Company Quick10K Filing
Quick10K
Coherent
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$136.27 24 $3,300
10-Q 2019-06-29 Quarter: 2019-06-29
10-Q 2019-03-30 Quarter: 2019-03-30
10-Q 2018-12-29 Quarter: 2018-12-29
10-K 2018-09-29 Annual: 2018-09-29
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-Q 2017-12-30 Quarter: 2017-12-30
10-K 2017-09-28 Annual: 2017-09-28
10-Q 2017-07-01 Quarter: 2017-07-01
10-Q 2017-04-01 Quarter: 2017-04-01
10-Q 2016-12-31 Quarter: 2016-12-31
10-K 2016-10-01 Annual: 2016-10-01
10-Q 2016-07-02 Quarter: 2016-07-02
10-Q 2016-04-02 Quarter: 2016-04-02
10-Q 2016-01-02 Quarter: 2016-01-02
10-K 2015-10-03 Annual: 2015-10-03
10-Q 2015-07-04 Quarter: 2015-07-04
10-Q 2015-04-04 Quarter: 2015-04-04
10-Q 2014-12-27 Quarter: 2014-12-27
10-K 2014-09-27 Annual: 2014-09-27
10-Q 2014-06-28 Quarter: 2014-06-28
10-Q 2014-03-29 Quarter: 2014-03-29
10-Q 2013-12-28 Quarter: 2013-12-28
8-K 2019-07-30 Earnings, Exhibits
8-K 2019-05-05 Officers, Exhibits
8-K 2019-04-30 Earnings, Exhibits
8-K 2019-04-13 Officers, Exhibits
8-K 2019-01-29 Earnings, Exhibits
8-K 2018-12-06 Officers, Exhibits
8-K 2018-11-13 Officers
8-K 2018-11-06 Earnings, Exhibits
8-K 2018-10-22 Earnings, Exhibits
8-K 2018-09-25 Officers, Exhibits
8-K 2018-07-31 Earnings, Exhibits
8-K 2018-05-01 Earnings, Exhibits
8-K 2018-03-01 Shareholder Vote
8-K 2018-01-28 Amend Bylaw, Exhibits
CPA Copa Holdings 4,110
TNDM Tandem Diabetes Care 3,740
PDCE PDC Energy 2,450
CETV Central European Media Enterprises 980
TREC Trecora Resources 242
GLMD Galmed Pharmaceuticals 154
VTGN Vistagen Therapeutics 23
NTFL Nutrafuels 0
SUWN Sunwin Stevia 0
HGBL Heritage Global 0
COHR 2019-06-29
Part I. Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
EX-31.1 cohr-ex3112019q3.htm
EX-31.2 cohr-ex3122019q3.htm
EX-32.1 cohr-ex3212019q3.htm
EX-32.2 cohr-ex3222019q3.htm

Coherent Earnings 2019-06-29

COHR 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Document
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Table of Contents

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 ___________________________________________________
FORM 10-Q
 ___________________________________________________
 
(Mark One)
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 29, 2019
or
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from          to          
Commission File Number: 001-33962 
COHERENT, INC.
Delaware
 
94-1622541
(State or other jurisdiction of
 
(I.R.S. Employer
incorporation or organization)
 
Identification No.)
 
5100 Patrick Henry Drive, Santa Clara, California 95054
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (408764-4000 
___________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, $0.01 par value
COHR
The NASDAQ Stock Market LLC
 
 
Nasdaq Global Select Market
__________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes No
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  No 
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer," “accelerated filer", “smaller reporting company" and “emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer 
Non-accelerated filer
Smaller reporting company 
Emerging growth company 

1

Table of Contents

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

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

 The number of shares outstanding of registrant’s common stock, par value $.01 per share, on August 5, 2019 was 23,982,361.

2

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COHERENT, INC.

INDEX
 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


2

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
 
This quarterly report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements included in or incorporated by reference in this quarterly report, other than statements of historical fact, are forward-looking statements. These statements are generally accompanied by words such as "trend," "may," "will," could," "would," "should," "expect," "plan," "anticipate," "rely," "believe," "estimate," "predict," "intend," "potential," "continue," "outlook," "forecast" or the negative of such terms, or other comparable terminology, including without limitation statements made under "Our Strategy" and in "Management’s Discussion and Analysis of Financial Condition and Results of Operations." Forward-looking statements also include the assumptions underlying or relating to any of the foregoing statements. Actual results of Coherent, Inc. (referred to herein as the Company, we, our or Coherent) may differ significantly from those anticipated in these forward-looking statements as a result of various factors, including those discussed in the sections captioned "Our Strategy," "Risk Factors" and "Key Performance Indicators," as well as any other cautionary language in this quarterly report. All forward-looking statements included in the document are based on information available to us on the date hereof. We undertake no obligation to update these forward-looking statements as a result of events or circumstances or to reflect the occurrence of unanticipated events or non-occurrence of anticipated events, except to the extent required by law.


3

Table of Contents

PART I.  FINANCIAL INFORMATION
 
ITEM 1.  FINANCIAL STATEMENTS
 
COHERENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited; in thousands, except per share data) 
 
Three Months Ended
 
Nine Months Ended
 
 
June 29,
2019

June 30,
2018
 
June 29,
2019
 
June 30,
2018
 
Net sales
$
339,170


$
482,342

 
$
1,095,176

 
$
1,441,025

 
Cost of sales
241,167


274,006

 
717,106

 
800,236

 
Gross profit
98,003


208,336

 
378,070

 
640,789

 
Operating expenses:
 


 

 


 


 
Research and development
30,692


34,303

 
90,095

 
100,478

 
Selling, general and administrative
67,686


70,291

 
201,706

 
220,874

 
Impairment and other charges

 
611

 

 
766

 
Amortization of intangible assets
6,782


2,607

 
11,748

 
8,163

 
Total operating expenses
105,160


107,812

 
303,549

 
330,281

 
Income (loss) from operations
(7,157
)

100,524

 
74,521

 
310,508

 
Other income (expense):
 




 


 
 
 
Interest income
257


444

 
903

 
1,355

 
Interest expense
(4,974
)

(4,737
)
 
(14,794
)
 
(21,209
)
 
Other—net
331


(3,332
)
 
(3,898
)
 
(5,781
)
 
Total other income (expense), net
(4,386
)

(7,625
)
 
(17,789
)
 
(25,635
)
 
Income (loss) from continuing operations before income taxes
(11,543
)

92,899

 
56,732

 
284,873

 
Provision for (benefit from) income taxes
(8,444
)

25,929

 
3,531

 
110,698

 
Net income (loss) from continuing operations
(3,099
)

66,970

 
53,201

 
174,175

 
Loss from discontinued operations, net of income taxes



 

 
(2
)
 
Net income (loss)
$
(3,099
)

$
66,970

 
$
53,201

 
$
174,173

 
 

 
 
 

 
 
 
Net income (loss) per share:





 


 
 
 
Basic
$
(0.13
)

$
2.72

 
$
2.20

 
$
7.06

 
Diluted
$
(0.13
)

$
2.69

 
$
2.19

 
$
6.98

 






 


 
 
 
Shares used in computation:
 


 

 


 
 
 
Basic
24,054


24,658

 
24,185

 
24,684

 
Diluted
24,054

 
24,877

 
24,333

 
24,971

 
 
See Accompanying Notes to Condensed Consolidated Financial Statements.


4

Table of Contents


COHERENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited; in thousands) 

 
Three Months Ended
 
Nine Months Ended
 
June 29,
2019
 
June 30,
2018
 
June 29,
2019
 
June 30,
2018
 
 
 
 
 
 
 
 
Net income (loss)
$
(3,099
)
 
$
66,970

 
$
53,201

 
$
174,173

Other comprehensive income (loss): (1)
 
 
 
 
 
 
 
  Translation adjustment, net of taxes (2)
2,762

 
(39,283
)
 
(10,506
)
 
(17,847
)
Changes in unrealized losses on available-for-sale securities, net of taxes (3)


 
4

 

 
(4
)
Defined benefit pension plans, net of taxes (4)

(971
)
 
(504
)
 
(1,719
)
 
(701
)
  Other comprehensive income (loss), net of tax
1,791

 
(39,783
)
 
(12,225
)

(18,552
)
Comprehensive income (loss)
$
(1,308
)
 
$
27,187

 
$
40,976

 
$
155,621


(1)
Reclassification adjustments were not significant during the three and nine months ended June 29, 2019 and June 30, 2018.

(2)
Tax expenses (benefits) of $535 and $(2,911) were provided on translation adjustments during the three and nine months ended June 29, 2019, respectively. Tax expenses (benefits) were not provided on translation adjustments during the three and nine months ended June 30, 2018

(3)
Tax expenses (benefits) were not provided on changes in unrealized losses on available-for-sale securities for the three and nine months ended June 29, 2019, respectively. Tax expenses (benefits) of $1 and $(2) were provided on changes in unrealized losses on available-for-sale securities for the three and nine months ended June 30, 2018, respectively.

(4)
Tax benefits of $322 and $605 were provided on changes in defined benefit pension plans for the three and nine months ended June 29, 2019, respectively. Tax benefits of $224 and $279 were provided on changes in defined benefit pension plans for the three and nine months ended June 30, 2018, respectively.





See Accompanying Notes to Condensed Consolidated Financial Statements.

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COHERENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited; in thousands, except par value)
 
June 29,
2019
 
September 29,
2018
ASSETS
 

 
 

Current assets:
 

 
 

Cash and cash equivalents
$
316,458

 
$
310,495

Restricted cash
825


858

Short-term investments
2,115

 
120

Accounts receivable—net of allowances of $7,148 and $4,568, respectively
269,057

 
355,208

Inventories
469,486

 
486,741

Prepaid expenses and other assets
87,372

 
85,080

Total current assets
1,145,313

 
1,238,502

Property and equipment, net
323,974

 
311,793

Goodwill
439,139

 
442,940

Intangible assets, net
101,614

 
142,293

Non-current restricted cash
12,486


12,692

Other assets
114,132

 
111,749

Total assets
$
2,136,658

 
$
2,259,969

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY
 

 
 

Current liabilities:
 

 
 

Short-term borrowings and current-portion of long-term obligations
$
45,283


$
5,072

Accounts payable
62,954

 
70,292

Income taxes payable
11,219

 
114,145

Other current liabilities
169,058

 
183,329

Total current liabilities
288,514

 
372,838

Long-term obligations
409,836

 
420,711

Other long-term liabilities
137,097

 
151,956

Commitments and contingencies (Note 12)


 


Stockholders' equity:
 

 
 

Common stock, Authorized—500,000 shares, par value $.01 per share:
 

 
 

Outstanding—23,982 shares and 24,299 shares, respectively
238

 
242

Additional paid-in capital
24,475

 
78,700

Accumulated other comprehensive income (loss)
(9,392
)
 
2,833

Retained earnings
1,285,890

 
1,232,689

Total stockholders’ equity
1,301,211

 
1,314,464

Total liabilities and stockholders’ equity
$
2,136,658

 
$
2,259,969


See Accompanying Notes to Condensed Consolidated Financial Statements.

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COHERENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED JUNE 30, 2018
(Unaudited; in thousands)


 
Common
Stock
Shares
 
Common
Stock
Par
Value
 
Add.
Paid-in
Capital
 
Accum.
Other
Comp.
Income (Loss)
 
Retained
Earnings
 
Total
Balances, September 30, 2017
24,631

 
$
245

 
$
171,403

 
$
19,906

 
$
971,710

 
$
1,163,264

Common stock issued under stock plans, net of shares withheld for employee taxes
191

 
2

 
(30,749
)
 

 

 
(30,747
)
Cumulative effect of change in accounting principle

 

 

 

 
13,621

 
13,621

Stock-based compensation

 

 
7,110

 

 

 
7,110

Net income

 

 

 

 
41,901

 
41,901

Other comprehensive income, net of tax

 

 

 
232

 

 
232

Balances, December 30, 2017
24,822

 
247

 
147,764

 
20,138

 
1,027,232

 
1,195,381

Common stock issued under stock plans, net of shares withheld for employee taxes
12

 

 
(604
)
 

 

 
(604
)
Stock-based compensation

 

 
8,603

 

 

 
8,603

Net income

 

 

 

 
65,302

 
65,302

Other comprehensive income, net of tax

 

 

 
20,999

 

 
20,999

Balances, March 31, 2018
24,834

 
247

 
155,763

 
41,137

 
1,092,534

 
1,289,681

Common stock issued under stock plans, net of shares withheld for employee taxes
40

 

 
5,632

 

 

 
5,632

Repurchase of common stock
(575
)
 
(5
)
 
(99,994
)
 

 

 
(99,999
)
Stock-based compensation

 

 
8,650

 

 

 
8,650

Net income

 

 

 

 
66,970

 
66,970

Other comprehensive loss, net of tax

 

 

 
(39,783
)
 

 
(39,783
)
Balances, June 30, 2018
24,299

 
$
242

 
$
70,051

 
$
1,354

 
$
1,159,504

 
$
1,231,151





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COHERENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED JUNE 29, 2019
(Unaudited; in thousands)


 
Common
Stock
Shares
 
Common
Stock
Par
Value
 
Add.
Paid-in
Capital
 
Accum.
Other
Comp.
Income (Loss)
 
Retained
Earnings
 
Total
Balances, September 29, 2018
24,299

 
$
242

 
$
78,700

 
$
2,833

 
$
1,232,689

 
$
1,314,464

Common stock issued under stock plans, net of shares withheld for employee taxes
223

 
2

 
(9,141
)
 

 

 
(9,139
)
Repurchase of common stock
(195
)
 
(2
)
 
(25,499
)
 

 

 
(25,501
)
Stock-based compensation

 

 
7,791

 

 

 
7,791

Net income

 

 

 

 
35,550

 
35,550

Other comprehensive loss, net of tax

 

 

 
(5,682
)
 

 
(5,682
)
Balances, December 29, 2018
24,327

 
242

 
51,851

 
(2,849
)
 
1,268,239

 
1,317,483

Common stock issued under stock plans, net of shares withheld for employee taxes
10

 

 
(298
)
 

 

 
(298
)
Repurchase of common stock
(200
)
 
(2
)
 
(25,903
)
 

 

 
(25,905
)
Stock-based compensation

 

 
9,086

 

 

 
9,086

Net income

 

 

 

 
20,750

 
20,750

Other comprehensive loss, net of tax

 

 

 
(8,334
)
 

 
(8,334
)
Balances, March 30, 2019
24,137

 
240

 
34,736

 
(11,183
)
 
1,288,989

 
1,312,782

Common stock issued under stock plans, net of shares withheld for employee taxes
54

 

 
6,081

 

 

 
6,081

Repurchase of common stock
(209
)
 
(2
)
 
(26,002
)
 

 

 
(26,004
)
Stock-based compensation

 

 
9,660

 

 

 
9,660

Net loss

 

 

 

 
(3,099
)
 
(3,099
)
Other comprehensive income, net of tax

 

 

 
1,791

 

 
1,791

Balances, June 29, 2019
23,982

 
$
238

 
$
24,475

 
$
(9,392
)
 
$
1,285,890

 
$
1,301,211






See Accompanying Notes to Condensed Consolidated Financial Statements.


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COHERENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; in thousands)
 
Nine Months Ended
 
 
June 29,
2019

June 30,
2018
 
Cash flows from operating activities:
 

 
 

 
Net income
$
53,201

 
$
174,173

 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 

 
Depreciation and amortization
41,462

 
38,735

 
Amortization of intangible assets
47,725

 
45,638

 
Deferred income taxes
(8,209
)
 
18,380

 
Amortization of debt issuance cost
3,810

 
8,251

 
Stock-based compensation
26,535

 
24,069

 
Non-cash restructuring charges
12,121

 
964

 
Other non-cash expense (income)
(2,498
)
 
194

 
Changes in assets and liabilities, net of effect of acquisitions:
 

 
 

 
Accounts receivable
85,090

 
(27,520
)
 
Inventories
1,719

 
(84,867
)
 
Prepaid expenses and other assets
8,327

 
(7,712
)
 
Other long-term assets
1,661

 
(5,369
)
 
Accounts payable
(5,218
)
 
3,484

 
Income taxes payable/receivable
(115,413
)
 
9,720

 
Other current liabilities
(16,737
)
 
(69,634
)
 
Other long-term liabilities
1,788

 
4,487

 
Net cash provided by operating activities
135,364

 
132,993

 
 
 
 
 
 
Cash flows from investing activities:
 

 
 

 
Purchases of property and equipment
(60,511
)
 
(65,990
)
 
Proceeds from dispositions of property and equipment
5,228

 
2,738

 
Purchases of available-for-sale securities
(11,552
)
 
(54,323
)
 
Proceeds from sales and maturities of available-for-sale securities
9,557

 
86,787

 
Acquisition of businesses, net of cash acquired
(18,881
)
 
(45,448
)
 
Investment at cost
(3,423
)
 

 
Proceeds from sale of discontinued operation

 
25,000

 
Proceeds from sale of other entities

 
6,250

 
Other

 
470

 
Net cash used in investing activities
(79,582
)
 
(44,516
)
 
 
 
 
 
 
Cash flows from financing activities:
 

 
 

 
Short-term borrowings
107,054

 
64,815

 
Repayments of short-term borrowings
(68,720
)
 
(65,718
)
 
Repayments of long-term borrowings
(5,686
)
 
(169,286
)
 
Issuance of common stock under employee stock option and purchase plans
11,811

 
10,574

 
Net settlement of restricted common stock
(15,167
)
 
(36,292
)
 
Repurchase of common stock
(77,410
)
 
(100,000
)
 
Net cash used in financing activities
(48,118
)
 
(295,907
)
 
Effect of exchange rate changes on cash, cash equivalents and restricted cash
(1,940
)
 
(3,379
)
 
Net increase (decrease) in cash, cash equivalents and restricted cash
5,724


(210,809
)
 
Cash, cash equivalents and restricted cash, beginning of period
324,045

 
457,087

 
Cash, cash equivalents and restricted cash, end of period
$
329,769

 
$
246,278

 
 
 
 
 
 
Non-cash investing and financing activities:
 
 
 
 
  Unpaid property and equipment purchases
$
4,985

 
$
5,353

 

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets that sum to the total of the same amounts shown in the condensed consolidated statements of cash flows.
 
June 29,
2019
 
June 30,
2018
Cash and cash equivalents
$
316,458

 
$
232,458

Restricted cash, current
825

 
1,082

Restricted cash, non-current
12,486

 
12,738

Total cash, cash equivalents, and restricted cash shown in the condensed consolidated statement of cash flows
$
329,769

 
$
246,278


See Accompanying Notes to Condensed Consolidated Financial Statements.

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COHERENT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
1.    BASIS OF PRESENTATION
 
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 29, 2018. 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 third fiscal quarter includes 13 weeks of operations in each fiscal year presented. Fiscal year 2019 and 2018 both include 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.

On October 5, 2018, we acquired privately held Ondax, Inc. ("Ondax"). On March 8, 2018, we acquired privately held O.R. Lasertechnologie GmbH and certain assets of its U.S.-based affiliate (collectively "OR Laser"). The significant accounting policies of Ondax and OR Laser have been aligned to conform to those of Coherent, and the consolidated financial statements include the results of Ondax and OR Laser as of their acquisition dates.

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.

Change in Significant Accounting Policies - Revenue Recognition

Except for the adoption of Accounting Standard Update ("ASU") 2014-09, Revenue from Contracts with Customers ("ASC 606") on September 30, 2018, there have been no significant changes to our significant accounting policies as of and for the nine months ended June 29, 2019, as compared to the significant accounting policies described in our Annual Report on Form 10-K for the year ended September 29, 2018.

Effective September 30, 2018, we adopted ASC 606, using the modified retrospective transition method applied to contracts that were not completed as of September 30, 2018. Revenue for the reporting periods after September 30, 2018 are presented under ASC 606, while prior period amounts are reported in accordance with our historical accounting under ASC 605. There was no impact on the opening accumulated retained earnings, revenues, costs, deferred income, customer deposits or other balances as of September 30, 2018 or the three and nine months ended June 29, 2019 due to the adoption of ASC 606.

Under ASC 606, we determine revenue recognition by applying the following five-step approach:
Step 1
Identification of the contract, or contracts, with a customer;

Step 2
Identification of the performance obligations in the contract;

Step 3
Determination of the transaction price;

Step 4
Allocation of the transaction price to the performance obligations in the contract; and

Step 5
Recognition of revenue when, or as, we satisfy each performance obligation.


Contracts and customer purchase orders, which in some cases are governed by master sales agreements, are generally used to determine the existence of an arrangement. In addition, shipping documents and customer acceptance, if applicable, are used to verify delivery and transfer of control. Performance obligations are identified based on the products or services that will be transferred to the customer that are considered distinct. Being distinct is defined as products or services that the

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customer can benefit from either on its own or together with other resources that are readily available from third parties or from us, and by the product or service being separately identifiable from other promises in the contract. We assess our ability to collect from our customers based primarily on the creditworthiness and past payment history of each customer. Revenue from all sales are recognized at the transaction price. The transaction price is determined based on the consideration to which we will be entitled in exchange for transferring goods or services to the customer adjusted for estimated variable consideration, if any. The consideration associated with customer contracts is generally fixed. Variable consideration includes discounts, rebates, credits and incentives, or other similar items. The amount of consideration that can vary is not a substantial portion of the total consideration. Variable consideration estimates are re-assessed at each reporting period until a final outcome is determined. Changes to the original transaction price due to a change in estimated variable consideration are calculated on a retrospective basis, with the adjustment recorded in the period in which the change occurs.

Sales to customers are generally not subject to any price protection or return rights. Accordingly, upon application of steps one through five above, product revenue is recognized upon shipment and transfer of control. The majority of products and services offered by us have readily observable selling prices. As a part of our stand-alone selling price policy, we review product pricing on a periodic basis to identify any significant changes and revise our expected selling price assumptions as appropriate.

We record taxes collected on revenue-producing activities on a net basis.
    
Revenue recognition at a point in time

Revenues recognized at a point in time consist primarily of product, installation and training. The majority of our sales are made to original equipment manufacturers ("OEMs"), distributors, representatives and end-users. Sales made to customers generally do not require installation of the products by us and are not subject to other post-delivery obligations. Sales to end-users in the scientific market typically require installation by us and, thus, involve post-delivery obligations; however, our post-delivery installation obligations are not essential to the functionality of our products and represent a separate performance obligation. We recognize revenue for these sales following the transfer of control of such products to the customer, which typically occurs upon shipment or delivery depending on the terms of the underlying contracts. In those instances that we have agreed to perform installation or provide training, we defer revenue related to installation or training until these services have been rendered.

Our sales to distributors, representatives and end-user customers typically do not have customer acceptance provisions and only certain of our sales to OEM customers and integrators have customer acceptance provisions. Customer acceptance is generally limited to performance under our published product specifications. For the few product sales that have customer acceptance provisions because of more advanced performance than our published specifications, the revenue is recognized when the control transfers or the revenue is deferred until customer acceptance occurs.

Revenue recognition over time

We periodically enter into contracts in which a customer may purchase a combination of goods and/or services, such as products with maintenance contracts or extended warranty. These contracts are evaluated to determine if the multiple promises are separate performance obligations. Once we determine the performance obligations, we then determine the transaction price, which includes estimating the amount of variable consideration, if any. We then allocate the transaction price to each performance obligation in the contract based on a relative stand-alone selling price charged separately to customers. Extended warranties are sold separately from products and represent a distinct performance obligation. Revenue related to the performance obligation for extended warranties is recognized over time as the customer simultaneously receives and consumes the benefits provided by us.

Customized products, for which we have an enforceable right to payment for performance completed to date, are recorded over time. We use the output method to recognize revenue over time for such contracts as it best depicts the satisfaction of our performance obligations.

Shipping and handling costs

We record costs related to shipping and handling of net sales in cost of sales for all periods presented. Shipping and handling fees billed to customers are included in net sales. Customs duties billed to customers are recorded in cost of sales.

Warranty

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We provide warranties on the majority of our product sales and reserves for estimated warranty costs are recorded during the period of sale. These standard warranties are assurance type warranties and do not offer any services beyond the assurance that the product will continue working as specified. Therefore, these warranties are not considered separate performance obligations in the arrangement. Instead, the expected cost of the warranty is accrued as an expense. The determination of such reserves requires us to make estimates of product return rates and expected costs to repair or replace the products under warranty. We currently establish warranty reserves based on historical warranty costs for each product line. The weighted average warranty period covered is approximately 15 months. If actual return rates and/or repair and replacement costs differ significantly from our estimates, adjustments to cost of sales may be required in future periods.

Costs of obtaining a contract

We recognize the incremental direct costs of obtaining a contract from a customer as an expense, which primarily includes sales commissions. Sales commissions are recorded at a point of time when control of the product transfers or over a period of time when sales commission provided is expected to be recovered through future services. The costs are recorded within selling, general and administrative expense. Costs incurred prior to the transfer of control of the product to the customer and costs to be amortized over a future period are classified as a prepaid asset and are included in prepaid expenses and other assets. Upon adoption of ASC 606, we determined there was an immaterial impact on sales commissions, therefore, we did not record a transition adjustment on adoption.

Payment terms

Our standard payment terms are 30 days but vary by the industry and location of the customer and the products or services offered. The time between invoicing and when payment is due is not significant. As our standard payment terms are less than one year, we have elected the practical expedient under ASC 606-10-32-18 and therefore are not required to assess whether each contract has a significant financing component.

Customer deposits and deferred revenue

When we receive consideration from a customer prior to transferring goods or services under the terms of a sales contract, we record customer deposits or deferred revenue, depending on whether or not the product has shipped to the customer, which are included in other current liabilities or other long-term liabilities when the payment is made or due, whichever is earlier. We recognize deferred revenue as net sales after control of the goods or services has been transferred to the customer and all revenue recognition criteria are met.


2.    RECENT ACCOUNTING STANDARDS

Adoption of New Accounting Pronouncement

We adopted ASC 606 and all related amendments as of September 30, 2018 using the modified retrospective transition method applied to contracts that were not completed as of September 29, 2018 and all new contracts entered into by us subsequent to September 29, 2018. All prior period financial statements and disclosures are presented in accordance with ASC 605. We concluded that the adoption of the new standard did not have a material impact on the timing or amount of revenue recognized as the majority of our sales are not bundled. Therefore, revenue will be recorded at the point-in-time when control transfers, which is consistent with the timing of revenue recognition under ASC 605. See Note 1, "Basis of Presentation" and Note 3, "Revenue Recognition" to the Notes to Condensed Consolidated Financial Statements for more information.

In August 2018, the SEC adopted amendments to certain disclosure requirements in Securities Act Release No. 33-10532, Disclosure Update and Simplification. The amendments became effective on November 5, 2018. The SEC staff subsequently indicated that it would not object if a filer’s first presentation of changes in shareholders’ equity is included in its Form 10-Q for the quarter that begins after the final rule’s effective date. Among the amendments is the requirement to present the changes in shareholders’ equity in the interim financial statements (either in a separate statement or footnote) in quarterly reports on Form 10-Q. The analysis should present a reconciliation of the beginning balance to the ending balance of each period for which a consolidated statement of operations is required to be filed. We adopted this amendment and included the first presentation of changes in stockholders’ equity in our quarterly report on Form 10-Q for our first quarter of fiscal 2019.


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Recently Issued Accounting Pronouncements

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. The new standard will become effective for our fiscal year 2020, which begins on September 29, 2019. We will adopt the new guidance utilizing the modified retrospective transition method. We have reviewed the requirements of this standard and have formulated a plan for implementation. We continue to implement internal controls and key system functionality to enable the preparation of financial information. We currently estimate that the adoption of the standard will result in the recognition of $90 million to $100 million in lease related right-of-use assets and liabilities on our consolidated balance sheet, primarily related to real estate leases. The estimate could change as we finalize estimates and proceed towards implementation of the standard and will also fluctuate based on the lease portfolio, discount rates and foreign currency exchange rates as of the adoption date. We expect the standard will not have a material impact on our consolidated statements of operations.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments and a subsequent amendment, ASU 2018-19 (collectively, Topic 326). Topic 326 requires measurement and recognition of expected credit losses for financial assets held. The new standard will become effective for our fiscal year 2021, which begins on October 4, 2020. We are currently evaluating the impact of our pending adoption of Topic 326 on our consolidated financial statements.


3.     REVENUE RECOGNITION
Disaggregation of Revenue

Based on the information that our chief operating decision maker ("CODM") uses to manage the business, we disaggregate revenue by type and market application within each segment. No other level of disaggregation is required considering the type of products, customers, markets, contracts, duration of contracts, timing of transfer of control and sales channels.

The following tables summarize revenue from contracts with customers (in thousands):

Sales by revenue type and segment
 
Three Months Ended
 
June 29, 2019

June 30, 2018
 
OEM Laser Sources
 
Industrial Lasers & Systems
 
OEM Laser Sources
 
Industrial Lasers & Systems
Net sales:
 
 
 
 
 
 
 
Products(1)
$
115,992

 
$
104,784

 
$
226,370

 
$
134,693

Other product and service revenues(2)
90,293

 
28,101

 
89,168

 
32,111

Total net sales
$
206,285

 
$
132,885

 
$
315,538

 
$
166,804

(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 $14.1 million for the three months ended June 29, 2019 was recognized over time.

 
Nine Months Ended
 
June 29, 2019
 
June 30, 2018
 
OEM Laser Sources
 
Industrial Lasers & Systems
 
OEM Laser Sources
 
Industrial Lasers & Systems
Net sales:
 
 
 
 
 
 
 
Products(1)
$
412,629

 
$
329,537

 
$
677,762

 
$
381,619

Other product and service revenues(2)
267,601

 
85,409

 
280,571

 
101,073

Total net sales
$