COHR 10-Q Quarter ended April 4, 2020

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(1)	Reclassification adjustments were not significant during the three and six months ended April 4, 2020 and March 30, 2019 .

(2)	Tax benefits of $ 2,044 and $ 809 were provided on translation adjustments during the three and six months ended April 4, 2020 , respectively. Tax benefits of $ 691 and $ 3,446 were provided on translation adjustments during the three and six months ended March 30, 2019 , respectively.

(3)	Tax expenses of $ 642 and $ 675 were provided on changes in defined benefit pension plans for the three and six months ended April 4, 2020 , respectively. Tax benefits of $ 277 and $ 283 were provided on changes in defined benefit pension plans for the three and six months ended March 30, 2019 , respectively.

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The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") have been condensed or omitted pursuant to such rules and regulations. These interim condensed consolidated financial statements and notes thereto should be read in conjunction with the consolidated financial statements and notes thereto filed by Coherent, Inc. on Form 10-K for the fiscal year ended September 28, 2019 . In the opinion of management, all adjustments necessary for a fair presentation of financial condition and results of operation as of and for the periods presented have been made and include only normal recurring adjustments. Interim results of operations are not necessarily indicative of results to be expected for the year or any other interim periods. Our fiscal year ends on the Saturday closest to September 30 and our second fiscal quarter includes 14 weeks of operations in fiscal 2020 and 13 weeks of operations in fiscal 2019 . Fiscal 2020 includes 53 weeks and fiscal 2019 includes 52 weeks.

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.

The preparation of consolidated financial statements in conformity with 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.

The COVID-19 pandemic has significantly increased economic uncertainty and decreased demand for our products in many markets we serve, which could continue for an unknown period of time. In these circumstances, there may be developments outside of our control, including the length and extent of the COVID-19 outbreak, government-imposed measures and our ability to ship products and/or service installed products that may require us to adjust our operating plans. As such, given the dynamic nature of this situation, we cannot predict the future impacts of COVID-19 on our financial condition, results of operations or cash flows. However, we do expect that it will have an adverse impact on our revenue as well as our overall profitability and may lead to an increase in inventory provisions, allowances for credit losses, and a volatile effective tax rate driven by changes in the mix of earnings across our markets.

Based on our internal projections and the preparation of our financial statements for the quarter ended April 4, 2020, and considering the expected decrease in demand due to the COVID-19 pandemic and other factors, we believed that the fair value of our Industrial Lasers & Systems ("ILS") reporting unit may no longer exceed its carrying value and performed an interim goodwill impairment test on the ILS and OEM Laser Sources ("OLS") reporting units. Based on the estimated fair value of the ILS reporting unit, we recorded non-cash pretax goodwill impairment charges of $ 327.2 million . In addition, we performed impairment tests on the long-lived assets allocated to the asset group of the ILS reporting unit, including intangible assets, property, plant and equipment and ROU assets as of April 4, 2020 and recorded non-cash pre-tax charges related to the impairment of intangible assets, property, plant and equipment and ROU assets of the ILS reporting unit of $ 33.9 million , $ 85.6 million and $ 1.8 million , respectively. See Note 8, "Goodwill and Intangible Assets" and Note 11, "Leases" in the Notes to Condensed Consolidated Financial Statements.

Change in Accounting Policies - Leasing

Except for the adoption of Accounting Standards Update ("ASU") 2016-02, Leases ("ASC 842") on September 29, 2019 and the resulting changes in our accounting policies and disclosures for lease accounting, there have been no significant changes to our significant accounting policies as of and for the six months ended April 4, 2020 , as compared to the significant accounting policies described in our Annual Report on Form 10-K for our fiscal year ended September 28, 2019 .

Effective September 29, 2019, we adopted ASC 842, using the 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. See Note 2, "Recent Accounting Standards" to the Notes to Condensed Consolidated Financial Statements regarding the impact of adoption.

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We determine if an arrangement is a lease at inception for arrangements with an initial term of more than 12 months, and classify it as either finance or operating.

Finance leases are generally those that allow us to substantially utilize or pay for the entire asset over its estimated useful life. Finance leases are recorded in other assets and finance lease liabilities within other current and other long-term liabilities on our condensed consolidated balance sheets. Finance lease assets are amortized in operating expenses on a straight-line basis over the shorter of the estimated useful lives of the assets or the lease term, with the interest component included in interest expense and recognized using the effective interest method over the lease term.

Operating leases are recorded in other assets and operating lease liabilities within other current and other long-term liabilities on our condensed consolidated balance sheets. For operating leases of buildings, we account for non-lease components, such as common area maintenance, as a component of the lease, and include it in the initial measurement of our operating lease assets and corresponding liabilities. Operating lease assets are amortized on a straight-line basis in operating expenses over the lease term. Our lease liabilities are recognized based on the present value of the remaining fixed lease payments, over the lease term, using a discount rate of similarly secured borrowings available to us. Most of our leases do not provide an implicit rate. We use our incremental borrowing rate for the same jurisdiction and term as the associated lease based on the information available at the lease commencement date to determine the present value of the lease payments. We used the incremental borrowing rate as of September 28, 2019 for operating leases that commenced prior to that date. For the purpose of lease liability measurement, we consider only payments that are fixed and determinable at the time of commencement. Any variable payments that depend on an index or rate are expensed as incurred. Our lease terms may include options to extend when it is reasonably certain that we will exercise that option. Our lease assets also include any lease payments made and exclude any lease incentives received prior to commencement. Our lease assets are tested for impairment in the same manner as long-lived assets used in operations. We generally recognize sublease income on a straight-line basis over the sublease term.

Adoption of New Accounting Pronouncement

In December 2019, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2019-12, Simplifying the Accounting for Income Taxes. The ASU update specific areas of ASC 740, Income Taxes, to reduce complexity while maintaining or improving the usefulness of the information provided to users of financial statements. We elected to early adopt ASU 2019-12 in the second quarter of fiscal 2020 with no material impact to our condensed consolidated financial statements.

In February 2018, the FASB issued ASU 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The guidance allows companies to reclassify stranded tax effects resulting from the U.S. Tax Cuts and Jobs Act of 2017 (the "Tax Act") from accumulated other comprehensive income to retained earnings. The guidance also requires certain new disclosures regardless of the election. The amendments in ASU 2018-02 are effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. We adopted ASU 2018-02 in the first quarter of fiscal 2020 with no material impact to our condensed consolidated financial statements.

In February 2016, the FASB issued accounting guidance (ASC 842) that modifies lease accounting for lessees to increase transparency and comparability by recording lease assets and liabilities for operating leases and disclosing key information about leasing arrangements. We adopted ASC 842 in the first quarter of fiscal 2020 utilizing the optional transition method by applying the new standard to leases existing at the date of initial application and not restating comparative periods. We determine if an arrangement contains a lease at inception for arrangements with an initial term of more than 12 months, and classify it as either finance or operating. We have elected the package of practical expedients which allows us to not reassess 1) whether any expired or existing contracts are or contain leases; 2) the lease classification for any expired or existing leases; and 3) initial direct costs for any existing leases. In addition, we also elected to use the practical expedient allowed in the standard to not separate lease and non-lease components and apply the short-term lease measurement and recognition exemption to all leases shorter than 12 months when calculating the lease liability under ASC 842. The adoption of the standard resulted in the recognition of operating lease assets of $ 90.4 million , with corresponding operating lease liabilities of $ 93.5 million on our condensed consolidated balance sheet, primarily related to real estate leases. The difference between the operating lease right-of-use assets and operating lease liabilities primarily represents our deferred

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rent as of adoption. As of the date of adoption, we recognized finance lease assets of $ 1.0 million , with corresponding finance lease liabilities of $ 0.9 million on our condensed consolidated balance sheet, primarily related to equipment leases.

See Note 11, "Leases" for more information.

Recently Issued Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments and a subsequent amendment, ASU 2018-19 (collectively, Topic 326). Topic 326 requires measurement and recognition of expected credit losses for financial assets held. The new standard will become effective for our fiscal year 2021, which begins on October 4, 2020. We are currently evaluating the impact of our pending adoption of Topic 326 on our consolidated financial statements. We currently expect that the standard will not have a material impact on our consolidated statements of operations.

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

	Three Months Ended
	April 4, 2020								March 30, 2019
	OEM Laser Sources				Industrial Lasers & Systems				OEM Laser Sources				Industrial Lasers & Systems
Net sales:
Products (1)	$	101,860			$	92,693			$	143,895			$	112,779
Other product and service revenues (2)	71,862				26,732				87,702				28,484
Total net sales	$	173,722			$	119,425			$	231,597			$	141,263

(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 $ 15.3 million and $ 13.4 million for the three months ended April 4, 2020 and March 30, 2019 , respectively, were recognized over time.

	Six Months Ended
	April 4, 2020								March 30, 2019
	OEM Laser Sources				Industrial Lasers & Systems				OEM Laser Sources				Industrial Lasers & Systems
Net sales:
Products (1)	$	211,696			$	186,596			$	296,637			$	224,753
Other product and service revenues (2)	162,974				52,652				177,308				57,308
Total net sales	$	374,670			$	239,248			$	473,945			$	282,061

(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 $ 30.9 million and $ 26.0 million for the six months ended April 4, 2020 and March 30, 2019 , respectively, were recognized over time.

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Sales by market application and segment

	Three Months Ended
	April 4, 2020								March 30, 2019
	OEM Laser Sources				Industrial Lasers & Systems				OEM Laser Sources				Industrial Lasers & Systems
Net sales:
Microelectronics	$	104,901			$	16,866			$	152,640			$	16,625
Materials processing	8,397				77,910				9,484				95,438
OEM components and instrumentation	40,684				22,879				39,811				27,391
Scientific and government programs	19,740				1,770				29,662				1,809
Total net sales	$	173,722			$	119,425			$	231,597			$	141,263

	Six Months Ended
	April 4, 2020								March 30, 2019
	OEM Laser Sources				Industrial Lasers & Systems				OEM Laser Sources				Industrial Lasers & Systems
Net sales:
Microelectronics	$	219,794			32,519				$	314,843			$	32,831
Materials processing	18,792				155,887				18,286				191,279
OEM components and instrumentation	86,914				46,000				79,030				54,525
Scientific and government programs	49,170				4,842				61,786				3,426
Total net sales	$	374,670			$	239,248			$	473,945			$	282,061

See Note 19, "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.

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

Beginning balance, September 28, 2019 (1)		$	42,550
Additions to customer deposits and deferred revenue		89,885
Amount of customer deposits and deferred revenue recognized in income (2)		( 77,827		)
Translation adjustments		( 301		)
Ending balance, April 4, 2020 (3)		$	54,307

(1) Beginning customer deposits and deferred revenue as of September 28, 2019 include $ 34,538 of current portion and $ 8,012 of long-term portion.

(2) Amount of customer deposits and deferred revenue recognized in the three months ended April 4, 2020 was $ 37,467 .

(3) Ending customer deposits and deferred revenue as of April 4, 2020 include $ 42,939 of current portion and $ 11,368 of long-term portion.

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 April 4, 2020 (in thousands):

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	Remainder of fiscal 2020				Thereafter				Total
Performance obligations as of April 4, 2020	$	35,648			$	18,659			$	54,307

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 19, "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 condensed consolidated financial statements subsequent to the date of acquisition and pro forma results of operations in accordance with authoritative guidance for prior periods have not been presented because the effect of the acquisition was not material to our prior period consolidated financial results.

The identifiable intangible assets are being amortized over their respective useful lives of 1 to 8 years . The fair values of the acquired intangibles were determined using the income approach. In performing these valuations, the key underlying probability-adjusted assumptions of the discounted cash flows were projected revenues, gross margin expectations and operating cost estimates. The valuations were based on the information that was available as of the acquisition date and the expectations and assumptions that have been deemed reasonable by our management. There are inherent uncertainties and management judgment required in these determinations. This acquisition resulted in a purchase price that exceeded the estimated fair value of tangible and intangible assets, which was allocated to goodwill. In the quarter ended April 4, 2020 , we performed an interim impairment test and the entire goodwill balance and a portion of the existing technology intangible assets were impaired. See Note 8, "Goodwill and Intangible Assets".

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.

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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

We have not changed our valuation techniques in measuring the fair value of any financial assets and liabilities during the period. 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 April 4, 2020 and September 28, 2019 , we had one investment carried on a cost basis. See Note 9, "Balance Sheet Details." If we were to fair value this investment, it would be based upon Level 3 inputs. This investment is not considered material to our condensed consolidated financial statements.

We measure the fair value of outstanding debt obligations for disclosure purposes on a recurring basis. As of April 4, 2020 , the current and long-term portion of long-term obligations of $ 6.3 million and $ 381.7 million , respectively, are reported at amortized cost. As of September 28, 2019 , the current and long-term portion of long-term obligations of $ 4.9 million and $ 392.2 million , respectively, are reported at amortized cost. These outstanding obligations are classified as Level 2 as they are not actively traded and are valued using a discounted cash flow model that uses observable market inputs. Based on the discounted cash flow model, the fair value of the outstanding debt approximates amortized cost.

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Financial assets and liabilities measured at fair value as of April 4, 2020 and September 28, 2019 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
		April 4, 2020												September 28, 2019
						(Level 1)				(Level 2)								(Level 1)				(Level 2)
Assets:
Cash equivalents:
Money market fund deposits		$	36,602			$	36,602			$	—			$	21,422			$	21,422			$	—
Certificates of deposit		53,800				53,800				—				—				—				—
Short-term investments:
U.S. Treasury and agency obligations (1)		116				—				116				120				—				120
Prepaid and other assets:
Foreign currency contracts (2)		2,673				—				2,673				370				—				370
Money market fund deposits — Deferred comp and supplemental plan (3)		216				216				—				433				433				—
Mutual funds — Deferred comp and supplemental plan (3)		19,370				19,370				—				22,419				22,419				—
Total		$	112,777			$	109,988			$	2,789			$	44,764			$	44,274			$	490
Liabilities:
Other current liabilities:
Foreign currency contracts (2)		( 2,181		)		—				( 2,181		)		( 960		)		—				( 960		)
Total		$	110,596			$	109,988			$	608			$	43,804			$	44,274			$	( 470	)

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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.

We consider all highly liquid investments with maturities of three months or less at the time of purchase to be cash equivalents. Investments classified as available-for-sale are reported at fair value with unrealized gains and losses, net of related income taxes, recorded as a separate component of other comprehensive income ("OCI") in stockholders’ equity until realized. Interest and amortization of premiums and discounts for debt securities are included in interest income. Gains and losses on securities sold are determined based on the specific identification method and are included in other income (expense).

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Cash, cash equivalents and short-term investments consist of the following (in thousands):

	April 4, 2020
	Cost Basis				Unrealized Gains				Unrealized Losses				Fair Value
Cash and cash equivalents	$	369,251			$	—			$	—			$	369,251
Short-term investments:
Available-for-sale securities:
U.S. Treasury and agency obligations	$	115			$	1			$	—			$	116
Corporate notes and obligations	—				—				—				—
Total short-term investments	$	115			$	1			$	—			$	116

	September 28, 2019
	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

There were no unrealized gains or losses at April 4, 2020 or September 28, 2019 .

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 (RMB). As a result, our earnings, cash flows and cash balances are exposed to fluctuations in foreign currency exchange rates. We attempt to limit these exposures through financial market instruments. We utilize derivative instruments, primarily forward contracts with maturities of two months or less, to manage our exposure associated with anticipated cash flows and net asset and liability positions denominated in foreign currencies. Gains and losses on the forward contracts are mitigated by gains and losses on the underlying instruments. We do not use derivative financial instruments for speculative or trading purposes. The credit risk amounts represent our gross exposure to potential accounting loss on derivative instruments that are outstanding or unsettled if all counterparties failed to perform according to the terms of the contract, based on then-current currency rates at each respective date.

Non-Designated Derivatives

The total outstanding notional contract and fair value asset (liability) amounts of non-designated hedge contracts, with maximum maturity of two months, are as follows (in thousands):

	U.S. Notional Contract Value								U.S. Fair Value
	April 4, 2020				September 28, 2019				April 4, 2020				September 28, 2019
Foreign currency hedge contracts
Purchase	$	58,026			$	53,920			$	( 2,181	)		$	( 117	)
Sell	$	( 91,480	)		$	( 86,984	)		$	2,673			$	( 473	)

The fair value of our derivative instruments is included in prepaid expenses and other assets and in other current liabilities in our Condensed Consolidated Balance Sheets. See Note 5, "Fair Values."

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During the three and six months ended April 4, 2020 , we recognized gains of $ 0.6 million and $ 0.1 million , respectively, in other income (expense) for derivative instruments not designated as hedging instruments. During the three and six months ended March 30, 2019 , we recognized losses of $ 3.0 million and $ 6.7 million , respectively, in other income (expense) for derivative instruments not designated as hedging instruments.

Master Netting Arrangements

To mitigate credit risk in derivative transactions, we enter into master netting arrangements that allow each counterparty in the arrangements to net settle amounts of multiple and separate derivative transactions under certain conditions. We present the fair value of derivative assets and liabilities within our condensed consolidated balance sheet on a gross basis even when derivative transactions are subject to master netting arrangements and may otherwise qualify for net presentation. The impact of netting derivative assets and liabilities is not material to our financial position for any of the periods presented. Our derivative contracts do not contain any credit risk related contingent features and do not require collateral or other security to be furnished by us or the counterparties.

In the quarter ended April 4, 2020 , the worldwide spread of coronavirus ("COVID-19") has created significant volatility, uncertainty and disruption to the global economy, representing an indicator to test our goodwill for impairment. Based on our internal projections and the preparation of our financial statements for the quarter ended April 4, 2020 , and considering the expected decrease in demand due to the COVID-19 pandemic and other factors, we believed that the fair value of our ILS reporting unit may no longer exceed its carrying value and performed an interim goodwill impairment test on the ILS reporting unit. We also performed an interim goodwill impairment test on the OLS reporting unit.

Our goodwill impairment tests for the ILS and OLS reporting units were performed by comparing the fair value of the reporting units with their carrying values and recognizing an impairment charge for the amount by which the carrying value exceeded the fair value. Based on the estimated fair value of the ILS reporting unit, we recorded a non-cash pre-tax charge related to the ILS reporting unit of $ 327.2 million , reducing the goodwill balance of the reporting unit to zero. The impairment charge was primarily the result of a decline in projected cash flows of the ILS reporting unit driven by lower forecasted sales volumes and profitability in several business units. The impairment charge was also the result of changes in certain market-related inputs to the analysis to reflect macro-economic changes caused by the impact of COVID-19, including lower pricing multiples for comparable public companies. No impairment charge was recognized for the OLS reporting unit as the fair value significantly exceeded the carrying value of the reporting unit.

In assessing goodwill for impairment, we were required to make significant judgments related to the fair value of our reporting units. We used a combination of the Income (discounted cash flow) approach and the Market (market comparable) approach to estimate the fair value of our reporting units. The Income approach utilizes the discounted cash flow model to provide an estimation of fair value based on the cash flows that a business expects to generate. These cash flows are based on forecasts developed internally by management which are then discounted at an after tax rate of return required by equity and debt market participants of a business enterprise. Our assumptions used in the forecasts are based on historical data, supplemented by current and anticipated market conditions, estimated growth rates and management’s plans. The rate of return on cost of capital is weighted based on the capitalization of comparable companies. We utilized a discount rate for each of our reporting units that represents the risks that our businesses face, considering their sizes, their current economic environment and other industry data as we believe is appropriate. The Market approach determines fair value by comparing the reporting units to comparable companies in similar lines of business that are publicly traded. The selection of comparable companies is based on the markets in which the reporting units operate giving consideration to risk profiles, size, geography and diversity of products and services. Total Enterprise Value (TEV) multiples such as TEV to revenues and TEV to earnings (if applicable) before interest and taxes of the publicly traded companies are calculated. We utilized multiples for each of our reporting units that represent the risks that our businesses face, considering their sizes, their current economic environment and other industry data as we believe is appropriate. The interim goodwill impairment testing results were also reconciled with our market capitalization as of April 4, 2020 , as the final step in the impairment testing.

Before performing the goodwill impairment test for the ILS reporting unit, we performed impairment tests on the long-lived assets allocated to the asset group of the ILS reporting unit, including intangible assets, property, plant and equipment and ROU assets as of April 4, 2020 , due primarily to the same indicators that led to the interim goodwill impairment

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testing. Based on the impairment tests performed, we concluded that some of the long-lived assets allocated to the asset group of the ILS reporting unit were impaired as of April 4, 2020 . Accordingly, we recorded non-cash pre-tax charges in the quarter ended April 4, 2020 related to the intangible assets, property, plant and equipment and right-of-use ("ROU") assets of the ILS reporting unit of $ 33.9 million , $ 85.6 million and $ 1.8 million , respectively. We did not identify any indicators that would lead us to believe that the carrying value of the long-lived assets allocated to the asset group of the OLS reporting unit may not be recoverable as of April 4, 2020 .

In assessing our long-lived assets for impairment, we were required to make significant judgments related to the fair value of our long-lived assets, which are comprised of personal property, real property, and intangible assets. We used a combination of the Income, the Market approach, and the Cost (cost to create) approach to estimate the fair value of our long-lived assets. Our personal property assets consist of laser manufacturing and assembly equipment, semiconductor tools, laboratory and test equipment, furniture and fixtures and computer hardware and software. We used the Cost Approach (with support from the Market Approach) to estimate the fair value of our personal property, taking into consideration the physical deterioration, functional obsolescence and economic obsolescence of our personal property assets. Our real property assets consist of land and buildings, land rights (ground leased) and ROU assets. In determining the fair value of our real property assets, we used a combination of the Income, Market (sales comparison) and Cost approaches. We considered historical transaction information, current market conditions, operating performance, forecast growth and market-derived rates of return in our real property determination of fair value. The fair value of our ROU assets was determined using the Income approach by considering off-market components of the associated ROU leases. Our intangible assets consist of technology and customer relationship assets, and we used the Income approach to estimate the fair value of our intangible assets. We identified cash flows associated with each intangible asset, which were discounted at an after-tax rate of return appropriate for the risk profile of each intangible asset.

The changes in the carrying amount of goodwill by segment for the period from September 28, 2019 to April 4, 2020 are as follows (in thousands):

	OEM Laser Sources				Industrial Lasers & Systems				Total
Balance as of September 28, 2019	$	96,820			$	330,281			$	427,101
Impairment charges	—				( 327,203		)		( 327,203		)
Translation adjustments	( 1,109		)		( 3,078		)		( 4,187		)
Balance as of April 4, 2020	$	95,711			$	—			$	95,711

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

	April 4, 2020												September 28, 2019
	Gross Carrying Amount				Accumulated Amortization				Net				Gross Carrying Amount				Accumulated Amortization				Net
Existing technology	$	43,843			$	( 31,011	)		$	12,832			$	193,704			$	( 131,429	)		$	62,275
Customer relationships	33,313				( 21,541		)		11,772				42,083				( 21,512		)		20,571
Trade name	—				—				—				5,261				( 5,138		)		123
Production know-how	2,300				( 686		)		1,614				2,300				( 456		)		1,844
Total	$	79,456			$	( 53,238	)		$	26,218			$	243,348			$	( 158,535	)		$	84,813

For accounting purposes, when an intangible asset is fully amortized, it is removed from the disclosure schedule. The gross carrying amounts as of April 4, 2020 , have been reduced by impairment charges of $ 27.7 million and $ 6.2 million for existing technology and customer relationships, respectively.

Amortization expense for intangible assets for the six months ended April 4, 2020 and March 30, 2019 was $ 24.2 million and $ 29.1 million , respectively. The change in the accumulated amortization also includes $ 2.1 million (decrease) and $ 4.4 million (decrease) of foreign exchange impact for the six months ended April 4, 2020 and March 30, 2019 , respectively.

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At April 4, 2020 , estimated amortization expense for the remainder of fiscal 2020 , the next five succeeding fiscal years and all fiscal years thereafter are as follows (in thousands):

	Estimated Amortization Expense
2020 (remainder)	$	5,736
2021	9,072
2022	3,115
2023	2,591
2024	1,807
2025	1,805
Thereafter	2,092
Total	$	26,218

Inventories consist of the following (in thousands):

	April 4, 2020				September 28, 2019
Purchased parts and assemblies	$	134,685			$	134,298
Work-in-process	177,146				174,550
Finished goods	145,527				133,682
Total inventories	$	457,358			$	442,530

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

	April 4, 2020				September 28, 2019
Prepaid and refundable income taxes	$	49,558			$	44,096
Other taxes receivable	8,536				11,208
Prepaid expenses and other assets	30,951				22,689
Total prepaid expenses and other assets	$	89,045			$	77,993

Other assets consist of the following (in thousands):

	April 4, 2020				September 28, 2019
Assets related to deferred compensation arrangements	$	34,613			$	35,842
Deferred tax assets	105,694				87,011
Right of use assets, net - operating leases (See Note 11)	81,957				—
Right of use assets, net - finance leases (See Note 11)	780				—
Other assets (1)	14,032				18,111
Total other assets	$	237,076			$	140,964

(1) In the first quarter of fiscal 2019, we invested 3.0 million Euro ( $ 3.4 million ) in 3D-Micromac AG, a private company in Germany. The investment is included in other assets and is being carried on a cost basis and will be adjusted for impairment if we determine that indicators of impairment exist at any point in time. During the second quarter of fiscal 2020, we determined that our investment became impaired and wrote it down to its fair value. As a result, we recorded a non-cash impairment charge of $ 2.5 million to operating expense in our results of operations in the second quarter of fiscal 2020.

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

	April 4, 2020				September 28, 2019
Accrued payroll and benefits	$	51,425			$	55,698
Operating lease liability, current (See Note 11)	14,112				—
Finance lease liability, current (See Note 11)	368				—
Deferred revenue	29,585				23,695
Warranty reserve	33,948				36,460
Accrued expenses and other	33,273				41,039
Customer deposits	13,354				10,843
Total other current liabilities	$	176,065			$	167,735

Components of the reserve for warranty costs during the first six months of fiscal 2020 and 2019 were as follows (in thousands):

	Six Months Ended
	April 4, 2020				March 30, 2019
Beginning balance	$	36,460			$	40,220
Additions related to current period sales	19,228				27,816
Warranty costs incurred in the current period	( 21,469		)		( 28,406		)
Accruals resulting from acquisitions	—				21
Adjustments to accruals related to foreign exchange and other	( 271		)		( 660		)
Ending balance	$	33,948			$	38,991

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

	April 4, 2020				September 28, 2019
Long-term taxes payable	$	14,093			$	37,385
Operating lease liability, long-term (See Note 11)	72,259				—
Finance lease liability, long-term (See Note 11)	337				—
Deferred compensation	38,666				39,715
Defined benefit plan liabilities	43,266				45,862
Deferred tax liabilities	21,851				27,785
Deferred revenue	11,368				8,012
Asset retirement obligations liability	5,223				4,934
Other long-term liabilities	1,872				2,188
Total other long-term liabilities	$	208,935			$	165,881

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

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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 April 4, 2020 , the outstanding principal amount of the Euro Term Loan was 361.6 million Euros. As of April 4, 2020 , the outstanding amount of the Revolving Credit Facility was $ 10.0 million plus a 10.0 million Euro letter of credit.

Loans under the Credit Agreement bear interest, at the Borrower’s option, at a rate equal to either (i)(x) in the case of calculations with respect to U.S. Dollars or certain other alternative currencies, the London interbank offered rate (the "LIBOR") or (y) in the case of calculations with respect to the Euro, the euro interbank offered rate ("EURIBOR" and, together with LIBOR), the "Eurocurrency Rate") or (ii) a base rate (the "Base Rate") equal to the highest of (x) the federal funds rate, plus 0.50 % , (y) the prime rate then in effect and (z) the Eurocurrency Rate for loans denominated in U.S. dollars applicable to a one-month interest period, plus 1.0 % , in each case, plus an applicable margin that is subject to adjustment pursuant to a pricing grid based on consolidated total gross leverage ratio. At April 4, 2020 , the applicable margin for Euro Term Loans borrowed as Eurocurrency Rate loans was 2.25 % per annum and as Base Rate loans was 1.25 % and the applicable margin for revolving loans borrowed as Eurocurrency Rate loans was 4.00 % per annum and as Base Rate loans was 3.00 % per annum. Interest on Base Rate Loans is payable quarterly in arrears. Interest on Eurocurrency Rate loans is payable at the end of the applicable interest period (or at three month intervals if the interest period exceeds three months).

The Credit Agreement requires the Borrower to make scheduled quarterly payments on the Euro Term Loan of 0.25 % of the original principal amount of the Euro Term Loan, with any remaining principal payable at maturity. A commitment fee accrues on any unused portion of the revolving loan commitments under the Credit Agreement at a rate of 0.375 % or 0.5 % depending on the consolidated total gross leverage ratio at any time of determination. The Borrower is also obligated to pay other customary fees for a credit facility of this size and type.

On the Closing Date, we and certain of our direct and indirect subsidiaries, as guarantors, provided an unconditional guaranty of all obligations of the Borrower and the other loan parties arising under the Credit Agreement, the other loan documents and under swap contracts and treasury management agreements with the lenders or their affiliates (with certain limited exceptions). The Borrower and the guarantors have also granted security interests in substantially all of their assets to secure such obligations.

The Credit Agreement contains customary affirmative and negative covenants, including covenants limiting the ability of us and our subsidiaries to, among other things, incur debt, grant liens, make investments, make certain restricted payments, transact with affiliates, and sell assets. The Credit Agreement also requires us and our subsidiaries to maintain a senior secured net leverage ratio as of the last day of each fiscal quarter of less of than or equal to 3.50 to 1.00. We were in compliance with all covenants at April 4, 2020 .

We incurred $ 28.5 million of debt issuance costs related to the Euro Term Loan and $ 0.5 million of debt issuance costs to the original lenders related to the First Amendment, which are included in short-term borrowings and current portion of long-term obligations and long-term obligations in the condensed 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 in the condensed consolidated balance sheets and will be amortized to interest expense using the straight-line method over the contractual term of five years of the Revolving Credit Facility.

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Additional sources of cash available to us were international currency lines of credit and bank credit facilities totaling $ 16.1 million as of April 4, 2020 , of which $ 13.5 million was unused and available. These unsecured international credit facilities were used in Europe and Japan during the first six months of fiscal 2020 . As of April 4, 2020 , we had utilized $ 2.6 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):

	April 4, 2020				September 28, 2019
Current portion of Euro Term Loan (1)	$	4,546			$	2,748
1.3% Term loan due 2024	1,349				1,367
1.0% State of Connecticut term loan due 2023	380				378
Capital lease obligations	—				370
Line of credit borrowings	10,000				10,000
Total short-term borrowings and current portion of long-term obligations	$	16,275			$	14,863

(1) Net of debt issuance costs of $ 2.7 million and $ 4.6 million at April 4, 2020 and September 28, 2019 , respectively.

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

	April 4, 2020				September 28, 2019
Euro Term Loan due 2024 (1)	$	376,160			$	385,208
1.3% Term loan due 2024	4,721				5,466
1.0% State of Connecticut term loan due 2023	837				1,028
Capital lease obligations	—				536
Total long-term obligations	$	381,718			$	392,238

(1) Net of debt issuance costs of $ 6.8 million and $ 6.4 million at April 4, 2020 and September 28, 2019 , respectively.

Contractual maturities of our debt obligations, excluding line of credit borrowings, as of April 4, 2020 are as follows (in thousands):

	Amount
2020 (remainder)	$	4,568
2021	8,951
2022	8,951
2023	8,773
2024	366,193
Total	$	397,436

We determine if an arrangement contains a lease at inception for arrangements with an initial term of more than 12 months, and classify it as either a finance or operating lease. We lease certain real and personal property from unrelated third parties under non-cancellable operating leases that expire at various dates through fiscal 2032. These operating leases are mainly for administrative offices, research-and-development and manufacturing facilities, as well as sales offices in various countries around the world. Certain leases require us to pay property taxes, insurance and routine maintenance, and include escalation clauses. Many leases include one or more options to renew. We assume renewals in our determination of the lease term when the renewals are deemed to be reasonably assured at lease commencement. We have also entered into various finance leases to obtain servers and certain other equipment for our operations. These arrangements are typically for three to six years. Our assets, liabilities and lease costs related to finance leases are immaterial.

As the rates implicit in our leases are not readily determinable, we use incremental borrowing rates based on the information available at the commencement date in determining the present value of future lease payments. We consider

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both the credit rating and the length of the lease when calculating the incremental borrowing rate. We combine lease and non-lease components into a single lease component for both our operating and finance leases.

For the purpose of lease liability measurement, we consider only payments that are fixed and determinable at the time of commencement. Any variable payments that depend on an index or rate are expensed as incurred.

We generally recognize sublease income on a straight-line basis over the sublease term.

As a result of interim impairment testing performed on long-lived assets in the quarter ended April 4, 2020 , we recorded non-cash pre-tax charges related to the ROU assets of the ILS reporting unit of $ 1.8 million . See Note 8, "Goodwill and Intangible Assets" for discussion of the interim impairment testing.

The components of operating lease costs (in thousands), lease term (in years) and discount rate are as follows:

	Three Months Ended				Six Months Ended
	April 4, 2020				April 4, 2020
Operating lease cost	$	4,993			$	9,963
Variable lease cost	344				688
Short-term lease cost	130				260
Sublease income	( 32		)		( 64		)
Total lease cost	$	5,435			$	10,847

	April 4, 2020
Weighted average remaining lease term	8.3
Weighted average discount rate	4.8	%

Supplemental cash flow information related to leases are as follows (in thousands):

	Six Months Ended
	April 4, 2020
Operating cash outflows from operating leases	$	9,710
ROU assets obtained in exchange for new operating lease liabilities	2,636

See Note 9, "Balance Sheet Details" for supplemental balance sheet information related to leases.

As of April 4, 2020 , maturities of our operating lease liabilities, which do not include short-term leases and variable lease payments, are as follows (in thousands):

	Operating Leases
2020 (remainder)	$	9,412
2021	17,311
2022	15,575
2023	12,228
2024	9,684
2025 and thereafter	45,253
Total minimum lease payments	109,463
Amounts representing interest	( 22,387		)
Present value of total lease liabilities	$	87,076

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As of September 28, 2019 , future minimum lease payments as defined under the previous lease accounting guidance of ASC 840 under non-cancellable operating leases were as follows (in thousands):

	Operating Leases
2020	$	19,578
2021	14,579
2022	10,405
2023	6,817
2024	4,156
2025 and thereafter	10,755
Total minimum lease payments	$	66,290

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

The fair values of shares purchased under the Employee Stock Purchase Plan ("ESPP") for the three and six months ended April 4, 2020 and March 30, 2019 , respectively, were estimated using the following weighted-average assumptions:

		Employee Stock Purchase Plan
		Three Months Ended								Six Months Ended
		April 4, 2020				March 30, 2019				April 4, 2020				March 30, 2019
Expected life in years		0.5				0.5				0.5				0.5
Volatility		46.7		%		47.5		%		46.9		%		47.9		%
Risk-free interest rate		1.55		%		2.49		%		1.70		%		2.42		%
Expected dividend yield		—		%		—		%		—		%		—		%
Weighted average fair value per share		$	44.61			$	38.50			$	44.08			$	40.64

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:

		Six Months Ended
		April 4, 2020				March 30, 2019
Risk-free interest rate		1.6		%		2.9		%
Volatility		47.2		%		43.7		%
Weighted average fair value per share		$	190.86			$	117.43

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.

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Stock Compensation Expense

The following table shows total stock-based compensation expense and related tax benefits included in the condensed consolidated statements of operations for the three and six months ended April 4, 2020 and March 30, 2019 (in thousands):

		Three Months Ended								Six Months Ended
		April 4, 2020				March 30, 2019				April 4, 2020				March 30, 2019
Cost of sales		$	1,011			$	1,172			$	2,193			$	2,409
Research and development		894				783				1,455				1,433
Selling, general and administrative		6,993				7,049				13,042				13,038
Income tax benefit		( 1,006		)		( 1,461		)		( 1,862		)		( 2,694		)
		$	7,892			$	7,543			$	14,828			$	14,186

During the three and six months ended April 4, 2020 , $ 1.3 million and $ 2.3 million of stock-based compensation cost, respectively, were capitalized as part of inventory for all stock plans, $ 1.0 million and $ 2.2 million , respectively, were amortized into cost of sales and $ 1.5 million remained in inventory at April 4, 2020 . During the three and six months ended March 30, 2019 , $ 1.3 million and $ 2.4 million of stock-based compensation cost, respectively, was capitalized as part of inventory for all stock plans, $ 1.2 million and $ 2.4 million , respectively, were amortized into cost of sales and $ 1.5 million remained in inventory at March 30, 2019 .

At April 4, 2020 , the total compensation cost related to unvested stock-based awards granted to employees under our stock plans but not yet recognized was approximately $ 45.6 million . We do not estimate forfeitures. This cost will be amortized on a straight-line basis over a weighted-average period of approximately 1.6 years.

Stock Awards Activity

The following table summarizes the activity of our time-based and performance-based restricted stock units for the first six months of fiscal 2020 (in thousands, except per share amounts):

	Time-based Restricted Stock Units							Performance-based Restricted Stock Units
	Number of Shares			Weighted Average Grant Date Fair Value				Number of Shares			Weighted Average Grant Date Fair Value
Nonvested stock at September 28, 2019	295			$	152.47			133			$	184.26
Granted	171			155.91				37			190.86
Vested (1)	( 142	)		151.95				( 81	)		163.17
Forfeited	( 6	)		185.99				—			—
Nonvested stock at April 4, 2020	318			$	153.91			89			$	200.63

(1) Service-based restricted stock units vested during the 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.

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 April 4, 2020 , we did not have any material indemnification claims that were probable or reasonably possible.

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Legal Proceedings

We are subject to legal claims and litigation arising in the ordinary course of business, such as product liability, employment or intellectual property claims.

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, or in future periods.

The United States and many foreign governments impose tariffs and duties on the import and export of certain products we sell. From time to time our customs compliance, product classifications, duty calculations and payments are reviewed or audited by government agencies. Any adverse result in such a review or audit could negatively affect our results in the period in which they occur, or in future periods.

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 October 28, 2018, our board of directors authorized a stock repurchase program authorizing the Company to repurchase up to $ 250.0 million of our common stock through December 31, 2019, with a limit of no more than $ 75.0 million per quarter. During fiscal 2019, we repurchased and retired 603,828 shares of outstanding common stock under this program at an average price of $ 128.20 per share for a total of $ 77.4 million . We made no repurchases under the program during the first six months of fiscal 2020 and the program expired on December 31, 2019.

On February 5, 2020, our board of directors authorized a stock repurchase program authorizing the Company to repurchase up to $ 100.0 million of our common stock through January 31, 2021.We made no repurchases under the program during the first six months of fiscal 2020.

Basic earnings per share is computed based on the weighted average number of shares outstanding during the period, excluding unvested restricted stock. Diluted earnings per share is computed based on the weighted average number of shares outstanding during the period increased by the effect of dilutive employee stock awards, including stock options, restricted stock awards and stock purchase plan contracts, using the treasury stock method.

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

	Three Months Ended								Six Months Ended
	April 4, 2020				March 30, 2019				April 4, 2020				March 30, 2019
Weighted average shares outstanding—basic	24,095				24,232				24,033				24,250
Dilutive effect of employee stock awards	—				100				—				152
Weighted average shares outstanding—diluted	24,095				24,332				24,033				24,402
Net income (loss)	$	( 418,913	)		$	20,750			$	( 413,120	)		$	56,300

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Other income (expense) is as follows (in thousands):

	Three Months Ended								Six Months Ended
	April 4, 2020				March 30, 2019				April 4, 2020				March 30, 2019
Foreign exchange loss	$	( 659	)		$	( 2,371	)		$	( 1,693	)		$	( 4,548	)
Gain (loss) on deferred compensation investments, net	( 1,425		)		1,183				807				( 941		)
Other	474				1,437				69				1,260
Other—net	$	( 1,610	)		$	249			$	( 817	)		$	( 4,229	)

Income tax expense includes a provision for federal, state and foreign taxes based on the annual estimated effective tax rate applicable to us and our subsidiaries, adjusted for items which are considered discrete to the period.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") was enacted and signed into law. U.S. GAAP rules require recognition of the tax effects of new legislation during the reporting period that includes the enactment date. The CARES Act, among other things, includes tax provision changes that benefit business entities and it makes certain technical corrections to the Tax Act. The tax relief measures for business include a five-year net operating loss (“NOL”) carryback, suspension of the annual deduction limitation for net operating losses generated in a tax year beginning after December 31, 2017, changes in the deductibility of interest, acceleration of alternative minimum tax credit refunds, payroll tax relief, and technical corrections allowing accelerated deductions for qualified improvement property. The CARES Act also provides other non-tax benefits, including employee retention credits, to assist businesses impacted by the pandemic. We are currently evaluating the impact of the CARES Act.

Our effective tax rates on loss before income taxes for the three and six months ended April 4, 2020 were 7.9 % and 7.7 % , respectively. Our effective tax rates for the three and six months ended April 4, 2020 were unfavorably impacted primarily due to the impairment of goodwill that is not deductible for tax purposes and the establishment of valuation allowances for certain deferred tax assets. These unfavorable impacts were partially offset by the release of unrecognized tax benefits net of settlements and competent authority offsets, the geographic distribution of the impairments of certain long-lived assets that are deductible for tax purposes and the reduction in foreign earnings subject to foreign tax rates that are higher than the U.S. tax rates. Our effective tax rate is based on forecasted annual results and these amounts may fluctuate significantly through the rest of the year as a result of the unpredictable impact of COVID-19 on our operating activities.

Our effective tax rates on income before income taxes for the three and six months ended March 30, 2019 were 15.7 % and 17.5 % , respectively. Our effective tax rates for the three and six months ended March 30, 2019 were lower than the U.S. federal tax rate of 21.0 % primarily due to the excess tax benefits from restricted stock unit vesting, the benefit of federal research and development tax credits and the benefit of our Singapore and South Korea tax exemptions. These amounts were partially offset by the impact of income subject to foreign tax rates that are higher than the U.S. tax rates, 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). In January 2020, certain of our German entities received preliminary partial tax audit reports related to intercompany transactions (transfer pricing) and we worked with the German tax authorities for a final resolution in March 2020.

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The following table summarizes the activity related to our gross unrecognized tax benefits for the six months ended April 4, 2020 (amounts in thousands):

	Six Months Ended
	April 4, 2020
Balance as of the beginning of the year	$	58,111
Increases related to acquisitions	—
Tax positions related to current year:
Additions	1,077
Reductions	—
Tax positions related to prior year:
Additions	—
Reductions	—
Settlements	—
Lapses in statutes of limitations	( 646		)
Decrease in unrecognized tax benefits based on tax audit results	( 19,463		)
Foreign currency revaluation adjustment	( 101		)
Balance as of end of period	$	38,978

At April 4, 2020 , we were organized into two reporting segments, OEM Laser Sources ("OLS") and Industrial Lasers & Systems ("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. Ondax’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 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 operations is the measure of profit and loss that our CODM uses to assess performance and make decisions. Assets by segment are not a measure used to assess the performance of the

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company by the CODM and thus are not reported in our disclosures. Income from 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 (loss) from operations for our operating segments and a reconciliation of our total income (loss) from operations to income (loss) before income taxes (in thousands):

	Three Months Ended								Six Months Ended
	April 4, 2020				March 30, 2019				April 4, 2020				March 30, 2019
Net sales:
OEM Laser Sources	$	173,722			$	231,597			$	374,670			$	473,945
Industrial Lasers & Systems	119,425				141,263				239,248				282,061
Total net sales	$	293,147			$	372,860			$	613,918			$	756,006
Income (loss) from operations:
OEM Laser Sources	$	35,469			$	62,835			$	83,177			$	141,693
Industrial Lasers & Systems	( 471,845		)		( 17,652		)		( 492,145		)		( 31,357		)
Corporate and other	( 12,935		)		( 16,316		)		( 29,753		)		( 28,658		)
Total income (loss) from operations	( 449,311		)		28,867				( 438,721		)		81,678
Total other expense, net	( 5,663		)		( 4,252		)		( 8,697		)		( 13,403		)
Income (loss) before income taxes	$	( 454,974	)		$	24,615			$	( 447,418	)		$	68,275

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 the three and six months ended April 4, 2020 and March 30, 2019 is based on the location of the end customer.

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

	Three Months Ended								Six Months Ended
SALES	April 4, 2020				March 30, 2019				April 4, 2020				March 30, 2019
United States	$	72,257			$	84,179			$	150,142			$	168,210
Foreign countries:
South Korea	56,928				63,201				116,983				169,726
China	36,981				47,071				95,570				94,615
Japan	26,366				60,745				48,718				90,582
Asia-Pacific, other	21,639				20,918				43,800				48,147
Germany	31,389				40,952				61,834				78,836
Europe, other	32,702				40,388				67,214				76,678
Rest of World	14,885				15,406				29,657				29,212
Total foreign countries sales	220,890				288,681				463,776				587,796
Total sales	$	293,147			$	372,860			$	613,918			$	756,006

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Major Customers

We had one customer during the three and six months ended April 4, 2020 that accounted for 15.2 % and 16.5 % of net sales, respectively. This same customer accounted for 13.7 % and 16.1 % of net sales during the three and six months ended March 30, 2019 , respectively. Another customer accounted for 12.2 % of net sales during the three months ended March 30, 2019 . These customers 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 the exiting of our legacy high power fiber laser ("HPFL") product line, change of control payments to Rofin officers, the exiting of two product lines acquired in the acquisition of Rofin, realignment of our supply chain due to segment reorganization and consolidation of sales and distribution offices as well as certain manufacturing sites. These activities resulted in charges primarily for employee termination, other exit related costs associated with the write-off of property and equipment and inventory and early lease termination costs.

In June 2019, we announced our plans to 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. In conjunction with this announcement, we recorded charges in the third and fourth quarters of fiscal 2019 totaling $ 19.7 million primarily related to write-offs of excess inventory, which is recorded in cost of sales, and estimated severance. We recorded charges in the first and second quarters of fiscal 2020 of $ 0.6 million and $ 0.5 million , respectively, primarily related to accelerated depreciation and project management consulting.

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. We incurred costs in the first and second quarters of fiscal 2020 of $ 0.2 million and $ 0.6 million , respectively, related to this project. We also incurred costs in the first quarter of fiscal 2020 of $ 0.1 million for other projects.

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 the first three and six months of fiscal 2020 and 2019 (in thousands):

	Severance Related				Asset Write-Offs				Other				Total
Balances, September 28, 2019	$	8,279			$	—			$	215			$	8,494
Provision	54				599				280				933
Payments and other	( 658		)		( 599		)		( 275		)		( 1,532		)
Balances, December 28, 2019	7,675				—				220				7,895
Provision	85				915				79				1,079
Payments and other	( 3,715		)		( 915		)		( 87		)		( 4,717		)
Balances, April 4, 2020	$	4,045			$	—			$	212			$	4,257

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	Severance Related				Asset Write-Offs				Other				Total
Balances, September 29, 2018	$	836			$	—			$	286			$	1,122
Provision	212				76				188				476
Payments and other	( 447		)		( 76		)		( 244		)		( 767		)
Balances, December 29, 2018	601				—				230				831
Provision	282				247				351				880
Payments and other	( 201		)		( 247		)		( 516		)		( 964		)
Balances, March 30, 2019	$	682			$	—			$	65			$	747

At April 4, 2020 , $ 4.3 million of accrued severance related and other costs were included in other current liabilities. The asset write-offs for accelerated depreciation and other costs in the first and second quarters of fiscal 2020 primarily related to the exit of a portion of our HPFL business in Hamburg, Germany, and costs to vacate our leased facility in Santa Clara and combine operations at our Santa Clara headquarters. The severance related, asset write-offs of equipment and other costs in the three and six months of fiscal 2019 are related to the consolidation of certain manufacturing sites.

By segment, $ 0.6 million and $ 1.3 million of restructuring costs were incurred in the ILS segment and $ 0.5 million and $ 0.7 million were incurred in the OLS segment in the three and six months ended April 4, 2020 , respectively. In the three and six months ended March 30, 2019 , all of the restructuring costs were incurred in the ILS segment and none were incurred in the OLS segment. Restructuring charges are recorded in cost of sales, research and development and selling, general and administrative expenses in our condensed consolidated statements of operations.

On April 6, 2020, we announced that our Board of Directors appointed Andreas "Andy" W. Mattes, previously senior advisor at McKinsey & Company and president and chief executive officer of Diebold Nixdorf, as our new President and Chief Executive Officer and a member of the Board of Directors, effective April 6, 2020. The appointment follows the announcement a year ago that John R. Ambroseo, PhD would retire from his positions as President and Chief Executive Officer and member of the Board no later than April 2021. In connection with the appointment of Mr. Mattes, Mr. Ambroseo became a Special Advisor to the company, a role he is expected to have until December 1, 2021, to ensure a smooth and successful transition. Related to Mr. Ambroseo's transition, in the third quarter of fiscal 2020, we expect to record charges in selling, general and administrative expense of approximately $ 3.5 million and $ 0.9 million related to acceleration of stock-based compensation and employee compensation, respectively.

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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 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 structures 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 compensation expense, major restructuring costs and certain other non-operating income and expense items, such as costs related to our acquisitions. Key initiatives to reach our goals for EBITDA improvements include utilization of our Asian manufacturing locations, optimizing our supply chain and continued leveraging of our infrastructure.

•	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 as the novel coronavirus ("COVID-19") outbreak continues to adversely affect the global economy;

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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;

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•	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 (the "Tax Act") and the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act");

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

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

•	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;

•	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;

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•	potential excess and/or obsolescence of our inventory;

•	costs and timing of adhering to current and developing governmental regulations and reviews relating to our products and business, including import and export regulations in multiple jurisdictions;

•	impairment of goodwill, intangible assets and other long-lived assets;

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

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

•	continued government spending on defense-related and scientific research projects where we are a vendor directly or as a subcontractor;

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

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

•	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 the Brexit process and the timing and terms of applicable trade treaties between the United Kingdom and other countries, particularly with regard to any potential negative effects on our sales from our Glasgow, Scotland facility to other jurisdictions and purchases of supplies from outside the United Kingdom by such facility;

•	negative impacts related to the recent independence movement in Catalonia, Spain, particularly with regard to holding and operating some of our foreign entities in an efficient manner from a tax, business and legal perspective;

•	negative impacts related to government instability in any jurisdiction in which we operate, such as the recent difficulties in forming a governing coalition in Germany;

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

•	distraction of management related to acquisition, integration or divestment activities.

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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;

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•	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.

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

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•	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 other long-lived assets, as we incurred in the quarter ending April 4, 2020 totaling $451.0 million .

•	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.

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•	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 laws, the Tax Act and the CARES Act;

•	changes in our current and future global structure based on the Rofin acquisition and restructuring that involved significant movement of U.S. and foreign entities and our ability to maintain favorable tax treatment as a result of various Rofin restructuring efforts and business activities;

•	the outcome of discussions with various tax authorities regarding intercompany transfer pricing arrangements;

•	changes that involve other acquisitions, restructuring or an increased investment in technology outside of the United States to better align asset ownership and business functions with revenues and profits;

•	changes in the composition of earnings in countries or states with differing tax rates;

•	the resolution of issues arising from tax audits with various tax authorities, and in particular, the outcome of the German tax audits for fiscal 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;

•	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;

•	changes in generally accepted accounting principles; and

•	significant fluctuations in business activities due to the COVID-19 pandemic.

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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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