an annual meeting in 2022, we intend to ask
stockholders to approve the exclusive forum provision in our
bylaws.
9
PROPOSAL ONE
ELECTION OF DIRECTORS
Nominees
Eight (8) members of the Board are to be elected at the Annual
Meeting, all of whom are standing for re-election. 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 our 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, and certain information about them as of March 19,
2021 is set forth below. All of the nominees have been
unanimously recommended for nomination by the Board
acting on the unanimous 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. Except as set forth in ‘‘Biographical
Information’’ below, each of our directors has been engaged in
his or her principal occupation set forth in the table below
during the past five years.
Name
Jay T. Flatley(1)(2)
Pamela Fletcher(2)
Andreas (‘‘Andy’’) W. Mattes
Beverly Kay Matthews(3)
Michael R. McMullen(2)
Garry W. Rogerson(1)(3)
Steve Skaggs(1)(3)
Sandeep Vij(2)
Age Director Since
Principal Occupation
68
54
59
62
60
68
58
55
2011
2017
2020
2019
2018
2004
2013
2004
Chairman of the Board of Illumina, Inc.
Vice President—Global Innovation at General Motors
Company
President and Chief Executive Officer
Retired Partner, Ernst & Young
President and Chief Executive Officer of Agilent
Technologies, Inc.
Former Chief Executive Officer of Advanced Energy
Industries, Inc.
Former Senior Vice President and Chief Financial Officer of
Atmel Corporation
Former President and Chief Executive Officer of MIPS
Technologies, Inc.
(1) Member of the Governance and Nominating Committee.
(2) Member of the Compensation and HR Committee.
(3) Member of the Audit Committee.
10
Biographical Information
Since 1999 Mr. Flatley has served as a
Jay T. Flatley.
member of the Board of Directors of Illumina, Inc., a leading
developer, manufacturer and marketer of life science tools
and integrated systems for the analysis of genetic variation
and function and from July 2016 to December 2019, as
Illumina’s Executive Chairman of the Board of Directors. Since
January 2020, he has served as Chairman of the Board of
Directors of Illumina. From January 2016 to July 2016, he also
served as Illumina’s Chairman of the Board of Directors. From
1999 until July 2016, Mr. Flatley was Illumina’s Chief
Executive Officer. From 1999 to December 2013, Mr. Flatley
also served as Illumina’s President. Prior to joining Illumina,
Mr. Flatley was 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. Additionally, he was a
co-founder of Molecular Dynamics and served in various other
positions there from 1987 to 1994. Mr. Flatley is also a
member of the board of directors of Denali Therapeutics Inc.,
a biopharmaceutical company. Mr. Flatley previously served
on the board of directors of Juno Therapeutics, Inc., a
biopharmaceutical company. Mr. Flatley holds a B.A. in
Economics from Claremont McKenna College and a B.S. and
a 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 boards of other publicly held companies, and his years of
service as a director of Coherent make him an invaluable
member of the Board.
Ms. Fletcher has served as Vice
Pamela Fletcher.
President—Global Innovation at General Motors Company
(‘‘GM’’), a global automotive company, since October 2018 and
was previously Vice President—Global Innovation and R&D
Laboratories at GM from January 2019 to February 2020 (for
R&D Laboratories). Over a fifteen-plus year career with GM,
Ms. Fletcher has served in various roles, including Vice
President—Global Electric Vehicle Programs from October
2017 to October 2018; Global Executive Chief Engineer,
Autonomous and Electrified Vehicles and New Technology
from July 2016 to October 2017; Executive Chief Engineer,
Electrified Vehicles from August 2012 to July 2016; Chief
Engineer, Chevrolet Volt Propulsion System from 2009 to
August 2012; and Assistant Chief Engineer, Hybrid & Electric
Propulsion Systems from 2007 to 2008. She holds a B.S. in
Engineering
in
Engineering from Wayne State University.
from Kettering University and an M.S.
11
Proposal One Election of Directors
Ms. Fletcher’s years of executive and management
experience in the automotive industry, her knowledge of
advanced and emerging automotive technologies, and her
years of service as a director of Coherent make her an
invaluable member of the Board.
Mr. Mattes has served as our Chief Executive
Andy Mattes.
Officer and President as well as a member of the Board since
April 2020. Prior to joining Coherent and beginning in June
2019, he was a Senior Advisor to McKinsey & Company, a
leading global management consulting
firm, providing
corporate and strategic consulting services to various clients
of the firm. From January 2018 to May 2019, he was an
independent corporate advisor. From 2013 to December
2017, he was the Chief Executive Officer and a member of the
board of directors of Diebold Nixdorf Incorporated, a retail and
financial services technology systems company. He also
served as its President from 2013 to August 2016. Mr. Mattes
was the Senior Vice President, Global Strategic Partnerships
at Violin Memory, a computer storage systems company, in
2013. He has also held various senior management positions
with Hewlett-Packard Co., a computer technologies company.
From 2008 to 2011 he was the Senior Vice President and
General Manager of Hewlett Packard’s Enterprise Services
for the Americas. From 2006 to 2008 he was Hewlett
Packard’s Chief Sales Officer for the Enterprise Business.
Mr. Mattes spent the first 20 years of his career (between 1985
and 2005) at Siemens, holding a variety of senior leadership
positions. These culminated in his role as chief executive
officer of Siemens Communications Inc., USA, in Boca Raton,
Florida. He received his Diplom-Kaufmann in business
administration from Ludwig Maximilian University.
Mr. Mattes’ decades of experience developing and executing
business strategies, his prior executive service in public
companies, his extensive international experience, his recent
appointment as our President and Chief Executive Officer,
and his previous service on the board of another publicly held
company make him an invaluable member of the Board.
Ms. Matthews is a certified public
Beverly Kay Matthews.
accountant (Texas) and retired from Ernst & Young, LLP
(‘‘EY’’), a global accounting firm, in June 2019, where she
served as Vice Chair and Managing Partner of the West Region
since 2008. She joined EY in 1983 and held a number of
leadership positions, including Chief Operating Officer and
Managing Partner of the Americas’ Assurance and Advisory
Business Services from 2005 to 2008; Managing Partner of the
Assurance Practice of the Gulf Coast Region from 2001 to
2005; Managing Partner of the Austin Office from 1998 to 2001;
Proposal One Election of Directors
and served as an audit partner for privately and publicly held
companies in the technology, transportation and healthcare
industries. She is also a member of the board of directors and
audit and compensation committees of SVB Financial Group,
the parent company of Silicon Valley Bank, a member of the
board of directors and audit committee of Main Street Capital
Corporation, and a member of the Texas Tech University Jerry
S. Rawls College of Business Advisory Council. Ms. Matthews
holds a Bachelors of Business Administration in Accounting
from Texas Tech University.
Ms. Matthews’ years in the public accounting industry working
with public companies in the technology, transportation and
healthcare industries, as well as her service on the boards of
other publicly held companies, make her an invaluable
member of the Board.
Michael R. McMullen.
Mr. McMullen has served as Chief
Executive Officer of Agilent Technologies, Inc. (‘‘Agilent’’), a
global leader in Life Sciences and Diagnostics, since March
2015 and as President of Agilent since September 2014. From
September 2014 to March 2015, he also served as Agilent’s
Chief Operating Officer. From September 2009 to September
2014, he served as Senior Vice President, Agilent and
President, Chemical Analysis Group at Agilent. From January
2002 to September 2009, he served as Agilent’s Vice
President and General Manager of the Chemical Analysis
Solutions Unit of the Life Sciences and Chemical Analysis
Group. Prior to assuming this position, from March 1999 to
December 2001, Mr. McMullen served as Country Manager
for Agilent’s China, Japan and Korea Life Sciences and
Chemical Analysis Group. Prior to this position, Mr. McMullen
served as the Controller for the Hewlett-Packard Company
and Yokogawa Electric Joint Venture from July 1996 to March
1999. Mr. McMullen is also a member of the board of directors
of Agilent. Mr. McMullen holds a bachelor’s degree in
economics and business administration from the University of
Delaware and an MBA from the Wharton School of Business.
Mr. McMullen’s years of executive and management
experience in the high technology industry, including serving as
the chief executive officer and on the board of another publicly
held company, make him an invaluable member of the Board.
Garry W. Rogerson.
Mr. Rogerson has served as
Coherent’s Chairman of the Board since June 2007. Since
September 2015, Mr. Rogerson has been a private investor.
From August 2011 to September 2015, Mr. Rogerson was
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, after which he agreed to serve as a
special advisor for a period of time. 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 as well as an honorary doctoral science degree
from the University of Kent at Canterbury.
Mr. Rogerson’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 boards of other publicly held companies, and
his years of service as a director of Coherent make him an
invaluable member of the Board.
Steve Skaggs.
Mr. Skaggs has been a private investor since
April 2016. He currently also serves as a member of the board
of directors and chair of the audit committee of IDEX
Biometrics, ASA. From May 2013 to April 2016, Mr. Skaggs
was Senior Vice President and Chief Financial Officer of Atmel
Corporation, a leading supplier of microcontrollers, until its
acquisition by Microchip Technology Incorporated. Mr. Skaggs
has more than 25 years of experience in the semiconductor
industry, including serving as President, Chief Executive Officer
and Chief Financial Officer of Lattice Semiconductor, a supplier
of programmable logic devices and related software. He was
also previously a member of the board of directors of Lattice.
Prior to Lattice, Mr. Skaggs was employed by Bain & Company,
a global management consulting firm, where he specialized in
high technology product strategy, mergers and acquisitions and
corporate restructurings. Mr. Skaggs holds an MBA degree
from the Harvard Business School and a B.S. degree in
Chemical Engineering from the University of California,
Berkeley.
Mr. Skaggs’ years of executive and management experience
in the high technology industry, including serving as the chief
executive officer and chief financial officer of other public
companies, his prior service on the board of another publicly
held company and his years of service as a director of
Coherent make him an invaluable member of the Board.
Sandeep Vij.
Mr. Vij has been a private investor since
February 2013. Previously, he held the position of President
and Chief Executive Officer and was a member of the board of
directors of MIPS Technologies, Inc., a leading provider of
processor architectures and cores, from January 2010 until its
12
Proposal One Election of Directors
sale in February 2013. In addition, 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. He is a graduate of General
Electric’s Edison Engineering Program and Advanced Courses
in Engineering. He holds an MSEE from Stanford University
and a BSEE 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 years of
service as a director of Coherent make him an invaluable
member of the Board.
Director Independence
The Board has determined that, with the exception of Mr. Mattes, all of its current members and all of the nominees for director are
‘‘independent directors’’ as that term is defined in the listing rules of the Nasdaq Stock Market.
Board Meetings and Committees
The Board held a total of eleven (11) formal meetings and
acted two (2) times by unanimous written consent during fiscal
2020. Additionally, from time to time between formal meetings,
members of the Board participate in update or status
telephone calls and briefings, which are not included in these
totals. During fiscal 2020, the Board had three standing
committees: the Audit Committee; the Compensation and HR
Committee; and the Governance and Nominating Committee.
From time to time, the Board may create, and has in the past
created, limited ad hoc committees, service on which does not
provide additional compensation. Currently, as discussed
below, the Board has one ad hoc committee, the Equity
Committee, which is designated and overseen by the
Compensation and HR Committee. Each of our directors
attended at least 75% of the meetings of the Board and the
committees on which he or she served during fiscal 2020.
Audit Committee
The Audit Committee consists of directors Skaggs (Chair),
Matthews and Rogerson. The Audit Committee held ten
(10) meetings during fiscal 2020. Susan James also served on
the committee during fiscal 2020 until her retirement from the
Board on April 27, 2020. The Board has determined that
directors Skaggs, Matthews and Rogerson 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
for
independent registered public accounting
reviewing and evaluating our accounting principles and our
system of internal accounting controls.
firm and
Compensation and HR Committee
The Compensation and HR Committee consists of directors
Vij
(Chair), Flatley, Fletcher and McMullen. The
Compensation and HR Committee held eight (8) meetings
during fiscal 2020. As noted above, all of the members of the
Compensation and HR Committee are ‘‘independent’’ as
defined under the listing rules of the Nasdaq Stock Market.
The Compensation and HR Committee, among other things,
reviews and approves our executive compensation policies
and programs and makes equity grants to employees,
including officers, pursuant to our equity plan. In fiscal 2020,
this committee had the sole authority delegated to it by the
Board to make equity grants to employees of the company
serving at a
level of vice president and above. On
September 27, 2018, the Board, at the recommendation of the
Compensation and HR Committee, designated an Equity
Committee with authority to make grants of restricted stock
units, within guidelines recommended by the Compensation
and HR Committee, to individuals who are employees serving
at a level below that of vice president. The Equity Committee is
composed of our CEO, in his capacity as a member of the
Board. The Equity Committee reports to the Compensation
and HR Committee periodically and upon request of the
13
Proposal One Election of Directors
Compensation and HR Committee. The Equity Committee’s
designated authority was first effective for fiscal 2019 and is
concurrent with and does not supersede the authority of the
Compensation and HR Committee. For additional information
about the Compensation and HR Committee’s processes and
procedures for the consideration and determination of
executive compensation, see ‘‘Compensation Discussion and
Analysis.’’
Governance and Nominating Committee
The Governance and Nominating Committee consists of
directors Rogerson (Chair), Flatley and Skaggs. The
five
Governance and Nominating Committee held
(5) meetings during fiscal 2020. Susan James also served on
the committee during fiscal 2020 until her retirement from the
Board on April 27, 2020. 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, allocation of risk oversight amongst the Board
and its committees and compensation for directors. For fiscal
2020, the committee retained an independent compensation
consultant to advise it on compensation for service on the
Board. Additionally, the committee led the search process for
our new chief executive officer and retained a search
consultant to assist in such search.
Copies of the charters for each committee of the Board may be
found on the investor relations section of our website
(investors.coherent.com) under ‘‘Corporate Governance’’/
’’Governance Documents.’’
Attendance at Annual Meeting of Stockholders by the Members of the Board of
Directors
Although we do not have a formal policy regarding attendance by members of the Board at our annual meeting of stockholders,
directors are encouraged, but not required, to attend. Seven of our eight then-current members of the Board attended our annual
meeting held on April 27, 2020.
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 executive offices (Attention:
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 and the stockholder making the
recommendation, 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, a
written statement of the nominee that such nominee, if
elected, intends to tender, promptly following such nominee’s
election or re-election, an irrevocable resignation effective
upon such nominee’s failure to receive the required vote for
re-election at the next meeting at which such nominee would
face re-election and upon acceptance of such resignation by
the Board in accordance with Coherent’s guidelines or
policies, 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 a meeting of stockholders, 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 or Nominations; Proxy Access.’’
14
The Governance and Nominating Committee’s criteria and
process for evaluating and identifying the candidates that it
approves as director nominees are as follows:
identifying director nominees, as noted above, diversity of
experience is one of many factors that the committee
considers;
Proposal One Election of Directors
• 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 Committee has not
established specific minimum qualifications for director
candidates, the 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
to audit
committee members;
financial expertise with respect
• 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.
Our corporate governance guidelines require that upon a
member of the Board turning 72 years old, he or she shall
submit a conditional resignation to the Governance and
Nominating Committee effective upon the next annual
meeting of stockholders. The committee then determines
the Board accept such
that
whether
resignation.
to recommend
• 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
the Governance and Nominating
review may,
Committee’s discretion,
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;
include a
in
• 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, including,
issues of character,
independence, age,
judgment,
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
15
Proposal One Election of Directors
Majority Voting and Conditional
Resignations from the Board of
Directors
Since 2013, we have had a majority vote standard for the
election of directors in elections that are not Contested
Elections (as defined below). This means that a nominee for
director in an uncontested election such as this one shall be
elected to the Board if the votes cast ‘‘for’’ such nominee
exceed
‘‘against’’ such nominee (with
abstentions and broker non-votes not counted as a vote cast
either ‘‘for’’ or ‘‘against’’ that director’s election). However, if
the number of nominees exceeds the number of directors to
be elected (a ‘‘Contested Election’’), our bylaws provide that
directors shall be elected by a plurality of the votes cast.
the votes cast
The Board has also adopted a policy on majority voting to
(i) establish procedures under which any incumbent director
who fails to receive a majority of the votes cast in an election
that is not a Contested Election shall tender his or her
resignation to the Governance and Nominating Committee for
consideration; and (ii) provide that the Governance and
Nominating Committee will make recommendations to the
Board regarding the actions to be taken with respect to all
such offers to resign. The Board shall act on the resignation
within 90 days following certification of the election results. In
the event that the Board does not accept such resignation,
then such director shall continue to serve until such time as his
or her successor is elected.
Stockholder Communication with the
Board of Directors
While the Board believes that management speaks for
Coherent, the Board encourages direct communication from
stockholders. Accordingly, any stockholder may contact any
member of the Board individually or as a group by writing by
mail
to our principal executive offices (c/o Corporate
Secretary) at 5100 Patrick Henry Dr., Santa Clara, CA 95054.
Any stockholder may report to us any complaints or comments
regarding accounting, internal accounting controls, or auditing
matters. Any stockholder who wishes to so contact us should
send such complaints or comments to the Audit Committee,
c/o Corporate Secretary, at our principal executive offices.
Additionally, as noted below, our Compensation and HR
Committee encourages stockholder communication on
matters related to executive compensation.
Any stockholder communications that the Board receives will
first go to our Corporate Secretary, who will log the date of
Independent Chair and Board
Leadership
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 Board or 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.
The Board’s leadership structure consists of an independent
Board Chair, who is elected by the independent directors, and
independent committee chairs. We separate the positions of Chief
Executive Officer (‘‘CEO’’) and Board Chair in recognition of the
differences between the two roles. The Board believes this
structure provides
leadership and
engagement.
independent Board
Given that our Chair is an independent director, the Board
does not feel the need for a separate ‘‘lead independent
director,’’ as our independent Chair performs that function.
The Board takes its independence seriously and reinforces
this standard with seven of the eight director nominees, or
88%, being independent.
16
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 Board and through its committees, with the
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
risk. Those members of
to
management most knowledgeable of the issues attend Board
and committee meetings to provide additional insight on the
matters being discussed, including risk exposures. Our Chief
Financial Officer and Chief Legal Officer both report directly to
our CEO, providing him with further visibility to our risk profile.
A Corporate Vice President of Finance is the designated
officer overseeing our enterprise risk management program
and works closely with both our Chief Financial Officer and
Chief Legal Officer on these matters.
These regular meetings also provide our Board members the
opportunity to discuss issues of concern directly with
Proposal One Election of Directors
management. In general, the Board and its committees
oversee the following risk categories:
• The Board generally oversees the Company’s overall
enterprise risk management process and specifically with
regard to the areas of strategy, mergers and acquisitions,
communications and operations;
• The Audit Committee generally oversees risks primarily
related to financial controls, IT, 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 and
succession planning for the Board and our CEO.
Management presents an annual assessment of the risks
associated with the Company’s compensation plans. The
Compensation and HR Committee agreed with the conclusion
from the first quarter of fiscal 2021 presentation 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.
Hedging Policy
The Board (acting on the recommendation of the Audit
Committee) has approved the Company’s Insider Trading
Policy (the ‘‘Policy’’), which applies to all directors, officers and
employees of the Company. The Policy includes the following
restrictions:
• A prohibition against ‘‘short sales’’ (i.e., the sale of a security
that must be borrowed to make delivery) and ‘‘selling short
against the box’’ (i.e., a sale with a delayed delivery) with
respect to Company securities by any director, officer or
employee of the Company;
securities with respect to the Company’s securities. This
prohibition extends to any hedging or similar transaction
designed to decrease the risks associated with holding
Company securities;
• A prohibition against pledging Company securities as
collateral for loans by any director, officer or employee of
the Company who
the reporting
is subject
requirements of Section 16 of the Exchange Act or (2) the
Company’s blackout periods or pre-clearance requirements
under the Policy (a ‘‘designated insider’’); and
to (1)
• A prohibition against any director, officer or employee of the
Company engaging in transactions in publicly traded
options, such as puts and calls, and other derivative
• A prohibition against holding Company securities in margin
accounts by any director, officer or employee of the
Company who is a designated insider.
17
Proposal One Election of Directors
Additional Board Governance Matters
The Board (acting on the recommendation of the Governance
and Nominating Committee) has approved the Company’s
Corporate Governance Guidelines, which include, among
other items (in addition to those items described elsewhere in
this proxy statement), the following provisions:
• At each regular meeting of the Board, the independent
directors also meet in executive session without the
presence of management;
• To avoid ‘‘over-boarding’’ we maintain the following limits on
service on other boards:
– CEO—No more than one (1) other public company
board of directors in addition to the Company (note,
however, that Mr. Mattes does not currently serve on
any public company boards other than ours);
– Independent Directors—No more than four (4) other
public company boards of directors in addition to the
Company;
– Audit Committee members—No more than three
(3) other public company audit committees in addition
independent
to
directors consent;
the Company, unless
the other
• Each independent member of the Board must, within five
years of initial appointment, acquire and thereafter maintain
a minimum value of Company stock equal to three times
such director’s annual Board cash retainer (exclusive of any
cash retainer for service as chair or committee service);
• The Board is responsible for reviewing the Company’s
succession planning and senior management development
on an annual basis; and
• The Board maintains an age-based term limit of 72
(provided, that the Governance and Nominating Committee
maintains the flexibility to not apply such limit on a facts and
circumstances basis).
Fiscal 2020 Director Compensation
During fiscal 2020, we paid our non-employee directors an annual cash retainer (depending upon position) for service on the
Board as follows:
Position
Board Member
Board Chair
Audit Committee Chair
Compensation and HR Committee Chair
Governance and Nominating Committee Chair
Audit Committee member (non-Chair)
Compensation and HR Committee member (non-Chair)
Governance and Nominating Committee member (non-Chair)
Annual Retainer
$ 60,000
$ 60,000
$ 34,000
$ 20,000
$ 13,500
$ 12,500
$ 10,000
6,500
$
The Governance and Nominating Committee annually
reviews Board and committee compensation with
the
assistance of an independent compensation consultant, which
for fiscal 2020 was Compensia. Compensia is separately
compensated for this work from the work it does as the
Compensation and HR Committee’s independent consultant
for executive compensation. The annual review includes a
comparison to peer companies (which are the same as used
for executive compensation as noted in ‘‘Compensation
Discussion and Analysis’’) and market pay practices for
service on boards of directors. Compensia advised the
committee that the design and pay levels of the director
compensation program were aligned with peer market
practices. As noted, the Board is compensated with a
combination of cash retainers and a fixed value of time-based
RSUs. As noted elsewhere
this proxy statement,
Compensia has not provided any other service for the
Company other than as directed by a committee of the Board.
Despite the significant increase in Board meetings during
fiscal 2020 and the beginning of fiscal 2021, the Board has not
had a corresponding increase in compensation.
in
18
Following the recommendation of the Governance and
Nominating Committee (based upon review by Compensia) in
February 2017, the Board adopted resolutions automatically
granting each year without any discretion
to each
non-employee director an award of RSUs (rounded down to
the nearest whole share) valued at $225,000 (based on the
trailing thirty day closing price of the Company’s common
stock on the Nasdaq Stock Market measured from the last
trading day prior to the date of grant) upon the director’s
election to the Board at the Company’s annual meeting. In
initial
addition,
the Board determined
that upon
the
Proposal One Election of Directors
appointment of a non-employee director, such director will
receive an award of RSUs valued at $225,000 (based on the
trailing thirty day closing price of the Company’s common
stock on the Nasdaq Stock Market measured from the last
trading day prior to the date of grant), which RSUs shall vest
over two years (fifty percent on each anniversary of the date of
grant). Such awards of RSUs are currently granted under the
Coherent Equity Incentive Plan. Prior to the approval of the
Coherent Equity Incentive Plan by our stockholders in April
2020, these awards of RSUs were made under the 2011
Equity Incentive Plan.
The chart below presents information concerning the total compensation of our non-employee directors for service (including the
Board and, where applicable, committee service) during fiscal 2020:
Name
Jay T. Flatley
Pamela Fletcher
Susan M. James*
Beverly Kay Matthews
Michael R. McMullen
Garry W. Rogerson
Steve Skaggs
Sandeep Vij
Fees Earned or
Paid in Cash
($)(1)
76,500
70,000
64,625
72,500
70,000
146,000
95,125
80,000
($)(2)(3)
269,724
269,724
—
269,724
269,724
269,724
269,724
269,724
— 346,224
— 339,724
64,625
—
— 342,224
— 339,724
— 415,724
— 364,849
— 349,724
Stock Awards Option Awards
($)(4)
Total ($)
*
Fees paid in cash to Ms. James reflect the pro-rata amount for her service during the fiscal year. Ms. James retired from the
Board effective as of April 27, 2020.
(1) The chart below summarizes the gross cash amounts earned by non-employee directors for service during fiscal 2020 on
the Board and its committees:
Name
Jay T. Flatley
Pamela Fletcher
Susan M. James*
Beverly Kay Matthews
Michael R. McMullen
Garry W. Rogerson
Steve Skaggs
Sandeep Vij
Annual Board
Audit
Service Committee
($)
($)
Compensation
and HR
Committee
($)
Governance
and Nominating
Committee
($)
60,000
60,000
45,000†
60,000
60,000
120,000
60,000
60,000
—
—
14,750†
12,500
—
12,500
28,625†
—
10,000
10,000
—
—
10,000
—
—
20,000
6,500
—
4,875†
—
—
13,500
6,500
—
Total
($)
76,500
70,000
64,625
72,500
70,000
146,000
95,125
80,000
*
†
Retainer amounts for Ms. James are pro-rata for her service during the fiscal year. Ms. James retired from the Board
effective as of April 27, 2020.
Reflects pro-rata amounts for service on the Board and the respective committee during the year; the applicable
individual did not serve on the applicable committee for the entire fiscal year. In the case of Mr. Skaggs, he was
appointed Chair of the Audit Committee in December 2019.
(2) These amounts do not reflect compensation actually received. Rather, these amounts represent the aggregate grant date
fair value computed in accordance with ASC 718, for restricted stock units (‘‘RSUs’’) which were granted in fiscal 2020. The
assumptions used to calculate the value of these RSUs are set forth in Note 12 ‘‘Employee Stock Award and Benefit Plans’’
19
Proposal One Election of Directors
of the Notes to the Consolidated Financial Statements in our annual report on Form 10-K for fiscal 2020, filed with the SEC
on December 1, 2020.
(3) The aggregate number of shares underlying unvested RSUs held by each of our non-employee directors as of the end of
fiscal 2020 (including the grants made to our non-employee directors during fiscal 2020) was as follows:
Name
Jay T. Flatley
Pamela Fletcher
Susan M. James
Beverly Kay Matthews
Michael R. McMullen
Garry W. Rogerson
Steve Skaggs
Sandeep Vij
Shares(a)
2,148(b)
2,148(b)
—
2,898(c)
2,148(b)
2,148(b)
2,148(b)
2,148(b)
(a) The shares underlying the RSUs will vest to the extent an individual is a member of the Board on the applicable vesting
date.
(b) These shares vested on February 15, 2021.
(c) 2,148 shares vested on February 15, 2021, and 750 shares are scheduled to vest on May 9, 2021.
(4) No stock options have been granted to our non-employee directors since 2011. As of the end of fiscal 2020, none of our
non-employee directors held any stock options.
20
Proposal One Election of Directors
Option Exercises and Stock Vested During Fiscal 2020
The table below sets forth certain information for each non-employee director regarding the exercise of options and the vesting of
stock awards during fiscal 2020, including the aggregate value realized upon such exercise or vesting.
Name
Jay T. Flatley
Pamela Fletcher
Susan M. James
Beverly Kay Matthews
Michael R. McMullen
Garry W. Rogerson
Steve Skaggs
Sandeep Vij
Option Awards
Stock Awards
Number of Shares
Number of Shares
Acquired on Value Realized
on Exercise
($)(1)
Exercise
(#)
Acquired on Value Realized
on Vesting
($)(2)
Vesting
(#)
24,000
—
—
—
—
—
—
—
1,468,560
—
—
—
—
—
—
—
1,805
1,805
1,805
750
2,422
1,805
1,805
1,805
277,627
277,627
277,627
105,150
345,386
277,627
277,627
277,627
(1) Reflects the difference between the exercise price of the option and market price of our common stock on the exercise date.
(2) Reflects the market price of our common stock on the vesting date or the last day on which our common stock traded prior to
the vesting date if trading did not occur on the vesting date.
Vote Required
The affirmative vote of a majority of the votes cast is required
for the election of directors. You may vote ‘‘FOR,’’ ‘‘AGAINST’’
or ‘‘ABSTAIN’’ with respect to each of the director nominees
named in this proxy statement. Pursuant to our bylaws,
abstentions and broker non-votes are not considered to be
votes cast with respect to the election of directors and,
therefore, will not have an effect in determining the outcome of
the election of directors. If a quorum is present, each of the
eight (8) nominees who receives more ‘‘FOR’’ votes than
‘‘AGAINST’’ votes will be elected.
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 eight (8) 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.
Recommendation
The Board recommends that stockholders vote ‘‘FOR’’
each of the eight nominees presented herein.
21
PROPOSAL TWO
APPROVAL OF OUR AMENDED AND RESTATED
EMPLOYEE STOCK PURCHASE PLAN
General
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 several times, most recently in 2012 to
increase the number of shares reserved for issuance
thereunder (the ‘‘Existing Plan’’). Following the unanimous
recommendation of its Compensation and HR 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)
including
permitting the Company to allow employees who may
customarily work less than 20 hours per week to participate.
The Board has authorized an increase to the number of
shares reserved for issuance thereunder by an additional
250,000 shares to an aggregate of 337,192 shares of our
common stock reserved for purchase under the Purchase
Plan on or after May 6, 2021 subject to stockholder approval.
to make certain administrative changes
As of February 26, 2021, 87,192 shares remained available
for issuance under the Existing Plan. The Board expects that
with the 250,000 share increase, the number of shares
reserved for issuance under the Purchase Plan will be
sufficient to operate the plan for at least three 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.
The Board believes that the Purchase Plan is helpful to the
Company in attracting and retaining personnel and the
Company’s request for an additional 250,000 shares is
reasonable and prudent and allows us to continue the
Purchase Plan.
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 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 Board in March 2021,
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.
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 (or such lesser number of
22
to
the extent
the Purchase Plan
hours determined by the Company) is eligible to participate in
the Purchase Plan; except that no employee will be granted an
that
option under
(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. As of February 26, 2021, approximately 4,476
employees were eligible to participate in the Purchase Plan.
Non-employee directors are not eligible to participate in the
Purchase Plan.
Proposal Two Approval of Our Amended and Restated
Employee Stock Purchase Plan
Offering Period
Withdrawal
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 Purchase Plan, the option will
be automatically 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.
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
dividing the total amount of payroll deductions 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.
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.
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 a participant fails to remain employed by the
Company or any subsidiary customarily for at least 20 hours
per week (or such lesser number of hours determined by the
Company) 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.
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.
Changes in Capitalization and Transactions
The Purchase Plan provides for adjustment of the aggregate
number of shares that may be issued under the Purchase
Plan, as well as the purchase price per share and the number
of shares covered by each outstanding option, for changes in
our common stock without receipt of consideration by the
Company (such as resulting from a stock dividend, stock split,
recapitalization, reorganization, merger, consolidation or
other similar corporate transaction or event affecting our
common stock).
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
23
Proposal Two Approval of Our Amended and Restated
Employee Stock Purchase Plan
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.
Administration
interpretation or application of
The Board or a committee appointed by the Board (in either
case, the ‘‘Administrator’’) administers the Purchase Plan.
The administration,
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 particular laws
and practices of such countries, treat non-corporate entities as
subsidiaries, and treat eligible non-U.S. employees of any
participating subsidiary as participating in a subplan outside of
an employee stock purchase plan under Section 423 of the
Internal Revenue Code (the ‘‘Code’’).
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 previously granted options, and no amendment can
make any change in any previously granted option that
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 under the
Purchase Plan. Accordingly, future purchases under the
Purchase Plan 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 March 2021.
As of March 12, 2021, the closing price of a share of our
common stock was $247.90.
Certain Federal Income Tax
Consequences
The Purchase Plan, and the right of participants to make
purchases thereunder, is generally intended to qualify under
the provisions of Sections 421 and 423 of the Code. Under
these provisions, no income will be taxable to a participant
until the shares purchased under 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 (i) the excess of the fair
market value of the shares at the time of such sale or
disposition over the purchase price and (ii) 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.
24
Proposal Two Approval of Our Amended and Restated
Employee Stock Purchase Plan
EQUITY COMPENSATION PLAN INFORMATION
The following table provides information as of October 3, 2020 about the Company’s equity compensation plans under which
shares of our common stock may be issued to employees, consultants or members of the 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
(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))
555,019(2)
$
0.00
3,177,501(3)
555,019
$
0.00
3,177,501(4)
(1) The weighted average exercise price does not reflect shares that will be issued upon the vesting of outstanding RSUs or
upon the exercise of rights under the Employee Stock Purchase Plan.
(2) This number of shares includes 530,115 shares outstanding under the 2011 Equity Incentive Plan and 24,904 shares
outstanding under the Coherent Equity Incentive Plan.
(3) This number of shares includes 143,465 shares reserved for future issuance under the Employee Stock Purchase Plan and
3,034,036 shares reserved for future issuance under the Coherent Equity Incentive Plan. This number reflects counting
each share issued pursuant to vested RSUs (either service or performance-based) under the Coherent Equity Incentive
Plan as 2.0 shares. Performance-based RSUs are included at 100% of target goal; under the terms of performance-based
RSUs, the recipient may earn between 0% and 200% of the award.
(4) As of February 26, 2021, 87,192 shares remained available for future issuance under the Employee Stock Purchase Plan
and 2,409,742 shares remained available for future issuance under the Coherent Equity Incentive Plan.
Vote Required
Recommendation
The affirmative vote of a majority of the shares present,
virtually or by proxy, at the Annual Meeting and entitled to vote
on the proposal is required to approve the Purchase Plan. You
may vote ‘‘FOR,’’ ‘‘AGAINST’’ or ‘‘ABSTAIN’’ on this proposal.
Abstentions will have the same effect as a vote ‘‘Against’’ this
propsal.
The Board of Directors unanimously recommends that
stockholders vote ‘‘FOR’’ the approval of our amended
and restated Employee Stock Purchase Plan.
25
PROPOSAL THREE
RATIFICATION OF THE APPOINTMENT OF
DELOITTE & TOUCHE LLP AS OUR INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee of the Board has selected Deloitte &
Touche LLP, an independent registered public accounting
firm, to audit our financial statements for the fiscal year ending
October 2, 2021, and, along with the full Board, 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 a matter of
good corporate practice. 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 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 October 3, 2020, which was ratified by our
stockholders.
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 2020 and 2019:
Audit fees(1)
Tax fees(2)
All other fees(3)
Total
$
2020
3,612,428
523,716
1,895
$
2019
3,454,348
546,618
1,895
$
4,138,039
$
4,002,861
(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 tax compliance and related services.
(3) Represents the annual subscription for access to the Deloitte Accounting Research Tool, which is a searchable on-line
accounting database.
26
Proposal Three Ratification of the Appointment of Deloitte &
Touche LLP as Our Independent Registered
Public Accounting Firm
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
to pre-approve certain additional services, and such
pre-approvals are communicated to the full Audit Committee
at its next meeting. During fiscal years 2020 and 2019, 100%
of the services were pre-approved by the Audit Committee in
accordance with this policy.
Vote Required
Recommendation
The Audit Committee and the Board recommends that
the
stockholders vote
appointment of Deloitte & Touche LLP as our
independent registered public accounting firm for the
fiscal year ending October 2, 2021.
ratification of
‘‘FOR’’
the
The affirmative vote of a majority of the shares present,
virtually or by proxy, at the Annual Meeting and entitled to vote
on the proposal is required to ratify the selection of Deloitte &
Touche LLP as our independent registered public accounting
firm for the fiscal year ending October 2, 2021. You may vote
this proposal.
‘‘FOR,’’
Abstentions will have the same effect as a vote ‘‘Against’’ this
propsal.
‘‘ABSTAIN’’ on
‘‘AGAINST’’ or
27
PROPOSAL FOUR
APPROVAL, ON A NON-BINDING, ADVISORY BASIS,
OF OUR NAMED EXECUTIVE OFFICER
COMPENSATION
At our annual meeting in March 2017, our stockholders
indicated they would like to have an annual advisory vote on
executive compensation. Accordingly, the Board proposes
that stockholders provide advisory (non-binding) approval of
the compensation of our named executive officers, as
disclosed pursuant to the compensation disclosure rules of the
SEC, including the Compensation Discussion and Analysis,
the Fiscal 2020 Summary Compensation Table and related
tables and disclosure.
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.
Vote Required
Recommendation
The Board recommends that stockholders vote ‘‘FOR’’
the approval, on a non-binding, advisory basis of our
named executive officer compensation disclosed in this
proxy statement.
The affirmative vote of a majority of the shares present,
virtually or by proxy, at the Annual Meeting and entitled to vote
on the proposal is required to approve the compensation of
our named executive officers disclosed
this proxy
statement. You may vote ‘‘FOR,’’ ‘‘AGAINST’’ or ‘‘ABSTAIN’’
on this proposal. Abstentions will have the same effect as a
vote ‘‘Against’’ this propsal.
in
The vote is an advisory vote and, therefore, not binding. The
Board values the opinions of our stockholders and to the
extent there is any significant vote against our named
executive officer compensation as disclosed in this proxy
statement, the Board will consider our stockholders’ concerns
and the Compensation and HR Committee will evaluate
whether any actions are necessary to address those
concerns.
28
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
he following table sets forth, as of February 26, 2021, certain
information with respect to the beneficial ownership of our
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 current
executive officers and directors as a group. 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
Wellington Management Group LLP(2)
c/o Wellington Management Company LLP
280 Congress Street
Boston, MA 02210
Vanguard Group Inc.(3)
100 Vanguard Blvd.
Malvern, PA 19355
Blackrock Inc.(4)
55 East 52nd Street
New York, NY 10055
Victory Capital Management Inc.(5)
4900 Tiedeman Rd. 4th Floor
Brooklyn, OH 44144
The Hartford Mutual Funds, Inc. on behalf of:
Hartford Midcap Fund and Hartford Midcap Value Fund(6)
690 Lee Road
Wayne, PA 19087
Andreas W. Mattes(7)
John R. Ambroseo(8)
Kevin Palatnik
Mark Sobey
Bret DiMarco(9)
Thomas Merk(10)
Jay T. Flatley(11)
Pamela Fletcher
Beverly Kay Matthews
Michael R. McMullen
Garry W. Rogerson(12)
Steve Skaggs
Sandeep Vij(13)
All current directors and executive officers as a group (11 persons)(14)
Number Percent of
Total(1)
of Shares
3,118,324
12.75%
2,242,232
9.17%
2,214,576
9.05%
1,745,792
7.14%
1,589,206
6.50%
7,934
187,283
31,437
12,477
22,717
7,819
42,162
3,738
2,898
5,187
16,662
13,662
9,662
163,147
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
Represents less than 1%.
(1) Based upon 24,463,754 shares of common stock outstanding as of February 26, 2021. Beneficial ownership is determined
in accordance with the rules of the SEC and generally includes voting or investment power with respect to the securities. In
29
Security Ownership of Certain Beneficial Owners and Management
computing the number of shares beneficially owned by a person and the percentage ownership of that person, each share
of common stock subject to options held by that person that are currently exercisable or will be exercisable within 60 days of
February 26, 2021 and all RSUs held by that person that will vest within 60 days of February 26, 2021. Such shares are not
deemed outstanding for the purpose of computing the percentage ownership of any other person.
(2) According to the information reported by Wellington Management Group LLP, Wellington Group Holdings LLP, Wellington
Investment Advisors Holdings LLP and Wellington Management Company LLP on a Schedule 13G/A jointly filed with the
SEC on February 4, 2021, (a) each of Wellington Management Group LLP, Wellington Group Holdings LLP, and Wellington
Investment Advisors Holdings LLP beneficially owns an aggregate of 3,118,824 shares, which consists of (i) 2,744,965
shares as to which it has shared voting power and (ii) 3,118,324 shares as to which it has shared dispositive power, and
(b) Wellington Management Company LLP beneficially owns an aggregate of 3,026,761 shares, which consists of
(i) 2,689,216 shares as to which it has shared voting power and (ii) 3,026,761 shares as to which it has shared dispositive
power.
(3) According to the information reported by The Vanguard Group (‘‘Vanguard’’) on a Schedule 13G/A filed with the SEC on
February 10, 2021, Vanguard beneficially owns an aggregate of 2,242,232 shares, which consists of (i) 18,263 shares as to
which it has shared voting power, (ii) 2,205,184 shares as to which it has sole dispositive power, and (iii) 37,048 shares as
to which it has shared dispositive power.
(4) According to the information reported by BlackRock, Inc. (‘‘BlackRock’’) on a Schedule 13G/A filed with the SEC on
January 29, 2021, BlackRock beneficially owns an aggregate of 2,214,576 shares, which consists of (i) 2,131,397 shares
as to which it has sole voting power and (ii) 2,214,576 shares as to which it has sole dispositive power.
(5) According to the information reported by Victory Capital Management Inc. (‘‘Victory Capital’’) on a Schedule 13G/A filed
with the SEC on February 5, 2021, Victory Capital beneficially owns an aggregate of 1,745,792 shares, which consists of
(i) 1,673,292 shares as to which it has sole voting power and (ii) 1,745,792 shares as to which it has sole dispositive power.
(6) According to the information reported by The Hartford Mutual Funds, Inc. on behalf of Hartford Midcap Fund and Hartford
Midcap Value Fund (‘‘Hartford’’) on a Schedule 13G filed with the SEC on February 9, 2021, Hartford beneficially owns an
aggregate of 1,589,206 shares, as to which it has shared voting and dispositive power.
(7)
Includes 5,389 shares issuable upon vesting of RSUs within 60 days of February 26, 2021.
(8) Shares are held by the Ambroseo-Lacorte Family Trust, of which Mr. Ambroseo is a trustee.
(9) Shares are held by the DiMarco Family Trust, of which Mr. DiMarco is a trustee.
(10) Mr. Merk’s employment terminated on December 31, 2020. We have provided his ownership information based on the last
information known to us.
(11) Shares are held by the Flatley Family Trust, of which Mr. Flatley is a trustee.
(12) Shares are held by the 2000 Rogerson Family Revocable Living Trust, of which Mr. Rogerson is a trustee.
(13) Shares are held by the Vij Family 2001 Trust, of which Mr. Vij is a trustee.
(14) Includes an aggregate of 5,389 shares issuable upon vesting of RSUs within 60 days of February 26, 2021.
30
OUR EXECUTIVE OFFICERS
The name, age, position and a brief account of the business experience of our executive officers as of March 19, 2021 are set
forth below:
Name
Andreas (‘‘Andy’’) W. Mattes
Kevin Palatnik
Mark Sobey
Bret DiMarco
Age
59
63
61
52
President and Chief Executive Officer
Office Held
Executive Vice President and Chief Financial Officer
Executive Vice President and Chief Operating Officer
Executive Vice President, Chief Legal Officer and Corporate Secretary
(OLS) from November 2016 to April 2020, Executive Vice
President and General Manager of Specialty Laser Systems
(SLS) from April 2010 to November 2016, and Senior Vice
President and General Manager of SLS from joining Coherent
in July 2007 until April 2010. Prior to Coherent, Dr. Sobey
the Laser and Fiber Optics
spent over 20 years
Telecommunications
including Senior Vice
President roles in Product Management at Cymer and Global
Sales at JDS Uniphase. He received his PhD in Engineering
and BSc in Physics from the University of Strathclyde in
Scotland.
industries,
in
Mr. DiMarco has served as our Executive
Bret DiMarco.
Vice President and Chief Legal Officer since October 2020.
Mr. DiMarco previously served as our Executive Vice
President and General Counsel from June 2006 to October
2020 and he has served as 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’s
degree from the University of California at Irvine and a Juris
Doctorate degree from the Law Center at the University of
Southern California. Additionally, Mr. DiMarco is a member
and chair of the Nasdaq Listing and Hearing Review Council
and an adjunct professor at the University of California,
Hastings College of the Law.
Andy Mattes.
‘‘Proposal One—Election
Information’’ above.
For Mr. Mattes’ biography, please see
of Directors—Biographical
Mr. Palatnik has served as our Executive
Kevin Palatnik.
Vice President and Chief Financial Officer since February
2016. Prior to that from August 2011 until its acquisition by
Knowles Corporation in July 2015, Mr. Palatnik served as the
Chief Financial Officer of Audience, Inc., a provider of
intelligent voice and audio solutions for mobile devices. Prior
to that from June 2001 to November 2010, Mr. Palatnik held
various roles at Cadence Design Systems, Inc., an electronic
design automation software company, including as its senior
vice president and chief financial officer. Mr. Palatnik also
served as a member of the board of directors and chair of the
audit committee of Adesto Technologies, Inc., a provider of
and
innovative,
embedded systems that comprise the essential building
blocks of Internet of Things (IoT) edge devices from
September 2015 until July 2020 when the company was sold
to Dialog Semiconductor. Mr. Palatnik received a B.S. in
Industrial Engineering and Operations Research and a M.B.A.
from Syracuse University.
application-specific
semiconductors
Dr. Sobey has served as our Executive Vice
Mark Sobey.
President and Chief Operating Officer since his appointment
on April 6, 2020. Dr. Sobey previously served as our Executive
Vice President and General Manager of OEM Laser Sources
31
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’’ for fiscal 2020: Messrs. Mattes, Ambroseo, Palatnik, Sobey, DiMarco and Merk. Messrs. Ambroseo and Merk are no
longer executive officers of the Company. Effective April 6, 2020, Mr. Ambroseo retired from his position as our President and
Chief Executive Officer and as a member of our Board, transitioning to the role of Special Advisor, and Mr. Mattes was appointed
by our Board to serve as President, Chief Executive Officer and a member of the Board. Mr. Merk also transitioned from his
executive officer role after the end of fiscal 2020 (see ‘‘—Transitions’’ below). In addition, on August 20, 2020, the Company and
Mr. Palatnik entered into an executive transition services agreement whereby Mr. Palatnik was to retire from his role as Executive
Vice President and Chief Financial Officer no later than February 28, 2021; however, in conjunction with the Company’s execution
of an Agreement and Plan of Merger, dated as of January 18, 2021, with Lumentum Holdings Inc., Mr. Palatnik and the Company
terminated the executive transition services agreement.
We also provide an overview of our executive compensation philosophy, principal compensation policies and practices by which
the Compensation and HR Committee, or the committee, arrives at its decisions regarding NEO compensation.
32
Compensation Discussion and Analysis
NEO Compensation Overview
The following chart sets forth our compensation philosophy and design principles:
Compensation Philosophy
Compensation Design Principles
Retain and hire talented
executives
Pay for performance, with both
short and long-term
measurements
Our executives should have market competitive compensation and the committee
orients our target total compensation generally near the 50th percentile of the
committee’s selected peer group, with actual compensation falling above or below
depending upon our financial performance and the performance of our stock price
against an index over a three-year vesting period. Compensation components
may be above or below such percentile target and vary by individual executive.
A significant portion of the annual compensation of our executives is designed to
vary with annual business performance and a significant portion of long-term
equity compensation is based on the long-term relative performance of our stock
price in comparison to the Russell Index (as defined below), by way of a single
three-year vesting period.
Tie compensation to performance Payouts under our fiscal 2020 annual cash incentive plan were dependent upon
of our core business
Align compensation with
stockholder interests
corporate achievement of two performance targets: revenue and Adjusted
EBITDA dollars. The committee determined that these were the most effective
metrics for tying management’s compensation directly to our core operating
results for fiscal 2020. In fiscal 2020, the Company’s financial results did not meet
the challenging targets established by the committee and, as a result, no payout
under our annual cash incentive plan was made to our NEOs. In connection with
the COVID pandemic, we thought it important to incentivize our executives
through a special equity performance award based on fiscal 2020 free cash flow
because cash flow is essential to maintaining a healthy business.
We believe that having a significant portion of compensation tied to equity with
both time and performance-based vesting requirements directly aligns
management to stockholder returns. Performance-based RSUs make up the
largest potential portion of the equity grants for our CEO, and generally make up
half of the equity grants of our other NEOs at target. The grants are fully at risk
and the executive may not receive any shares at the end of the vesting period.
Grants of regular performance-based RSUs in fiscal 2020 have the same
measurement period consistent with historical practice: a single vesting date three
years from grant solely dependent upon the performance of our common stock
price measured against the Russell Index. In fiscal 2019, target was increased
from meeting the Russell Index performance to exceeding the Russell Index
performance. Prior to fiscal 2018, we used the Russell 2000 Index to compare
our stock price performance, but due to an increase in our market cap, the
Company was moved up to the Russell 1000 Index, and, accordingly, for grants
made since the first quarter of fiscal 2018, the committee compares our stock
price performance against the performance of the Russell 1000 Index. We refer to
the applicable Russell Index as the ‘‘Russell Index.’’
33
Compensation Discussion and Analysis
The following chart sets forth our principal elements of NEO compensation:
Executive Compensation Program Overview—Elements of Compensation
Element
Variability
Objective
How Established
Fiscal Year 2020 for NEOs
Base Salary
Fixed
Annual Cash
Incentive
Performance
Based
RSUs—Service
Based
Value Tied to
Stock Price
Base salary increased for 2020
for NEOs to more closely align
with peers and market data
provided by the committee’s
compensation consultant.
Annual bonus measurement
period in fiscal 2020 tied to
revenue and Adjusted EBITDA
achievement. Revenue
achievement weighted at 25%
and Adjusted EBITDA
achievement weighted at 75%.
Total payout can range from 0%
to 200% of target. For fiscal
2020, the Company did not meet
the performance targets, and as
a result, there was no cash
bonus payout.
Fiscal 2020 service-based
awards vest 1⁄3 per year over
three years, with the first vesting
date occurring on the one-year
anniversary of the grant date.
Provide a
competitive fixed
component of
compensation that,
as part of a total
cash compensation
package, enables us
to attract and retain
top talent.
Offer a variable cash
compensation
opportunity once per
fiscal year generally
based upon the level
of achievement of
corporate
performance targets.
Align long-term
management and
stockholder interests
and strengthen
retention with
three-year vesting.
Service-based
awards create
long-term retention.
Reviewed against
executive officer’s
skill, experience and
responsibilities, and
for competitiveness
against our
compensation peer
group.
Target payouts set
by measuring total
cash compensation
opportunity against
the peer group.
Corporate
performance targets
based on meeting
operational goals
tied to the
Company’s operating
budget for the
applicable fiscal
year.
Target total value of
annual awards using
market data
(reviewed against
our compensation
peer group for
competitiveness) and
the executive
officer’s
responsibilities,
contributions and
criticality to ongoing
success.
34
Compensation Discussion and Analysis
Fiscal Year 2020 for NEOs
Performance award measured by
comparing our stock price
performance against that of the
Russell Index. To achieve 100%
vesting of the awards, our stock
price must outperform the
How Established
Target total value of
annual awards using
market data
(reviewed against
our compensation
peer group for
competitiveness) and Russell Index by 2% during the
the executive
officer’s
responsibilities,
contributions and
criticality to ongoing
success.
defined performance period. If
our stock outperforms that target,
the award is increased 2% for
each percentage point of
outperformance (with a cap of a
200% vesting). If our stock
underperforms the target, the
award is decreased 2% for each
of the first two percentage points
of underperformance, and
decreased 4% for each
additional percentage point of
underperformance (with a floor of
a 0% vesting).
Performance award measured by
achievement of annual free cash
flow. Vesting capped at 100% of
target award.
Target total value of
awards using market
data and the
executive officer’s
responsibilities and
contributions.
Reviewed for
competitiveness.
No significant changes for fiscal
2020 program.
Element
RSUs—
Performance
Based
Variability
Performance
Based—Value
Tied to Stock
Price and
Based on
Relative
Performance to
Russell Index
Performance
Based—Value
Tied to Free
Cash Flow
Other Benefits
Primarily Fixed
Objective
At-risk performance-
based awards
provide an incentive
opportunity based
upon the
performance of our
stock price against
the performance of
the Russell Index.
This component
directly aligns NEO
pay to our
stockholders’
interests.
At-risk performance-
based awards
provide an incentive
opportunity based
upon generating
cash as essential to
maintaining a healthy
business particularly
during the COVID
pandemic.
Provide competitive
employee benefits.
We do not view this
as a significant
component of our
executive
compensation
program.
35
Compensation Discussion and Analysis
Stockholder Engagement
The committee considers feedback from our stockholders
regarding our executive compensation program, including as
expressed by the results of our annual advisory vote on
executive compensation, which our stockholders have
historically strongly supported. We have strong pay for
performance alignment, and the say-on-pay proposal for fiscal
2019 compensation was approved by an overwhelming
majority of our stockholders.
Beyond the results of our annual say-on-pay vote, our
stockholder engagement program is designed to foster an
on-going dialogue with our stockholders. The principal form of
engagement in this program consists of our CEO and CFO
regularly meeting with our stockholders throughout the year.
These meetings are primarily focused on financial and
business matters related to the Company, and they allow our
stockholders the opportunity to raise questions on a variety of
including our executive compensation design
topics,
regular
philosophy and principles. We believe
engagement has been productive and has allowed for a
helpful exchange of
for both
management and our stockholders. In addition, in preparation
for our annual meeting of stockholders held in April 2020, our
CFO and CLO contacted each of our top five stockholders and
were able to meet with two of them to discuss the Company’s
ideas and perspectives
this
compensation practices and the equity plan proposal that was
included in our proxy statement for such meeting.
As a result of these efforts, our CEO and CFO met with over 45
stockholders (in many cases speaking to a particular investor
multiple
representing
approximately 60% of our outstanding shares as of the end of
fiscal 2020.
throughout
year),
times
the
The Board, the committee and the Company’s management
greatly value the feedback from those meetings, and consider
such feedback in deliberations on important topics, such as
executive compensation design and principles, throughout the
year.
Also, as part of our stockholder engagement program, we
encourage our stockholders to directly express their views to
the committee. The committee welcomes direct stockholder
feedback and considers such feedback as well as our
historical ‘‘say-on-pay’’ results in its deliberations on executive
compensation.
We strongly urge our stockholders to read this Compensation
Discussion and Analysis in conjunction with Proposal Four.
Transitions
Appointment of New CEO
On April 6, 2020, Mr. Mattes became President and CEO of
the Company, as well as a member of the Board.
In connection with Mr. Mattes’ appointment as President and
CEO, the Company and Mr. Mattes entered into an
employment agreement on March 31, 2020 providing for,
among other things, a base salary of $850,000 per year and a
2020 fiscal year target bonus of 120% of his base salary.
Pursuant to his employment agreement, Mr. Mattes received a
signing bonus of $500,000, subject to repayment to the
Company if within the first year of his employment, he
terminates employment without good reason or the Company
terminates his employment for cause.
The employment agreement also provided for equity grants
within 30 days after his commencement of employment which
were made as described below in ‘‘Equity Awards.’’
Under his employment agreement, Mr. Mattes is eligible for a
severance payment equal to twice the sum of his annual
salary and target bonus as well as a benefit allowance if his
employment is terminated without cause or he terminates his
employment for good reason. Mr. Mattes is covered by the
Company’s change of control plan and entitled to participate in
employee benefit plans generally applicable
to senior
executives of the Company. Mr. Mattes also entered into the
Company’s
indemnification and
form of
confidentiality agreements.
standard
Retirement of CEO
Mr. Ambroseo retired from his role as President and CEO and
a member of the Board, effective April 6, 2020. Upon his
retirement, Mr. Ambroseo transitioned to the role of a Special
Advisor to the Company. This transition was effected pursuant
to a transition and retirement agreement that was entered into
by Mr. Ambroseo and the Company in April 2019. The
transition and retirement agreement provides for continuation
36
of Mr. Ambroseo’s employment through December 1, 2021,
with a continuation of his compensation through April 13, 2021
and a base salary of $10,000 per month thereafter through
December 1, 2021, continued vesting in outstanding equity
awards through December 1, 2021 and eligibility for change of
control benefits if a change of control occurs by such date.
Because performance thresholds were not achieved, neither
Mr. Ambroseo nor any other executive vested in performance-
based restricted stock units that were eligible to be earned in
November 2020. The transition and retirement agreement
also
proprietary
information and indemnification provisions and includes a
release by Mr. Ambroseo. The terms of the agreement were
extensively reviewed and discussed with Compensia, the
committee’s independent compensation consultant. Both
Mr. Ambroseo and the committee strongly believed that
entering this agreement was in the best interest of Coherent
and our stockholders by further supporting the upcoming
transition.
confidentiality,
customary
includes
Compensation Discussion and Analysis
with a value of approximately $200,000 to Mr. Ambroseo on
the first day of each fiscal quarter in which he was still serving
as CEO, with each such grant vesting on the last day of the
fiscal quarter in which it was granted. Mr. Ambroseo received
three such grants, which ceased once he was no longer CEO.
The committee determined to make these quarterly grants in
lieu of granting Mr. Ambroseo any additional time or
performance-based RSUs in fiscal 2020.
Other Transition
Mr. Merk also transitioned from his executive officer role after
the end of fiscal year 2020 and entered into an agreement that
provided him with the same level of benefits as the Leadership
Change severance benefits under our Change of Control and
Leadership Change Severance Plan as described below in
‘‘Other Benefits—Severance and Change of Control
‘‘Potential
Arrangements’’ and
Payments Upon Termination or Change of Control’’ below.
the section entitled
in
In addition, in the first quarter of fiscal 2020, the committee
determined to make an automatic grant of time-based RSUs
Key Design Changes to Executive
Compensation
The committee closely reviewed the Company’s executive
compensation recoupment (or ‘‘clawback’’) policy in light of
the state of applicable law, governance trends and practices of
other public companies.
the Russell Index in order to achieve target vesting levels;
and
• Considered internal pay equity between the CEO and other
NEOs as a factor in determining compensation.
In fiscal 2020, the Board, at the recommendation of the
committee and management, adopted a new clawback policy,
recoupment of cash and equity
expanding potential
compensation to include all NEOs, as well as all employees of
the Company holding the title of Senior Vice President or
higher who report directly to our CEO. As described further
below, the new clawback policy allows the committee to
recoup excess incentive compensation from such covered
individuals in the event of a restatement of the Company’s
financial results, regardless of whether the covered executive
played a role in the need for the restatement.
As disclosed in the Company’s fiscal 2019 proxy statement,
the committee made the following changes to the design of
executive compensation in fiscal 2019 continuing through
fiscal 2020:
The committee made changes to the design of performance-
based RSUs granted in fiscal 2021:
• Measured Company stock performance against the stock
performance of the companies within the Russell Index
rather than the Russell Index itself requiring the Company
stock performance to be at the 55th percentile (above the
median) with respect to the companies within the Russell
Index to achieve target vesting;
• Capped the maximum value of performance-based RSUs at
vesting at five times the grant date stock price; and
• Capped vesting of performance-based RSUs at 100% of
target amount if the total stockholder return for the
Company is not positive (greater than 0).
• Redesigned
the Company’s
performance-based RSUs to require performance above
the measurement of
37
Compensation Discussion and Analysis
Executive Summary
Our Business
Founded in 1966, Coherent, Inc. is one of the leading
providers of lasers and laser-based technology for scientific,
commercial and industrial customers. Our common stock is
listed on the Nasdaq Global Select Market and is part of
several indexes, including the Russell 1000 and Standard &
Poor’s MidCap 400 Index. For more information about our
business, please read the sections captioned ‘‘Business’’ and
‘‘Management’s Discussion and Analysis of Financial
Condition and Results of Operations’’ in our annual report on
Form 10-K for fiscal 2020, filed with the SEC on December 1,
2020.
Selected Business Highlights
We experienced a significant decrease in year-over-year
revenue, Adjusted EBITDA and non-GAAP earnings per
share in fiscal 2020 and accordingly failed to meet our internal
targets. As a result, you will see in the coming pages that our
performance-related executive compensation in our annual
cash program yielded no payout (zero %) in fiscal 2020.
Set forth below are tables reflecting several performance
metrics from the last three fiscal years that impact the
compensation for our NEOs.
Our revenue decreased 25% from fiscal 2018 to fiscal 2019
and decreased 14% from fiscal 2019 to fiscal 2020 (dollars in
millions):
ANNUAL REVENUE
$1,903
$2,000
$1,800
$1,600
$1,400
$1,200
$1,000
$800
$600
$400
$200
$0
Our Adjusted EBITDA decreased 53% from fiscal 2018 to
fiscal 2019 and decreased 42% from fiscal 2019 to fiscal 2020
(dollars in millions):
ADJUSTED EBITDA
$550
$600
$550
$500
$450
$400
$350
$300
$250
$200
$150
$100
$50
$0
$259
$151
FY2018
FY2019
10MAR202108034499
FY2020
Our non-GAAP earnings per share from continuing operations
decreased 57% from fiscal 2018 to fiscal 2019 and decreased
49% from fiscal 2019 to fiscal 2020:
NON-GAAP EARNINGS PER SHARE*
$13.64
$16
$14
$12
$10
$8
$6
$4
$2
$0
$5.92
$3.00
$1,431
$1,229
FY2018
FY2019
FY2020
*Non-GAAP earnings per share is defined as earnings per share excluding
10MAR202108035339
certain recurring and non-recurring items.
FY2018
FY2019
10MAR202108034640
FY2020
For a reconciliation table of earnings per share on a GAAP
basis to non-GAAP basis and net income (loss) from
continuing operations on a GAAP basis to Adjusted EBITDA,
please refer to the ‘‘Reconciliation Table’’ at the end of this
section.
38
Compensation Overview
tie
executive
Compensation Philosophy. We
total
compensation to stockholder value with two measures: our
operational results and the comparative performance of 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
long-term. We design our executive
the short and
compensation program to achieve the following goals:
• Retain and hire talented executives—Our executives
should have market competitive compensation, and the
committee orients our target total compensation generally
near the 50th percentile of the committee’s selected peer
group (as noted below), with actual compensation falling
above or below depending upon Coherent’s financial
compensation
performance.
components may be above or below such percentile target
and vary by individual executive.
Additionally,
certain
• 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 the long-term relative
performance of Coherent’s stock price in comparison to the
Russell Index (by way of a single three-year vesting period).
The committee and management set demanding
performance targets. For example, there was no annual
cash bonus paid out for fiscal 2020 as explained below. To
incentivize conservation of cash during
the COVID
pandemic, the committee granted performance RSUs
based on achievement of free cash flow which were earned.
The following chart shows the payout percentages as
compared to the committee’s selected financial targets for
each of the last three fiscal years under our annual cash
incentive plan:
PAYOUT PERCENTAGE UNDER
ANNUAL CASH INCENTIVE PLAN
)
%
(
t
u
o
y
a
P
200%
180%
160%
140%
120%
100%
80%
60%
40%
20%
0%
93%
FY2018
0%
FY2019
0%
FY2020
10MAR202108034781
39
Compensation Discussion and Analysis
Payouts under our annual cash incentive plan over the last
seven years have ranged from 0% to 200% as shown in the
following chart:
VCP Payout Percentage
t
n
e
c
r
e
P
t
u
o
y
a
P
250.00%
200.00%
150.00%
100.00%
50.00%
0.00%
Payout %
FY14
33%
FY15
85%
FY16
151%
FY17
200%
FY18
93%
FY19
FY20
10MAR202108035472
0%
0%
• Tie compensation
to performance of our core
business—Our fiscal 2020 annual cash incentive plan was
dependent upon Coherent’s achievement against two
criteria: Adjusted EBITDA dollars and revenue. The
committee determined that these were the most effective
metrics for tying management’s compensation directly to
Coherent’s core operating results for fiscal 2020.
• Align compensation with stockholder interests—We
believe that having a significant portion of compensation
tied to equity, with both time and performance-based
vesting requirements, directly aligns management
to
stockholder interests. The performance-based RSUs make
up the largest potential portion of the equity grants for our
CEO. Grants of performance-based RSUs historically have
the same measurement period: a single vesting date three
years from grant solely dependent upon the performance of
Coherent’s common stock price measured against the
Russell Index. Prior to fiscal 2019, the performance target
was equal to meeting the index’s performance. As
mentioned above, the committee modified the design of the
performance-based RSU grants made in the first quarter of
fiscal 2019 and going forward to require performance two
percentage points above the Russell Index to achieve the
targeted vesting. If our stock outperforms that target during
the defined performance period, the award is increased 2%
for each percentage point of outperformance (up to a
maximum cap of 200% of target). If our stock underperforms
the target, the award is decreased 2% for each of the first
two percentage points of underperformance, and
decreased 4% for each additional percentage point of
underperformance (with a floor of a 0% vesting). As a result,
compensation decreases faster for failing to outperform the
Russell Index than it increases for exceeding the target. If
Coherent’s stock underperforms the Russell Index by more
than 24%, then there is no payout, but in order to hit the
to
maximum possible payout, Coherent’s stock has
Compensation Discussion and Analysis
outperform the Russell Index by at least 52%. The table and
chart below illustrate this structure:
CEO during fiscal 2020 at target, maximum and actual can
be illustrated as follows (dollars in thousands):
FISCAL 2020 PERFORMANCE RSU VESTING
CEO FY2020 CASH PAY MIX*
Relative Performance
Percentage Against the
Russell Index
Vesting Percentage of
Target Amount
152% or more
200% (maximum vesting)
102%
100%
85%
77%
100%
96%
36%
4%
76% or less
0% (no PRSUs vest)
t
e
g
r
a
T
f
o
t
n
e
c
r
e
P
s
t
u
o
y
a
P
225%
200%
175%
150%
125%
100%
75%
50%
25%
0%
Target
-75%
-50%
-25%
0%
25%
Performance Percentage Points vs. Index
50%
100%
75%
10MAR202108035731
Elements of Executive Compensation. During fiscal 2020,
the compensation of our NEOs primarily consisted of (A) base
salary, (B) participation in our annual variable compensation
plan (referred to herein as our ‘‘annual cash incentive plan’’ or
‘‘VCP’’), (C) long-term equity incentive awards divided
between time-based RSUs and performance-based RSUs
and (D) special performance-based equity incentive awards
based on achievement of free cash flow metrics during the
COVID pandemic. For fiscal 2020, on average, approximately
78% of our NEO’s target compensation and approximately
88% of our CEO’s target compensation was delivered through
our annual cash incentive plan and long-term equity incentives
(both time and performance RSUs).
As a demonstration of how executive cash compensation is
tied to company performance, the cash compensation for our
$3,000
$2,500
$2,000
$1,500
$1,000
$500
$0
Cash
Bonus
55%
Base
Salary
45%
Cash
Bonus
69%
Base
Salary
31%
Cash Bonus 31%
Base Salary
69%
Target
Maximum
Actual
Fixed
Variable
10MAR202119483337
*Actual excludes sign-on bonus of $500,000 and includes special
strategic operating plan incentive.
Compensation Governance.
‘‘Pay for performance’’ has
been and remains at the core of Coherent’s executive
compensation coupled with appropriately managing risk and
long-term
aligning our compensation programs with
stockholder interests. We accomplish this primarily by having
a majority of our NEOs’ potential compensation being ‘‘at risk’’
through a combination of (i) an annual cash incentive plan tied
to achievement of financial metrics and (ii) equity award
vesting tied to achievement of a performance metric. The
committee monitors and considers evolving governance
approaches and standards in executive compensation, as well
as communications it receives directly from stockholders.
As more fully discussed below, recent examples of how this
philosophy is applied and changes made pursuant to
compensation practices as well as governance practices in
effect during fiscal 2020, include:
• We have minimum share ownership requirements for our
CEO and members of the Board as well as Executive Vice
Presidents and Senior Vice Presidents who report to the
CEO;
• Our performance-based RSU program is measured by the
Company’s stock price achievement against the Russell
Index over a three-year period, which the committee
believes is a direct connection to long-term total stockholder
interests. Fiscal 2020 grants require achievement in excess
of the Russell Index to achieve target payout;
40
Compensation Discussion and Analysis
Role of Management
to
The committee regularly met with the CEO to obtain
recommendations with
the compensation
respect
programs, practices and packages for our NEOs other than
the CEO. Additionally, Mr. Palatnik, our Executive Vice
President and CFO, Mr. DiMarco, our Executive Vice
President, Chief Legal Officer and Corporate Secretary, 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 includes providing
financial information and analysis for the committee and its
compensation consultant, taking minutes of the meeting or
providing legal advice, developing compensation proposals
for consideration, and providing insights regarding our
employees (executive and otherwise) and the business
context for the committee’s decisions. NEOs attend portions of
committee meetings when invited by the committee, but leave
the meetings when matters potentially affecting them are
discussed.
Role of the Committee’s Compensation Consultant
The committee utilizes the services of an independent
fiscal 2020, engaged
compensation consultant and
Compensia as its independent compensation consultant.
Compensia assisted the committee by:
in
• Reviewing and analyzing our executive compensation
program, including providing NEO tally sheets to the
committee;
• Providing market data for fiscal 2020 compensation; and
• Providing further insight on compensation governance
trends.
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 retention, Compensia has not performed
any work for Coherent other than its work with the committee,
the Board or other committees of the Board, such as work with
the Governance and Nominating Committee with respect to
compensation for service on the Board and its committees.
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, the
Board, or another committee of the Board. The committee has
assessed the independence of Compensia and concluded
that no conflict of interest exists.
• The committee is composed entirely of directors who satisfy
the standards of independence in Coherent’s Corporate
Governance Guidelines and Nasdaq listing standards;
• The
committee made decisions
regarding CEO
compensation without the CEO present;
• Executive incentive compensation programs include limits on
maximum payouts to contain the risk of excessive payouts;
• The committee utilizes an independent compensation
consultant;
• We have eliminated material historical perquisites as an
element of compensation for our NEOs;
• We had a recoupment or ‘‘claw-back’’ policy for our CEO
and CFO, and,
the
recommendation of the committee, adopted an updated
policy extending coverage to all individuals with the title
Senior Vice President and above, as described below;
fiscal 2020, our Board, at
in
• We have in place a policy prohibiting executive officers and
directors from hedging or pledging Company stock;
• Change-of-control payments occur solely in ‘‘double-
trigger’’ circumstances, that is a change of control coupled
with a termination of employment within a defined time
period;
• None of our NEOs are entitled to any ‘‘gross-up’’ to offset
the impact of IRS Code Sections 280G or 4999 in
connection with a change of control; and
• Our stockholders have historically strongly supported our
executive compensation philosophy and design as seen in
the significant majorities approving our
‘‘say-on-pay’’
proposal (does not include broker non-votes; rounded).
SAY-ON-PAY STOCKHOLDER VOTES
Votes Against
Votes For
Abstentions
95.8%
94.4%
83.5%
15.8%
0.8%
2.9%
1.3%
5.3%
0.3%
FY 2018
FY 2019
10MAR202108264384
FY 2020
41
Compensation Discussion and Analysis
in and maintains a
The Company also participates
subscription to the Radford Global Technology and Sales
surveys. These surveys provide benchmark data and
compensation practices reports of a broad cross-section of
technology companies similar in size to Coherent to assist us
with employee compensation generally.
Pay Positioning Strategy and
Benchmarking of Compensation
provided by its independent compensation consultant, which
includes an analysis of data from peer companies’ proxy
filings with respect to similarly situated individuals at the peer
the Radford Global
companies (when available) and
Technology Survey (as a supplement when peer group
company data is unavailable). It is important to note that these
are the peers selected by the committee. The committee uses
criteria as described below in determining the appropriate
peer group. There are proxy advisory services that use their
own criteria to select peers for the Company and, accordingly,
stockholders should be aware that these advisory services do
not, in fact, follow the same methodology of the committee and
there may be wide variances between the different peer
groups used by these services. Any comparison of company
performance or market data for executive compensation using
a completely different peer group will, therefore, naturally
result in a different analysis.
For pay decisions made for fiscal 2020, after consulting with
its independent compensation consultant, the committee
determined that the following companies comprise the peer
group for fiscal 2020:
Ciena Corporation (CIEN)
Cypress Semiconductor
Corporation (CY)
Dolby Laboratories (DLB)
Entegris (ENTG)
F5 Networks (FFIV)
Finisar (FNSR)
FLIR Systems (FLIR)
II-VI Inc. (IIVI)
Itron, Inc. (ITRI)
Keysight Technologies
(KEYS)
Lumentum Holdings Inc.
(LITE)
MKS Instruments (MKSI)
National Instruments
(NATI)
Nuance Communications
(NUAN)
OSI Systems (OSIS)
Synaptics (SNYA)
Teradyne (TER)
Trimble Inc. (TRMB)
ViaSat (VSAT)
Philosophically the committee initially orients target total
compensation for our NEOs generally near the 50th percentile
of our peers (as measured by our designated peer group and
compiled by the committee’s independent compensation
consultant and, when applicable, including, for example, when
there are few comparable positions reported in the proxy data
of our peer group companies, data from the Radford Global
Technology Survey), resulting in targeted total compensation
that is competitive for performance that meets the objectives
established by the committee. Each NEO’s actual salary, cash
incentive compensation opportunity and equity compensation
grant value may fall below or above the target position based
on the individual’s performance, contributions, scope of role,
experience, skills and knowledge, as well as the historical pay
structure for each executive, Company performance and the
proportion of compensation at risk. These factors are weighed
by the committee in its judgment, and no single factor takes
precedence over others nor is any formula used in making
these decisions nor was the impact of any factor on the
determination of compensation quantifiable. In general, the
committee will balance between cash and equity
compensation elements to have more compensation in equity
to more closely align NEO
for each NEO
compensation directly with that of the performance of the
Company and with stockholders’ interests. In fiscal 2020, the
committee also asked
independent compensation
consultant to review and report on internal pay equity between
the CEO and the other NEOs as a factor when approving
compensation.
in order
its
The CEO’s review of the performance of the other NEOs is
considered by the committee in making individual pay
decisions. With respect to the CEO, the committee additionally
considers the performance of Coherent as a whole and the
views of other members of the Board regarding the CEO’s
performance. Actual realized pay is higher or lower than the
targeted amounts for each individual based primarily on the
Company’s performance.
In analyzing our executive compensation program relative to
target market positioning, the committee reviews information
42
Several factors are considered in selecting the peer group, the
most important of which are:
Primary Criteria
• Industry (primarily companies in the Electronic equipment,
Semiconductor
equipment
sub-industry classifications defined by the Global Industry
Classification Standard (GICS) system); and
communications
and
• Revenue level (primarily companies with annual revenues
between 0.5x-2.0x that of Coherent).
Secondary Criteria
• Market capitalization between 0.25x and 3.0x of Coherent;
Components of Our Executive
Compensation Program
The principal components of our executive officer
compensation and employment arrangements during fiscal
2020 included:
• Base salary;
• Annual cash incentive plan;
• Equity awards; and
• Other benefits.
These components were selected because 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.
The following table shows the components of total direct
compensation at target and maximum for our NEOs as a
group for fiscal 2020. In maintaining the design for fiscal 2020,
the committee recognized the significant support received
from the Company’s stockholders for the compensation
program design, as reflected in the continued strong vote
totals in favor of our executive compensation through our
annual ‘‘say-on-pay’’ proposal.
Compensation Discussion and Analysis
• Market capitalization as a multiple of revenues of greater
than 1.5x; and
• A disclosed peer of a peer company.
The committee reviews the composition of the peer group
annually to ensure it is the most relevant set of companies in
light of the foregoing criteria to use for comparison purposes,
but does not necessarily remove a peer company from the
peer group the first year it ceases to meet the criteria. II-VI Inc.
was added to the companies comprising the Company’s peer
group for fiscal 2020 replacing one company (Microsemi, due
to acquisition) from the fiscal 2019 peer group.
CEO AND NEO (OTHER THAN CEO) FY2020
DIRECT COMPENSATION MIX*
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
26%
31%
16%
21%
48%
14%
12%
31%
61%
16%
22%
16%
7%
42%
22%
15%
CEO Target
NEO Target
CEO Maximum
NEO Maximum
Base Salary
Annual Incentive
Performance-Based RSUs
Time-Based RSUs
10MAR202108035063
*Excludes special one-time RSU & PRSU grants and
performance-based RSUs measured by achievement of annual
free cash flow.
Base Salary
Base salary is the foundation to providing an appropriate total
cash compensation package. We use base salary to fairly and
competitively compensate our executives for the jobs we ask
them to perform. This is the most stable component of our
executive compensation program, as this amount is not at risk.
The committee reviewed market data information provided by
Compensia with respect to similarly situated individuals to
assist it in determining the base salary for each NEO,
depending upon the particular executive’s experience, skills,
43
Compensation Discussion and Analysis
knowledge, performance and contribution. The committee
increased the base salaries of our NEOs in the first quarter of
fiscal 2020, as supported by compensation analysis provided
by Compensia, from 0% to 10.0% to more closely align their
base salary with the base salary of peers. In addition, in
connection with Mr. Sobey’s promotion to Chief Operating
Officer in April 2020, his annual base salary increased to
$500,000 to reflect the expansion of his role. According to
the committee’s compensation
information provided by
consultant, our CEO’s base salary was approximately at the
50th percentile of our peer group companies. The base
salaries for our other NEOs ranged from approximately the
40th percentile to the 60th percentile of our peer group
companies.
Variable Cash Incentive Compensation
A substantial portion of each individual’s potential short-term
compensation is in the form of variable incentive cash
compensation tied to committee-established goals. In fiscal
2020, Coherent maintained one incentive cash program under
which executive officers were eligible to receive annual cash
incentives, the 2020 Variable Compensation Plan (‘‘2020
VCP’’).
2020 VCP
The 2020 VCP was designed as an ‘‘at risk’’ bonus
compensation program to promote a focus on Coherent’s
growth and profitability. It provided an incentive compensation
opportunity in line with targeted market rates to our NEOs.
Under the 2020 VCP, participants were eligible to receive a
bonus based on annual fiscal year performance. In setting the
performance goals at the beginning of the fiscal year, the
committee assessed the anticipated difficulty and importance
to Coherent’s success of achieving the performance goals.
The actual awards (if any) payable for the annual period
depend on the extent to which actual performance met,
exceeded or fell short of the goals approved by the committee.
The 2020 VCP goals were tied to Coherent achieving targeted
levels of revenue and Adjusted EBITDA dollars, with revenue
weighted at 25% and Adjusted EBITDA weighted at 75%.
Each performance metric
is measured and paid out
independently, but the revenue payout is capped at 100%
achievement until Adjusted EBITDA reaches a minimum
dollar target. Adjusted EBITDA is defined as operating income
adjusted for VCP payouts, depreciation, amortization, stock
compensation expenses, major restructuring charges and
certain non-operating income or expense items, such as costs
related to acquisitions. The committee also reviews the
financial impact of mergers and acquisitions to determine if
any adjustments in VCP are required.
44
The annual award had a potential payout range between zero
and 200%.
In addition to a 100% target bonus based on the factors
described above, the committee provided our CEO an
additional target bonus of 20% of base salary based on the
strategic operating plan process, which he met. The maximum
payout under such additional target bonus was capped at
20%. The committee determined that Mr. Mattes earned this
20% of base salary target bonus.
Fiscal 2020 VCP Scale for NEOs
Revenue achievement for fiscal 2020 was $1,430.6 million,
which fell short of the threshold for a cash bonus payout and
resulted in no cash bonus. Adjusted EBITDA achievement for
fiscal 2020 was $259.1 million, which fell short of the threshold
for a cash bonus payout and resulted in no cash bonus.
Fiscal 2020 VCP Scale
Revenue ($ in millions)
$1,229.0 (actual)
$1,420.0 (threshold)
$1,480.0 (target)
$1,154.0
Adjusted EBITDA ($ in millions)
$151.1 (actual)
$250.0 (threshold)
$291.0 (target)
$333.0
Payout
0% (actual)
0%
100%
200%
Payout
0% (actual)
0%
100%
200%
The table below describes for each NEO under the 2020 VCP
(i) the target percentage of base salary and (ii) the actual
award earned for fiscal 2020. The potential award range for
each NEO is 0% to 200% of the target award percentage of
base salary.
Named
Executive
Officer
Andy Mattes
Kevin Palatnik
Mark Sobey
Bret DiMarco
John Ambroseo
Thomas Merk
Target
Percentage
of Salary
100%(1)
75%
75%
70%
100%
65%
Actual
Payout
($)
0
0
0
0
0
0
Actual
Payout as a
Percentage
of Target
0%
0%
0%
0%
0%
0%
(1) Consists of VCP at 100% and 20% based on individual
goals. Mr. Mattes earned $170,003 based on achievement
of his individual goals.
Compensation Discussion and Analysis
of a 0% vesting). As a result, vesting decreases faster for
failing to outperform the Russell Index than it increases for
exceeding the target. The performance-based RSUs make up
the largest potential portion of the equity grants for our CEO.
The following table summarizes some of the key features of
our annual fiscal 2020 equity grants:
Fiscal 2020 Standard Equity Grants
Type
Vesting for RSUs
Vesting for PRSUs
PRSU Metrics
RSUs and performance-
based RSUs (PRSUs)
One-third each grant
anniversary
Single vesting date three
years from grant
100% tied to Russell Index
Minimum vest: zero
Target vest: 2% above
Russell Index
Maximum vest: 200% of
target
For our CEO, more than half of his total equity awards are
performance-based. Approximately 61% of his equity
awards are performance-based and at maximum
achievement that percentage increases to approximately
76%.
As an example, our performance-based design was seen in
the vesting of the PRSU grants made in November 2016,
which vested in the first quarter of fiscal 2020. Our common
stock gained 39% as compared to the Russell Index, which
gained 25% over the defined measurement periods at the
beginning and end of the three-year vesting period. This
out-performance resulted in 128% PRSU vesting.
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 stock
performance of Coherent in comparison to the Russell Index
through the date of the change of control and such
performance-based shares would, subject to the terms of the
to
Change of Control Severance Plan,
time-based vesting with a single vesting date at the three year
anniversary of the grant.
then convert
The following charts show the aggregate composition of
equity grants for fiscal 2020 to our CEO, at target and at
maximum achievement under the terms of the performance-
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 compensation philosophy, 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 executive retention. For fiscal 2020, our long-term
incentive program included the grant of time-based RSUs and
performance-based RSUs. These components provide a
reward for individual performance and an incentive for future
performance.
to
tied
Our performance-based RSU grants are
the
Company’s performance and, as a result, may fluctuate from
no vesting to vesting up to a maximum of 200% of target. The
committee reviews a compensation overview prepared by its
compensation consultant reflecting the intrinsic value of
unvested equity awards and performance-based RSUs at
target and projected values for all of the NEOs.
Fiscal 2020 Equity Grants
For fiscal 2020, the committee based the annual equity
program on a combination of time-based and performance-
based RSUs over a three-year period. In particular, the
committee determined to measure achievement for the
performance RSUs by the relative performance of Coherent’s
stock price in comparison to the Russell Index. The committee
believed that using the Russell Index (in which Coherent was
a member at the time of grant) as a proxy of total stockholder
return directly aligns executive compensation with stockholder
interests. The committee determined
the
performance-based and time-based RSU grants strengthen
retention in that the time-based grants vest over three years
with pro rata annual vesting and the performance-based RSU
grants vest, assuming the performance threshold is met, in a
single cliff vesting after a three-year period.
that both
Performance-based standard RSU grants in fiscal 2020 vest
solely upon the performance of Coherent’s common stock
price measured against the Russell Index. To achieve 100%
vesting of the awards, our stock price must outperform the
Russell Index by 2% during the defined performance period. If
our stock outperforms that target, the award is increased 2%
for each percentage point of outperformance (with a cap of a
200% vesting). If our stock underperforms the target, the
award is decreased 2% for each of the first two percentage
points of underperformance, and decreased 4% for each
additional percentage point of underperformance (with a floor
45
Compensation Discussion and Analysis
based grants (excluding PRSUs measured by achievement of
annual free cash flow):
successful transition with Mr. Mattes as our new President and
CEO.
FY 2020 CEO EQUITY GRANT COMPONENTS
24%
AT
MAXIMUM
ACHIEVEMENT
76%
39%
AT
TARGET
ACHIEVEMENT
61%
Performance Based RSUs
Time Based RSUs
10MAR202108141247
The following table reflects equity grants made to the NEOs
during fiscal 2020. The table includes a special one-time
retention RSU with respect to 3,209 shares and with a single
two-year cliff vest made to Mr. Palatnik in November 2019 as
our CFO while the search for a CEO to succeed Mr. Ambroseo
upon his retirement was underway. The table also includes
PRSU grants made to Messrs. Sobey, DiMarco, and Palatnik
made at the same time and the same performance measures
as the PRSU grants made to Mr. Mattes as the new CEO in
April 2020. These PRSU grants have a single three-year vest
and were made by the committee, in consultation with its
independent compensation consultant, to further support a
Named
Executive
Officer
Andy Mattes
Kevin Palatnik
Mark Sobey
Bret DiMarco
Thomas Merk
Time Based
RSU Grants
16,165
8,663
5,133
3,529
2,567
Performance Performance Based
RSU Grants Range
(vesting dependent
upon achievement)
Based
RSU Grants
at Target
25,057
6,261
7,806
4,689
2,096
0 - 50,114
0 - 12,522
0 - 15,612
0 - 9,378
0 - 4,192
In addition to the standard time and performance-based RSUs
described above, the committee in consultation with its
independent compensation consultant determined in April
2020 that it was important during the COVID pandemic to
provide performance-based RSUs based on the Company’s
free cash flow. The committee set $40 million free cash flow
(net cash provided by operating activities reduced by
purchases of property and equipment) for fiscal year 2020 as
the target for earning these performance-based RSUs. No
vesting of such performance-based RSUs could occur unless
more than the threshold of $20 million free cash flow was
achieved. Potential vesting with respect to free cash flow
above the threshold $20 million free cash flow target was
linear to the target free cash flow amount.
The Company exceeded the target $40 million free cash flow
for fiscal 2020 and therefore the NEOs earned the target
performance-based RSUs as set forth below:
Named
Executive
Officer
Andy Mattes
Kevin Palatnik
Mark Sobey
Bret DiMarco
Thomas Merk
Performance-Based RSU
Grants Tied to Free
Cash Flow at Target
3,588
1,615
1,583
1,300
1,066
Equity Award Practices
the
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
first committee meeting after beginning
equity at
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. No option grants have been made to an employee
since fiscal 2010.
46
Compensation Discussion and Analysis
In fiscal 2020 the committee and the Equity Committee
granted an aggregate of 403,689 shares subject
to
time-based and performance-based restricted stock units (at
maximum), representing approximately 1.66% of Coherent’s
outstanding common stock as of October 3, 2020 (excluding
automatic and initial grants to directors). With the assistance
of Compensia, the committee has reviewed this burn rate
relative to peer practices and proxy advisory firm guidance
and found that the total dilution was consistent with the
median of peer practices and such guidance.
We provide no matching or other additional contributions to
such Deferred Compensation Plan. Plan participants may
designate investments for 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
‘‘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.
investment alternatives be
CEO and Executive Minimum Stock Ownership
Guidelines
The committee adopted mandatory stock ownership
guidelines for our CEO during fiscal 2012. During the first
quarter of fiscal 2018, the committee adopted enhanced stock
ownership guidelines increasing the value of shares our CEO
must hold to at least five times base salary and making our
Executive Vice Presidents and Senior Vice Presidents
reporting to the CEO subject to stock ownership guidelines of
one times such individual’s base salary. In the event that our
CEO or other officer does not satisfy
the minimum
requirements,
the net after-tax shares
(e.g., exercised options/shares received on the vesting of
RSUs) are required to be held until the guidelines are met.
Mr. Mattes has until 2025 to meet the minimum stock
ownership guidelines. Our other current NEOs exceeded the
minimum stock ownership guidelines as of December 31,
2020.
then 50% of
Other Benefits
Retirement Plans
U.S. based 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 intended to be 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 NEOs).
We maintain a Deferred Compensation Plan for certain
employees 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
to
Deferred Compensation Plan permits participants
contribute, on a pre-tax basis, up to 75% of their base salary
earnings, up to 100% of their cash bonus pay and up to 100%
of directors’ annual retainer earned in the upcoming plan year.
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 that is comparable to and competitive with
what is offered by our peer group of companies.
Employee Stock Purchase Plan
Our stockholders have approved an employee stock purchase
plan whereby employees can purchase shares for a discount,
subject to various participation limitations. As employees, our
NEOs are eligible to participate in this plan.
Severance and Change of Control Arrangements
Our Change of Control and Leadership Change Severance
Plan (the ‘‘Change of Control Plan’’) provides certain benefits
in the event of a change of control of Coherent for certain
executives, including each of our NEOs. Benefits are provided
if there is a change in ownership of Coherent, a change in
effective control of Coherent, or a change in ownership of a
substantial portion of Coherent’s assets (in each case as
construed under Section 409A of the Internal Revenue Code
and the regulations thereunder) (a ‘‘change of control’’) and
within two years thereafter (or within two months prior thereto)
the participant’s employment is terminated without cause or
voluntarily terminates following a constructive termination
event. The plan’s provisions are, therefore, of the variety
commonly referred to as ‘‘double-trigger.’’ Importantly, the
plan does not include any ‘‘gross up’’ provisions for the
participants for the tax effects caused by any such benefits.
The committee believes the Change of Control Plan serves as
an important retention tool in the event of a pending change of
control transaction.
In the first quarter of fiscal 2019, the committee reviewed and
adopted substantially the same Change of Control Plan as
adopted four years previously and determined to review the
plan again in four years. Compensia assisted the committee in
its review and analysis of the Change of Control Plan. The
committee believes that reviewing the Change of Control Plan
every four years allows for the right balance in providing
47
Compensation Discussion and Analysis
certainty for the participants while providing the committee
with the opportunity to revise the plan consistent with
corporate governance best practices, evolving peer group
practices and regulatory changes.
to
related
In addition, in connection with the succession planning
process
the Company’s announcement of
Mr. Ambroseo’s intention to retire as our President and CEO,
the Company’s Change of Control Plan was amended in fiscal
2019 to include a time-limited severance benefit for those
Executive Vice Presidents and Senior Vice Presidents
reporting directly to Mr. Ambroseo at the time of his
announcement if their employment is terminated without
cause or they terminate for good reason within the two-year
period after the new CEO was appointed, which was April 6,
2020. The severance benefit includes 18 months of base and
bonus pay, an 18-month benefit stipend, 24 months of
additional vesting credit for equity awards and a pro rata
annual incentive for the year of termination. The Board
believed that it was in the best interests of stockholders and
the Company to adopt this change to reinforce continuity
during a time of transition. As described in ‘‘Potential
Payments Upon Termination or Change of Control’’ below,
one NEO who is transitioning will be receiving severance in
accordance with such transition severance benefits.
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 determination of the
NEOs’ total direct compensation for a specific year.
Tax and Accounting Considerations
Accounting for Stock-Based Compensation—We account for
the
stock-based compensation
requirements of ASC 718. We also take into consideration
ASC 718 and other generally accepted accounting principles
in determining changes to policies and practices for our stock-
based compensation programs.
in accordance with
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’’
the
requirements of Section 409A. We consider Section 409A in
the design and operation of any plans.
that does not satisfy
Other Compensation Policies
To further align our executive compensation program with the
interests of our stockholders, at the end of fiscal 2009, a
committee of the Board approved a clawback policy for our
CEO and CFO. This clawback policy provided 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 CEO or
CFO and it caused material noncompliance with any financial
reporting
seek
disgorgement of any portion of the bonus or other incentive or
to such accounting
equity-based compensation related
restatement received by such individual during the 12-month
period following the originally filed financial document.
then Coherent
requirement,
shall
recommended a new policy to the Board, which the Board
adopted in fiscal 2020. The new clawback policy expands
potential
incentive
recoupment of cash and equity
compensation to include all NEOs, as well as all employees of
the Company holding the title of Senior Vice President or
higher who report directly to our CEO. The new policy allows
for the committee to recoup excess incentive compensation
from such covered individuals in the event of a restatement of
the Company’s financial results if the committee determines
that during the three-years prior to such restatement the
covered individuals would have received less incentive
compensation if it had been calculated based on the restated
financials.
As disclosed in the Company’s fiscal 2019 proxy statement,
the committee reviewed the Company’s existing clawback
policy during fiscal 2019 and, as a result of that review,
In addition, under our Insider Trading Policy, we have
established a policy with respect to hedging or pledging
Coherent securities.
48
Compensation Discussion and Analysis
Compensation and HR Committee Report
The Compensation and HR Committee of the Board has reviewed and discussed 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
HR Committee recommended to the Board that the Compensation Discussion and Analysis be included in this proxy statement.
Respectfully submitted by the Compensation and HR Committee
Sandeep Vij, Chair
Jay Flatley
Pamela Fletcher
Michael McMullen
RECONCILIATION TABLE—NON-GAAP EARNINGS PER SHARE FROM CONTINUING OPERATIONS
GAAP NET INCOME (LOSS) PER DILUTED SHARE FROM CONTINUING
OPERATIONS
Stock-based compensation
Amortization of intangible assets
Restructuring charges and other
Non-recurring tax expense (benefit)
Costs related to acquisitions
Goodwill and other impairment/asset charges (recoveries)
Purchase accounting step up
Fiscal Year
2020
2019
2018
$
(17.18) $
1.61
0.90
0.12
(0.01)
—
17.56
—
$
2.22
1.30
1.81
0.66
(0.04)
—
(0.04)
0.01
9.95
1.11
1.72
0.12
0.66
0.03
0.03
0.02
NON-GAAP NET INCOME PER DILUTED SHARE FROM CONTINUING
OPERATIONS
$
3.00
$
5.92
$
13.64
RECONCILIATION TABLE—ADJUSTED EBITDA
(in millions)
GAAP NET INCOME (LOSS) FROM CONTINUING OPERATIONS
Income tax expense
Interest and other income (expense), net
Depreciation and amortization
Costs related to acquisitions
Restructuring charges and other
Goodwill and other impairment/asset charges (recoveries)
Stock-based compensation
Purchase accounting step up
Fiscal Year
2019
2020
$
(414.1) $
(28.6)
18.9
76.8
—
3.6
449.7
44.8
—
$
53.8
6.2
24.4
116.4
—
22.7
(1.3)
36.5
0.4
2018
247.4
114.2
36.5
113.4
0.7
3.9
0.8
32.7
0.8
ADJUSTED EBITDA
$
151.1
$
259.1
$
550.4
49
Compensation Discussion and Analysis
Compensation Committee Interlocks and Insider Participation
During fiscal 2020, the Compensation and HR Committee of the Board consisted of directors Vij (Chair), Flatley, Fletcher, and
McMullen. None of the members of the committee has been or is an officer or employee of Coherent. None of our executive
officers serve on the board of directors or compensation committee of a company that has an executive officer that serves on our
Board or Compensation and HR 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.
Committee Independence
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’’ as defined in Rule 16b-3 under the Exchange Act, and (iii) an ‘‘independent outside
director’’ as that term is defined by Institutional Shareholder Services.
50
SUMMARY COMPENSATION AND EQUITY TABLES
Fiscal 2020 Summary Compensation Table
The table below presents information concerning the total compensation of our NEOs for the fiscal years ended October 3, 2020,
September 28, 2019 and September 29, 2018.
Name and Principal Position
Fiscal
Year
Salary
($)(1)
Bonus
($)(2)
Non-Equity
Stock Incentive Plan
All Other
Awards Compensation Compensation
($)(5)
($)(3)
($)(4)
Total
($)
Andy Mattes,
2020
375,967 500,000 5,713,268
170,003
5,600 6,764,838
President and Chief Executive Officer(6)
John Ambroseo,
Former President and
Chief Executive Officer(7)
Kevin Palatnik,
Executive Vice President
and Chief Financial Officer(8)
Mark Sobey,
Executive Vice President
and Chief Operating Officer
Bret DiMarco,
Executive Vice President,
Chief Legal Officer and
Corporate Secretary
2020
2019
2018
2020
2019
2018
2020
2019
2018
2020
2019
2018
825,011
820,203
800,010
507,132
484,439
438,083
477,604
445,200
420,390
432,311
398,081
387,116
599,881
0
0 4,056,096
0 7,867,051
0 2,641,428
0 1,247,657
0 1,568,031
0 2,287,515
0 2,702,495
0 1,463,443
0 1,504,001
0 2,507,454
0 1,149,941
0
0
853,885
0
0
306,283
0
0
276,121
0
0
235,280
11,348 1,436,240
11,146 4,887,445
10,946 9,531,892
11,348 3,159,908
11,146 1,743,242
10,946 2,323,343
11,348 2,776,467
11,146 3,158,841
10,946 2,170,900
11,348 1,947,660
11,146 2,916,681
10,946 1,783,283
Thomas Merk,
2020
402,531
0
926,352
0
15,994 1,344,877
Former Executive Vice President and
General Manager, Industrial Lasers &
Systems(9)
(1) Reflects the dollar amount of salary earned in the applicable fiscal year.
(2) Reflects Mr. Mattes’ signing bonus which is subject to repayment to the Company if within the first year of Mr. Mattes’ employment,
he terminates employment without good reason or the Company terminates his employment for cause.
(3) Amounts shown reflect the grant date fair value of awards granted in accordance with Financial Accounting Standards Board
(FASB) Accounting Standards Codification (ASC) Topic 718. Reflects unvested time-based and performance-based restricted stock
units; there is no guarantee that the recipients will ultimately receive this amount, or any amount. See footnote 2 to the Grants of
Plan-Based Awards table for additional information. Amounts in this column may not equal the sum of the awards included in the
Grants of Plan-Based Awards table due to rounding. No stock options were granted to the NEOs in fiscal years 2020, 2019 and
2018.
(4) Reflects the dollar amounts earned under the Variable Compensation Plan (VCP) during the applicable fiscal years.
(5) Reflects a 401(k) company match earned during the applicable fiscal year for Messrs. Mattes, Ambroseo, Palatnik, Sobey, and
DiMarco. For Mr. Merk, reflects a car lease benefit, which is customary in Europe and was historically provided by Rofin-Sinar.
(6) Mr. Mattes joined the Company as our President and Chief Executive Officer effective April 6, 2020.
(7) Effective April 6, 2020, Mr. Ambroseo retired from the role of the Company’s President and Chief Executive Officer.
(8) As previously noted, on August 20, 2020, the Company and Mr. Palatnik entered into an executive transition services agreement,
pursuant to which Mr. Palatnik was to retire from the Company on February 28, 2021. On January 19, 2021 the Company
announced the termination of such agreement and that Mr. Palatnik would remain in his current position.
(9) Mr. Merk met the requirements for inclusion in the Summary Compensation Table for fiscal year 2020; however, Mr. Merk resigned
from his officer position in October 2020. Mr. Merk was paid in Euros. For the purposes of this table, Euros were converted into US
dollars using the Company’s internal average P&L rate (1 Euro = $1.118142) for fiscal year 2020.
51
Summary Compensation and Equity Tables
Grants of Plan-Based Awards in Fiscal 2020
The following table shows all plan-based equity and non-equity incentive awards granted to our NEOs during fiscal 2020. Our
NEOs did not receive any option awards during fiscal 2020.
Estimated Future Payouts
Under Non-Equity Incentive
Plan Awards
Actual
Payouts
Under
Non-Equity
Incentive
Estimated Future Payouts
Under Equity Incentive
Plan Awards
Type Grant Date
Threshold
($)
Target Maximum Plan Awards Threshold
($)
($)(1)
($)
($)
Target Maximum
($)
($)
Name
Andy Mattes
PRSU
PRSU
RSU
Annual bonus
John Ambroseo RSU
Kevin Palatnik
Mark Sobey
Bret DiMarco
Thomas Merk
RSU
RSU
Annual bonus
PRSU
PRSU
PRSU
RSU
RSU
Annual bonus
PRSU
PRSU
PRSU
RSU
Annual bonus
PRSU
PRSU
PRSU
RSU
Annual bonus
PRSU
PRSU
RSU
04/17/2020
04/25/2020
04/17/2020
11/15/2019
12/29/2019
04/05/2020
11/15/2019
04/17/2020
04/25/2020
11/15/2019
11/15/2019
11/15/2019
04/17/2020
04/25/2020
11/15/2019
11/15/2019
04/17/2020
04/25/2020
11/15/2019
11/15/2019
04/25/2020
11/15/2019
0 1,020,015 1,870,028
170,003
0
825,011 1,650,022
0
382,512
765,024
0
375,008
750,017
0
308,002
616,004
0
0
0
0
0
All Other
Stock
Awards:
# of
Shares of
Stock or
Units
(#)
Grant
Date Fair
Value
($)(2)
3,466,636
424,999
16,165 1,821,633
1,283
1,206
2,146
3,209
5,454
199,943
199,931
200,007
850,090
249,999
191,297
500,091
849,951
800,085
499,997
187,506
5,133
799,927
550,058
249,999
153,985
3,529
549,959
400,043
126,268
2,567
400,041
0 25,057
0
3,588
50,114
3,588
0
0
0
0
0
0
0
0
0
0
0
4,454
1,807
1,615
8,908
3,614
1,615
4,192
3,614
1,583
2,882
1,807
1,300
8,384
7,228
1,583
5,764
3,614
1,300
2,096
1,066
4,192
1,066
Annual bonus
0
261,645
523,290
(1)
Failure to meet a minimum level of performance resulted in no bonus paid out under the 2020 Variable Compensation Plan. For the 2020 fiscal year, under the
terms of Mr. Mattes’ employment agreement, target bonus equal to 100% of his full annual base salary was based on VCP metrics, which were not met. Target
bonus equal to 20% of his full annual base salary was based on individual goals (with a maximum award of 20%). These individual goals were met, resulting in
an individual bonus payment of $170,003.
(2) Reflects the dollar amount recognized for financial statement reporting purposes (disregarding an estimate of forfeitures related to service-based vesting
conditions) for fiscal 2020 in accordance with ASC 718, and includes grants made in fiscal 2020. The assumptions used in the valuation of these awards are set
forth in Note 12 ‘‘Employee Stock Award and Benefit Plans’’ of the Notes to the Consolidated Financial Statements in our annual report on Form 10-K for fiscal
2020, filed with the SEC on December 1, 2020. For informational purposes, if the maximum level of performance for the PRSU awards was achieved, the
value, calculated by multiplying the closing price of the Company’s common stock on the date of grant by the number of shares issuable upon achievement of
the maximum level of performance under (i) the PRSU granted on November 15, 2019 is $1,388,223, $1,306,566, $898,262 and $653,281, for
Messrs. Palatnik, Sobey, DiMarco and Merk, respectively; and (ii) the PRSU granted on April 17, 2020 is $5,647,347, $407,262, $814,523 and $407,262, for
Messrs. Mattes, Palatnik, Sobey and DiMarco, respectively. These amounts do not correspond to the actual value, if any, that will be recognized by the NEOs.
See ‘‘Compensation Discussion and Analysis—Equity Awards’’ for a description of the PRSUs.
52
Summary Compensation and Equity Tables
Option Exercises and Stock Vested in Fiscal 2020
The table below sets forth certain information for each NEO regarding the exercise of options and the vesting of stock awards
during fiscal 2020, including the aggregate value realized upon such exercise or vesting.
Name
Andy Mattes
John Ambroseo
Kevin Palatnik
Mark Sobey
Bret DiMarco
Thomas Merk
Option Awards
Stock Awards
Number of
Shares
Acquired on
Exercise (#)
Value Realized
on Exercise ($)
Number of
Shares
Acquired on
Vesting (#)(1)
Value Realized
on Vesting ($)(2)
—
—
—
—
—
—
—
—
—
—
—
—
3,588
57,985
12,604
11,746
10,016
8,162
394,680
8,911,463
1,888,237
1,756,664
1,500,267
1,223,583
(1)
Includes 3,588, 1,615, 1,583, 1,300 and 1,066 shares for Messrs. Mattes, Palatnik, Sobey, DiMarco and Merk, respectively,
that vested on October 3, 2020 as a result of fiscal 2020 free cash flow performance. Such shares were settled on
December 1, 2020, upon the performance metric being certified by the Compensation and HR Committee based on
numbers set forth in our annual report on Form 10-K for fiscal 2020, filed with the SEC on December 1, 2020.
(2) Reflects the market price of our common stock on the vesting date.
53
Summary Compensation and Equity Tables
Outstanding Equity Awards at Fiscal 2020 Year-End
The following table presents information concerning outstanding equity awards held by each NEO as of October 3, 2020.
Option Awards
Stock Awards
Number of
Securities
Underlying
Unexercised
Options (#)
exercisable unexercisable Price ($)
Number of
Securities
Underlying
Unexercised
Option
Option
Options (#) Exercise Expiration
Units of
Stock That
Have Not
Date Vested (#)(1)
Number of Market Value
Shares or of Shares or
Units of
Equity
Incentive
Plan Awards:
Market or
Payout Value
of Unearned
Shares, Units
Stock That or Other Rights or Other Rights
That Have
That Have
Not Vested ($)
Not Vested (#)
Equity
Incentive
Plan Awards:
Number of
Unearned
Shares, Units
Have Not
Vested ($)(2)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
50,114(3)
5,512,540
16,165
1,778,150
—
—
—
7,648
—
2,497
—
—
3,209
5,454
—
3,514
—
999
—
—
—
841,280
—
274,670
—
—
352,990
599,940
—
386,540
—
109,890
—
—
5,133
564,630
11,062
1,216,820
—
2,745
—
932
—
—
—
301,950
—
102,520
—
—
3,529
388,190
11,062
1,216,820
—
2,196
—
732
—
2,567
—
1,757
—
666
—
241,560
—
80,520
—
282,370
—
193,070
—
73,260
44,998(4)
4,949,780
—
—
37,582(5)
4,134,020
—
3,614(3)
8,908(6)
—
—
—
397,540
979,880
—
—
10,184(4)
1,120,240
—
5,010(5)
—
7,228(3)
8,384(6)
—
—
7,956(4)
—
4,676(5)
—
3,614(3)
5,764(6)
—
—
6,364(4)
—
3,674(5)
—
4,192(6)
—
5,092(4)
—
3,340(5)
—
—
551,100
—
795,080
922,240
—
—
875,160
—
514,360
—
397,540
634,040
—
—
700,040
—
404,140
—
461,120
—
560,120
—
367,400
—
Name
Andy Mattes
Grant Date
04/17/2020
04/17/2020
John Ambroseo
11/13/2018
11/13/2018
11/03/2017
11/03/2017
Kevin Palatnik
04/17/2020
Mark Sobey
Bret DiMarco
11/15/2019
11/15/2019
11/15/2019
11/13/2018
11/13/2018
11/03/2017
11/03/2017
04/17/2020
11/15/2019
11/15/2019
04/12/2019
11/13/2018
11/13/2018
11/03/2017
11/03/2017
04/17/2020
11/15/2019
11/15/2019
04/12/2019
11/13/2018
11/13/2018
11/03/2017
11/03/2017
Thomas Merk
11/15/2019
11/15/2019
11/13/2018
11/13/2018
11/03/2017
11/03/2017
(1) Generally, time-based RSU grants vest 1⁄3 per year on each anniversary of the grant date. Mr. Palatnik’s 3,209 time-based RSUs granted on
November 15, 2019 have a November 15, 2021 vest date, and Messrs. Sobey and DiMarco’s 11,062 time-based RSUs granted on April 12, 2019
have an April 12, 2022 vest date. Mr. Merk will vest in certain time-based RSUs that would otherwise vest within 24 months of his employment
termination in accordance with the Leadership Change severance benefits under the Company’s Change of Control and Leadership Change
Severance Plan as described in ‘‘Potential Payments Upon Termination or Change of Control’’ below.
(2) Market value is determined by multiplying the number of shares by $110.00, the closing price of our common stock on October 2, 2020, the last
trading day of fiscal 2020.
54
Summary Compensation and Equity Tables
(3) The performance-based RSU vesting determination date is April 6, 2023. The performance-based RSUs will vest in an amount which is 0-200%
subject to the achievement of certain performance metrics. The amount reflected in the table is the maximum amount of 200%.
(4) The performance-based RSU vesting determination date is November 13, 2021. The performance-based RSUs will vest in an amount which is
0-200% subject to the achievement of certain performance metrics. The amount reflected in the table is the maximum amount of 200%.
(5) The performance-based RSU vesting determination date was November 3, 2020. The performance-based RSUs could have vested in an amount
which is 0-200% subject to the achievement of certain performance metrics. The amount reflected in the table is the maximum amount of 200%;
however, such performance-based RSUs did not vest since the performance metric was not achieved.
(6) The performance-based RSU vesting determination date is November 15, 2022. The performance-based RSUs will vest in an amount which is
0-200% subject to the achievement of certain performance metrics. The amount reflected in the table is the maximum amount of 200%.
Fiscal 2020 Non-Qualified Deferred Compensation
For a description of our Deferred Compensation Plan, see ‘‘Compensation Discussion and Analysis—Retirement Plans.’’ The
following table presents information regarding the non-qualified deferred compensation activity for each NEO during fiscal 2020
other than Mr. Merk who does not participate in our Deferred Compensation Plan:
Name
Andy Mattes
John Ambroseo
SRP(4)
Kevin Palatnik
Mark Sobey
Bret DiMarco
Executive
Registrant
Contributions Contributions
in Last FY
($)(2)
in Last FY
($)(1)
Aggregate
Aggregate
Earnings in Withdrawals/
Last FY Distributions
($)
($)
78,463
—
—
—
—
—
—
—
—
—
—
—
4,348
1,641,326
303,012
54,233
20,459
5,611
—
—
—
—
(17,185)
—
Aggregate
Balance at
Last FYE
($)(3)
82,811
14,549,955
2,549,962
842,600
1,949,189
175,299
(1) All amounts reported as executive contributions are executive elective deferrals included in the Fiscal 2020 Summary
Compensation Table, as salary for fiscal 2020.
(2) Company contributions to our Deferred Compensation Plan were terminated on December 31, 2010.
(3) 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. The balance reflects contributions previously reported in the
Summary Compensation Table to the extent the executive was a Named Executive Officer at the time of such contributions.
(4) Amounts include account balances (including earnings) from the Supplementary Retirement Plan (SRP), which was suspended on
December 31, 2004. The Deferred Compensation Plan is the only current non-qualified deferred compensation plan available for
executive management.
55
Summary Compensation and Equity Tables
Potential Payments Upon Termination or Change of Control
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 our current executive officers pursuant to the terms of the Change of Control and Leadership
Change Severance Plan and our CEO’s employment agreement. For purposes of this table, it is assumed that such NEO’s
employment terminated at the close of business on October 2, 2020 (the last business day of fiscal 2020). These payments are
conditioned upon the execution of a form release of claims by the NEO in favor of us. The amounts reported below do not include
the nonqualified deferred compensation distributions that would be made to the NEOs following a termination of employment (for
those amounts and descriptions, see the prior table) nor amounts that were earned as of the end of fiscal 2020. 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, or 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. These are aggregate payments and do not reflect such individual’s net after tax benefit. No officer is entitled to
any ‘‘gross up’’ to offset the impact of IRS Code Section 280G.
NEO
Andy Mattes
Kevin Palatnik
Mark Sobey
Bret DiMarco
Nature of Benefit
Salary Severance(1)
Bonus Severance(1)
Time-Based Equity Compensation Acceleration(2)
Performance-Based Equity Compensation Acceleration
Aggregate Healthcare Related Monthly Payment(3)
TOTAL BENEFIT
Salary Severance(1)
Bonus Severance(1)
Time-Based Equity Compensation Acceleration(2)
Performance-Based Equity Compensation Acceleration
Aggregate Healthcare Related Monthly Payment(3)
TOTAL BENEFIT
Salary Severance(1)
Bonus Severance(1)
Time-Based Equity Compensation Acceleration(2)
Performance-Based Equity Compensation Acceleration
Aggregate Healthcare Related Monthly Payment(3)
TOTAL BENEFIT
Salary Severance(1)
Bonus Severance(1)
Time-Based Equity Compensation Acceleration(2)
Performance-Based Equity Compensation Acceleration
Aggregate Healthcare Related Monthly Payment(3)
TOTAL BENEFIT
Termination
Other Than for
Change of
Control or
Leadership
Change
($)
Leadership
Change
Termination
($)
Change of
Control
Termination
($)
1,700,026
2,040,031
—
—
49,500
3,789,557
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2,541,538
—
3,049,846
—
1,778,150
—
2,756,270
99,000
—
— 10,224,804
1,020,032
765,024
1,449,360
1,248,830
66,000
4,549,246
1,000,022
750,017
2,185,920
1,296,240
66,000
5,298,199
880,006
616,004
1,927,090
865,810
66,000
4,354,910
765,024
573,768
1,249,380
1,202,092
49,500
3,839,764
750,017
562,513
1,997,783
1,217,174
49,500
4,576,987
660,005
462,003
1,797,767
823,876
49,500
3,793,151
(1) Reflects salary as in effect as of October 2, 2020. Bonus severance is based on target bonus as a percentage of salary as in
effect as of October 2, 2020. The multiplier for a Change of Control Termination is 2.99 for the CEO and 2.0 for other NEOs.
The multiplier for a Leadership Change Termination is 1.5. Note that for purposes of this table, the Company used actual
salary rate in the payroll system, which due to rounding is immaterially different than the annual rate described (e.g. with
regards to Mr. Mattes, the difference is approximately $13).
56
Summary Compensation and Equity Tables
(2) Equity Compensation Acceleration represents the value of time-based restricted stock units and performance-based
restricted stock units, in each case at the closing stock price ($110.00) on October 2, 2020 (the last trading day of fiscal year
2020) that would become vested because of a termination of employment on October 2, 2020 assuming a Change in
Control or Leadership Change. 100% of the time-based restricted stock units with respect to a Change of Control
termination and those time-based restricted stock units that would vest within 24 months after the Leadership Change
termination are accelerated. The value of accelerated restricted stock units is calculated by multiplying the number of
unvested restricted stock units subject to acceleration by the closing stock price on October 2, 2020. This assumes vesting
of the performance-based restricted stock units with a performance period ending in November 2021 and November 2022
at target achievement and in the event of a Leadership Change Termination, pro rata vesting of such restricted stock units
with a performance period ending November 2022 reflecting an additional 24 month period after employment. The amounts
reflected for Equity Compensation Acceleration do not reflect any value for the performance-based restricted stock units
with a performance period ending in November 2020 since the performance goal for those units was not met and, therefore,
no units vested. The amounts reflected for Equity Compensation Acceleration do not reflect any applicable taxes, just gross
proceeds. Since the table assumes a triggering event as of the last business day of the fiscal year, only those restricted
stock units outstanding to which the executives did not have a right as of that date are included in the table.
(3) Aggregate Healthcare Related 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, multiplied by 36 months for our CEO and for our
other NEOs, 24 months in a Change of Control termination or 18 months in a Leadership Change termination.
John Ambroseo retired from his role as President and CEO and a member of the Board, effective April 6, 2020. Upon his
retirement, Mr. Ambroseo transitioned to the role of a Special Advisor to the Company. This transition was effected pursuant to a
transition and retirement agreement that was entered into by Mr. Ambroseo and the Company in April 2019. The transition and
retirement agreement provides for continuation of Mr. Ambroseo’s employment through December 1, 2021, with a continuation of
his base salary at $68,750 per month through April 13, 2021 and a base salary of $10,000 per month thereafter through
December 1, 2021, continued vesting in outstanding equity awards through December 1, 2021 and eligibility for Change in
Control benefits under the Company’s Change of Control and Leadership Change Severance Plan as though he continued as
Chief Executive Officer if a Change of Control occurs before his retirement date. If a Change of Control and termination of
employment occurred on October 2, 2020, Mr. Ambroseo would have been entitled to salary severance of $2,466,783, bonus
severance of $2,466,783, equity compensation acceleration of $1,115,950 in time-based restricted stock units and $2,474,890 in
performance-based restricted stock units (assuming target performance and the October 2, 2020 stock price) and aggregate
health care related monthly payments of $99,000 for a total value of $8,623,406.
On August 20, 2020, the Company and Kevin Palatnik, entered into an executive transition services agreement, pursuant to
which Mr. Palatnik was to retire from the Company on February 28, 2021. The executive transition services agreement provided
that Mr. Palatnik was to transition to a special advisor to the Company in connection with the appointment of a successor Chief
Financial Officer. Under the executive transition services agreement, Mr. Palatnik would have received the ‘‘Change in
Leadership Severance Benefits’’ but not the ‘‘Change of Control Severance Benefits’’ under the Company’s Change of Control
and Leadership Change Severance Plan, subject to the requirements thereof to provide an effective release. Mr. Palatnik’s
‘‘Change in Leadership Severance Benefits’’ (determined as of October 2, 2020) are set forth in the table above. As previously
noted, the Company and Mr. Palatnik terminated the executive transition services agreement on January 18, 2021. Therefore, the
table above also sets forth Mr. Palatnik’s ‘‘Change of Control Severance Benefits’’ (determined as of October 2, 2020) under the
Company’s Change of Control and Leadership Change Severance Plan even though Mr. Palatnik would not have been eligible for
such benefits while his executive transition services agreement was in effect.
The Company and Thomas Merk entered into a termination agreement pursuant to which Mr. Merk resigned from his officer
position in October 2020 and terminated all employment relationships with the Company effective December 31, 2020. Under the
termination agreement, Mr. Merk will basically receive the ‘‘Change in Leadership Severance Benefits’’ under the Company’s
Change of Control and Leadership Change Severance Plan in severance and compensation for the period after his officer
resignation, subject to the requirements thereof to provide an effective release. Mr. Merk’s ‘‘Change in Leadership Severance
Benefits’’ included continued payment of his full salary through December 31, 2020, severance payment of e845,055 (valued at
$990,286 using an October 2, 2020 currency conversion rate of 1 Euro = $1.17186) and vesting of the 2,589 time-based restricted
57
Summary Compensation and Equity Tables
stock units which were scheduled to vest within the 24 month period after his termination of employment (valued at $284,790
based on the October 2, 2020 stock price) and the continued ability to earn performance-based restricted stock units based on
actual Company performance during the performance period ending November 13, 2021 (target of 2,546 performance-based
restricted stock units valued at $280,060 based on the October 2, 2020 stock price) and performance-based restricted stock units
based on actual Company performance for the performance period ending November 15, 2021 (target of 2,096 performance-
based restricted stock units valued at $230,560 based on the October 2, 2020 stock price).
58
PAY RATIO
As provided for by the Dodd-Frank Wall Street Reform and
Consumer Protection Act, the SEC adopted a rule requiring
companies to disclose the ratio of the median employee’s total
annual compensation relative to total annual compensation of
the CEO. The fiscal 2020 total annualized compensation for
our CEO, for purposes of this disclosure, as discussed below,
was $7,244,632. We estimate that the fiscal 2020 total annual
compensation for the median of all employees, excluding our
CEO, was $67,064. The resulting ratio of our CEO’s total
annual compensation to that of the median of all employees,
excluding our CEO, for fiscal 2020 is approximately 108 to 1.
For purposes of reporting annual total compensation and the
ratio of annual total compensation of the CEO to the median
employee, both the CEO and median employee’s annual total
compensation were calculated consistent with the disclosure
requirements of executive compensation under the Summary
Compensation Table.
For fiscal year 2020, the total compensation reported in the
‘‘Total’’ column of the Summary Compensation Table for our
Chief Executive Officer, Mr. Mattes, was $6,764,838. Since
Mr. Mattes was appointed Chief Executive Officer effective
April 6, 2020, we annualized his Salary, Non-Equity Incentive
Plan Compensation and Company contributions to the 401(k)
Retirement Plan, disclosed in the Fiscal 2020 Summary
Compensation Table, and added the values set forth in the
Fiscal 2020 Summary Compensation Table of his Bonus,
Stock Awards, and other components of All Other
Compensation to arrive at a value of $7,244,632, used for the
ratio of annual total compensation for our CEO to the annual
total compensation for our median employee.
We identified the median employee by (i) aggregating for each
employee employed on October 3, 2020 (our fiscal year end)
(A) annual base salary for salaried employees (or hourly rate
multiplied by estimated work schedule, for hourly and
seasonal employees) and (B) target incentive compensation,
(ii) converting amounts from local currency to U.S. dollars and
(iii) ranking this compensation measure for our employees
other than our CEO from lowest to highest. Because we had
an even number of employees (excluding our CEO) on the
determination date, two employees were identified as the
median compensated employees. We
the
compensation of these two employees as well as the
compensation of five employees immediately above and
below, to further analyze employee median compensation for
consistency with that of other employees near the median. For
total annual
these
the same
compensation
methodology used to calculate the ‘‘Total’’ column of the
Fiscal 2020 Summary Compensation Table. We then selected
from among the two median compensated employees, a
United States employee whose compensation was consistent
with that of the twelve employees reviewed.
twelve employees, we calculated
for such employees using
reviewed
The pay ratio reported above is a reasonable estimate
calculated in a manner consistent with SEC rules based on
our internal records and the methodology described above.
The SEC rules for identifying the median compensated
employee and calculating the pay ratio based on that
employee’s total annual compensation allow companies to
adopt a variety of methodologies, to apply certain exclusions,
and to make reasonable estimates and assumptions that
their employee populations and compensation
reflect
the pay ratio reported by other
practices. Therefore,
companies may not be comparable to the pay ratio reported
above, as other companies have different employee
populations and compensation practices and may utilize
different methodologies, exclusions, estimates, and
assumptions in calculating their own pay ratios.
59
CERTAIN RELATIONSHIPS AND RELATED PERSON
TRANSACTIONS
Review, Approval or Ratification of Related Person Transactions
In accordance with the charter of the Audit Committee, 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.
60
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, including reviewing and approving the
fees for the performance of the audit by our independent
auditors. 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 ten (10) times during fiscal 2020. In
the course of these meetings, the Audit Committee met with
management, the internal auditors and our independent
registered public accounting firm and reviewed the results of
the internal and external audit examinations, evaluations of
our internal controls and the overall quality of our financial
reporting.
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 2020, including the fees to be paid for their audit
work, 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 the applicable requirements of the Public
Company Accounting Oversight Board (PCAOB) and the
Commission, 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 the Audit Committee concerning independence.
the
internal auditors and
The Audit Committee believes that a candid, substantive and
focused dialogue with
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 internal auditors and the independent auditors,
without 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
reporting,
Management has reviewed and discussed the audited
financial statements for fiscal 2020 with the Audit Committee,
including a discussion of the quality and acceptability of the
financial
reasonableness of 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.
• Are there any significant accounting judgments, estimates
or adjustments made by management in preparing the
financial statements that would have been made differently
had
themselves prepared and been
responsible for the financial statements;
the auditors
• 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 period in
accordance with generally accepted accounting principles
and SEC disclosure requirements;
• Based on the auditors’ experience, and their knowledge of
our business, have we implemented internal controls and
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 3, 2020, for
filing with the SEC.
Respectfully submitted by the Audit Committee.
Steve Skaggs, Chair
Beverly Kay Matthews
Garry Rogerson
61
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 Proxy to vote the shares they represent as the Board may recommend.
Dated: March 19, 2021
By Order of the Board of Directors
30MAR202001585828
Bret DiMarco
Executive Vice President, Chief Legal Officer and
Corporate Secretary
62
APPENDIX A
COHERENT, INC.
EMPLOYEE STOCK PURCHASE PLAN
Amended and restated as of May 6, 2021
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.
2. Definitions.
‘‘Base pay’’ or ‘‘base salary’’ means regular straight-time earnings and commissions, excluding payments for overtime,
(a)
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 (or such
lesser number of hours determined by the Company) 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.
3. Eligibility.
(a) Any employee as defined in paragraph 2 who shall be employed on the date the employee’s 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 the participant’s
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 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 of 1986.
5. 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 submitting prior to the applicable offering date, the subscription agreement and any other
information required by the Company in the form and manner and in accordance with procedures designated by the
Company.
(b) Payroll deductions for a participant shall commence on the first payroll following the 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.
A-1
6. Payroll Deductions.
(a) At the time a participant files the participant’s subscription agreement, the participant 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 the participant
receives 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 the participant’s payroll deductions to the Plan as provided in paragraph 10, or may lower,
but not increase, the rate of the participant’s 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.
7. 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 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 to adjustment
as provided in paragraph 18 and provided further that such purchase will be subject to the limitations set forth in
paragraphs 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.
(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.
8. Exercise of Option. Unless a participant withdraws from the Plan as provided in paragraph 10 and subject to the limitations
set forth in paragraph 12, the participant’s 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 the participant at the applicable
option price with the applicable amount of the accumulated payroll deductions in the participant’s account. During the participant’s
lifetime, a participant’s option to purchase shares hereunder is exercisable only by the participant. Any cash remaining to the
credit of a participant’s account under the Plan after a purchase by the participant 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.
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 the participant’s option under the Plan until
the date of the issuance of the shares of the Company’s Common Stock to the participant.
10. Withdrawal; Termination of Employment.
(a) A participant may withdraw all but not less than all the payroll deductions credited to the participant’s 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 the participant’s account for the offering
from which the participant has withdrawn will be paid to the participant promptly after receipt of the participant’s notice of
withdrawal and the participant’s option for the current offering period will be automatically terminated, and no further payroll
deductions for the purchase of shares 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 the participant’s account will be returned to the participant and the
participant’s option will be automatically terminated.
(c)
In the event an employee fails to remain in the employ of the Company or its subsidiaries customarily for at least twenty
(20) hours (or such lesser number of hours determined by the Company) per week during the offering period in which the
employee is a participant, the employee will be deemed to have elected to withdraw from the Plan and the payroll deductions
credited to the employee’s account will be returned to the employee and the employee’s option terminated.
(d) A participant’s withdrawal from an offering will not have any effect upon the participant’s 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 on or after May 6, 2021 shall be 250,000 shares plus the number of shares remaining available under the Plan after the
October 31, 2020 purchase, 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
paragraph 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 relating to 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), establishment of bank or trust
accounts to hold payroll deductions, payment of interest, conversion of local currency, obligations to pay taxes, determination and
change of offering periods, establishment of separate offerings, payment procedures, requirement that shares of the Company’s
Common Stock acquired through the Plan be held by a specific broker, withholding procedures and handling of stock certificates.
14. Non-U.S. Eligible Employees. Without amending the Plan, the Company may grant options or establish other procedures
to provide benefits to non-U.S. employees of the Company and its subsidiaries (including with respect to non-U.S. employees,
those entities which the Company directly or indirectly owns 50% or more of the equity interests unless designated by the
Company as not participating in the Plan) under the Plan 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 the
Plan and shall have the authority to adopt such modifications, procedures, subplans and the like as may be necessary or
desirable (a) to comply with provisions of applicable laws or regulations or conform to the requirements to operate the Plan in a
qualified or tax or accounting advantageous manner, (b) to ensure the viability of the benefits under the Plan for eligible non-U.S.
employees, or (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 non-U.S. 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 of 1986 and not subject to the requirements
of Section 423 set forth in the Internal Revenue Code of 1986 and this Plan.
15. Transferability. Neither payroll deductions credited to 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
A-3
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.
17. Reports.
book-keeping entries. Statements of account will be available to participating employees.
Individual accounts will be maintained for each participant in the Plan. Accounts under the Plan are purely
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 by the Company (through merger, consolidation, reorganization,
recapitalization, reincorporation, 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 limits, and 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.)
(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.
19. Amendment or Termination. 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)
Increase the number of shares that may be issued under the Plan;
(b) Change the designation of the employees (or class of employees) eligible for participation in the Plan; or
(c) Require shareholder approval under applicable law or exchange requirements.
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 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 employe
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 3, 2020
or
☐ 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)
94-1622541
(I.R.S. Employer
Identification No.)
5100 Patrick Henry Drive, Santa Clara, California 95054
(Address of principal executive offices) (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
Trading Symbol
COHR
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 ☒ 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 ☐ 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 ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant
to Rule 405 of Regulation S-T (§229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was
required to submit such files.) Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and
“emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☒ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of
its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act by the registered public accounting firm that
prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of November 25, 2020, 24,439,150 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 4, 2020) of Coherent, Inc., held by nonaffiliates was approximately
$1,386,117,559. 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 a
conclusive determination for other purposes.
DOCUMENT INCORPORATED BY REFERENCE
Portions of the registrant’s Proxy Statement for the registrant’s 2021 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 3, 2020.
TABLE OF CONTENTS
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS . . . . . . . . . . . . . . . . .
RISK FACTORS SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART I
ITEM 1.
BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 1A. RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 1B. UNRESOLVED STAFF COMMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 2.
ITEM 3.
LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 4. MINE SAFETY DISCLOSURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 6.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
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6
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50
51
52
53
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CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . .
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA . . . . . . . . . . . .
ITEM 8.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE . . . . . . . . . . . . . . . . . . . . .
ITEM 9A. CONTROLS AND PROCEDURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 9B. OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE .
ITEM 11. EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
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139
139
MANAGEMENT AND RELATED STOCKHOLDER MATTERS . . . . . . . . . .
139
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND
DIRECTOR INDEPENDENCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES . . . . . . . . . . . . . . . . . . . .
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES . . . . . . . . . . . . . . . . . .
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
139
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i
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
This annual report contains certain forward-looking statements. These forward-looking statements
include, without limitation, statements relating to:
• expansion into, and financial returns from, new markets;
• maintenance and development of current and new customer relationships;
• enhancement of market position through existing or new technologies;
• timing of new product introductions and shipments;
• optimization of product mix;
• future trends in microelectronics, scientific 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;
• positioning in the marketplace and gains of market share;
• design and development of products, services and solutions;
• control of supply chain and partners;
• protection of intellectual property rights;
• compliance with environmental and safety regulations;
• net sales and operating results, including the timing and impact on fiscal 2021 revenues of recoveries
in investments;
• any potential increase in future demand in the microelectronics flat panel display market;
• the timing of any buildout of OLED manufacturing capacity;
• effect of global economic conditions, including in particular resulting from U.S. and Chinese trade
policies;
• capital spending;
• order volumes;
• fluctuations in backlog, including potential for cancellation or rescheduling of orders;
• variations in stock price;
• growth in our operations;
• trends in our revenues, particularly as a result of seasonality;
• controlling our costs;
• sufficiency and management of cash, cash equivalents and investments;
• acquisition efforts, payment methods for acquisitions and utilization of technology from our
acquisitions, and potential synergies and benefits, including completion of post-acquisition
integration and restructuring processes, in particular with respect to our acquisition of Rofin Sinar
Technologies, Inc. (“Rofin”);
• sales by geography;
• effect of legal claims;
1
• expectations regarding the payment of future dividends;
• effect of competition on our financial results;
• plans with respect to leases;
• compliance with standards;
• effect of our internal controls;
• optimization of financial results;
• repatriation of funds;
• accounting for goodwill and intangible assets, inventory valuation, warranty reserves and taxes; and
• impact from our use of financial instruments.
In addition, we include forward-looking statements under the “Our Strategy” and “Future Trends”
headings set forth below in the section titled “Business”.
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 the sections titled “Business,” “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” and “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, except to the
extent required by law.
2
RISK FACTORS SUMMARY
You should carefully consider the information set forth below in the section titled “Risk Factors”
before deciding whether to invest in our securities. Below is a summary of the principal risks associated with
an investment in our securities.
• Our business, financial condition and results of operations for fiscal year 2020 and beyond have been
and may continue to be materially adversely affected by the novel coronavirus (“COVID-19”)
pandemic and the related private and public sector responses to the pandemic.
• Our operating results and stock price have varied in the past and will continue to be subject to
fluctuations based upon numerous factors, including those discussed in the section titled “Risk
Factors” and throughout this report.
• Our dependence on sole source or limited source suppliers for some of the key components and
materials used in our products makes us susceptible to supply shortages or price fluctuations that
could adversely affect our business, particularly our ability to meet our customers’ delivery
requirements.
• 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.
• We participate in the flat panel display market, which has a relatively limited number of end
customer manufacturers. Our backlog, timing of net sales and results of operations could be negatively
impacted in the event we face any significant periods with few or no orders or our customers
reschedule or cancel orders.
• 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 net sales.
• Continued volatility in the advanced packaging and semiconductor manufacturing markets could
adversely affect our business, financial condition and results of operations.
• 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 of our products.
• We face risks associated with our worldwide operations and sales that could harm our financial
condition and results of operations.
• We depend on skilled personnel to operate our business effectively, and if we are unable to retain
existing or hire additional personnel when needed, or manage transitions among members of our
leadership team, our ability to develop and sell our products could be harmed.
• The long sales cycles for many of our products may cause us to incur significant expenses without
offsetting net sales.
• 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.
• 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.
• Our reliance on contract manufacturing and 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.
• 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.
• 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.
3
• Our future success depends on our ability to develop and successfully introduce new and enhanced
products that meet the needs of our customers.
• Our and our customers’ 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.
• We may not be able to integrate the business of Rofin or other future acquisitions successfully with
our own, realize the anticipated benefits of such acquisitions or manage our expanded operations, any
of which would adversely affect our results of operations.
• 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.
• Charges to earnings resulting from the application of the purchase method of accounting to the
Rofin acquisition may adversely affect our results of operations.
• Our increased level of indebtedness following the Rofin merger could adversely affect us, including
by decreasing our business flexibility, and will increase our borrowing costs.
• If our goodwill or intangible assets become impaired, we may be required to record a significant
charge to earnings.
• 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 impact on our ability to timely access funds.
• We are exposed to credit risk and fluctuations in the market values of our investment portfolio.
• If we are unable to protect our proprietary technology, our competitive advantage could be harmed.
• Intellectual property related claims or litigation could be costly and divert the attention of our
technical and management personnel. Adverse resolution of litigation may harm our operating results
or financial condition.
• Our information systems are subject to attacks, interruptions and failures.
• Difficulties with our enterprise resource planning 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.
• Changes in tax rates, tax liabilities or tax accounting rules could affect future results.
• Governmental regulations, including tariffs and duties, affecting the import or export of products
could negatively affect our business, financial condition and results of operations.
• 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.
• Compliance or the failure to comply with current and future environmental regulations could cause
us significant expense.
• Failure to maintain effective internal controls may cause a loss of investor confidence in the reliability
of our financial statements or cause us to delay filing our periodic reports with the SEC and
adversely affect our stock price.
• We face particular privacy, data security and data protection risks due to laws and regulations
regulating the protection or security of personal and other sensitive data.
• Violations of anti-bribery, anti-corruption, and/or international trade laws to which we are subject
could negatively affect our business, financial condition and results of operations. Allegations thereof
4
may entail significant distraction of management and allocation of resources in the investigation
and remediation thereof, which could also negatively affect our business, financial condition and
results of operations.
• Provisions of our charter documents and Delaware law, and our Change of Control and Leadership
Change Severance Plan, may have anti-takeover effects that could prevent or delay a change in
control.
5
PART I
ITEM 1. BUSINESS
GENERAL
Business Overview
We are one of the world’s leading providers of laser solutions and optics for microelectronics, life
sciences, industrial manufacturing, and scientific markets. More than a provider of lasers, we deliver
systems to the world’s leading brands, innovators, and researchers, all backed with a global service and
support network. 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 reporting segments: OEM Laser Sources (“OLS”) and Industrial Lasers &
Systems (“ILS”), based on the organizational structure of the company and how the chief operating decision
maker (“CODM”) receives and utilizes information provided to allocate resources and make decisions.
This segmentation reflects the go-to-market strategies and synergies for our broad portfolio of laser
technologies and products. While both segments deliver cost-effective, highly reliable photonics solutions,
the OLS business segment is focused on high performance laser sources and complex optical sub-systems
typically used in microelectronics manufacturing, medical diagnostics, and therapeutic applications, as well as
in scientific research. Our ILS business segment delivers high performance laser sources, sub-systems, and
tools primarily used for industrial laser materials processing, serving important end markets like automotive,
machine tools, consumer goods, and medical device manufacturing.
Income from continuing operations is the measure of profit and loss that our CODM uses to assess
performance and make decisions. Income from continuing 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 certain operating expenses to our operating
segments and we manage them 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. Our common stock is listed on the NASDAQ Global Select Market and we are a member
of the Standard & Poor’s MidCap 400 Index and the Russell 1000 Index.
Our fiscal year ends on the Saturday closest to September 30. Fiscal years 2020, 2019, and 2018 ended
on October 3, September 28, and September 29, respectively, and are referred to in this annual report as
fiscal 2020, fiscal 2019, and fiscal 2018 for convenience. Fiscal 2020 included 53 weeks and fiscal 2019 and
2018 included 52 weeks.
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.
RECENT EVENTS
Coronavirus pandemic (COVID-19)
In December 2019, COVID-19 was reported, and in January 2020, the World Health Organization
(“WHO”) declared it a Public Health Emergency of International Concern. On February 28, 2020, the
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WHO raised its assessment of the COVID-19 threat from high to very high at a global level due to the
continued increase in the number of cases and affected countries, and on March 11, 2020, the WHO
characterized COVID-19 as a pandemic. In an effort to contain COVID-19 or slow its spread, governments
around the world have enacted various measures, including orders to close all businesses not deemed
“essential,” isolate residents in their homes or places of residence, and practice social distancing at and away
from work. These actions and the global health crisis caused by COVID-19 will continue to negatively
impact global business activity, which will continue to negatively affect our revenue and results of operations.
Each of the regions where we generate a majority of our revenue including Asia, Europe, and North
America have been and will continue to be impacted by COVID-19. The timing and extent of impact related
to COVID-19 varies by country and region.
In determining the impact of the COVID-19 pandemic in relation to our net sales, we compare our
actual results to our most recently published forecast and the net sales guidance range communicated in our
quarterly earnings call. This forecast has been adjusted for known impacts to our bookings and net sales
from COVID-19 and other factors. Using this criteria, we estimate that our sales for the following fiscal
quarters were further negatively impacted by the COVID-19 pandemic: (i) for the fiscal quarter ended April 4,
2020 — $31.0 million, (ii) for the fiscal quarter ended July 4, 2020 — $9.0 million, and (iii) for the fiscal
quarter ended October 3, 2020 — an immaterial amount. The effect of COVID-19 as forecasted and as
further experienced was most significant in Asia during the quarter ended April 4, 2020 and began impacting
Europe and North America only later in the quarter ended April 4, 2020 as the virus spread globally. In
the quarter ended July 4, 2020, the global economic effect of the COVID-19 pandemic was less significant,
though continued to be high in certain regions. While we believe that COVID-19 was a partial cause of the
decline in revenue in the second quarter of fiscal 2020, we also had lower shipments related to ELA tools
in the flat panel display market and lower shipments in materials processing applications in the second quarter
of fiscal 2020 that were mostly unrelated to COVID-19.
During fiscal 2020, the global demand environment was uncertain at times given the effects of COVID-19
on many businesses, including manufacturing facilities and customer confidence around the world. While
we saw a partial recovery in order volumes in China in the latter half of March and the third quarter of fiscal
2020, this coincided with declining bookings in other regions, particularly in North America, and to a
lesser extent in Europe and other countries in Asia. In the fourth quarter of fiscal 2020, we saw global demand
recover in all regions and begin to return to a more normalized demand trend. However, we cannot predict
future resurgences of COVID-19 and the impact that it may have on future demand for our products and
services, particularly given the recently announced shutdown measures taken in certain countries in
Europe.
Currently, our major production facilities in Europe, Southeast Asia, and the United States remain
open. At all of our locations, we have transitioned from business continuity plans to return-to-operations
plans while continuing to maintain high standards of employee safety and sanitization protocols. Our Return
to Operations Plans have a phased approach with the primary focus on employee safety, with a continuing
requirement for “working from home” for other members of our workforce wherever possible. We have
vertically integrated manufacturing, and many of the components produced at certain of our facilities
supply other company facilities, are single sourced internally and are not available from third-party suppliers
(for example our semiconductor diodes are manufactured in Santa Clara, California). While we do maintain
a safety stock of critical components at our various locations, the scope, timing, and duration of various
government restrictions to address the COVID-19 pandemic could impact our internal supply chain. We have
implemented certain policy changes to help support our employees impacted by COVID-19. These measures
have and will continue to increase the cost of our operations but the magnitude and length of time of this
impact is difficult to quantify at this time and may continue to be difficult to estimate in the future. If our sales
are reduced for an extended period or if our production output falls because of government restrictions,
we may be required to reduce payroll-related costs and other expenses in the future through layoffs or
furloughs, even though we have not done so to date.
We have not experienced significant supply disruption from third-party component suppliers. However,
we continue to face some supply chain constraints primarily related to logistics, including available air cargo
space and higher freight rates. Available cargo space on flights between the U.S. and Europe, and Europe
and Asia has been and remains limited as a result of the impact from COVID-19 and government and
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business responses to it, and this has increased shipping time and costs. In addition, shipments between
countries have been more severely impacted by COVID-19 and we are experiencing delays due to additional
checks at border crossings, including within Europe and Asia. There has also been sporadic restrictions on
individual travel between certain states in the United States of America as well. Government actions related
to COVID-19 come on the heels of increasing trade tensions between the United States and China, which
may continue. We believe we have the ability to meet the near-term demand for our products, but the situation
is fluid and subject to change.
We continue to monitor the rapidly evolving conditions and circumstances as well as guidance from
international and domestic authorities, including public health authorities, and we may need to take
additional actions based on their recommendations. There is considerable uncertainty regarding the impact
on our business stemming from current measures and potential future measures that could restrict access
to our facilities, limit our manufacturing and support operations, and place restrictions on our workforce,
customers, and suppliers. The measures implemented by various authorities related to the COVID-19 outbreak
have caused us to change our business practices including those related to where employees work, the
distance between employees in our facilities, limitations on in-person meetings between employees and with
customers, suppliers, service providers, and stakeholders as well as restrictions on some shipping activities,
business travel to domestic and international locations or to attend trade shows, investor conferences and
other events. In March of 2020, we formed a COVID Steering Committee to, among other things, propose,
discuss, and implement best practices in response to COVID-19. The COVID Steering Committee meets
weekly and more often if required. All of our executive officers are members of the COVID Steering
Committee as are many key senior-level employees.
The COVID-19 pandemic has significantly increased worldwide and regional economic uncertainty
and decreased demand for our products in many markets we serve, which could continue for an unknown
period of time. In these circumstances, there may be developments outside of our control, including the length
and extent of the COVID-19 outbreak, government-imposed measures and our ability to ship as well as
install products and/or service installed products that may require us to adjust our operating plans. As such,
given the dynamic nature of this situation, we cannot estimate with certainty the future impacts of
COVID-19 on our financial condition, results of operations or cash flows. However, we do expect that it
could have an adverse impact on our revenue as well as our overall profitability and may lead to an increase
in inventory provisions, allowances for credit losses, and a volatile effective tax rate driven by changes in
the mix of earnings across our markets.
See the additional Risk Factor included in Part I-Item 1A of this annual report regarding the impact of
COVID-19.
Goodwill and other impairment charges
Based on our internal projections and the preparation of our financial statements for the quarter ended
April 4, 2020, and considering the forecasted decrease in demand due to the COVID-19 pandemic and other
factors, we believed that the fair value of our ILS reporting unit might no longer have exceeded its carrying
value and performed an interim goodwill impairment test on the ILS and OLS reporting units. Based on the
estimated fair value of the ILS reporting unit, in the quarter ended April 4, 2020, we recorded non-cash pre-
tax goodwill impairment charges of $327.2 million. In addition, we performed impairment tests on the long-
lived assets allocated to the asset group of the ILS reporting unit, including intangible assets, property,
plant and equipment, and ROU assets as of April 4, 2020 and recorded non-cash pre-tax charges, in the
quarter ended April 4, 2020, related to the impairment intangible assets, property, plant and equipment and
ROU assets of the ILS reporting unit of $33.9 million, $85.6 million and $1.8 million, respectively. See
Note 8, “Goodwill and Intangible Assets” and Note 11, “Leases” in the Notes to Consolidated Financial
Statements under Item 8 of this annual report.
Restructuring
In June 2019, we internally announced our plans to exit a portion of our High Power Fiber Laser
(“HPFL”) business and consolidate all HPFL manufacturing and engineering functions in our Tampere,
Finland facility by transferring certain HPFL activities from our Hamburg, Germany facility. In conjunction
with this announcement, we recorded restructuring charges in fiscal 2019 of $19.7 million. The charges
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primarily related to write-offs of excess inventory, which is recorded in cost of sales, and estimated severance.
We recorded charges of $1.1 million in fiscal 2020, primarily related to accelerated depreciation and
project management consulting.
We also vacated our leased facility in Santa Clara at the end of the lease term on July 31, 2020 and
combined operations into our owned Santa Clara headquarters. We did not incur material expenses in fiscal
2019 related to this project. In fiscal 2020, we incurred costs of $1.5 million, primarily related to accelerated
depreciation.
In the fourth quarter of fiscal 2020, we began a restructuring program in our ILS segment which
includes management reorganizations, the planned closure of certain manufacturing sites, and the right-
sizing of global sales, service, order admin, marketing communication, and certain administrative functions,
among others. In the fourth quarter of fiscal 2020, we incurred costs of $2.6 million, primarily related to
severance.
See Note 19, “Restructuring Charges” in the Notes to Consolidated Financial Statements under Item 8
of this annual report.
Other
In April 2020, we appointed a new President and Chief Executive Officer (“CEO”), at which time our
former President and CEO, who had served in such position since 2002, transitioned to the role of special
advisor to the Company. On August 20, 2020, we announced that our Executive Vice President and Chief
Financial Officer will retire from the Company no later than February 28, 2021.
On February 5, 2020, our board of directors authorized a stock repurchase program authorizing the
Company to repurchase up to $100.0 million of our common stock through January 31, 2021.We made no
repurchases under the program during fiscal 2020.
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 welding
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 of the beam energy is confined
to a narrow wavelength band.
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, solid state crystal or fiber.
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 own
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 a broad array of industries that include microelectronics,
flat panel displays, machine tools, automotive, 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 mechanical devices 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, as in the conversion of amorphous silicon into poly crystalline silicon at low temperatures,
where lasers are used in the manufacturing of high resolution rigid and flexible OLED displays found in
the latest smartphones, tablets and laptop computers.
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Key laser applications include: semiconductor inspection; manufacturing of advanced printed circuit
boards (“PCBs”); flat panel display manufacturing; solar cell production; medical and bio-instrumentation;
materials processing; metal cutting and welding; industrial process and quality control; marking; imaging
and printing; graphic arts and display; and research and development. For example, ultraviolet (“UV”) lasers
are enabling the continuous move towards miniaturization, which drives innovation and growth in many
markets. In addition, the advent of industrial grade ultrafast lasers continues to open up new applications
for laser processing.
Coherent occupies a unique position in the industry thanks to the breadth and depth of our product
and technology portfolio, which includes laser sources, critical or enabling photonics components and laser
systems. Working closely with our customers we have developed specialized solutions that include lasers,
delivery and process optics in complete assemblies (sub-systems), and for certain applications and markets
we have also developed parts handling and automation to build complete laser systems.
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:
• Effect our Good to Great Transformation — We were founded in 1966 and have developed critical
technology and have built this company into a multinational corporation and leader in the photonics
industry. We are engaged in a multi-pronged and multi-year transformation focusing on all aspects
of our company. Namely, we are working to:
• Transform the operational efficiency of all our processes
• Reduce the complexity of our portfolio
• Focus our investments on growth opportunities
• Enhance the focus and alignment with our customers even further
• 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, drive
free cash flow and gross margin as a percentage of sales — We define adjusted EBITDA as operating
income adjusted for depreciation, amortization, stock-based compensation expense, restructuring
costs, and certain other non-operating income and expense items, such as costs related to our
acquisitions. Key initiatives to reach our goals for EBITDA and gross margin improvements include
utilization of our Asian manufacturing locations, optimizing our supply chain and continued
leveraging of our infrastructure. Our focus on free cash flow is to generate cash over the long term as
it is essential to maintaining a healthy business and providing funds to help fuel growth.
• 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.
• 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
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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.
• Focus on our core end markets — While we are organized around our two segments of OLS and ILS,
we also take a holistic approach to aligning and driving our business to focus on our four core end
markets, which have been realigned as follows beginning in fiscal 2021:
• Microelectronics (which captures the 3 sub-markets of Display, Semiconductor, and Advanced
Packaging & Interconnect);
• Instrumentation (which captures the 3 sub-markets of Bio-Instrumentation, Therapeutics &
Research);
• Precision Manufacturing; and
• Aerospace & Defense
APPLICATIONS
We have historically grouped our products into end markets which address a broad range of applications:
Microelectronics, Materials Processing, OEM Components and Instrumentation, and Scientific and
Government Programs. As noted above, we have realigned this grouping beginning with our fiscal year
2021.
The following table sets forth, for the periods indicated, the percentages of total net sales by market
application:
Consolidated:
Fiscal 2020
Fiscal 2019
Fiscal 2018
Percentage
of total
net sales
Percentage
of total
net sales
Percentage
of total
net sales
Microelectronics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Materials processing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
OEM components and instrumentation . . . . . . . . . . . . . . . .
Scientific and government programs . . . . . . . . . . . . . . . . . . .
43.8%
27.3%
20.2%
8.7%
44.2%
28.3%
18.6%
8.9%
54.5%
27.4%
11.6%
6.5%
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
100.0%
100.0%
100.0%
Microelectronics
Nowhere is the trend towards miniaturization and higher performance more prevalent than in the
Microelectronics market where smartphones, tablets, personal computers, televisions, and wearables are
driving advances in displays, integrated circuits, and PCBs. In response to market demands and consumer
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 primarily support three sub-markets in the microelectronics industry: (1) flat panel display
manufacturing, (2) semiconductor front-end manufacturing, and (3) advanced packaging and interconnects.
Microelectronics — flat panel display manufacturing
The high-volume consumer market is driving the production of flat panel displays in applications such
as mobile phones, tablets, laptop computers, televisions and wearables. There are multiple types of established
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displays, liquid crystal display (“LCD”) and organic light emitting diodes (“OLED”), as well as emerging
displays (MicroLED) based on different technologies. Each of these technologies utilize laser applications in
their manufacturing process to enable improved yields, higher process speed, improved battery life, lower
cost and/or superior display brightness, resolution and refresh rates.
Several display types require a high-density pattern of silicon thin film transistors. If this silicon is
polycrystalline as opposed to amorphous, the display performance is greatly enhanced. Excimer-based
processes, such as excimer laser annealing (“ELA”) have allowed high-volume production of low-temperature
polysilicon (“LTPS”) on conventional glass substrates as well as flexible displays based on plastic substrates.
Our excimer lasers provide a unique solution for LTPS because they are the only industrial-grade excimer
lasers optimized for this application. The current state-of-the-art product for this application is our Vyper
excimer laser and Linebeam systems. These systems deliver power ranges of 1200W to 3600W, depending on
the system, enabling a critical manufacturing process step on substrate sizes up to Generation 6. These
systems are integral to the manufacturing process on all leading LTPS-based smartphone displays and hold
the potential for deployment in a variety of screens, including tablet, laptop, automotive displays, and
OLED television. Excimer-based LTPS is also enabling flexible OLED displays which have undergone rapid
growth as they have been adopted into smartphones.
An emerging technology related to flat panel displays is MicroLED technology. The appeal of
MicroLED is reduced electrical consumption for improved battery life and higher absolute brightness
relative to OLED. We are continuing to accelerate our efforts and investments in UV MicroLED solutions
to help our customers develop the laser processes of record, so we can, in turn, develop the laser-based capital
equipment systems needed for mass production.
We see a co-existence of the two technologies in the years to come, with flexible OLED remaining the
dominant choice for mobile applications in the long term, and MicroLED becoming the preferred technology
in large diagonal high end television, and devices such as watches or future smart glasses where brightness
is a key advantage and battery size is at a premium. We believe we are well positioned to remain the laser
solutions display industry leader for all display technologies.
A modern flat panel display incorporates a number of different layers, some of which are thin films
that need to be cut or structured. As film thicknesses decrease over time, lasers are becoming the tool of
choice to process these materials. Our DIAMOND CO2 and Rapid series ultrafast lasers are used for cutting
flat panel display films.
We have developed a proprietary technology for cutting brittle materials such as glass and sapphire
without debris and with zero kerf called SMART CleaveTM, which is used for cutting brittle materials used
in displays. This technology uses ultrafast lasers coupled with proprietary optics.
Our AVIA, Rapid, Monaco, and DIAMOND CO2 and CO lasers are also used in other production
processes for flat panel displays. These processes include drilling, cutting, patterning, marking, and yield
improvement.
While the timing and adoption rate of an emerging display technology such as ‘micro’ LED (μLED) is
still hard to gauge, it is likely to make use of both similar technologies such as a LTPS backplane, as well as
new ones, e.g. new versions of laser lift-off (LLO) and laser induced forward transfer (LIFT). We expect
that this will represent an expanding market opportunity into new display form factors for laser-based
processes.
Microelectronics — semiconductor front-end manufacturing
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.
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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, Excimer, Ion, and OPSL lasers are used to detect and characterize defects in semiconductor chips.
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. This
search includes new types of materials, such as low-k and thinner silicon. Our AVIA, Rapid, Monaco, and
Matrix lasers provide economical methods of cutting and scribing these wafers while delivering higher yields
than traditional mechanical methods.
There are similar trends in chip packaging and PCB manufacturing requiring more compact packaging
and denser interconnects. In many cases, lasers present enabling technologies. For instance, lasers are now
the only economically practical method for drilling blind microvias in chip substrates and in both rigid and
flexible PCBs. These microvias are tiny interconnects that are essential for enabling high-density circuitry
commonly used in smartphones, tablets, and advanced computing systems. Our DIAMOND CO2 and
AVIA diode pumped solid state (“DPSS”) lasers are the leading lasers 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. In addition, multi-layer circuit boards require more flexible production
methods than conventional printing technologies can offer, which has led to widespread adoption of laser
direct imaging (“LDI”). Our Paladin laser is used for this application.
We also offer market-leading solutions for laser marking of wafers and ICs, such as our PowerLine
laser sub-systems.
Materials Processing
Beginning in fiscal 2021, we will increase our focus on Precision Manufacturing, a subset of the
Materials Processing market, where we participate well both in terms of market share and margins on all
three levels of components, lasers, and systems. We will be focusing our R&D and our manufacturing
capabilities towards new products that will serve higher margin, defendable markets. Examples include medical
device manufacturing, semiconductor wafer marking, and precision welding. In the components space, we
plan to introduce a whole new category of laser diode products that will allow us to address new applications
and customers, dramatically increasing the size of our servable market.
In fiscal 2020, we primarily supported four sub-markets in the materials processing industry:
(1) automotive, (2) machine tools, (3) medical device, and (4) consumer goods, as well a number of smaller sub-
markets. Our sales to this highly diverse sub-market include components, laser sources, laser diagnostic
equipment, and complete laser systems. At a high level, the drivers for laser deployment within the materials
processing sub-market are faster processing with higher yields, processing of new and novel materials,
more environmentally friendly processes, all with higher precision. With the broadest product portfolio in
the laser industry, we offer solutions for almost any application on any material to our customers. The most
common applications include cutting, welding, joining, drilling, perforating, scribing, engraving, and
marking.
Lasers are used in a number of applications in the automotive sub-market, from fine processing of
high precision parts to marking, as well as cutting of metals and welding large components such as gear
boxes and car bodies for customers including OEMs and their customers. With the increasing production of
electric vehicles, lasers are playing a key role in the manufacture and welding of batteries. We serve this sub-
market with a number of our products including ultrafast, DPSS, CO2, diode and fiber lasers as well as
systems in the areas of marking, scribing, cutting and welding.
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We serve the machine tools sub-market with components, laser sources, and systems in applications
including cutting, welding, marking, and additive manufacturing. We offer fiber lasers with different
performance points in terms of power levels and beam profiles to address specific applications. During the
past 12 months we have chosen to focus on specific lasers and processes including single mode lasers and
advanced beam shaping options, e.g. the ARM advanced high power fiber laser where the beam parameters
can be optimized to deliver higher quality welds with a wide variety of metals which translate into higher
customer yields and enables more cost efficient designs. As a fully vertically integrated fiber and laser
diode supplier, we are able to produce all key components in-house. Other products include our full line up
of CO2 lasers, DPSS, and ultrafast lasers.
The medical device sub-market is characterized by its need for high precision manufacturing with high
levels of quality control which lends itself very well to laser manufacturing. Applications include fine cutting
and welding in addition to high quality and specialized marking. We serve this sub-market with a number
of lasers as well as a portfolio of systems.
In the consumer goods sub-market, we serve a large variety of applications in various industries, such
as packaging, digital printing, jewelry, textiles, security, and consumer electronics. We serve these industries
with a broad offering of our products from lasers to laser tools. As a consequence, this market represents a
stable and growing opportunity for us.
In summary, we serve the materials processing market with a very broad product portfolio. Laser
sources include the Diamond series mid-power CO and CO2 lasers; the DC series of high power CO2 lasers;
Highlight FL high power fiber lasers; the DF series of high power diode laser systems; the Diamond mid-
power and Q-Switched fiber; the COMPACT, MINI and EVOLUTION series of low and mid power diode
lasers; the AViA, Matrix, Flare, and Helios DPSS lasers; and the Monaco and Rapid series of ultrafast
lasers. Laser tools include the Performance, Select and Integral series of manual welding systems; the Exact,
UW and MPS series of modular and highly configurable laser processing systems; the EasyMark,
EasyJewel, LabelMarker Advanced and Combiline laser marking systems; and the META laser cutting
tools. Laser sub-systems, i.e. laser sources combined with software, beam delivery, processing heads, process
monitoring, pattern recognition and vision, include the PowerLine series for marking; the StarFiber for
welding and cutting; the PWS welding system; the QFS laser scribing system; and the StarShape CO2 laser-
based systems.
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, machine vision
and aerospace and defense applications. We also support the laser-based instrumentation market with a range
of laser-related components, including diode lasers and optical fibers. 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
Laser applications for bio-instrumentation include 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 where lasers provide 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; flow cytometry for analyzing and sorting single
cells or populations of cells in a heterogeneous mixture, including blood samples; and Raman spectroscopy
which enables chemical analysis in a wide range of commercial applications. Our OBIS, Flare, Galaxy,
Sapphire, BioRay, Genesis and CellX lasers are used in several bio-instrumentation applications.
Medical therapy
We sell a variety of components and lasers to medical laser companies for use in end-user applications
such as ophthalmology, aesthetic, surgical, therapeutic and dentistry. Our DIAMOND series CO2 lasers are
widely used in dental, aesthetic and surgical markets. We have a leading position in Lasik and photorefractive
14
keratectomy surgery methods with our ExciStar XS excimer laser platform. We also provide ultrafast lasers
for use in cataract surgery and optical fibers for surgical applications.
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. Other applications where our OBIS, Genesis and Sapphire series of lasers are used include
the retinal scanning market in diagnostic imaging systems as well as new ground breaking in-vivo imaging.
Aerospace and defense
In fiscal 2021, we will disclose aerospace and defense as a separate market application, which was
included in our OEM Components and Instrumentation market application in fiscal 2020. We serve the
aerospace and defense markets with components and laser sources in a number of applications such as
Directed Energy weapons, as well as technology for target designation, countermeasures, fiber optic
gyroscopes, specialty large diameter optics and entire telescope payloads for intelligence, surveillance &
reconnaissance. In particular, directed energy has seen rapid growth in the last couple of years, driven largely
by the promise of being able to deter and repel asymmetrical threats such as drones in an effective and
economical manner. We supply laser sources for directed energy applications as well as components, and
recently we have seen growth in demand for optics used in space and ground-based telescopes.
Scientific 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 Acuity, Chameleon, Chameleon
Discovery, COMPexPro, Astrella, Revolution, Fidelity, Legend, Libra, Monaco, Vitara, Mephisto, Mira,
Genesis 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 femto- or attoseconds (10-15 to 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. The use of ultrafast lasers such as the Chameleon, Fidelity and Monaco in microscopy is now
a common occurrence in bio-imaging labs, and they have become a crucial tool in modern neuroscience
research.
FUTURE TRENDS
Beginning in fiscal 2021, we are aligning and driving our business to focus on four core end markets,
which have been realigned as follows: Microelectronics (which captures the 3 sub-markets of Display,
Semiconductor and Advanced Packaging & Interconnect); Instrumentation (which captures the 3 sub-
markets of Bio-Instrumentation, Therapeutics & Research); Precision Manufacturing; and Aerospace &
Defense.
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 reduce
production costs. We anticipate this trend to continue, driven primarily by the increasing sophistication and
15
miniaturization of consumer electronic goods, resulting in increasing demand for better displays, more
bandwidth and memory, and all packaged into devices which are lighter, thinner and consume less power.
We believe that we are well positioned to continue to capitalize on the current market trends.
Excimer-based LTPS is a key technology for producing high resolution rigid and flexible OLED
displays as well as future display technologies like μLEDs.
Another key technology related to flat panel displays is that of the emerging MicroLED technology.
The appeal of MicroLED is reduced electrical consumption for improved battery life and higher absolute
brightness relative to OLED. We are continuing to accelerate our efforts and investments in UV MicroLED
solutions to help our customers develop the laser processes of record, so we can, in turn, develop the laser-
based capital equipment systems needed for mass production.
Demand for CO2, Avia, Matrix, Rapid, Monaco, Helios and direct diode lasers correlate with the need
for related flat panel display touch panel, film cutting, light guide technology, repair and frit welding
applications.
The trend for thinner and lighter devices is impacting the glass substrates used in today’s mobile
devices requiring thinner glass with higher degrees of mechanical strength and scratch resistance. Mechanical
means of cutting these glass and sapphire pieces are no longer adequate to meet future requirements and
we expect lasers to play an increased role. Our CO, CO2, Monaco and Rapid lasers together with our
proprietary SmartCleave technology are well positioned to take advantage of this trend.
Semiconductor devices look set to continue shrinking device geometries, as well as expanding vertically
into new 3D structures. As a result we believe our many UV laser sources (such as Azure, Paladin, Avia,
Rapid, ExiStar, and OPSL) will continue to find increasing adoption, since their unique optical properties
align well with the process demands of a nanometer scale world.
These same lasers, plus Monaco, Rapid, CO and 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 scribe widths and wafer thickness, driven by developments such as
5G, we believe that our portfolio of lasers aligns well with these demands as well as new processes that could
be enabled by our lasers, to meet the increasing demands and decreasing tolerances of these markets.
While we experienced a softening of the demand in fiscal 2019 and fiscal 2020, we anticipate a resumption
of investment in OLED manufacturing capacity. It is difficult to precisely determine the timing and impact
of OLED investment on our fiscal 2021 and longer term revenues even as additional vendors ramp their
OLED production rates.
Instrumentation
The bio instrumentation market’s most important areas: flow cytometry, microscopy and DNA
sequencing, are all enjoying solid growth on a worldwide basis with some local variations. In this field, our
OPSL technology gives us differentiated products at a number of important wavelengths. This advantage
coupled with strong focus on meeting our customers’ demands for more compact and cost effective
sources as well as integrated laser sub-systems has resulted in growth for us in this market and we expect
that to continue.
In the therapeutic area, we see stable business with several opportunities for growth. We supply excimer
lasers used in refractive eye surgery and are actively involved in further developments in laser vision correction.
We also have opportunities in dental procedures for both hard and soft tissue applications, with greatly
improved patient comfort and outcome. In the area of photocoagulation, our Genesis OPSL yellow lasers
are being used since the wavelength is particularly suitable for the treatment of blood vessels. We are an OEM
supplier of CO2 and semiconductor lasers to the major manufacturers of equipment used in the latest
aesthetic procedures.
Worldwide scientific funding is expected to remain relatively stable, with some regions growing and
others holding their current level. Potential growth areas include the strong push in neuroscience to better
understand how the brain functions. Lasers play a very important role in imaging brain structure as well as
16
tracking activity in animal brains using techniques such as optogenetics. We believe that our current and
upcoming products are well positioned to take advantage of this exciting opportunity. In physics and chemistry
applications, our recent product introductions of high performance and industrially hardened ultrafast
products have been very well received. While this is a very competitive market, we expect that our new
products will position us for growth.
Precision Manufacturing
The materials processing market is the most diverse of all the markets we serve and a large cross section
of our products are used in this market. Going forward, we will focus on Precision Manufacturing, a subset
of the Materials Processing market, where we participate well both in terms of market share and margins
on all three levels of components, lasers and systems. We will be focusing our R&D and our manufacturing
capabilities towards new products that will serve higher margin, defendable markets. We sell components,
laser sources and complete laser systems. There are many drivers at play, but at a high level they involve faster
processing with higher yields, processing of new materials, more environmentally friendly processes and
higher precision.
The automotive industry is undergoing rapid changes that present opportunities for further use of
lasers. Trends such as reduction in emissions from lighter cars and electric vehicles require new materials
and new processes for welding, cutting and drilling. We believe this will lead to further adoption of lasers and
tools based on high power fiber and diode lasers, as well as ultrafast and CO2 lasers. In particular, we
believe our ARM laser technology offers competitive advantages versus alternative solutions.
We expect to see select opportunities for our products in the machine tools industry in a variety of
broad-based applications including newer applications such as laser cladding and heat treatment.
In the consumer goods market, we serve a large variety of applications in various industries, such as
packaging, digital printing, jewelry, textiles, security and consumer electronics. We serve these industries
with a broad offering of our products from lasers to laser tools. As a consequence, this market represents a
stable and growing opportunity for us.
We supply the medical device market with a variety of lasers and laser systems in applications such as
fine cutting and welding as well as marking. This market is set to continue to grow in the foreseeable future
as the population becomes older and advanced medical procedures spread outside the traditional markets in
US, Europe and Japan.
Aerospace and defense
Governments have made and continue to make investments in the development of directed energy
systems, both offensive and defensive. We have a number of product offerings which support these
development efforts. A key differentiator for us in this market is a US based supply chain for all critical
components, many of which are vertically integrated within Coherent, which we believe is unique in the
industry. Our U.S. Defense customers have made it clear that a secure, U.S. based supply chain is and will
be required moving forward. Our fabrication process includes epitaxial growth for our own laser diodes and
packaged diodes in the U.S. and we also supply the specialty single mode amplifier fiber, critical for every
directed energy amplifier. We own several other businesses that make critical components and on July 31,
2020, we reached an agreement to purchase Electro-optics Technology, Inc., a highly specialized U.S.-based
components company, which will enable us to vertically integrate and improve the performance of our
directed energy amplifier technology. We expect the acquisition to close in the second quarter of fiscal 2021,
after we clear all regulatory requirements.
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, based on our market applications in fiscal 2020.*
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Market
Microelectronics
Application
Flat panel display
Semiconductor front-end
Advanced packaging and
interconnects
Materials processing
Automotive
Machine Tools
Medical Device
Consumer Goods
OEM components and
instrumentation
Bio-Instrumentation
Graphic arts and display
Medical therapy (OEM)
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Technology
CO, CO2
DPSS
Excimer
Ultrafast
Semiconductor
Laser Sub-systems
CO2
DPSS
OPSL
Excimer
Ion
Laser Sub-systems
CO, CO2
DPSS
Excimer
Ultrafast
Laser Sub-systems
CO2
ARM Fiber
Laser Systems/
Laser Sub-systems
Ultrafast
CO2
ARM Fiber
DPSS
Ultrafast
Laser Systems/
Laser Sub-systems
CO2
DPSS
Fiber
Ultrafast
Excimer
Laser Systems/
Laser Sub-systems
Components
CO
CO2
Fiber
DPSS
Ultrafast
Laser Systems/
Laser Sub-systems
DPSS
OPSL
Ultrafast
Semiconductor
OPSL
Semiconductor
CO, CO2
DPSS
Market
Application
Defense and aerospace
Scientific and government
programs
All scientific applications
Technology
Ultrafast
Excimer
OPSL
Semiconductor
Components
Fiber Laser Amplifiers
Semiconductor
Components
CO, CO2
DPSS
Excimer
OPSL
Ultrafast
*
Coherent sells its laser measurement and control products into a number of these applications.
In addition to the products we provide, we invest routinely in the core technologies needed to create
substantial differentiation for our products in the marketplace. Our semiconductor, crystal, fiber and large
form factor optics 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 lasers (DPSS)
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 DPSS laser types for different applications including semiconductor
inspection; advanced packaging and interconnects; laser pumping; spectroscopy; bio-agent detection; DNA
sequencing; drug discovery; flow cytometry; entertainment lighting (display); medical; rapid prototyping
and marking, welding, engraving, cutting and drilling.
Fiber Lasers, Fiber Components and Fiber Assemblies
Fiber lasers use semiconductor lasers to pump a doped optical fiber to produce a laser beam. The
unique features of a fiber laser make them suitable for producing high power, continuous wave laser beams.
Our emphasis is on the design and manufacture of highly differentiated fiber lasers that provide advantages
and/or are enabling in certain applications. For example, our ARM laser offers dynamically adjustable beam
profiles that improve welding results compared to standard fiber lasers and is able to weld new composite
materials.
We are the world’s leading OEM supplier of Active Fiber for fiber lasers — selected for our combination
of high performance and consistent quality. In addition, we are a volume supplier of Specialty Passive Fiber,
High Power Fiber Cables, Fiber Switches, Fiber-to-Fiber Couplers, amplifiers for directed energy
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applications and OEM Medical Fiber Assemblies. We produce our Medical assemblies in high volume in
one of our ISO 13485 certified plants. In addition, many of the fiber components offered in the broader
market, such as Fiber Bragg Gratings and Fiber Combiners, have our fiber components in them.
Gas lasers (CO, CO2, Excimer, Ion)
The breadth of our gas laser portfolio is industry leading, encompassing CO, 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, therapeutic and materials processing applications. For example, the CO2 and
CO lasers are unique in their ability to process non-metal materials.
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,
therapeutics and graphic arts and display markets.
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 over 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, defense and industrial
applications, including aesthetic (hair removal, cosmetic dentistry), graphic arts, counter measures,
rangefinders, target designators, cladding, hardening, brazing and welding.
Ultrafast (“UF”) Lasers
UF lasers are lasers generating light pulses with durations of a few femtoseconds (10-15 seconds) to a
few tens of picoseconds (10-12 seconds). These types of lasers are used for medical, advanced microelectronics
and materials processing applications as well as scientific research. 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
1-2000 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 ablation of materials with high precision and minimal thermal
damage. The use of our ultrafast lasers in applications outside science continued to grow as it offers
unparalleled quality of results, particularly in microelectronics and materials processing applications.
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Integrated Laser Solutions: Systems and Sub-systems
In most cases, our lasers are integrated into machine tools or systems to perform a specific task, e.g.
manufacturing of electronic components or performing a procedure on a patient. Inside the system the laser
is typically combined with delivery optics and beam steering devices, such as galvos, to deliver the laser
beam to the workpiece.
In addition to offering laser sources, we also offer solutions comprising beam delivery optics, mechanics
and control electronics including software. We believe that these ‘sub-systems’ allow us to leverage our
expertise in laser processing and optical design into superior solutions for our customers, with applications
that can offer higher value and/or faster time to market. We have developed proprietary hardware, firmware
and software in this area. Laser sub-systems often include vision systems, process monitoring and
monitoring of the system itself. Our sub-system products include: PowerLine series for marking; the StarFiber
for welding and cutting; the PWS welding system; the QFS laser scribing system; and the StarShape CO2
laser-based systems.
In select cases we also offer complete laser systems which include the laser sub-system as well as a
material handling system inside a class 1 laser safety enclosure, ready to be used in production or development
environments. Our laser systems products include: the Performance, Select and Integral series of manual
welding systems; the Exact, UW and MPS series of modular and highly configurable laser processing systems;
the EasyMark, EasyJewel, LabelMarker Advanced and Combiline laser marking systems; the META laser
cutting tools; and the PWS mini welding system.
SALES AND MARKETING
We primarily market our products in the United States through a direct sales force. We sell internationally
through direct sales personnel located in Australia, Canada, China, France, Germany, Israel, Italy, Japan,
the Netherlands, South Korea, Singapore, Spain, Taiwan, and the United Kingdom, as well as through
independent representatives in certain jurisdictions around the world. Our foreign sales are made principally
to customers in South Korea, China, Germany, Japan, and other European and Asia-Pacific countries.
Foreign sales accounted for 76% of our net sales in fiscal 2020, 76% of our net sales in fiscal 2019, and 84%
of our net sales in fiscal 2018. 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.
We had one customer, Advanced Process Systems Corporation, who contributed more than 10% of
revenue during fiscal 2020, 2019, and 2018.
To support our sales efforts we maintain and continue to invest in a number of applications centers
around the world, where our applications experts work closely with customers on developing laser processes
to meet their manufacturing needs. The applications span a wide range, but are mostly centered around
the materials processing and microelectronics markets. Locations include several facilities in the US, Europe,
and Asia.
We maintain customer support and field service staff in major markets within the United States,
Europe, Japan, China, Singapore, South Korea, Taiwan, Vietnam, 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. The length of warranties offered on our products and
services varies, but primarily ranges from 12 to 24 months. 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 in our reserve is approximately 15 to 18 months.
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MANUFACTURING
Since the acquisition of Rofin in November 2016, we have integrated Rofin into our organizational
structure and both legacy organizations are operating as one company with common high level objectives,
goals and processes. Strategies are being implemented to improve operating leverage, to execute synergies and
to enhance our customers’ experience. For example, in June 2019, we announced our plans to exit a
portion of our HPFL business and consolidate all HPFL manufacturing and engineering functions in our
Tampere, Finland facility by transferring certain HPFL activities from our Hamburg, Germany facility. In
fiscal 2020, we reorganized our reporting structure so that all business units now report to our Executive
Vice President and Chief Operating Officer. Common policies and guidelines have been communicated, key
management and operating processes have been implemented and ERP systems at all of Rofin’s sites in
Asia and North America, and certain sites in Europe, including all significant manufacturing sites, have been
integrated onto the same Oracle ERP and Agile planning platforms, consistent with the rest of Coherent.
This integration process will continue into fiscal 2021.
Strategies
One of our core manufacturing strategies is to tightly control our supply of key parts, components, sub-
assemblies, and outsourcing partners. We utilize vertical integration when we have proprietary internal
capabilities that are not cost-effectively available from external sources. We believe this is essential to
maintaining high quality products and enable rapid development and deployment of new products and
technologies. We are committed to providing customers with products manufactured at the highest level of
quality and reliability by continuously improving our quality management system and adhering to processes
that are International Organization for Standardization (“ISO”) certified at our principal manufacturing
sites.
Our commitment to Operational Excellence and continuous improvement is at the core of our
Coherent Lean culture aimed at creating value for our customers. We propagate our Coherent Lean culture
throughout operations by developing a common Lean system, developing lean knowledge, tools, skills,
and global standardization and we empower our employees drive change through best practice sharing
Committed to quality and customer satisfaction, we design and produce many of our own components
and sub-assemblies in order to retain quality and performance 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.
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 continue to transfer the production of targeted products into both of
our Singapore and Malaysia factories. Our increased our tube refurbishment capacity in our South Korea
operations has allowed us to reduce service response time, carry strategic inventory, and provide benefits to
us and to our customers throughout the APAC region. Our Asia material sourcing strategy driven by our
International Procurement Office in Singapore continues to expand, which has enabled us to leverage
spend and 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, optically pumped semiconductor laser
product family and fiber component and fiber 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, crystals and optics, 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” in item 1A — “We depend on sole source or limited source suppliers, as well as on our own
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production capabilities, for some of the key components and materials, including exotic materials, certain
cutting-edge optics and crystals, used in our products, which makes us susceptible to supply shortages or price
fluctuations that could adversely affect our business, particularly our ability to meet our customers’
delivery requirements.”
Operations
Our products are manufactured at our sites in California, Oregon, Arizona, Michigan, New Jersey,
Connecticut, and New Hampshire in the U.S.; Germany, Scotland, Finland, Sweden, Switzerland, and
Spain in Europe; and South Korea, China, Singapore, and Malaysia in Asia. In addition, we also use contract
manufacturers in southeast Asia and Eastern Europe 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, OPS lasers 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 Mount Olive, New Jersey and both active and passive fibers are manufactured
in our Salem, New Hampshire facility. Our low power CO2 and CO 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. We manufacture a portion of our
DPSS lasers used in microelectronics, OEM components and instrumentation and materials processing
applications in Kaiserslautern, Germany. Our excimer gas laser products are manufactured in Göttingen,
Germany. We refurbish excimer tubes at our manufacturing sites in An-Seong, South Korea.
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 facility in Richmond,
California manufactures high performance optical components and assemblies for the aerospace and defense
industries as well as large form optics for astronomical observatories and our own Linebeam excimer laser
annealing systems. We manufacture and test high-power CO2, solid-state and fiber laser macro products in
Hamburg, Germany; Plymouth, Michigan; East Granby, Connecticut; Tampere, Finland; and Nanjing,
China. Our laser marking products are manufactured and tested in Gilching-Munich, Germany; and
Singapore. Our micro application products are manufactured and tested in Gilching-Munich, Germany;
Tampere, Finland; Plymouth, Michigan; and Belp, Switzerland. Our diode laser products are manufactured
and tested in Mainz and Freiburg, Germany; Tucson, Arizona (scheduled to close during fiscal 2021 by
transferring the related product manufacturing to other sites); and Nanjing, China. Anodization of our Slab
laser electrodes is performed in Overath, Germany. Our fiber optics and beam delivery systems are
manufactured and tested in Molndal, Sweden. The Company’s active and passive fibers and high power
laser amplifiers are manufactured and tested in East Granby, Connecticut. Optical engines for fiber lasers,
fiber lasers modules and wafer material are designed and manufactured in Tampere, Finland. We manufacture
and test the laser tools for the Metal Additive Manufacturing (3D Printing) market in Dieburg, Germany
and we manufacture critical components for diode lasers in Monrovia, California.
We have transferred several products and sub-assemblies for manufacture and repairs to our Singapore,
Malaysia and Nanjing, China facilities and are continuing to transfer additional product manufacturing to
these facilities as part of our worldwide manufacturing cost reduction strategy.
Coherent is committed to meeting internationally standards for the design, manufacture and service of
products to industry-based requirements. All primary facilities are certified to ISO 9001 whereas others hold
multiple certifications based upon the markets they serve including ISO 13485, ISO 14001, ISO 17025,
ISO 45001 and/or ISO 50001.
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 3, 2020, we held approximately 880 U.S.
and foreign patents, which expire in calendar years 2020 through 2039 (depending on the payment of
23
maintenance fees) and we have approximately 185 additional pending patent applications that have been
filed. The issued patents cover various products in all of the major markets that we serve.
Some of our products are designed to include intellectual property licensed from third parties. It may
be necessary in the future to seek or renew licenses relating to aspects of our products, processes and services.
While we have generally been able to obtain such licenses on commercially reasonable terms in the past,
there is no guarantee that such licenses could be obtained on reasonable terms in the future or at all.
For a discussion of the importance to our business of, and the risks attendant to intellectual property
rights, see “Risk Factors” in Item 1A — “If we are unable to protect our proprietary technology, our
competitive advantage could be harmed” and “We have been and 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.”
COMPETITION
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 IPG Photonics Corporation,
Lumentum Holdings Inc., MKS Instruments, Inc., Novanta Inc., nLIGHT, Inc., II-VI Incorporated, Wuhan
Raycus Fiber Laser Technologies Co., Ltd, and TRUMPF GmbH, as well as other smaller companies. In
addition, from time to time our customers may also decide to vertically integrate and build their own photonics
products. 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 2020 year-end, our backlog of orders scheduled for shipment (within one year) was
$548.0 million compared to $502.1 million at fiscal 2019 year-end. By segment, backlog for OLS was
$354.5 million and $309.5 million at fiscal 2020 and 2019 year-ends, respectively. Backlog for ILS was
$193.5 million and $192.6 million at fiscal 2020 and 2019 year-ends, respectively. The increase in OLS backlog
from fiscal 2019 to fiscal 2020 year-end was primarily due to higher orders for excimer laser annealing
systems for the flat panel display market as well as higher orders for service. The increase in ILS backlog
from fiscal 2019 to fiscal 2020 year-end was primarily due to higher orders in the materials processing market
partially offset by lower orders in the high power fiber laser market. Orders used to compute backlog are
generally cancellable and, depending on the notice period, are subject to rescheduling by our customers. We
have not historically experienced a significant rate of cancellation or rescheduling, however the rate of
cancellations or rescheduling may increase in the future. In the first quarter of fiscal 2019, one customer
cancelled three purchase orders which included orders shippable within 12 months from fiscal 2018 year-end
of $38.2 million and were included in backlog as of fiscal 2018 year-end. We reached agreement with this
customer for compensation for such cancellation in the first quarter of fiscal 2019.
SEASONALITY
We have historically generally experienced decreased 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 our facilities and
those of many of our customers due to year-end holidays. For example, over the past 10 years, excluding
certain recovery years, our first fiscal quarter revenues have ranged 2%-17% below the fourth quarter of the
prior fiscal years. This historical pattern should not be considered a reliable indicator of the Company’s
future net sales or financial performance.
EMPLOYEES
Our workforce is distributed globally over 19 countries. As of fiscal 2020 year-end, we had approximately
4,875 employees worldwide, with approximately 827 located in the Asia-Pacific region, 2,500 in the EMEA
region, and 1,548 in the Americas region. Of our total workforce, approximately 597 employees are involved
24
in research and development; 3,120 employees are involved in operations, manufacturing, service and
quality assurance; and 1,158 employees are involved in sales, order administration, marketing, finance,
information technology, general management 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.
Our human capital is governed by various federal, state and local regulations. We monitor all key
employment activities, such as hiring, termination and pay practices to ensure compliance with established
regulations across the world. We embrace diversity and inclusion and strive to provide an environment rich
with diverse skills, backgrounds and perspectives. Within the United States we conduct a yearly review of
employees and establish hiring goals for minority, female, disabled and military veteran candidates. Our
recruitment programs are regionally focused and hiring is done at a local level to ensure compliance with
specific regulations. To ensure diversity within our workforce we advertise job openings and source
candidates broadly to attract a diverse candidate pool. As a leader in our industry we are able to attract a
strong candidate pool and have been successful in filing vacancies to ensure business continuity. In fiscal 2020
we had 350 new hires, 155 of which were within the EMEA region, 134 of which were within the Americas
region and 61 of which were in the Asia-Pacific region. During fiscal 2020, we also conducted a worldwide
organizational health survey designed to assess employee engagement, leadership, work environment and
culture. We had a response rate of 77% of our total worldwide employee base, which is one indicator of a high-
level of employee engagement.
We track and report internally on key talent metrics including workforce demographics, talent pipeline,
diversity data, and engagement of our employees. We believe in investing in professional development
programs to ensure we provide opportunities for individuals to advance their careers either in a technical track
or move to a leadership position. We offer many of our in-class training programs digitally so that more
employees can benefit from self-development during a period when many of our employees are working
remotely. Additional focus is placed on the development of our future leaders and we leverage a talent review
process where high-potential and high-performing employees are assessed for future leadership roles as
part of our succession management process for critical leadership positions. As employee turnover is an
indicator of employee satisfaction we closely monitor turnover globally and benchmark locally. Coherent has
a very stable and committed workforce. This translates into very low voluntary turnover when compared
to benchmark data. Our 12 month rolling average for voluntary turnover at the end of fiscal 2020 stood at
5.2%, substantially less than benchmark data. Our employee average tenure globally is more than 10 years.
ACQUISITIONS
On October 5, 2018, we acquired privately held Ondax for approximately $12.0 million, excluding
transaction costs. Ondax develops and produces photonic components which are used on an OEM basis by
the laser industry as well as incorporated into its own stabilized lasers and Raman Spectroscopy systems.
On October 5, 2018, we acquired certain assets of Quantum for approximately $7.0 million, excluding
transaction costs.
On March 8, 2018, we acquired privately held OR Laser for approximately $47.4 million, excluding
transaction costs. OR Laser produces laser-based material processing equipment for a variety of uses,
including additive manufacturing, welding, cladding, marking, engraving and drilling.
Please refer to Note 4, “Business Combinations” of Notes to Consolidated Financial Statements under
Item 8 of this annual report for further discussion of recent acquisitions completed.
RESTRUCTURINGS AND CONSOLIDATION
In the first quarter of fiscal 2017, we began the implementation of planned restructuring activities in
connection with the acquisition of Rofin. The activities to date under this plan primarily related to exiting
our legacy high power fiber laser product line, change of control payments to Rofin officers, the exiting of two
product lines acquired in the acquisition of Rofin, realignment of our supply chain due to segment
reorganization and consolidation of sales and distribution offices as well as certain manufacturing sites.
25
These activities resulted in charges primarily for employee termination, other exit related costs associated
with the write-off of property and equipment and inventory and early lease termination costs.
The fiscal 2018 severance related costs are primarily comprised of severance pay for employees being
terminated due to the consolidation of certain manufacturing sites. The fiscal 2018 asset write-offs are
primarily comprised of inventory and equipment write-offs due to the consolidation of certain manufacturing
sites.
In June 2019, we internally announced our plans to exit a portion of our HPFL business and consolidate
all HPFL manufacturing and engineering functions in our Tampere, Finland facility by transferring certain
HPFL activities from our Hamburg, Germany facility. In conjunction with this announcement, we recorded
restructuring charges in fiscal 2019 of $19.7 million. The charges primarily related to write-offs of excess
inventory, which is recorded in cost of sales, and estimated severance. We recorded charges of $1.1 million
in fiscal 2020, primarily related to accelerated depreciation and project management consulting.
We also vacated our leased facility in Santa Clara at the end of the lease term on July 31, 2020 and
combined operations into our owned Santa Clara headquarters. We did not incur material expenses in fiscal
2019 related to this project. In fiscal 2020, we incurred costs of $1.5 million, primarily related to accelerated
depreciation.
In the fourth quarter of fiscal 2020, we began a restructuring program in our ILS segment which
includes management reorganizations, the planned closure of certain manufacturing sites, and the right-
sizing of global sales, service, order admin, marketing communication and certain administrative functions,
among others. In the fourth quarter of fiscal 2020, we incurred costs of $2.6 million, primarily related to
severance.
See Note 19, “Restructuring Charges” in the Notes to Consolidated Financial Statements under Item 8
of this annual report.
GOVERNMENT REGULATION
We are required to comply, and it is our policy to comply, with numerous regulations that are normal
and customary to businesses in our industry and that operate in our markets and operating locations. These
regulations relate to, among other things, healthcare, environmental protection, antitrust, anti-corruption,
marketing, fraud and abuse (including anti-kickback and false claims laws), export control, product safety
and efficacy, employment, privacy, governmental contracts and regulatory matters specific to the defense
industry and other areas.
Environmental regulation
Our operations are subject to various federal, state, local and foreign environmental regulations relating
to the use, storage, handling and disposal of regulated 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 also face
increasing complexity in our product design and procurement operations due to the evolving nature of
environmental compliance regulations and standards, as well as specific customer compliance requirements.
We expect all operations to meet the legal and regulatory environmental requirements and believe that
compliance with those 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 further discuss the impact of environmental regulation under “Risk Factors” in
Item 1A — “Compliance or the failure to comply with current and future environmental regulations could
cause us significant expense.”
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Regulatory Compliance
Lasers that are manufactured or sold in the United States are classified under the applicable rules and
regulations of the Center for Devices and Radiological Health (“CDRH”) of the U.S. Food and Drug
Administration (“FDA”). A similar classification system is applied in the European markets.
CDRH regulations require a self-certification procedure pursuant to which a manufacturer must
submit a filing to the CDRH with respect to each product incorporating a laser, make periodic reports of
sales and purchases, and comply with product labeling standards, product safety and design features and
informational requirements. The CDRH is empowered to seek fines and other remedies for violations of their
requirements. We believe that our products are in material compliance with the applicable rules and
regulations of CDRH relating to lasers manufactured or sold in the United States.
In addition, certain portions of our business contract with numerous U.S. government agencies and
entities or with entities whose projects are funded therefrom. We also contract with similar government
authorities outside of the U.S., subject in all cases to applicable law. Consequently, we must comply with
and are affected by regulations relating to the formation, administration, and performance of such U.S.
government and other contracts governing such matters.
Exports of certain or our products are subject to export controls imposed by the U.S. government and
administered by the U.S. Departments of State and Commerce. In certain instances, these regulations may
require pre-shipment authorization from the administering department. For products subject to the Export
Administration Regulations (“EAR”) administered by the Department of Commerce’s Bureau of Industry
and Security, the requirement for a license is dependent on the type and end use of the product, the final
destination, the identity of the end user and whether a license exception might apply. Virtually all exports
of products subject to the International Traffic in Arms Regulations (“ITAR”) administered by the
Department of State’s Directorate of Defense Trade Controls, require a license. Certain of our products are
subject to EAR and to ITAR. Products and the associated technical data developed and manufactured in
our foreign locations are subject to export controls of the applicable foreign nation. We further discuss the
impact of such regulations under “Risk Factors” in Item 1A — “Governmental regulations, including tariffs
and duties, affecting the import or export of products could negatively affect our business, financial
condition and results of operations.”
We are subject to laws concerning our business operations and marketing activities in foreign countries
where we conduct business. For example, we are subject to the U.S. Foreign Corrupt Practices Act (the
“FCPA”), U.S. export control and trade sanction laws, and similar anti-corruption and international trade
laws in certain foreign countries, such as the U.K. Bribery Act. We further discuss the impact of such
regulations under “Risk Factors” in Item 1A — “Violations of anti-bribery, anti-corruption, and/or
international trade laws to which we are subject could negatively affect our business, financial condition and
results of operations.”
Aspects of our operations and business are subject to privacy, data security and data protection
regulations, which impact the way we use and handle data and operate our products and services. We
further discuss the impact of such regulations under “Risk Factors” in Item 1A — “We may face particular
privacy, data security and data protection risks due to laws and regulations regulating the protection or
security of personal and other sensitive data.”
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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 us. 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. 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
condition.
RISKS RELATED TO COVID-19 PANDEMIC
Our business, financial condition and results of operations for fiscal year 2020 and beyond have been and may
continue to be materially adversely affected by the COVID-19 pandemic and the related private and public sector
responses to the pandemic.
The full extent to which the COVID-19 pandemic will impact our financial condition and operating
results will depend on future developments that are highly uncertain and cannot be accurately predicted,
including COVID-19 infections intensifying or returning in various geographic areas as is currently happening
in Europe and the United States, new medical and other information that may emerge concerning
COVID-19, and the actions by governmental entities or others to address it, contain it or treat its impact.
COVID-19 poses the risk that we or our employees, suppliers, distributors, customers and others may
be restricted or prevented from conducting business activities for indefinite or intermittent periods of time,
including as a result of employee health and safety concerns, shutdowns, shelter-in-place (“SiP”) orders, travel
restrictions and other actions and restrictions that may be prudent or required by governmental authorities.
Even after governmental entities have lifted SiP orders, there is a risk that such orders will be reinstated,
making it difficult to predict the long term financial impact of this virus on the Company. Examples of this
have been seen across the globe, including most recently in the actions by several European governments.
To date, many (but not all) of our business operations and those of our suppliers, distributors and
customers have been classified as essential or otherwise permitted to operate in jurisdictions in which
facility closures have been mandated; however, we can give no assurance that this will not change in the
future or that we, our suppliers, distributors and customers will continue to be permitted to conduct business
in each of the jurisdictions in which we operate.
In addition, we have modified our business practices for the continued health and safety of our
employees — including, among other things, implementing a remote work policy to the fullest extent
possible, a limited travel policy, the distribution of and mandatory wearing of personal protection equipment,
reorganizing and adjusting the timing of manufacturing personnel shifts, temperature monitoring for
entering our facilities, and a social distancing policy — and we may take further actions, or be required to
take further actions, that are in the best interests of our employees. Our suppliers, distributors and customers
have also implemented such measures, which has resulted in, and we expect it will continue to result in,
disruptions or delays and higher costs. The implementation of health and safety practices by us or our
suppliers, distributors or customers could impact customer demand, supplier deliveries, our productivity, and
costs, which could have a material adverse impact on our business, financial condition and results of
operations.
While we currently believe we have sufficient liquidity to manage the financial impact of the COVID-19
pandemic, we can give no assurance that this will continue to be the case if the pandemic is prolonged or if
there is an extended impact on us or the economy generally. Further, the pandemic has caused significant
uncertainty and volatility in the credit markets. If our liquidity or access to capital becomes significantly
constrained, or if costs of capital increase significantly as result of volatility in the capital markets, a reduction
in our creditworthiness or other factors, then our financial condition, results of operations and cash flows
could be materially adversely affected.
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We have invested and will continue to invest significant time and resources in managing the impact of
the COVID-19 pandemic on our business. Our focus on managing and mitigating such impact may cause us
to divert or delay the application of resources toward existing or new initiatives or investments, which
could have a material adverse impact on our results of operations.
Please refer to “Coronavirus pandemic (COVID-19)” under “Significant Events” “Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of Operations” for additional discussion of the
risks related to the COVID-19 pandemic and its impact on the Company.
COMPANY AND OPERATIONAL RISKS
Our operating results and stock price have varied in the past and will continue to be subject to fluctuations in
the future based upon numerous factors, including those discussed in this Item 1A and throughout this report.
Our operating results, including net sales, operating expenses, net income (loss) and adjusted EBITDA
in dollars and as a percentage of net sales, as well as 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, particularly as COVID-19 continues to adversely affect the global economy;
• impact of government economic policies on macroeconomic conditions, such as recently instituted,
proposed or threatened changes in trade policies by the U.S. and any corresponding retaliatory actions
by affected countries, in particular with respect to China, as well as trade restrictions instituted by
the Japanese government affecting the export to South Korea of certain products and materials used
in the manufacture of flat panel displays and in the semiconductor industry;
• fluctuations in demand for our products or downturns in the industries that we serve, particularly
the continued build-out of “phase 2” of the capacity for the manufacture of OLED and the increased
use of the installed base of our products in such manufacturing;
• 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 receipt of bookings and the timing of and our ability to ultimately convert bookings to
net sales;
• the concentration of a significant amount of our backlog, and resultant net sales, with a few
customers in the Microelectronics market;
• rescheduling of shipments or cancellation of orders by our customers;
• fluctuations in our product mix;
• the ability of our customers’ other suppliers to provide sufficient material to support our customers’
products;
• currency fluctuations and stability, in particular the Euro, the Japanese Yen, the South Korean Won,
the Chinese RMB and the U.S. Dollar as compared to other currencies;
• commodity pricing;
• interpretation and impact of the U.S. Tax Cuts and Jobs Act and the Coronavirus Aid, Relief, and
Economic Security Act (the “CARES Act”);
• introductions of new products and product enhancements by our competitors, entry of new
competitors into our markets, pricing pressures and other competitive factors;
• the increasing focus by companies in China to vertically integrate and consolidate their supply chains
fully with products manufactured in China;
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• our ability to develop, introduce, manufacture and ship new and enhanced products in a timely
manner without defects;
• our ability to manage our manufacturing capacity across our diverse product lines and that of our
suppliers, including our ability to successfully expand our manufacturing capacity in various locations
around the world;
• our ability to successfully and fully integrate acquisitions, such as the historical Rofin businesses,
into our operations and management;
• our ability to successfully internally transfer the manufacturing of products and related operations
as part of our integration and internal reorganization efforts and to realize anticipated benefits
(including savings) therefrom;
• our reliance on contract manufacturing;
• our reliance in part upon the ability of our OEM customers to develop and sell systems that
incorporate our laser products;
• our customers’ ability to manage their susceptibility to adverse economic conditions;
• 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, including the costs of acquiring businesses or
technologies;
• seasonal sales trends, including with respect to Rofin’s historical business, which has traditionally
experienced a reduction in sales during the first half of its fiscal year as compared to the second half
of its fiscal year;
• jurisdictional capital and currency controls negatively impacting our ability to move funds from or to
an applicable jurisdiction;
• access to applicable credit markets by us, our customers and their end customers;
• the impact of rising Chinese consumer debt and eroding consumer confidence and spending in
China;
• 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, including import and export regulations in multiple jurisdictions;
• impairment of goodwill, intangible assets and other long-lived assets;
• our ability to meet our expectations and forecasts and those of public market analysts and investors;
• 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 and scientific research projects where we are a
vendor directly or as a subcontractor;
• 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;
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• changes in the method of determining the London Interbank Offered Rate (“LIBOR”), the Euro
Interbank Offered Rate (“EURIBOR”), or the replacement of LIBOR or EURIBOR with an
alternative reference rate, may adversely affect interest rates on our outstanding variable rate
indebtedness;
• our ability and the ability of our contractual counterparts to comply with the terms of our contracts;
• 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, expenses and damages arising from litigation;
• the impact of market fluctuations on assets and liabilities in our deferred compensation plans;
• costs associated with designing around or payment of licensing fees associated with issued patents in
our fields of business;
• individual employees intentionally or negligently failing to comply with our internal controls;
• government support of alternative energy industries, such as solar;
• negative impacts related to the United Kingdom’s withdrawal from the European Union, or
“Brexit”, including uncertainties regarding the terms of applicable trade treaties between the United
Kingdom and other countries, particularly with regard to any potential negative effects on our
sales from our Glasgow, Scotland facility to other jurisdictions and purchases of supplies from outside
the United Kingdom by such facility;
• negative impacts related to the recent independence movement in Catalonia, Spain, particularly with
regard to holding and operating some of our foreign entities in an efficient manner from a tax,
business and legal perspective;
• negative impacts related to government instability in any jurisdiction in which we operate, such as
the recent difficulties in forming a governing coalition in Germany;
• the future impact of legislation, rulemaking, and changes in accounting, tax, defense procurement
and export policies; and
• distraction of management related to acquisition, integration 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, U.S. and global equity markets have experienced significant price
and volume fluctuations that have affected the stock prices of many technology companies both in and
outside our industry, and the ongoing COVID-19 pandemic could exacerbate such fluctuations. There has
not always been a direct correlation between this volatility and the performance of particular companies
subject to these stock price fluctuations. 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.
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We depend on sole source or limited source suppliers, as well as on our own production capabilities, for some of
the key components and materials, including exotic materials, certain cutting-edge optics and crystals, used
in our products, which makes us susceptible to supply shortages or price fluctuations that could adversely affect
our business, particularly our ability to meet our customers’ delivery requirements.
We currently purchase several key components and materials used in the manufacture of our products
from sole source or limited source suppliers. From time-to-time our customers require us to ramp up
production and/or accelerate delivery schedules of our products, and our key suppliers may not have the
ability to increase their production in line with our customers’ demands. This can become acute during times
of high growth in our customers’ businesses. Our failure to timely receive these key components and
materials would likely cause delays in the shipment of our products, which would likely negatively impact
both our customers and our business. Some of these suppliers are relatively small private companies that may
discontinue their operations at any time and may be particularly susceptible to prevailing economic
conditions. Some of our suppliers are located in regions susceptible to natural and man-made disasters,
such as Thailand which has experienced severe flooding, Japan which has experienced earthquakes, tsunamis
and a resulting nuclear disaster, and the Eastern part of the United States and California which have
experienced severe flooding, wildfires and/or power loss. In addition, our suppliers have been adversely
affected by the COVID-19 pandemic and the related imposition of government restrictions to mitigate the
spread of the virus. 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. For certain long-lead time supplies or in order to lock-in pricing, we may be obligated to place non-
cancellable purchase orders or otherwise assume liability for a large amount of the ordered supplies, which
limits our ability to adjust down our inventory liability in the event of market downturns or other customer
cancellations or rescheduling of their purchase orders for our products.
Some of our products, particularly in the flat panel display industry, require designs and specifications
that are at the cutting-edge of available technologies and change frequently to meet rapidly evolving market
demands. By their very nature, the types of components used in such products can be difficult and
unpredictable to manufacture and may only be available from a single supplier, which increases the risk that
we may not obtain such components in a timely manner. Identifying alternative sources of supply for
certain components could be difficult and costly, result in management distraction in assisting our current
and future suppliers to meet our and our customers’ technical requirements, and cause delays in shipments of
our products while we identify, evaluate and test the products of alternative suppliers. Any such delay in
shipment would result in a delay or cancellation of our ability to convert such order into revenues.
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 our customers’ supply chain, orders from our customers could decrease or be delayed.
Like most other multinational companies, we are also highly dependent upon the ability to ship products
to customers and to receive shipments of supplies from suppliers. The COVID-19 pandemic and resulting
government policies have resulted in variable limitations on our ability to receive supplies and ship our
products to customers. In the event of a disruption in the worldwide or regional shipping infrastructure, our
access to supplies and our ability to deliver products to customers would correspondingly be negatively
impacted. Any such disruption would likely materially and adversely affect our operating results and financial
condition.
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. Furthermore, we have
historically relied exclusively on our own production capability to manufacture certain strategic components,
crystals, semiconductor lasers, fiber, lasers and laser-based systems. We also manufacture certain large
format optics. 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
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interruption in manufacturing would adversely affect our business. Since many of our products have lengthy
qualification periods, our ability to introduce multiple suppliers for parts may be limited. 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.
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, 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. Additionally, our product offerings may become obsolete given the frequent
introduction of alternative technologies. 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.
We participate in the flat panel display market, which has a relatively limited number of end customer
manufacturers. Our backlog, timing of net sales and results of operations could be negatively impacted in the
event we face any significant periods with few or no orders or our customers reschedule or cancel orders.
In the flat panel display market, it is unclear when the timing will be, or whether it will occur at all, for
any further build-out of fabs for the manufacture of OLED screens, and there are a relatively limited number
of manufacturers who are the end customers for our annealing products. In fiscal 2020, Advanced Process
Systems Corporation, an integrator in the flat panel display market based in South Korea, contributed more
than 10% of our revenue. Given macroeconomic conditions, varying consumer demand and technical
process limitations at manufacturers, we may see fluctuations in orders, including periods with no or few
orders, and our customers may seek to reschedule or cancel orders. For example, in the fourth quarter of fiscal
2018, a customer requested a change of delivery date resulting in a significant order being rescheduled
from the first to the second quarter of fiscal 2019. In addition, in the first quarter of fiscal 2019, one customer
cancelled three purchase orders which included backlog shippable within 12 months of $38.2 million as
well as some additional orders which were unscheduled.
These larger flat panel-related systems have large average selling prices. Any significant periods with
few or no orders or any rescheduling or canceling of such orders by our customers will likely have a significant
impact on our quarterly or annual net sales and results of operations and could negatively impact inventory
values and backlog. Additionally, challenges in meeting evolving technological requirements for these
complex products by us and our suppliers could result in delays in shipments and rescheduled or cancelled
orders by our customers. This could negatively impact our backlog, timing of net sales and results of
operations.
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 net sales.
Lasers and laser systems are inherently complex in design and require ongoing regular maintenance.
The manufacture of our lasers, laser products and laser systems involves a highly complex and precise
process. As a result of the technological complexity of our products, in particular our excimer laser annealing
tools used in the flat panel display market, 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
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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, including 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 or orders;
• 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, engineering and manufacturing 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.
Continued volatility in the advanced packaging and semiconductor manufacturing markets could adversely
affect our business, financial condition and results of operations.
A portion of our net sales in the microelectronics market depends on the demand for our products by
advanced packaging applications and semiconductor equipment companies. These markets have 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, especially
during the ongoing COVID-19 pandemic, and we may not be able to respond effectively to these cycles. The
continuing uncertainty in these markets severely limits our ability to predict our business prospects or
financial results in these markets.
During industry downturns, our net sales from these markets 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 these markets, 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 these markets 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.
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 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 and to manage our manufacturing capacity to meet customer demands.
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.
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We have in the past experienced decreases in the average selling prices (“ASPs”) of some of our
products. As competing products become more widely available or lower-cost products come to market, 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.
We face risks associated with our worldwide operations and sales that could harm our financial condition and
results of operations.
For fiscal 2020, 2019 and 2018, 76%, 76%, and 84%, respectively, of our net sales were derived from
customers outside of the United States. We anticipate that international sales, particularly in Asia, will
continue to account for a significant portion of our net sales in the foreseeable future.
A global economic slowdown or a natural disaster could have a negative effect on various international
markets in which we operate, such as the earthquake, tsunami and resulting nuclear disaster in Japan and
the 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 international sales are primarily
through our direct sales force. Additionally, some international sales are made through international
distributors and representatives. Currently, the COVID-19 pandemic is having a significant adverse effect on
the global economy, which is affecting the various markets in which we operate.
Our international operations and sales are subject to a number of risks, including:
• compliance with applicable import/export regulations, tariffs and trade barriers, including recently
instituted or proposed changes in trade policies by the U.S. and any corresponding retaliatory actions
by affected countries, in particular with respect to China;
• longer accounts receivable collection periods;
• the impact of recessions and other economic conditions in economies outside the United States,
including, for example, recent dips in the manufacturing Purchasing Managers’ Index (“PMI”) as
well as the Institute of Supply Management (“ISM”) data in the Eurozone, in particular in Germany;
• unexpected changes in regulatory requirements and compliance with applicable regulatory
requirements;
• product certification requirements;
• environmental regulations;
• reduced protection for intellectual property rights in some countries;
• potentially adverse tax consequences;
• political and economic instability, such as the current situation between the governments of Japan
and South Korea, which has led to the imposition of trade restrictions by the Japanese government
affecting the export to South Korea of certain products and materials used in the manufacture of flat
panel displays and in the semiconductor industry;
• compliance with applicable United States and foreign anti-corruption laws;
• less than favorable contract terms;
• reduced ability to enforce contractual obligations;
• cultural and management differences;
• reliance in some jurisdictions on third party sales channel partners;
• preference for locally produced products; and
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• shipping and other logistics complications.
Our business could also be impacted by international conflicts, terrorist and military activity including,
in particular any such conflicts on the Korean peninsula, civil unrest and pandemics, any of which could
cause a slowdown in customer orders, cause customer order cancellations or negatively impact availability
of supplies or limit our ability to timely service our installed base of products.
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
international subsidiaries, particularly if we have a significant amount of manufacturing costs denominated
in one currency, e.g. the Euro, compared to the sales of those same products to customers denominated in
another currency, e.g. the U.S. Dollar. 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 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, or manage transitions among members of our
leadership team, 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, which 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, as well as our ability to effectively
transition to their successors. Most recently, we appointed a new President and Chief Executive Officer in
April 2020, at which time our former President and CEO, who had served in such position since 2002,
transitioned to the role of special advisor to the Company. This transition may be disruptive to our business,
and if we are unable to execute an orderly transition and successfully integrate our new CEO into our
management team, our revenue, operating results and financial condition may be adversely affected. In
addition, our Chief Financial Officer has announced his retirement from the Company no later than
February 28, 2021. Any future changes to our executive and senior management teams, including hires or
departures, could cause further disruption to our business and have a negative impact on our operating
performance, while these operational areas are in transition. We can provide no assurance that we will be able
to find suitable successors to key roles as transitions occur or that any identified successor will be successfully
integrated into our management team. Our inability to do so, or to retain other key employees or effectively
transition to their successors, or any delay in filling any such positions, could harm our business and our
results of operations.
The long sales cycles for many of our products may cause us to incur significant expenses without offsetting
net sales.
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 customers’ 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 net sales 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 IPG Photonics Corporation,
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Lumentum Holdings Inc., MKS Instruments, Inc., Novanta Inc., nLIGHT, Inc., II-VI Incorporated,
Wuhan Raycus Fiber Laser Technologies Co., Ltd, 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. For example, in recent years there have been a
growing number of companies in China that, in some cases aided by government subsidies, are targeting
our markets and are exerting significant price pressure in certain of our product markets, in particular the
HPFL products used in the metal cutting market in China, which led to our decision to exit this market. These
companies will likely in the future be able to expand into broader product markets, which may result in
additional competitive pressures on us. We may also 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. Such vertical integration could reduce the market opportunity for 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.
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. We expect that the volatility and
uncertainty created by the COVID-19 pandemic in the markets we serve will exacerbate these issues, and
any of these occurrences would negatively impact our net sales, business or operating results.
Our reliance on contract manufacturing and 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 sub-
assemblies and less complex turnkey products, including some performed at international sites located in Asia
and Eastern Europe. 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 COVID-19 pandemic and
the negative effect it is having on the global economy, 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.
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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.
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.
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 net sales 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.
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.
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 in certain markets 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. Ongoing restrictions resulting from the
COVID-19 pandemic have had a negative impact on the work on some of our research and development
programs due to the inability of some personnel being able to work in applicable regional labs.
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.
Our and our customers’ 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 customers, suppliers and contract manufacturers
could be subject to a catastrophic loss from fire, flood, earthquake, volcanic eruption, work stoppages, power
outages, acts of war, pandemics such as COVID-19, energy shortages, theft of assets, other natural disasters
or terrorist activity. A substantial portion of our research and development activities, manufacturing, our
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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 net
sales 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.
ACQUISITION RISKS
We may not be able to integrate the business of Rofin or other future acquisitions successfully with our own,
realize the anticipated benefits of such acquisitions or manage our expanded operations, any of which would
adversely affect our results of operations.
We have devoted, and expect to continue to devote, significant management attention and resources to
integrating our business practices with those of Rofin. Such integration efforts are costly due to the large
number of processes, policies, procedures, locations, operations, technologies and systems to be integrated,
including purchasing, accounting and finance, sales, service, operations, payroll, pricing, marketing and
employee benefits. Integration expenses could, particularly in the short term, exceed the savings we expect
to achieve from the elimination of duplicative expenses and the realization of economies of scale, which could
result in significant charges to earnings that we cannot currently quantify. Potential difficulties that we
may encounter as part of the integration process include the following:
• the inability to successfully combine our business with Rofin in a manner that permits the combined
company to achieve the full synergies and other benefits anticipated to result from the merger;
• complexities associated with managing the combined businesses, including difficulty addressing
possible differences in corporate cultures and management philosophies and the challenge of
integrating products, services, complex and different information technology systems (including
different Enterprise Management Systems), control and compliance processes, technology, networks
and other assets of each of the companies in a cohesive manner;
• diversion of the attention of our management;
• the disruption of, or the loss of momentum in, our business; and
• inconsistencies in standards, controls, procedures or policies.
Any of the foregoing could adversely affect our ability to maintain relationships with customers,
suppliers, employees and other constituencies or our ability to achieve the anticipated benefits of the
merger, or could reduce our earnings or otherwise adversely affect our business and financial results. For
example, in the fourth quarter of fiscal 2018, difficulties in implementing our Enterprise Management
Systems at one of our manufacturing sites located in Germany, which was historically part of Rofin, resulted
in a shortage of manufacturing parts and shippable inventory to meet demands, resulting in a reduction of
revenue for that quarter. If similar difficulties arise in the future and we are unable to resolve them in a timely
manner, we may experience a shortage of parts and inventory or otherwise be unable to meet demand,
which could have a material adverse impact on our results of operations.
Following the merger, the size and complexity of the business of the combined company has increased
significantly. Our future success depends, in part, upon our ability to manage this expanded business, which
has and will pose substantial challenges for management, including challenges related to the management
and monitoring of new operations and associated increased costs and complexity. The execution of these
consolidation projects could result in temporary loss of productivity or operational efficiency, interruptions
in manufacturing or other unforeseen challenges while the projects are ongoing. Moreover, there can be
no assurances that we will be successful in realizing the anticipated savings in connection with these
consolidations or with our broader efforts to manage our expanded business or that we will realize the
expected synergies and benefits anticipated from the merger.
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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 both large and smaller strategic acquisitions of other corporations and
entities, including Ondax in October 2018, OR Laser in March 2018 and Rofin in November 2016, 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 other long-lived assets, as we incurred in the
quarter ending April 4, 2020 totaling $451.0 million.
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.
FINANCIAL RISKS
Charges to earnings resulting from the application of the purchase method of accounting to the Rofin acquisition
may adversely affect our results of operations.
In accordance with generally accepted accounting principles, we have accounted for the Rofin acquisition
using the purchase method of accounting. Under the purchase method of accounting, we allocated the total
purchase price of Rofin’s net tangible and identifiable intangible assets based upon their estimated fair
values at the acquisition date. The excess of the purchase price over net tangible and identifiable intangible
assets was recorded as goodwill. We have incurred and will continue to incur additional depreciation and
amortization expense over the useful lives of certain of the net tangible and intangible assets acquired in
connection with the acquisition. These depreciation, amortization and potential impairment charges could
have a material impact on our results of operations. In addition, to the extent the value of goodwill or
intangible assets with indefinite lives becomes impaired, we may be required to incur material charges
relating to the impairment of those assets. For example, in the quarter ended April 4, 2020, the worldwide
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spread of COVID-19 created significant volatility, uncertainty and disruption to the global economy,
representing an indicator to test our goodwill for impairment. The former operations of Rofin are largely
included in our ILS segment. As a result of that test, we recorded a non-cash pre-tax charge, in the quarter
ended April 4, 2020, related to the ILS reporting unit of $327.2 million, reducing the goodwill balance of the
reporting unit to zero. In addition, we performed impairment tests on the long-lived assets allocated to the
asset group of the ILS reporting unit, including intangible assets, property, plant and equipment and right-
of-use (“ROU”) assets as of April 4, 2020 and recorded non-cash pre-tax charges, in the quarter ended
April 4, 2020, related to the impairment intangible assets, property, plant and equipment and ROU assets of
the ILS reporting unit of $33.9 million, $85.6 million and $1.8 million, respectively.
Our indebtedness following the Rofin merger is substantially greater than our indebtedness prior to the merger.
This increased level of indebtedness could adversely affect us, including by decreasing our business flexibility,
and will increase our borrowing costs.
In November 2016, we entered into a credit agreement (the “Credit Agreement”), which provided for a
670.0 million Euro term loan (the “Euro Term Loan”, all of which was drawn, and a $100.0 million revolving
credit facility (the “Revolving Credit Facility”), under which a 10 million Euro letter of credit was issued.
As of October 3, 2020, 358.2 million Euros were outstanding under the Euro Term Loan. As of October 3,
2020, the Revolving Credit Facility had been used for guarantees of 10.0 million Euros as well as borrowings
of $10.0 million. We may incur additional indebtedness in the future by accessing the Revolving Credit
Facility and/or entering into new financing arrangements. Our ability to pay interest and repay the principal
of our current indebtedness is dependent upon our ability to manage our business operations and the
ongoing interest rate environment. There can be no assurance that we will be able to manage any of these
risks successfully.
The Credit Agreement contains customary affirmative covenants, including covenants regarding the
payment of taxes and other obligations, maintenance of insurance, reporting requirements and compliance
with applicable laws and regulations, and negative covenants, including covenants limiting the ability of
us and our subsidiaries to, among other things, incur debt, grant liens, make investments, make certain
restricted payments, transact with affiliates, and sell assets. The Credit Agreement also requires us and our
subsidiaries to maintain a senior secured net leverage ratio as of the last day of each fiscal quarter of less of
than or equal to 3.50 to 1.00. The Credit Agreement contains customary events of default that include,
among other things, payment defaults, cross defaults with certain other indebtedness, violation of covenants,
inaccuracy of representations and warranties in any material respect, change in control of us and Coherent
Holding BV & Co. K.G. (formerly Coherent Holding GmbH), judgment defaults, and bankruptcy and
insolvency events. If an event of default exists, the lenders may require the immediate payment of all
obligations and exercise certain other rights and remedies provided for under the Credit Agreement, the other
loan documents and applicable law. The acceleration of such obligations is automatic upon the occurrence
of a bankruptcy and insolvency event of default. There can be no assurance that we will have sufficient
financial resources or we will be able to arrange financing to repay our borrowings at such time.
Our substantially increased indebtedness and higher debt-to-equity ratio as a result of the Rofin merger
in comparison to that prior to the merger will have the effect, among other things, of reducing our flexibility
to respond to changing business and economic conditions and will increase our borrowing costs. In
addition, the amount of cash required to service our increased indebtedness levels and thus the demands on
our cash resources will be greater than the amount of cash flows required to service our indebtedness or
that of Rofin individually prior to the merger. The increased levels of indebtedness could also reduce funds
available for our investments in product development as well as capital expenditures, dividends, share
repurchases and other activities and may create competitive disadvantages for us relative to other companies
with lower debt levels.
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 in
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determining whether 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. 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.
For example, in the quarter ended April 4, 2020, the worldwide spread of COVID-19 created significant
volatility, uncertainty and disruption to the global economy, representing an indicator to test our goodwill
for impairment. As a result of that test, we recorded a non-cash pre-tax charge, in the quarter ended April 4,
2020, related to the ILS reporting unit of $327.2 million, reducing the goodwill balance of the reporting
unit to zero. In addition, we performed impairment tests on the long-lived assets allocated to the asset group
of the ILS reporting unit, including intangible assets, property, plant and equipment and ROU assets as of
April 4, 2020 and recorded non-cash pre-tax charges, in the quarter ended April 4, 2020, related to the
impairment intangible assets, property, plant and equipment and ROU assets of the ILS reporting unit of
$33.9 million, $85.6 million and $1.8 million, respectively.
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 impact 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 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. In addition, the willingness of financial institutions to continue to accept our cash
deposits will impact our ability to diversify our investment risk among institutions.
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 significant portion 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 government-
issued securities such as U.S. Treasury securities and government agencies, corporate notes, commercial paper
and money market funds. 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.”
INTELLECTUAL PROPERTY AND CYBERSECURITY RISKS
If we are unable to protect our proprietary technology, our competitive advantage could be harmed.
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
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to protect our intellectual property rights. Our patent applications may not be approved, any patents that
may be issued may not sufficiently protect our intellectual property and any issued patents may 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 have been and 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 and around the world involving
patents and other intellectual property rights. This has been seen in our industry, for example in the concluded
patent-related litigation between IMRA America, Inc. (“Imra”) and IPG Photonics Corporation and in
Imra’s concluded patent-related litigation against two of our German subsidiaries. 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.
In addition to paying possibly significant monetary damages, 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 and our business may be seriously harmed. We do not have insurance to cover potential
claims of this type.
Our information systems are subject to attacks, interruptions and failures.
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
gains unauthorized access to our data, including any regarding our customers, such a security breach could
expose us to a risk of loss of this information, loss of business, litigation and possible liability. Our 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
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adequate preventative measures. Any unauthorized access 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. Additionally, such actions could result in significant costs associated with loss of our intellectual
property, impairment of our ability to conduct our operations, rebuilding our network and systems,
prosecuting and defending litigation, responding to regulatory inquiries or actions, paying damages or
taking other remedial steps.
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 SEC. 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.
LEGAL, TAX, REGULATORY AND COMPLIANCE RISKS
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 our worldwide tax liabilities. A number of factors
may affect our future effective tax rates including, but not limited to:
• interpretation and impact of the recently enacted and aforementioned U.S. tax laws, the Tax Act and
the CARES Act;
• changes in our current and future global structure based on the Rofin acquisition and restructuring
that involved significant movement of U.S. and foreign entities and our ability to maintain favorable
tax treatment as a result of various Rofin restructuring efforts and business activities;
• the outcome of discussions with various tax authorities regarding intercompany transfer pricing
arrangements;
• changes that involve other acquisitions, restructuring or an increased investment in technology
outside of the United States to better align asset ownership and business functions with revenues
and profits;
• changes in the composition of earnings in countries or states with differing tax rates;
• the resolution of issues arising from tax audits with various tax authorities, and in particular, the
outcome of the German tax audits for fiscal 2011-2016 and the appeals of the South Korean fiscal 2014-
2017 tax audits through the Competent Authority process between South Korea, Germany and the
United States;
• adjustments to estimated taxes upon finalization of various tax returns;
• increases in expenses not deductible for tax purposes, including impairments of goodwill in connection
with acquisitions;
• our ability to meet the eligibility requirements for tax holidays of limited time tax-advantage status
and any challenges by tax authorities regarding the timing of benefits derived from those holidays;
• changes in available tax credits;
• changes in share-based compensation;
44
• changes in other tax laws or the interpretation of such tax laws, including the Base Erosion Profit
Shifting action plan implemented by the Organization for Economic Co-operation and Development;
• changes in generally accepted accounting principles; and
• significant fluctuations in business activities due to the COVID-19 pandemic.
As indicated above, we are engaged in discussions with various tax authorities regarding the appropriate
level of profitability for Coherent entities and this may result in changes to our worldwide tax liabilities. In
addition, we are subject to regular examination of our income tax returns by the Internal Revenue Service
(“IRS”) and other tax authorities. 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 from the treatment reflected in our historical income tax provisions and accruals, which
could materially and adversely affect our operating results and financial condition.
From time to time the United States, foreign and state governments make substantive changes to tax
rules and the application of rules to companies. For example, the Tax Act has a significant impact on the
taxation of Coherent including the U.S. tax treatment of our foreign operations. The Tax Act is subject to
further interpretation by the U.S. federal and state governments and regulatory organizations, legislative
updates or new regulations, or changes in accounting standards for income taxes. These actions may have
a material impact on our financial results.
Governmental regulations, including tariffs and duties, affecting the import or export of products could
negatively affect our business, financial condition and results of operations.
The U.S., Germany, the European Union, the United Kingdom, China, South Korea, Japan and many
other 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 U.S. and various foreign governments have imposed tariffs, controls, export license
requirements and restrictions on the import or export of some technologies, especially those related to the
power and performance of our products and 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 licenses or other approvals
for our products, could harm our international and domestic sales and adversely affect our net sales.
Exports of certain of our products are subject to export controls imposed by the U.S. government and
administered by the U.S. Departments of State and Commerce. In certain instances, these regulations may
require pre-shipment authorization from the administering department. For products subject to the EAR, the
requirement for a license is dependent on the type and end use of the product, the final destination, the
identity of the end user and whether a license exception might apply. Virtually all exports of products subject
to ITAR require a license. Certain of our products are subject to EAR and to ITAR. Products and the
associated technical data developed and manufactured in our foreign locations are subject to export controls
of the applicable foreign nation. Given the current global political climate, obtaining export licenses can be
difficult and time-consuming and may result in substantial expenses and diversion of management’s attention.
Failure (i) to obtain the required export licenses could reduce our revenue and/or (ii) to adequately address
these directives could result in substantial payments, fines, penalties or damages — including the 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. For example, German authorities are currently
investigating an export compliance matter involving one of our German subsidiaries involving four former
employees (whose employment was terminated following our discovery of this matter) and while we do not
believe that the final resolution of this matter will be material to our consolidated financial position,
results of operations or cash flows, the German government investigation is ongoing and it is possible that
substantial payments, fines, penalties or damages could result.
45
The U.S. has recently instituted or proposed changes in trade policies that include the negotiation or
termination of trade agreements, the imposition of higher tariffs on imports into the United States including,
in particular, on Chinese goods, economic sanctions on individuals, corporations or countries and other
government regulations affecting trade between the United States and other countries where we conduct our
business. In addition, the Japanese government has recently instituted trade restrictions affecting the
export to South Korea of certain products and materials used in the manufacture of flat panel displays and
in the semiconductor industry. These policy changes and proposals could require time-consuming and
expensive alterations to our business operations and may result in greater restrictions and economic
disincentives on international trade, which could negatively impact our competitiveness in jurisdictions
around the world as well as lead to an increase in costs in our supply chain. Given that we are a multinational
corporation, with manufacturing located both in the United States and internationally, we may face
additional susceptibility to negative impacts from these tariffs or change in trade policies regarding our inter-
company trade practices. For example, we have recently seen a reduction in demand from our Chinese
customers particularly in the materials processing space. Some of these customers are reevaluating expansion
plans and delaying and, in limited cases, cancelling orders. In addition, new tariffs and other changes in
U.S. trade policy could trigger retaliatory actions by affected countries, and certain foreign governments,
including the Chinese government (which has imposed retaliatory tariffs on a range of U.S. goods including
certain photonics products), some of which have instituted or are considering imposing trade sanctions on
certain U.S. manufactured goods. Such changes by the United States and other countries have the potential to
adversely impact U.S. and worldwide economic conditions, our industry and the global demand for our
products, and as a result, could negatively affect our business, financial condition and results of operations.
As a multinational corporation, we may be subject to audits by tax, export and customs authorities, as
well as other government agencies. For example, we were audited in South Korea for customs duties and
value added tax for the period from March 2009 to March 2014. We were liable for additional payments,
duties, taxes and penalties of $1.6 million, which we paid in the second quarter of fiscal 2016. Any future
audits could lead to assessments that could have a material adverse effect on our business or financial position,
results of operations, or cash flows.
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
46
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, South 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. The SEC has promulgated rules requiring disclosure regarding
the use of certain “conflict minerals” mined from the Democratic Republic of Congo and adjoining
countries and procedures regarding a manufacturer’s efforts to prevent the sourcing of such minerals. The
implementation of such rules has required us to incur additional expense and internal resources and may
continue to do so in the future, particularly in the event that only a limited pool of suppliers are available to
certify that products are free from “conflict minerals.” 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.
Failure to maintain effective internal controls may cause a loss of investor confidence in the reliability of our
financial statements or 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 our 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.
We may face particular privacy, data security and data protection risks due to laws and regulations regulating
the protection or security of personal and other sensitive data.
We may face particular privacy, data security and data protection risks due to laws and regulations
regulating the protection or security of personal and other sensitive data, including in particular several
laws and regulations that have recently been enacted or adopted or are likely to be enacted or adopted in the
future. For instance, effective May 25, 2018, the European General Data Protection Regulation (“GDPR”)
imposed additional obligations and risk upon our business and increased substantially the penalties to which
we could be subject in the event of any non-compliance. GDPR requires companies to satisfy requirements
regarding the handling of personal data (generally, of EU residents), including its use, protection and the
rights of affected persons regarding their data. Failure to comply with GDPR requirements could result in
fines of up to 20 million Euro or 4% of global annual revenues, whichever is higher. We have taken extensive
measures to ensure compliance with GDPR and to minimize the risk of incurring any penalties and we
continue to adapt to the developing interpretation and enforcement of GDPR as well as emerging best
practice standards. For example, we have introduced an international Data Protection Organization, a
European Data Protection Policy, a system for Data Protection Management and Documentation and
implemented an international Intra Group Data Transfer Agreement including the EU Standard Contractual
Clauses. In addition, several other jurisdictions around the world have recently enacted privacy laws or
47
regulations similar to GDPR. For instance, California enacted the California Consumer Privacy Act
(“CCPA”), which became effective January 1, 2020 and which gives consumers many of the same rights as
those available under GDPR. Several laws similar to the CCPA have been proposed in the United States at
both the federal and state level. Like GDPR, other similar laws and regulations, as well as any associated
inquiries or investigations or any other government actions, may be costly to comply with, result in
negative publicity, increase our operating costs, require significant management time and attention, and
subject us to remedies that may harm our business.
Violations of anti-bribery, anti-corruption, and/or international trade laws to which we are subject could
negatively affect our business, financial condition and results of operations.
We are subject to laws concerning our business operations and marketing activities in foreign countries
where we conduct business. For example, we are subject to the FCPA, U.S. export control and trade sanction
laws, and similar anti-corruption and international trade laws in certain foreign countries, such as the U.K.
Bribery Act. The FCPA generally prohibits U.S. companies and their officers, directors, employees, and
intermediaries from making improper payments to foreign officials for the purpose of obtaining or retaining
business abroad or otherwise obtaining favorable treatment. The FCPA also requires that U.S. public
companies maintain books and records that fairly and accurately reflect transactions and maintain an
adequate system of internal accounting controls. There can be no assurance that our employees, contractors,
sales channel partners and agents will not take actions in violation of our policies and procedures, which
are designed to ensure compliance with such laws. Violations of such laws and/or our policies and procedures
by our employees, contractors, sales channel partners and agents could result in sanctions including civil
and criminal fines, disgorgement of profits and suspension or debarment of our ability to contract with
government agencies or receive export licenses and could also result in the termination of our relationships
with customers and suppliers as well as financial reporting problem which could negatively affect our business,
financial condition and results of operations.
RISKS RELATED TO OWNERSHIP OF OUR COMMON STOCK
Provisions of our charter documents and Delaware law, and our Change of Control and Leadership Change
Severance Plan, may have anti-takeover effects that could prevent or delay a change in control.
Provisions of our certificate of incorporation and bylaws, as well as the terms of our Change of
Control and Leadership Change Severance Plan, may discourage, delay or prevent a merger or acquisition,
make a merger or acquisition more costly for a potential acquirer, 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 acquirers or result
in a lower stock price.
48
GENERAL RISK FACTORS
Worldwide economic conditions and related uncertainties could negatively impact demand for our products and
results of operations.
Volatility and disruption in the capital and credit markets, depressed consumer confidence, government
economic policies, 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 future sales decline or remain flat. Spending and the timing thereof by consumers and
businesses have a significant impact on our results and, where such spending is delayed or cancelled, it
could have a material negative impact on our operating results. Global economic conditions have become
more uncertain and challenging as the effects of the COVID-19 pandemic continue to have a significant
adverse effect on the global economy. Weakness in our end markets has negatively impacted our bookings, net
sales, gross margin and operating expenses, and, if it continues, would have a material adverse effect on our
business, financial condition and results of operations.
Uncertainty in global fiscal policy has likely had an adverse impact on global financial markets and
overall economic activity in recent years. Should this uncertain financial policy continue to occur or recur, it
would likely continue to, and may in the future, negatively impact global economic activity. Any weakness
in global economies would also likely have negative repercussions on U.S. and global credit and financial
markets, and further exacerbate sovereign debt concerns in the European Union. All of these factors would
likely adversely impact the global demand for our products and the performance of our investments, and
would likely have a material adverse effect on our business, results of operations and financial condition.
Financial turmoil affecting the banking system and financial markets, as has occurred in recent years,
could result in tighter credit markets and lower levels of liquidity in some financial markets. There could be
a number of follow-on effects from a 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 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, civil unrest and
mass migration may put further pressure on economic conditions in the United States and the rest of the
world. 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.”
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. As a public company our
stock price fluctuates for a variety of different reasons, some of which may be related to broader industry
49
and/or market factors. As a result, from time-to-time we may be subject to the risk of litigation due to the
fluctuation in stock price or other governance or market-related factors. 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.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not Applicable.
ITEM 2. PROPERTIES
Our corporate headquarters is located in Santa Clara, California. At fiscal 2020 year-end, our principal
manufacturing locations were as follows (all acreage and square footage is approximate) (unless otherwise
indicated, each property is utilized jointly by our two segments):
Description
Use
Term*
8.5 acres of land, 200,000
square feet
Corporate headquarters,
manufacturing, R&D
Owned
several buildings totaling
68,635 square feet
Office, manufacturing,
R&D
Santa Clara, CA
Richmond, CA(2)
Sunnyvale, CA(1)
Bloomfield, CT(1)
two buildings totaling
28,299 square feet
88,396 square feet
East Granby, CT(1)
68,135 square feet
Plymouth, MI(1)
54,080 square feet
Mount Olive, NJ(2)
88,000 square feet
Office, manufacturing,
R&D
Office, manufacturing,
R&D
Office, manufacturing,
R&D
Office, manufacturing,
R&D
Office, manufacturing,
R&D
Office, manufacturing,
R&D
Leased through
November 2022
Leased through
December 2023
Leased through
February 2027
Leased through
January 2027
Leased through May 2022
Leased through June 2028
Owned
Owned
Owned
Tampere, Finland (1)
Gilching, Germany(1)
Göttingen, Germany(2)
4.9 acres of land, 50,074
square feet
4.2 acres of land, 125,012
square feet
Office, manufacturing,
R&D
14.2 acres of land, several
buildings totaling 211,648
square feet
Office, manufacturing,
R&D
Lübeck, Germany(2)
several buildings totaling
89,761 square feet
Office, manufacturing,
R&D
Leased through
March 2022
Lübeck, Germany(2)
7.4 acres of land
Future office,
manufacturing, R&D
Owned (construction of
new building in process)
Mainz, Germany(1)
Mainz, Germany(1)
Glasgow, Scotland(2)
1.2 acres of land, 46,984
square feet
Office, manufacturing,
R&D
Owned
several buildings totaling
46,193 square feet
Office, manufacturing,
R&D
Leased primarily through
September 2022
2.0 acres of land, 68,220
square feet
Office, manufacturing,
R&D
Owned
Kallang Sector, Singapore
42,722 square feet
Office, manufacturing
An-Seong, South Korea(2)
60,257 square feet
Office, manufacturing
Leased through
January 2022
Leased through
October 2027
(1) This facility is utilized primarily by our ILS operating segment.
50
(2) This facility is utilized primarily by our OLS operating segment.
* We currently plan to renew leases on buildings as they expire, as necessary.
We maintain other manufacturing, sales and service offices under varying leases expiring from fiscal
2021 through 2032 in Belgium, Canada, China, France, Germany, Israel, Italy, Japan, Malaysia, the
Netherlands, South Korea, Spain, Sweden, Switzerland, Taiwan, the United Kingdom, the United States
and Vietnam.
We consider our facilities to be both suitable and adequate to provide for current and near term
requirements and that the productive capacity in our facilities is substantially being utilized or we have
plans to utilize it.
ITEM 3. LEGAL PROCEEDINGS
We are subject to legal claims and litigation arising in the ordinary course of business, such as contract-
related, product sales and servicing, real estate, product liability, regulatory matters, employment or intellectual
property claims.
Although we do not expect that such claims and litigation will ultimately have a material adverse effect
on our consolidated financial position, results of operations or cash flows, an adverse result in one or more
matters could negatively affect our results in the period in which they occur, or in future periods.
The United States and many foreign governments impose tariffs and duties on the import and export
of certain products we sell and purchase. From time to time our customs compliance, product classifications,
duty calculations and payments are reviewed or audited by government agencies. Any adverse result in
such a review or audit could negatively affect our results in the period in which they occur, or in future periods.
German authorities are currently investigating an export compliance matter involving one of our
German subsidiaries involving four former employees (whose employment was terminated following our
discovery of this matter). While under German law the subsidiary can be held liable for certain infringements
by its employees of German export control laws, we believe that this matter involves less than approximately
1.5 million Euros in transactions in the period currently under investigation and do not believe that the
final resolution of this matter will be material to our consolidated financial position, results of operations
or cash flows. However, the German government investigation is ongoing and it is possible that substantial
payments, fines, penalties or damages could result. Even though we do not currently expect this matter to be
material to our consolidated financial position, results of operations or cash flows, circumstances could
change as the investigation progresses.
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. Our most significant tax jurisdictions are the U.S. and Germany. For U.S. federal
and German income tax purposes, all years prior to fiscal 2017 and 2011, respectively, are closed to
examination. In our other major foreign jurisdictions and our major state jurisdictions, the years prior to
fiscal 2014 and 2016, respectively, are closed. Earlier years in our various jurisdictions may remain open for
adjustment to the extent that we have tax attribute carryforwards from those years.
In Germany, various Coherent and legacy Rofin entities are under audit for the years 2011 through
2016. The South Korean tax authorities also performed an audit focused on intercompany transfer pricing
arrangements for fiscal years 2014 through 2017. In May 2019, the South Korean tax authorities issued
transfer pricing assessments for taxes, royalties and sales commissions, which we are in the process of
appealing and contesting through the Competent Authority process between South Korea, Germany and
the United States. Accordingly, there is no change to our tax position at the time of filing of this annual
report. We are continuing to monitor and evaluate this situation. In October 2020, the South Korean tax
authorities advised us that they are performing an internal review of our initial and second High-Tech tax
exemptions approved in fiscal 2013 and 2016, respectively. The tax authorities requested information to
further substantiate the timing of the benefits of our exemptions and this review is currently ongoing.
51
The timing and the resolution of income tax examinations is highly uncertain, and the amounts
ultimately paid, if any, upon resolution of the issues raised by the taxing authorities may differ materially
from the amounts accrued for each year. Management believes that it has adequately provided for any
adjustments that may result from tax examinations. We regularly engage in discussions and negotiations
with tax authorities regarding tax matters in various jurisdictions. Although the timing of resolution,
settlement and closure of audits is not certain, we do not believe it is reasonably possible that our unrecognized
tax benefits will materially change in the next 12 months.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
52
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock is listed on the NASDAQ Global Select Market exchange with the ticker symbol of
COHR.
The number of stockholders of record as of November 25, 2020 was 481. While we paid a cash
dividend in fiscal 2013 and may elect to pay dividends in the future, we have no present intention to declare
cash dividends. The credit agreement includes certain restrictions on our ability to pay cash dividends.
There were no sales of unregistered securities in fiscal 2020.
On February 5, 2020, we announced that our board of directors authorized a stock repurchase
program authorizing the Company to repurchase up to $100.0 million of our common stock through
January 31, 2021. There were no stock repurchases during the fourth quarter of fiscal 2020. As of October 3,
2020, $100.0 million remained available for repurchase under this program.
Refer to Note 14 “Stock Repurchases” of our Notes to Consolidated Financial Statements under
Item 8 of this annual report for discussion on repurchases during fiscal 2020, 2019 and 2018.
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 October 3, 2015 through October 3,
2020 comparing the return on our common stock with the Russell 1000 Index and the Nasdaq Composite
Index. 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 1000 INDEX AND THE NASDAQ COMPOSITE INDEX.
Comparison of Cumulative Five Year Total Return
$500
$400
$300
$200
$100
$0
10/03/2015
10/01/2016
9/30/2017
9/29/2018
9/28/2019
10/03/2020
Coherent, Inc.
Russell 1000 Index
Nasdaq Composite Index
53
Base
Period
INDEXED RETURNS
Years Ending
Company Name / Index
10/3/2015
10/1/2016
9/30/2017
9/29/2018
9/28/2019
10/3/2020
Coherent, Inc. . . . . . . . . . . . . . . . . . . . . .
Russell 1000 Index . . . . . . . . . . . . . . . . . .
Nasdaq Composite Index . . . . . . . . . . . . .
100
100
100
202.16
113.04
114.24
430.08
134.00
141.30
314.90
157.81
176.86
277.14
163.06
176.46
201.17
189.77
248.56
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 included elsewhere in this annual report.
We derived the consolidated statement of operations data for fiscal 2020, 2019, and 2018 and the
consolidated balance sheet data as of fiscal 2020 and 2019 year-end from our audited consolidated financial
statements, and accompanying notes, contained in this annual report. The consolidated statements of
operations data for fiscal 2017 and 2016 and the consolidated balance sheet data as of fiscal 2018, 2017, and
2016 year-end are derived from our audited consolidated financial statements which are not included in
this annual report.
Consolidated financial data
. . . . . . . . . . . . . . . . . . . . .
Net sales
Gross profit . . . . . . . . . . . . . . . . . . .
Net income (loss) from continuing
Fiscal
2020(1)
Fiscal
2019(2)
Fiscal
2018(3)
Fiscal
2017(4)
Fiscal
2016(5)
(in thousands, except per share data)
$1,228,999
$ 410,874
$1,430,640
$ 486,465
$1,902,573
$ 830,691
$1,723,311
$ 750,269
$ 857,385
$ 381,392
operations . . . . . . . . . . . . . . . . . . .
$ (414,139) $
53,825
$ 247,360
$ 208,644
$
87,502
Net income (loss) per share from
continuing operations:
Basic . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . .
Shares used in computation:
Basic . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . .
$
$
(17.18) $
(17.18) $
2.23
2.22
$
$
10.07
9.95
$
$
8.52
8.42
$
$
3.62
3.58
24,105
24,105
24,118
24,279
24,572
24,851
24,487
24,777
24,142
24,415
Total assets* . . . . . . . . . . . . . . . . . . .
$1,827,496
$2,083,169
$2,259,969
$2,337,800
$1,161,148
Long-term obligations . . . . . . . . . . . .
$ 411,140
$ 392,238
$ 420,711
$ 589,001
Other long-term liabilities* . . . . . . . . .
$ 221,074
$ 165,881
$ 151,956
$ 166,390
$
$
—
48,826
Stockholders’ equity . . . . . . . . . . . . .
$ 927,224
$1,284,736
$1,314,464
$1,163,264
$ 910,828
*
In February 2016, the FASB issued accounting guidance (ASC 842) that modifies lease accounting for
lessees to increase transparency and comparability by recording lease assets and liabilities for operating
leases and disclosing key information about leasing arrangements. We adopted ASC 842 in the first
quarter of fiscal 2020 utilizing the optional transition method by applying the new standard to leases
existing at the date of initial application and not restating comparative periods. The adoption of the
standard resulted in the recognition of operating lease assets of $90.4 million, with corresponding
operating lease liabilities of $93.5 million on our consolidated balance sheet, primarily related to real
estate leases.
54
(1)
(2)
(3)
(4)
Includes $423.2 million of after-tax charges for goodwill and other impairment (goodwill and other long-
lived assets), $2.1 million of after-tax restructuring charges (net of the gain on the sale-leaseback of
our Hamburg facility), $0.7 million after-tax of accelerated compensation for our former CEO,
$0.6 million non-recurring income tax net expense and $0.9 million of excess tax benefits for employee
stock-based compensation.
Includes $16.0 million of after-tax restructuring charges, $0.4 million of after-tax amortization of
purchase accounting step-up, $1.1 million of benefit from amounts received on a resolved asset recovery
matter, $1.7 million non-recurring income tax net expense and $2.5 million of excess tax benefits for
employee stock-based compensation.
Includes $2.9 million of after-tax restructuring charges, $0.8 million impairment and other charges,
$0.7 million of after-tax acquisition costs, $0.6 million of after-tax amortization of purchase accounting
step-up, $26.7 million of tax charges due to the U.S. Tax Cuts and Jobs Act transition tax and deferred
tax remeasurement, $3.3 million tax charge due to an increase in valuation allowances against deferred
tax assets and $12.8 million of tax benefit from the adoption of new rules for accounting for excess tax
benefits and tax deficiencies for employee stock-based compensation.
Includes $19.0 million of after-tax amortization of purchase accounting step-up, $17.4 million of after
tax costs related to the acquisition of Rofin, $8.4 million of after-tax restructuring charges, an
after-tax charge of $1.9 million for the impairment of net assets of several entities held for sale,
$1.8 million after-tax interest expense on the commitment of the Euro Term Loan to finance the
acquisition of Rofin, a $7.1 million after-tax gain on our hedge of our foreign exchange risk related to
the commitment of the Euro Term Loan and the issuance of debt to finance the acquisition of Rofin, a
$3.4 million after-tax gain on our sale of previously owned Rofin shares and a benefit of $1.4 million
from the closure of R&D tax audits.
(5)
Includes $6.4 million of after tax costs related to the acquisition of Rofin, a $1.4 million after-tax loss
on our hedge of our foreign exchange risk related to the commitment of the Euro Term Loan to finance
the acquisition of Rofin, $0.8 million after-tax interest expense on the commitment of the Euro Term
Loan to finance the acquisition of Rofin and a benefit of $1.2 million from the renewal of the R&D tax
credit for fiscal 2015.
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 under Item 8 of
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.”
We have applied the FAST Act Modernization and Simplification of Regulation S-K, which limits the
discussion to the two most recent fiscal years. This discussion and analysis deals with comparisons of material
changes in the consolidated financial statements for fiscal 2020 and fiscal 2019. For the comparison of
fiscal 2019 and fiscal 2018, see the Management’s Discussion and Analysis of Financial Condition and Results
of Operations in Part II, Item 7 of our 2019 Annual Report on Form 10-K, filed with the Securities and
Exchange Commission on November 26, 2019.
KEY PERFORMANCE INDICATORS
Below is a summary of some of the quantitative performance indicators (as defined below) that are
evaluated by management to assess our financial performance. Some of the indicators are non-GAAP
measures and should not be considered as an alternative to any other measure for determining operating
performance or liquidity that is calculated in accordance with generally accepted accounting principles.
55
Net Sales – OEM Laser Sources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Sales – Industrial Lasers & Systems
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross Profit as a Percentage of Net Sales – OEM Laser Sources . . . . . . . . . . . .
Gross Profit as a Percentage of Net Sales – Industrial Lasers & Systems . . . . . .
Research and Development Expenses as a Percentage of Net Sales . . . . . . . . . .
Income (Loss) Before Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Cash Provided by Operating Activities
. . . . . . . . . . . . . . . . . . . . . . . . . .
Free Cash Flow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Days Sales Outstanding in Receivables
Annualized Fourth Quarter Inventory Turns . . . . . . . . . . . . . . . . . . . . . . . . .
Net Income (Loss) from Continuing Operations as a Percentage of Net Sales . . .
Fiscal
2020
2019
$ 758,929
$ 470,070
$886,676
$543,964
46.0%
14.5%
9.4%
$(442,723)
$ 206,907
$ 141,988
65
1.9
(33.7)%
47.3%
13.3%
8.2%
$ 60,048
$181,401
$ 98,118
67
2.1
3.8%
Adjusted EBITDA as a Percentage of Net Sales . . . . . . . . . . . . . . . . . . . . . . .
12.3%
18.1%
Definitions and analysis of these performance indicators are as follows:
Net Sales
Net sales include sales of lasers, laser systems, related accessories and services. Net sales for fiscal 2020
decreased 14.4% in our OLS segment and decreased 13.6% in our ILS segment from fiscal 2019. 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 OLS decreased to 46.0% in fiscal 2020
from 47.3% in fiscal 2019. Gross profit percentage for ILS increased to 14.5% in fiscal 2020 from 13.3% in
fiscal 2019. 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 increased to 9.4% in fiscal 2020 from 8.2% in fiscal 2019. 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.
Free Cash Flow
Free cash flow represents net cash provided by operating activities reduced by purchases of property
and equipment, both as reflected on our Consolidated Statements of Cash Flows. We believe that free cash
flow is an important performance indicator because it is a measure of cash generation after accounting for
56
cash outflows to support operations and our investment in capital assets. 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 free cash flow refer to the “Liquidity and Capital Resources” section below,
where we discuss the reasons for changes in net cash provided by operating and investing activities.
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 a 360
day year. 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 2020 decreased to 65 days as
compared to 67 days in fiscal 2019. The decrease was primarily due to improved collections of receivables
for ELA tools used in the Asian flat panel display market, improved linearity with a lower concentration of
sales in the last month of the quarter. These ELA tools are our highest priced products, so any changes in
collection timing will have a more significant impact on overall DSO.
Annualized Fourth Quarter Inventory Turns
We calculate annualized fourth quarter 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. Our annualized fourth quarter inventory turns for fiscal
2020 decreased to 1.9 turns from 2.1 turns in fiscal 2019 due to slower consumption of inventory resulting
from a shift in demand partially related to the COVID-19 pandemic and lower intangibles amortization in
cost of goods sold as a result of the impairment charges recorded in the second quarter of fiscal 2020.
Although our annualized inventory turns are lower than our historical turns primarily due to shifts in
demand, we continue to carefully manage our inventory levels in anticipation of expected increased demand
from our customers over the next 12 to 18 months.
Adjusted EBITDA as a Percentage of Net Sales
We define adjusted EBITDA as operating income adjusted for depreciation, amortization, stock
compensation expense, restructuring costs, and certain other non-operating income and expense items, such
as costs related to our acquisitions. Key initiatives to reach our goals for EBITDA improvements include
utilization of our Asian manufacturing locations, optimizing our supply chain and continued leveraging of
our infrastructure.
We utilize a number of different financial measures, both GAAP and non-GAAP, such as free cash
flow and adjusted EBITDA as a percentage of net sales, in analyzing and assessing our overall business
performance, for making operating decisions and for forecasting and planning future periods. We consider
the use of non-GAAP financial measures helpful in assessing our current financial performance and ongoing
operations. While we use non-GAAP financial measures as a tool to enhance our understanding of certain
aspects of our financial performance, we do not consider these measures to be a substitute for, or superior to,
the information provided by GAAP financial measures. We provide free cash flow and adjusted EBITDA
as a percentage of sales in order to enhance investors’ understanding of our ongoing operations. These
measures are used by some investors when assessing our performance.
Below is the reconciliation of our net cash provided by operating activities to our free cash flow:
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$206,907
$181,401
Less: Purchases of property and equipment
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
64,919
83,283
Free cash flow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$141,988
$ 98,118
Fiscal
2020
2019
57
Below is the reconciliation of our net income (loss) from continuing operations a percentage of net
sales to our adjusted EBITDA as a percentage of net sales:
Net income (loss) from continuing operations as a percentage of net sales . . . . . . . . . . . .
Income tax expense (benefit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest and other income (expense), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring charges and other
Goodwill and other impairment charges (recoveries)
. . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal
2020
2019
(33.7)%
(2.3)%
1.5%
6.3%
0.3%
36.6%
3.6%
3.8%
0.4%
1.7%
8.1%
1.6%
(0.1)%
2.6%
Adjusted EBITDA as a percentage of net sales
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12.3% 18.1%
SIGNIFICANT EVENTS
Coronavirus pandemic (COVID-19)
In December 2019, COVID-19 was reported, and in January 2020, the World Health Organization
(“WHO”) declared it a Public Health Emergency of International Concern. On February 28, 2020, the
WHO raised its assessment of the COVID-19 threat from high to very high at a global level due to the
continued increase in the number of cases and affected countries, and on March 11, 2020, the WHO
characterized COVID-19 as a pandemic. In an effort to contain COVID-19 or slow its spread, governments
around the world have enacted various measures, including orders to close all businesses not deemed
“essential,” isolate residents in their homes or places of residence, and practice social distancing at and away
from work. These actions and the global health crisis caused by COVID-19 will continue to negatively
impact global business activity, which will continue to negatively affect our revenue and results of operations.
Each of the regions where we generate a majority of our revenue including Asia, Europe and North
America have been and will continue to be impacted by COVID-19. The timing and extent of impact
related to COVID-19 varies by country and region.
In determining the impact of the COVID-19 pandemic in relation to our net sales, we compare our
actual results to our most recently published forecast and the net sales guidance range communicated in our
quarterly earnings call. This forecast has been adjusted for known impacts to our bookings and net sales
from COVID-19 and other factors. Using this criteria, we estimate that our sales for the following fiscal
quarters were further negatively impacted by the COVID-19 pandemic: (i) for the fiscal quarter ended April 4,
2020 — $31.0 million, (ii) for the fiscal quarter ended July 4, 2020 — $9.0 million, and (iii) for the fiscal
quarter ended October 3, 2020 — an immaterial amount. The effect of COVID-19 as forecasted and as
further experienced was most significant in Asia during the quarter ended April 4, 2020 and began impacting
Europe and North America only later in the quarter ended April 4, 2020 as the virus spread globally. In
the quarter ended July 4, 2020, the global economic effect of the COVID-19 pandemic was less significant,
though continued to be high in certain regions. While we believe that COVID-19 was a partial cause of the
decline in revenue in the second quarter of fiscal 2020, we also had lower shipments related to ELA tools
in the flat panel display market and lower shipments in materials processing applications in the second quarter
of fiscal 2020 that were mostly unrelated to COVID-19.
During fiscal 2020, the global demand environment was uncertain at times given the effects of COVID-19
on many businesses, including manufacturing facilities and customer confidence around the world. While
we saw a partial recovery in order volumes in China in the latter half of March and the third quarter of fiscal
2020, this coincided with declining bookings in other regions, particularly in North America, and to a
lesser extent in Europe and other countries in Asia. In the fourth quarter of fiscal 2020, we saw global demand
recover in all regions and begin to return to a more normalized demand trend. However, we cannot predict
future resurgences of COVID-19 and the impact that it may have on future demand for our products and
services, particularly given the recently announced shutdown measures taken in certain countries in
Europe.
58
Currently, our major production facilities in Europe, Southeast Asia and the United States remain
open. At all of our locations, we have transitioned from business continuity plans to return-to-operations
plans while continuing to maintain high standards of employee safety and sanitization protocols. Our Return
to Operations Plans have a phased approach with the primary focus on employee safety, with a continuing
requirement for “working from home” for other members of our work force wherever possible. We have
vertically integrated manufacturing, and many of the components produced at certain of our facilities
supply other company facilities, are single sourced internally and are not available from third-party suppliers
(for example our semiconductor diodes are manufactured in Santa Clara, California). While we do maintain
a safety stock of critical components at our various locations, the scope, timing and duration of various
government restrictions to address the COVID-19 pandemic could impact our internal supply chain. We have
implemented certain policy changes to help support our employees impacted by COVID-19. These measures
have and will continue to increase the cost of our operations but the magnitude and length of time of this
impact is difficult to quantify at this time and may continue to be difficult to estimate in the future. If our sales
are reduced for an extended period or if our production output falls because of government restrictions,
we may be required to reduce payroll-related costs and other expenses in the future through layoffs or
furloughs, even though we have not done so to date.
We have not experienced significant supply disruption from third-party component suppliers. However,
we continue to face some supply chain constraints primarily related to logistics, including available air cargo
space and higher freight rates. Available cargo space on flights between the U.S. and Europe, and Europe
and Asia has been and remains limited as a result of the impact from COVID-19 and government and
business responses to it, and this has increased shipping time and costs. In addition, shipments between
countries have been more severely impacted by COVID-19 and we are experiencing delays due to additional
checks at border crossings, including within Europe and Asia. There has also been sporadic restrictions on
individual travel between certain states in the United States of America as well. Government actions
related to COVID-19 come on the heels of increasing trade tensions between the United States and China,
which may continue. We believe we have the ability to meet the near-term demand for our products, but the
situation is fluid and subject to change.
We continue to monitor the rapidly evolving conditions and circumstances as well as guidance from
international and domestic authorities, including public health authorities, and we may need to take
additional actions based on their recommendations. There is considerable uncertainty regarding the impact
on our business stemming from current measures and potential future measures that could restrict access
to our facilities, limit our manufacturing and support operations and place restrictions on our workforce,
customers and suppliers. The measures implemented by various authorities related to the COVID-19 outbreak
have caused us to change our business practices including those related to where employees work, the
distance between employees in our facilities, limitations on in-person meetings between employees and with
customers, suppliers, service providers, and stakeholders as well as restrictions on some shipping activities,
business travel to domestic and international locations or to attend trade shows, investor conferences and
other events. In March of 2020, we formed a COVID Steering Committee to, among other things, propose,
discuss, and implement best practices in response to COVID-19. The COVID Steering Committee meets
weekly and more often if required. All of our executive officers are members of the COVID Steering
Committee as are many key senior-level employees.
The COVID-19 pandemic has significantly increased worldwide and regional economic uncertainty
and decreased demand for our products in many markets we serve, which could continue for an unknown
period of time. In these circumstances, there may be developments outside of our control, including the length
and extent of the COVID-19 outbreak, government-imposed measures and our ability to ship as well as
install products and/or service installed products that may require us to adjust our operating plans. As such,
given the dynamic nature of this situation, we cannot estimate with certainty the future impacts of
COVID-19 on our financial condition, results of operations or cash flows. However, we do expect that it
could have an adverse impact on our revenue as well as our overall profitability and may lead to an increase
in inventory provisions, allowances for credit losses, and a volatile effective tax rate driven by changes in
the mix of earnings across our markets.
See the additional Risk Factor included in Part I-Item 1A of this annual report regarding the impact of
COVID-19.
59
Goodwill and other impairment charges
Based on our internal projections and the preparation of our financial statements for the quarter ended
April 4, 2020, and considering the forecasted decrease in demand due to the COVID-19 pandemic and other
factors, we believed that the fair value of our ILS reporting unit might no longer have exceeded its carrying
value and performed an interim goodwill impairment test on the ILS and OLS reporting units. Based on the
estimated fair value of the ILS reporting unit, in the quarter ended April 4, 2020, we recorded non-cash pre-
tax goodwill impairment charges of $327.2 million. In addition, we performed impairment tests on the long-
lived assets allocated to the asset group of the ILS reporting unit, including intangible assets, property,
plant and equipment and right of use (“ROU”) assets as of April 4, 2020 and recorded non-cash pre-tax
charges, in the quarter ended April 4, 2020, related to the impairment intangible assets, property, plant and
equipment and ROU assets of the ILS reporting unit of $33.9 million, $85.6 million and $1.8 million,
respectively. See Note 8, “Goodwill and Intangible Assets” and Note 11, “Leases” in the Notes to Consolidated
Financial Statements under Item 8 of this annual report.
Restructuring
In June 2019, we internally announced our plans to exit a portion of our High Power Fiber Laser
(“HPFL”) business and consolidate all HPFL manufacturing and engineering functions in our Tampere,
Finland facility by transferring certain HPFL activities from our Hamburg, Germany facility. In conjunction
with this announcement, we recorded restructuring charges in fiscal 2019 of $19.7 million. The charges
primarily related to write-offs of excess inventory, which is recorded in cost of sales, and estimated severance.
We recorded charges of $1.1 million in fiscal 2020, primarily related to accelerated depreciation and
project management consulting.
We also vacated our leased facility in Santa Clara at the end of the lease term on July 31, 2020 and
combined operations into our owned Santa Clara headquarters. We did not incur material expenses in fiscal
2019 related to this project. In fiscal 2020, we incurred costs of $1.5 million, primarily related to accelerated
depreciation.
In the fourth quarter of fiscal 2020, we began a restructuring program in our ILS segment which
includes management reorganizations, the planned closure of certain manufacturing sites, and the right-
sizing of global sales, service, order admin, marketing communication and certain administrative functions,
among others. In fiscal 2020, we incurred costs of $2.6 million, primarily related to severance.
See Note 19, “Restructuring Charges” in the Notes to Consolidated Financial Statements under Item 8
of this annual report for further discussion of the restructuring charges.
Acquisitions
On October 5, 2018, we acquired privately held Ondax, Inc. (“Ondax”) for approximately $12.0 million,
excluding transaction costs. Ondax developed and produced photonic components which are used on an
OEM basis by the laser industry as well as incorporated into its own stabilized lasers and Raman Spectroscopy
systems. See Note 4, “Business Combinations” in the Notes to Consolidated Financial Statements under
Item 8 of this annual report for further discussion of the acquisition.
On October 5, 2018, we acquired certain assets of Quantum Coating, Inc. (“Quantum”) for
approximately $7.0 million, excluding transaction costs. See Note 4, “Business Combinations” in the Notes
to Consolidated Financial Statements under Item 8 of this annual report for further discussion of the
acquisition.
Stock Repurchases
On February 5, 2020, our board of directors authorized a stock repurchase program authorizing the
Company to repurchase up to $100.0 million of our common stock through January 31, 2021.We made no
repurchases under the program during fiscal 2020.
On October 28, 2018, our board of directors authorized a stock repurchase program for up to
$250.0 million of our common stock through December 31, 2019, with a limit of no more than $75.0 million
60
per quarter. During fiscal 2019, we repurchased and retired 603,828 shares of outstanding common stock
under this program at an average price of $128.20 per share for a total of $77.4 million. We made no
repurchases under the program during fiscal 2020 and the program expired on December 31, 2019.
RESULTS OF OPERATIONS — FISCAL 2020 AND 2019
Fiscal 2020 consisted of 53 weeks and fiscal 2019 consisted of 52 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 statements of operations:
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating expenses:
Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill and other impairment charges . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income (expense), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for (benefit from) income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal
2020
2019
(As a percentage of net sales)
100.0%
100.0%
66.6%
33.4%
9.4%
22.0%
36.7%
0.3%
68.4%
(35.0)%
(1.0)%
(36.0)%
(2.3)%
(33.7)%
66.0%
34.0%
8.2%
19.0%
—%
1.0%
28.2%
5.8%
(1.6)%
4.2%
0.4%
3.8%
Net loss for fiscal 2020 was $414.1 million ($17.18 per diluted share). This included after tax charges of
$423.2 million for goodwill and other impairment, $39.1 million of after-tax stock-based compensation
expense, $21.9 million of after-tax amortization of intangible assets, $2.1 million of after-tax restructuring
costs (net of the gain on the sale-leaseback of our Hamburg facility), $0.7 million after-tax of accelerated
compensation for our former CEO, $0.6 million non-recurring income tax net expense and $0.9 million of
excess tax benefits for employee stock-based compensation.
Net income for fiscal 2019 was $53.8 million ($2.22 per diluted share). This included $44.0 million of
after-tax amortization of intangible assets, $31.5 million of after-tax stock-based compensation expense,
$16.0 million of after-tax restructuring costs, $0.4 million of after-tax amortization of purchase accounting
step up, $1.7 million non-recurring income tax net expense, $2.5 million of excess tax benefits for employee
stock-based compensation and $1.1 million of benefit from amounts received on a resolved asset recovery
matter.
Backlog
Backlog represents orders which we expect to be shipped within 12 months and the current portion of
service contracts. Orders used to compute backlog are generally cancellable and, depending on the notice
period, are subject to rescheduling by our customers without substantial penalties. We have not historically
experienced a significant rate of cancellation or rescheduling, however the rate of cancellations or rescheduling
may increase in the future. In the first quarter of fiscal 2019, one customer cancelled three purchase orders
which included $38.2 million of orders shippable within 12 months of fiscal 2018 year-end and which was
61
included in backlog as of fiscal 2018 year-end. We reached agreement with this customer for a cancellation
fee of $7.0 million, which was recorded in net sales in the first quarter of fiscal 2019.
We had a backlog of orders shippable within 12 months of $548.0 million at October 3, 2020, including
a concentration in the flat panel display market (26%) for customers which are primarily located in Asia.
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):
Microelectronics . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Materials processing . . . . . . . . . . . . . . . . . . . . . . . . . .
OEM components and instrumentation . . . . . . . . . . . .
Scientific and government programs . . . . . . . . . . . . . . .
Fiscal 2020
Fiscal 2019
Amount
$ 538,535
335,750
248,547
106,167
Percentage
of total
net sales
Amount
43.8% $ 632,176
404,878
27.3%
266,788
20.2%
126,798
8.7%
Percentage
of total
net sales
44.2%
28.3%
18.6%
8.9%
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,228,999
100.0% $1,430,640
100.0%
During fiscal 2020, net sales decreased by $201.6 million, or 14%, compared to fiscal 2019, with
decreases in all four markets. The decrease included lower net sales of approximately $40.0 million due to
the impact from COVID-19 shelter-in place orders as well as delays in restarting non-essential manufacturing
activity at many of our customers, which impacted all of our markets. In fiscal 2020, we continued to
experience weaker demand in the microelectronics and materials processing markets. We finished fiscal 2020
with a positive book-to-bill ratio and increased backlog levels compared to fiscal 2019. Entering fiscal
2021, we are well-positioned with our laser-based technology to benefit from technology proliferation in
rapid growth areas such as 5G, flexible OLED and MicroLED. In addition, we believe the market for laser-
based medical instrumentation, devices and procedures will continue to grow with the aging population
around the globe. We also anticipate that technology advances will result in increased defense spending.
During fiscal 2020, microelectronics sales decreased $93.6 million, or 15%, compared to fiscal 2019
primarily due to weaker demand resulting in lower shipments related to ELA tools used in the flat panel
display market as well as lower revenues from consumable service parts and a decrease due to a non-recurring
fee of $7.0 million that was recognized in fiscal 2019 related to the cancellation of orders from a customer
for our ELA tools. In microelectronics, we expect future increases in ELA tool shipments as Asian
manufacturers improve yields and ramp manufacturing as indicated by the fact that we have already received
new orders for these products in our first quarter of fiscal 2021. In addition, it is expected that the handset
market will transition to 5G technology. This technology requires more power from the battery which we
expect will result in the handset manufacturers having to decide between shorter talk times or placement
of larger batteries in existing form factors. Since OLED displays are much thinner than liquid crystal displays
(LCD), we believe 5G will increase demand for OLED displays to accommodate larger batteries. In
addition, we are seeing demand for laser solutions for MicroLED production. We believe that these
technological demands will allow us to continue to maintain a leadership position in flat panel display
applications. We are also seeing higher demand for semiconductor applications driven by continuous strength
in cloud computing and data centers as well as in advanced packaging applications driven by 5G demand
for smaller geometry, better power management and next generation printed circuit boards.
Materials processing sales decreased $69.1 million, or 17%, during fiscal 2020 primarily due to
decreased sales in marking, cutting and welding applications, primarily in China and Europe, and to a lesser
extent in the United States. An index which often correlates to materials processing sales is the Purchasing
Managers Index (PMI). PMI is a measure of the prevailing economic trends in manufacturing. While
manufacturing PMI has been in a contraction state (<50 on the index) in South Korea, Taiwan, the
EUROZONE and the U.S. for a year or so, the September 2020 PMI indicated an expansion in most major
62
economies. Additionally, other markets for sales of these applications have also been depressed (e.g.
automobiles). We see some strength in non-metal applications such as packaging, medical device
manufacturing (with the return of elective surgeries) and specialty semiconductor marking. Even before
COVID-19, demand in the materials processing market was softening in some of the machine tools industries
and the materials processing market continues to be negatively impacted by COVID-19. We are also seeing
increased price and margin pressure from Chinese competitors in this market. The timing for our recovery in
this market is uncertain.
The decrease in the OEM components and instrumentation market of $18.2 million, or 7%, during
fiscal 2020 was primarily due to lower shipments for medical applications. We expect strength in the healthcare
market over the next several years. We supply lasers and optical systems for biomedical instrumentation
applications and our lasers have been used in diagnostic instruments in applications including gene sequencing,
biomarker identification and vaccine development. Applications dependent on discretionary spending by
consumers, including tools and components used in discretionary medical procedures, as well as certain
research applications continue to be negatively impacted by COVID-19 but to a lesser extent than in mid-
fiscal 2020. We are seeing indications that the market is starting to recover. We anticipate the defense
market, especially amplifiers for directed energy, countermeasures as well as specialty optics for aerospace,
to be a multi-year growth opportunity for us.
The decrease in scientific and government programs market sales of $20.6 million, or 16%, during
fiscal 2020 was primarily due to lower demand for advanced research applications used by university and
government research groups, primarily in the United States and Asia, due to the closures of universities and
research institutions due to COVID-19 shelter-in-place orders during mid-fiscal 2020. We saw improved
demand in the fourth quarter of fiscal 2020 as universities and research institutions began to reopen. We
expect demand in the scientific and government programs market to continue to fluctuate from quarter to
quarter.
The timing for shipments of our higher average selling price ELA tools in the flat panel display market
has historically fluctuated and is expected to continue to fluctuate from quarter-to-quarter due to customer
scheduling, market conditions, our ability to manufacture these products and/or availability of critical
component parts and supplies. As a result, the timing to convert orders for these products to net sales will
likely fluctuate from quarter-to-quarter.
We have historically generally experienced decreased 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 our facilities and
those of many of our customers due to year-end holidays. For example, over the past 10 years, excluding
certain recovery years, our first fiscal quarter revenues have ranged 2%-17% below the fourth quarter of the
prior fiscal years.
In fiscal 2020 and 2019, one customer accounted for 17% of net sales.
Segments
We are organized into two reportable operating segments: OLS and ILS. While both segments deliver
cost-effective, highly reliable photonics solutions, OLS is focused on high performance laser sources and
complex optical sub-systems, typically used in microelectronics manufacturing, medical diagnostics and
therapeutic applications, as well as in scientific research. ILS delivers high performance laser sources, sub-
systems and tools primarily used for industrial laser materials processing, serving important end markets like
automotive, machine tools, consumer goods and medical device manufacturing.
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 2020
Fiscal 2019
OEM Laser Sources (OLS) . . . . . . . . . . . . . . . . . . . . .
$ 758,929
61.8% $ 886,676
Industrial Lasers & Systems (ILS)
. . . . . . . . . . . . . . . .
470,070
38.2%
543,964
Percentage
of total
net sales
Amount
Amount
Percentage
of total
net sales
62.0%
38.0%
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,228,999
100.0% $1,430,640
100.0%
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Net sales for fiscal 2020 decreased $201.6 million, or 14%, compared to fiscal 2019, with decreases of
$127.7 million, or 14%, in our OLS segment and decreases of $73.9 million, or 14%, in our ILS segment.
The fiscal 2020 decreases in both OLS and ILS segment sales included decreases due to the unfavorable impact
of foreign exchange rates.
The decrease in our OLS segment sales in fiscal 2020 was primarily due to weaker demand for ELA
tools resulting in lower shipments of ELA tools used in the flat panel display market and lower revenues
from consumable service parts. The decrease included lower sales of approximately $26.0 million due to
COVID-19. In addition, the decrease was due to a non-recurring fee of $7.0 million that was recognized in the
first quarter of fiscal 2019 related to the cancellation of orders from one customer for our ELA tools. In
addition, OLS sales decreased due to lower demand for advanced research applications used by university
and government research groups, primarily in the United States and Asia.
The decrease in our ILS segment sales from fiscal 2019 to fiscal 2020 was primarily due to lower sales
for materials processing and lower sales for medical applications within the OEM components and
instrumentation market. The decrease included lower sales of approximately $14.0 million due to COVID-19.
Gross Profit
Consolidated
Our gross profit percentage decreased by 0.6% to 33.4% in fiscal 2020 from 34.0% in fiscal 2019. The
decrease included a 1.2% favorable impact of lower restructuring costs, primarily related to the write-off of
inventories and severance costs in the third quarter of fiscal 2019 due to our exit from a portion of our HPFL
business and 1.2% lower amortization of intangibles primarily due to the impairment of ILS intangibles in
the second quarter of fiscal 2020. Excluding the 2.4% favorable impact of lower restructuring costs and
intangibles amortization, gross profit percentage decreased 3.0% primarily due to unfavorable product
margins (2.0%), higher other costs (1.4%) and higher stock-based compensation expense (0.1%) as
a percentage of sales partially offset by lower warranty and installation costs (0.5%) as a percentage of sales.
The unfavorable product margins were in both segments and were primarily due to unfavorable absorption
of manufacturing costs on lower volumes including the impact of idle facilities due to COVID-19 as well as
unfavorable product margins in OLS as a result of lower shipments of higher margin flat panel display
systems. In addition, the unfavorable impact (0.3%) of a $7.0 million non-recurring fee recognized in the
first quarter of fiscal 2019 related to the cancellation of orders from one customer for our ELA tools
contributed to the decrease. Other costs were higher primarily due to higher inventory provisions for excess
and obsolete inventory in certain ILS business units due to lower forecasted demand and changing business
conditions, net of lower inventory provisions for excess and obsolete inventory in certain OLS business units.
The lower warranty and installation costs were primarily in our ILS segment and included lower warranty
events with the largest impact from fiber lasers, primarily sold into China, partially offset by the impact of
lower sales volumes.
Our gross profit percentage has been and will continue to be affected by a variety of factors including
the impact of COVID-19, shipment volumes, product mix, pricing on volume orders, our ability to
manufacture advanced and more complex products, manufacturing efficiencies, excess and obsolete inventory
write-downs, warranty costs, amortization of intangibles, pricing by competitors or suppliers, new product
introductions, production volume, customization and reconfiguration of systems, commodity prices and
foreign currency fluctuations against the U.S. Dollar, particularly the recent volatility of the Euro and to a
lesser extent, the Japanese Yen and South Korean Won. Our gross profit in future quarters will continue to be
favorably impacted by lower amortization and depreciation as a result of the impairments of long-lived
assets in our ILS segment in the second quarter of fiscal 2020. We have embarked on a number of internal
strategic initiatives and are expecting that the impact of those will include an improvement of our gross
margins by the end of calendar 2021
OEM Laser Sources
Our OLS gross profit percentage decreased by 1.3% to 46.0% in fiscal 2020 from 47.3% in fiscal 2019
primarily due to unfavorable product margins (1.6%) as a result of the impact of both lower shipments of
higher margin flat panel display systems and lower revenues from consumable service parts and the unfavorable
64
impact of a $7.0 million non-recurring fee recognized in the first quarter of fiscal 2019 related to the
cancellation of orders from one customer for our ELA tools partially offset by unfavorable absorption of
manufacturing costs on lower volumes. The unfavorable product margins were partially offset by lower other
costs (0.2%) due to lower inventory provisions for excess and obsolete inventory in certain business units
as well as lower intangibles amortization (0.1%) as a percentage of sales.
Industrial Lasers & Systems
Our ILS gross profit percentage increased by 1.2% to 14.5% in fiscal 2020 from 13.3% in fiscal 2019.
The increase included a 3.1% favorable impact of lower restructuring costs, primarily related to the write-off
of inventories and severance costs in the third quarter of fiscal 2019 due to our exit from a portion of our
HPFL business and 3.0% lower amortization of intangibles due to the impairment of ILS intangibles in the
second quarter of fiscal 2020. Excluding the 6.1% favorable impact of lower restructuring costs and
intangibles amortization, gross profit percentage decreased 4.9% primarily due to higher other costs (3.9%)
due to higher inventory provisions for excess and obsolete inventory in several business units as a percentage
of sales and unfavorable product costs (2.5%) including unfavorable absorption of manufacturing costs on
lower volumes over multiple products. The decreases were partially offset by 1.5% lower warranty and
installation costs as a percentage of sales due to fewer warranty events, particularly for our HPFL products
sold in China, partially offset by higher warranty events for fiber components and diode components
products.
Operating Expenses
The following table sets forth, for the periods indicated, the amount of operating expenses and their
relative percentages of total net sales by the line items reflected in our consolidated statement of operations
(dollars in thousands):
Fiscal 2020
Fiscal 2019
Percentage
of total
net sales
Amount
Percentage
of total
net sales
Amount
(Dollars in thousands)
Research and development . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative . . . . . . . . . . . . . . . . . . .
$115,578
270,464
9.4% $117,353
272,257
22.0%
Impairment and other charges
. . . . . . . . . . . . . . . . . . . . .
Amortization of intangible assets . . . . . . . . . . . . . . . . . . .
451,025
3,987
36.7%
0.3%
—
13,760
8.2%
19.0%
—%
1.0%
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . .
$841,054
68.4% $403,370
28.2%
Research and development
Fiscal 2020 research and development (“R&D”) expenses decreased $1.8 million, or 2%, from fiscal
2019, but increased to 9.4% of sales, compared to 8.2% in fiscal 2019. The decrease in R&D expenses was
primarily due to $3.7 million lower headcount spending and $0.2 million lower spending on materials,
including lower customer reimbursements and the favorable impact of foreign exchange rates (primarily the
weaker Euro). Headcount spending decreased $3.7 million due to lower restructuring costs for severance,
lower spending due to the impact of headcount reductions and the favorable impact of foreign exchange rates
partially offset by the impact of an extra week in the second quarter of fiscal 2020. Partially offsetting the
decrease, R&D expenses increased $1.5 million due to higher stock-based compensation expense due to
increased grants to employees and $0.6 million as a result of higher charges for increases in deferred
compensation plan liabilities.
On a segment basis as compared to fiscal 2019, OLS R&D spending increased $2.4 million in fiscal
2020 primarily due to higher net spending on headcount and materials partially offset by the favorable
impact of foreign exchange rates. ILS R&D spending decreased $4.5 million primarily due to lower headcount
spending, lower net spending on materials and the favorable impact of foreign exchange rates. Corporate
and other R&D spending increased $0.3 million primarily due to higher stock-based compensation expense
65
and higher charges for increases in deferred compensation plan liabilities partially offset by lower headcount
spending, including severance, in our former Advanced Research business unit.
Selling, general and administrative
Fiscal 2020 selling, general and administrative (“SG&A”) expenses decreased $1.8 million, or 1%, from
fiscal 2019. The decrease was primarily due to $14.5 million lower variable spending partially offset by
$6.4 million higher stock-based compensation expense, $3.2 million higher charges for increases in deferred
compensation plan liabilities and $3.1 million higher spending on headcount. The $14.5 million lower
variable spending included lower spending on travel and other variable discretionary spending due to COVID-
19, lower depreciation expense due to the impairment of ILS long-lived assets in the second quarter of
fiscal 2020, lower provisions for bad debts, a gain on the sale-leaseback of our Hamburg facility, lower sales
rep commissions and the favorable impact of foreign exchange rates, partially offset by higher consulting
and audit spending on special projects and higher accelerated depreciation due to the consolidation of
buildings at our headquarters. The $6.4 million higher stock-based compensation expense is primarily due to
the acceleration of the accounting charges for equity grants for our former CEO and other executives who
are retiring and increased grants to employees. The $3.1 million higher spending on headcount was primarily
due to the impact of one extra week in the second quarter of fiscal 2020, lower vacation usage due to
COVID-19 and higher costs related to the retirement of our former CEO partially offset by the impact of
lower headcount and the favorable impact of foreign exchange rates.
On a segment basis as compared to fiscal 2019, OLS SG&A expenses decreased $2.0 million primarily
due to lower variable spending including travel, sales rep commissions and other discretionary spending and
as well as the favorable impact of foreign exchange rates partially offset by higher headcount spending and
higher accelerated depreciation due to the consolidation of buildings at our headquarters. ILS SG&A spending
decreased $16.6 million primarily due to lower variable spending (including lower spending on travel and
other variable discretionary spending due to COVID-19, lower sales rep commissions, lower provisions for
bad debts and lower depreciation expense), lower spending on headcount (lower severance and the impact of
lower headcount net of the impact of one extra week in the second quarter of fiscal 2020) and the favorable
impact of foreign exchange rates. Corporate and other SG&A spending increased $16.8 million primarily
due to higher stock-based compensation expense, higher consulting and audit spending for special projects
and higher charges for the deferred compensation plan as well as higher headcount spending including higher
costs related to the retirement of our former CEO.
Goodwill and other impairment charges
In the second quarter of fiscal 2020, we recorded non-cash pre-tax goodwill impairment charges of
$327.2 million related to our ILS segment to operating expense in our results of operations. In addition, we
recorded non-cash pre-tax charges related to the impairment of intangible assets, property, plant and
equipment and ROU assets of the ILS reporting unit of $33.9 million, $85.6 million and $1.8 million,
respectively. See Note 8, “Goodwill and Intangible Assets” in the Notes to Consolidated Financial Statements
and Note 11, “Leases” in the Notes to Consolidated Financial Statements under Item 8 of this annual
report.
In the first quarter of fiscal 2019, we invested 3.0 million Euros ($3.4 million) in 3D-Micromac AG, a
private company in Germany. The investment is included in other assets and is being carried on a cost basis.
During the second quarter of fiscal 2020, we determined that our investment became impaired and wrote
it down to its fair value. As a result, we recorded a non-cash impairment charge of $2.5 million to operating
expense in our results of operations in the second quarter of fiscal 2020.
Amortization of intangible assets
Amortization of intangible assets decreased $9.8 million, or 71%, from fiscal 2019 to fiscal 2020
primarily due to the impairment of ILS intangibles in the second quarter of fiscal 2020, the completion of
the amortization of certain intangibles from acquisitions and the favorable impact of foreign exchange rates.
66
Other income (expense), net
Other income (expense), net, decreased by $10.5 million to other expense of $12.5 million in fiscal 2020
from other expense of $23.0 million in fiscal 2019. The lower expenses were primarily due to $5.0 million
higher gains, net of expenses, on our deferred compensation plan assets, $2.3 million lower foreign exchange
losses, $2.1 million lower interest expense and $1.5 million lower benefit from non-service pension income.
Interest expense decreased primarily due to lower amortization of debt issuance costs related to our Euro
Term Loan and lower interest expense on our Revolving Credit Facility partially offset by higher interest
on the Euro Term Loan.
Income taxes
Our effective tax rate on loss from continuing operations before income taxes for fiscal 2020 of 6.5%
was lower than the U.S. federal tax rate of 21%. Our effective tax rate benefit for fiscal 2020 was unfavorably
impacted primarily due to the impairment of goodwill that is not deductible for tax purposes and the
establishment of valuation allowances for certain deferred tax assets. These unfavorable impacts were partially
offset primarily from the release of unrecognized tax benefits net of settlements and competent authority
offsets and losses in foreign jurisdictions subject to tax rates that are higher than the U.S. tax rates.
Our effective tax rate on income from continuing operations before income taxes for fiscal 2019 of 10.4%
was lower than the U.S. federal tax rate of 21.0% primarily due to the tax benefit from losses of our German
subsidiaries, which are subject to higher tax rates than U.S. tax rates, adjustments related to the Tax Act’s
transition tax, the net excess tax benefits from restricted stock unit vesting, the benefit of federal research and
development tax credits and our Singapore and South Korea tax exemptions. These amounts were partially
offset by an accrual for foreign withholding taxes on certain current year foreign earnings not considered
permanently reinvested, stock-based compensation not deductible for tax purposes and limitations on the
deductibility of compensation under Internal Revenue Code (“IRC”) Section 162(m).
On March 27, 2020, the CARES Act was enacted and signed into law. U.S. GAAP rules require
recognition of the tax effects of new legislation during the reporting period that includes the enactment
date. The CARES Act, among other things, includes tax provision changes that benefit business entities and
it makes certain technical corrections to the Tax Act. The tax relief measures for businesses include a five-
year net operating loss (“NOL”) carryback for any NOL generated in a taxable year beginning after
December 31, 2017 and before January 1, 2021, suspension of the 80% limitation of NOL utilization for
taxable years beginning before 2021, changes in the deductibility of interest, acceleration of alternative
minimum tax credit refunds, payroll tax relief, and technical corrections allowing accelerated deductions for
qualified improvement property. The CARES Act also provided other non-tax benefits, including employee
retention credits, to assist businesses impacted by the pandemic. There is no material impact of the tax benefits
under the CARES Act on our consolidated financial statements.
Coherent Singapore made an additional capital contribution to Coherent Korea in fiscal 2019 to take
advantage of the High-Tech tax exemption provided by the Korean authorities. The High-Tech tax exemption
is effective retroactively to the beginning of fiscal 2019 and the amount was used entirely in that year.
There was no additional benefit available for fiscal 2020. For fiscal 2019, the tax exemption decreased
Coherent Korea income taxes by approximately $2.4 million and the benefit of the tax holiday on net income
per diluted share was $0.10.
67
In October 2016, Coherent Singapore received an amended Pioneer Status tax exemption from the
Singapore authorities effective from fiscal 2012 through fiscal 2021. The tax holiday continues to be
conditional upon our meeting certain revenue, business spending and employment thresholds. The impact
of this tax exemption decreased Coherent Singapore income taxes by approximately $2.6 million and
$3.9 million in fiscal 2020 and 2019, respectively. The benefits of the tax holiday on net income per diluted
share were $0.11 and $0.16, respectively.
FINANCIAL CONDITION
Liquidity and capital resources
At October 3, 2020, we had assets classified as cash and cash equivalents and short-term investments,
in an aggregate amount of $475.6 million, compared to $306.0 million at September 28, 2019. In addition,
at October 3, 2020, we had $5.3 million of restricted cash. At October 3, 2020, approximately $349.7 million
of our cash and securities was held in certain of our foreign subsidiaries and branches, $334.3 million of
which was denominated in currencies other than the U.S. Dollar. Our current plans do not demonstrate a need
for these funds to support our domestic operations. If, however, a portion of these funds are needed for
and distributed to our operations in the United States, we may be subject to additional foreign withholding
taxes and certain state taxes. The amount of the U.S. and foreign taxes due would depend on the amount and
manner of repatriation, as well as the location from where the funds are repatriated. We historically
asserted our intention to indefinitely reinvest foreign earnings. As a result of the enactment of the Tax Act
and certain income tax treaty updates, we no longer consider foreign earnings to be indefinitely reinvested in
our foreign subsidiaries. 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,
sovereign debt and other securities 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. To date, we have had sufficient liquidity to
manage the financial impact of COVID-19. However, we can provide no assurance that this will continue
to be the case if the impact of COVID-19 is prolonged or if there is an extended impact on us or the economy
in general. Further, COVID-19 has caused significant uncertainty and volatility in the credit markets. If
our liquidity or access to capital becomes significantly constrained, or if costs of capital increase significantly
due to the impact of COVID-19 as result of a volatility in the capital markets, a reduction in our
creditworthiness or other factors, then our financial condition, results of operations and cash flows could
be materially adversely affected.
See ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
below for more information about risks and trends related to foreign currencies.
Sources and Uses of Cash
Historically, our primary source of cash has been provided by operations. Other sources of cash in the
past few fiscal years include proceeds from our Euro Term Loan used to finance our acquisition of Rofin,
proceeds received from the sale of our stock through our employee stock purchase plan as well as borrowings
under our Revolving Credit Facility. Our historical uses of cash have primarily been for acquisitions of
businesses and technologies, capital expenditures, the repurchase of our common stock and debt issuance
68
costs. 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):
Fiscal
2020
2019
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of property and equipment
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition of businesses, net of cash acquired . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment in 3D-Micromac AG . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Borrowings (repayments), net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of shares under employee stock plans . . . . . . . . . . . . . . . . . . . . . . . . . .
Repurchases of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net settlement of restricted common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$206,907
(64,919)
$181,401
(83,283)
— (18,881)
—
(3,423)
(9,699)
263
13,362
11,811
— (77,410)
(15,179)
(13,549)
Net cash provided by operating activities increased by $25.5 million in fiscal 2020 compared to fiscal
2019. The increase in cash provided by operating activities in fiscal 2020 was primarily due to higher cash
flows from deferred taxes, taxes payable, accounts payable and inventories partially offset by lower net income
(net of non-cash adjustments) and lower cash flows from accounts receivable. In order to support our
liquidity during the pandemic, we are proactively taking measures to increase available cash on hand,
including, but not limited to, reducing discretionary spending for operating and capital expenses. To further
support our liquidity, we have elected to defer the payment of our employer portion of social security
taxes beginning in April 2020 and through the end of the calendar year, which we expect to pay in equal
installments in the first quarters of fiscal 2022 and 2023, as provided for under the CARES Act. We are also
taking advantage of the retention credit of the CARES Act for employees who are idled as a result of
COVID-19. We believe that our existing cash, cash equivalents and short term investments combined with
cash to be provided by operating activities and amounts available under our Revolving Credit Facility 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, including consideration of the impact of COVID-19. However, we may elect to finance certain
of our capital expenditure requirements through 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 to consider acquisition opportunities at valuations we believe are reasonable
based upon market conditions. 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, if
any, through existing cash balances and cash flows from operations (as in our acquisitions of Ondax and
certain Quantum assets) and additional borrowings (as in our acquisition of Rofin). If required, we will
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 July 31, 2020, we reached an agreement to purchase Electro-optics
Technology, Inc., a highly specialized U.S.-based components company, which will enable us to vertically
integrate and improve the performance of our directed energy amplifier technology. We expect the acquisition
to close in the second quarter of fiscal 2021, after we clear all regulatory requirements. We do not believe
this acquisition will have a material impact on our liquidity or capital resources.
In fiscal 2019, we made debt principal payments of $7.5 million, recorded interest expense on the Euro
Term Loan of $11.7 million and recorded $4.6 million amortization of debt issuance costs. On November 20,
2018, we borrowed an additional $40.0 million under our Revolving Credit Facility, subsequently repaid
$30.0 million of these borrowings on July 29, 2019 and recorded interest expense related to it of $1.9 million
in fiscal 2019.
In fiscal 2020, we made debt principal payments of $7.5 million, recorded interest expense on the Euro
Term Loan of $12.3 million and recorded $3.3 million amortization of debt issuance costs. In fiscal 2020,
we recorded interest expense related to our Revolving Credit Facility of $0.6 million.
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On October 5, 2018, we acquired privately held Ondax for approximately $12.0 million, excluding
transaction costs. On October 5, 2018, we acquired certain assets of Quantum for approximately $7.0 million,
excluding transaction costs.
On October 28, 2018, our board of directors authorized a stock repurchase program authorizing the
Company to repurchase up to $250.0 million of our common stock through December 31, 2019, with a
limit of no more than $75.0 million per quarter. During fiscal 2019, we repurchased and retired 603,828 shares
of outstanding common stock under this program at an average price of $128.20 per share for a total of
$77.4 million. We made no repurchases under the program during fiscal 2020 and the program expired on
December 31, 2019. See Note 14, “Stock Repurchases” in the Notes to Consolidated Financial Statements
under Item 8 of this annual report.
On February 5, 2020, our board of directors authorized a stock repurchase program authorizing the
Company to repurchase up to $100.0 million of our common stock through January 31, 2021. We have
made no repurchases under the program during fiscal 2020. See Note 14, “Stock Repurchases” in the Notes
to Consolidated Financial Statements under Item 8 of this annual report.
Additional sources of cash available to us, in addition to the amounts available under the Revolving
Credit Facility, were international currency lines of credit and bank credit facilities totaling $16.9 million as
of October 3, 2020, of which $16.1 million was unused and available. These unsecured international credit
facilities were used in Europe and Japan during fiscal 2020. As of October 3, 2020, we had utilized $0.8 million
of the international credit facilities as guarantees in Europe.
Our ratio of current assets to current liabilities decreased to 4.5:1 at October 3, 2020 compared to 4.6:1
at September 28, 2019. The decrease in our ratio was primarily due to lease liabilities recorded as a result of
the adoption of ASC 842, higher accounts payable and lower accounts receivable partially offset by
increases in our ratio due to higher cash and cash-equivalents. Our cash and cash equivalents, short-term
investments and working capital are as follows (in thousands):
Fiscal
2020
2019
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Working capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$440,258
35,346
943,606
$305,833
120
854,507
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 significant contractual obligations at October 3, 2020 and the effect such
obligations are expected to have on our liquidity and cash flow in future periods (in thousands):
Total
Less than
1 year
1 to 3 years
3 to 5 years
More than
5 years
Operating lease obligations, including imputed
interest . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$112,170
$ 18,781
$33,536
$ 22,951
$36,902
Finance lease obligations, including imputed
interest . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asset retirement obligations . . . . . . . . . . . . . . .
579
6,805
Debt principal, interest and fees . . . . . . . . . . . .
466,152
Pension obligations . . . . . . . . . . . . . . . . . . . . .
Purchase commitments for inventory . . . . . . . . .
Purchase obligations-other . . . . . . . . . . . . . . . .
60,607
33,675
50,836
404
300
22,995
2,597
33,587
48,429
175
2,325
44,131
5,500
63
2,104
—
—
1,826
2,354
399,026
—
5,805
46,705
25
303
—
—
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$730,824
$127,093
$87,834
$429,936
$85,961
Our purchase commitments for inventory represent an estimate of significant commitments to
purchase inventory from our suppliers in the ordinary course of business. Our purchase obligations-other
70
represent an estimate of significant purchase commitments associated with the construction of a new
manufacturing facility and other services in the ordinary course of business and include commitments of
$29.8 million to purchase property and equipment in one of our manufacturing sites in Germany, primarily
related to the construction of a new manufacturing facility. 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 $44.6 million at October 3, 2020. As of October 3, 2020, we had gross
unrecognized tax benefits of $42.4 million which includes penalties and interest of $2.9 million.
Approximately $15.4 million has been recorded as a noncurrent liability. At this time, we are unable to make
a reasonably reliable estimate of the timing of payments in individual years in connection with these tax
liabilities; therefore, such amounts are not included in the above contractual obligation table.
Changes in financial condition
Cash provided by operating activities in fiscal 2020 was $206.9 million, which included non-cash
goodwill and other impairment charges of $451.0 million, depreciation and amortization of $76.8 million,
cash provided by operating assets and liabilities of $51.8 million (primarily lower accounts receivable, lower
inventories and higher accounts payable net of lower income taxes payable and payments made for lease
liabilities), stock-based compensation expense of $44.8 million, amortization of operating ROU assets of
$16.0 million, amortization of debt issue costs of $3.3 million and non-cash restructuring charges of
$2.2 million, partially offset by net loss of $414.1 million and net increases in deferred tax assets of
$24.5 million. Cash provided by operating activities in fiscal 2019 was $181.4 million, which included
depreciation and amortization of $116.4 million, net income of $53.8 million, stock-based compensation
expense of $36.5 million, non-cash restructuring charges of $12.6 million and amortization of debt issue costs
of $4.6 million, partially offset by cash used by operating assets and liabilities of $19.1 million (primarily
lower income taxes payable, accounts payable, customer deposits and deferred income net of lower accounts
receivable and lower inventories) and net decreases in deferred tax assets of $14.9 million.
Cash used in investing activities in fiscal 2020 was $78.2 million, which included $43.0 million, net of
proceeds from dispositions including $21.5 million received from the sale-leaseback of our Hamburg facility,
used to acquire property and equipment and to purchase and upgrade buildings and $35.2 million net
purchases of available-for-sale securities. Cash used in investing activities in fiscal 2019 was $100.3 million,
which included $78.0 million, net of proceeds from dispositions, used to acquire property and equipment and
to purchase and upgrade buildings, $18.9 million net of cash acquired to purchase Ondax and Quantum
and $3.4 million invested in 3D-Micromac AG, a private company in Germany.
Cash used in financing activities in fiscal 2020 was $9.9 million, which included $13.5 million in
outflows due to net settlement of restricted stock units and $9.7 million net debt payments partially offset
by $13.4 million generated from our employee stock option and purchase plans. Cash used in financing
activities in fiscal 2019 was $80.5 million, which included $77.4 million used to repurchase shares of our
common stock and $15.2 million outflows due to net settlement of restricted stock units, partially offset
by $11.8 million generated from our employee stock purchase plans and $0.3 million net debt borrowings.
Changes in exchange rates in fiscal 2020 resulted in an increase in cash balances of $8.0 million.
Changes in exchange rates in fiscal 2019 resulted in a decrease in cash balances of $6.0 million.
RECENT ACCOUNTING PRONOUNCEMENTS
See Note 2, “Significant Accounting Policies” in the Notes to Consolidated Financial Statements under
Item 8 of this annual report 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 consolidated financial statements requires management to make estimates and
71
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. We have identified the following as the items that require the most
significant judgment and often involve complex estimation: revenue recognition, business combinations,
accounting for long-lived assets (including goodwill and intangible assets), inventory valuation, warranty
reserves and accounting for income taxes.
Revenue Recognition
Revenue is recognized when transfer of control to the customer occurs in an amount reflecting the
consideration that we expect to be entitled. We determine revenue recognition by applying the following five-
step approach: (1) identification of the contract, or contracts, with a customer; (2) identification of the
performance obligations in the contract; (3) determination of the transaction price; (4) allocation of the
transaction price to the performance obligations in the contract; and (5) recognition of revenue when, or as,
we satisfy each performance obligation.
The transaction price is determined based on the consideration to which we will be entitled in exchange
for transferring goods or services to the customer adjusted for estimated variable consideration, if any, as
more fully described in Note 2, “Significant Accounting Policies — Revenue Recognition,” in the Notes to
Consolidated Financial Statements under Item 8 of this annual report. The majority of products and services
offered by us have readily observable selling prices. As a part of our stand-alone selling price policy, we
review product pricing on a periodic basis to identify any significant changes and revise our expected selling
price assumptions as appropriate. Revenue is generally recognized when control of the product is transferred
to the customer (i.e., when our performance obligation is satisfied), which typically occurs at shipment but
which can occur over time for certain of our maintenance, extended warranty or custom product contracts.
When goods or services have been delivered to the customer, but all conditions for revenue recognition have
not been met, deferred revenue and deferred costs are recorded on our consolidated balance sheet.
Recognizing revenue over time also includes an estimation of the progress towards completion based on the
projected costs for the contract.
Business Combinations
We include the results of operations of the businesses that we acquire as of the respective dates of
acquisition. We allocate the fair value of the purchase price of our business acquisitions to the tangible
assets acquired, liabilities assumed, and intangible assets acquired, based on their estimated fair values. The
excess of the purchase price over the fair values of these identifiable assets and liabilities is recorded as
goodwill. Additional information existing as of the acquisition date, but unknown to us at that time, may
become known during the remainder of the measurement period, not to exceed 12 months from the acquisition
date, which may result in changes to the amounts and allocations recorded.
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: OLS and ILS.
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 under Item 8 of this annual report). We generally perform our annual impairment
72
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.
In the quarter ended April 4, 2020, the worldwide spread of COVID-19 created significant volatility,
uncertainty and disruption to the global economy, representing an indicator to test our goodwill for
impairment. Based on our internal projections and the preparation of our financial statements for the quarter
ended April 4, 2020, and considering the forecasted decrease in demand due to the COVID-19 pandemic
and other factors, we believed that the fair value of our ILS reporting unit might no longer have exceeded its
carrying value and performed an interim goodwill impairment test on the ILS reporting unit. We also
performed an interim goodwill impairment test on the OLS reporting unit.
Our goodwill impairment tests for the ILS and OLS reporting units were performed by comparing the
fair value of the reporting units with their carrying values and recognizing an impairment charge for the
amount by which the carrying value exceeded the fair value. Based on the estimated fair value of the ILS
reporting unit, in the quarter ended April 4, 2020, we recorded a non-cash pre-tax charge related to the ILS
reporting unit of $327.2 million, reducing the goodwill balance of the reporting unit to zero. The
impairment charge was primarily the result of a decline in projected cash flows of the ILS reporting unit
driven by lower forecasted sales volumes and profitability in several business units. The impairment charge
was also the result of changes in certain market-related inputs to the analysis to reflect macro-economic
changes caused by the impact of COVID-19, including lower pricing multiples for comparable public
companies. No impairment charge was recognized for the OLS reporting unit as the fair value significantly
exceeded the carrying value of the reporting unit.
In assessing goodwill for impairment, we were required to make significant judgments related to the
fair value of our reporting units. We used a combination of the Income (discounted cash flow) approach
and the Market (market comparable) approach to estimate the fair value of our reporting units. 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. Our assumptions used in the forecasts are based on historical data,
supplemented by current and anticipated market conditions, estimated growth rates and management’s plans.
The rate of return on cost of capital is weighted based on the capitalization of comparable companies. We
utilized a discount rate for each of our reporting units that represents the risks that our businesses face,
considering their sizes, their current economic environment and other industry data as we believe is
appropriate. The Market approach determines fair value by comparing the reporting units to comparable
companies in similar lines of business that are publicly traded. The selection of comparable companies is
based on the markets in which the reporting units operate giving consideration to risk profiles, size, geography
and diversity of products and services. 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.
We utilized multiples for each of our reporting units that represent the risks that our businesses face,
considering their sizes, their current economic environment and other industry data as we believe is
appropriate. The interim goodwill impairment testing results were also reconciled with our market
capitalization as of April 4, 2020, as the final step in the impairment testing.
Before performing the goodwill impairment test for the ILS reporting unit, we performed impairment
tests on the long-lived assets allocated to the asset group of the ILS reporting unit, including intangible
assets, property, plant and equipment and ROU assets as of April 4, 2020, due primarily to the same
indicators that led to the interim goodwill impairment testing. Based on the impairment tests performed, we
concluded that some of the long-lived assets allocated to the asset group of the ILS reporting unit were
impaired as of April 4, 2020. Accordingly, we recorded non-cash pre-tax charges in the quarter ended April 4,
2020 related to the intangible assets, property, plant and equipment and right-of-use (“ROU”) assets of the
ILS reporting unit of $33.9 million, $85.6 million and $1.8 million, respectively. We did not identify any
indicators that would lead us to believe that the carrying value of the long-lived assets allocated to the
asset group of the OLS reporting unit may not be recoverable as of April 4, 2020.
In assessing our long-lived assets for impairment, we were required to make significant judgments
related to the fair value of our long-lived assets, which are comprised of personal property, real property,
and intangible assets. We used a combination of the Income, the Market approach, and the Cost (cost to
73
create) approach to estimate the fair value of our long-lived assets. Our personal property assets consist of
laser manufacturing and assembly equipment, semiconductor tools, laboratory and test equipment, furniture
and fixtures and computer hardware and software. We used the Cost Approach (with support from the
Market Approach) to estimate the fair value of our personal property, taking into consideration the physical
deterioration, functional obsolescence and economic obsolescence of our personal property assets. Our
real property assets consist of land and buildings, land rights (ground leased) and ROU assets. In determining
the fair value of our real property assets, we used a combination of the Income, Market (sales comparison)
and Cost approaches. We considered historical transaction information, current market conditions, operating
performance, forecast growth and market-derived rates of return in our real property determination of fair
value. The fair value of our ROU assets was determined using the Income approach by considering off-
market components of the associated ROU leases. Our intangible assets consist of technology and customer
relationship assets, and we used the Income approach to estimate the fair value of our intangible assets. We
identified cash flows associated with each intangible asset, which were discounted at an after-tax rate of
return appropriate for the risk profile of each intangible asset.
For our annual impairment test in fiscal 2020, for our OLS reporting unit we conducted a qualitative
assessment of the goodwill during the fourth quarter using the opening balance sheet as of the first day of
the fourth quarter and concluded that it was more likely than not that the fair value of the reporting unit
exceeded its carrying amounts. In assessing the qualitative factors, we considered the impact of these key
factors: macroeconomic conditions, fluctuations in foreign currency, market and industry conditions, our
operating and competitive environment, regulatory and political developments, the overall financial
performance of our reporting units including cost factors and budgeted-to-actual revenue results. We also
considered our market capitalization, stock price performance and the significant excess calculated in the
second quarter of fiscal 2020 between estimated fair value and the carrying value of OLS. Based on our
assessment, goodwill in the OLS reporting unit was not impaired as of the first day of the fourth quarter
of fiscal 2020. As such, it was not necessary to perform the goodwill impairment test in the fourth quarter of
fiscal 2020. There is no goodwill in the ILS reporting unit due to the impairment of all goodwill of the ILS
reporting unit in the second quarter of fiscal 2020.
At October 3, 2020, we had $101.3 million of goodwill, $21.8 million of purchased intangible assets
and $245.7 million of property and equipment on our consolidated balance sheet.
Inventory Valuation
We record our inventory at the lower of cost (computed on a first-in, first-out basis) or net realizable
value. 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 or when management has deemed parts are
no longer active or useful. 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 periods ranging from 24 to 36 months after such
inventory is placed in service.
Warranty Reserves
We provide warranties on the majority 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 to 18 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.
74
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.
During fiscal 2020, we increased our valuation allowance on deferred tax assets by $16.2 million to
$57.7 million, primarily due to the net operating losses generated from certain foreign entities and California
research and development tax credits, which are not expected to be recognized. As of October 3, 2020, we
had U.S. federal deferred tax assets related to research and development credits and other tax attributes that
can be used to offset federal taxable income in future periods. These credit carryforwards will expire if
they are not used within certain time periods. Management determined that there is sufficient positive
evidence to conclude that it is more likely than not sufficient taxable income will exist in the future allowing
us to recognize these deferred tax assets.
We historically asserted our intention to indefinitely reinvest foreign earnings. As a result of the
enactment of the Tax Act and certain foreign tax law changes, we no longer consider foreign earnings to be
indefinitely reinvested in our foreign subsidiaries. As a result of this change in assertion, we recorded a
$16.1 million tax expense against our foreign earnings that are not indefinitely reinvested as of fiscal 2020.
This is mainly related to foreign withholding taxes and state income taxes. We have not recognized any deferred
taxes for outside basis differences in foreign subsidiaries.
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 interest rates were to
increase immediately (whether due to changes in overall market rates or credit worthiness of the issuers of
our individual securities) and uniformly by 10% from levels at fiscal 2020 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 due to their short-term maturities. 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 each of fiscal 2020 and 2019 year-ends, the fair value of our available-for-sale debt securities was
$35.3 million and $0.1 million, respectively, all of which was classified as short-term investments. Gross
unrealized gains and losses on available-for-sale debt securities were $36,000 and $(1,000), respectively, at
fiscal 2020 year-end. There were no gross unrealized gains and losses on available-for-sale debt securities at
fiscal 2019 year-end.
75
We are exposed to market risks related to fluctuations in floating interest rates related to our Euro
Term Loan. As of October 3, 2020, we owed $419.8 million on this loan, which had an interest rate of 3.0%
as of October 3, 2020. We performed a sensitivity analysis on the outstanding portion of our debt obligation
as of October 3, 2020. Should the current average interest rate increase or decrease by 10%, the resulting
annual increase or decrease to interest expense would be approximately $1.2 million as of October 3, 2020.
Foreign currency exchange risk
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, the Japanese Yen,
the South Korean Won, the Singapore Dollar and the Chinese Renminbi. Additionally, we have operations
in different countries around the world with costs incurred in the foregoing currencies and other local
currencies, such as British Pound Sterling, Malaysian Ringgit, Swiss Franc, Taiwan Dollar, Swedish Krona,
Canadian Dollar and Vietnamese Dong. As a result, our earnings, cash flows and cash balances are
exposed to fluctuations in foreign currency exchange rates. For example, because of our significant
manufacturing operations in Europe and resulting expenses and costs, a weakening Euro is advantageous
and a strengthening Euro is disadvantageous to our financial results. 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 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. While we
model currency valuations and fluctuations, these may not ultimately be accurate. 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 on our forward contracts would not have a
material impact on our results of operations, cash flows or financial position. For example, a 10% change in
the Euro as of October 3, 2020 would amount to less than a 0.2% change on our consolidated balance
sheet.
At October 3, 2020, approximately $349.7 million of our cash, cash equivalents and short-term
investments were held outside the U.S. in certain of our foreign operations, $334.3 million of which was
denominated in currencies other than the U.S. Dollar.
See Note 7, “Derivative Instruments and Hedging Activities” in our Notes to Consolidated Financial
Statements under Item 8 of this annual report for further discussion of our derivatives and hedging activities.
76
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
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 3, 2020 and September 28, 2019 . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Operations – Years ended October 3, 2020, September 28, 2019, and
78
80
September 29, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
81
Consolidated Statements of Comprehensive Income (Loss) – Years ended October 3, 2020,
September 28, 2019, and September 29, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
82
Consolidated Statements of Stockholders’ Equity – Years ended October 3, 2020, September 28,
2019, and September 29, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
83
Consolidated Statements of Cash Flows – Years ended October 3, 2020, September 28, 2019, and
September 29, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Quarterly Financial Information (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
84
86
132
77
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of Coherent, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Coherent, Inc. and subsidiaries (the
“Company”) as of October 3, 2020 and September 28, 2019, the related consolidated statements of operations,
comprehensive income (loss), stockholders’ equity, and cash flows for each of the three years in the period
ended October 3, 2020, and the related notes (collectively referred to as the “financial statements”). In our
opinion, the financial statements present fairly, in all material respects, the financial position of the
Company as of October 3, 2020 and September 28, 2019, and the results of its operations and its cash flows
for each of the three years in the period ended October 3, 2020, 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) (PCAOB), the Company’s internal control over financial reporting as of October 3,
2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission and our report dated December 1,
2020, expressed an unqualified opinion on the Company’s internal control over financial reporting.
Change in Accounting Principle
As discussed in Note 2 to the financial statements, the Company changed its method of accounting for
leases in fiscal year 2020 due to adoption of Financial Accounting Standards Board (“FASB”) Topic 842,
Leases.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is
to express an opinion on the Company’s financial statements based on our audits. We are a public accounting
firm registered with the PCAOB and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities
and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement, whether due to error or fraud. Our audits included performing procedures
to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as
evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable
basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the
financial statements that was communicated or required to be communicated to the audit committee and
that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our
especially challenging, subjective, or complex judgments. The communication of critical audit matters does
not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by
communicating the critical audit matter below, providing a separate opinion on the critical audit matter or
on the accounts or disclosures to which it relates.
Equipment, Furniture, and Fixtures — Industrial Lasers & Systems Asset Group — Refer to Notes 2 and 8 to
the financial statements
Critical Audit Matter Description
The Company evaluates long-lived assets for impairment when events or changes in circumstances exist
that may indicate that the carrying amount of the asset group are no longer recoverable. Events that result
78
in an impairment review include plans to discontinue a product line or a significant decrease in the operating
results. When such an indicator occurs, the Company evaluates the asset group for impairment by comparing
the undiscounted future cash flows expected to be generated by the asset group to the asset group’s
carrying amount. If the carrying amount of an asset group exceeds the estimated undiscounted future cash
flows, an analysis is performed to estimate the fair value of the individual assets within the asset group.
An impairment is recorded if the fair value of an individual asset is less than the carrying amount. During
the year ended October 3, 2020, an impairment loss of $47 million was recognized on machinery and
equipment assets within the ILS asset group. We identified the valuation of machinery and equipment assets
within the ILS asset group as a critical audit matter because there are significant judgments made by
management when determining the fair value of the machinery and equipment assets. This required a high
degree of auditor judgment and an increased extent of effort, including the need to involve our fair value
specialists, when performing audit procedures to evaluate the reasonableness of the Company’s estimates
and assumptions related to asset category selection, fair market value trend factors, assumed physical
deterioration, and orderly liquidation value percentages.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures included performing procedures and evaluating audit evidence in connection
with forming our overall opinion on the consolidated financial statements. These procedures included the
following, among others:
• We tested the effectiveness of internal controls over management’s asset group impairment assessment,
including those over the asset category selection, fair market value trend factors, assumed physical
deterioration, and orderly liquidation value percentages.
• With the assistance of our fair value specialists, we evaluated the appropriateness of management’s
valuation methodologies and the reasonableness of the key assumptions by:
• testing the source information underlying the determination of the asset category selection, fair
market value trend factors, and assumed physical deterioration; and
• developing a range of independent estimates and comparing the orderly liquidation values
selected by management
/s/ DELOITTE & TOUCHE LLP
San Jose, California
December 1, 2020
We have served as the Company’s auditor since 1976.
79
COHERENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)
October 3,
2020
September 28,
2019
Current assets:
ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 440,258
$ 305,833
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable – net of allowances of $7,630 and $8,690, respectively . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets, net
Non-current restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
765
35,346
220,289
426,756
88,250
1,211,664
245,678
101,317
21,765
4,497
242,575
792
120
267,553
442,530
77,993
1,094,821
323,434
427,101
84,813
12,036
140,964
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,827,496
$2,083,169
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Short-term borrowings and 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 13)
Stockholders’ equity:
Common stock, Authorized – 500,000 shares, par value $.01 per share:
16,817
60,225
6,861
184,155
268,058
411,140
221,074
$
14,863
51,531
6,185
167,735
240,314
392,238
165,881
Outstanding – 24,257 shares and 23,982 shares, respectively . . . . . . . . . . .
Additional paid-in capital
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
241
80,275
(25,667)
872,375
927,224
238
34,320
(36,336)
1,286,514
1,284,736
Total liabilities and stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,827,496
$2,083,169
See accompanying Notes to Consolidated Financial Statements.
80
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 . . . . . . . . . . . . . . . . . . . .
Goodwill and other impairment charges . . . . . . . . . . . . . . . .
Amortization of intangible assets . . . . . . . . . . . . . . . . . . . . .
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) from operations . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income (expense):
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other – net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total other expense, net
. . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) from continuing operations before income taxes . . . .
Provision for (benefit from) income taxes . . . . . . . . . . . . . . . . .
Net income (loss) from continuing operations
. . . . . . . . . . . . . . .
Loss from discontinued operations, net of income taxes . . . . . . .
Net income (loss)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended
October 3,
2020
September 28,
2019
September 29,
2018
$1,228,999
818,125
$1,430,640
944,175
$1,902,573
1,071,882
410,874
486,465
830,691
115,578
270,464
451,025
3,987
841,054
(430,180)
1,053
(17,037)
3,441
(12,543)
(442,723)
(28,584)
(414,139)
—
117,353
272,257
—
13,760
403,370
83,095
1,119
(19,122)
(5,044)
(23,047)
60,048
6,223
53,825
—
132,586
293,632
766
10,690
437,674
393,017
1,571
(25,847)
(7,186)
(31,462)
361,555
114,195
247,360
(2)
$ (414,139) $
53,825
$ 247,358
Basic net income (loss) per share:
Income (loss) per share from continuing operations . . . . . . . . . .
Loss per share from discontinued operations, net of income
taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic net income (loss) per share . . . . . . . . . . . . . . . . . . . . . . . .
Diluted net income (loss) per share:
. . . . . . . . . . . . . . . . . . . . . .
Income (loss) per share from continuing operations . . . . . . . . . .
Loss per share from discontinued operations, net of income
taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted net income (loss) per share . . . . . . . . . . . . . . . . . . . . . . .
Shares used in computation:
$
$
$
$
$
$
(17.18) $
2.23
$
10.07
— $
(17.18) $
— $
$
2.23
—
10.07
(17.18) $
2.22
$
9.95
— $
(17.18) $
— $
2.22
$
—
9.95
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
24,105
24,105
24,118
24,279
24,572
24,851
See accompanying Notes to Consolidated Financial Statements.
81
COHERENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income (loss):(1)
Translation adjustment, net of taxes(2)
Changes in unrealized gains (losses) on available-for-sale
. . . . . . . . . . . . . . . . . .
securities, net of taxes(3) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Defined benefit pension plans, net of taxes(4) . . . . . . . . . . . . . .
Other comprehensive income (loss), net of tax . . . . . . . . . . . . .
Year Ended
October 3,
2020
September 28,
2019
September 29,
2018
$(414,139)
$ 53,825
$247,358
9,248
(32,609)
(18,065)
1
1,420
10,669
—
(6,560)
(4)
996
(39,169)
(17,073)
Comprehensive income (loss)
. . . . . . . . . . . . . . . . . . . . . . . . . .
$(403,470)
$ 14,656
$230,285
(1) Reclassification adjustments were not significant during fiscal 2020, 2019, and 2018.
(2) Tax expenses (benefits) of $2,731, $(5,161), and $0 were provided on translation adjustments during
fiscal 2020, 2019, and 2018, respectively.
(3) Tax benefits of $0, $0, and $(2) were provided on changes in unrealized losses on available-for-sale
securities during fiscal 2020, 2019, and 2018, respectively.
(4) Tax expenses (benefits) of $713, $(2,371), and $202 were provided on changes in defined benefit
pension plans during fiscal 2020, 2019, and 2018, respectively.
See accompanying Notes to Consolidated Financial Statements.
82
COHERENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Three Years in the Period Ended October 3, 2020
(In thousands)
Common
Stock
Shares
Common
Stock
Par
Value
Add.
Paid-in
Capital
Accum.
Other
Comp.
Income
(Loss)
Retained
Earnings
Total
Balances, September 30, 2017 . . . . . . . . . . . . 24,631
Common stock issued under stock plans, net
$245
$171,403 $ 19,906 $ 971,710 $1,163,264
of shares withheld for employee taxes . . . .
Repurchase of common stock . . . . . . . . . . .
Cumulative effect of change in accounting
243
(575)
3
(6)
(25,749)
(99,994)
principle . . . . . . . . . . . . . . . . . . . . . . . .
—
—
Stock-based compensation . . . . . . . . . . . . .
—
Net income . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive loss, net of tax . . . . . .
—
Balances, September 29, 2018 . . . . . . . . . . . . 24,299
Common stock issued under stock plans, net
of shares withheld for employee taxes . . . .
Repurchases of common stock . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . .
287
(604)
—
—
Net income . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive loss, net of tax . . . . . .
—
Balances, September 28, 2019 . . . . . . . . . . . . 23,982
Common stock issued under stock plans, net
of shares withheld for employee taxes . . . .
Stock-based compensation . . . . . . . . . . . . .
275
—
Net loss
. . . . . . . . . . . . . . . . . . . . . . . . . .
—
Other comprehensive income, net of tax . . . .
—
Balances, October 3, 2020 . . . . . . . . . . . . . . 24,257
—
—
—
—
242
2
(6)
—
—
—
238
3
—
—
—
$241
—
—
—
—
(25,746)
— (100,000)
13,621
13,621
—
33,040
—
— (17,073)
2,833
—
—
— 247,358
—
1,232,689
78,700
(3,370)
(77,404)
36,394
—
—
—
—
—
—
—
—
— (39,169)
53,825
—
(36,336) 1,286,514
33,040
247,358
(17,073)
1,314,464
(3,368)
(77,410)
36,394
53,825
(39,169)
1,284,736
34,320
(190)
46,145
—
—
—
—
(187)
46,145
—
— 10,669
(414,139)
10,669
$ 80,275 $(25,667) $ 872,375 $ 927,224
— (414,139)
—
See accompanying Notes to Consolidated Financial Statements.
83
COHERENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Cash flows from operating activities:
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . .
Amortization of intangible assets . . . . . . . . . . . . . . . . . . . . . .
Impairment of goodwill
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment of long-lived assets . . . . . . . . . . . . . . . . . . . . . . .
Impairment of investment . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes
Amortization of debt issuance cost . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-cash restructuring charges . . . . . . . . . . . . . . . . . . . . . . .
Amortization of right of use assets . . . . . . . . . . . . . . . . . . . . .
Non-cash pension impact
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-cash expense (gain) . . . . . . . . . . . . . . . . . . . . . . . .
Changes in assets and liabilities, net of effect of acquisitions:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other assets . . . . . . . . . . . . . . . . . . . .
Other long-term assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes payable/receivable . . . . . . . . . . . . . . . . . . . . .
Operating lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . .
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 at cost
Proceeds from sale of discontinued operation . . . . . . . . . . . . .
Proceeds from sale of other entities . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . .
Year Ended
October 3,
2020
September 28,
2019
September 29,
2018
$(414,139)
$ 53,825
$247,358
46,705
30,128
327,203
121,350
2,472
(24,471)
3,321
44,787
2,194
16,033
2,134
(2,571)
53,104
28,464
(2,631)
(2,733)
8,187
(25,024)
(15,964)
(985)
9,343
206,907
(64,919)
21,926
(77,359)
42,168
—
—
—
—
—
(78,184)
54,925
61,460
—
—
—
(14,930)
4,647
36,466
12,609
—
(8,931)
421
82,078
17,805
14,074
(549)
(15,160)
(119,929)
—
(13,155)
15,745
181,401
(83,283)
5,294
(11,552)
11,552
(18,881)
(3,423)
—
—
—
(100,293)
53,342
60,039
—
766
—
16,607
9,565
32,738
1,246
—
980
559
(47,020)
(78,123)
(6,695)
(7,692)
(9,736)
474
—
(42,820)
4,523
236,111
(90,757)
4,405
(54,442)
86,786
(45,448)
—
25,000
6,250
470
(67,736)
See accompanying Notes to Consolidated Financial Statements.
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COHERENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(In thousands)
Year Ended
October 3,
2020
September 28,
2019
September 29,
2018
Cash flows from financing activities:
Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 12,695
$ 119,594
$ 89,092
Repayments of short-term borrowings . . . . . . . . . . . . . . . . . . .
Repayments of long-term borrowings . . . . . . . . . . . . . . . . . . .
(14,474)
(7,920)
(111,794)
(7,537)
(90,751)
(171,593)
Issuance of common stock under employee stock option and
purchase plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repurchase of common stock . . . . . . . . . . . . . . . . . . . . . . . . .
Net settlement of restricted common stock . . . . . . . . . . . . . . . .
Net cash used in financing activities . . . . . . . . . . . . . . . . . . . . . . .
Effect of exchange rate changes on cash, cash equivalents and
restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net increase (decrease) in cash, cash equivalents and restricted cash . .
Cash, cash equivalents and restricted cash, beginning of year . . .
Cash, cash equivalents and restricted cash, end of year . . . . . . . . . .
13,362
—
(13,549)
(9,886)
8,022
126,859
318,661
11,811
(77,410)
(15,179)
(80,515)
(5,977)
(5,384)
324,045
10,574
(100,000)
(36,320)
(298,998)
(2,419)
(133,042)
457,087
$445,520
$ 318,661
$ 324,045
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 13,716
$ 33,617
$ 14,475
$ 16,282
$ 156,650
$ 101,924
Cash received during the year for:
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 10,933
$ 23,416
Noncash investing and financing activities:
Unpaid property and equipment purchases . . . . . . . . . . . . . . . .
$
2,896
$
4,406
$
$
5,203
6,176
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported
within the consolidated balance sheets that sum to the total of the same amounts shown in the consolidated
statements of cash flows.
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$440,258
$305,833
$310,495
Restricted cash, current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted cash, non-current . . . . . . . . . . . . . . . . . . . . . . . . . . . .
765
4,497
792
12,036
858
12,692
Total cash, cash equivalents, and restricted cash shown in the
consolidated statement of cash flows . . . . . . . . . . . . . . . . . . . .
$445,520
$318,661
$324,045
October 3,
2020
September 28,
2019
September 29,
2018
(concluded)
See accompanying Notes to Consolidated Financial Statements.
85
COHERENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
Founded in 1966, Coherent, Inc. provides lasers, laser-based technologies and laser-based system
solutions in a broad range of scientific, commercial, and industrial research applications. Coherent designs,
manufactures, services, and markets lasers 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 2020, 2019, and 2018 ended
on October 3, 2020, September 28, 2019, and September 29, 2018, respectively, and are referred to in these
financial statements as fiscal 2020, fiscal 2019, and fiscal 2018 for convenience. Fiscal 2020 included 53 weeks
and fiscal 2019 and 2018 each included 52 weeks. The fiscal years of several 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 direct and indirect
subsidiaries (collectively, the “Company”, “we”, “our”, “us” or “Coherent”). Intercompany balances and
transactions have been eliminated.
Business Combinations
We include the results of operations of the businesses that we acquire as of the respective dates of
acquisition. We allocate the fair value of the purchase price of our business acquisitions to the tangible
assets acquired, liabilities assumed, and intangible assets acquired, based on their estimated fair values. The
excess of the purchase price over the fair values of these identifiable assets and liabilities is recorded as
goodwill.
On March 8, 2018, we acquired privately held O.R. Lasertechnologie GmbH and certain assets of its U.S.-
based affiliate (collectively “OR Laser”). On October 5, 2018, we acquired privately held Ondax, Inc.
(“Ondax”). The significant accounting policies of OR Laser and Ondax have been aligned to conform to
those of Coherent, and the consolidated financial statements include the results of OR Laser and Ondax as
of their acquisition dates.
Fair Value of Financial Instruments
The carrying amounts of certain of our financial instruments including 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 and life insurance contracts related to our deferred compensation plans; trading securities
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COHERENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
are carried at fair value and life insurance contracts are carried at cash surrender values, which due to their
ability to be converted to cash at that amount, approximate their fair values. Foreign exchange contracts are
stated at fair value based on prevailing financial market information. Short-term and long-term debt is
carried at amortized cost, which approximates its fair value based on borrowing rates currently available to
us for loans with similar terms.
Cash Equivalents
All highly liquid investments with maturities of three months or less at the time of purchase are
classified as cash equivalents. At fiscal 2020 year-end, cash and cash equivalents included cash, money
market funds, and time deposits.
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 2020 year-end, the majority
of our short-term investments were in U.S. Treasury and 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 3, 2020, we held cash and cash equivalents and short-term investments
outside the U.S. in certain of our foreign operations totaling approximately $349.7 million, $334.3 million
of which was denominated in currencies other than the U.S. Dollar. 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. In certain instances, we may require customers to issue a letter of credit.
We maintain reserves for potential credit losses. Our products are broadly distributed and there was one
customer who accounted for 23.9% and 28.6% of accounts receivable at fiscal 2020 and fiscal 2019 year-end,
respectively.
Derivative Financial Instruments
Our primary objective for holding derivative financial instruments is to manage currency exchange rate
risk. Principal currencies hedged include the Euro, South Korean Won, Japanese Yen, Chinese Renminbi,
Singapore Dollar, British Pound, Malaysian Ringgit, Swiss Franc, Canadian Dollar, Swedish Krona, Taiwan
Dollar, and Vietnamese Dong. Our derivative financial instruments are recorded at fair value, on a gross
basis, and are included in other current assets and other current liabilities.
Our accounting policies for derivative financial instruments are based on whether they meet the criteria
for designation as a cash flow hedge. If we have any that meet this criteria, changes in the fair value of these
cash flow hedges that are highly effective are recorded in accumulated other comprehensive income and
reclassified into earnings in the same line item on the consolidated statements of operations as the impact
of the hedged transaction during the period in which the hedged transaction affects earnings. The ineffective
portion of cash flow hedges are recognized immediately in other income and expenses. Derivatives that we
designate as cash flow hedges are classified in the consolidated statements of cash flows in the same section as
the underlying item, primarily within cash flows from operating activities. The changes in fair value of
derivative instruments that are not designated as hedges are recognized immediately in other income
(expense).
We formally document all relationships between hedging instruments and hedged items, as well as the
risk management objective and strategy for undertaking various hedge transactions. This process includes
linking all derivatives that are designated as cash-flow hedges to specific forecasted transactions. We also
assess, both at the hedge’s inception and on an ongoing basis, whether the derivatives that are used in hedging
transactions are highly effective in offsetting changes in cash flows of the hedged items.
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COHERENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
Accounts Receivable Allowances
Accounts receivable allowances reflect our best estimate of probable losses inherent in our accounts
receivable balances, including both losses for uncollectible accounts receivable and sales returns. 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 related to acquisitions . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deductions from reserves
2020
$ 8,690
2,630
—
(3,690)
Fiscal
2019
2018
$ 4,568
5,210
$ 6,890
1,980
—
(1,088)
37
(4,339)
Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 7,630
$ 8,690
$ 4,568
Inventories
Inventories are stated at the lower of cost (first-in, first-out or weighted average cost) or net realizable
value. Inventories are as follows (in thousands):
Purchased parts and assemblies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$116,957
$134,298
Work-in-process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
173,871
135,928
174,550
133,682
Total inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$426,756
$442,530
Fiscal year-end
2020
2019
Property and Equipment
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):
Fiscal year-end
2020
2019
Useful Life
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 19,576
$ 19,490
Buildings and improvements . . . . . . . . . . . . .
Equipment, furniture and fixtures . . . . . . . . .
Leasehold improvements . . . . . . . . . . . . . . .
169,748
364,376
72,474
173,333
389,225
5 – 40 years
3 – 10 years
94,878
shorter of asset life or lease term
Accumulated depreciation and amortization . .
626,174
(380,496)
676,926
(353,492)
Property and equipment, net . . . . . . . . . . . . .
$ 245,678
$ 323,434
In fiscal 2020, we completed a sale-leaseback transaction for our Hamburg, Germany facility. See
Note 11, “Leases” for further discussion.
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COHERENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
Asset Retirement Obligations
The fair value (the present value of estimated cash flows) 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 Sunnyvale, California site. We estimated that
as of fiscal 2020 year-end, gross expected future cash flows of $6.8 million would be required to fulfill
these obligations.
The following table reconciles changes in our asset retirement liability for fiscal 2020 and 2019 (in
thousands):
Asset retirement liability as of September 29, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . .
Reduction to asset retirement obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 5,802
(1,155)
Adjustments and additions to asset retirement obligations recognized . . . . . . . . . . .
Accretion recognized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes due to foreign currency exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asset retirement liability as of September 28, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . .
Reduction to asset retirement obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments and additions to asset retirement obligations recognized . . . . . . . . . . .
Accretion recognized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes due to foreign currency exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
390
127
(90)
5,074
(32)
813
161
163
Asset retirement liability as of October 3, 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 6,179
At October 3, 2020, $0.3 million and $5.9 million of the asset retirement liability were included in
Other current liabilities and Other long-term liabilities, respectively, on our consolidated balance sheets. At
September 28, 2019, $0.1 million and $4.9 million of the asset retirement liability were included in Other
current liabilities and Other long-term liabilities, respectively, 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 2020, we recorded non-cash pre-tax charges in the
quarter ended April 4, 2020 related to the intangible assets, property, plant and equipment, and right-of-
use (“ROU”) assets of the ILS reporting unit of $33.9 million, $85.6 million, and $1.8 million, respectively
(See Note 8, “Goodwill and Intangible Assets”).
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 and Intangible Assets”). Based on the estimated
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COHERENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
fair value of the ILS reporting unit, in the quarter ended April 4, 2020, we recorded a non-cash pre-tax
charge related to the ILS reporting unit of $327.2 million, reducing the goodwill balance of the reporting
unit to zero. In testing for impairment, we have the option to first assess qualitative factors to determine
whether it is more likely than not (that is, a likelihood of more than 50%) that the fair value of a reporting unit
is less than its carrying amount. Moreover, an entity can bypass the qualitative assessment for any reporting
unit in any period and proceed directly to the impairment test, and then resume performing the qualitative
assessment in any subsequent period. In our fiscal 2020 annual testing, for our OLS reporting unit we
conducted a qualitative assessment of the goodwill during the fourth quarter using the opening balance
sheet as of the first day of the fourth quarter and concluded that it was more likely than not that the fair
value of the reporting unit exceeded its carrying amounts. Based on our assessment, goodwill in the OLS
reporting unit was not impaired as of the first day of the fourth quarter of fiscal 2020. As such, it was not
necessary to perform the goodwill impairment test in the fourth quarter of fiscal 2020. There is no goodwill in
the ILS reporting unit due to the impairment of all goodwill of the ILS reporting unit in the second
quarter of fiscal 2020.
Intangible Assets
Intangible assets, including acquired existing technology, customer relationships and production know-
how are amortized on a straight-line basis over their estimated useful lives, currently 4 year to 15 years (See
Note 8, “Goodwill and Intangible Assets”).
Warranty Reserves
We provide warranties on the 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
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 to 18 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.
Components of the reserve for warranty costs during fiscal 2020, 2019, and 2018 were as follows (in
thousands):
2020
Fiscal
2019
2018
Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 36,460
$ 40,220
$ 36,149
Additions related to current period sales . . . . . . . . . . . . . . . . .
37,788
52,271
58,865
Warranty costs incurred in the current period . . . . . . . . . . . . .
(40,724)
(54,538)
(51,935)
Accruals resulting from acquisitions . . . . . . . . . . . . . . . . . . . .
Adjustments to accruals related to foreign exchange and other .
—
1,508
21
179
(1,514)
(3,038)
Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 35,032
$ 36,460
$ 40,220
Loss Contingencies
We are subject to the possibility of various loss contingencies arising in the ordinary course of
business. We consider the likelihood of loss or impairment of an asset, or the incurrence of a liability, as
well as our ability to reasonably estimate the amount of loss, in determining loss contingencies. An estimated
loss contingency is accrued when it is probable that an asset has been impaired or a liability has been
incurred and the amount of loss can be reasonably estimated. If we determine that a loss is possible and the
range of the loss can be reasonably determined, then we disclose the range of the possible loss. We regularly
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COHERENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
evaluate current information available to us to determine whether an accrual is required, an accrual should
be adjusted or a range of possible loss should be disclosed.
Revenue Recognition
Effective September 30, 2018, we adopted ASU 2014-09, Revenue from Contracts with Customers
(“ASC 606”), using the modified retrospective transition method applied to contracts that were not completed
as of September 29, 2018. Revenue for the reporting periods after September 30, 2018 are presented under
ASC 606, while prior period amounts are reported in accordance with our historical accounting under
ASC 605, Revenue Recognition (“ASC 605”). There was no impact on the opening accumulated retained
earnings, revenues, costs, deferred income, customer deposits or other balances as of September 30, 2018 due
to the adoption of ASC 606.
Under ASC 606, we determine revenue recognition by applying the following five-step approach:
Step 1 Identification of the contract, or contracts, with a customer;
Step 2 Identification of the performance obligations in the contract;
Step 3 Determination of the transaction price;
Step 4 Allocation of the transaction price to the performance obligations in the contract; and
Step 5 Recognition of revenue when, or as, we satisfy each performance obligation.
Contracts and customer purchase orders, which in some cases are governed by master sales agreements,
are generally used to determine the existence of an arrangement. In addition, shipping documents and
customer acceptance, if applicable, are used to verify delivery and transfer of control. Performance obligations
are identified based on the products or services that will be transferred to the customer that are considered
distinct. Being distinct is defined as products or services that the customer can benefit from either on its own
or together with other resources that are readily available from third parties or from us, and by the product
or service being separately identifiable from other promises in the contract. We assess our ability to collect
from our customers based primarily on the creditworthiness and past payment history of each customer.
Revenue from all sales are recognized at the transaction price. The transaction price is determined based on
the consideration to which we will be entitled in exchange for transferring goods or services to the customer
adjusted for estimated variable consideration, if any. The consideration associated with customer contracts is
generally fixed. Variable consideration includes discounts, rebates, credits and incentives, or other similar
items. The amount of consideration that can vary is not a substantial portion of the total consideration.
Variable consideration estimates are re-assessed at each reporting period until a final outcome is determined.
Changes to the original transaction price due to a change in estimated variable consideration are calculated
on a retrospective basis, with the adjustment recorded in the period in which the change occurs.
Sales to customers are generally not subject to any price protection or return rights. Accordingly, upon
application of steps one through five above, product revenue is recognized upon shipment and transfer of
control. The majority of products and services offered by us have readily observable selling prices. As a part
of our stand-alone selling price policy, we review product pricing on a periodic basis to identify any
significant changes and revise our expected selling price assumptions as appropriate.
We record taxes collected on revenue-producing activities on a net basis.
Revenue recognition at a point in time
Revenues recognized at a point in time consist primarily of product, installation and training. The
majority of our sales are made to original equipment manufacturers (“OEMs”), distributors, representatives
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COHERENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
and end-users. Sales made to customers generally do not require installation of the products by us and are
not subject to other post-delivery obligations. Sales to end-users in the scientific market typically require
installation by us and, thus, involve post-delivery obligations; however, our post-delivery installation
obligations are not essential to the functionality of our products and represent a separate performance
obligation. We recognize revenue for these sales following the transfer of control of such products to the
customer, which typically occurs upon shipment or delivery depending on the terms of the underlying
contracts. In those instances that we have agreed to perform installation or provide training, we defer revenue
related to installation or training until these services have been rendered.
Our sales to distributors, representatives and end-user customers typically do not have customer
acceptance provisions and only certain of our sales to OEM customers and integrators 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 more
advanced performance than our published specifications, the revenue is recognized when the control
transfers or the revenue is deferred until customer acceptance occurs.
Revenue recognition over time
We periodically enter into contracts in which a customer may purchase a combination of goods and/or
services, such as products with maintenance contracts or extended warranty. These contracts are evaluated
to determine if the multiple promises are separate performance obligations. Once we determine the
performance obligations, we then determine the transaction price, which includes estimating the amount of
variable consideration, if any. We then allocate the transaction price to each performance obligation in the
contract based on a relative stand-alone selling price charged separately to customers. Extended warranties
are sold separately from products and represent a distinct performance obligation. Revenue related to the
performance obligation for extended warranties is recognized over time as the customer simultaneously
receives and consumes the benefits provided by us.
Customized products, for which we have an enforceable right to payment for performance completed
to date, are recorded over time. We use the output method to recognize revenue over time for such contracts
as it best depicts the satisfaction of our performance obligations.
Shipping and handling costs
We record costs related to shipping and handling of net sales in cost of sales for all periods presented.
Shipping and handling fees billed to customers are included in net sales. Customs duties billed to customers
are recorded in cost of sales.
Warranty
We provide warranties on the majority of our product sales and reserves for estimated warranty costs
are recorded during the period of sale. These standard warranties are assurance type warranties and do not
offer any services beyond the assurance that the product will continue working as specified. Therefore,
these warranties are not considered separate performance obligations in the arrangement. Instead, the
expected cost of the warranty is accrued as an expense. 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 to 18 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.
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COHERENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
Costs of obtaining a contract
We recognize the incremental direct costs of obtaining a contract from a customer as an expense, which
primarily includes sales commissions. Sales commissions are recorded at a point of time when control of the
product transfers or over a period of time when sales commission provided is expected to be recovered
through future services. The costs are recorded within selling, general and administrative expense. Costs
incurred prior to the transfer of control of the product to the customer and costs to be amortized over a future
period are classified as a prepaid asset and are included in prepaid expenses and other assets. Upon
adoption of ASC 606, we determined there was an immaterial impact on sales commissions and therefore,
we did not record a transition adjustment on adoption. For the fiscal 2020 and 2019, costs of obtaining a
contract to be amortized over a future period of $0.3 million and $0.1 million were classified as a prepaid
asset and are included in prepaid expenses and other assets, respectively.
Payment terms
Our standard payment terms are 30 days but vary by the industry and location of the customer and the
products or services offered. The time between invoicing and when payment is due is not significant. As our
standard payment terms are less than one year, we have elected the practical expedient under ASC 606-10-
32-18 and therefore are not required to assess whether each contract has a significant financing component.
Customer deposits and deferred revenue
When we receive consideration from a customer prior to transferring goods or services under the terms
of a sales contract, we record customer deposits or deferred revenue, depending on whether or not the product
has shipped to the customer, which are included in other current liabilities or other long-term liabilities
when the payment is made or due, whichever is earlier. We recognize deferred revenue as net sales after control
of the goods or services has been transferred to the customer and all revenue recognition criteria are met.
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 reduction of research and development cost. Research
and development reimbursements of $3.4 million, $3.8 million, and $3.2 million were offset against
research and development costs in fiscal 2020, 2019, and 2018, respectively.
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.
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. Accumulated other
comprehensive income (loss) (net of tax) at fiscal 2020 year-end was substantially comprised of accumulated
93
COHERENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
translation adjustments of $25.1 million and deferred actuarial losses on pension plans of $0.5 million.
Accumulated other comprehensive loss (net of tax) at fiscal 2019 year-end was substantially comprised of
accumulated translation adjustments of $34.4 million and deferred actuarial losses on pension plans of
$2.0 million.
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 plan contracts,
using the treasury stock method.
The following table presents information necessary to calculate basic and diluted earnings per share (in
thousands, except per share data):
Weighted average shares outstanding – basic . . . . . . . . . . . . .
Dilutive effect of employee stock awards . . . . . . . . . . . . . . . .
Weighted average shares outstanding – diluted . . . . . . . . . . . .
2020
24,105
—
24,105
Fiscal
2019
24,118
161
24,279
2018
24,572
279
24,851
Net income (loss) from continuing operations . . . . . . . . . . . .
Loss from discontinued operations, net of income taxes . . . . .
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(414,139) $53,825
—
$(414,139) $53,825
—
$247,360
(2)
$247,358
For fiscal 2020, all potentially dilutive securities have been excluded from the dilutive share calculation
as we reported a net loss. There were 98,103 and 103,547 potentially dilutive securities excluded from the
dilutive share calculation for fiscal 2019 and 2018, respectively, as their effect was anti-dilutive.
Stock-Based Compensation
We recognize compensation expense for all share-based payment awards based on the fair value of such
awards. We value restricted stock units using the intrinsic value method, which is based on the fair market
value price on the grant date. We use a Monte Carlo simulation model to estimate the fair value of performance
restricted stock units whose number of units vesting is based on our total shareholder return over the
performance period compared to the Russell Index. We value certain performance restricted stock units
with vesting based on goals related to free cash flow target amounts units using the intrinsic value method,
which is based on the fair market value price on the grant date. We amortize the fair value of stock awards on
a straight-line basis over the requisite service periods of the awards, which are generally the vesting periods.
See Note 12, “Employee Stock Award 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.
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.
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COHERENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
We account for uncertain tax issues pursuant to ASC 740-10 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 position 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 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.
We historically asserted our intention to indefinitely reinvest foreign earnings. As a result of enactment
of the Tax Cuts and Jobs Act (the “Tax Act”) and certain foreign tax law changes, we no longer consider
foreign earnings to be indefinitely reinvested in our foreign subsidiaries. As a result of this change in assertion,
we recorded a $16.1 million tax expense against our foreign earnings that are not indefinitely reinvested as
of fiscal 2020. This is mainly related to foreign withholding taxes and state income taxes. We have not
recognized any deferred taxes for outside basis differences in foreign subsidiaries.
Adoption of New Accounting Pronouncements
In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards
Update (“ASU”) 2019-12, Simplifying the Accounting for Income Taxes. The ASU updates specific areas of
ASC 740, Income Taxes, to reduce complexity while maintaining or improving the usefulness of the
information provided to users of financial statements. We elected to early adopt ASU 2019-12 in the second
quarter of fiscal 2020 with no material impact to our consolidated financial statements.
In February 2018, the FASB issued ASU 2018-02, Income Statement-Reporting Comprehensive
Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive
Income. The guidance allows companies to reclassify stranded tax effects resulting from the Tax Act from
accumulated other comprehensive income to retained earnings. The guidance also requires certain new
disclosures regardless of the election. The amendments in ASU 2018-02 are effective for all entities for
fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. We adopted
ASU 2018-02 in the first quarter of fiscal 2020 with no material impact to our consolidated financial
statements.
In February 2016, the FASB issued accounting guidance (ASC 842) that modifies lease accounting for
lessees to increase transparency and comparability by recording lease assets and liabilities for operating leases
and disclosing key information about leasing arrangements. We adopted ASC 842 in the first quarter of
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COHERENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
fiscal 2020 utilizing the optional transition method by applying the new standard to leases existing at the
date of initial application and not restating comparative periods. We determine if an arrangement contains
a lease at inception for arrangements with an initial term of more than 12 months, and classify it as either
finance or operating. We have elected the package of practical expedients which allows us to not reassess
1) whether any expired or existing contracts are or contain leases; 2) the lease classification for any expired
or existing leases; and 3) initial direct costs for any existing leases. In addition, we also elected to use the
practical expedient allowed in the standard to not separate lease and non-lease components and apply the
short-term lease measurement and recognition exemption to all leases shorter than 12 months when calculating
the lease liability under ASC 842. The adoption of the standard resulted in the recognition of operating
lease assets of $90.4 million, with corresponding operating lease liabilities of $93.5 million on our consolidated
balance sheet, primarily related to real estate leases. The difference between the operating lease right-of-use
assets and operating lease liabilities primarily represents our deferred rent as of adoption. As of the date of
adoption, we recognized finance lease assets of $1.0 million, with corresponding finance lease liabilities of
$0.9 million on our consolidated balance sheet, primarily related to equipment leases.
See Note 11, “Leases” for more information.
Recently Issued Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses (Topic 326):
Measurement of Credit Losses on Financial Instruments and a subsequent amendment, ASU 2018-19
(collectively, Topic 326). Topic 326 requires measurement and recognition of expected credit losses for
financial assets held. The new standard will become effective for our fiscal year 2021, which begins on
October 4, 2020. We do not expect the standard will have a material impact on our consolidated statements
of operations.
Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task
Force), the AICPA, and the SEC did not or are not believed by management to have a material impact on
our present or future consolidated financial statements.
3. REVENUE RECOGNITION
Disaggregation of Revenue
Based on the information that our chief operating decision maker (“CODM”) uses to manage the
business, we disaggregate revenue by type and market application within each segment. No other level of
disaggregation is required considering the type of products, customers, markets, contracts, duration of
contracts, timing of transfer of control and sales channels.
The following tables summarize revenue from contracts with customers (in thousands):
Sales by revenue type and segment
Net sales:
Products(1)
Other product and service
. . . . . . . . . . . . . . . .
revenues(2) . . . . . . . . . . . . . . .
Total net sales . . . . . . . . . . . . . .
2020
Fiscal
2019
2018
OEM Laser
Sources
Industrial
Lasers &
Systems
OEM
Laser
Sources
Industrial
Lasers &
Systems
OEM Laser
Sources
Industrial
Lasers &
Systems
$441,476
$369,342
$532,863
$430,878
$ 890,591
$512,818
317,453
100,728
353,813
113,086
368,886
130,278
$758,929
$470,070
$886,676
$543,964
$1,259,477
$643,096
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COHERENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. REVENUE RECOGNITION (Continued)
(1) Net sales primarily recognized at a point in time.
(2)
Includes sales of spare parts, related accessories, and other consumable parts as well as revenues from
service agreements, of which $62.4 million for fiscal 2020 was recognized over time.
Sales by market application and segment
2020
Fiscal
2019
2018
OEM Laser
Sources
Industrial
Lasers &
Systems
OEM Laser
Sources
Industrial
Lasers &
Systems
OEM Laser
Sources
Industrial
Lasers &
Systems
$466,780
36,129
$ 71,755
299,621
$568,387
38,017
$ 63,789
366,861
$ 951,166
46,467
$ 85,188
474,437
Net sales:
Microelectronics . . . . . . . . . . . .
Materials processing . . . . . . . . .
OEM components and
instrumentation . . . . . . . . . . .
158,748
89,799
163,095
103,693
140,616
80,207
Scientific and government
programs . . . . . . . . . . . . . . .
97,272
8,895
117,177
9,621
121,228
3,264
Total net sales . . . . . . . . . . . . . .
$758,929
$470,070
$886,676
$543,964
$1,259,477
$643,096
See Note 18, “Segment and Geographic Information” for revenue disaggregation by reportable
segment and geographic region.
Contract Balances
We record accounts receivable when we have an unconditional right to the consideration. Contract
liabilities are recorded when cash payments are received or due in advance of performance. Contract
liabilities consist of customer deposits and deferred revenue, where we have unsatisfied or partly satisfied
performance obligations. Contract liabilities classified as customer deposits are included in other current
liabilities and contract liabilities classified as deferred revenue are included in other current liabilities or other
long-term liabilities on our consolidated balance sheets. Payment terms vary by customer.
A rollforward of our customer deposits and deferred revenue are as follows (in thousands):
Fiscal
2020
2019
Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 42,550
$ 55,637
Amount of customer deposits and deferred revenue recognized in
income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(171,521)
(189,318)
Additions to customer deposits and deferred revenue . . . . . . . . . . . . . .
183,604
177,753
Translation adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,706
(1,522)
Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 56,339
$ 42,550
Remaining performance obligations represent the transaction price allocated to performance obligations
that are unsatisfied or partially unsatisfied as of the end of the reporting period. The following table includes
estimated revenue expected to be recognized in the future related to performance obligations for sales of
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COHERENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. REVENUE RECOGNITION (Continued)
maintenance agreements, extended warranties, installation, and contracts with customer acceptance
provisions included in customer deposits and deferred revenue as follows (in thousands):
Performance obligations as of September 28, 2019 . . . . . . . . . . .
Performance obligations as of October 3, 2020 . . . . . . . . . . . . .
1 year
Thereafter
Total
$34,538
42,715
$ 8,012
13,624
$42,550
56,339
4. BUSINESS COMBINATIONS
Fiscal 2019 Acquisitions
Ondax
On October 5, 2018, we acquired privately held Ondax for approximately $12.0 million, excluding
transaction costs. Ondax developed and produced photonic components which are used on an OEM basis
by the laser industry as well as incorporated into its own stabilized lasers and Raman Spectroscopy systems.
Ondax’s operating results have been included in our Industrial Lasers & Systems segment. See Note 18,
“Segment and Geographic Information.”
Our allocation of the purchase price is as follows (in thousands):
Tangible assets:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
103
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax assets
Property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets:
Existing technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer relationships
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
534
1,793
17
681
122
(499)
5,600
300
3,333
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$11,984
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.
The identifiable intangible assets are being amortized over their respective useful lives of 1 to 8 years.
The fair values of the acquired intangibles were determined using the income approach. In performing these
valuations, the key underlying probability-adjusted assumptions of the discounted cash flows were projected
revenues, gross margin expectations and operating cost estimates. The valuations were based on the
information that was available as of the acquisition date and the expectations and assumptions that have
been deemed reasonable by our management. There are inherent uncertainties and management judgment
required in these determinations. This acquisition resulted in a purchase price that exceeded the estimated fair
value of tangible and intangible assets, which was allocated to goodwill.
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COHERENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. BUSINESS COMBINATIONS (Continued)
We believe the amount of goodwill relative to identifiable intangible assets relates to several factors
including: (1) potential buyer-specific synergies related to the development of new technologies; and (2) the
potential to leverage our sales force to attract new customers.
In the quarter ended April 4, 2020, we performed an interim impairment test and the entire goodwill
balance and a portion of the existing technology intangible assets were impaired. See Note 8, “Goodwill
and Intangible Assets”.
None of the goodwill from this purchase is deductible for tax purposes.
Quantum
On October 5, 2018, we acquired certain assets of Quantum Coating, Inc. (“Quantum”) for
approximately $7.0 million, excluding transaction costs, and accounted for the transaction as an asset
purchase.
Our allocation of the purchase price is as follows (in thousands):
Tangible assets:
Property and equipment
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,770
Intangible assets:
Existing technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Production know-how . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Backlog . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,600
230
2,300
100
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$7,000
The identifiable intangible assets are being amortized over their respective useful lives of 1 to 5 years.
The fair values of the acquired intangibles were determined using the income approach. In performing these
valuations, the key underlying probability-adjusted assumptions of the discounted cash flows were projected
revenues, gross margin expectations and operating cost estimates. The valuations were based on the
information that was available as of the acquisition date and the expectations and assumptions that have
been deemed reasonable by our management. There are inherent uncertainties and management judgment
required in these determinations.
Fiscal 2018 Acquisitions
On March 8, 2018, we acquired OR Laser for approximately $47.4 million, excluding transaction costs.
OR Laser produced laser-based material processing equipment for a variety of uses, including additive
manufacturing, welding, cladding, marking, engraving and drilling. OR Laser’s operating results have been
included in our Industrial Lasers & Systems segment. See Note 18, “Segment and Geographic Information.”
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COHERENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. BUSINESS COMBINATIONS (Continued)
Our allocation of the purchase price is as follows (in thousands):
Tangible assets:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,936
3,973
2,360
630
1,515
(5,119)
(4,517)
Intangible assets:
Existing technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Backlog . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer relationships
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trademarks
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14,100
200
100
700
50
31,456
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$47,384
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.
The identifiable intangible assets were being amortized over their respective useful lives of 1 to 8 years
until they were fully impaired in the quarter ended April 4, 2020. The fair value of the acquired intangibles
was determined using the income approach. In performing these valuations, the key underlying probability-
adjusted assumptions of the discounted cash flows were projected revenues, gross margin expectations and
operating cost estimates. The valuations were based on the information that was available as of the acquisition
date and the expectations and assumptions that have been deemed reasonable by our management. There
are inherent uncertainties and management judgment required in these determinations. This acquisition
resulted in a purchase price that exceeded the estimated fair value of tangible and intangible assets, which was
allocated to goodwill.
We believe the amount of goodwill relative to identifiable intangible assets relates to several factors
including: (1) potential buyer-specific synergies related to the development of new technologies related
primarily to the additive manufacturing business; and (2) the potential to leverage our sales force to attract
new customers and revenue and cross-sell to existing customers.
In the quarter ended April 4, 2020, we performed an interim impairment test and the entire goodwill
balance and remaining net book value of the existing technology and customer relationships intangible
assets were fully impaired. See Note 8, “Goodwill and Intangible Assets”.
None of the goodwill from this purchase is deductible for tax purposes.
We expensed $0.6 million of acquisition-related costs as selling, general and administrative expenses in
our consolidated statement of operations in fiscal 2018.
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COHERENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. FAIR VALUES
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. We recognize transfers between levels within the fair
value hierarchy, if any, at the end of each quarter. There were no transfers between levels during the periods
presented. As of October 3, 2020 and September 28, 2019, we had one investment carried on a cost basis.
See Note 9, “Balance Sheet Details.” If we were to fair value this investment, it would be based upon Level 3
inputs. This investment is not considered material to our consolidated financial statements.
We measure the fair value of outstanding debt obligations for disclosure purposes on a recurring basis.
As of October 3, 2020, the current and long-term portion of long-term obligations of $6.8 million and
$411.1 million, respectively, are reported at amortized cost. As of September 28, 2019, the current and
long-term portion of long-term obligations of $4.9 million and $392.2 million, respectively, are reported at
amortized cost. These outstanding obligations are classified as Level 2 as they are not actively traded and are
valued using a discounted cash flow model that uses observable market inputs. Based on the discounted
cash flow model, the fair value of the outstanding debt approximates amortized cost.
Financial assets and liabilities measured at fair value as of October 3, 2020 and September 28, 2019 are
summarized below (in thousands):
Quoted Prices
in Active
Markets for
Identical
Assets
Aggregate
Fair
Value
Significant
Other
Observable
Inputs
Aggregate
Fair
Value
Quoted Prices
in Active
Markets for
Identical
Assets
Significant
Other
Observable
Inputs
Fiscal year-end 2020
Fiscal year-end 2019
(Level 1)
(Level 2)
(Level 1)
(Level 2)
Assets:
Cash equivalents:
Money market fund deposits . . . . .
$ 36,646
$ 36,646
Certificates of deposit
. . . . . . . . .
Short-term investments: . . . . . . . . . .
56,191
56,191
$ — $21,422
—
—
U.S. Treasury and agency
obligations(1)
Prepaid and other assets:
. . . . . . . . . . . . . .
Foreign currency contracts(2) . . . . .
Money market fund
deposits – Deferred comp and
supplemental plan(3)
. . . . . . . . .
Mutual funds – Deferred comp and
. . . . . . . . .
supplemental plan(3)
35,346
— 35,346
120
812
—
812
370
203
203
—
433
433
Total . . . . . . . . . . . . . . . . . . . . . . . . .
$151,976
$115,818
22,778
22,778
— 22,419
$36,158 $44,764
22,419
Liabilities:
Other current liabilities:
Foreign currency contracts(2) . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . .
(2,811)
$149,165
$115,818
— (2,811)
(960)
$33,347 $43,804
$21,422
$ —
—
—
—
—
120
370
—
—
$44,274
$ 490
—
$44,274
(960)
$(470)
(1) Valuations are based upon quoted market prices in active markets involving similar assets. The market
inputs used to value these instruments generally consist of market yields, reported trades, broker/dealer
101
COHERENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. FAIR VALUES (Continued)
quotes or alternative pricing sources with reasonable levels of price transparency. Pricing sources
include industry standard data providers, security master files from large financial institutions, and
other third party sources which are input into a distribution-curve-based algorithm to determine a daily
market value. This creates a “consensus price” or a weighted average price for each security.
(2) The principal market in which we execute our foreign currency contracts is the institutional market in
an over-the-counter environment with a relatively high level of price transparency. The market
participants usually are large commercial banks. Our foreign currency contracts’ valuation inputs are
based on quoted prices and quoted pricing intervals from public data sources and do not involve
management judgment. See Note 7, “Derivative Instruments and Hedging Activities.”
(3) The fair value of mutual funds is determined based on quoted market prices. Securities traded on a
national exchange are stated at the last reported sales price on the day of valuation; other securities
traded in over-the-counter markets and listed securities for which no sale was reported on that date are
stated as the last quoted bid price.
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 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 . . . . . . . . . . . . . . . . .
$440,258
$—
$—
$440,258
Fiscal 2020 year-end
Cost Basis
Unrealized Gains Unrealized Losses
Fair Value
Short-term investments: . . . . . . . . . . . . . . . . . . .
Available-for-sale securities:
U.S. Treasury and agency obligations . . . . . .
Total short-term investments . . . . . . . . . .
$ 35,311
$ 35,311
$36
$36
$ (1)
$ (1)
$ 35,346
$ 35,346
Cash and cash equivalents . . . . . . . . . . . . . . . . .
$305,833
$ —
$ —
$305,833
Fiscal 2019 year-end
Cost Basis
Unrealized Gains Unrealized Losses
Fair Value
Short-term investments: . . . . . . . . . . . . . . . . . . .
Available-for-sale securities:
U.S. Treasury and agency obligations . . . . . .
Total short-term investments . . . . . . . . . .
$
$
120
120
$ —
$ —
$ —
$ —
$
$
120
120
There were less than $0.1 million of unrealized gains and losses at October 3, 2020. None of the $1,000
in unrealized losses at October 3, 2020 were considered to be other-than-temporary impairments. There were
no unrealized gains or losses at September 28, 2019.
102
COHERENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. SHORT-TERM INVESTMENTS (Continued)
The amortized cost and estimated fair value of available-for-sale investments in debt securities as of
October 3, 2020 and September 28, 2019 classified as short-term investments on our consolidated balance
sheets, were as follows (in thousands):
Fiscal year-end
2020
2019
Amortized Cost
Estimated Fair
Value
Amortized Cost
Estimated Fair
Value
Investments in available-for-sale debt securities due
in less than one year . . . . . . . . . . . . . . . . . . . . .
$35,311
$35,346
$120
$120
During fiscal 2020, we received $5,000 in proceeds from the sale of available-for-sale securities and
realized no gross gains or losses. During fiscal 2019, we received no proceeds from the sale of available-for-
sale securities and realized no gross gains or losses.
7. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
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, Japanese Yen,
South Korean Won, Singapore Dollar, and Chinese Renminbi. 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. The credit risk amounts represent our gross exposure to
potential accounting loss on derivative instruments that are outstanding or unsettled if all counterparties
failed to perform according to the terms of the contract, based on then-current currency rates at each
respective date.
Non-Designated Derivatives
The total outstanding notional contract and fair value asset (liability) amounts of non-designated
hedge contracts, with maximum maturity of two months, are as follows (in thousands):
U.S. Notional Contract Value
U.S. Fair Value
Fiscal 2020
year-end
Fiscal 2019
year-end
Fiscal 2020
year-end
Fiscal 2019
year-end
Foreign currency hedge contracts
Purchase . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 169,206
$ 53,920
Sell . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(166,813)
$(86,984)
$(1,802)
$ (197)
$(117)
$(473)
The fair value of our derivative instruments is included in prepaid expenses and other assets and in
other current liabilities in our Consolidated Balance Sheets. See Note 5, “Fair Values.”
During fiscal 2020, 2019, and 2018, we recognized a gain of $1.1 million, a loss of $5.8 million, and a
loss of $5.5 million, respectively, in other income (expense) for derivative instruments not designated as
hedging instruments.
Master Netting Arrangements
To mitigate credit risk in derivative transactions, we enter into master netting arrangements that allow
each counterparty in the arrangements to net settle amounts of multiple and separate derivative transactions
103
COHERENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (Continued)
under certain conditions. We present the fair value of derivative assets and liabilities within our consolidated
balance sheet on a gross basis even when derivative transactions are subject to master netting arrangements
and may otherwise qualify for net presentation. The impact of netting derivative assets and liabilities is
not material to our financial position for any of the periods presented. Our derivative contracts do not contain
any credit risk related contingent features and do not require collateral or other security to be furnished by
us or the counterparties.
8. GOODWILL AND INTANGIBLE ASSETS
Goodwill is tested for impairment on an annual basis and between annual tests if events or circumstances
indicate that an impairment loss may have occurred, and we write down these assets when impaired. We
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 quarter, with any resulting impairment recorded in the fourth quarter
of the fiscal year.
In the quarter ended April 4, 2020, the worldwide spread of coronavirus (“COVID-19”) created
significant volatility, uncertainty and disruption to the global economy, representing an indicator to test our
goodwill for impairment. Based on our internal projections and the preparation of our financial statements
for the quarter ended April 4, 2020, and considering the forecasted decrease in demand due to the COVID-19
pandemic and other factors, we believed that the fair value of our ILS reporting unit might no longer have
exceeded its carrying value and performed an interim goodwill impairment test on the ILS reporting unit. We
also performed an interim goodwill impairment test on the OLS reporting unit.
Our goodwill impairment tests for the ILS and OLS reporting units were performed by comparing the
fair value of the reporting units with their carrying values and recognizing an impairment charge for the
amount by which the carrying value exceeded the fair value. Based on the estimated fair value of the ILS
reporting unit, in the quarter ended April 4, 2020, we recorded a non-cash pre-tax charge related to the ILS
reporting unit of $327.2 million, reducing the goodwill balance of the reporting unit to zero. The
impairment charge was primarily the result of a decline in projected cash flows of the ILS reporting unit
driven by lower forecasted sales volumes and profitability in several business units. The impairment charge
was also the result of changes in certain market-related inputs to the analysis to reflect macro-economic
changes caused by the impact of COVID-19, including lower pricing multiples for comparable public
companies. No impairment charge was recognized for the OLS reporting unit as the fair value significantly
exceeded the carrying value of the reporting unit.
In assessing goodwill for impairment, we were required to make significant judgments related to the
fair value of our reporting units. We used a combination of the Income (discounted cash flow) approach
and the Market (market comparable) approach to estimate the fair value of our reporting units. 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. Our assumptions used in the forecasts are based on historical data,
supplemented by current and anticipated market conditions, estimated growth rates, and management’s plans.
The rate of return on cost of capital is weighted based on the capitalization of comparable companies. We
utilized a discount rate for each of our reporting units that represents the risks that our businesses face,
considering their sizes, their current economic environment and other industry data as we believe is
appropriate. The Market approach determines fair value by comparing the reporting units to comparable
companies in similar lines of business that are publicly traded. The selection of comparable companies is
based on the markets in which the reporting units operate giving consideration to risk profiles, size, geography
and diversity of products and services. 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.
We utilized multiples for each of our reporting units that represent the risks that our businesses face,
104
COHERENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. GOODWILL AND INTANGIBLE ASSETS (Continued)
considering their sizes, their current economic environment and other industry data as we believe is
appropriate. The interim goodwill impairment testing results were also reconciled with our market
capitalization as of April 4, 2020, as the final step in the impairment testing.
Before performing the goodwill impairment test for the ILS reporting unit, we performed impairment
tests on the long-lived assets allocated to the asset group of the ILS reporting unit, including intangible
assets, property, plant and equipment, and ROU assets as of April 4, 2020, due primarily to the same
indicators that led to the interim goodwill impairment testing. Based on the impairment tests performed, we
concluded that some of the long-lived assets allocated to the asset group of the ILS reporting unit were
impaired as of April 4, 2020. Accordingly, we recorded non-cash pre-tax charges in the quarter ended April 4,
2020 related to the intangible assets, property, plant and equipment, and right-of-use (“ROU”) assets of
the ILS reporting unit of $33.9 million, $85.6 million, and $1.8 million, respectively. We did not identify any
indicators that would lead us to believe that the carrying value of the long-lived assets allocated to the
asset group of the OLS reporting unit may not be recoverable as of April 4, 2020. In fiscal 2019, we did not
have any impairment of intangible assets as a result of the impairment analysis.
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. In assessing our long-lived assets for impairment, we
were required to make significant judgments related to the fair value of our long-lived assets, which are
comprised of personal property, real property, and intangible assets. We used a combination of the Income,
the Market approach, and the Cost (cost to create) approach to estimate the fair value of our long-lived
assets. Our personal property assets consist of laser manufacturing and assembly equipment, semiconductor
tools, laboratory and test equipment, furniture and fixtures, and computer hardware and software. We
used the Cost Approach (with support from the Market Approach) to estimate the fair value of our personal
property, taking into consideration the physical deterioration, functional obsolescence, and economic
obsolescence of our personal property assets. Our real property assets consist of land and buildings, land
rights (ground leased), and ROU assets. In determining the fair value of our real property assets, we used a
combination of the Income, Market (sales comparison), and Cost approaches. We considered historical
transaction information, current market conditions, operating performance, forecast growth, and market-
derived rates of return in our real property determination of fair value. The fair value of our ROU assets was
determined using the Income approach by considering off-market components of the associated ROU
leases. Our intangible assets consist of technology and customer relationship assets, and we used the Income
approach to estimate the fair value of our intangible assets. We identified cash flows associated with each
intangible asset, which were discounted at an after-tax rate of return appropriate for the risk profile of each
intangible asset.
We performed our annual impairment test using the opening balance sheet as of the first day of the
fourth quarter of fiscal 2020 and noted no indications of impairment or triggering events, not already
considered in the quarter ended April 4, 2020. In our fiscal 2020 annual testing, for our OLS reporting unit
we conducted a qualitative assessment of the goodwill during the fourth quarter using the opening balance
sheet as of the first day of the fourth quarter and concluded that it was more likely than not that the fair
value of the reporting unit exceeded its carrying amounts. Based on our assessment, goodwill in the OLS
reporting unit was not impaired as of the first day of the fourth quarter of fiscal 2020. As such, it was not
necessary to perform the goodwill impairment test in the fourth quarter of fiscal 2020. There is no goodwill in
the ILS reporting unit due to the impairment of all goodwill of the ILS reporting unit in the second
quarter of fiscal 2020. Between the completion of our assessment and the end of the fourth quarter of fiscal
2020, we noted no indications of impairment or triggering events to cause us to review goodwill for
potential impairment.
105
COHERENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. GOODWILL AND INTANGIBLE ASSETS (Continued)
The changes in the carrying amount of goodwill by segment for fiscal 2020 and 2019 are as follows (in
thousands):
Industrial
Lasers &
Systems(1)
OEM Laser
Sources(2)
Total
Balance as of September 29, 2018 . . . . . . . . . . . . . . . . . . .
$ 342,208
$100,732
$ 442,940
Additions (see Note 4) . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . .
Translation adjustments
Balance as of September 28, 2019 . . . . . . . . . . . . . . . . . . .
Impairment charges . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,333
(15,260)
330,281
(327,203)
—
(3,912)
3,333
(19,172)
96,820
427,101
— (327,203)
Translation adjustments
. . . . . . . . . . . . . . . . . . . . . . . . .
(3,078)
4,497
1,419
Balance as of October 3, 2020 . . . . . . . . . . . . . . . . . . . . .
$
— $101,317
$ 101,317
(1) Gross amount of goodwill for our ILS segment was $340.2 million at October 3, 2020 and $343.3 million
at September 28, 2019, respectively. At October 3, 2020 and September 28, 2019, the accumulated
impairment loss for the ILS reporting unit was $340.2 million and $13.0 million, respectively, reflecting
impairment charges in fiscal 2020 and fiscal 2009.
(2) Gross amount of goodwill for our OLS segment was $110.0 million and $105.5 million at October 3,
2020 and September 28, 2019, respectively. At both October 3, 2020 and September 28, 2019, the
accumulated impairment loss for the OLS reporting unit was $8.7 million reflecting impairment charges
in fiscal 2003 and fiscal 2009.
The components of our amortizable intangible assets are as follows (in thousands):
Existing technology . . . . . . . . . . . .
Customer relationships . . . . . . . . . .
Trade name . . . . . . . . . . . . . . . . . .
Production know-how . . . . . . . . . .
Fiscal year-end 2020
Fiscal year-end 2019
Gross
Carrying
Amount
$46,547
24,388
—
2,300
Accumulated
Amortization
Net
$(37,630)
(12,923)
$ 8,917
11,465
—
(917)
—
1,383
Gross
Carrying
Amount
$193,704
42,083
5,261
2,300
Accumulated
Amortization
$(131,429)
(21,512)
(5,138)
Net
$62,275
20,571
123
(456)
1,844
Total . . . . . . . . . . . . . . . . . . . . . . .
$73,235
$(51,470)
$21,765
$243,348
$(158,535)
$84,813
For accounting purposes, when an intangible asset is fully amortized, it is removed from the disclosure
schedule. The net carrying amounts as of fiscal 2020, have been reduced by impairment charges of
$27.7 million and $6.2 million for existing technology and customer relationships, respectively.
During the third quarter of fiscal 2019, in conjunction with our decision to exit a portion of our High
Power Fiber Laser (“HPFL”) business and consolidate all HPFL manufacturing and engineering functions
in our Tampere, Finland facility by transferring certain HPFL activities from our Hamburg, Germany facility,
we abandoned the in-process research and development project totaling $4.7 million and fully amortized
the intangible asset. See Note 19, “Restructuring Charges.”
The weighted average remaining amortization periods for existing technology, customer relationships,
and production know-how are approximately 1.5 years, 6.1 years, and 3.0 years, respectively. Amortization
expense for intangible assets during fiscal 2020, 2019, and 2018 was $30.1 million, $61.5 million, and
106
COHERENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. GOODWILL AND INTANGIBLE ASSETS (Continued)
$60.0 million, respectively. The change in accumulated amortization also includes $2.9 million (increase)
and $7.8 million (decrease) of foreign exchange impact for fiscal 2020 and fiscal 2019, respectively.
Estimated amortization expense for the next five fiscal years and all years thereafter are as follows (in
thousands):
Estimated
Amortization
Expense
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 9,722
3,272
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,703
1,920
1,919
2,229
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$21,765
9. BALANCE SHEET DETAILS
Prepaid expenses and other assets consist of the following (in thousands):
Fiscal year-end
2020
2019
Prepaid and refundable income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other taxes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$50,548
13,006
24,696
$44,096
11,208
22,689
Total prepaid expenses and other assets . . . . . . . . . . . . . . . . . . . . . . . . . .
$88,250
$77,993
Other assets consist of the following (in thousands):
Fiscal year-end
2020
2019
Assets related to deferred compensation arrangements (see Note 12) . . . . .
$ 39,720
$ 35,842
Deferred tax assets (see Note 16)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
102,028
87,011
Right of use assets, net – operating leases (See Note 11)
. . . . . . . . . . . . .
Right of use assets, net – finance leases (See Note 11) . . . . . . . . . . . . . . .
Other assets(1)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
85,905
656
14,266
—
—
18,111
$242,575
$140,964
(1)
In the first quarter of fiscal 2019, we invested 3.0 million Euro ($3.4 million) in 3D-Micromac AG, a
private company in Germany. The investment is included in other assets and is being carried on a cost
basis and is adjusted for impairment if we determine that indicators of impairment exist at any point in
time. During the second quarter of fiscal 2020, we determined that our investment became impaired
and wrote it down to its fair value. As a result, we recorded a non-cash impairment charge of $2.5 million
to operating expense in our results of operations in the second quarter of fiscal 2020.
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COHERENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. BALANCE SHEET DETAILS (Continued)
Other current liabilities consist of the following (in thousands):
Fiscal year-end
2020
2019
Accrued payroll and benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . .
Operating lease liability, current (see Note 11)
$ 54,211
15,366
$ 55,698
—
Finance lease liability, current (see Note 11) . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Warranty reserve (see Note 2)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
399
36,432
35,032
9,717
32,998
—
41,039
36,460
10,843
23,695
Total other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$184,155
$167,735
Other long-term liabilities consist of the following (in thousands):
Fiscal year-end
2020
2019
Long-term taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating lease liability, long-term (see Note 11)
. . . . . . . . . . . . . . . . . .
Finance lease liability, long-term (see Note 11) . . . . . . . . . . . . . . . . . . . .
Deferred compensation (see Note 12) . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 15,374
75,264
178
42,854
$ 37,385
—
—
39,715
Deferred tax liabilities (see Note 16) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asset retirement obligations liability (see Note 2) . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . .
Defined benefit plan liabilities (see Note 17)
Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15,721
13,624
5,892
45,810
6,357
27,785
8,012
4,934
45,862
2,188
Total other long-term liabilities
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$221,074
$165,881
10. BORROWINGS
On November 7, 2016 (the “Closing Date”), we entered into a Credit Agreement by and among us,
Coherent Holding BV & Co. K.G. (formerly Coherent Holding GmbH), as borrower (the “Borrower”), and
certain of our direct and indirect subsidiaries from time to time party thereto, as guarantors, the lenders
from time to time party thereto, Barclays Bank PLC, as administrative agent and an L/C Issuer, Bank of
America, N.A., as an L/C Issuer, and MUFG Union Bank, N.A., as an L/C Issuer (the “Initial Credit
Agreement” and, as amended by the Amendments (defined below), the “Credit Agreement”). The Initial
Credit Agreement provided for a 670.0 million Euro senior secured term loan facility (the “Euro Term
Loan”) and a $100.0 million senior secured revolving credit facility (the “Revolving Credit Facility”) with a
$30.0 million letter of credit sublimit and a $10.0 million swing line sublimit, in each case, which may be
increased from time to time pursuant to an incremental feature set forth in the Credit Agreement. The Initial
Credit Agreement was amended on May 8, 2017 (the “First Amendment”) to reduce the interest rate
margins applicable to the Euro Term Loan and was amended again on July 5, 2017 (the “Second Amendment”
and, together with the First Amendment, the “Amendments”) to make certain technical changes in
connection with the conversion of the Borrower from a German company with limited liability to a German
limited partnership.
108
COHERENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. BORROWINGS (Continued)
The Credit Agreement contains customary mandatory prepayment provisions. The Borrower has the
right to prepay loans under the Credit Agreement in whole or in part at any time without premium or penalty,
subject to customary breakage costs. Revolving loans may be borrowed, repaid and reborrowed until the
fifth anniversary of the Closing Date, at which time all outstanding revolving loans must be repaid. The Euro
Term Loan matures on the seventh anniversary of the Closing Date (in the first quarter of fiscal 2024), at
which time all outstanding principal and accrued and unpaid interest on the Euro Term Loan must be repaid.
As of October 3, 2020, the outstanding principal amount of the Euro Term Loan was 358.2 million
Euros. As of October 3, 2020, the outstanding amount of the Revolving Credit Facility was $10.0 million
plus a 10.0 million Euro letter of credit.
Loans under the Credit Agreement bear interest, at the Borrower’s option, at a rate equal to either
(i)(x) in the case of calculations with respect to U.S. Dollars or certain other alternative currencies, the
London interbank offered rate (the “LIBOR”) or (y) in the case of calculations with respect to the Euro, the
euro interbank offered rate (“EURIBOR” and, together with LIBOR, the “Eurocurrency Rate”) or (ii) a
base rate (the “Base Rate”) equal to the highest of (x) the federal funds rate, plus 0.50%, (y) the prime rate
then in effect and (z) the Eurocurrency Rate for loans denominated in U.S. Dollars applicable to a one-
month interest period, plus 1.0%, in each case, plus an applicable margin that is subject to adjustment
pursuant to a pricing grid based on consolidated total gross leverage ratio. At October 3, 2020, the applicable
margin for Euro Term Loans borrowed as Eurocurrency Rate loans was 2.25% per annum and as Base
Rate loans was 1.25%. The applicable margin for revolving loans borrowed as Eurocurrency Rate loans was
4.25% per annum and as Base Rate loans was 3.25% per annum. Interest on Base Rate Loans is payable
quarterly in arrears. Interest on Eurocurrency Rate loans is payable at the end of the applicable interest period
(or at three month intervals if the interest period exceeds three months).
The Credit Agreement requires the Borrower to make scheduled quarterly payments on the Euro Term
Loan of 0.25% of the original principal amount of the Euro Term Loan, with any remaining principal payable
at maturity. A commitment fee accrues on any unused portion of the revolving loan commitments under
the Credit Agreement at a rate of 0.375% or 0.5% depending on the consolidated total gross leverage ratio
at any time of determination. The Borrower is also obligated to pay other customary fees for a credit facility
of this size and type.
On the Closing Date, we and certain of our direct and indirect subsidiaries, as guarantors, provided an
unconditional guaranty of all obligations of the Borrower and the other loan parties arising under the Credit
Agreement, the other loan documents and under swap contracts and treasury management agreements
with the lenders or their affiliates (with certain limited exceptions). The Borrower and the guarantors have
also granted security interests in substantially all of their assets to secure such obligations.
The Credit Agreement contains customary affirmative and negative covenants, including covenants
limiting the ability of us and our subsidiaries to, among other things, incur debt, grant liens, make
investments, make certain restricted payments, transact with affiliates, and sell assets. The Credit Agreement
also requires us and our subsidiaries to maintain a senior secured net leverage ratio as of the last day of
each fiscal quarter of less of than or equal to 3.50 to 1.00. We were in compliance with all covenants at
October 3, 2020.
We incurred $28.5 million of debt issuance costs related to the Euro Term Loan and $0.5 million of
debt issuance costs to the original lenders related to the First Amendment, which are included in short-term
borrowings and current portion of long-term obligations and long-term obligations in the consolidated
balance sheets and will be amortized to interest expense over the seven year life of the Euro Term Loan using
the effective interest method, adjusted to accelerate amortization related to voluntary repayments. We
incurred $2.3 million of debt issuance costs in connection with the Revolving Credit Facility which were
109
COHERENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. BORROWINGS (Continued)
capitalized and included in prepaid expenses and other assets in the consolidated balance sheets and will be
amortized to interest expense using the straight-line method over the contractual term of 5 years of the
Revolving Credit Facility.
Additional sources of cash available to us were international currency lines of credit and bank credit
facilities totaling $16.9 million as of October 3, 2020, of which $16.1 million was unused and available.
These unsecured international credit facilities were used in Europe and Japan in fiscal 2020. As of October 3,
2020, we had utilized $0.8 million of the international credit facilities as guarantees in Europe.
Short-term borrowings and current portion of long-term obligations consist of the following (in
thousands):
Fiscal year-end
2020
2019
Current portion of Euro Term Loan(1) . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.3% Term loan due 2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.0% State of Connecticut term loan due 2023 . . . . . . . . . . . . . . . . . . . . .
Capital lease obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 4,970
1,465
382
—
$ 2,748
1,367
378
370
Line of credit borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10,000
10,000
Total short-term borrowings and current portion of long-term obligations . .
$16,817
$14,863
(1) Net of debt issuance costs of $2.9 million and $4.6 million at October 3, 2020 and September 28, 2019,
respectively.
Long-term obligations consist of the following (in thousands):
Euro Term Loan due 2024(1)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.3% Term loan due 2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.0% State of Connecticut term loan due 2023 . . . . . . . . . . . . . . . . . . . .
Capital lease obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$406,099
4,395
646
—
$385,208
5,466
1,028
536
Total long-term obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$411,140
$392,238
Fiscal year-end
2020
2019
(1) Net of debt issuance costs of $5.9 million and $6.4 million at October 3, 2020 and September 28, 2019,
respectively.
Contractual maturities of our debt obligations, excluding line of credit borrowings, as of October 3,
2020 are as follows (in thousands):
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
9,700
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9,698
9,584
2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
397,752
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$426,734
Amount
110
COHERENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. LEASES
We determine if an arrangement contains a lease at inception for arrangements with an initial term of
more than 12 months, and classify it as either a finance or operating lease. We lease certain real and personal
property from unrelated third parties under non-cancellable operating leases that expire at various dates
through fiscal 2032. These operating leases are mainly for administrative offices, research-and-development,
and manufacturing facilities, as well as sales offices in various countries around the world. Certain leases
require us to pay property taxes, insurance, and routine maintenance, and include escalation clauses. Many
leases include one or more options to renew. We assume renewals in our determination of the lease term when
the renewals are deemed to be reasonably assured at lease commencement. We have also entered into
various finance leases to obtain servers and certain other equipment for our operations. These arrangements
are typically for three to six years. Our assets, liabilities, and lease costs related to finance leases are
immaterial.
As the rates implicit in our leases are not readily determinable, we use incremental borrowing rates
based on the information available at the commencement date in determining the present value of future
lease payments. We consider both the credit rating and the length of the lease when calculating the incremental
borrowing rate. We combine lease and non-lease components into a single lease component for both our
operating and finance leases.
For the purpose of lease liability measurement, we consider only payments that are fixed and
determinable at the time of commencement. Any variable payments that depend on an index or rate are
expensed as incurred.
We generally recognize sublease income on a straight-line basis over the sublease term.
As a result of interim impairment testing performed on long-lived assets in the quarter ended April 4,
2020, we recorded non-cash pre-tax charges related to the ROU assets of the ILS reporting unit of
$1.8 million in the quarter ended April 4, 2020. See Note 8, “Goodwill and Intangible Assets” for discussion
of the interim impairment testing.
In fiscal 2020, we completed a sale-leaseback transaction for our Hamburg, Germany facility in which
we sold the buildings for a purchase price, net of expenses, of $19.6 million and leased back a portion of
the facilities with lease terms from 6 to 15 years with early termination provisions after 3 and 5 years,
respectively. The sale qualified for sale-leaseback operating lease accounting classification and we recorded a
gain, net of selling costs, on the transaction of $2.2 million, which is recorded in selling, general and
administrative expense in the consolidated statements of operations. We also recorded operating lease right
of use assets of $5.1 million and corresponding operating lease liabilities of $5.1 million. The non-cash portion
of the gain of $4.0 million is included in Other non-cash expense (gain) within cash flows from operations
in our consolidated statements of cash flows.
The components of operating lease costs (in thousands), lease term (in years) and discount rate are as
follows:
Operating lease cost
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$19,629
Variable lease cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,421
Short-term lease cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sublease income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
459
(126)
Total lease cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$21,383
Fiscal
2020
111
COHERENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. LEASES (Continued)
Weighted average remaining lease term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Supplemental cash flow information related to leases are as follows (in thousands):
Operating cash outflows from operating leases . . . . . . . . . . . . . . . . . . . . . . . . . .
ROU assets obtained in exchange for new operating lease liabilities . . . . . . . . . . . .
Fiscal year-end
2020
7.8
4.9%
Fiscal year-end
2020
$19,391
10,884
See Note 9, “Balance Sheet Details” for supplemental balance sheet information related to leases.
Maturities of our operating lease liabilities, which do not include short-term leases and variable lease
payments at October 3, 2020 are as follows (in thousands):
Operating Leases
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 18,781
17,909
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2026 and thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total minimum lease payments
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amounts representing interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15,627
12,107
10,844
36,902
112,170
(21,540)
Present value of total operating lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . .
$ 90,630
As of September 28, 2019, future minimum lease payments as defined under the previous lease
accounting guidance ASC 840 under our non-cancellable operating leases are as follows (in thousands):
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$19,578
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14,579
10,405
6,817
4,156
2025 and thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10,755
Total minimum lease payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$66,290
Amount
Rent expense was $22.9 million and $22.1 million in fiscal 2019, and 2018, respectively.
12. EMPLOYEE STOCK AWARD 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
112
COHERENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. EMPLOYEE STOCK AWARD AND BENEFIT PLANS (Continued)
based on reference to changes in available investment options. While not required by the plans, we choose 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):
Fiscal year-end
2020
2019
Cash surrender value of life insurance contracts
. . . . . . . . . . . . . . . . . . . .
$18,520
$16,223
Fair value of mutual and money market funds . . . . . . . . . . . . . . . . . . . . . .
22,981
22,852
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$41,501
$39,075
Total assets, included in:
Prepaid expenses and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,781
$ 3,233
Other assets
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
39,720
35,842
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$41,501
$39,075
Fiscal year-end
2020
2019
Total deferred compensation liability, included in:
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,781
$ 3,233
Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
42,854
39,715
Total deferred compensation liability . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$44,635
$42,948
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 net gains of $6.1 million in fiscal 2020, $1.1 million in fiscal 2019, and
$4.8 million in fiscal 2018, and fluctuate on a quarterly basis. Changes in the obligation to plan participants
are recorded as a component of operating expenses and cost of sales; such amounts were net losses of
$5.3 million in fiscal 2020, $1.5 million in fiscal 2019, and $5.2 million in fiscal 2018, and fluctuate on a
quarterly basis. 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 subject to IRS limitations. Employees
become eligible for participation and Company matching contributions on their first day of employment.
The Company’s contributions (net of forfeitures) during fiscal 2020, 2019, and 2018 were $6.1 million,
$5.7 million, and $5.6 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 2020, 2019, and 2018, a total of 107,284 shares, 108,034 shares,
and 66,099 shares, respectively, were purchased by and distributed to employees at an average price of
$114.54, $109.32, and $159.97 per share, respectively. At fiscal 2020 year-end, we had 143,465 shares of our
common stock reserved for future issuance under the plan.
113
COHERENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. EMPLOYEE STOCK AWARD AND BENEFIT PLANS (Continued)
Stock Award Plans
We maintain stock plans in which employees, service providers, and non-employee directors are eligible
participants. The plans, the 2011 Equity Incentive Plan (the “2011 Plan”) and the Equity Incentive Plan
(the “2020 Plan”), provide for a number of different equity-based grants, including options, time-based
restricted stock units, and performance restricted stock units. Under the 2011 Plan, Coherent was able to
grant options and awards (time-based restricted stock units and performance restricted stock units), of which
grants with respect to 530,115 shares of common stock remained outstanding at fiscal 2020 year-end
(calculated at 100% of target amount for performance awards). Under the 2020 Plan, Coherent may grant
options and awards (time-based restricted stock units and performance restricted stock units) to purchase up
to 3,080,000 shares of common stock plus any forfeited or cancelled shares subject to outstanding awards
under the 2011 Plan, of which 3,034,036 shares remained available for grant at fiscal 2020 year-end. At fiscal
2020 year-end, all outstanding stock options and restricted stock units have been issued under plans
approved by our shareholders. Following approval of the 2020 Plan by our shareholders on April 27, 2020,
there will be no further grants of awards under the 2011 Equity Incentive Plan. However, the 2011 Equity
Incentive Plan will continue to govern awards previously granted under it.
Since adoption of the 2011 Plan and the 2020 Plan, no stock options have been granted to employees.
No options are outstanding as of fiscal 2020 year-end.
Non-employee directors are automatically granted time-based restricted stock units upon first joining
the Board of Directors and then upon reelection. New non-employee directors initially receive an award of
restricted stock units valued at approximately $225,000 which vest over a two year period. The annual grant
for non-employee directors is a value of approximately $225,000 in 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 typically subject to vesting restrictions — either
time-based, market-based or performance-based conditions for vesting. Until restricted stock vests, shares
(including those issuable upon vesting of the applicable restricted stock unit) are generally subject to forfeiture
if employment or service to the Company terminates prior to the release of restrictions and cannot be
transferred.
• The service-based restricted stock awards generally vest within 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, though from time-to-time, depending upon exceptional circumstances, the
Company has granted restricted stock unit awards with one or two year vesting. For example, the
initial grants made to new members of the Board of Directors vest over two years and members of the
Board of Directors have annual grants tied to their reelection to the Board, which vest on the
following February 15.
• The market-based performance restricted stock unit award grants are generally subject to a single
vest measurement three years from the date of grant, depending upon achievement of performance
measurements based on the performance of the Company’s total shareholder returns (as defined in the
award) over the performance period compared with the performance of the applicable Russell
Index or companies therein (or as otherwise determined by the Compensation and HR Committee).
• The performance restricted stock unit award grants based on goals related to free cash flow target
amounts for the fiscal year vested as of fiscal 2020 year-end.
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 per tranche over the respective requisite service
period of the awards.
114
COHERENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. EMPLOYEE STOCK AWARD AND BENEFIT PLANS (Continued)
Determining Fair Value
Employee Stock Purchase Plan
Valuation and amortization method — We estimate the fair value of employee stock purchase shares
using the Black-Scholes-Merton option-pricing formula. This fair value is then amortized on a straight-line
basis over the purchase period.
Expected Term — The expected term represents the period of our employee stock purchase plan.
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.
The fair values of shares purchased under the employee stock purchase plan for fiscal 2020, 2019, and
2018 were estimated using the following weighted-average assumptions:
Expected life in years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average fair value per share . . . . . . . . . . . . . . . . . . . . . . .
Employee Stock Purchase Plans
Fiscal
2019
2018
2020
0.5
0.5
0.5
58.0% 47.9% 50.1%
1.0%
1.6%
2.4%
$43.54
$40.77
$64.39
Time-Based Restricted Stock Units
Time-based restricted stock units are fair valued at the closing market price on the date of grant.
Performance Restricted Stock Units
We grant performance restricted stock units to officers and certain employees. The performance
restricted stock unit agreements provide for the award of performance stock units with each unit representing
the right to receive one share of our common stock to be issued after the applicable award vesting period.
The final number of units awarded, if any, for these performance grants will be determined as of the vesting
dates, based upon our total shareholder return over the performance period compared to the applicable
Russell Index or companies therein and could range from no units to a maximum of twice the initial
award units.
The weighted average fair value for the performance units was determined using a Monte Carlo
simulation model incorporating the following weighted average assumptions:
Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020
0.8%
50.5%
Fiscal
2019
2018
2.9%
43.7%
1.7%
37.0%
Weighted average fair value . . . . . . . . . . . . . . . . . . . . . . . . . . .
$161.46
$117.43
$315.05
115
COHERENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. EMPLOYEE STOCK AWARD AND BENEFIT PLANS (Continued)
We recognize the estimated cost of these awards, as determined under the simulation model, over the
related service period of approximately 3 years, with no adjustment in future periods based upon the actual
shareholder return over the performance period.
In addition, during fiscal 2020, we issued performance restricted stock unit award grants to certain
employees with vesting based on goals related to free cash flow target amounts, with the initial fair value
determined based on our closing stock price on the date of grant. Such awards were granted to serve as a
performance incentive with a pay-for-performance forward-looking free cash flow target for the fiscal year in
recognition of the impact of the COVID-19 pandemic. The number of shares issuable under these
performance units upon satisfaction of the free cash flow performance criteria is capped at 100% of target.
The total stock-based compensation of these awards will be adjusted based on the level of achievement of free
cash flow for fiscal 2020. We believe that these awards will vest at 100% of target.
Stock Compensation Expense
The following table shows total stock-based compensation expense and related tax benefits included in
the Consolidated Statements of Operations for fiscal 2020, 2019, and 2018 (in thousands):
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax benefit
2020
$ 5,314
4,478
34,995
(5,640)
Fiscal
2019
$ 4,880
2,990
28,596
(4,946)
2018
$ 4,403
3,247
25,088
(5,073)
$39,147
$31,520
$27,665
During fiscal 2020, $6.7 million of stock-based compensation cost was capitalized as part of inventory
for all stock plans, $5.3 million was amortized into cost of sales, and $2.8 million remained in inventory at
October 3, 2020. During fiscal 2019, $4.8 million of stock-based compensation cost was capitalized as part of
inventory for all stock plans, $4.8 million was amortized into cost of sales, and $1.5 million remained in
inventory at September 28, 2019.
At fiscal 2020 year-end, the total compensation cost related to unvested stock-based awards granted to
employees under our stock plans but not yet recognized was approximately $37.7 million. We do not estimate
forfeitures and account for them as they occur. This cost will be amortized on a straight-line basis over a
weighted-average period of approximately 1.5 years.
The stock option exercise tax benefits, if any, are reported in the statement of cash flows. The tax
benefits result from tax deductions in excess of the stock-based compensation cost recognized and are
determined on a grant-by-grant basis. We adopted the new accounting standard on share-based compensation
in the first quarter of fiscal 2018. As a result, we recognized net excess tax benefits from stock award
exercises and restricted stock unit vesting as a discrete tax benefit, which reduced the provision for income
taxes by $0.9 million, $2.5 million, and $12.8 million for fiscal 2020, 2019, and 2018, respectively.
Stock Awards Activity
At each of fiscal 2019 and 2018 year-end, we had 24,000 shares subject to vested stock options
outstanding. The vested stock options were exercised in fiscal 2020 and none are outstanding at fiscal 2020
year-end.
116
COHERENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. EMPLOYEE STOCK AWARD AND BENEFIT PLANS (Continued)
The following table summarizes the activity of our time-based and performance restricted stock units
for fiscal 2020, 2019, and 2018 (in thousands, except per share amounts):
Time Based Restricted Stock Units
Performance Restricted Stock Units
Nonvested stock at September 30, 2017 . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested(1)
. . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonvested stock at September 29, 2018 . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested(1)
. . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonvested stock at September 28, 2019 . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested(1)
. . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonvested stock at October 3, 2020 . . . . . . .
Number of
Shares
399
99
(213)
(6)
279
195
(169)
(10)
295
284
(150)
(10)
419
Weighted
Average
Grant Date
Fair Value
$118.83
254.20
88.45
119.66
$155.24
128.25
127.90
170.97
$152.47
141.05
150.91
169.92
$144.87
Number of
Shares
176
78
(95)
—
159
105
(131)
—
133
84
(81)
—
136
Weighted
Average
Grant Date
Fair Value
$105.34
315.05
70.57
—
$155.76
117.43
74.48
—
$184.26
152.96
163.17
—
$177.54
(1) Service-based restricted stock units vested during each fiscal year. Performance-based restricted
stock units included at 100% of target goal. Under the terms of the market-based awards, the recipient
may earn between 0% and 200% of the award. Under the terms of the performance-based awards
based on free cash flow targets, the recipient may earn between 0% and 100% of the award.
Restricted Stock Units are converted into the right to receive common stock upon vesting; prior to
issuance, the Company permits the employee holders to satisfy their tax withholding requirements by net
settlement, whereby the Company withholds a portion of the shares to cover the applicable taxes based on
the fair market value of the Company’s stock at the vesting date. The number of shares withheld to cover tax
payments was 88,000 in fiscal 2020, 120,000 in fiscal 2019, and 131,000 in fiscal 2018; tax payments made
were $13.5 million, $15.2 million, and $36.3 million, respectively.
13. COMMITMENTS AND CONTINGENCIES
Indemnifications
In the normal course of business, we enter into agreements that contain a variety of representations
and warranties and provide for general indemnification. Exposure under these agreements is unknown
because claims may be made against us in the future and we may record charges in the future as a result of
these indemnification obligations. As of October 3, 2020, we did not have any material indemnification claims
that were probable or reasonably possible.
Commitments
We maintain commitments to purchase inventory from our suppliers as well as fixed assets, services
and other assets in the ordinary course of business. As of October 3, 2020, we had total estimated significant
117
COHERENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. COMMITMENTS AND CONTINGENCIES (Continued)
purchase commitments for inventory of approximately $33.7 million and significant purchase obligations
for fixed assets and services of $50.8 million.
Legal Proceedings
We are subject to legal claims and litigation arising in the ordinary course of business, such as contract-
related, product sales and servicing, real estate, product liability, regulatory matters, employment or intellectual
property claims.
Although we do not expect that such claims and litigation will ultimately have a material adverse effect
on our consolidated financial position, results of operations or cash flows, an adverse result in one or more
matters could negatively affect our results in the period in which they occur, or in future periods.
The United States and many foreign governments impose tariffs and duties on the import and export
of certain products we sell and purchase. From time to time our customs compliance, product classifications,
duty calculations, and payments are reviewed or audited by government agencies. Any adverse result in
such a review or audit could negatively affect our results in the period in which they occur, or in future periods.
German authorities are currently investigating an export compliance matter involving one of our
German subsidiaries involving four former employees (whose employment was terminated following our
discovery of this matter). While under German law the subsidiary can be held liable for certain infringements
by its employees of German export control laws we believe that this matter involves less than approximately
1.5 million Euros in transactions in the period currently under investigation and do not believe that the
final resolution of this matter will be material to our consolidated financial position, results of operations
or cash flows. However, the German government investigation is ongoing and it is possible that substantial
payments, fines, penalties or damages could result. Even though we do not currently expect this matter to be
material to our consolidated financial position, results of operations or cash flows, circumstances could
change as the investigation progresses.
14. STOCK REPURCHASES
On February 6, 2018, our board of directors authorized a stock repurchase program authorizing the
Company to repurchase up to $100.0 million of our common stock from time to time through January 31,
2019. During fiscal 2018, we repurchased and retired 574,946 shares of outstanding common stock under this
program at an average price of $173.91 per share for a total of $100.0 million, thereby repurchasing the
full amount authorized under this program.
On October 28, 2018, our board of directors authorized a stock repurchase program authorizing the
Company to repurchase up to $250.0 million of our common stock through December 31, 2019, with a
limit of no more than $75.0 million per quarter. During fiscal 2019, we repurchased and retired 603,828 shares
of outstanding common stock under this program at an average price of $128.20 per share for a total of
$77.4 million. We made no repurchases under the program during fiscal 2020 and the program expired on
December 31, 2019.
On February 5, 2020, our board of directors authorized a stock repurchase program authorizing the
Company to repurchase up to $100.0 million of our common stock through January 31, 2021.We made no
repurchases under the program during fiscal 2020.
118
COHERENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
15. OTHER INCOME (EXPENSE), NET
Other income (expense) includes other-net which is comprised of the following (in thousands):
Foreign exchange loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on deferred compensation investments, net (Note 12)
. . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other
$(3,486) $(5,774) $(11,286)
4,835
1,140
(735)
(410)
6,099
828
Other – net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 3,441
$(5,044) $ (7,186)
2020
Fiscal
2019
2018
16.
INCOME TAXES
The provision for (benefit from) income taxes on income (loss) from continuing operations before
income taxes consists of the following (in thousands):
2020
Fiscal
2019
2018
Currently payable:
Federal
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (1,660) $ 1,995
557
13,448
471
1,176
$
1,163
114
107,487
(13)
16,000
108,764
Deferred and other:
Federal
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2,343)
(1,605)
(24,623)
Provision for (benefit from) income taxes . . . . . . . . . . . . . . . .
(28,571)
(9,777)
$(28,584) $ 6,223
(407)
26,334
516
(9,886)
(489)
(20,414)
5,431
$114,195
The components of income from continuing operations before income taxes consist of (in thousands):
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) from continuing operations before income taxes .
2020
Fiscal
2019
$ (98,900) $54,480
(343,823)
5,568
$(442,723) $60,048
2018
$ 65,272
296,283
$361,555
119
COHERENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
16.
INCOME TAXES (Continued)
The reconciliation of the income tax expense (benefit) at the U.S. Federal statutory rate (21.0% in fiscal
2020, 21.0% in fiscal 2019, and 24.5% in fiscal 2018) to actual income tax expense is as follows (in thousands):
Federal statutory tax expense (benefit) . . . . . . . . . . . . . . . . . .
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taxes on foreign earnings at rates greater (less) than U.S. rates,
net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . .
State income taxes, net of federal income tax benefit
. . . . . . . .
Research and development credit . . . . . . . . . . . . . . . . . . . . . .
Deferred compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . .
Release of unrecognized tax benefits
. . . . .
Release of interest accrued for unrecognized tax benefits
Reversal of competent authority . . . . . . . . . . . . . . . . . . . . . .
U.S. tax reform impact . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred taxes on foreign earnings . . . . . . . . . . . . . . . . . . . . .
Write-off of withholding tax credits . . . . . . . . . . . . . . . . . . . .
Goodwill impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for (benefit from) income taxes . . . . . . . . . . . . . . . .
2020
Fiscal
2019
2018
$(92,972) $12,610
7,925
15,231
$ 88,684
4,263
(27,041)
3,640
(1,249)
(4,350)
(564)
(20,027)
(4,232)
8,552
—
1,303
(8,210)
556
1,131
(3,665)
(206)
(6,688)
(205)
—
—
1,215
—
89,962
3,163
1,134
—
626
$(28,584) $ 6,223
8,417
(8,536)
(373)
(6,972)
(560)
(352)
(156)
—
26,653
—
—
—
3,127
$114,195
Effective tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6.5%
10.4%
31.6%
Our effective tax rate on loss from continuing operations before income taxes for fiscal 2020 of 6.5%
was lower than the U.S. federal tax rate of 21.0%. Our effective tax rate benefit for fiscal 2020 was unfavorably
impacted primarily due to the impairment of goodwill that is not deductible for tax purposes and the
establishment of valuation allowances for certain deferred tax assets. These unfavorable impacts were partially
offset primarily from the release of unrecognized tax benefits net of settlements and competent authority
offsets and losses in foreign jurisdictions subject to tax rates that are higher than the U.S. tax rates.
The effective tax rate on income from continuing operations before income taxes for fiscal 2019 of 10.4%
was lower than the U.S. federal tax rate of 21.0% primarily due to the tax benefit from losses of our German
subsidiaries, which are subject to higher tax rates than U.S. tax rates, adjustments related to the Tax Act’s
transition tax, the net excess tax benefits from restricted stock unit vesting, the benefit of federal research and
development tax credits and our Singapore and South Korea tax exemptions. These amounts are partially
offset by an accrual for foreign withholding taxes on certain current year foreign earnings not considered
permanently reinvested, stock-based compensation not deductible for tax purposes and limitations on the
deductibility of compensation under Internal Revenue Code Section 162(m).
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was
enacted and signed into law. U.S. GAAP rules require recognition of the tax effects of new legislation during
the reporting period that includes the enactment date. The tax relief measures for businesses include a five-
year net operating loss (“NOL”) carryback for any NOL generated in a taxable year beginning after
December 31, 2017 and before January 1, 2021, suspension of the 80% limitation of NOL utilization for
taxable years beginning before 2021, changes in the deductibility of interest, acceleration of alternative
minimum tax credit refunds, payroll tax relief, and technical corrections allowing accelerated deductions for
120
COHERENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
16.
INCOME TAXES (Continued)
qualified improvement property. The CARES Act also provided other non-tax benefits, including employee
retention credits, to assist businesses impacted by the pandemic. There is no material impact of the tax
benefits under the CARES Act on our consolidated financial statements.
Coherent Singapore made an additional capital contribution to Coherent Korea in 2019 to take
advantage of the High-Tech tax exemption provided by the Korean authorities. The High-Tech tax
exemption is effective retroactively to the beginning of fiscal 2019 and the amount was used entirely in that
year. There was no additional benefit available for fiscal 2020. For fiscal 2019, the tax exemption decreased
Coherent Korea income taxes by approximately $2.4 million and the benefit of the tax holiday on net
income (loss) per diluted share was $0.10.
In October 2016, Coherent Singapore received an amended Pioneer Status tax exemption from the
Singapore authorities effective from fiscal 2012 through fiscal 2021. The tax holiday continues to be
conditional upon our meeting certain revenue, business spending and employment thresholds. The impact
of this tax exemption decreased Coherent Singapore income taxes by approximately $2.6 million, $3.9 million,
and $2.5 million in fiscal 2020, fiscal 2019, and fiscal 2018, respectively. The benefits of the tax holiday on
net income (loss) per diluted share were $0.11, $0.16, and $0.10, respectively.
The significant components of deferred tax assets and liabilities were (in thousands):
Fiscal year-end
2020
2019
Deferred tax assets:
Reserves and accruals not currently deductible . . . . . . . . . . . . . . . . . . . . . . . . .
Operating loss carryforwards and tax credits . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Competent authority offset to transfer pricing tax reserves . . . . . . . . . . . . . . . .
Accumulated translation adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retirement and pension . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 28,520
83,447
4,412
14,362
4,906
4,283
2,508
17,982
21,737
165
$ 24,069
71,890
986
—
5,649
10,585
5,459
16,618
—
4,423
Total gross deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
182,322
139,679
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(57,707)
(41,491)
Total net deferred tax assets
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
124,615
98,188
Deferred tax liabilities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liabilities on foreign earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Right of use assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total gross deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
16,055
1,394
20,859
38,308
23,625
14,603
734
—
38,962
Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 86,307
$ 59,226
In determining our fiscal 2020 and 2019 tax provisions under ASC 740, we calculated the deferred tax
assets and liabilities for each separate tax entity. We then considered a number of factors including the positive
121
COHERENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
16.
INCOME TAXES (Continued)
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 and certain state
research and development tax credits, foreign tax attributes and foreign net operating losses at fiscal 2020
and 2019 year-ends.
During fiscal 2020, we increased our valuation allowance on deferred tax assets by $16.2 million to
$57.7 million, primarily due to the net operating losses generated from certain foreign entities and California
research and development tax credits, which are not expected to be recognized. At October 3, 2020, we had
U.S. federal deferred tax assets related to research and development credits, foreign tax credits and other tax
attributes that can be used to offset federal taxable income in future periods. These credit carryforwards
will expire if they are not used within certain time periods. Management determined that there is sufficient
positive evidence to conclude that it is more likely than not that sufficient taxable income will exist in the
future allowing us to recognize these deferred tax assets.
The net deferred tax asset is classified on the consolidated balance sheets as follows (in thousands):
Fiscal year-end
2020
2019
Non-current deferred income tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-current deferred income tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$102,028
(15,721)
$ 87,011
(27,785)
Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 86,307
$ 59,226
We have various tax attribute carryforwards which include the following:
• Foreign gross net operating loss carryforwards are $114.2 million, of which $87.1 million have no
expiration date and $27.2 million have various expiration dates beginning in fiscal 2021. Among the
total of $114.2 million foreign net operating loss carryforwards, a valuation allowance of $104.3 million
has been provided for certain jurisdictions since the recovery of the carryforwards is uncertain. U.S.
federal and certain state gross net operating loss carryforwards are $11.8 million and $30.7 million,
respectively, which were acquired from our acquisitions. A full valuation allowance against certain
state net operating losses of $30.7 million has been recorded.
• U.S. federal R&D credit carryforwards of $38.7 million are scheduled to expire beginning in fiscal
2025. California R&D credit carryforwards of $34.0 million have no expiration date. A total of
$28.8 million valuation allowance, before U.S. federal benefit, has been recorded against California
R&D credit carryforwards of $34.0 million since the recovery of the carryforwards is uncertain. Other
states R&D credit carryforwards of $3.6 million are scheduled to expire beginning in fiscal 2021. A
valuation allowance totaling $1.9 million, before U.S. federal benefit, has been recorded against certain
state R&D credit carryforwards of $3.6 million since the recovery of the carryforwards is uncertain.
• U.S. federal foreign tax credit carryforwards of $53.4 million are scheduled to expire beginning in
fiscal 2022.
We are subject to taxation and file income tax returns in the U.S. federal jurisdiction and in many state
and foreign jurisdictions. Our most significant tax jurisdictions are the U.S. and Germany. For U.S. federal
and German income tax purposes, all years prior to fiscal 2017 and 2011, respectively, are closed to
examination. In our other major foreign jurisdictions and our major state jurisdictions, the years prior to
fiscal 2014 and 2016, respectively, are closed. Earlier years in our various jurisdictions may remain open for
adjustment to the extent that we have tax attribute carryforwards from those years.
In November 2018, Coherent Korea Ltd. received a tax audit notice for fiscal 2016. The audit began in
December 2018. The South Korean tax authorities also performed an audit focused on intercompany transfer
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
16.
INCOME TAXES (Continued)
pricing arrangements for fiscal 2014, 2015, and 2017. In May 2019, the South Korean tax authorities issued
transfer pricing assessments for taxes, royalties, and sales commissions. We are in the process of appealing
and contesting these assessments through the Competent Authority process between South Korea, Germany,
and the United States. Accordingly, there is no change to our tax reserves at the time of filing of this
annual report. We are continuing to monitor and evaluate this situation. In October 2020, the South Korean
tax authorities advised us that they are performing an internal review of our initial and second High-Tech
tax exemptions approved in fiscal 2013 and 2016, respectively. The tax authorities requested information to
further substantiate the timing of the benefits of our exemptions and this review is currently ongoing.
In Germany, various Coherent and legacy Rofin entities are under audit for the years 2011 through 2016.
The timing and the resolution of income tax examinations is highly uncertain, and the amounts ultimately
paid, if any, upon resolution of the issues raised by the taxing authorities may differ materially from the
amounts accrued for each year. Management believes that it has adequately provided for any adjustments
that may result from tax examinations. We regularly engage in discussions and negotiations with tax authorities
regarding tax matters in various jurisdictions. Although the timing of resolution, settlement, and closure
of audits is not certain, we do not believe it is reasonably possible that our unrecognized tax benefits will
materially change in the next 12 months.
A reconciliation of the change in gross unrecognized tax benefits, excluding interest and penalties, is as
follows (in thousands):
Fiscal year-end
2020
2019
2018
Balance as of the beginning of the year
Tax positions related to current year:
. . . . . . . . . . . . . . . . . .
$ 58,111
$65,882
$47,566
Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,410
605
19,033
Tax positions related to prior year:
Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reductions
Lapses in statutes of limitations . . . . . . . . . . . . . . . . . . . . . . . .
Decrease in unrecognized tax benefits based on settlement . . . . .
Foreign currency revaluation adjustment
. . . . . . . . . . . . . . . . .
86
(17)
(1,211)
(19,463)
591
448
(6,071)
(639)
—
(2,114)
117
—
(700)
—
(134)
Balance as of end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 39,507
$58,111
$65,882
As of October 3, 2020, the total amount of gross unrecognized tax benefits including gross interest and
penalties was $42.4 million, of which $31.2 million, if recognized, would affect our effective tax rate. In
March 2020, German tax authorities completed their transfer pricing audits for certain legacy-Rofin German
entities for fiscal 2013 through 2016. As a result, we released tax reserves of $17.3 million and reversed
deferred tax assets of $8.7 million related to the competent authority offsets associated with the transfer
pricing adjustments. In addition, legacy-Rofin U.S. audits for fiscal 2014 through 2016 were completed in
fiscal 2020 and we recorded a benefit of $1.6 million. Our total gross unrecognized tax benefit, net of certain
deferred tax assets is classified as a 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 3, 2020, the total amount of gross interest and penalties accrued was $2.9 million and it is classified
as Other long-term liabilities in the consolidated balance sheets. As of September 28, 2019, we had accrued
$5.8 million for the gross interest and penalties and it is classified as Other long-term liabilities in the
consolidated balance sheets.
123
COHERENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
16.
INCOME TAXES (Continued)
A summary of the fiscal tax years that remain subject to examination, as of October 3, 2020, for our
major tax jurisdictions is:
United States – Federal
United States – Various States
Netherlands
Germany
Japan
South Korea
United Kingdom
17. DEFINED BENEFIT PLANS
2017 – forward
2016 – forward
2014 – forward
2011 – forward
2014 – forward
2015 – forward
2018 – forward
As a result of the Rofin acquisition in fiscal 2017, we assumed all assets and liabilities of Rofin’s
defined benefit plans for the Rofin-Sinar Laser, GmbH (“RSL”) and Rofin-Sinar Inc. (“RS Inc.”) employees.
The U.S. plan began in fiscal 1995 and is partially funded. Any new employees hired after January 1, 2007,
are not eligible for the RS Inc. pension plan. As is the customary practice with German companies, the
German pension plan is unfunded. Any new employees hired after 2000 are not eligible for the RSL
pension plan. The measurement date of these pension plans is September 30 and actuarial gains and losses
are deferred into OCI and amortized over future periods.
Effective January 1, 2012, the RS Inc. defined benefit plan was amended to exclude highly compensated
employees, as defined by the Internal Revenue Service, from receiving future years of service under the RS Inc.
defined benefit plan. A non-qualified defined benefit plan was created to replace the benefits lost by the
employees that were otherwise excluded from the qualified defined benefit plan. Effective August 31, 2018,
both the RS Inc. plans were amended to freeze all future compensation benefit accruals. During fiscal 2020,
we opened a lump sum payment election window for the RS Inc. defined benefit plan to allow certain
participants the option to receive the entire value of their benefit as a single lump sum payment, resulting in
payments of $1.0 million.
In addition, we have defined benefit plans in South Korea, Japan, Spain, and Italy, covering all full-
time employees with at least one year of service, and a defined benefit plan in Germany covering two
individuals. As is the customary practice with European and Asian companies, the plans are unfunded, with
the exception of the Spanish plan which is partially funded. We have elected to recognize all actuarial gains
and losses on these plans immediately, as incurred. The measurement date of these defined benefit plans is
September 30.
For financial reporting purposes, the calculation of net periodic pension costs is based upon a number
of actuarial assumptions including a discount rate for plan obligations, an assumed rate of return on pension
assets and an assumed rate of compensation increase for employees covered by the plan. All of these
assumptions were based upon management’s judgment, considering all known trends and uncertainties.
Actual results that differ from these assumptions would impact future expense recognition and the cash
funding requirements of our defined benefit plans.
124
COHERENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
17. DEFINED BENEFIT PLANS (Continued)
Components of net periodic cost are as follows for fiscal 2020, 2019, and 2018 (in thousands):
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Service cost
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
Recognized net actuarial (gain) loss . . . . . . . . . . . . . . . . . . . . . . . .
Foreign exchange impacts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Recognition of curtailment gain due to plan freeze . . . . . . . . . . . . .
Net periodic pension cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020
$2,153
857
(682)
(690)
66
—
$1,704
Fiscal
2019
2018
$1,955
$ 2,262
1,308
1,230
(817)
(787)
470
240
(56)
(79)
— (1,236)
$ 1,653
$2,837
The service cost component of net periodic costs is included in selling, general and administrative
(“SG&A”) expenses, and the interest costs, net actuarial (gain) loss and other components are included in
Other-net within other income (expense) in the consolidated statements of operations.
The changes in projected benefit obligations and plan assets, as well as the ending balance sheet
amounts for our defined benefit plans, are as follows (in thousands):
Fiscal 2020 Fiscal 2019
Change in benefit obligation:
Projected benefit obligation at beginning of year . . . . . . . . . . . . . . . . .
Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Assumption change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Experience (gain) loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign exchange rate impacts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefits paid – total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Settlement gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Projected benefit obligation at end of year . . . . . . . . . . . . . . . . . . . .
$ 60,437 $ 51,499
1,955
1,308
9,505
(308)
(1,889)
(1,633)
—
$ 60,607 $ 60,437
2,153
857
(1,783)
22
2,433
(3,010)
(502)
Projected benefit obligation at end of year:
U.S. plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Projected benefit obligation at end of year . . . . . . . . . . . . . . . . . . . .
$ 18,775 $ 18,892
41,545
$ 60,607 $ 60,437
41,832
Change in plan assets:
Fair value of plan assets at beginning of year . . . . . . . . . . . . . . . . . . . .
Actual return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employer contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefits paid – funded plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . .
Fair value of plan assets at end of year
$ 12,997 $ 12,486
539
455
(483)
$ 12,901 $ 12,997
1,218
208
(1,522)
Fair value of plan assets at end of year:
U.S. plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value of plan assets at end of year . . . . . . . . . . . . . . . . . . . . . . . .
Unfunded status at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 12,645 $ 12,766
231
12,997
$(47,706) $(47,440)
256
12,901
Amounts recognized in the consolidated balance sheet:
Accrued benefit liability – current . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued benefit liability – non current
. . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive (gain) loss (pre-tax) . . . . . . . . . . . . .
$ (1,896) $ (1,578)
(45,862)
2,590
(45,810)
456
125
COHERENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
17. DEFINED BENEFIT PLANS (Continued)
The information for plans with an accumulated benefit obligation in excess of plan assets is as follows
(in thousands):
Fiscal year-end
2020
2019
Projected benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value of plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$60,607
56,847
12,901
$60,437
55,941
12,997
The weighted-average rates used to determine the net periodic benefit costs are as follows:
Fiscal
2020
Fiscal
2019
Discount rate:
U.S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.3% 3.0%
1.2% 0.8%
Expected return on plan assets:
U.S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5.0% 5.8%
Rate of compensation increase
U.S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —% —%
2.2% 2.1%
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
We recognize the over (under) funded status of the defined benefit plans in our consolidated balance
sheets. We also recognize, in other comprehensive income (loss), certain gains and losses that arise for the
period but are deferred under current pension accounting rules. A one percent change in the discount rate or
the expected rate of return on plan assets would not have a material impact on the projected benefit
obligation or the net periodic benefit cost. The decrease in discount rates for U.S. and foreign plans was the
primary reason for the assumption change and the increase in the projected benefit obligation.
Expected benefit payments for each of the next five fiscal years and the five years aggregated thereafter
is as follows (in thousands):
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,597
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,009
2,492
2,863
2,942
2026 – 2030 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16,329
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$30,232
Amount
126
COHERENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
17. DEFINED BENEFIT PLANS (Continued)
Our pension plan asset allocations at October 3, 2020 and September 28, 2019 by asset category are as
follows:
Allocation
Target
Fiscal 2020
Fiscal 2019
Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
30%
70%
32%
68%
Total plan assets
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
100%
100%
33%
67%
100%
We employ a total return investment approach whereby a mix of equity, debt securities and government
securities are used to maximize the long-term return of plan assets for a prudent level of risk. The intent of
this strategy is to minimize plan expenses by maximizing investment returns within that prudent level of
risk. Furthermore, equity investments are diversified across U.S. and non-U.S. stocks as well as growth, value
and small and large capitalizations. Additionally, cash balances are maintained at levels adequate to meet
near-term plan expenses and benefit payments. Investment risk is measured and monitored on an ongoing
basis through semi-annual investment portfolio reviews.
Investments in our defined benefit plan are stated at fair value. Level 1 assets are valued using quoted
market prices that represent the asset value of the shares held by the trusts. The level 2 assets are investments
in pooled funds, which are valued using a model to reflect the valuation of their underlying assets that are
publicly traded with observable values. The fair value of level 3 pension plan assets are measured by compiling
the portfolio holdings and independently valuing the securities in those portfolios.
The fair values of our pension plan assets, by level within the fair value hierarchy, at October 3, 2020
are as follows:
Asset categories
Cash and cash equivalents:
Level 1
Level 2
Level 3
Total
Money market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$469
$ — $ — $
469
Equity securities:
Small cap . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mid cap . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Large cap . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total market stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Emerging markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt securities:
Bonds and mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inflation protected . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
High yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liability driven investments . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
—
—
—
—
—
—
—
—
50
143
293
2,140
1,166
197
3,323
—
272
4,848
—
—
—
—
—
—
—
—
—
—
50
143
293
2,140
1,166
197
3,323
—
272
4,848
Total plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$469
$12,432
$ — $12,901
127
COHERENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
17. DEFINED BENEFIT PLANS (Continued)
The fair values of our pension plan assets, by level within the fair value hierarchy, at September 28,
2019 are as follows:
Asset categories
Cash and cash equivalents:
Money market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity securities: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Small cap . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mid cap . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Large cap . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total market stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Emerging markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt securities:
Level 1
Level 2
Level 3
Total
$503
$ — $ — $
503
—
—
—
—
—
—
135
250
751
1,689
1,276
204
—
—
—
—
—
—
—
—
—
—
135
250
751
1,689
1,276
204
3,110
634
634
3,811
Bonds and mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inflation protected . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
High yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liability driven investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
3,110
—
634
—
634
— $ 3,811
Total plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$503
$12,494
$ — $12,997
18. SEGMENT AND GEOGRAPHIC INFORMATION
At October 3, 2020, we were organized into two reporting segments, OLS and ILS, based upon our
organizational structure and how the CODM receives and utilizes information provided to allocate resources
and make decisions. This segmentation reflects the go-to-market strategies and synergies for our broad
portfolio of laser technologies and products. While both segments deliver cost-effective, highly reliable
photonics solutions, the OLS business segment is focused on high performance laser sources and complex
optical sub-systems, typically used in microelectronics manufacturing, medical diagnostics, and therapeutic
applications, as well as in scientific research. Our ILS business segment delivers high performance laser sources,
sub-systems, and tools primarily used for industrial laser materials processing, serving important end
markets like automotive, machine tools, consumer goods, and medical device manufacturing.
We have identified OLS and ILS as operating segments for which discrete financial information is
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 as
described below.
Our Chief Executive Officer has been identified as the CODM, as he assesses the performance of the
segments and decides how to allocate resources to the segments. Income (loss) from continuing operations is
the measure of profit and loss that our CODM uses to assess performance and make decisions. Assets by
segment are not a measure used to assess the performance of the company by the CODM and thus are not
reported in our disclosures. Income (loss) from continuing operations represents the net 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 certain operating expenses to our operating
segments and we manage them at the corporate level. These unallocated costs include stock-based
128
COHERENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
18. SEGMENT AND GEOGRAPHIC INFORMATION (Continued)
compensation and 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 net sales and income (loss) from continuing operations for our operating
segments and a reconciliation of our total income (loss) from continuing operations to income (loss) from
continuing operations before income taxes (in thousands):
2020
Fiscal
2019
2018
Net sales:
OEM Laser Sources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Industrial Lasers & Systems . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 758,929
470,070
$ 886,676
543,964
$1,259,477
643,096
Total net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,228,999
$1,430,640
$1,902,573
Income (loss) from continuing operations:
OEM Laser Sources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Industrial Lasers & Systems(1)
. . . . . . . . . . . . . . . . . . . . . . . .
Corporate and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 169,883
(518,186)
(81,877)
$ 239,073
(93,133)
(62,845)
$ 469,835
(3,687)
(73,131)
Total income (loss) from continuing operations . . . . . . . . . . . . . .
Total other expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . .
(430,180)
(12,543)
83,095
(23,047)
393,017
(31,462)
Income (loss) from continuing operations before income taxes . . .
$ (442,723) $
60,048
$ 361,555
(1) The fiscal 2020 loss includes non-cash pre-tax goodwill impairment charges of $327.2 million as well as
non-cash pre-tax charges related to the impairment of intangible assets, property, plant and equipment
and ROU assets of $33.9 million, $85.6 million, and $1.8 million, respectively. See Note 8, “Goodwill and
Intangible Assets” in the Notes to Consolidated Financial Statements and Note 11, “Leases” in the
Notes to Consolidated Financial Statements under Item 8 of this annual report.
Geographic Information
Our foreign operations consist primarily of manufacturing facilities 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 2020, 2019, and 2018 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.
129
COHERENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
18. SEGMENT AND GEOGRAPHIC INFORMATION (Continued)
Sales to unaffiliated customers are as follows (in thousands):
SALES
2020
Fiscal
2019
2018
United States
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 296,102
$ 339,585
$ 309,495
Foreign countries:
South Korea . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asia-Pacific, other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Germany . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Europe, other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rest of World . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total foreign countries sales . . . . . . . . . . . . . . . . . . . . . . . .
247,461
196,824
94,068
94,835
117,170
125,739
56,800
932,897
313,461
194,653
138,028
93,389
145,285
148,680
57,559
652,313
235,568
180,223
124,733
166,926
171,936
61,379
1,091,055
1,593,078
Total sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,228,999
$1,430,640
$1,902,573
Long-lived assets, which include all non-current assets other than goodwill, intangibles, non-current
restricted cash, our investment in 3D-Micromac AG 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal year-end
2020
2019
$170,412
$151,640
123,019
35,810
56,125
214,954
152,529
29,815
39,977
222,321
Total long-lived assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$385,366
$373,961
Major Customers
We had one major customer who accounted for 17.2%, 16.8%, and 25.8% of consolidated revenue
during fiscal 2020, 2019, and 2018, respectively. The customer purchased primarily from our OLS segment.
19. RESTRUCTURING CHARGES
In the first quarter of fiscal 2017, we began the implementation of planned restructuring activities in
connection with the acquisition of Rofin. The activities under this plan primarily related to the exiting of
our legacy HPFL product line, change of control payments to Rofin officers, the exiting of two product lines
acquired in the acquisition of Rofin, realignment of our supply chain due to segment reorganization, and
consolidation of sales and distribution offices as well as certain manufacturing sites. These activities resulted
in charges primarily for employee termination, other exit related costs associated with the write-off of
property and equipment and inventory, and early lease termination costs.
In June 2019, we announced our plans to exit a portion of our HPFL business and consolidate all
HPFL manufacturing and engineering functions in our Tampere, Finland facility by transferring certain
130
COHERENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
19. RESTRUCTURING CHARGES (Continued)
HPFL activities from our Hamburg, Germany facility. In conjunction with this announcement, we recorded
charges in the third and fourth quarters of fiscal 2019 totaling $19.7 million primarily related to write-offs
of excess inventory, which is recorded in cost of sales, and estimated severance. We recorded charges in fiscal
2020 of $1.1 million, primarily related to accelerated depreciation and project management consulting.
We also vacated our leased facility in Santa Clara at the end of the lease term on July 31, 2020 and
combined operations into our owned Santa Clara headquarters. We did not incur material expenses in fiscal
2019 related to this project. We incurred costs in fiscal 2020 of $1.5 million, primarily related to accelerated
depreciation. We also incurred costs in fiscal 2020 of $0.1 million for other projects.
In the fourth quarter of fiscal 2020, we began a restructuring program in our ILS segment which
includes management reorganizations, the planned closure of certain manufacturing sites, and the right-
sizing of global sales, service, order admin, marketing communication and certain administrative functions,
among others. In the fourth quarter of fiscal 2020, we incurred costs of $2.6 million, primarily related to
severance.
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 2020 and fiscal 2019 (in thousands):
Severance
Related
Asset
Write-Offs
Balances, September 29, 2018 . . . . . . . . . . . . . . . . . . . . . . . .
Provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balances, September 28, 2019 . . . . . . . . . . . . . . . . . . . . . . . .
Provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
836
9,172
(1,729)
8,279
2,468
(8,136)
$
— $
12,609
(12,609)
—
2,194
(2,194)
Other
Total
286
940
(1,011)
$ 1,122
22,721
(15,349)
215
629
(614)
8,494
5,291
(10,944)
Balances, October 3, 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,611
$
— $
230
$ 2,841
At October 3, 2020, $2.8 million of accrued severance related and other costs were included in other
current liabilities. The asset write-offs for accelerated depreciation and other costs in fiscal 2020 primarily
related to the exit of a portion of our HPFL business in Hamburg, Germany, and costs to vacate our leased
facility in Santa Clara and combine operations into our owned Santa Clara headquarters. The severance
related costs in fiscal 2020 primarily related to the restructuring program that began in the fourth quarter of
fiscal 2020. The severance related, asset write-offs of inventory and other costs in fiscal 2019 primarily
related to the exit of a portion of our HPFL business in Hamburg, Germany. The severance related, asset
write-offs of inventory and other costs in fiscal 2019 other than those related to the exit of a portion of our
HPFL business in Hamburg, Germany primarily related to the consolidation of certain manufacturing
sites.
By segment, $3.9 million and $21.9 million of restructuring costs were incurred in the ILS segment and
$1.4 million and $0.8 million were incurred in the OLS segment in fiscal 2020 and 2019, respectively.
Restructuring charges are recorded in cost of sales, research and development and selling, general and
administrative expenses in our consolidated statements of operations.
131
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Summarized quarterly financial data for the years ended October 3, 2020 and September 28, 2019 are
as follows (in thousands, except per share amounts):
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$ 293,147
94,111
(418,913)
$
$
(17.39) $
(17.39) $
$298,330
95,277
(8,708)
(0.36) $
(0.36) $
$316,751
112,233
7,689
0.32
0.32
$ 372,860
130,717
20,750
0.86
0.85
$
$
$339,170
98,003
(3,099)
$
$
(0.13) $
(0.13) $
$335,464
108,395
624
0.03
0.03
Fiscal 2020:
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income (loss) per basic share . . . . . . . . . . . . . . . . . . .
Net income (loss) per diluted share . . . . . . . . . . . . . . . . .
Fiscal 2019:
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income (loss) per basic share . . . . . . . . . . . . . . . . . . .
Net income (loss) per diluted share . . . . . . . . . . . . . . . . .
$320,771
109,253
5,793
0.24
0.24
$
$
$383,146
149,350
35,550
1.46
1.45
$
$
132
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 2020 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 readers 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 controls 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 3, 2020 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 Financial 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/ ANDREAS W. MATTES
Andreas W. Mattes
President and Chief Executive Officer
/s/ KEVIN S. PALATNIK
Kevin S. Palatnik
Executive Vice President and Chief Financial Officer
133
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
134
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 conducted
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 3,
2020, utilizing the criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission (“COSO”) in Internal Control-Integrated Framework (2013). Based on the assessment by
management, we determined that our internal control over financial reporting was effective as of October 3,
2020. The effectiveness of our internal control over financial reporting as of October 3, 2020 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
Management, including our CEO and CFO, does not expect that our 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 have been no changes in our internal control over financial reporting that have materially
affected, or are reasonably likely to materially affect, our internal control over financial reporting during the
three months ended October 3, 2020.
135
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of Coherent, Inc.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Coherent, Inc. and subsidiaries (the
“Company”) as of October 3, 2020, based on criteria established in Internal Control — Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In
our opinion, the Company maintained, in all material respects, effective internal control over financial
reporting as of October 3, 2020, based on criteria established in Internal Control — Integrated Framework
(2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended
October 3, 2020, of the Company and our report dated December 1, 2020, expressed an unqualified opinion
on those consolidated financial statements and included an explanatory paragraph related to the Company’s
change in method of accounting for leases in fiscal year 2020 due to adoption of Financial Accounting
Standards Board (“FASB”) Topic 842, Leases.
Basis for Opinion
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 are
a public accounting firm registered with the PCAOB and are required to be independent with respect to
the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of
the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. 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.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process 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. 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.
136
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that the degree of compliance with
the policies or procedures may deteriorate.
/s/ DELOITTE & TOUCHE LLP
San Jose, California
December 1, 2020
137
ITEM 9B. OTHER INFORMATION
Not applicable.
138
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
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, as amended, will
be set forth under the caption “Delinquent Section 16(a) Reports,” if applicable, (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” and (v) our executive officers will
be set forth under the caption “Our Executive Officers” in our proxy statement for use in connection with our
upcoming Annual Meeting of Stockholders to be held in 2021 (the “2021 Proxy Statement”) and is
incorporated herein by reference or will be included in a Form 10-K/A as an amendment to this Form 10-K.
The 2021 Proxy Statement or Form 10-K/A will be filed with the SEC 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:
1. From our main Web page, first click on “Company”.
2. 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
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 our 2021 Proxy Statement and is incorporated herein by reference or will be
included in a Form 10-K/A as an amendment to this Form 10-K.
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 2021 Proxy Statement and is incorporated herein by reference or will be included in a
Form 10-K/A as an amendment to this Form 10-K.
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 2021 Proxy Statement and is incorporated herein by reference or
will be included in a Form 10-K/A as an amendment to this Form 10-K.
139
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this item will be included under the caption “Ratification of the
Appointment of Deloitte & Touche LLP as Independent Registered Public Accounting Firm-Principal
Accounting Fees and Services” in our 2021 Proxy Statement and is incorporated herein by reference or will
be included in a Form 10-K/A as an amendment to this Form 10-K.
140
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
1. Consolidated Financial Statement Schedules
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.
2. Exhibits
EXHIBIT INDEX
Exhibit
Numbers
3.1
3.2
3.3
Restated and Amended Certificate of
Incorporation
Certificate of Amendment of Restated and
Amended Certificate of Incorporation of
Coherent, Inc.
Bylaws of Coherent, Inc. as amended and
restated on January 28, 2018
Description of Capital Stock
Form of Indemnification Agreement
4.1
10.1‡
10.2‡ Amended and Restated Employee Stock
Incorporated by reference herein
Form
Exhibit
No.
Filing Date
File No.
10-K 3.1 December 28, 1990
000-05255
10-K 3.2 December 18, 2002
000-05255
8-K
3.1
January 31, 2018
001-33962
10-K 4.1 November 26, 2019
10-K 10.18 December 15, 2010
S-8
June 12, 2012
10.1
001-33962
001-33962
333-182074
10.3‡
10.4‡
10.5‡
10.6‡
10.7‡
10.8‡
10.9‡
10.10‡
10.11‡
10.12‡
10.13‡
Purchase Plan
Change of Control and Leadership Change
Severance Plan, as amended and restated
effective April 13, 2019
Variable Compensation Plan, as amended
Supplementary Retirement Plan
2005 Deferred Compensation Plan
2011 Equity Incentive Plan
2011 Equity Incentive Plan-Form of RSU
Agreement for members of the Board of
Directors
2011 Equity Incentive Plan-Form of Option
Agreement for members of the Board of
Directors
2011 Equity Incentive Plan-Form of
Time-Based RSU Agreement
2011 Equity Incentive Plan-Form of
Performance RSU Agreement
2011 Equity Incentive Plan-Form of Global
RSU Agreement
2011 Equity Incentive Plan-Form of Global
Performance RSU Agreement
10.14‡ Equity Incentive Plan
10.15‡ Equity Incentive Plan — Form of Global
Restricted Stock Unit Agreement
141
10-Q 10.1
May 8, 2019
001-33962
10-K 10.7 November 30, 2011
001-33962
10-Q 10.5
10-Q 10.1
S-8
10.1
10-Q 10.1
May 10, 2006
February 8, 2012
May 6, 2011
August 10, 2011
000-05255
001-33962
333-174019
001-33962
10-Q 10.2
August 10, 2011
001-33962
10-K 10.23 November 30, 2011
001-33962
10-K 10.11 November 26, 2019
001-33962
10-K 10.12 November 27, 2018
001-33962
10-K 10.13 November 26, 2019
001-33962
S-8
99.1
April 27, 2020
333-237855
10-Q 10.2
August 12, 2020
001-33962
Incorporated by reference herein
Form
Exhibit
No.
Filing Date
File No.
10-Q 10.3
August 12, 2020
001-33962
8-K 10.1
April 6, 2020
001-33962
10-Q 10.3
10-Q 10.4
February 9, 2017
February 9, 2017
001-33962
001-33962
10-Q 10.2
May 8, 2019
001-33962
10-Q 10.2
February 6, 2019
001-33962
10-Q 10.3
February 10, 2016
001-33962
8-K 10.1 November 8, 2016
001-33962
Exhibit
Numbers
10.16‡ Equity Incentive Plan — Form of Performance
Restricted Stock Unit Agreement
10.17‡ Employment Agreement dated March 31, 2020
between Andreas W. Mattes and the Company
10.18‡ Offer letter with Thomas Merk
10.19‡ Managing director agreement with Thomas
Merk
10.20‡ CEO Transition and Retirement Agreement,
dated April 13, 2019, between the Company
and John Ambroseo
10.21‡ Transition Agreement and Release, dated
February 4, 2019, between the Company and
Paul Sechrist
10.22‡ Offer letter with Kevin Palatnik
10.23** Executive Transition Services Agreement, dated
10.24
August 20, 2020, between the Company and
Kevin Palatnik
Credit Agreement, dated as of November 7,
2016, by and among Coherent, Inc., Coherent
Holding GmbH, the guarantors from time to
time party thereto, the lenders from time to
time party thereto, Barclays Bank PLC, as
Administrative Agent and L/C Issuer, Bank of
America, N.A., as L/C Issuer, and The Bank of
Tokyo-Mitsubishi UJF, Ltd., as L/C Issuer
10.25 Amendment No. 1 and Waiver to Credit
8-K 10.1
May 9, 2017
001-33962
Agreement, dated as of May 8, 2017, by and
among Coherent, Inc., Coherent Holding
GmbH, the Guarantors party thereto, the
Lenders party thereto and Barclays Bank PLC,
as Administrative Agent
10.26 Amendment No. 2 to Credit Agreement, dated
10-Q 10.2
August 9, 2017
001-33962
as of July 5, 2017, by and among Coherent,
Inc., Coherent Holding GmbH, the Guarantors
party thereto and Barclays Bank PLC as
Administrative Agent
Subsidiaries
Consent of Independent Registered Public
Accounting Firm
Power of Attorney (see signature page)
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
21.1
23.1
24.1
31.1
31.2
142
Incorporated by reference herein
Form
Exhibit
No.
Filing Date
File No.
Exhibit
Numbers
32.1** Certification of Chief Executive Officer
pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
32.2** Certification of Chief Financial Officer
pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
101.INS Inline XBRL Instance
101.SCH Inline XBRL Taxonomy Extension Schema
101.CAL Inline XBRL Taxonomy Extension Calculation
Linkbase
101.DEF Inline XBRL Taxonomy Extension Definition
Linkbase
101.LAB Inline XBRL Taxonomy Extension Label
Linkbase
101.PRE Inline XBRL Taxonomy Extension
Presentation Linkbase
Cover Page Interactive Data File (formatted as
inline XBRL and contained in Exhibit 101)
104
‡
Identifies management contract or compensatory plans or arrangements required to be filed as an
exhibit.
** Furnished herewith.
143
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: December 1, 2020
COHERENT, INC.
By:
/s/ ANDREAS W. MATTES
Andreas W. Mattes
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 Andreas W. Mattes and Kevin S. Palatnik, 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 annual report on Form 10-K, and to file the same, 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/ ANDREAS W. MATTES
Andreas W. Mattes
(Director and Principal Executive Officer)
/s/ KEVIN S. PALATNIK
Kevin S. Palatnik
(Principal Financial and Accounting Officer)
/s/ JAY T. FLATLEY
Jay T. Flatley
(Director)
/s/ PAMELA FLETCHER
Pamela Fletcher
(Director)
/s/ BEVERLY KAY MATTHEWS
Beverly Kay Matthews
(Director)
/s/ MICHAEL R. MCMULLEN
Michael R. McMullen
(Director)
/s/ GARRY W. ROGERSON
Garry W. Rogerson
(Director)
144
December 1, 2020
Date
December 1, 2020
Date
December 1, 2020
Date
December 1, 2020
Date
December 1, 2020
Date
December 1, 2020
Date
December 1, 2020
Date
/s/ STEVE SKAGGS
Steve Skaggs
(Director)
/s/ SANDEEP VIJ
Sandeep Vij
(Director)
December 1, 2020
Date
December 1, 2020
Date
145