COHR 10-K Fiscal year ended Sept. 28, 2019

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•	future trends in microelectronics, scientific and government programs, OEM components and instrumentation and materials processing;

•	net sales and operating results, including the timing and impact on fiscal 2020 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;

•	the execution of two recently announced planned site consolidations: (1) the co-location of the manufacturing and engineering of our High Power Fiber Lasers (“HPFL”) products and the exit from a portion of our HPFL business in fiscal 2020, and (2) vacating our leased facility in Santa Clara and combining the operations at our Santa Clara headquarters in calendar 2020;

•	effect of global economic conditions, including in particular resulting from U.S. and Chinese trade policies;

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•	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.;

•	effect of our internal controls;

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Leverage our technology portfolio and application engineering to lead the proliferation of photonics into broader markets —We will continue to identify opportunities in which our technology portfolio and application engineering can be used to offer innovative solutions and gain access to new markets. We plan to utilize our expertise to increase our market share in the mid to high power material processing applications.

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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.

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

•	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.

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

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

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

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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, and trade restrictions the Japanese government has recently instituted 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;

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

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•	the increasing focus by companies in China to vertically integrate and consolidate their supply chains fully with products manufactured in China;

•	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;

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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, such as with our recently announced plan to co-locate the manufacturing and engineering of our High Power Fiber Lasers ("HPFL") products at our Hamburg, Germany, facility to our Tampere, Finland, location and exit a portion of our HPFL business, expected to be completed during fiscal 2020;

•	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;

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•	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;

•	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;

•	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;

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negative impacts related to the "Brexit" vote by the United Kingdom, including uncertainties regarding the effects of an increasingly prolonged Brexit process and the possibility of a “no-deal” exit by the United Kingdom from the European Union, 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.

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•	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;

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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.

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•	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.

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•	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;

•	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

•	shipping and other logistics complications.

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•	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.

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•	issue stock that would dilute our current stockholders' percentage ownership;

•	pay cash that would decrease our working capital;

•	incur debt;

•	assume liabilities; or

•	incur expenses related to impairment of goodwill and amortization.

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•	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.

•	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.

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•	interpretation and impact of the recently enacted and aforementioned U.S. tax law, the Tax Cuts and Jobs Act (the "Tax 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 of Coherent and Rofin tax returns for fiscal 2010-2016 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;

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•	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;

•	changes in available tax credits;

•	changes in share-based compensation;

•	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; and

•	changes in generally accepted accounting principles.

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•	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.

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(1)	This facility is utilized primarily by our ILS operating segment.

(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 currently plan to vacate building at end of lease term.

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(1)	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.

(2)

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.

(3)

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 our 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 our 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.

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(4)

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 our term loan to finance the acquisition of Rofin, $0.8 million after-tax interest expense on the commitment of our 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.

(5)	Includes a charge of $1.3 million after tax for the impairment of our investment in SiOnyx, a $1.3 million after-tax charge for an accrual related to an ongoing customs audit, a benefit of $1.1 million from the renewal of the R&D tax credit for fiscal 2014 and a $1.3 million gain on our purchase of Tinsley in the fourth quarter of fiscal 2015.

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1.	From our main Web page, first click on "Company".

2.	Next, click on "Business Conduct Policies".

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2.	Consolidated Financial Statement Schedules

3.	Exhibits

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•	We tested the effectiveness of controls over management’s goodwill impairment evaluation, including those over the forecasts of future net sales and margins and the selection of the discount rate.

•	We evaluated the reasonableness of management’s forecasts of future net sales and margins by comparing the forecasts to:

•	Historical net sales and margins, and

•	Management’s long-range strategic plan which was communicated to the Board of Directors, and

•	Forecasted information included in Company press releases, as well as, in analyst and industry reports for the Company and companies in its peer group.

•	We evaluated whether the forecasts were consistent with evidence obtained in other areas of the audit.

•	With the assistance of our fair value specialists, we evaluated the selection of the discount rate, including testing the underlying source information and the mathematical accuracy of the calculations by developing a range of independent estimates and comparing those to the rate selected by management.

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Founded in 1966, Coherent, Inc. provides lasers, laser-based technologies and laser-based system solutions in a broad range of commercial, industrial and scientific 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.

Fiscal Year

Our fiscal year ends on the Saturday closest to September 30. Fiscal years 2019 , 2018 and 2017 ended on September 28, 2019 , September 29, 2018 and September 30, 2017 , respectively, and are referred to in these financial statements as fiscal 2019 , fiscal 2018 , and fiscal 2017 for convenience. Each of fiscal 2019 , 2018 and 2017 included 52 weeks. The fiscal years of the majority of our international subsidiaries end on September 30. Accordingly, the financial statements of these subsidiaries as of that date and for the years then ended have been used for our consolidated financial statements. Management believes that the impact of the use of different year-ends is immaterial to our consolidated financial statements taken as a whole.

Use of Estimates

The preparation of consolidated financial statements in conformity with Generally Accepted Accounting Principles ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Basis of Presentation

The consolidated financial statements include the accounts of Coherent, Inc. and its 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 November 7, 2016, we acquired Rofin-Sinar Technologies, Inc. and its direct and indirect subsidiaries ("Rofin"). 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 Rofin, OR Laser and Ondax have been aligned to conform to those of Coherent, and the consolidated financial statements include the results of Rofin, 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 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 2019 year-end, cash and cash equivalents included cash and money market funds.

Concentration of Credit Risk

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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 2019 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 September 28, 2019 , we held cash and cash equivalents and short-term investments outside the U.S. in certain of our foreign operations totaling approximately $ 240.3 million , $ 228.4 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 28.6 % and 16.4 % of accounts receivable at fiscal 2019 and fiscal 2018 year-end, respectively. We had another customer who accounted for 16.7 % of accounts receivable at fiscal 2018 year-end.

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 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. 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.

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):

	Fiscal
	2019				2018				2017
Beginning balance	$	4,568			$	6,890			$	2,420
Additions charged to expenses	5,210				1,980				4,190
Accruals related to acquisitions	—				37				4,390
Deductions from reserves	( 1,088		)		( 4,339		)		( 4,110		)
Ending balance	$	8,690			$	4,568			$	6,890

Inventories

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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):

	Fiscal year-end
	2019				2018
Purchased parts and assemblies	$	134,298			$	137,566
Work-in-process	174,550				186,240
Finished goods	133,682				162,935
Total inventories	$	442,530			$	486,741

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
	2019				2018				Useful Life
Land	$	19,490			$	17,655
Buildings and improvements	173,333				165,535				5-40 years
Equipment, furniture and fixtures	389,225				359,721				3-10 years
Leasehold improvements	94,878				89,399				shorter of asset life or lease term
	676,926				632,310
Accumulated depreciation and amortization	( 353,492		)		( 320,517		)
Property and equipment, net	$	323,434			$	311,793

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 2019 year-end, gross expected future cash flows of $ 5.5 million would be required to fulfill these obligations.

The following table reconciles changes in our asset retirement liability for fiscal 2019 and 2018 (in thousands):

Asset retirement liability as of September 30, 2017	$	5,382
Adjustment to asset retirement obligations recognized	( 123		)
Additional asset retirement obligations due to acquisition	466
Accretion recognized	156
Changes due to foreign currency exchange	( 79		)
Asset retirement liability as of September 29, 2018	5,802
Reduction to asset retirement obligations	( 1,155		)
Adjustments and additions to asset retirement obligations recognized	390
Accretion recognized	127
Changes due to foreign currency exchange	( 90		)
Asset retirement liability as of September 28, 2019	$	5,074

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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. At September 29, 2018 , $ 1.3 million and $ 4.5 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 2018 , we recorded impairment charges of $ 0.3 million on the net assets of several entities acquired in the acquisition of Rofin to write them down to reflect our best estimate of fair value, less costs to sell (See Note 19, "Discontinued Operations and Sale of Assets Held for Sale"). In addition, in fiscal 2018, we recorded an impairment charge of $ 0.5 million to reduce the carrying value of a building to its fair value.

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"). 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 2019 annual testing, we elected to bypass the qualitative assessment and proceed directly to performing the goodwill impairment test for both our OEM Laser Sources ("OLS") and Industrial Lasers & Systems ("ILS") segments. Accordingly, we performed our impairment test using the opening balance sheet as of the first day of the fourth quarter and noted no impairment for either segment in fiscal 2019 . At the beginning of the fourth quarter of fiscal 2019, the estimated fair value of the ILS reporting unit exceeded its book value by approximately 61 % . In our fiscal 2018 annual testing, we performed a qualitative assessment of the goodwill for both our OLS and ILS reporting units using the opening balance sheet as of the first day of the fourth quarter and noted no impairment for either segment.

Intangible Assets

Intangible assets, including acquired existing technology, customer relationships, trade name and patents are amortized on a straight-line basis over their estimated useful lives, currently 3 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 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 2019 , 2018 and 2017 were as follows (in thousands):

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	Fiscal
	2019				2018				2017
Beginning balance	$	40,220			$	36,149			$	15,949
Additions related to current period sales	52,271				58,865				41,365
Warranty costs incurred in the current period	( 54,538		)		( 51,935		)		( 31,825		)
Accruals resulting from acquisitions	21				179				14,314
Adjustments to accruals related to foreign exchange and other	( 1,514		)		( 3,038		)		( 3,654		)
Ending balance	$	36,460			$	40,220			$	36,149

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 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

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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 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.

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

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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. As of September 28, 2019 , costs of obtaining a contract to be amortized over a future period of $0.1 million were classified as a prepaid asset and are included in prepaid expenses and other assets.

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 $ 3.8 million , $ 3.2 million and $ 2.9 million were offset against research and development costs in fiscal 2019 , 2018 and 2017 , 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 (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 . Accumulated other comprehensive income (net of tax) at fiscal 2018 year-end was substantially comprised of accumulated translation adjustments of $( 1.8 ) million and deferred actuarial gains on pension plans of $ 4.6 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.

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The following table presents information necessary to calculate basic and diluted earnings per share (in thousands, except per share data):

	Fiscal
	2019				2018				2017
Weighted average shares outstanding—basic	24,118				24,572				24,487
Dilutive effect of employee stock awards	161				279				290
Weighted average shares outstanding—diluted	24,279				24,851				24,777
Net income from continuing operations	$	53,825			$	247,360			$	208,644
Loss from discontinued operations, net of income taxes	—				( 2		)		( 1,522		)
Net income	$	53,825			$	247,358			$	207,122

There were 98,103 , 103,547 and 505 potentially dilutive securities excluded from the dilutive share calculation for fiscal 2019 , 2018 and 2017 , 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. 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 13, "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.

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.

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We historically asserted our intention to indefinitely reinvest foreign earnings. In December 2017, we reevaluated our assertion as a result of enactment of the Tax Cuts and Jobs Act (the “Tax Act”) and no longer consider certain foreign earnings to be indefinitely reinvested in our foreign subsidiaries. As a result of this change in assertion, we recorded a $ 14.6 million tax expense against our foreign earnings that are not indefinitely reinvested as of fiscal 2019. This is mainly related to foreign withholding taxes and state income taxes. We have not provided deferred taxes on other foreign earnings and profits of $ 451.6 million that are still considered indefinitely reinvested and may be subject to additional foreign withholding taxes and certain state taxes if repatriated. We also have not recognized any deferred taxes for outside basis differences in foreign subsidiaries.

Adoption of New Accounting Pronouncements

We adopted ASC 606 and all related amendments as of September 30, 2018 using the modified retrospective transition method applied to contracts that were not completed as of September 29, 2018 and all new contracts entered into by us subsequent to September 29, 2018. All prior period financial statements and disclosures are presented in accordance with ASC 605. We concluded that the adoption of the new standard did not have a material impact on the timing or amount of revenue recognized as the majority of our sales are not bundled. Therefore, revenue is recorded at the point-in-time when control transfers, which is consistent with the timing of revenue recognition under ASC 605. See Note 2, "Significant Accounting Policies - Revenue Recognition" and Note 3, "Revenue Recognition" for more information.

Recently Issued Accounting Pronouncements

In February 2016, the FASB issued accounting guidance (ASC 842, Leases) 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. The new standard will become effective for our fiscal year 2020, which begins on September 29, 2019. ASC 842 among other things, allows an optional transition method by which companies may elect not to recast the comparative periods presented in financial statements in the period of adoption and recognize a cumulative effect adjustment in the period of adoption. We plan to adopt the new standard using the optional transition method. We intend to elect 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. We also will elect to use the practical expedient allowed in the standard to not separate lease and non-lease components and not record short term leases when calculating the lease liability under ASC 842. We have reviewed the requirements of this standard and have formulated a plan for implementation. We continue to implement internal controls and key system functionality to enable the preparation of financial information. We are finalizing the accumulation of lease data, including new leases entered into at the end of fiscal year 2019, and preparing the final transition adjustment calculations. We currently estimate that the adoption of the standard will result in the recognition of $ 90 million to $ 100 million in lease related right-of-use assets and liabilities on our consolidated balance sheet, primarily related to real estate leases. The estimate could change as we finalize estimates and proceed towards implementation of the standard. We expect the standard will not have a material impact on our consolidated statements of operations.

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 are currently evaluating the impact of our pending adoption of Topic 326 on our consolidated financial statements. We expect the standard will not have a material impact on our consolidated statements of operations.

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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

	Fiscal
	2019								2018								2017
	OEM Laser Sources				Industrial Lasers & Systems				OEM Laser Sources				Industrial Lasers & Systems				OEM Laser Sources				Industrial Lasers & Systems
Net sales:
Products (1)	$	532,863			$	430,878			$	890,591			$	512,818			$	813,343			$	472,970
Other product and service revenues (2)	353,813				113,086				368,886				130,278				330,277				106,721
Total net sales	$	886,676			$	543,964			$	1,259,477			$	643,096			$	1,143,620			$	579,691

(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 $ 54.3 million for fiscal 2019 was recognized over time.

Sales by market application and segment

	Fiscal
	2019								2018								2017
	OEM Laser Sources				Industrial Lasers & Systems				OEM Laser Sources				Industrial Lasers & Systems				OEM Laser Sources				Industrial Lasers & Systems
Net sales:
Microelectronics	$	568,387			$	63,789			$	951,166			$	85,188			$	838,268			$	55,975
Materials processing	38,017				366,861				46,467				474,437				57,055				454,854
OEM components and instrumentation	163,095				103,693				140,616				80,207				135,624				67,458
Scientific and government programs	117,177				9,621				121,228				3,264				112,673				1,404
Total net sales	$	886,676			$	543,964			$	1,259,477			$	643,096			$	1,143,620			$	579,691

See Note 17, "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 condensed consolidated balance sheets. Payment terms vary by customer.

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A rollforward of our customer deposits and deferred revenue is as follows (in thousands):

Beginning balance, September 30, 2018		$	55,637
Amount of customer deposits and deferred revenue recognized in income		( 189,318		)
Additions to customer deposits and deferred revenue		177,753
Translation adjustments		( 1,522		)
Ending balance, September 28, 2019		$	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 maintenance agreements, extended warranties, installation, and contracts with customer acceptance provisions included in customer deposits and deferred revenue as of September 28, 2019 (in thousands):

	1 year				Thereafter				Total
Performance Obligations as of September 30, 2018	$	50,546			$	5,091			$	55,637
Performance Obligations as of September 28, 2019	34,538				8,012				42,550

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 17, "Segment and Geographic Information."

Our allocation of the purchase price is as follows (in thousands):

Tangible assets:
Cash	$	103
Accounts receivable	534
Inventories	1,793
Prepaid expenses and other assets	17
Deferred tax assets	681
Property and equipment	122
Liabilities assumed	( 499		)
Intangible assets:
Existing technology	5,600
Customer relationships	300
Goodwill	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.

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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.

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.

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	1,600
Customer relationships	230
Production know-how	2,300
Backlog	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

OR Laser

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 17, "Segment and Geographic Information."

Our allocation of the purchase price is as follows (in thousands):

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Tangible assets:
Cash	$	1,936
Accounts receivable	3,973
Inventories	2,360
Prepaid expenses and other assets	630
Property and equipment	1,515
Liabilities assumed	( 5,119		)
Deferred tax liabilities	( 4,517		)
Intangible assets:
Existing technology	14,100
Non-competition	200
Backlog	100
Customer relationships	700
Trademarks	50
Goodwill	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 are being amortized over their respective useful lives of 1 to 8 years . 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.

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.

Fiscal 2017 Acquisitions

Rofin

On November 7, 2016, we completed our acquisition of Rofin pursuant to the Merger Agreement dated March 16, 2016. Rofin was one of the world's leading developers and manufacturers of high-performance industrial laser sources and laser-based solutions and components. Rofin's operating results have been included primarily in our Industrial Lasers & Systems segment. See Note 17, "Segment and Geographic Information."

As a condition of the acquisition, we were required to divest and hold separate Rofin's low power CO ₂ laser business based in Hull, United Kingdom (the "Hull Business"), and had reported this business separately as a discontinued operation until its divestiture. We completed the divestiture of the Hull Business on October 11, 2017, after receiving approval for the terms of the sale from the European Commission. See Note 19, "Discontinued Operations and Sale of Assets Held for Sale."

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The total purchase consideration has been allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on a valuation analysis.

The total purchase consideration allocated to net assets acquired was approximately $ 936.3 million and consisted of the following (in thousands):

Cash consideration to Rofin's shareholders	$	904,491
Cash settlement paid for Rofin employee stock options	15,290
Total cash payments to Rofin shareholders and option holders	919,781
Add: fair value of previously owned Rofin shares	20,685
Less: post-merger stock compensation expense	( 4,152		)
Total purchase price to allocate	$	936,314

The acquisition was an all-cash transaction at a price of $ 32.50 per share of Rofin common stock. We funded the payment of the aggregate consideration with a combination of our available cash on hand and the proceeds from the Euro Term Loan described in Note 10, "Borrowings." The total payment of $ 15.3 million due to the cancellation of options held by employees of Rofin was allocated between total estimated merger consideration of $ 11.1 million and post-merger stock-based compensation expense of $ 4.2 million based on the portion of the total service period of the underlying options that had not been completed by the merger date.

We recognized a gain of $ 5.4 million in the first quarter of fiscal 2017 on the increase in fair value from the date of purchase for the shares of Rofin we owned before the acquisition.

Under the acquisition method of accounting, the total estimated acquisition consideration is allocated to the acquired tangible and intangible assets and assumed liabilities of Rofin based on their fair values as of the acquisition date. Any excess of the acquisition consideration over the fair value of assets acquired and liabilities assumed is allocated to goodwill. We concluded that all such goodwill will not be deductible for tax purposes.

Our allocation of the purchase price is as follows (in thousands):

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Cash, cash equivalents and short-term investments	$	163,425
Accounts receivable	90,877
Inventory	189,869
Prepaid expenses and other assets	15,362
Assets held for sale, current	29,545
Property and equipment	125,723
Other assets	31,854
Intangible assets:
Existing technology	169,029
In-process research and development	6,000
Backlog	5,600
Customer relationships	39,209
Trademarks	5,699
Patents	300
Goodwill	298,170
Current portion of long-term obligations	( 3,633		)
Current liabilities held for sale	( 7,001		)
Accounts payable	( 21,314		)
Other current liabilities	( 68,242		)
Long-term debt	( 11,641		)
Other long-term liabilities	( 122,517		)
Total	$	936,314

The fair value write-up of acquired finished goods and work-in-process inventory was $ 26.4 million , which was amortized over the expected period during which the acquired inventory was sold, or 6 months . Accordingly, for fiscal 2017, we recorded $ 26.4 million of incremental cost of sales associated with the fair value write-up of inventory acquired in the merger with Rofin. The fair value write-up of inventory acquired was fully amortized in fiscal 2017.

The fair value write-up of acquired property, plant and equipment of $ 36.0 million will be amortized over the useful lives of the assets, ranging from 3 to 31 years . Property, plant and equipment is valued at its value-in-use, unless there was a known plan to dispose of the asset.

The acquired existing technology, backlog, trademarks and patents are being amortized on a straight-line basis, which approximates the economic use of the asset, over their estimated useful lives of 3 to 5 years , 6 months , 3 years , and 5 years , respectively. Customer relationships are being amortized on an accelerated basis utilizing free cash flows over periods ranging from 5 to 10 years . The useful lives of in-process research and development will be defined in the future upon further evaluation of the status of these applications. 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 market opportunities for a combined product offering; and (2) potential to leverage our sales force to attract new customers and revenue and cross sell to existing customers.

In-process research and development ("IPR&D") consists of two projects that had not yet reached technological feasibility as of the date of the acquisition. Acquired IPR&D assets are initially recognized at fair value and are classified as indefinite-

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lived assets until the successful completion or abandonment of the associated research and development efforts. The value assigned to IPR&D was determined by considering the value of the products under development to the overall development plan, estimating the resulting net cash flows from the projects when completed and discounting the net cash flows to their present value. During the development period, these assets will not be amortized as charges to earnings; instead these assets will be subject to periodic impairment testing. Upon successful completion of the development process for the acquired IPR&D projects, the assets would then be considered finite-lived intangible assets and amortization of the assets will commence. One project was completed in December 2017 and amortization for that project began in the quarter ended March 31, 2018 over a useful life of 5.0 years. During the third quarter of fiscal 2019, in conjunction with our decision to co-locate the manufacturing and engineering of our High Power Fiber Lasers ("HPFL") products at our Hamburg, Germany, facility to our Tampere, Finland, location and exit a portion of our HPFL business, expected to be completed during fiscal 2020, we abandoned the remaining in-process research and development project totaling $ 4.7 million and fully amortized the intangible asset. See Note 18, "Restructuring Charges."

We expensed $ 17.6 million of acquisition-related costs as selling, general and administrative expenses in our consolidated statements of operations during fiscal 2017.

None of the goodwill was deductible for tax purposes.

The results of this acquisition were included in our consolidated operations beginning on November 7, 2016. The amount of continuing Rofin net sales and net loss from continuing operations included in our consolidated statements of operations for fiscal 2017 was approximately $ 434.9 million and $ 48.1 million , respectively.

Unaudited Pro Forma Information

The following unaudited pro forma financial information presents our combined results of operations as if the acquisition of Rofin and the related issuance of our Euro Term Loan had occurred on October 4, 2015. The unaudited pro forma financial information is not necessarily indicative of what our consolidated results of operations actually would have been had the acquisition been completed on October 4, 2015. In addition, the unaudited pro forma financial information does not attempt to project the future results of operations of the combined company. The actual results may differ significantly from the pro forma results presented here due to many factors.

In Thousands	Fiscal 2017
Total net sales	$	1,798,539
Net income	$	233,012
Net income per share:
Basic	$	9.52
Diluted	$	9.40

The unaudited pro forma financial information above includes the net income of Rofin's low power CO ₂ laser business based in Hull, United Kingdom, which is recorded as a discontinued operation in fiscal 2017. See Note 19, "Discontinued Operations and Sale of Assets Held for Sale."

The unaudited pro forma financial information above reflects the following material adjustments:

•	Incremental amortization and depreciation expense related to the estimated fair value of identifiable intangible assets and property, plant and equipment from the purchase price allocation.

•	The exclusion of amortization of inventory step-up to its estimated fair value from fiscal 2017.

•	The exclusion of revenue adjustments as a result of the reduction in customer deposits and deferred revenue related to its estimated fair value from fiscal 2017.

•	Incremental interest expense and amortization of debt issuance costs related to our Euro Term Loan and Revolving Credit Facility (as defined in Note 10, "Borrowings").

•	The exclusion of acquisition costs incurred by both Coherent and Rofin from fiscal 2017.

•	The exclusion of a stock-based compensation charge related to the acceleration of Rofin options from fiscal 2017.

•	The exclusion of a gain on business combination for our previously owned shares of Rofin from fiscal 2017.

•	The exclusion of a foreign exchange gain on forward contracts related to our debt commitment and debt issuance from

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fiscal 2017.

•	The estimated tax impact of the above adjustments.

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 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. At September 29, 2018 , we did not have any assets or liabilities valued based on Level 3 valuations.

We measure the fair value of outstanding debt obligations for disclosure purposes on a recurring basis. As of September 28, 2019 , the current and long-term portion of long-term obligations of $ 14.9 million and $ 392.2 million , respectively, are reported at amortized cost. As of September 29, 2018 , the current and long-term portion of long-term obligations of $ 5.1 million and $ 420.7 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 September 28, 2019 and September 29, 2018 are summarized below (in thousands):

		Aggregate Fair Value				Quoted Prices in Active Markets for Identical Assets				Significant Other Observable Inputs				Aggregate Fair Value				Quoted Prices in Active Markets for Identical Assets				Significant Other Observable Inputs
		Fiscal year-end 2019												Fiscal year-end 2018
						(Level 1)				(Level 2)								(Level 1)				(Level 2)
Assets:
Cash equivalents:
Money market fund deposits		$	21,422			$	21,422			$	—			$	56,285			$	56,285			$	—
Short-term investments:
U.S. Treasury and agency obligations (1)		120				—				120				120				—				120
Prepaid and other assets:
Foreign currency contracts (2)		370				—				370				1,007				—				1,007
Money market fund deposits — Deferred comp and supplemental plan (3)		433				433				—				522				522				—
Mutual funds — Deferred comp and supplemental plan (3)		22,419				22,419				—				21,862				21,862				—
Total		$	44,764			$	44,274			$	490			$	79,796			$	78,669			$	1,127
Liabilities:
Other current liabilities:
Foreign currency contracts (2)		( 960		)		—				( 960		)		( 1,879		)		—				( 1,879		)
Total		$	43,804			$	44,274			$	( 470	)		$	77,917			$	78,669			$	( 752	)

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(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 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.

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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):

	Fiscal 2019 year-end
	Cost Basis				Unrealized Gains				Unrealized Losses				Fair Value
Cash and cash equivalents	$	305,833			$	—			$	—			$	305,833
Short-term investments:
Available-for-sale securities:
U.S. Treasury and agency obligations	$	120			$	—			$	—			$	120
Total short-term investments	$	120			$	—			$	—			$	120

	Fiscal 2018 year-end
	Cost Basis				Unrealized Gains				Unrealized Losses				Fair Value
Cash and cash equivalents	$	310,495			$	—			$	—			$	310,495
Short-term investments:
Available-for-sale securities:
U.S. Treasury and agency obligations	$	120			$	—			$	—			$	120
Total short-term investments	$	120			$	—			$	—			$	120

There were no unrealized gains or losses at September 28, 2019 or September 29, 2018 .

The amortized cost and estimated fair value of available-for-sale investments in debt securities as of September 28, 2019 and September 29, 2018 classified as short-term investments on our consolidated balance sheets, were as follows (in thousands):

	Fiscal year-end
	2019								2018
	Amortized Cost				Estimated Fair Value				Amortized Cost				Estimated Fair Value
Investments in available-for-sale debt securities due in less than one year	$	120			$	120			$	120			$	120

During fiscal 2019 , we received no proceeds from the sale of available-for-sale securities and realized no gross gains or losses. During fiscal 2018 , we received proceeds totaling $ 26.9 million from the sale of available-for-sale securities and realized no gross gains or losses.

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

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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.

On August 1, 2016, we purchased forward contracts totaling 670.0 million Euros, with a value date of November 30, 2016, to limit our foreign exchange risk related to the commitment of our Euro Term Loan (denominated in Euros) in an amount of the Euro equivalent of $ 750.0 million to finance the U.S. dollar payment for our acquisition of Rofin. In the fourth quarter of fiscal 2016, we recognized an unrealized loss of $ 2.2 million on these forward contracts. In the first quarter of fiscal 2017, we settled these forward contracts at a net gain of $ 9.1 million , resulting in a realized gain of $ 11.3 million in the first quarter of fiscal 2017.

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 2019 year-end				Fiscal 2018 year-end				Fiscal 2019 year-end				Fiscal 2018 year-end
Foreign currency hedge contracts
Purchase	$	53,920			$	169,437			$	( 117	)		$	( 1,704	)
Sell	$	( 86,984	)		$	( 125,165	)		$	( 473	)		$	832

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 2019 , 2018 and 2017 , we recognized a loss of $ 5.8 million , a loss of $ 5.5 million and a gain of $ 17.8 million , respectively, in other income (expense) for derivative instruments not designated as hedging instruments. The fiscal 2017 gain included the above $ 11.3 million realized gain on the forward contracts related to the loan commitment.

Master Netting Arrangements

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.

As a result of the acquisition of Rofin in the first quarter of fiscal 2017, we reorganized our prior two reporting segments (Specialty Laser Systems and Commercial Lasers and Components) into two new reporting segments for the combined company: OEM Laser Sources ("OLS") and Industrial Lasers & Systems ("ILS"). This segment reorganization was based upon the organizational structure of the combined company and how the chief operating decision maker ("CODM") receives and utilizes information provided to allocate resources and make decisions.

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For both the OLS and ILS reporting units, we elected to bypass the qualitative assessment in fiscal 2019 and proceed directly to performing the goodwill impairment test. We performed our test using the opening balance sheet as of the first day of the fourth quarter of fiscal 2019 and noted no impairment. We determined the fair value of the OLS and ILS reporting units for the test using a 50-50% weighting of the Income (discounted cash flow) approach and Market (market comparable) approach. Management completed and reviewed the results of the impairment analysis and concluded that an impairment charge was not required as the estimated fair value of both the OLS and ILS reporting units was significantly in excess of their carrying values. Between the completion of our assessment and the end of the fourth quarter of fiscal 2019, we noted no indications of impairment or triggering events with either reporting unit to cause us to review goodwill for potential impairment.

The changes in the carrying amount of goodwill by segment for fiscal 2019 and 2018 are as follows (in thousands):

	Industrial Lasers & Systems (1)				OEM Laser Sources (2)				Total
Balance as of September 30, 2017	$	315,516			$	102,178			$	417,694
Additions (see Note 4)	31,456				—				31,456
Translation adjustments	( 4,764		)		( 1,446		)		( 6,210		)
Balance as of September 29, 2018	342,208				100,732				442,940
Additions (see Note 4)	3,333				—				3,333
Translation adjustments	( 15,260		)		( 3,912		)		( 19,172		)
Balance as of September 28, 2019	$	330,281			$	96,820			$	427,101

(1) Gross amount of goodwill for our ILS segment was $ 343.3 million at September 28, 2019 and $ 355.2 million at September 29, 2018 , respectively. At both September 28, 2019 and September 29, 2018 , the accumulated impairment loss for the ILS reporting unit was $ 13.0 million reflecting an impairment charge in fiscal 2009.

(2) Gross amount of goodwill for our OLS segment was $ 105.5 million and $ 109.5 million at September 28, 2019 and September 29, 2018 , respectively. At both September 28, 2019 and September 29, 2018 , the accumulated impairment loss for the OLS reporting unit was $ 8.7 million reflecting impairment charges in fiscal 2003 and fiscal 2009.

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 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.

In fiscal 2019 and 2018 , we did not have any impairment of intangible assets as a result of the impairment analysis.

The components of our amortizable intangible assets are as follows (in thousands):

	Fiscal year-end 2019												Fiscal year-end 2018
	Gross Carrying Amount				Accumulated Amortization				Net				Gross Carrying Amount				Accumulated Amortization				Net
Existing technology	$	193,704			$	( 131,429	)		$	62,275			$	201,759			$	( 94,376	)		$	107,383
Customer relationships	42,083				( 21,512		)		20,571				50,359				( 22,383		)		27,976
Trade name	5,261				( 5,138		)		123				5,888				( 3,818		)		2,070
Production know-how	2,300				( 456		)		1,844				—				—				—
In-process research and development	—				—				—				4,864				—				4,864
Total	$	243,348			$	( 158,535	)		$	84,813			$	262,870			$	( 120,577	)		$	142,293

For accounting purposes, when an intangible asset is fully amortized, it is removed from the disclosure schedule.

During the third quarter of fiscal 2019, in conjunction with our decision to co-locate the manufacturing and engineering of our HPFL products at our Hamburg, Germany, facility to our Tampere, Finland, location and exit a portion of our HPFL

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business, expected to be completed during fiscal 2020, we abandoned the in-process research and development project totaling $ 4.7 million and fully amortized the intangible asset. See Note 18, "Restructuring Charges."

The weighted average remaining amortization periods for existing technology, customer relationships, trade names and production know-how are approximately 2.1 years , 6.3 years , 0.1 years and 4.0 years , respectively. Amortization expense for intangible assets during fiscal 2019 , 2018 , and 2017 was $ 61.5 million , $ 60.0 million and $ 60.6 million , respectively. The change in accumulated amortization also includes $ 7.8 million (decrease) and $ 2.6 million (decrease) of foreign exchange impact for fiscal 2019 and fiscal 2018 , respectively.

Estimated amortization expense for the next five fiscal years and all years thereafter are as follows (in thousands):

	Estimated Amortization Expense
2020	$	47,346
2021	17,403
2022	6,799
2023	4,346
2024	3,015
Thereafter	5,904
Total	$	84,813

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Prepaid expenses and other assets consist of the following (in thousands):

	Fiscal year-end
	2019				2018
Prepaid and refundable income taxes	$	44,096			$	37,884
Other taxes receivable	11,208				16,930
Prepaid expenses and other assets	22,689				30,266
Total prepaid expenses and other assets	$	77,993			$	85,080

Other assets consist of the following (in thousands):

	Fiscal year-end
	2019				2018
Assets related to deferred compensation arrangements (see Note 13)	$	35,842			$	37,370
Deferred tax assets (see Note 16)	87,011				64,858
Other assets (1)	18,111				9,521
Total other assets	$	140,964			$	111,749

(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 will be adjusted for impairment if we determine that indicators of impairment exist at any point in time.

Other current liabilities consist of the following (in thousands):

	Fiscal year-end
	2019				2018
Accrued payroll and benefits	$	55,698			$	55,704
Accrued expenses and other	41,039				36,859
Warranty reserve (see Note 2)	36,460				40,220
Customer deposits	10,843				19,933
Deferred revenue	23,695				30,613
Total other current liabilities	$	167,735			$	183,329

Other long-term liabilities consist of the following (in thousands):

	Fiscal year-end
	2019				2018
Long-term taxes payable	$	37,385			$	36,336
Deferred compensation (see Note 13)	39,715				40,895
Deferred tax liabilities (see Note 16)	27,785				26,339
Deferred revenue	8,012				5,091
Asset retirement obligations liability (see Note 2)	4,934				4,529
Defined benefit plan liabilities (see Note 14)	45,862				37,528
Other long-term liabilities	2,188				1,238
Total other long-term liabilities	$	165,881			$	151,956

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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. On November 7, 2016, the Borrower borrowed the full 670.0 million Euros under the Euro Term Loan and its proceeds were used to finance the acquisition of Rofin and pay related fees and expenses. On November 7, 2016, we also used 10.0 million Euros of the capacity under the Revolving Credit Facility for the issuance of a letter of credit. On November 20, 2018, we borrowed an additional $ 40.0 million under the Revolving Credit Facility and on July 29, 2019, we repaid $ 30.0 million of the amount borrowed. 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.

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, at which time all outstanding principal and accrued and unpaid interest on the Euro Term Loan must be repaid.

As of September 28, 2019 , the outstanding principal amount of the Euro Term Loan was 364.9 million Euros. As of September 28, 2019 , the outstanding principal 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 September 28, 2019 , the applicable margin for Euro Term Loans borrowed as Eurocurrency Rate loans, was 2.00 % per annum and as Base Rate loans was 1.00 % per annum and the applicable margin for revolving loans borrowed as Eurocurrency Rate loans was 3.75 % per annum and as Base Rate loans was 2.75 % 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

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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 September 28, 2019 .

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 capitalized and included in prepaid expenses and other assets 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 $ 26.0 million as of September 28, 2019 , of which $ 20.8 million was unused and available. These unsecured international facilities were used in Europe and Japan in fiscal 2019 . As of September 28, 2019 , we had utilized $ 5.2 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
	2019				2018
Current portion of Euro Term Loan (1)	$	2,748			$	3,092
1.3% Term loan due 2024	1,367				1,448
1.0% State of Connecticut term loan due 2023	378				374
Capital lease obligations	370				158
Line of credit borrowings	10,000				—
Total current portion of long-term obligations	$	14,863			$	5,072

(1) Net of debt issuance costs of $ 4.6 million and $ 4.7 million at September 28, 2019 and September 29, 2018 , respectively.

Long-term obligations consist of the following (in thousands):

	Fiscal year-end
	2019				2018
Euro Term Loan due 2024 (1)	$	385,208			$	411,661
1.3% Term loan due 2024	5,466				7,242
1.0% State of Connecticut term loan due 2023	1,028				1,406
Capital lease obligations	536				402
Total long-term obligations	$	392,238			$	420,711

(1) Net of debt issuance costs of $ 6.4 million and $ 11.2 million at September 28, 2019 and September 29, 2018 , respectively.

Contractual maturities of our debt obligations, excluding line of credit borrowings, as of September 28, 2019 are as follows (in thousands):

	Amount
2020	$	9,439
2021	9,442
2022	9,193
2023	9,003
2024	370,976
Total	$	408,053

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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 September 28, 2019 , we did not have any material indemnification claims that were probable or reasonably possible.

Commitments

We lease many of our facilities under operating leases and recognize rent expense on a straight-line basis over the life of the leases.

Future minimum payments under our non-cancellable operating leases at September 28, 2019 are as follows (in thousands):

	Amount
2020	$	19,578
2021	14,579
2022	10,405
2023	6,817
2024	4,156
Thereafter through 2032	10,755
Total	$	66,290

Rent expense was $ 22.9 million , $ 22.1 million and $ 16.5 million in fiscal 2019 , 2018 and 2017 , respectively.

As of September 28, 2019 , we had total purchase commitments for inventory of approximately $ 60.9 million and purchase obligations for fixed assets and services of $ 17.1 million compared to $ 126.1 million of purchase commitments for inventory and $ 15.6 million of purchase obligations for fixed assets and services at September 29, 2018 . The inventory decrease was primarily due to lower commitments to support the lower backlog of shipments of large ELA tools used in the flat panel display market and the lower demand in the materials processing market. The fixed assets and services increase was primarily due to the expansion of our manufacturing capacity in Scotland.

Contingencies

We are subject to legal claims and litigation arising in the ordinary course of business, such as product liability, employment or intellectual property claims, including, but not limited to, the matters described below.

On May 14, 2013, IMRA America (“Imra”) filed a complaint alleging patent infringement against two of our subsidiaries in the Regional Court of Düsseldorf, Germany. Our subsidiaries subsequently filed a separate nullity action with the Federal Patent Court in Munich, Germany, requesting that the court hold that the patent in question was invalid based on prior art. The court found the patent to be invalid, and Imra appealed the decision to the Federal Court of Justice, the highest civil jurisdiction court in Germany. The Federal Court of Justice dismissed the appeal on March 27, 2018, effectively ending the case in favor of Coherent. In addition, as of April 3, 2019, all of the involved courts had finalized the granting of costs and statutory attorneys’ fees to Coherent of an aggregate amount of approximately $ 0.1 million . Imra has since paid this amount.

Although we do not expect that such legal 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.

The United States and many foreign governments impose tariffs and duties on the import and export of certain products we sell. 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.

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We are currently in discussions with the German government regarding an export compliance matter involving one of our German subsidiaries. We believe that this involves less than approximately 1.5 million Euros in transactions over the past three years 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.

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 .

Deferred Compensation Plans

Under our deferred compensation plans ("plans"), eligible employees are permitted to make compensation deferrals up to established limits set under the plans and accrue income on these deferrals based on reference to changes in available investment options. While not required by the plan, 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
	2019				2018
Cash surrender value of life insurance contracts	$	16,223			$	15,830
Fair value of mutual and money market funds	22,852				22,384
Total assets	$	39,075			$	38,214
Total assets, included in:
Prepaid expenses and other assets	$	3,233			$	844
Other assets	35,842				37,370
Total assets	$	39,075			$	38,214

	Fiscal year-end
	2019				2018
Total deferred compensation liability, included in:
Other current liabilities	$	3,233			$	844
Other long-term liabilities	39,715				40,895
Total deferred compensation liability	$	42,948			$	41,739

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 $ 1.1 million in fiscal 2019 , $ 4.8 million in fiscal 2018 and $ 5.0 million (including a $ 1.3 million death benefit) in fiscal 2017 . 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 $ 1.5 million in fiscal 2019 , $ 5.2 million in fiscal 2018 and $ 3.9 million in fiscal 2017 . 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 2019 , 2018 , and 2017 were $ 5.7 million , $ 5.6 million and $ 4.8 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 2019 , 2018 and 2017 , a total of 108,034 shares, 66,099 shares and 95,678 shares, respectively, were purchased by and distributed to employees at an average price of $ 109.32 , $ 159.97 and $ 81.82 per share, respectively. At fiscal 2019 year-end, we had 250,749 shares of our common stock reserved for future issuance under the plan.

Stock Award Plans

We maintain a stock plan for which employees, service providers and non-employee directors are eligible participants. This plan, the 2011 Equity Incentive Plan (the "2011 Plan"), provides 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 may grant options and awards (time-based restricted stock units and performance restricted stock units) to purchase up to 6,747,691 shares of common stock, of which 4,489,186 shares remained available for grant at fiscal 2019 year-end. At fiscal 2019 year-end, all outstanding stock options and restricted stock units have been issued under plans approved by our shareholders.

Historically, option grants to employees vested over the four years from the original grant date. Since adoption of the 2011 Plan, no stock options have been granted to employees. Some vested options made to one non-employee director under a prior stock plan remain outstanding.

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 or market-based conditions for vesting. Until restricted stock vests, shares (including those issuable upon vesting of the applicable restricted stock unit) are subject to forfeiture if employment 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.

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•	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.

•

The performance restricted stock unit award grants are generally either subject to annual vesting over three years from the date of grant or subject to a single vest measurement three years from the date of grant, depending upon achievement of performance measurements based on the performance of the Company's total shareholder returns (as defined in the plan) over the performance period compared with the performance of the applicable Russell Index (or as otherwise determined by the Compensation and HR Committee).

Fair Value of Stock Compensation

We recognize compensation expense for all share-based payment awards based on the fair value of such awards. The expense is recognized on a straight-line basis per tranche over the respective requisite service period of the awards.

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 2019 , 2018 and 2017 were estimated using the following weighted-average assumptions:

	Employee Stock Purchase Plans
	Fiscal
	2019				2018				2017
Expected life in years	0.5				0.5				0.5
Expected volatility	47.9		%		50.1		%		33.0		%
Risk-free interest rate	2.4		%		1.6		%		0.7		%
Weighted average fair value per share	$	40.77			$	64.39			$	39.40

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 and could range from no units to a maximum of twice the initial award units. The weighted average fair value for these performance units was determined using a Monte Carlo simulation model incorporating the following weighted average assumptions:

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	Fiscal
	2019				2018				2017
Risk-free interest rate	2.9		%		1.7		%		1.3		%
Volatility	43.7		%		37.0		%		31.0		%
Weighted average fair value	$	117.43			$	315.05			$	163.17

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.

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 2019 , 2018 and 2017 (in thousands):

	Fiscal
	2019				2018				2017
Cost of sales	$	4,880			$	4,403			$	3,541
Research and development	2,990				3,247				2,973
Selling, general and administrative	28,596				25,088				23,911
Income tax benefit	( 4,946		)		( 5,073		)		( 7,073		)
	$	31,520			$	27,665			$	23,352

As a result of our acquisition of Rofin on November 7, 2016, we made a payment of $ 15.3 million due to the cancellation of options held by employees of Rofin. The payment was allocated between total estimated merger consideration of $ 11.1 million and post-merger stock-based compensation expense of $ 4.2 million , recorded in the first quarter of fiscal 2017 , based on the portion of the total service period of the underlying options that have not been completed by the merger date.

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 . During fiscal 2018 , $ 4.7 million of stock-based compensation cost was capitalized as part of inventory for all stock plans, $ 4.4 million was amortized into cost of sales and $ 1.5 million remained in inventory at September 29, 2018 .

At fiscal 2019 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 $ 33.1 million . We do not estimate forfeitures. 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. During fiscal 2017 , we recorded approximately $ 1.6 million of excess tax benefits as cash flows from financing activities. 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 $ 2.5 million and $ 12.8 million for fiscal 2019 and 2018, respectively.

Stock Awards Activity

At each of fiscal 2019 , 2018 and 2017 year-end, we had 24,000 shares subject to vested stock options outstanding. The vested stock options at fiscal 2019 are held by one non-employee director and expire on September 20, 2021 .

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The following table summarizes the activity of our time-based and performance restricted stock units for fiscal 2019 , 2018 and 2017 (in thousands, except per share amounts):

	Time Based Restricted Stock Units							Performance Restricted Stock Units
	Number of Shares			Weighted Average Grant Date Fair Value				Number of Shares			Weighted Average Grant Date Fair Value
Nonvested stock at October 1, 2016	459			$	66.47			169			$	74.10
Granted	186			131.54				115			163.17
Vested (1)	( 229	)		66.02				( 104	)		77.10
Forfeited	( 17	)		84.79				( 4	)		70.57
Nonvested stock at September 30, 2017	399			$	118.83			176			$	105.34
Granted	99			254.20				78			315.05
Vested (1)	( 213	)		88.45				( 95	)		70.57
Forfeited	( 6	)		119.66				—			—
Nonvested stock at September 29, 2018	279			$	155.24			159			$	155.76
Granted	195			128.25				105			117.43
Vested (1)	( 169	)		127.90				( 131	)		74.48
Forfeited	( 10	)		170.97				—			—
Nonvested stock at September 28, 2019	295			$	152.47			133			$	184.26

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(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 awards, the recipient may earn between 0 % and 200 % 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 120,000 in fiscal 2019 , 131,000 in fiscal 2018 and 131,000 in fiscal 2017 ; tax payments made were $ 15.2 million , $ 36.3 million and $ 15.7 million , respectively.

As a result of the Rofin acquisition, we have 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. For these pension plans, 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.

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.

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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.

Components of net periodic cost are as follows for fiscal 2019 , 2018 and 2017 (in thousands):

	Fiscal
	2019				2018				2017
Service cost	$	1,955			$	2,262			$	2,077
Interest cost	1,308				1,230				1,086
Expected return on plan assets	( 817		)		( 787		)		( 736		)
Recognized net actuarial (gain) loss	470				240				( 236		)
Foreign exchange impacts	( 79		)		( 56		)		( 6		)
Recognition of curtailment gain due to plan freeze	—				( 1,236		)		—
Net periodic pension cost	$	2,837			$	1,653			$	2,185

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):

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	Fiscal 2019				Fiscal 2018
Change in benefit obligation:
Projected benefit obligation at beginning of year	$	51,499			$	52,547
Service cost	1,955				2,262
Interest cost	1,308				1,230
Assumption change	9,505				( 1,517		)
Experience (gain) loss	( 308		)		596
Foreign exchange rate impacts	( 1,889		)		( 460		)
Benefits paid - total	( 1,633		)		( 1,923		)
Curtailment gain	—				( 1,236		)
Projected benefit obligation at end of year	$	60,437			$	51,499
Projected benefit obligation at end of year:
U.S. plans	$	18,892			$	15,754
Foreign plans	41,545				35,745
Projected benefit obligation at end of year	$	60,437			$	51,499
Change in plan assets:
Fair value of plan assets at beginning of year	$	12,486			$	11,856
Actual return on plan assets	539				672
Employer contributions	455				361
Benefits paid - funded plan	( 483		)		( 403		)
Fair value of plan assets at end of year	$	12,997			$	12,486
Fair value of plan assets at end of year:
U.S. plans	$	12,766			$	12,323
Foreign plans	231				163
Fair value of plan assets at end of year	12,997				12,486
Unfunded status at end of year	$	( 47,440	)		$	( 39,013	)
Amounts recognized in the consolidated balance sheet:
Accrued benefit liability - current	$	( 1,578	)		$	( 1,485	)
Accrued benefit liability - non current	( 45,862		)		( 37,528		)
Accumulated other comprehensive (gain) loss (pre-tax)	2,590				( 6,340		)

The information for plans with an accumulated benefit obligation in excess of plan assets is as follows (in thousands):

	Fiscal year-end
	2019				2018
Projected benefit obligation	$	60,437			$	51,499
Accumulated benefit obligation	55,941				47,713
Fair value of plan assets	12,997				12,486

The weighted-average rates used to determine the net periodic benefit costs are as follows:

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	Fiscal 2019			Fiscal 2018
Discount rate:
U.S.	3.0	%		4.2	%
Foreign	0.8	%		1.9	%
Expected return on plan assets:
U.S.	5.8	%		6.8	%
Rate of compensation increase
U.S.	—	%		—	%
Foreign	2.1	%		1.5	%

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):

	Amount
2020	$	2,197
2021	1,872
2022	2,704
2023	2,462
2024	2,825
2025-2029	15,381
Total	$	27,441

Our pension plan asset allocations at September 28, 2019 and September 29, 2018 by asset category are as follows:

	Allocation
	Target			Fiscal 2019			Fiscal 2018
Equity securities	34	%		33	%		51	%
Debt securities	66	%		67	%		49	%
Total plan assets	100	%		100	%		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.

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The fair values of our pension plan assets, by level within the fair value hierarchy, at September 28, 2019 are as follows:

Asset categories	Level 1				Level 2				Level 3				Total
Cash and cash equivalents:
Money market	$	503			$	—			$	—			$	503
Equity securities:
Small cap	—				135				—				135
Mid cap	—				250				—				250
Large cap	—				751				—				751
Total market stock	—				1,689				—				1,689
International	—				1,276				—				1,276
Emerging markets	—				204				—				204
Debt securities:
Bonds and mortgages	—				3,110				—				3,110
Inflation protected	—				634				—				634
High yield	—				634				—				634
Liability driven investments	—				3,811				—				3,811
Total plan assets	$	503			$	12,494			$	—			$	12,997

The fair values of our pension plan assets, by level within the fair value hierarchy, at September 29, 2018 are as follows:

Asset categories	Level 1				Level 2				Level 3				Total
Cash and cash equivalents:
Money market	$	—			$	708			$	—			$	708
Equity securities:
Small cap	—				297				—				297
Mid cap	—				593				—				593
Large cap	—				2,368				—				2,368
Total market stock	—				1,067				—				1,067
International	—				1,762				—				1,762
Emerging markets	—				263				—				263
Debt securities:
Bonds and mortgages	—				4,229				—				4,229
Inflation protected	—				593				—				593
High yield	—				606				—				606
Total plan assets	$	—			$	12,486			$	—			$	12,486

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Other income (expense) includes other-net which is comprised of the following (in thousands):

	Fiscal
	2019				2018				2017
Foreign exchange gain (loss)	$	( 5,774	)		$	( 11,286	)		$	4,656
Gain on deferred compensation investments, net (Note 13)	1,140				4,835				4,955
Other	( 410		)		( 735		)		221
Other—net	$	( 5,044	)		$	( 7,186	)		$	9,832

The provision for (benefit from) income taxes on income from continuing operations before income taxes consists of the following (in thousands):

	Fiscal
	2019				2018				2017
Currently payable:
Federal	$	1,995			$	1,163			$	5,617
State	557				114				1,022
Foreign	13,448				107,487				116,022
	16,000				108,764				122,661
Deferred and other:
Federal	( 407		)		26,334				1,413
State	516				( 489		)		( 153		)
Foreign	( 9,886		)		( 20,414		)		( 30,510		)
	( 9,777		)		5,431				( 29,250		)
Provision for income taxes	$	6,223			$	114,195			$	93,411

The components of income from continuing operations before income taxes consist of (in thousands):

	Fiscal
	2019				2018				2017
United States	$	54,480			$	65,272			$	25,540
Foreign	5,568				296,283				276,515
Income from continuing operations before income taxes	$	60,048			$	361,555			$	302,055

The reconciliation of the income tax expense at the U.S. Federal statutory rate ( 21.0 % in fiscal 2019, 24.5 % in fiscal 2018 and 35.0 % in fiscal 2017) to actual income tax expense is as follows (in thousands):

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	Fiscal
	2019				2018				2017
Federal statutory tax expense	$	12,610			$	88,684			$	105,719
Valuation allowance	7,925				4,263				4,454
Foreign taxes at rates greater (less) than U.S. rates, net	( 8,210		)		8,417				( 12,346		)
Stock-based compensation	556				( 8,536		)		3,969
State income taxes, net of federal income tax benefit	1,131				( 373		)		398
Research and development credit	( 3,665		)		( 6,972		)		( 7,884		)
Deferred compensation	( 206		)		( 560		)		( 1,022		)
Release of unrecognized tax benefits	( 6,688		)		( 352		)		( 538		)
Release of interest accrued for unrecognized tax benefits	( 205		)		( 156		)		( 78		)
U.S. tax reform impact	—				26,653				—
Deferred taxes on foreign earnings	1,215				—				—
Write-off of withholding tax credits	1,134				—				—
Other, net	626				3,127				739
Provision for income taxes	$	6,223			$	114,195			$	93,411
Effective tax rate	10.4		%		31.6		%		30.9		%

On December 22, 2017, the Tax Act was enacted. The Tax Act contains significant changes to U.S. tax law, including lowering the U.S. corporate income tax rate to 21.0 % , implementing a territorial tax system with a one-time transition tax assessment on previously tax-deferred foreign earnings and imposing new taxes on certain foreign-sourced income. We elected to pay the one-time transition tax over a period of up to eight years.

In conjunction with the Tax Act, the SEC issued guidance under Staff Accounting Bulletin No. 118 ("SAB 118") directing taxpayers to record the impact of the Tax Act as "provisional" when they do not have all the necessary information to complete the accounting under ASC 740. The guidance allowed for a measurement period of up to one year after the enactment date of the Tax Act to finalize the recording of the related tax impact. In accordance with SAB 118, we recorded provisional estimates to our consolidated financial statements in fiscal 2018 based on the Tax Act. During the first quarter of fiscal 2019, we further analyzed the income tax effects of the Tax Act and determined there were no material changes to the provisional amounts disclosed in our fiscal 2018 financial statements. Although our accounting for the effects of the Tax Act is complete under SAB 118, there may be future adjustments based on interpretations by the U.S. federal and state governments and regulatory organizations, legislative updates or new regulations, or changes in accounting standards for income taxes.

The Tax Act also includes provisions for Global Intangible Low-Taxed Income (“GILTI”) wherein taxes on foreign income are imposed in excess of a deemed return on tangible assets of foreign corporations. In general, this income will effectively be taxed at a 10.5 % tax rate reduced by any available current year foreign tax credits. This provision became effective for taxable years beginning after December 31, 2017, which was our fiscal 2019. We have elected to treat tax generated by the GILTI provisions as a period expense.

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).

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. The impact of this tax exemption decreased Coherent Korea income taxes by approximately $ 2.4 million in fiscal 2019. The benefit of the tax holiday on net income per diluted share was $ 0.10 .

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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 $ 3.9 million , $ 2.5 million and $ 1.1 million in fiscal 2019, fiscal 2018 and fiscal 2017, respectively. The benefits of the tax holiday on net income per diluted share were $ 0.16 , $ 0.10 and $ 0.04 , respectively.

The significant components of deferred tax assets and liabilities were (in thousands):

	Fiscal year-end
	2019				2018
Deferred tax assets:
Reserves and accruals not currently deductible	$	40,687			$	36,467
Operating loss carryforwards and tax credits	71,890				67,068
Deferred revenue	986				2,682
Inventory capitalization	—				2,450
Stock-based compensation	5,649				5,267
Competent authority offset to transfer pricing tax reserves	10,585				10,585
Accumulated translation adjustment	5,459				432
Other	4,423				351
Total gross deferred tax assets	139,679				125,302
Valuation allowance	( 41,491		)		( 33,731		)
Total net deferred tax assets	98,188				91,571
Deferred tax liabilities:
Depreciation and amortization	23,625				39,358
U.S. tax reform impacts	14,603				13,694
Inventory capitalization	734				—
Total gross deferred tax liabilities	38,962				53,052
Net deferred tax assets	$	59,226			$	38,519

In determining our fiscal 2019 and 2018 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 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 2019 and 2018 year-ends.

During fiscal 2019 , we increased our valuation allowance on deferred tax assets by $ 7.8 million to $ 41.5 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 September 28, 2019 , 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):

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	Fiscal year-end
	2019				2018
Non-current deferred income tax assets	$	87,011			$	64,858
Non-current deferred income tax liabilities	( 27,785		)		( 26,339		)
Net deferred tax assets	$	59,226			$	38,519

We have various tax attribute carryforwards which include the following:

•

Foreign federal and local gross net operating loss carryforwards are $ 61.6 million , of which $ 47.0 million have no expiration date and $ 14.6 million have various expiration dates beginning in fiscal 2020 . Among the total of $ 61.6 million foreign net operating loss carryforwards, a valuation allowance of $ 31.7 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 $ 14.0 million and $ 30.7 million , respectively, which were acquired from our acquisitions. A full valuation allowance against certain other state net operating losses of $ 30.7 million has been recorded. California gross net operating loss carryforwards are $ 2.8 million and are scheduled to expire beginning in fiscal 2032 .

•

U.S. federal R&D credit carryforwards of $ 35.4 million are scheduled to expire beginning in fiscal 2025 . California R&D credit carryforwards of $ 32.2 million have no expiration date. A total of $ 27.1 million valuation allowance, before U.S. federal benefit, has been recorded against California R&D credit carryforwards of $ 32.2 million since the recovery of the carryforwards is uncertain. Other states R&D credit carryforwards of $ 3.9 million are scheduled to expire beginning in fiscal 2020 . A valuation allowance totaling $ 2.7 million , before U.S. federal benefit, has been recorded against certain state R&D credit carryforwards of $ 3.9 million since the recovery of the carryforwards is uncertain.

•	U.S. federal foreign tax credit carryforwards of $ 51.9 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 2016 and 2010, respectively, are closed to examination. In our other major foreign jurisdictions and our major state jurisdictions, the years prior to fiscal 2013 and 2015, 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 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 Germany, various Coherent and legacy Rofin entities are under audit for the years 2010 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):

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	Fiscal year-end
	2019				2018				2017
Balance as of the beginning of the year	$	65,882			$	47,566			$	20,442
Increase related to acquisitions	—				—				25,151
Tax positions related to current year:
Additions	605				19,033				1,326
Reductions	—				—				—
Tax positions related to prior year:
Additions	448				117				4,951
Reductions	( 6,071		)		—				( 65		)
Lapses in statutes of limitations	( 639		)		( 700		)		( 610		)
Decrease in unrecognized tax benefits based on audit results	—				—				( 5,217		)
Foreign currency revaluation adjustment	( 2,114		)		( 134		)		1,588
Balance as of end of year	$	58,111			$	65,882			$	47,566

As of September 28, 2019 , the total amount of gross unrecognized tax benefits including gross interest and penalties was $ 63.9 million , of which $ 43.9 million , if recognized, would affect our effective tax rate. We reassessed the computation of the transition tax liability based upon the issuance of new guidance and the availability of additional substantiation in fiscal 2019. The adjustments resulted in a tax benefit of approximately $ 6.0 million , which was recorded in fiscal 2019. 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 September 28, 2019 , the total amount of gross interest and penalties accrued was $ 5.8 million and it is classified as long-term taxes payable in the consolidated balance sheets. As of September 29, 2018 , we had accrued $ 4.4 million for the gross interest and penalties and it is classified as Other long-term liabilities in the consolidated balance sheets.

A summary of the fiscal tax years that remain subject to examination, as of September 28, 2019 , for our major tax jurisdictions is:

United States—Federal	2016—forward
United States—Various States	2015—forward
Netherlands	2014—forward
Germany	2010—forward
Japan	2013—forward
South Korea	2014—forward
United Kingdom	2017—forward

At September 28, 2019 , 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 tool, consumer goods and medical device manufacturing. Rofin's operating results have been included primarily in our ILS segment. Ondax's and OR Laser's operating results have been included in our ILS segment.

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

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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 from continuing operations is the measure of profit and loss that our CODM uses to assess performance and make decisions. As assets are not a measure used to assess the performance of the company by the CODM, asset information is not tracked or compiled by segment and is not available to be reported in our disclosures. Income 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 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 from continuing operations for our operating segments and a reconciliation of our total income from continuing operations to income from continuing operations before income taxes (in thousands):

	Fiscal
	2019				2018				2017
Net sales:
OEM Laser Sources	$	886,676			$	1,259,477			$	1,143,620
Industrial Lasers & Systems	543,964				643,096				579,691
Total net sales	$	1,430,640			$	1,902,573			$	1,723,311
Income (loss) from continuing operations:
OEM Laser Sources	$	239,073			$	469,835			$	432,839
Industrial Lasers & Systems	( 93,133		)		( 3,687		)		( 26,447		)
Corporate and other	( 62,845		)		( 73,131		)		( 80,897		)
Total income from continuing operations	$	83,095			$	393,017			$	325,495
Total other expense, net	( 23,047		)		( 31,462		)		( 23,440		)
Income from continuing operations before income taxes	$	60,048			$	361,555			$	302,055

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 2019 , 2018 and 2017 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.

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Sales to unaffiliated customers are as follows (in thousands):

	Fiscal
SALES	2019				2018				2017
United States	$	339,585			$	309,495			$	297,699
Foreign countries:
South Korea	313,461				652,313				628,369
China	194,653				235,568				162,316
Japan	138,028				180,223				154,985
Asia-Pacific, other	93,389				124,733				107,713
Germany	145,285				166,926				145,835
Europe, other	148,680				171,936				162,162
Rest of World	57,559				61,379				64,232
Total foreign countries sales	1,091,055				1,593,078				1,425,612
Total sales	$	1,430,640			$	1,902,573			$	1,723,311

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):

	Fiscal year-end
LONG-LIVED ASSETS	2019				2018
United States	$	151,640			$	124,312
Foreign countries:
Germany	152,529				168,755
Europe, other	29,815				22,962
Asia-Pacific	39,977				42,652
Total foreign countries long-lived assets	222,321				234,369
Total long-lived assets	$	373,961			$	358,681

Major Customers

We had one major customer who accounted for 16.8 % , 25.8 % and 22.9 % of consolidated revenue during fiscal 2019 , 2018 and 2017 , respectively. The customer purchased primarily from our OLS segment.

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 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. 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 co-locate the manufacturing and engineering of our HPFL products at our Hamburg, Germany, facility to our Tampere, Finland, location and exit a portion of our HPFL business, expected to be completed during fiscal 2020. 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.

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We have also announced our intent to vacate our leased facility in Santa Clara at the end of the current lease term in calendar 2020 and combine operations at our Santa Clara headquarters. We did not incur material expenses in fiscal 2019 related to this project.

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 2019 and fiscal 2018 (in thousands):

	Severance Related				Asset Write-Offs				Other				Total
Balances, September 30, 2017	$	1,301			$	—			$	—			$	1,301
Provision	1,795				1,287				867				3,949
Payments and other	( 2,260		)		( 1,287		)		( 581		)		( 4,128		)
Balances, September 29, 2018	836				—				286				1,122
Provision	9,172				12,609				940				22,721
Payments and other	( 1,729		)		( 12,609		)		( 1,011		)		( 15,349		)
Balances, September 28, 2019	$	8,279			$	—			$	215			$	8,494

At September 28, 2019 , $ 8.3 million of accrued severance related costs were included in other current liabilities and are expected to result in cash expenditures through 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 and 2018 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.

Discontinued Operations

Discontinued operations are from the Hull Business that we acquired as part of our acquisition of Rofin. As a condition of the acquisition, we were required to divest and hold separate the Hull Business and reported this business separately as a discontinued operation until its divestiture. We completed the divestiture of the Hull Business on October 11, 2017, after receiving approval for the terms of the sale from the European Commission. As a result of the divestiture, we recorded a loss in discontinued operations of $ 2,000 in the first quarter of fiscal 2018. For financial statement purposes, the results of operations for this discontinued business have been segregated from those of the continuing operations and are presented in our consolidated financial statements as discontinued operations.

Sale of Assets Held for Sale

In the fourth quarter of fiscal 2017, management decided to sell several entities that we acquired in the Rofin acquisition. Although the sale was not completed as of the end of fiscal 2017, we recorded a non-cash impairment charge of $ 2.9 million to operating expense in our results of operations in the fourth quarter of fiscal 2017 to reduce our carrying value in these entities to fair value. On April 27, 2018, we completed the sale of these entities acquired in the Rofin acquisition in exchange for cash of $ 6.3 million and we recognized a net loss of $ 0.3 million in fiscal 2018 related to the sale and impairment of the entities.

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QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

Summarized quarterly financial data for the years ended September 28, 2019 and September 29, 2018 are as follows (in thousands, except per share amounts):

	First Quarter					Second Quarter					Third Quarter					Fourth Quarter
Fiscal 2019:
Net sales	$	383,146				$	372,860				$	339,170				$	335,464
Gross profit	149,350					130,717					98,003					108,395
Net income (loss)	35,550					20,750					( 3,099		)			624
Net income (loss) per basic share	$	1.46				$	0.86				$	( 0.13	)			$	0.03
Net income (loss) per diluted share	$	1.45				$	0.85				$	( 0.13	)			$	0.03
Fiscal 2018:
Net sales	$	477,565				$	481,118				$	482,342				$	461,548
Gross profit	217,023					215,430					208,336					189,902
Net income	41,901					65,302					66,970					73,185
Net income per basic share	$	1.70				$	2.64				$	2.72				$	3.02
Net income per diluted share	$	1.67				$	2.61				$	2.69				$	2.99